<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1998
REGISTRATION NO. 333-60355
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
(Exact name of co-registrant as specified in its charter)
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MARYLAND 84-1275621
DELAWARE 84-1259577
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
1873 SOUTH BELLAIRE STREET, 17TH FLOOR PETER KOMPANIEZ
DENVER, COLORADO 80222 PRESIDENT
(303) 757-8101 1873 SOUTH BELLAIRE STREET, 17TH FLOOR
DENVER, COLORADO 80222
(303) 757-8101
FAX: (303) 753-9538
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of co-registrants' principal number,
executive offices) including area code, of agent for service)
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Copy to:
JONATHAN L. FRIEDMAN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
FAX: (213) 687-5600
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Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and if there is compliance
with General Instruction G, check the following box. [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2)
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Preferred Stock, par value $.01
per share(3)....................
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Class A Common Stock, par value
$.01 per share(3)...............
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Partnership Preferred Units(4).... $200,000,000 $200,000,000
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Partnership Common Units(4)....... $200,000,000 $200,000,000
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Total.................... $1,000,000,000 (1) $1,000,000,000 $295,000
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(1) To be determined, from time to time, by the Registrants in connection with
the issuance of the securities registered hereunder.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
(3) To be issued by Apartment Investment and Management Company ("AIMCO"). The
amount of such securities registered hereby includes (i) shares of Preferred
Stock and Class A Common Stock of AIMCO issuable in exchange for Partnership
Preferred Units or Partnership Common Units of AIMCO Properties, L.P.
tendered for redemption pursuant to the agreement of limited partnership of
AIMCO Properties, L.P., plus such additional number of shares of Preferred
Stock and Class A Common Stock as may be issuable pursuant to the
antidilution adjustment provisions of such agreement and (ii) shares of
Class A Common Stock of AIMCO issuable upon conversion of shares of
Preferred Stock of AIMCO. In no event will the aggregate maximum offering
price of all securities registered under this Registration Statement by
AIMCO exceed $600,000,000.
(4) To be issued by AIMCO Properties, L.P.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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EXPLANATORY NOTE
This filing includes (i) a base prospectus to be used for the offering and
issuance of securities in connection with acquisitions of businesses,
properties, securities or other assets reflecting certain changes, (ii) two
amended prospectus supplements relating to exchange offers for units of limited
partnership interest in Shannon Manor Apartments, a Limited Partnership and
Woodmere Associates, L.P., (iii) a form of a Letter of Transmittal and (iv) a
form of Cover Letter to the holders of the partnership units.
In accordance with Rule 472(b) the Registrants have not refiled the 88
prospectus supplements filed with Amendment Numbers 3 and 4 since no changes
have yet been made to such prospectus supplements. The 88 prospectus supplements
filed with Amendment Numbers 3 and 4 continue to remain part of this
Registration Statement and will be refiled with future Amendments when changes
are made to a particular prospectus supplement.
Angeles Income Properties, Ltd. II
Angeles Income Properties, Ltd. III
Angeles Income Properties, Ltd. IV
Angeles Income Properties, Ltd. 6
Angeles Opportunity Properties, Ltd.
Angeles Partners VII
Angeles Partners VIII
Angeles Partners IX
Angeles Partners X
Angeles Partners XI
Angeles Partners XII
Angeles Partners XIV
Baywood Partners, Ltd.
Brampton Associates Partnership
Buccaneer Trace Limited Partnership
Burgundy Court Associates, L.P.
Calmark/Fort Collins, Ltd.
Calmark Heritage Park II Ltd.
Casa Del Mar Associates Limited Partnership
Catawba Club Associates, L.P.
Cedar Tree Investors Limited Partnership
Century Properties Fund XVI
Century Properties Fund XVIII
Century Properties Fund XIX
Century Properties Growth Fund XXII
Chapel Hill, Limited
Chestnut Hill Associates Limited Partnership
Coastal Commons Limited Partnership
Consolidated Capital Institutional Properties/2
Consolidated Capital Institutional Properties/3
Consolidated Capital Properties III
Consolidated Capital Properties IV
Consolidated Capital Properties V
Consolidated Capital Properties VI
DFW Apartment Investors Limited Partnership
DFW Residential Investors Limited Partnership
Davidson Diversified Real Estate I, L.P.
Davidson Diversified Real Estate II, L.P.
Davidson Diversified Real Estate III, L.P.
Davidson Growth Plus, L.P.
Davidson Income Real Estate, L.P.
Drexel Burnham Lambert Real Estate Associates II
Four Quarters Habitat Apartment Associates, Ltd.
Fox Strategic Housing Income Partners
Georgetown of Columbus Associates, L.P.
HCW Pension Real Estate Fund Limited
Partnership
Investors First-Staged Equity
Johnstown/Consolidated Income Partners
La Colina Partners, Ltd.
Lake Eden Associates, L.P.
Landmark Associates, L.P.
Minneapolis Associates II Limited Partnership
Multi-Benefit Realty Fund '87-1-Class A
Multi-Benefit Realty Fund '87-1-Class B
National Property Investors 8
Northbrook Apartments, Ltd.
Olde Mill Investors Limited Partnership
Orchard Park Apartments Limited Partnership
Park Town Place Associates Limited Partnership
Quail Run Associates, L.P.
Ravensworth Associates Limited Partnership
Rivercreek Apartments Limited Partnership
Rivercrest Apartments, Limited
Riverside Park Associates L.P.
Salem Arms of Augusta Limited Partnership
Shaker Square, L.P.
Sharon Woods, L.P.
Shelter Properties III
Shelter Properties VI
Shelter Properties VII Limited Partnership
Snowden Village Associates, L.P.
Springhill Lake Investors Limited Partnership
Sturbrook Investors, Ltd.
Sycamore Creek Associates, L.P.
Texas Residential Investors Limited Partnership
Thurber Manor Associates, Limited Partnership
U.S. Realty Partners Limited Partnership
United Investors Growth Properties
United Investors Growth Properties II
United Investors Income Properties
Villa Nova, Limited Partnership
Walker Springs, Limited
Wingfield Investors Limited Partnership
Winrock-Houston Limited Partnership
Winthrop Apartment Investors Limited Partnership
Winthrop Growth Investors 1 Limited Partnership
Winthrop Texas Investors Limited Partnership
Woodmere Associates, L.P.
Yorktown Towers Associates
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
IN EXCHANGE FOR YOUR CHOICE OF:
18.09 OF OUR 8.0% PARTNERSHIP PREFERRED UNITS;
OF OUR PARTNERSHIP COMMON UNITS; OR
$452.35 IN CASH.
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GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF 25% OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE
PRORATION PERIOD WILL EXPIRE AT 5:00 P.M.,
OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON ,
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE.
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
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SEE "RISK FACTORS" BEGINNING ON PAGE S-25 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, our offer consideration may not reflect the
fair market value of your units. It is possible that if the offer is not
successful, we may revise or terminate the offer or conduct a subsequent
offer at a higher or lower price.
- Your general partner is an affiliate of ours and, therefore, has
substantial conflicts of interest with respect to our offer. We are
making this offer with a view to making a profit, and therefore, there is
a conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price. Consequently, there are
substantial conflicts of interest between you and us.
- If we acquire units in your partnership, we will increase our ability to
influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties. In the future, the
property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
November , 1998
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TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-4
The AIMCO Operating Partnership.............. S-4
The Offer.................................... S-4
Risk Factors................................. S-4
Background and Reasons for the Offer......... S-9
Terms of the Offer........................... S-11
Certain Federal Income Tax Matters........... S-13
Valuation of Units........................... S-14
Fairness of the Offer........................ S-15
Stanger Analysis............................. S-15
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-16
Comparison of Your Units and AIMCO OP
Units...................................... S-16
Conflicts of Interest........................ S-16
Your Partnership............................. S-16
Source and Amount of Funds and Transactional
Expenses................................... S-17
Summary Financial Information of AIMCO
Properties, L.P............................ S-18
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-20
Summary Financial Information of Shannon
Manor Apartments, a Limited Partnership.... S-23
Comparative Per Unit Data.................... S-23
THE AIMCO OPERATING PARTNERSHIP................ S-24
RISK FACTORS................................... S-24
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-25
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-26
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-27
BACKGROUND AND REASONS FOR THE OFFER........... S-28
Background of the Offer...................... S-28
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-43
Accounting Treatment......................... S-43
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CERTAIN FEDERAL INCOME TAX MATTERS............. S-44
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-44
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-44
Tax Consequences of Exchanging Units Solely
for Cash................................... S-45
Adjusted Tax Basis........................... S-45
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-46
Passive Activity Losses...................... S-46
Foreign Offerees............................. S-47
VALUATION OF UNITS............................. S-48
FAIRNESS OF THE OFFER.......................... S-50
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-50
Fairness to Unitholders who Tender their
Units...................................... S-51
Fairness to Unitholders who do not Tender
their Units................................ S-51
Comparison of Consideration to Alternative
Consideration.............................. S-51
Allocation of Consideration.................. S-53
STANGER ANALYSIS............................... S-53
Experience of Stanger........................ S-53
Summary of Materials Considered.............. S-53
Summary of Reviews........................... S-54
Conclusions.................................. S-55
Assumptions, Limitations and
Qualifications............................. S-55
Compensation and Material Relationships...... S-56
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-57
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64
DESCRIPTION OF PREFERRED OP UNITS.............. S-70
General...................................... S-70
Ranking...................................... S-70
Distributions................................ S-70
Allocation................................... S-71
Liquidation Preference....................... S-71
Redemption................................... S-72
Voting Rights................................ S-72
Restrictions on Transfer..................... S-72
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-73
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-75
CONFLICTS OF INTEREST.......................... S-79
Conflicts of Interest with Respect to the
Offer...................................... S-79
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-79
Competition Among Properties................. S-79
Features Discouraging Potential Takeovers.... S-79
Future Exchange Offers....................... S-79
YOUR PARTNERSHIP............................... S-80
General...................................... S-80
History of the Partnership................... S-81
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General Policy Regarding Sales and
Refinancings of Partnership Properties..... S-81
Property Management.......................... S-81
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-81
Distributions and Transfers of Units......... S-82
Beneficial Ownership of Interests in Your
Partnership................................ S-82
Compensation Paid to the General Partner and
its Affiliates............................. S-82
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-87
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LEGAL MATTERS.................................. S-88
EXPERTS........................................ S-88
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT
INVESTMENT AND MANAGEMENT COMPANY AND
AIMCO-GP, INC. .............................. B-1
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ii
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Shannon Manor Apartments, a Limited Partnership. For each unit that you
tender, you may choose to receive 18.09 of our 8.0% Partnership Preferred
Units (also referred to as "Preferred OP Units"), of our Partnership
Common Units (also referred to as "Common OP Units"), or $452.35 in cash
(subject, in each case to adjustment for any distributions paid to you
during the offer period). If you like, you can choose to keep any or all of
your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 31, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 386,430 apartment units in
2,240 properties located in 49 states, the District of Columbia and Puerto
Rico. As of September 30, 1998, AIMCO had total assets of $3,121.9 million,
total debt of $1,275.4 million and stockholders' equity of $1,521.5
million. On a pro forma basis, giving effect to our recently completed
merger with Insignia Financial Group, Inc. and related transactions, as of
September 30, 1998, AIMCO had total assets of $4,389.4 million, total debt
of $1,627.0 million and stockholders' equity of $2,074.3 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired a majority ownership interest in AmReal Corporation, the
managing general partner of your partnership (the "general partner") and
the company that manages the property owned by your partnership.
Q: WHAT IS THE HISTORY OF YOUR PARTNERSHIP?
A: Your partnership was formed on December 22, 1972 and sold limited
partnership units in 1982. Between January 1, 1993 and September 30, 1998
your partnership made a total of $2.50 of distributions per unit. Your
partnership currently owns a single apartment property.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE PREFERRED OP UNITS?
A: Preferred OP Units are a class of our Partnership Preferred Units.
Preferred OP Units are not listed on any national securities exchange nor
quoted on NASDAQ. There is no active trading market for Preferred OP Units
and none is likely to develop because they are subject to restrictions on
transfer. The holders of the Preferred OP Units must hold such units for
one year, subject to certain exceptions. However, after a one-year holding
period, a holder of Preferred OP Units may redeem his or her units for
shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common
Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's
Class I Preferred Stock is expected to be, listed and traded on the NYSE.
S-1
<PAGE> 7
Q: WHAT ARE COMMON OP UNITS?
A: The Common OP Units are our Partnership Common Units. Common OP Units are
not listed on any national securities exchange nor quoted on the NASDAQ
System. There is no active trading market for Common OP Units and none is
likely to develop because they are subject to restrictions on transfer. The
holders of the Common OP Units must hold such units for one year, subject
to certain exceptions. However, after a one-year holding period, a holder
of Common OP Units may redeem his or her units for shares of AIMCO's Class
A Common Stock (on a one-for-one basis, subject to adjustment in certain
circumstances) or, at our option, an equivalent amount of cash. AIMCO's
Class A Common Stock is listed and traded on the NYSE under the symbol
"AIV."
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, the market for
your units may be limited.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire interests in your partnership, we will increase our
ability to influence voting decisions with respect to your partnership.
Q: WHAT ARE MY UNITS WORTH?
A: Your general partner (which is our affiliate) has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on NASDAQ,
and there is no established trading market for your units. Secondary sales
activity for the units has been limited and sporadic. Your general partner
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sales transactions in the units have been
effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF PREFERRED OP UNITS TO BE OFFERED IN
EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $25 liquidation preference
of the Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF COMMON OP UNITS TO BE OFFERED IN
EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents the
average closing price of the AIMCO Class A Common Stock on the NYSE for the
20 trading days prior to , 1998.
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER
CONSIDERATION?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner (which is our affiliate). Stanger is one of the leaders in the
field of analyzing and
S-2
<PAGE> 8
evaluating complex real estate transactions. However, we provided much of
the information used by Stanger in evaluating our offer. We believe that
the information we provided to Stanger is accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Preferred OP Units, Common OP Units, cash
or a combination. Third, if you do want to tender any of your units, you
should fill out the Letter of Transmittal that accompanies these materials
and send it to the Information Agent listed on the back cover of this
Prospectus Supplement.
Q: ARE THERE ANY RESTRICTIONS ON THE NUMBER OF UNITS I MAY TENDER?
A: No.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE PREFERRED OP
UNITS, COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Preferred OP Units, Common OP
Units or cash to which you are entitled. However, we reserve the right to
extend, terminate or amend the offer and, under certain circumstances, to
delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent listed on the back
cover of this Prospectus Supplement.
S-3
<PAGE> 9
SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Through
wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns
approximately an 90% interest in, the AIMCO Operating Partnership. As of October
31, 1998, our portfolio of owned or managed properties included 386,430
apartment units in 2,240 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 31, 1998, we:
- owned or controlled 62,955 units in 241 apartment properties;
- held an equity interest in 168,746 units in 897 apartment properties; and
- managed 154,729 units in 1,102 apartment properties for third party
owners and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
AFFILIATION WITH YOUR GENERAL PARTNER
As a result of our October 1, 1998 merger with Insignia Financial Group,
Inc., we acquired a majority ownership interest in the general partner (which is
our affiliate) of your partnership and the company that manages the property
owned by your partnership.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- 18.09 of our Preferred OP Units;
- of our Common OP Units; or
- $452.35 in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of 25% of the outstanding units in response
to our offer. If more units are tendered to us, we will generally accept units
on a pro rata basis according to the number of units tendered by each person.
Our offer is not subject to any minimum number of units being tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-25 of this Prospectus Supplement and on page 2 of the
accompanying Prospectus. The following highlights some of the
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risks associated with our offer and the potential disadvantages of the offer to
you and should be considered when you review "Summary -- Background and Reasons
for the Offer -- Expected Benefits of the Offer":
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view. It is possible that if the offer is not successful, we may revise or
terminate the offer or conduct a subsequent offer at a higher or lower price.
Such a decision will depend, among other things, on the performance of the
partnership, prevailing interest rates, and our interest in acquiring additional
limited partnership interests.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly, you
might receive more value if you retain your units until your partnership is
liquidated. However, you may prefer to receive the offer consideration now
rather than wait for uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
In addition, if there is a sale or exchange of 50% or more of the total
interest in capital and profits of your partnership within any 12-month period,
including sales or exchanges resulting from the offer, your partnership will
terminate for Federal income tax purposes. Any such termination may, among other
things, subject the assets of your partnership to longer depreciable lives than
those currently applicable to the assets of your partnership. This would
generally decrease the annual average depreciation deductions allocable to you
if you do not tender all of your units (thereby increasing the taxable income
allocable to your units each year), but would have no effect on the total
depreciation deductions available over the useful lives of the assets of your
partnership. Any such termination may also change (and possibly shorten) your
holding period with respect to your units that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in
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light of your specific circumstances or if you are subject to special treatment
under the Internal Revenue Code of 1986, as amended. The particular tax
consequences of the offer to you will depend upon a number of factors related to
your individual tax situation, including your tax basis in your units, whether
you dispose of all of your units in your partnership, and whether the "passive
loss" rules apply to your investments. Because the income tax consequences of an
exchange of units will not be the same for everyone, you should consult your tax
advisor before determining whether to tender your units pursuant to our offer.
In determining the amount of units to tender for, we took into account the
number of units transferred in the past twelve months so as to allow for other
transfers without crossing the 50% threshold. It is possible that beginning
twelve months after the closing of this offer, or possibly earlier, we may make
another offer for your units and such offer may or may not be at a higher price.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner (which is our affiliate) has no present
intention to liquidate or sell your partnership's property or prepay the current
mortgage on the property within any specified time period, any such action in
the future generally will require you to fully recognize any deferred taxable
gain if you exchange your units for OP Units. See "Federal Income Taxation of
the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages one property
to an interest in a partnership that invests in and manages a large portfolio of
properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
CERTAIN RISKS RELATED TO OUR SECURITIES. Investors in our partnership must
hold their units for one year, subject to certain exceptions. Thereafter holders
may transfer such partnership units under certain conditions. Holders of the
units in our partnership do not have the right to remove the general partner,
and therefore, they cannot effect a change of control of the AIMCO Operating
Partnership. On and after , 20 , we may reduce, within certain
limits, the rate of distributions required to be paid on the Preferred OP Units,
thus reducing the rate of return and possibly encouraging you to redeem such
units. On and after , 20 , we may redeem each share of Series I
Preferred Stock for $25, plus any accrued but unpaid dividends, possibly forcing
you to sell such shares to AIMCO or to sell in the open market at a possible
lower price per share than would have occurred without the redemption.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be
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successful in eliminating the influence of such conflicts. Furthermore, such
policies are subject to change without the approval of our stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and its
affiliates, on the one hand, and the AIMCO Operating Partnership or any partner
thereof, on the other. The directors and officers of the general partner of the
AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner (which is our affiliate) or
the property manager of your partnership's property may become more difficult or
impossible without our consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,240 properties with
386,430 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest
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on any debt, our lenders could foreclose on the properties securing such debt
with a consequent loss of income and asset value to us.
MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors
Service ("Moody's") revised its outlook for our ratings from stable to negative
to reflect its concerns surrounding our ability to successfully implement our
financial strategy while maintaining a prudent capital structure as a result of
more difficult general capital market conditions. Moody's noted that our access
to the public markets may prove challenging in light of the volatility in both
the equity and capital markets for REITs and assigned a "ba3" rating to a class
of Preferred Stock proposed to be issued by us. Moody's indicated that its
rating action reflects our increasing leveraged profile, including high levels
of secured debt and preferred stock, limited financial flexibility and
integration risks resulting from the merger with Insignia. Moody's also noted
our high level of encumbered properties and material investments in loans to
highly leveraged partnerships in which we own a general partnership interest. At
the same time, Moody's, Standard & Poor's and Duff & Phelps confirmed their
existing rating on our preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of June
30, 1998, approximately $182 million of our debt was subject to variable
interest rates. An increase in interest rates could increase our interest
expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various
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requirements, which typically limit rents to pre-approved amounts. If permitted
rents on a property are insufficient to cover costs, a sale of the property may
become necessary, which could result in a loss of management fee revenue.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman of the Board and Chief Executive
Officer, our President and one of our Executive Vice Presidents, the loss of any
of their services could have an adverse effect on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
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 our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired a majority ownership interest in the general partner of your
partnership and the company that manages the property
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owned by your partnership. Through our subsidiaries, we currently own, in the
aggregate, approximately a 2.1% interest in your partnership.
One of the consequences of the merger with Insignia is to allow us to make
the exchange offer and, if successful, to increase our ownership in your
partnership.
We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our affiliate):
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Another option for liquidation of your investment would
be to sell your units in a private transaction. Any such sale could be at a
very substantial discount from your pro rata share of the fair market value
of your partnership's property and might involve significant expense and
delay.
Continuation of Your Partnership Without the Offer. A second alternative
would be for your partnership to continue its business without our offer. A
number of advantages could result from the continued operation of your
partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner (which is our
affiliate) expects to result from the offer. For example, a partner of your
partnership would have no opportunity for liquidity unless he were to sell
his units in a private transaction. Any such sale would likely be at a very
substantial discount from the partner's pro rata share of the fair market
value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for Preferred
OP Units:
- Enhanced Liquidity. While holders of the Preferred OP Units must hold
such units for one year, subject to certain exceptions, after a one-year
holding period, you may choose to redeem your Preferred OP Units and
receive, at our option, shares of AIMCO's Class I Preferred Stock, shares
of AIMCO's
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Class A Common Stock or cash. AIMCO's Class A Common Stock is, and AIMCO's Class
I Preferred Stock is expected to be, listed and traded on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. Your partnership paid distributions of
$2.50 per unit for the nine months ended September 30, 1998. We will pay
fixed quarterly distributions of $.50 per unit (equivalent to $2.00 on an
annualized basis) on the Preferred OP Units before any distributions are
paid to holders of Common OP Units. This is equivalent to a distribution
of $36.19 per year on the number of Preferred OP Units you will receive
in exchange for each of your partnership units. However, one class of
outstanding Partnership Preferred Units has prior distribution rights and
the Preferred OP Units rank equal to seven other outstanding classes of
Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for Common OP
Units:
- Enhanced Liquidity. While the holders of the Common Units OP Units must
hold such units for one year, subject to certain exceptions, after a
one-year holding period, you may choose to redeem your Common OP Units
and receive, at our option, shares of AIMCO's Class A Common Stock (on a
one-for-one basis, subject to adjustment in certain circumstances) or an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. Your partnership paid distributions of $2.50 per
unit for the nine months ended September 30, 1998. We pay quarterly
distributions on the Common OP Units. For the quarter ended September 30,
1998, we paid distributions of $0.5625 on each of the Common OP Units
(equivalent to $2.25 on an annual basis). This is equivalent to a
distribution of $ per year on the number of Common OP Units you
will receive in exchange for each of your partnership units.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to 25% of the outstanding 9,649
units of your partnership for consideration per unit of 18.09 Preferred OP
Units, Common OP Units, or $452.35 in cash. If you tender units pursuant
to the offer, you may chose to receive any combination of such forms of
consideration for your units. The offer is made upon the terms and subject to
the conditions set forth in this Prospectus Supplement, the accompanying
Prospectus and the accompanying Letter of Transmittal, including the
instructions thereto, as the same may be supplemented or amended from time to
time (the "Letter of Transmittal"). To be eligible to receive Preferred OP
Units, Common OP Units or cash pursuant to the offer, you must validly tender
and not withdraw your units on or prior to the Expiration Date. For
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administrative purposes, the transfer of units tendered pursuant to the offer
will be deemed to take effect as of , 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds 25% of the outstanding units, upon the terms and
subject to the conditions of the offer, we will accept all units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In
the event that proration of tendered units is required, we will determine the
final proration factor as promptly as practicable after the expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer, and unless already
accepted for payment as provided for herein, you may withdraw your tender of
units, pursuant to the offer on and after , 199 .
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Common OP Units or Preferred
OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900. Its fax number is (201)
460-2881.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner (which is our affiliate) and the property
manager of your partnership's property will remain unchanged.
S-12
<PAGE> 18
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause your partnership to sell its property or to prepay the
current mortgage within any specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner (which is our affiliate),
aware of any licenses or regulatory permits that would be material to the
business of your partnership, and that might be adversely affected by our
acquisition of units as contemplated herein. On the same basis, we are not aware
of any filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to our acquisition of units pursuant to the offer as contemplated
herein that have not been made or obtained. We are not aware of any jurisdiction
in which the making of the offer is not in compliance with applicable law. If we
become aware of any jurisdiction in which the making of the offer would not be
in compliance with applicable law, we will make a good faith effort to comply
with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the accompanying Prospectus and the legal fees and
expenses in connection therewith. We will also pay the fees of Stanger for
providing the fairness opinions for the offer. We estimate that our total costs
and expenses in making the offer (excluding the purchase price of the units
payable to you and your partners) will be approximately $50,000.
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
No Dissenters' Rights. You are not entitled to dissenters' (appraisal)
rights in connection with the offer.
Other Offers. The AIMCO Operating Partnership is also making similar
exchange offers to approximately other limited partnerships in which it
owns a majority interest and controls the general partner, substantially all of
which were acquired in the merger on October 1, 1998 with Insignia Financial
Group, Inc. Each of such exchange offers are being made by a separate prospectus
supplement similar to this Prospectus Supplement. The effects of the exchange
offers may be different for limited partners in each partnership. In general, we
do not believe any of the risk factors (except for certain tax-related risk
factors) described herein for the offer will differ substantially from the other
offers.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Preferred OP
Units or Common OP Units. You will recognize a gain or loss for Federal income
tax purposes on units you sell for cash. The exchange of your units for cash and
OP Units will be treated, for Federal income tax purposes, as a partial sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL
S-13
<PAGE> 19
INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND
"OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX
ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
VALUATION OF UNITS
We determined the offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to the property's annual net
operating income. We determined an appropriate capitalization rate, but our
valuation is just an estimate. In estimating the capitalization rate, we
considered the property's physical condition, location and above-market mortgage
interest rates. In addition, we considered the recent decline in the market for
equity securities, including those of REITs and the decline in the availability
of commercial mortgage financing and the recent bankruptcy of a major provider
of subordinated mortgage financing. Although the direct capitalization method is
a widely-accepted way of valuing real estate, there are a number of other
methods available to value real estate, each of which may result in different
valuations of a property. The proceeds that you would receive if you sold your
units to someone else or if your partnership were actually liquidated might be
higher or lower than our offer consideration. We determined our offer
consideration as follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $ 712,000
Capitalization rate......................................... 10.25%
Estimated gross valuation of your partnership's property.... 6,945,000
Plus: Cash and cash equivalents............................. 125,254
Plus: Other partnership assets, net of security deposits.... 433,487
Less: Mortgage debt, including accrued interest............. 0
Less: Notes Payable, including accrued interest............. 2,315,539
Less: Accounts payable and accrued expenses................. 8,793
Less: Other liabilities..................................... 21,457
Partnership valuation before taxes and certain costs........ 5,157,952
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures and deferred
maintenance............................................... 460,824
Less: Closing costs......................................... 173,625
Estimated net valuation of your partnership................. 4,523,503
Percentage of estimated net valuation allocated to holders
of units.................................................. 96.49%
Estimated net valuation of units............................ 4,364,728
Total number of units............................. 9,649
Estimated valuation per unit................................ 452.35
----------
Cash consideration per unit................................. 452.35
==========
</TABLE>
In order to determine the number of Preferred OP Units we are offering for
each of your units, we divided the cash offer consideration by the $25
liquidation preference of each Preferred OP Unit to get 18.09 per unit.
In order to determine the number of Common OP Units we are offering for
each of your units, we divided the cash offer consideration by $ to get
per unit. This price represents the average closing price of AIMCO's
Class A Common Stock on the NYSE for the 20 trading days prior to ,
1998.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We have a majority ownership interest in your
general partner (which is our affiliate). As a result, your general partner has
a conflict of interest and makes no recommendation to you as to whether you
should tender or refrain from tendering your units. Your general partner did not
participate in the structuring of the offer. We and your general partner believe
that the offer is fair to you and the other limited partners of your
partnership. We have retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to you of our offer consideration. Stanger
is not affiliated with us or your general partner. Stanger is one of the leaders
in the field of analyzing and evaluating complex real estate
S-14
<PAGE> 20
transactions. However, we provided much of the information used by Stanger in
forming its fairness opinion. We believe the information provided to Stanger is
accurate in all material respects. You should make your decision whether to
tender based upon a number of factors, including your financial needs, other
financial opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner (which is our affiliate) has no present intention to liquidate,
sell, finance or refinance your partnership's property within any specified time
period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner (which is our affiliate) has compared our cash offer
consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash offer consideration.................................... $452.35
Alternatives:
Prices on secondary market................................ Not Available
Estimated liquidation proceeds............................ $452.35
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view. Stanger has
rendered similar fairness opinions with regard to the other tender offers being
made by the AIMCO Operating Partnership. Stanger rendered the opinions only as
to the individual fairness of the offer consideration in each proposed exchange
offer.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, your general
partner (which is our affiliate) may be removed by the limited partners while
the limited partners of the AIMCO Operating Partnership cannot remove the
general partner. Also, your partnership is limited as to the number of limited
partner interests it may issue while the AIMCO Operating Partnership has no such
limitation.
S-15
<PAGE> 21
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units, Preferred
OP Units and Common OP Units relating to, among other things, the nature of the
investment, voting rights, distributions and liquidity and
transferability/redemption. For example, unlike the AIMCO OP Units, you have no
redemption rights with respect to your units.
Currently, the AIMCO Operating Partnership has approximately 6,156,145
Common OP Units outstanding and no Preferred OP Units outstanding. If you elect
to receive OP Units, you will receive a relatively insignificant number of OP
Units in the AIMCO Operating Partnership. In the offer you could elect to
receive $452.35 in cash, Common OP Units or Preferred OP Units. Both
your units and the OP Units are subject to transfer restrictions and it is
unlikely that a real trading market will ever develop for any of such
securities. If and when you may seek to redeem OP Units for AIMCO Class A Common
Stock or Class I Preferred Stock of AIMCO, no assurances can be given that such
shares of AIMCO will be trading at a price equal to or in excess of $ .
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own a
majority of both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives no fee
for its services as general partner but may receive reimbursements for expenses
incurred in that capacity. The general partner of your partnership received
total fees and reimbursements of $6,364 for the first nine months of 1998. The
property manager received management fees of $88,821 for the first nine months
of 1998. We have no current intention of changing the fee structure for your
property manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Shannon Manor Apartments, a Limited
Partnership is a South Carolina limited partnership which was formed on December
22, 1972 for the purpose of owning and
S-16
<PAGE> 22
operating a single apartment property located in Durham, North Carolina, known
as "Shannon Manor". Shannon Manor Apartments consists of 230 apartment units.
Your partnership has no employees. As of September 30, 1998, there were 9,649
units of limited partnership interest issued and outstanding, which were held of
record by 17 limited partners. Your partnership's principal executive offices
are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222,
and its telephone number at that address is (303) 757-8101.
Your partnership sold 9,649 limited partnership units in 1972. Between
January 1, 1993 and September 30, 1998 your partnership made a total of $33.85
of distributions per unit. Your partnership currently owns a single apartment
property.
Property Management. Since December 1990, your partnership's property has
been managed by an affiliate of ours. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The property manager is an
affiliate of your general partner and us.
Investment Objectives and Policies; Sale or Financing of Investments. The
principal investment objectives of your partnership are to preserve invested
capital, to maximize the potential for appreciation in property values and to
provide for partially tax sheltered cash distributions. Under your partnership
agreement, your partnership is not permitted to raise new capital and reinvest
cash in new properties. Your partnership will terminate on October 1, 2017,
unless earlier dissolved. Your general partner has no present intention to
liquidate, sell, finance or refinance your partnership property within any
specified time period. An investment in your partnership is a finite life
investment in which partners receive regular cash distributions out of your
partnership's distributable cash flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of September 30, 1998, your
partnership had a current note payable outstanding of $2,245,668, payable to
USGI, Inc., which bears interest at the rate of 7.00%. The note payable is due
on August 2014. Your partnership's agreement of limited partnership also allows
your general partner to lend funds to your partnership. As of September 30,
1998, your general partner had no loans outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on NASDAQ, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic.
Your general partner monitors transfers of the units (a) because the admission
of the transferee as a substitute limited partner in your partnership requires
the consent of your general partner under your partnership agreement, and (b) in
order to track compliance with safe harbor provisions to avoid treatment as a
"publicly traded partnership" for tax purposes. However, your general partner
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $1,141,000 will be required to purchase all of
the units sought in our offer, if such units are tendered for cash. We will
obtain all such funds from cash from operations, equity issuances and short term
borrowings.
S-17
<PAGE> 23
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
nine months ended September 30, 1998 and 1997 is unaudited. The historical
summary financial data for AIMCO Properties, L.P. for the years ended December
31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the
period January 10, 1994 through July 28, 1994, and the year ended December 31,
1993, is based on audited financial statements. This information should be read
in conjunction with such financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form
10, as amended, which is incorporated by reference herein. All dollar values are
in thousands, except per unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE NINE MONTHS FOR THE YEAR ENDED 1994
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses...... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330)
Owned property management
expenses....................... (7,746) (4,344) (6,620) (2,746) (2,276) (711)
Depreciation..................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- ---------
96,562 48,154 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 13,968 9,173 13,937 8,367 8,132 3,217
Management and other expenses.... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation.... (196) (441) (588) (590) (581) --
Other assets, depreciation and
amortization................... (3) (236) (453) (218) (168) (150)
Owner and seller bonuses......... -- -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428) --
---------- ---------- ---------- -------- -------- ---------
5,668 3,467 2,038 1,707 2,002 1,020
Minority interests in service
company business............... -- 48 (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- ---------
Company's shares of income from
service company business....... 5,668 3,515 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- ---------
General and administrative
expenses....................... (7,444) (1,408) (5,396) (1,512) (1,804) (977)
Interest income.................. 18,244 4,458 8,676 523 658 123
Interest expense................. (56,756) (33,359) (51,385) (24,802) (13,322) (1,576)
Minority interest in other
partnerships................... (1,052) (777) 1,008 (111) -- --
Equity in losses of
unconsolidated
partnerships(c)................ (5,078) (463) (1,798) -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 8,413 456 4,636 -- -- --
Amortization of goodwill......... (5,071) (711) -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income from operations........... 53,486 19,865 30,246 15,629 14,988 7,702
Gain on disposition of
properties..................... 2,783 (169) 2,720 44 -- --
Provision for income taxes....... -- -- -- -- -- --
---------- ---------- ---------- -------- -------- ---------
Income (loss) before
extraordinary item............. 56,269 19,696 32,966 15,673 14,988 7,702
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- -- --
---------- ---------- ---------- -------- -------- ---------
Net income (loss)................ $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702
========== ========== ========== ======== ======== =========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 241 109 147 94 56 48
Total owned apartment units (end
of period)..................... 62,955 28,773 40,039 23,764 14,453 12,513
Units under management (end of
period)........................ 154,729 71,038 69,587 19,045 19,594 20,758
Basic earnings per Common OP
Unit........................... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per Common OP
Unit........................... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Distributions paid per Common OP
Unit........................... $ 1.6875 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
Cash flows provided by operating
activities..................... 50,825 53,435 73,032 38,806 25,911 16,825
Cash flows used in investing
activities....................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481)
Cash flows provided by (used in)
financing activities............. 141,221 293,984 668,549 60,129 30,145 176,800
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(A)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(B) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 5,805 $ 8,056
Property operating expenses...... (2,263) (3,200)
Owned property management
expenses....................... -- --
Depreciation..................... (1,151) (1,702)
------- --------
2,391 3,154
------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 6,533 8,069
Management and other expenses.... (5,823) (6,414)
Corporate overhead allocation.... -- --
Other assets, depreciation and
amortization................... (146) (204)
Owner and seller bonuses......... (204) (468)
Amortization of management
company goodwill............... -- --
------- --------
360 983
Minority interests in service
company business............... -- --
------- --------
Company's shares of income from
service company business....... 360 983
------- --------
General and administrative
expenses....................... -- --
Interest income.................. -- --
Interest expense................. (4,214) (3,510)
Minority interest in other
partnerships................... -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- --
Amortization of goodwill......... -- --
------- --------
Income from operations........... (1,463) 627
Gain on disposition of
properties..................... -- --
Provision for income taxes....... (36) (336)
------- --------
Income (loss) before
extraordinary item............. (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- --
------- --------
Net income (loss)................ $(1,499) $ 291
======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 4 4
Total owned apartment units (end
of period)..................... 1,711 1,711
Units under management (end of
period)........................ 29,343 28,422
Basic earnings per Common OP
Unit........................... N/A N/A
Diluted earnings per Common OP
Unit........................... N/A N/A
Distributions paid per Common OP
Unit........................... N/A N/A
Cash flows provided by operating
activities..................... 2,678 2,203
Cash flows used in investing
activities....................... (924) (16,352)
Cash flows provided by (used in)
financing activities............. (1,032) 14,114
</TABLE>
S-18
<PAGE> 24
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
-------------------------------------------------------------------------
FOR THE
PERIOD
JULY 29,
FOR THE NINE MONTHS FOR THE YEAR ENDED 1994
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
Funds from operations(e)........... $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391
Weighted average number of Common
OP Units outstanding............. 53,007 24,347 29,119 14,994 11,461 10,920
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation..................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368
Total assets....................... 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361
Total mortgages and notes
payable.......................... 1,275,401 661,715 808,530 522,146 268,692 141,315
Redeemable Partnership Units....... 232,405 111,632 197,086 96,064 38,463 32,047
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- -- 107,228
Partners' Capital.................. 1,427,088 627,426 960,176 178,462 160,947 137,354
<CAPTION>
AIMCO PROPERTIES, L.P.'S
PREDECESSORS(a)
--------------------------
FOR THE
PERIOD
JANUARY 10,
1994 FOR THE YEAR
THROUGH ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C>
Funds from operations(e)........... N/A N/A
Weighted average number of Common
OP Units outstanding............. N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 33,270 33,701
Total assets....................... 39,042 38,914
Total mortgages and notes
payable.......................... 40,873 41,893
Redeemable Partnership Units....... -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- --
Partners' Capital.................. (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative 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 Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE
MONTHS PERIOD
ENDED FOR THE YEAR ENDED JANUARY 10,
SEPTEMBER 30, DECEMBER 31, 1994
------------------ --------------------------- THROUGH
1998 1997 1997 1996 1995 JULY 28, 1994
-------- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702
(Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- --
Extraordinary item.......................................... -- 269 269 -- -- --
Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 7,077 711 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 2,689 3,584 -- -- --
Amortization of management contracts...................... 4,201 430 1,587 -- -- --
Deferred taxes............................................ 6,134 2,164 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 17,379 2,781 6,280 -- -- --
Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114)
-------- ------- ------- ------- ------- -------
Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391
======== ======= ======= ======= ======= =======
</TABLE>
S-19
<PAGE> 25
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the nine months ended September 30,
1998 and for the year ended December 31, 1997. The pro forma financial and
operating information gives effect to AIMCO's merger with Insignia Financial
Group, Inc., the transfer of certain assets and liabilities of Insignia to
unconsolidated subsidiaries, a number of transactions completed before the
Insignia merger, and a number of exchange offers proposed to be made to limited
partnerships formerly controlled or managed by Insignia, including your
partnership.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------------
FOR THE NINE
MONTHS FOR THE
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 335,568 $ 429,390
Property operating expenses............................... (130,958) (181,959)
Owned property management expenses........................ (8,875) (11,760)
Depreciation.............................................. (76,136) (93,131)
---------- ---------
119,599 142,540
---------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 28,912 41,676
Management and other expenses............................. (14,386) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (17,342) (31,517)
---------- ---------
(3,012) (14,112)
Minority interests in service company business............ -- --
---------- ---------
Partnership's shares of income from service company
business............................................... (3,012) (14,122)
---------- ---------
General and administrative expenses....................... (9,207) (21,228)
Interest income........................................... 39,312 21,734
Interest expense.......................................... (92,695) (99,898)
Minority interest......................................... (8,052) (9,481)
Equity in losses of unconsolidated partnerships........... (14,539) (32,024)
Equity in earnings of unconsolidated subsidiaries......... 1,751 6,245
Amortization of Goodwill.................................. (5,071) --
---------- ---------
Net income........................................ $ 28,086 $ (6,234)
========== =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (0.05) $ (0.71)
Diluted earnings (loss) per Common OP Unit.................. $ (0.05) $ (0.71)
Distributions paid per Common OP Unit....................... $ 1.125 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 151,012 $ 140,212
Cash used by investing activities(b)........................ (13,804) (18,405)
Cash used by financing activities(c)........................ (151,616) (176,564)
OTHER DATA:
Funds from operations(d).................................... $ 183,311 $ 190,152
Weighted average number of Common OP Units outstanding...... 68,215 67,183
</TABLE>
S-20
<PAGE> 26
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
AS OF
SEPTEMBER 30, 1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, net of accumulated depreciation................ $ 2,539,582
Total assets................................................ 4,464,665
Total mortgages and notes payable........................... 1,576,239
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 259,831
Partners' capital........................................... 2,074,309
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'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.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.6875 per Common OP Unit for the nine months ended
September 30, 1998 and $1.85 per Common OP Unit for the year ended December
31, 1997, on outstanding Common OP Units, (ii) estimated distributions to
be paid based on the rate of $5.34375 per unit for the nine months ended
September 30, 1998 and $7.125 per unit for the year ended December 31, 1997
on outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.6875 per unit for the nine
months ended September 30, 1998 and $2.25 per unit for the year ended
December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv)
estimated distributions to be paid based on the rate of $1.6425 per unit
for the nine months ended September 30, 1998 and $2.19 per unit for the
year ended December 31, 1997 on outstanding Class D Partnership Preferred
Units, (v) estimated distributions to be paid based on the rate of $1.7578
per unit for the nine months ended September 30, 1998 and $2.34375 per unit
for the year ended December 31, 1997 on outstanding Class G Partnership
Preferred Units, (vi) estimated distributions to be paid based on the rate
of $1.78125 per unit for the nine months ended September 30, 1998 and
$2.375 per unit for the year ended December 31, 1997 on outstanding Class H
Partnership Preferred Units and, (vii) estimated distributions to be paid
based on the rate of $5.25 per unit for the nine months ended September 30,
1998 and $7.00 per unit for the year ended December 31, 1997 on outstanding
Class J Partnership Preferred Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative 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 Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
S-21
<PAGE> 27
The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT SEPTEMBER 30, 1998 DECEMBER 31, 1997
------- ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)................................. $ 28,086 $ (6,234)
HUD release fee and legal reserve................. -- 10,202
Real estate depreciation, net of minority
interests....................................... 71,588 86,466
Amortization of management contracts.............. 8,660 11,546
Amortization of management company goodwill....... 15,479 18,528
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation........................ -- 1,715
Amortization of management company goodwill..... 959 1,918
Amortization of management contracts............ 21,704 28,775
Deferred taxes.................................. 268 (231)
Equity in earnings of other partnerships:
Real estate depreciation........................ 66,177 76,902
Interest on convertible debentures................ (7,537) (10,003)
Preferred unit distributions...................... (22,074) (29,432)
-------- --------
Funds from operations............................. $183,310 $190,152
======== ========
</TABLE>
S-22
<PAGE> 28
SUMMARY FINANCIAL INFORMATION OF SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
The summary financial information of Shannon Manor Apartments, a Limited
Partnership for the nine months ended September 30, 1998 and 1997 is unaudited.
The summary financial information for Shannon Manor Apartments, a Limited
Partnership for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is
based on audited financial statements. This information should be read in
conjunction with such financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues..................... $1,253,100 $1,186,069 $1,598,809 $1,522,984 $1,452,350 $1,368,036 $ 1,321,619
Net Income......................... $ 432,198 $ 256,475 $ 416,494 $ 411,286 $ 403,382 $ 340,074 $ 209,639
Balance Sheet Data:
Real Estate, Net of Accumulated
Depreciation..................... $1,875,848 $1,891,356 $1,980,119 $1,840,257 $1,275,415 $1,211,280 $ 1,162,025
Total Assets................. 2,970,403 2,572,086 2,609,555 2,377,203 1,988,113 1,803,157 1,614,673
Mortgage Notes Payable, including
Accrued Interest................. 2,245,668 2,319,795 2,239,924 2,386,059 2,452,209 2,513,898 2,571,431
Partners' Capital/(Deficit)........ $ 665,182 $ 133,696 $ 257,382 $ (122,780) $ (511,318) $ (746,319) $(1,000,324)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are cash distributions for OP Units and historical cash
distributions per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING SHANNON MANOR APARTMENTS,
PARTNERSHIP A LIMITED PARTNERSHIP
---------------------------- ----------------------------
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1998 1997 1998 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Equivalent cash distributions on number of Common OP
Units tendered in the offer for each unit of your
partnership......................................... $ $ $ 2.50 $3.63
Equivalent cash distributions on number of Preferred
OP Units tendered in the offer for each unit of your
partnership......................................... $30.57 $33.47 $ 2.50 $3.63
</TABLE>
S-23
<PAGE> 29
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of AIMCO. AIMCO is a real estate investment
trust that owns and manages multifamily apartment properties throughout the
United States. As of October 31, 1998, AIMCO, through its wholly owned
subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating
Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO
Operating Partnership (the "Special Limited Partner"), held approximately a 90%
interest in the AIMCO Operating Partnership. Based on apartment unit data
compiled as of January 1, 1998 by the National Multi Housing Council, we believe
that, as of October 31, 1998, AIMCO was the largest owner and manager of
multifamily apartment properties in the United States, with a total portfolio of
386,430 apartment units in 2,240 properties located in 49 states, the District
of Columbia and Puerto Rico. As of October 31, 1998, AIMCO:
- owned or controlled 62,955 units in 241 apartment properties;
- held an equity interest in 168,746 units in 897 apartment properties; and
- managed 154,729 units in 1,102 apartment properties for third party
owners and affiliates.
AIMCO's Class A Common Stock is listed and traded on the NYSE under the
symbol "AIV." On November 19, 1998, the last reported sale price of AIMCO Class
A Common Stock on the NYSE was $33 3/4. The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class A
Common Stock for the periods indicated. The table also shows the distributions
per unit declared on the Common OP Units for the same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through November 19,
1998)............................... $34 7/8 $32 5/8 $ -- $ --
Third Quarter.......................... 41 30 15/16 0.5625 0.5625
Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter......................... 38 32 0.5625 0.5625
Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter......................... 29 3/4 26 0.4625 0.4625
First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter.......................... 22 18 3/8 0.4250 0.4250
Second Quarter......................... 21 18 3/8 0.4250 0.4250
First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited
Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire
Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101.
RISK FACTORS
The following sets forth certain risks and possible disadvantages of the
offer and should be read and considered when reviewing the potential benefits of
the offer set forth in "Background and Reasons for the Offer -- Expected
Benefits of the Offer." In addition, you should review the other risks of
investing in us beginning on page 2 of our accompanying Prospectus.
S-24
<PAGE> 30
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of the your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view. It is possible that if the offer is not successful, we
may revise or terminate the offer or conduct a subsequent offer at a higher or
lower price. Such a decision will depend, among other things, on the performance
of the partnership, prevailing interest rates, and our interest in acquiring
additional limited partnership interests.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property
S-25
<PAGE> 31
or prepay the current mortgage on your partnership's property within any
specified time period, any such action in the future generally will require you
to fully recognize any deferred taxable gain if you exchange your units for OP
Units. In addition, if the AIMCO Operating Partnership were to be treated as a
"publicly traded partnership" for Federal income tax purposes, passive activity
losses generated by other passive activity investments held by you, including
passive activity loss carryovers attributable to your units, could not be used
to offset your allocable share of income generated by the AIMCO Operating
Partnership. See "Certain Federal Income Tax Matters." If you redeem OP Units
for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize
gain or loss measured by the difference between the amount realized from our
tender offer and your adjusted tax basis in the OP Units exchanged. In addition,
if you acquire shares of AIMCO stock, you will no longer be able to use income
and loss from your investment to offset "passive" income and losses from other
investments, and the distributions from AIMCO will constitute taxable income to
the extent of AIMCO's earnings and profits. In addition, if there is a sale or
exchange of 50% or more of the total interest in capital and profits of your
partnership within any 12-month period, including sales or exchanges resulting
from the offer, your partnership will terminate for Federal income tax purposes.
Any such termination may, among other things, subject the assets of your
partnership to longer depreciable lives than those currently applicable to the
assets of your partnership. This would generally decrease the annual average
depreciation deductions allocable to you if you do not tender all of your units
(thereby increasing the taxable income allocable to your units each year), but
would have no effect on the total depreciation deductions available over the
useful lives of the assets of your partnership. Any such termination may also
change (and possibly shorten) your holding period with respect to your units
that you choose to retain.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Internal
Revenue Code of 1986, as amended. The particular tax consequences for you of our
offer will depend upon a number of factors related to your tax situation,
including your tax basis in your units, whether you dispose of all of your units
in your partnership and whether you are no longer subject to the "passive loss"
rules with respect to your partnership. Because the income tax consequences of
tendering units will not be the same for everyone, you should consult your own
tax advisor with specific reference to your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages one property. In contrast, the
AIMCO Operating Partnership is in the business of acquiring, marketing, managing
and operating a large portfolio of apartment properties. While diversification
of assets may reduce certain risks of investment attributable to a single
property or entity, there can be no assurance as to the value or performance of
our securities or our portfolio of properties as compared to the value of your
units or your partnership. Under the AIMCO Operating Partnership Agreement, the
general partner has the ability, without the concurrence of the limited
partners, to acquire and dispose of properties and to borrow funds. Further,
while it is the intent to distribute net income from operations, sales and
refinancing of your partnership, the general partner may not make such
distributions. The AIMCO Operating Partnership generally makes the same
distribution on the Common OP Units as AIMCO pays dividends on its Class A
Common Stock. Further, AIMCO must distribute a significant percentage of its
consolidated revenues each year in order to retain its status as a REIT. Your
partnership is permitted not to make distributions under certain circumstances
such as reinvesting in your partnership. Proceeds of future asset sales or
refinancings by the AIMCO Operating Partnership generally will be reinvested
rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or Common OP Units may be
redeemed for shares of Class I Preferred Stock or Class A Common Stock.
S-26
<PAGE> 32
Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common
Stock at the time at which OP Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
CERTAIN RISKS RELATED TO OUR SECURITIES. Investors in our partnership must
hold their units for one year, subject to certain exceptions. Thereafter holders
may transfer such partnership units under certain conditions, including the
general partner's right of first refusal. Holders of the units in our
partnership do not have the right to remove the general partner, and therefore,
they cannot effect a change of control of the AIMCO Operating Partnership. On
and after , 20 , we may reduce, within certain limits, the rate of
distributions required to be paid on the Preferred OP Units, thus reducing the
rate of return and possibly encouraging you to redeem such units. On and after
, 20 , we may redeem each share of Series I Preferred Stock for
$25, plus any accrued but unpaid dividends, possibly forcing you to sell such
shares to AIMCO or to sell in the open market at a possible lower price per
share than would have occurred without the redemption.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $2.00 and current annualized distributions with
respect to the Common OP Units are $2.25. This is equivalent to distributions of
$36.19 per year on the number of Preferred OP Units, or distributions of
$ per year on the number of Common OP Units, that you would receive in
exchange for each of your partnership's units. Distributions with respect to
your units for the nine months ended September 30, 1998 were $2.50 per unit.
Therefore, distributions with respect to the Preferred OP Units and Common OP
Units that we are offering are expected to be substantially greater, immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
a majority of the company that manages your partnership's property. In the event
that we acquire a substantial number of units pursuant to our offer, removal of
the property manager without our consent may become more difficult or
impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner (which is our affiliate)
has no current plan or intention to reduce the liabilities of your partnership,
it is possible that future economic, market, legal, tax or other considerations
may cause your general partner to reduce the liabilities of your partnership. If
the
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liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. If there is a sale or exchange of 50% or more of the total interest in
capital and profits of your partnership within any 12-month period, including
sales or exchanges resulting from the offer, your partnership will terminate for
Federal income tax purposes. Any such termination may, among other things,
subject the assets of your partnership to longer depreciable lives than those
currently applicable to the assets of your partnership. This would generally
decrease the annual average depreciation deductions allocable to you if you do
not tender all of your units (thereby increasing the taxable income allocable to
your units each year), but would have no effect on the total depreciation
deductions available over the useful lives of the assets of your partnership.
Any such termination may also change (and possibly shorten) your holding period
with respect to your units that you choose to retain. In determining the amount
of units to tender for, we took into account the number of units transferred in
the past 12 months so as to allow for other transfers without crossing the 50%
threshold. It is possible that beginning twelve months after the closing of this
offer, or possibly earlier, we may make another offer for your units and such
offer may or may not be at a higher price.
MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's revised its
outlook for our ratings from stable to negative to reflect its concerns
surrounding our ability to successfully implement our financial strategy while
maintaining a prudent capital structure as a result of more difficult general
capital market conditions. Moody's noted that our access to the public markets
may prove challenging in light of the volatility in both the equity and capital
markets for REITs and assigned a "ba3" rating to a class of preferred stock
proposed to be issued by us. Moody's indicated that its rating action reflects
our increasing leveraged profile, including high levels of secured debt and
preferred stock, limited financial flexibility and integration risks resulting
from the merger with Insignia. Moody's also noted our high level of encumbered
properties and material investments in loans to highly leveraged partnerships in
which we own a general partnership interest. At the same time, Moody's, Standard
& Poor's and Duff & Phelps confirmed their existing ratings on our existing
preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired approximately 51% of the outstanding common shares of beneficial
interest of Insignia Properties Trust ("IPT"). The general partner of your
partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger,
AIMCO also acquired a majority ownership interest in the entity that manages the
property owned by your partnership. Through subsidiaries, AIMCO currently owns,
in the aggregate, approximately a 2.1% interest in your partnership.
IPT and AIMCO have entered into an agreement and plan of merger, dated as
of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be
merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger
Agreement provides that, upon consummation of the IPT Merger, IPT shareholders
will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's
Class A Common Stock, at AIMCO's option. The transactions contemplated by the
IPT Merger Agreement are subject to certain conditions. The IPT Merger requires
the approval of the holders of a majority of the
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outstanding IPT Shares. AIMCO has agreed to vote all of the IPT Shares owned by
it in favor of the IPT Merger and the related merger agreement and granted an
irrevocable proxy to certain affiliates of IPT to vote such shares. Accordingly,
IPT shareholder approval is assured.
One of the consequences of our acquiring Insignia is that it allowed us to
make the exchange offers to acquire limited partnership interests of some of the
limited partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). If we are successful, we will increase our ownership in the
Insignia Partnerships. Such offers would provide liquidity for the limited
partners of the Insignia Partnerships. Such offers would also allow the AIMCO
Operating Partnership an opportunity to increase its ownership interest in
certain Insignia Partnerships which would provide a larger asset and capital
base and increased diversification. As of November , 1998, the AIMCO Operating
Partnership has made offers to of the Insignia Partnerships, including
your partnership.
Previous Tender Offers
We are not aware that any tender offers may have been made by unaffiliated
third parties to acquire units in your partnership in exchange for cash.
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our affiliate).
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
would generally result in significant amounts of taxable income to you and your
partners. In the opinion of your general partner (which is our affiliate), the
present time may not be the most desirable time to sell the real estate assets
of your partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Another option for liquidation would be to sell
your units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
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partnership, without our offer. A number of advantages could result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for properties could improve over time, making a
sale of the partnership's property in a private transaction at some point in the
future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
Alternative Structures Considered
We chose to make this offer as a tender/exchange offer because other forms
of reorganization such as a merger would have meant that holders of a majority
of the units in your partnership would bind all limited partners. With a
tender/exchange offer, each limited partner makes his own decision which does
not bind the other partners. Further, we have not offered to purchase all of the
units in your partnership which would occur in other types of reorganizations or
combinations.
Sale of Assets
Your partnership could sell the property it owns and not liquidate. The
general partner of your partnership considers sale of the partnership's property
from time to time. However, any such sale would likely be a taxable transaction.
Further, since your partnership only owns one property, it is unlikely that the
property would be sold without subsequent liquidation.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. While holders of the Preferred OP Units must hold
such units for one year, subject to certain exceptions, after a one-year
holding period, you may choose to redeem your Preferred OP Units and
receive, at our option, shares of AIMCO's Class I Preferred Stock, shares
of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is,
and AIMCO's Class I Preferred Stock is expected to be, listed and traded
on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $.50 per unit on the Preferred OP Units before any
distributions are paid to holders of Common OP Units. However, one class
of outstanding Partnership Preferred Units has prior distribution rights
and the Preferred OP Units rank equal to seven other outstanding classes
of Partnership Preferred Units. Distributions
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with respect to the Preferred OP Units are expected to be significantly
greater, immediately following the offer, than the distributions with
respect to your units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. While the holders of the Common OP Units must hold
such units for one year, subject to certain exceptions, after a one-year
holding period, you may choose to redeem your Common OP Units and
receive, at our option, shares of AIMCO's Class A Common Stock (on a
one-for-one basis, subject to adjustment in certain circumstances) or an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended September 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We expect this to continue in the future. Distributions
with respect to the Common OP Units are expected to be significantly
greater, immediately following the offer, than the distributions with
respect to your units.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to 25% of the outstanding 9,649 units of your
partnership for consideration per unit of (i) 18.09 Preferred OP Units, (ii)
Common OP Units, or (iii) $452.35 in cash. If you tender units pursuant
to our offer, you may choose to receive any of such forms of consideration for
your units or any combination of such forms of consideration.
The purchase price per unit will automatically be reduced by the aggregate
amount of distributions per unit, if any, made by your partnership to you on or
after , 1998 and prior to the date on which we acquire your units
pursuant to our offer.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below).
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
This offer is being mailed to the persons shown by your partnership's
records to have been limited partners or, in the case of units owned of record
by IRAs and qualified plans, beneficial owners of units, as of ,
1998.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between
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, 1998, and the expiration of the offer. See "-- Procedure for Tendering
Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY
REASON OF ANY DELAY IN MAKING SUCH PAYMENT.
For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to IPT or Insignia
Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts
substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies (in the manner set
forth in the Letter of Transmittal), each with full power of substitution, to
the fullest extent of your rights with respect to your units tendered and
accepted for payment by the AIMCO Operating Partnership. Each such proxy shall
be considered coupled with an interest in the tendered units. Such appointment
will be effective when, and only to the extent that, the AIMCO Operating
Partnership accepts the tendered units for payment. Upon such acceptance for
payment, all prior proxies given by you with respect to such units will, without
further action, be revoked, and no subsequent proxies may be given (and if given
will not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Power of Attorney
By executing a Letter of Transmittal, you also irrevocably constitute and
appoint the AIMCO Operating Partnership and its managers and designees as your
attorneys-in-fact, each with full power of substitution, to the full extent of
your rights with respect to the units tendered by you and accepted for payment
by the AIMCO Operating Partnership. Such appointment will be effective when, and
only to the extent that, the AIMCO Operating Partnership accepts the tendered
units for payment. You agree not to exercise any rights pertaining to the
tendered units without the prior consent of the AIMCO Operating Partnership.
Upon such acceptance for payment, all prior powers of attorney granted by you
with respect to such units will, without further action, be revoked, and no
subsequent powers of attorney may be granted (and if granted will not be
effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO
Operating Partnership and its managers and designees each will have the power,
among other things, (i) to transfer ownership of such units on the partnership
books maintained by your general partner (which is our affiliate) (and execute
and deliver any accompanying evidences of transfer and authenticity any of them
may deem necessary or appropriate in connection therewith), (ii) upon receipt by
the Information Agent of the offer consideration, to become a substituted
limited partner, to receive any and all distributions made by your partnership
on or after the date on which the AIMCO Operating Partnership acquires such
units, and to receive all benefits and otherwise exercise all rights of
beneficial ownership of such units in accordance with the terms of our offer,
(iii) to execute and deliver to the general partner of your partnership a change
of address form instructing the general partner to send any and all future
distributions to which the AIMCO Operating Partnership is entitled pursuant to
the terms of the offer in respect of tendered units to the address specified in
such form, and (iv) to endorse any check payable to you or upon your order
representing a distribution to which the AIMCO Operating Partnership is entitled
pursuant to the terms of our offer, in each case, in your name and on your
behalf.
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Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
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Transfer Taxes
The amount of any transfer taxes (whether imposed on the registered holder
of units or any person other than the person signing the Letter of Transmittal)
payable on account of the transfer to such person will be deducted from the
purchase price unless satisfactory evidence of the payment of such taxes or
exemption therefrom is submitted.
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement, and
unless units have been accepted for payment as described in "-- Acceptance For
Payment and Payment For Units," tenders of units pursuant to this offer may be
made on or after , 199 .
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for if any of the conditions to the
offer are not satisfied or if any event occurs that might reasonably be expected
to result in a failure to satisfy such conditions, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
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inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 7:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase all units properly tendered and not withdrawn
prior to the expiration of the offer on a pro rata basis.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is 25% or less, the AIMCO Operating
Partnership will purchase such units so tendered and not withdrawn. If the
number of units in your partnership properly tendered and not withdrawn prior to
the expiration of any such renewal (together with any units previously purchased
in this offer) is greater than 25%, the AIMCO Operating Partnership will
purchase units in the order of priority described in the preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
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FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns a majority of the general partner of your partnership
and thereby controls the management of your partnership. In addition, AIMCO owns
a majority of the company that manages your partnership's property. The AIMCO
Operating Partnership currently intends that, upon consummation of the offer,
your partnership will continue its business and operations substantially as they
are currently being conducted. The offer is not expected to have any effect on
your partnership's financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business such as a merger, reorganization or liquidation. We have no present
intention to cause your partnership to sell any of its properties or to prepay
current mortgages within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. In addition, we are not extending
appraisal rights in connection with the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
No provisions have been made with regard to the offer to allow you or other
limited partners to inspect the books and records of your partnership or to
obtain counsel or appraisal services at our expense or at the expense of your
partnership. However, as described under "Comparison of Your Partnership and the
AIMCO Operating Partnership -- Review of Investor Lists," you have the right
under your partnership's agreement of limited partnership to obtain a list of
the limited partners.
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CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998 (iii) any extraordinary or material
adverse change in the financial, real estate or money markets or major
equity security indices in the United States such that there shall have
occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in
the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998 (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending institutions, or (viii) in the case of any of the foregoing
existing at the time of the commencement of the offer, in the sole judgment
of the AIMCO Operating Partnership, a material acceleration or worsening
thereof (any changes to the offer resulting from the conditions set forth
in this paragraph will most likely involve a change in the amount or terms
of the consideration offered or the termination of the offer); or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as your
general partner (which is our affiliate) or to remove such entity as the
general partner of your partnership, or seeks to impose any material
limitation on the ability of the AIMCO Operating Partnership or any of its
affiliates to conduct your partnership's business or own such assets, (iv)
seeks to impose material limitations on the ability of the AIMCO Operating
Partnership or any of
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its affiliates to acquire or hold or to exercise full rights of ownership
of the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated (any changes to
the offer resulting from the conditions set forth in this paragraph will
most likely involve a change in the amount or terms of the consideration
offered or the termination of the offer); or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
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The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
a majority of the company that manages your partnership's property. In the event
that the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, removal of the property manager may become more difficult
or impossible.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same. See "Your
Partnership -- History of the Partnership."
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by your general partner (which
is our affiliate), aware of any licenses or regulatory permits that would be
material to the business of your partnership, taken as a whole, and that might
be adversely affected by the AIMCO Operating Partnership's acquisition of units
as contemplated herein, or any filings, approvals or other actions by or with
any domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to your partnership's business, or that certain
parts of your partnership's business might not have to be disposed of or other
substantial conditions complied with in order to obtain such approval or action,
any of which could cause the AIMCO Operating Partnership to elect to terminate
the offer without purchasing units hereunder. The AIMCO Operating Partnership's
obligation to purchase and pay for units is subject to certain conditions,
including conditions related to the legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
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Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
Certain Litigation
On March 24, 1998, certain persons claiming to own limited partner
interests in certain of the limited partnerships for which subsidiaries of IPT
act as general partner filed a purported class and derivative action in
California Superior Court in the County of San Mateo against AIMCO, Insignia,
the general partners of the partnerships, certain persons and entities who
purportedly formerly controlled the general partners, and additional entities
affiliated with and individuals who are officers, directors and/or principals of
several of the defendants. The complaint contains allegations that, among other
things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or
aided and abetted in those purported breaches, by selling or agreeing to sell
their "fiduciary positions" as stockholders, officers and directors of the
general partners for a profit and retaining said profit rather than distributing
it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided
and abetted in those purported breaches, by mismanaging the partnerships and
misappropriating assets of the partnerships by (a) manipulating the operations
of the partnerships to depress the trading price of limited partnership units of
the Partnerships; (b) coercing and fraudulently inducing unitholders to sell
units to certain of the defendants at depressed prices; and (c) using the voting
control obtained by purchasing units at depressed prices to entrench certain of
the defendants' positions of control over the partnerships; and (iii) the
defendants breached their fiduciary duties to the plaintiffs by (a) selling
assets of the partnerships such as mailing lists of unitholders and (b) causing
the general partners to enter into exclusive arrangements with their affiliates
to sell goods and services to the general partners, the unitholders and tenants
of properties owned by the partnerships. The complaint also alleges that the
foregoing allegations constitute violations of various California securities,
corporate and partnership statutes, as well as conversion and common law fraud.
The complaint seeks unspecified compensatory and punitive damages, an injunction
blocking the sale of control of the general partners and a court order directing
the defendants to discharge their fiduciary duties to the plaintiffs. On June
25, 1998, the defendants filed motions seeking dismissal of the action. In lieu
of responding to the motion, plaintiffs have filed an amended complaint. On
October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the
amended complaint. The demurrers are scheduled to be heard on January 8, 1999.
On July 30, 1998, certain entities claiming to own limited partnership
interests in a number of the limited partnerships for which subsidiaries of IPT
act as general partner filed a complaint in the Superior Court of the State of
California, County of Los Angeles against Insignia, the partnerships, the
general partners and additional entities affiliated with several of the
defendants. Plaintiffs allege that they have requested from, but have been
denied by each of the partnerships, lists of their respective limited partners
for the purpose of making tender offers to purchase up to 4.9% of the units of
limited partnership interest in each of the partnerships. The complaint also
alleges that certain of the defendants made tender offers to purchase units of
limited partnership interest in many of the partnerships, with the alleged
result that plaintiffs have been deprived of the benefits they would have
realized from ownership of the additional units. The plaintiffs assert eleven
causes of action, including breach of contract, unfair business practices, and
violations of the partnership statutes of the states in which the partnerships
are organized. Plaintiffs seeks compensatory,
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punitive and treble damages. Plaintiffs estimate compensatory damages to exceed
$15 million. An answer to the complaint was filed by the defendants on September
15, 1998.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $50,000.
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership will be operated in
accordance with their respective organizational documents and partnership
agreements. This summary is for general information only and does not purport to
discuss all aspects of Federal income taxation which may be important to a
particular person in light of its investment or tax circumstances, or to certain
types of investors subject to special tax rules (including financial
institutions, broker-dealers, insurance companies, and, except to the extent
discussed below, tax-exempt organizations and foreign investors, as determined
for United States Federal income tax purposes). This summary assumes that your
units and any OP Units that you receive in the offer constitute capital assets
(generally, property held for investment). No advance ruling has been or will be
sought from the IRS regarding any matter discussed in this Prospectus
Supplement. Further, no opinion of tax counsel has been obtained with regard to
the offer. However, an opinion of counsel has been obtained with regard to
AIMCO's status as a REIT and that the OP Units will be validly issued, fully
paid and non-assessable. You may obtain a copy of such opinion by sending a
written request to the AIMCO Operating Partnership.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO
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<PAGE> 50
Operating Partnership will be equal to a fraction, the numerator of which will
be the sum of the cash received by you pursuant to the offer plus the amount of
your partnership liabilities deemed transferred to you pursuant to the offer,
and the denominator of which is the fair market value of the aggregate
consideration received by you pursuant to the offer (i.e., the sum of the
numerator of such fraction plus the fair market value of the OP Units received
by you pursuant to the offer). The transfer by you of the remaining portion of
such units will generally be treated as a tax-free contribution. At the time of
transfer, the adjusted tax basis of the transferred units is allocated between
the portion of the units deemed sold and the remaining portion of the units
deemed contributed on the basis of each such portion's respective fair market
value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of
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<PAGE> 51
disposition. If your adjusted tax basis is less than your share of your
partnership's liabilities (e.g., as a result of the effect of net loss
allocations and/or distributions exceeding the cost of your unit), your gain
recognized pursuant to the offer will exceed the cash proceeds realized upon the
sale of such unit. The initial adjusted tax basis of the OP Units received by
you in exchange for your units pursuant to the offer will be equal to (i) the
sum of your adjusted tax basis in such transferred units plus any gain
recognized in the exchange and reduced by (ii) cash received or deemed received
in the exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. You will not receive any future distributions on units that you tender on
or after the date on which such units are accepted for purchase, and
accordingly, you may not receive any distributions with respect to such accreted
income. Such allocation and any cash distributed by your partnership to you for
that year will affect your adjusted tax basis in your unit and, therefore, the
amount of your taxable gain or loss upon a sale of a unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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<PAGE> 52
FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
CERTAIN TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING OFFEREES
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). It is possible that the AIMCO Operating Partnership's
acquisition of units pursuant to the offer could result in a Termination of your
partnership. If a purchase of units results in a Termination, the following
Federal income tax events will be deemed to occur with respect to such
Termination, the terminated Partnership (the "Old Partnership") will be deemed
to have contributed all of its assets (subject to its liabilities) (the
"Hypothetical Contribution") to a new partnership (the "New Partnership") in
exchange for an interest in the New Partnership and, immediately thereafter, the
Old Partnership will be deemed to have distributed interests in the New
Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership
and offerees who do not tender all of their units (a "Remaining Offeree") in
proportion to their respective interests in the Old Partnership in liquidation
of the Old Partnership.
A Remaining Offeree will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Offerees in the Old Partnership will carry over intact
into the New Partnership. Any Termination may change (and possibly shorten) a
Remaining Offeree's holding period with respect to its units in your partnership
for Federal income tax purposes.
The New Partnership's adjusted tax basis in its assets will carry over from
the Old Partnership's basis in such assets immediately before the Termination.
Any Termination may also subject the assets of the New Partnership to
depreciable lives in excess of those currently applicable to the Old
Partnership. This would generally decrease the annual average depreciation
deductions allocable to the Remaining Offerees following consummation of the
Offer (thereby increasing the taxable income allocable to their retained units
each year), but would have no effect on the total depreciation deductions
available over the useful lives of the assets of your partnership.
Section 704(c) of the Code will apply to future allocation of income, gain,
loss and deductions with respect to any New Partnership assets among the AIMCO
Operating Partnership and the Remaining Offerees following the consummation of
the offer only to the extent that such assets were Section 704(c) property in
the hands of the Old Partnership immediately prior to the Hypothetical
Contribution. Moreover, subject to the Code's anti-abuse regulations, the New
Partnership will not be required to apply the same Section 704(c) allocation
method applied by the Old Partnership. The Hypothetical Contribution will not
trigger a new five-year holding period for purposes of measuring
post-contribution appreciation of assets for the offeree who contributed such
assets.
Elections as to certain tax matters previously made by the Old Partnership
prior to Termination will not be applicable to the New Partnership unless the
New Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all offerees. In the case of a Remaining Offeree reporting on a tax
year other than a calendar year, the closing of your partnership's taxable year
may result in more than 12 months' taxable income or loss of the Old Partnership
being includible in such Offeree's taxable income for the year of Termination.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
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<PAGE> 53
VALUATION OF UNITS
We determined our cash offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to the property's annual net
operating income. We determined an appropriate capitalization rate, but our
valuation is just an estimate. In estimating the capitalization rate, we
considered the property's physical condition, location and above-market mortgage
interest rates. In addition, we considered the recent decline in the real estate
markets, and the decline in the availability of commercial mortgage financing
and the recent bankruptcy of a major provider of subordinated mortgage
financing. Although the direct capitalization method is a widely accepted way of
valuing real estate, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. The
proceeds that you would receive if you sold your units to someone else or if
your partnership were actually liquidated might be higher or lower than our cash
offer consideration. We determined our cash offer consideration as follows:
- First, we estimated the value of the property owned by your partnership
using the direct capitalization method. We selected a capitalization rate
based on our experience in valuing similar properties. The lower the
capitalization rate applied to a property's income, the higher its value.
We considered local market sales information for comparable properties,
estimated actual capitalization rates (net operating income less capital
reserves divided by sales price) and then evaluated each property in
light of its relative competitive position, taking into account property
location, occupancy rate, overall property condition and other relevant
factors. The AIMCO Operating Partnership believes that arms-length
purchasers would base their purchase offers on capitalization rates
comparable to those used by us, however there is no single correct
capitalization rate and others might use different rates. We divided the
property's 1997 net operating income by its capitalization rate to derive
a gross property value as described in the following table:
<TABLE>
<CAPTION>
ESTIMATED
1997 NET CAPITALIZATION GROSS PROPERTY
PROPERTY OPERATING INCOME RATE VALUE
-------- ---------------- -------------- --------------
<S> <C> <C> <C>
Shannon Manor Apartments $712,000 10.25% $6,945,000
</TABLE>
- Second, we estimated the value of the equity of your partnership by
adding to the aggregate gross property value of the property owned by
your partnership, the value of the non-real estate assets of your
partnership, and deducting the liabilities of your partnership, including
mortgage debt and debt owed by your partnership to its general partner or
its affiliates after consideration of any applicable subordination
provisions affecting payment of such debt. We deducted from this value
any taxes and certain other costs including required capital expenditures
and deferred maintenance to derive an estimated net equity value for your
partnership of $4,523,503.
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<PAGE> 54
- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $ 712,000
Capitalization rate......................................... 10.25%
Estimated gross valuation of your partnership's property.... 6,945,000
Plus: Cash and cash equivalents............................. 125,254
Plus: Other partnership assets, net of security deposits.... 433,487
Less: Mortgage debt, including accrued interest............. 0
Less: Notes payable, including accrued interest............. 2,315,539
Less: Accounts payable and accrued expenses................. 8,793
Less: Other liabilities..................................... 21,457
Partnership valuation before taxes and certain costs........ 5,157,952
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures for deferred
maintenance............................................... 460,824
Less: Closing costs......................................... 173,625
Estimated net valuation of your partnership................. 4,523,503
Percentage of estimated net valuation allocated to units.... 96.49%
Estimated net valuation of units............................ 4,364,728
Total number of units............................. 9,649
Estimated valuation per unit................................ 452.35
----------
Cash consideration per unit................................. 452.35
----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $25 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which represents the
average closing price of AIMCO's Class A Common Stock on the NYSE for the
20 trading days prior to , 1998.
- The total net valuation of all partnerships in which the AIMCO Operating
Partnership is making similar exchange offers, and which were valued
using the same methods as used for your partnership, is $ , of
which, $ or % is the net valuation of your partnership.
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<PAGE> 55
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The AIMCO Operating Partnership has a majority ownership interest in the
general partner of your partnership. Therefore, the general partner of your
partnership makes no recommendation whether you should tender or refrain from
tendering your units since it did not participate in the structuring of the
offer and has substantial conflicts of interest with regard to the offer.
However, for all of the reasons discussed herein, we and your general partner
believe that the offer is fair to you and the other holders of units in your
partnership. We also reasonably believe that the similar offers to the limited
partners of the other partnerships are fair to such limited partners. The AIMCO
Operating Partnership has retained Stanger to conduct an analysis of the offer
and to render an opinion as to the fairness to unitholders of the offer
consideration from a financial point of view. Stanger is not affiliated with
AIMCO or your partnership. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. See "Stanger Analysis." You should make your decision whether to
tender based upon a number of factors, including your financial needs, other
financial opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner (which is our affiliate) and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that are substantially the financial
equivalent to your interest in your partnership, adjusted to reflect the
expenses of the offer. See "Valuation of Units."
6. The opinion of Stanger, an independent third party, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer generally provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes by electing to accept Preferred OP Units or
Common OP Units.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $452.35, based on an estimated value of
your partnership's property of $6,945,000. Your general partner (which is
our affiliate) has no present intention to liquidate your
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<PAGE> 56
partnership or to sell or finance your partnership's property. See
"Background and Reasons for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $2.00 and current annualized distributions with respect to the
Common OP Units are $2.25. This is equivalent to distributions of $36.19
per year on the number of Preferred OP Units, or distributions of $ per
year on the number of Common OP Units, that you would receive in exchange
for each of your partnership's units. Distributions with respect to your
units for the nine months ended September 30, 1998 were $2.50. Therefore,
distributions with respect to the Preferred OP Units and Common OP Units
that we are offering are expected to be substantially greater, immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units --
Distributions."
In evaluating these factors, your general partner (which is our affiliate)
and the AIMCO Operating Partnership did not quantify or otherwise attach
particular weight to any of them.
Your general partner (which is our affiliate) has not retained an
unaffiliated representative to act on behalf of the limited partners in
negotiating the terms of the offer since each individual limited partner can
make his own decision as to whether or not to tender and what consideration to
take. Unlike a merger or other form of partnership reorganization, a majority or
more of the holders of limited partnership interests in your partnership cannot
bind you. If an unaffiliated representative had been obtained, it is possible
that such representative could have negotiated a higher price for your units
than was unilaterally offered by the AIMCO Operating Partnership. We have
retained Stanger to conduct an analysis of our offer and to render an opinion as
to the fairness to you of the offer consideration from a financial point of
view.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
Your general partner (which is our affiliate) makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment properties and, although there are
other ways to value real estate, is a reasonably fair method to determine the
consideration offered. A liquidation in the future might generate a higher or
lower price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
Your general partner (which is our affiliate) makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, your general partner
(which is our affiliate) has attempted to compare the cash offer consideration
against: (a) the prices at which the units have been sold in the illiquid
secondary market; and (b) estimates of the value of the units on a liquidation
basis. The general
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<PAGE> 57
partner of your partnership believes that analyzing the alternatives in terms of
estimated value, established based upon currently available data and, where
appropriate, reasonable assumptions made in good faith, establishes a reasonable
framework for comparing alternatives. Since the value of the consideration for
alternatives to the Offer is dependent upon varying market conditions, no
assurance can be given that the estimated values reflect the range of possible
values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by your general partner (which is our affiliate). These assumptions
relate, among other things to: projections as to the future income, expenses,
cash flow and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to your general partner (which is our affiliate) at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash offer price............................................ $ 452.35
Alternatives:
Prices on secondary market................................ Not Available
Estimated liquidation proceeds............................ $ 452.35
</TABLE>
Prices on Secondary Market
There is no active market for your units. Your general partner (which
is our affiliate) is unaware of any secondary market activity in the units.
Therefore any comparison to prices on the secondary market is not possible at
the present time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. Your general
partner (which is our affiliate) estimated the liquidation value of units using
the same direct capitalization method and assumptions as we did in valuing the
units for the cash offer consideration. See "Valuation of Units." The
liquidation analysis also assumed that your partnership's property was sold to
an independent third-party buyer at the current property value and that other
balance sheet assets (excluding amortizing assets) and liabilities of your
partnership were sold at their book value, and that the net proceeds of sale
were allocated to your partners in accordance with your partnership's agreement
of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The
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liquidation analysis assumes that the assets would be disposed of in an orderly
manner and not sold in forced or distressed sales where sellers might be
expected to dispose of their interests at substantial discounts to their actual
fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, 96.49% of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Assumptions, Limitations and
Qualifications." We have agreed to indemnify Stanger against certain liabilities
arising out of Stanger's engagement to prepare and deliver the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major NYSE member firms,
insurance companies and over seventy companies engaged in the management and
operation of partnerships and real estate investment trusts. The investment
banking activities of Stanger include financial advisory and fairness opinion
services, asset and securities valuations, industry and company research and
analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
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partnership's operating statements ending September 30, 1998 which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's real estate assets (the "property") provided by management,
including location, number of units and unit mix or square footage, age, and
amenities; (iv) reviewed summary historical operating statements for your
partnership's property for 1996 and 1997 and through September 30, 1998; (v)
reviewed operating budgets for your partnership's property for 1998, as prepared
by your partnership; (vi) reviewed information prepared by management relating
to any debt encumbering your partnership's property; (vii) reviewed information
regarding market rental rates and conditions for similar properties in the
general market area of your partnership's property and other information
relating to acquisition criteria for similar properties; (viii) reviewed
internal financial analyses and forecasts prepared by your partnership of the
estimated current net liquidation value of your partnership; (ix) reviewed
information provided by AIMCO concerning the AIMCO Operating Partnership, the
Common OP Units and the Preferred OP Units; (x) reviewed available secondary
market trading information for the units; and (xi) conducted other studies,
analysis and inquiries as Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for the property, conditions in the market for
sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed site inspections of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during October and November 1998.
In the course of the site visit, the physical facilities of your partnership's
property were observed, current rental and occupancy information was obtained,
current local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix or
square footage; and information relating to the condition of the property,
including any deferred maintenance, capital budgets, status of ongoing or newly
planned property additions, reconfigurations, improvements and other factors
affecting the physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the nine month period ending
September 30, 1998, the operating budget for 1998 as prepared by your
partnership and discussed with management the current and anticipated operating
results of your partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improvements, the
terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
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Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view. Stanger has rendered similar fairness opinions with regard to certain
other exchange offers being made by the AIMCO Operating Partnership. Stanger
rendered the opinions only as to the individual fairness of the offer
consideration in each proposed exchange offer.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between your general partner (which is our affiliate), special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited partnership or the terms of any agreements or contracts
between your partnership or AIMCO; (c) AIMCO's or the general partner's business
decision to effect the offer, or alternatives to the offer, (d) the amount or
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allocation of expenses relating to the offer between AIMCO and your partnership
or tendering unitholders; (e) the relative value of the cash, Preferred OP Units
or Common OP Units to be issued in connection with the offer; and (f) any
adjustments made to determine the offer consideration and the net amounts
distributable to the unitholders, including but not limited to, balance sheet
adjustments to reflect your partnership's estimate of the value of current net
working capital balances, reserve accounts, and liabilities, and adjustments to
the offer consideration for distributions made by your partnership subsequent to
the date of the offer.
Stanger is not expressing any opinions as to the fairness of any terms of
the offer other than the offer consideration for the units. Stanger's opinion is
based on business, economic, real estate and capital market, and other
conditions as of the date of its analysis and addresses the offer in the context
of information available as of the date of its analysis. Events occurring after
such date and before the closing of the proposed offer could affect the
partnership's property or the assumptions used in preparing the Fairness
Opinion. Stanger has no obligation to update the Fairness Opinion on the basis
of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix A.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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<PAGE> 62
COMPARISON OF YOUR PARTNERSHIP AND THE
AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP
AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership The AIMCO Operating Partnership is organized
organized under South Carolina law. as a Delaware limited partnership. The AIMCO
Operating Partnership owns interests (either
directly or through subsidiaries) in
numerous multifamily apartment properties.
The AIMCO Operating Partnership conducts
substantially all of the operations of
AIMCO, a corporation organized under
Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited The term of the AIMCO Operating Partnership
partners as a finite life investment, with continues until December 31, 2093, unless
limited partners to receive regular cash the AIMCO Operating Partnership is dissolved
distributions out of your partnership's Net sooner pursuant to the terms of the AIMCO
Cash Receipts (as defined in your Operating Partnership's agreement of limited
partnership's agreement of limited partnership (the "AIMCO Operating
partnership). The termination date of your Partnership Agreement") or as provided by
partnership is October 1, 2017. law. See "Description of OP Units --
General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to The purpose of the AIMCO Operating
construct, own, improve, maintain, operate, Partnership is to conduct any business that
lease and dispose of your partnership's may be lawfully conducted by a limited
property for capital appreciation and the partnership organized pursuant to the
production of income. Subject to Delaware Revised Uniform Limited Part-
restrictions contained in your partnership's nership Act (as amended from time to time,
agreement of limited partnership, your or any successor to such statute) (the
partnership may do all things necessary for "Delaware Limited Partnership Act"),
or incidental to the protection and benefit provided that such business is to be
of your partnership, including, borrowing conducted in a manner that permits AIMCO to
funds and creating liens. be qualified as a REIT, unless AIMCO ceases
to
</TABLE>
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<PAGE> 63
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
qualify as a REIT. The AIMCO Operating
Partnership is authorized to perform any and
all acts for the furtherance of the purposes
and business of the AIMCO Operating
Partnership, provided that the AIMCO
Operating Partnership may not take, or
refrain from taking, any action which, in
the judgment of its general partner could
(i) adversely affect the ability of AIMCO to
continue to qualify as a REIT, (ii) subject
AIMCO to certain income and excise taxes, or
(iii) violate any law or regulation of any
governmental body or agency (unless such ac-
tion, or inaction, is specifically consented
to by AIMCO). Subject to the foregoing, the
AIMCO Operating Partnership may invest in or
enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating
partnership currently invests, and intends
to continue to invest, in a real estate
portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership, The general partner is authorized to issue
with the consent of the limited partners, is additional partnership interests in the
authorized to admit additional limited AIMCO Operating Partnership for any
partners and allow additional capital partnership purpose from time to time to the
contributions by current limited partners. limited partners and to other persons, and
The capital contribution need not be equal to admit such other persons as additional
for all limited partners. limited partners, on terms and conditions
and for such capital contributions as may be
established by the general partner in its
sole discretion. The net capital
contribution need not be equal for all OP
Unitholders. No action or consent by the OP
Unitholders is required in connection with
the admission of any additional OP
Unitholder. See "Description of OP
Units -- Management by the AIMCO GP" in the
accompanying Prospectus. Subject to Delaware
law, any additional partnership interests
may be issued in one or more classes, or one
or more series of any of such classes, with
such designations, preferences and relative,
participating, optional or other special
rights, powers and duties as shall be
determined by the general partner, in its
sole and absolute discretion without the
approval of any OP Unitholder, and set forth
in a written document thereafter attached to
and made an exhibit to the AIMCO Operating
Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
The fact that a partner is employed by, or The AIMCO Operating Partnership may lend or
is directly or indirectly interested in or contribute funds or other assets to its
connected with any subsidiaries or
</TABLE>
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<PAGE> 64
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
person, firm or corporation employed by your other persons in which it has an equity
partnership to render or perform a service, investment, and such persons may borrow
or from whom or which your partnership may funds from the AIMCO Operating Partnership,
buy merchandise or other property, will not on terms and conditions established in the
prohibit the general partners from executing sole and absolute discretion of the general
a lease with or employing such person, firm partner. To the extent consistent with the
or corporation or from otherwise dealing business purpose of the AIMCO Operating
with him or it. Partnership and the permitted activities of
the general partner, the AIMCO Operating
Partnership may transfer assets to joint
ventures, limited liability companies,
partnerships, corporations, business trusts
or other business entities in which it is or
thereby becomes a participant upon such
terms and subject to such conditions
consistent with the AIMCO Operating
Partnership Agreement and applicable law as
the general partner, in its sole and
absolute discretion, believes to be
advisable. Except as expressly permitted by
the AIMCO Operating Partnership Agreement,
neither the general partner nor any of its
affiliates may sell, transfer or convey any
property to the AIMCO Operating Partnership,
directly or indirectly, except pursuant to
transactions that are determined by the
general partner in good faith to be fair and
reasonable.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership may The AIMCO Operating Partnership Agreement
borrow money for partnership purposes, contains no restrictions on borrowings, and
mortgage, pledge or encumber any or all of the general partner has full power and
the property of your partnership as authority to borrow money on behalf of the
securities for such borrowings or as AIMCO Operating Partnership. The AIMCO
security for any purchase money mortgage Operating Partnership has credit agreements
involved in the purchase of your that restrict, among other things, its
partnership's property. ability to incur indebtedness. See "Risk
Factors -- Risks of Significant
Indebtedness" in the accompanying
Prospectus.
</TABLE>
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited Each OP Unitholder has the right, upon
partnership provides that the books of written demand with a statement of the
account, together with a copy of your purpose of such demand and at such OP
partnership's agreement of limited part- Unitholder's own expense, to obtain a
nership and any amendments thereto, will at current list of the name and last known
all times be maintained at the principal business, residence or mailing address of
office of your partnership and will be open the general partner and each other OP
to the reasonable inspection and examination Unitholder.
of the partners or their duly authorized
representatives.
</TABLE>
Management Control
<TABLE>
<S> <C>
The general management, control and conduct All management powers over the business and
of the business of your partnership is affairs of the AIMCO Operating Partnership
vested exclusively in are vested in
</TABLE>
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<PAGE> 65
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
the general partner. All decisions are made AIMCO-GP, Inc., which is the general
by agreement of the general partner. No partner. No OP Unitholder has any right to
limited partner may take part in or participate in or exercise control or
interfere in any manner with the conduct or management power over the business and
control of the business of your partner- affairs of the AIMCO Operating Partner-
ship and no limited partner has the right or ship. The OP Unitholders have the right to
authority to act for or bind your vote on certain matters described under
partnership. "Comparison of Ownership of Your Units and
AIMCO OP Units -- Voting Rights" below. The
general partner may not be removed by the OP
Unitholders with or without cause.
In addition to the powers granted a general
partner of a limited partnership under
applicable law or that are granted to the
general partner under any other provision of
the AIMCO Operating Partnership Agreement,
the general partner, subject to the other
provisions of the AIMCO Operating
Partnership Agreement, has full power and
authority to do all things deemed necessary
or desirable by it to conduct the business
of the AIMCO Operating Partnership, to
exercise all powers of the AIMCO Operating
Partnership and to effectuate the purposes
of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may incur debt
or enter into other similar credit,
guarantee, financing or refinancing
arrangements for any purpose upon such terms
as the general partner determines to be
appropriate, and may perform such other acts
and duties for and on behalf of the AIMCO
Operating Partnership as are provided in the
AIMCO Operating Partnership Agreement. The
general partner is authorized to execute,
deliver and perform certain agreements and
transactions on behalf of the AIMCO
Operating Partnership without any further
act, approval or vote of the OP Unitholders.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of Notwithstanding anything to the contrary set
limited partnership, the general partner of forth in the AIMCO Operating Partnership
your partnership is not liable to the Agreement, the general partner is not liable
limited partners for any act or omission to the AIMCO Operating Partnership for
performed or omitted in good faith, pursuant losses sustained, liabilities incurred or
to the authority granted to them to promote benefits not derived as a result of errors
the interests of your partnership, except in judgment or mistakes of fact or law of
for any act or omission which constitutes any act or omission if the general partner
fraud or gross negligence. However, your acted in good faith. The AIMCO Operating
partnership's agreement of limited part- Partnership Agreement provides for
nership does not provide for indemnification indemnification of AIMCO, or any director or
of the general partner and its affiliates. officer of AIMCO (in its capacity as the
previous general partner of the AIMCO
Operating Partnership), the general partner,
any officer or director of general partner
or the AIMCO Operating Partner-
</TABLE>
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YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ship and such other persons as the general
partner may designate from and against all
losses, claims, damages, liabilities, joint
or several, expenses (including legal fees),
fines, settlements and other amounts
incurred in connection with any actions
relating to the operations of the AIMCO
Operating Partnership, as set forth in the
AIMCO Operating Partnership Agreement. The
Delaware Limited Partnership Act provides
that subject to the standards and
restrictions, if any, set forth in its
partnership agreement, a limited partnership
may, and shall have the power to, indemnify
and hold harmless any partner or other
person from and against any and all claims
and demands whatsoever. It is the position
of the Securities and Exchange Commission
that indemnification of directors and
officers for liabilities arising under the
Securities Act is against public policy and
is unenforceable pursuant to Section 14 of
the Securities Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Your partnership's agreement of limited Except in limited circumstances, the general
partnership does not provide for the removal partner has exclusive management power over
of a general partner by the limited the business and affairs of the AIMCO
partners. A general partner may not withdraw Operating Partnership. The general partner
from your partnership without the written may not be removed as general partner of the
consent of limited partners owning 75% of AIMCO Operating Partnership by the OP
the units. The unanimous written consent of Unitholders with or without cause. Under the
all partners is necessary to admit a new AIMCO Operating Partnership Agreement, the
general partner. A limited partner may general partner may, in its sole discretion,
transfer its interest in accordance with prevent a transferee of an OP Unit from
applicable law but such transferee does not becoming a substituted limited partner
become a substituted limited partner without pursuant to the AIMCO Operating Partnership
the consent of the general partner and the Agreement. The general partner may exercise
limited partners. this right of approval to deter, delay or
hamper attempts by persons to acquire a
controlling interest in the AIMCO Operating
Partnership. Additionally, the AIMCO
Operating Partnership Agreement contains
restrictions on the ability of OP
Unitholders to transfer their OP Units. See
"Description of OP Units -- Transfers and
Withdrawals" in the accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited With the exception of certain circumstances
partnership does not provide for amendments. set forth in the AIMCO Operating Partnership
However, your partnership's agreement of Agreement, whereby the general partner may,
limited partnership has been amended without the consent of the OP Unitholders,
subsequent to its original filing. amend the AIMCO Operating Partnership
Agreement, amendments to the AIMCO Operating
Partnership Agreement require the consent of
the holders of a majority of the
</TABLE>
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<PAGE> 67
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
outstanding Common OP Units, excluding AIMCO
and certain other limited exclusions (a
"Majority in Interest"). Amendments to the
AIMCO Operating Partnership Agreement may be
proposed by the general partner or by
holders of a Majority in Interest. Following
such proposal, the general partner will
submit any proposed amendment to the OP
Unitholders. The general partner will seek
the written consent of the OP Unitholders on
the proposed amendment or will call a
meeting to vote thereon. See "Description of
OP Units -- Amendment of the AIMCO Operating
Partnership Agreement" in the accompanying
Prospectus.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in The general partner does not receive
respect of its partnership interest and compensation for its services as general
reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership.
set forth in your partnership's agreement of However, the general partner is entitled to
limited partnership, the general partner payments, allocations and distributions in
receives no fee for its services as general its capacity as general partner of the AIMCO
partner. Moreover, the general partner or Operating Partnership. In addition, the
certain affiliates may be entitled to AIMCO Operating Partnership is responsible
compensation for additional services for all expenses incurred relating to the
rendered. AIMCO Operating Partnership's ownership of
its assets and the operation of the AIMCO
Operating Partnership and reimburses the
general partner for such expenses paid by
the general partner. The employees of the
AIMCO Operating Partnership receive
compensation for their services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Under South Carolina law, the limited Except for fraud, willful misconduct or
partners are not liable directly or gross negligence, no OP Unitholder has
indirectly for debts, obligations and personal liability for the AIMCO Operating
liabilities of your partnership. However, if Partnership's debts and obligations, and
a limited partner takes actions on behalf of liability of the OP Unitholders for the
your partnership, such limited partner will AIMCO Operating Partnership's debts and
be responsible for any liability which may obligations is generally limited to the
result from such actions. amount of their investment in the AIMCO
Operating Partnership. However, the
limitations on the liability of limited
partners for the obligations of a limited
partnership have not been clearly
established in some states. If it were
determined that the AIMCO Operating Part-
nership had been conducting business in any
state without compliance with the applicable
limited partnership statute, or that the
right or the exercise of the right by the
holders of OP Units as a group to make
certain amendments to the AIMCO Operating
Partnership Agreement or to take other
action pursuant to the AIMCO Operating
Partnership Agreement constituted
participation in the "control" of the
</TABLE>
S-62
<PAGE> 68
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
AIMCO Operating Partnership's business, then
a holder of OP Units could be held liable
under certain circumstances for the AIMCO
Operating Partnership's obligations to the
same extent as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
The general partner of your partnership may Unless otherwise provided for in the
engage in or possess an interest in other relevant partnership agreement, Delaware law
business ventures of every nature and generally requires a general partner of a
description, including but not limited to Delaware limited partnership to adhere to
the ownership, financing, leasing, fiduciary duty standards under which it owes
operation, management, syndication, its limited partners the highest duties of
brokerage and development of real property; good faith, fairness and loyalty and which
and neither your partnership nor the generally prohibit such general partner from
partners will have any rights in or to such taking any action or engaging in any
independent ventures or to the income or transaction as to which it has a conflict of
profits derived therefrom. See "Your interest. The AIMCO Operating Partnership
Partnership -- Fiduciary Responsibility of Agreement expressly authorizes the general
the General Partner of Your Partnership." partner to enter into, on behalf of the
AIMCO Operating Partnership, a right of
In general, your partnership's agreement of first opportunity arrangement and other
limited partnership and the AIMCO Operating conflict avoidance agreements with various
Partnership Agreement have limitations on affiliates of the AIMCO Operating
the liability of the general partner but Partnership and the general partner, on such
such limitations differ in terms and provide terms as the general partner, in its sole
more protection for the general partner of and absolute discretion, believes are
the AIMCO Operating Partnership. advisable. The AIMCO Operating Partnership
Agreement expressly limits the liability of
the general partner by providing that the
general partner, and its officers and
directors will not be liable or accountable
in damages to the AIMCO Operating
Partnership, the limited partners or as-
signees for errors in judgment or mistakes
of fact or law or of any act or omission if
the general partner or such director or
officer acted in good faith. See
"Description of OP Units -- Fiduciary
Responsibilities" in the accompanying
Prospectus.
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
In general, there are no material The AIMCO Operating Partnership is not
differences between the taxation of your subject to Federal income taxes. Instead,
partnership and the AIMCO Operating each holder of OP Units includes in income
Partnership. its allocable share of the AIMCO Operating
Partnership's taxable income or loss when it
determines its individual Federal income tax
liability.
Income and loss from the AIMCO Operating
Partnership may be subject to the passive
activity limitations. If an investment in an
OP Unit is treated as a passive activity,
income and loss from the AIMCO Operating
Partnership generally can be offset against
income and loss from other investments that
constitute "passive activities" (unless the
AIMCO Oper-
</TABLE>
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<PAGE> 69
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ating Partnership is considered a "publicity
traded partnership", in which case income
and loss from the AIMCO Operating
Partnership can only be offset against other
income and loss from the AIMCO Operating
Partnership). Income of the AIMCO Op-
erating Partnership, however, attributable
to dividends from the Management
Subsidiaries (as defined below) or interest
paid by the Management Subsidiaries does not
qualify as passive activity income and
cannot be offset against losses from "pas-
sive activities."
Cash distributions by the AIMCO Operating
Partnership are not taxable to a holder of
OP Units except to the extent they exceed
such Partner's basis in its interest in the
AIMCO Operating Partnership (which will
include such OP Unitholder's allocable share
of the AIMCO Operating Partnership's nonre-
course debt).
Each year, OP Unitholders receive a Schedule
K-1 tax form containing tax information for
inclusion in preparing their Federal income
tax returns.
OP Unitholders are required, in some cases,
to file state income tax returns and/or pay
state income taxes in the states in which
the AIMCO Operating Partnership owns
property or transacts business, even if they
are not residents of those states. The AIMCO
Operating Partnership may be required to pay
state income taxes in certain states.
</TABLE>
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS
PREFERRED OP UNITS
COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in The Preferred OP Units The Common OP Units consti-
your partnership constitute constitute equity interests tute equity interests
equity interests entitling entitling each holder of entitling each OP Unitholder
each partner to its pro rata Preferred OP Units, when and to such partner's pro rata
share of distributions to be as declared by the board of share of cash distribu-
made to the partners of your directors of the general tions made from Available
partnership. partner of the AIMCO Cash (as such term is
Operating Partnership, defined in the AIMCO
quarterly cash distri- Operating Partnership
bution at a rate of $.50 per Agreement) to the partners
Preferred OP Unit, subject of the AIMCO Operating
to adjustments from time to Partnership. To the extent
time on or after the fifth the AIMCO Operating
anniversary of the issue Partnership sells or
date of the Preferred OP refinances its assets, the
Units. net proceeds therefrom
generally will be
</TABLE>
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<PAGE> 70
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
retained by the AIMCO
Operating Partnership for
working capital and new
investments rather than
being distributed to the OP
Unitholders (including
AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's Except as otherwise required Under the AIMCO Operating
agreement of limited by applicable law or in the Partnership Agreement, the
partnership, the approval of AIMCO Operating Partnership OP Unitholders have voting
holders of 75% of the units Agreement, the holders of rights only with respect to
is needed to approve the the Preferred OP Units will certain limited matters such
withdrawal of a general have the same voting rights as certain amendments and
partner and to send a notice as holders of the Common OP termination of the AIMCO
to the general partner Units. See "Description of Operating Partnership
stating that they have OP Units" in the accompany- Agreement and certain
determined that your ing Prospectus. So long as transactions such as the
partnership is dissolving any Preferred OP Units are institution of bankruptcy
due to an action by the outstanding, in addition to proceedings, an assignment
general partners making it any other vote or consent of for the benefit of creditors
impossible for your partners required by law or and certain transfers by the
partnership to carry on its by the AIMCO Operating general partner of its
business in a normal Partnership Agreement, the interest in the AIMCO
fashion. Within thirty days affirmative vote or consent Operating Partnership or the
of such notice, if all of of holders of at least 50% admission of a successor
the limited partners agree of the outstanding Preferred general partner.
to continue the business of OP Units will be necessary
your partnership, a new for effecting any amendment Under the AIMCO Operating
general partner may be of any of the provisions of Partnership Agreement, the
elected to carry on the the Partnership Unit general partner has the
business of your Designation of the Preferred power to effect the
partnership. Upon the vote OP Units that materially and acquisition, sale, transfer,
of the general partner and adversely affects the rights exchange or other
the limited partners owning or preferences of the disposition of any assets of
at least 67% of the units, holders of the Preferred OP the AIMCO Operating
your partnership may Units. The creation or Partnership (including, but
dissolve and may sell all or issuance of any class or not limited to, the exercise
substantially all of its series of partnership units, or grant of any conversion,
interest in all partnership including, without option, privilege or
assets. The consent of the limitation, any partner- subscription right or any
general partner and all ship units that may have other right available in
limited partners is rights senior or superior to connection with any assets
necessary to admit a general the Preferred OP Units, at any time held by the
partner or a limited shall not be deemed to AIMCO Operating Partnership)
partner. materially adversely affect or the merger,
the rights or preferences of consolidation,
In general, you have greater the holders of Preferred OP reorganization or other
voting rights in your Units. With respect to the combination of the AIMCO
partnership than you will exercise of the above Operating Partnership with
have as an OP Unitholder. OP described voting rights, or into another entity, all
Unitholders cannot remove each Preferred OP Units without the consent of the
the general partner of the shall have one (1) vote per OP Unitholders.
AIMCO Operating Partnership. Preferred OP Unit.
The general partner may
cause the dissolution of the
AIMCO Operating Partnership
by an "event of withdrawal,"
as defined
</TABLE>
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<PAGE> 71
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
in the Delaware Limited
Partnership Act (including,
without limitation,
bankruptcy), unless, within
90 days after the with-
drawal, holders of a
"majority in interest," as
defined in the Delaware
Limited Partnership Act,
agree in writing, in their
sole and absolute
discretion, to continue the
business of the AIMCO Op-
erating Partnership and to
the appointment of a
successor general partner.
The general partner may
elect to dissolve the AIMCO
Operating Partnership in its
sole and absolute
discretion, with or with-
out the consent of the OP
Unitholders. See
"Description of OP
Units -- Dissolution and
Winding Up" in the
accompanying Prospectus.
OP Unitholders cannot remove
the general partner of the
AIMCO Operating Partnership
with or without cause.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement Holders of Preferred OP Subject to the rights of
of limited partnership Units will be entitled to holders of any outstanding
specifies how the cash receive, when and as Preferred OP Units, the
available for distribution, declared by the board of AIMCO Operating Partnership
whether arising from directors of the general Agreement requires the
operations or sales or partner of the AIMCO general partner to cause the
refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership
among the partners. Dis- quarterly cash distributions to distribute quarterly all,
tributions of Net Cash at the rate of $.50 per or such portion as the
Receipts are disbursed at Preferred OP Unit; provided, general partner may in its
reasonable intervals as however, that at any time sole and absolute discretion
determined by the general and from time to time on or determine, of Available Cash
partners in their absolute after the fifth anniversary (as defined in the AIMCO
discretion. of the issue date of the Operating Partnership
Preferred OP Units, the Agreement) generated by the
AIMCO Operating Partnership AIMCO Operating Partnership
may adjust the annual during such quarter to the
distribution rate on the general partner, the special
Preferred OP Units to the limited partner and the
lower of (i) % plus the holders of Common OP Units
annual interest rate then on the record date es-
applicable to U.S. Treasury tablished by the general
notes with a maturity of partner with respect to such
five years, and (ii) the quarter, in accordance with
annual dividend rate on the their respective interests
most recently issued AIMCO in the AIMCO Operat-
non-convertible preferred
stock which
</TABLE>
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<PAGE> 72
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
ranks on a parity with its ing Partnership on such
Class H Cumulative Preferred record date. Holders of any
Stock. Such distributions other Preferred OP Units
will be cumulative from the issued in the future may
date of original issue. have priority over the
Holders of Preferred OP general partner, the special
Units will not be entitled limited partner and holders
to receive any distributions of Common OP Units with
in excess of cumulative respect to distributions of
distributions on the Available Cash,
Preferred OP Units. No distributions upon
interest, or sum of money in liquidation or other
lieu of interest, shall be distributions. See "Per
payable in respect of any Share and Per Unit Data" in
distribution payment or pay- the accompanying Prospectus.
ments on the Preferred OP
Units that may be in The general partner in its
arrears. sole and absolute discretion
may distribute to the OP
When distributions are not Unitholders Available Cash
paid in full upon the on a more frequent basis and
Preferred OP Units or any provide for an appropriate
Parity Units, all record date.
distributions declared upon
the Preferred OP Units and The AIMCO Operating Partner-
any Parity Units shall be ship Agreement requires the
declared ratably in general partner to take such
proportion to the respective reasonable efforts, as
amounts of distributions determined by it in its sole
accumulated, accrued and and absolute discretion and
unpaid on the Preferred OP consistent with AIMCO's
Units and such Parity Units. qualification as a REIT, to
Unless full cumulative cause the AIMCO Operating
distributions on the Partnership to distribute
Preferred OP Units have been sufficient amounts to enable
declared and paid, except in the general partner to
limited circumstances, no transfer funds to AIMCO and
distributions may be enable AIMCO to pay
declared or paid or set stockholder dividends that
apart for payment by the will (i) satisfy the
AIMCO Operating Partnership requirements for qualifying
and no other distribution of as a REIT under the Code and
cash or other property may the Treasury Regulations and
be declared or made, (ii) avoid any Federal
directly or indirectly, by income or excise tax
the AIMCO Operating liability of AIMCO. See
Partnership with respect to "Description of OP
any Junior Units, nor shall Units -- Distributions" in
any Junior Units be the accompanying Prospectus.
redeemed, purchased or
otherwise acquired for
consideration, nor shall any
other cash or other property
be paid or distributed to or
for the benefit of holders
of Junior Units. See
"Description of Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<CAPTION>
<S> <C> <C>
A limited partner may not There is no public market There is no public market
mortgage its interest but for the Preferred OP Units for the OP Units. The AIMCO
may other- and the Pre- Operat-
</TABLE>
S-67
<PAGE> 73
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
wise assign, sell or dispose ferred OP Units are not ing Partnership Agreement
of its interest in listed on any securities restricts the
accordance with applicable exchange. The Preferred OP transferability of the OP
law. A transferee may be- Units are subject to Units. Until the expiration
come a substituted limited restrictions on transfer as of one year from the date on
partner upon the approval of set forth in the AIMCO which an OP Unitholder
the general partner and the Operating Partnership acquired OP Units, subject
consent of the limited Agreement. to certain exceptions, such
partners. OP Unitholder may not
There are no redemption Pursuant to the AIMCO transfer all or any por-
rights associated with your Operating Partnership tion of its OP Units to any
units. Agreement, until the transferee without the
expiration of one year from consent of the general
the date on which a holder partner, which consent may
of Preferred OP Units be withheld in its sole and
acquired Preferred OP Units, absolute discretion. After
subject to certain the expiration of one year,
exceptions, such holder of such OP Unitholder has the
Preferred OP Units may not right to transfer all or any
transfer all or any portion portion of its OP Units to
of its Preferred OP Units to any person, subject to the
any transferee without the satisfaction of certain con-
consent of the general ditions specified in the
partner, which consent may AIMCO Operating Partnership
be withheld in its sole and Agreement, including the
absolute discretion. After general partner's right of
the expiration of one year, first refusal. See
such holders of Preferred OP "Description of OP Units --
Units has the right to Transfers and Withdrawals"
transfer all or any portion in the accompanying
of its Preferred OP Units to Prospectus.
any person, subject to the
satisfaction of certain After the first anniversary
conditions specified in the of becoming a holder of
AIMCO Operating Partner- Common OP Units, an OP
ship Agreement, including Unitholder has the right,
the general partner's right subject to the terms and
of first refusal. conditions of the AIMCO
Operating Partnership
After a one-year holding Agreement, to require the
period, a holder may redeem AIMCO Operating Partnership
Preferred OP Units and to redeem all or a portion
receive in exchange of the Common OP Units held
therefor, at the AIMCO by such party in exchange
Operating Partnership's for a cash amount based on
option, (i) subject to the the value of shares of Class
terms of any Senior Units, A Common Stock. See
cash in an amount equal to "Description of OP
the Liquidation Preference Units -- Redemption Rights"
of the Preferred OP Units in the accompanying
tendered for redemption, Prospectus. Upon receipt of
(ii) a number of shares of a notice of redemption, the
Class I Cumulative Preferred AIMCO Operating Partnership
Stock of AIMCO that pay an may, in its sole and
aggregate amount of absolute discretion but
dividends yield equivalent subject to the restrictions
to the distributions on the on the ownership of Class A
Preferred OP Units tendered Common Stock imposed under
for redemption and are part AIMCO's charter and the
of a class or series of transfer restrictions and
preferred stock that is then other limitations thereof,
listed on the New elect to cause AIMCO to
</TABLE>
S-68
<PAGE> 74
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
York Stock Exchange or acquire some or all of the
another national securities tendered Common OP Units in
exchange, or (iii) a number exchange for Class A Common
of shares of Class A Common Stock, based on an exchange
Stock of AIMCO that is equal ratio of one share of Class
in Value to the Liquidation A Common Stock for each
Preference of the Preferred Common OP Unit, subject to
OP Units tendered for adjustment as provided in
redemption. The Preferred OP the AIMCO Operating
Units may not be redeemed at Partnership Agreement.
the option of the AIMCO Op-
erating Partnership. See
"Description of Preferred OP
Units -- Redemption."
</TABLE>
S-69
<PAGE> 75
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, the Class J Partnership Preferred Units, and with any other interest in
the AIMCO Operating Partnership if the holders of such interest and the
Preferred OP Units shall be entitled to the receipt of distributions and amounts
distributable upon liquidation, dissolution or winding up in proportion to their
respective amounts of accumulated, accrued and unpaid distributions or stated
preferences, without preference or priority of one over the other ("Parity
Units"); and (iii) junior to the Class F Partnership Preferred Units and any
other interest in the AIMCO Operating Partnership if the holders of such
interest shall be entitled to the receipt of distributions or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Preferred OP Units ("Senior Units"). Junior
Units, Parity Units and Senior Units may be issued from time to time by the
AIMCO Operating Partnership without any approval or consent by holders of the
Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP
Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference);
provided, however, that at any time and from time to time on or after the fifth
anniversary of the issue date of the Preferred OP Units, the AIMCO Operating
Partnership may adjust the annual distribution rate on the Preferred OP Units to
the lower of (i) % plus the annual interest rate then applicable to U.S.
Treasury notes with a maturity of five years, and (ii) the annual dividend rate
on the most recently issued AIMCO non-convertible preferred stock which ranks on
a parity with its Class H Cumulative Preferred Stock. A reduction in the
distribution rate will reduce your rate of return on the Preferred OP Units and
possibly encourage you to redeem such Units. Such adjustment shall become
effective upon the date the AIMCO Operating Partnership issues a notice to such
effect to the holders of the Preferred OP Units. Such distributions are
cumulative from the date of original issue, whether or not in any distribution
period or periods such distributions have been declared, and shall be payable
quarterly on February 15, May 15, August 15 and November 15 of each year (or, if
not a business day, the next succeeding business day) (each a "Distribution
Payment Date"), commencing on the first such date occurring after the date of
original issue. If the Preferred OP Units are issued on any day other than a
Distribution Payment Date, the first distribution payable on such Preferred OP
Units will be prorated for the portion of the quarterly period that such
Preferred OP Units are outstanding on the basis of twelve 30-day months and a
360-day year. Distributions are payable in arrears to holders of record as they
appear on the records of the AIMCO Operating Partnership at the close of
business on the February 1, May 1, August 1 or November 1, as the case may be,
immediately preceding each Distribution Payment Date. Holders of Preferred OP
Units will not be entitled to receive any distributions in
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<PAGE> 76
excess of cumulative distributions on the Preferred OP Units. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $25 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (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 allocation of income or gain. Until the holders of the Preferred OP
Units have been paid the Liquidation Preference in full, no allocation of income
or gain will be made to any holder of Junior Units upon the liquidation,
dissolution or winding up of the AIMCO Operating Partnership. If, upon any
liquidation, dissolution or winding up of the AIMCO Operating Partnership, the
assets of the AIMCO Operating Partnership, or proceeds thereof, distributable
among the holders of Preferred OP Units shall be insufficient to pay in full the
above described preferential amount and liquidating payments on any Parity
Units, then following certain allocations made by the AIMCO Operating
S-71
<PAGE> 77
Partnership, such assets, or the proceeds thereof, shall be distributed among
the holders of Preferred OP Units and any such Parity Units ratably in the same
proportion as the respective amounts that would be payable on such Preferred OP
Units and any such Parity Units if all amounts payable thereon were paid in
full. A voluntary or involuntary liquidation, dissolution or winding up of the
AIMCO Operating Partnership will not include a consolidation or merger of the
AIMCO Operating Partnership with one or more partnerships, corporations or other
entities, or a sale or transfer of all or substantially all of the AIMCO
Operating Partnership's assets. Upon any liquidation, dissolution or winding up
of the AIMCO Operating Partnership, after all allocations shall have been made
in full to the holders of Preferred OP Units and any Parity Units to enable them
to receive their Liquidation Preference, any Junior Units shall be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Preferred OP Units and any Parity Units shall not be entitled to share
therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the NYSE or another national
securities exchange, or (iii) a number of shares of Class A Common Stock of
AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP
Units tendered for redemption. The "Value" of shares of Class A Common Stock
will be determined based on a 10-day average trading price of the shares, as set
forth in the AIMCO Operating Partnership's agreement of limited partnership. If
shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in
exchange for any Preferred OP Units tendered for redemption, the Preferred OP
Units that are acquired by AIMCO will be converted to a class of AIMCO Operating
Partnership units that corresponds to the class of stock so issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred
Stock and with any other class or series of capital stock of AIMCO, if the
holders of such class of stock or series and the Class I Preferred Stock are
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 ("Class I Parity Stock") and (c) ranks
junior to any class or series of capital stock of AIMCO if the holders of such
class or series are 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 I Preferred Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to
$2.00 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 January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
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 are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I 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 I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred 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 shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO 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 AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred 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 AIMCO. 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 Class I Preferred 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 Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND
CLASS I PREFERRED STOCK
PREFERRED OP UNITS
CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an
interests entitling each holder of Preferred equity interest entitling each holder of
OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and
the board of directors of the general as declared by the AIMCO board of directors,
partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per
quarterly cash distribution at a rate of annum per share.
$.50 per Preferred OP Unit, subject to
adjustments from time to time on or after
the fifth anniversary of the issue date of
the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable Holders of Class I Preferred Stock do not
law or in the AIMCO Operating Partnership's have any voting rights, except as set forth
agreement of limited partnership, the below and except as otherwise required by
holders of the Preferred OP Units will have applicable law.
the same voting rights as holders of the
Common OP Units. See "Description of OP If and whenever dividends on any shares of
Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or
long as any Preferred OP Units are class of Class I Parity Stock are in arrears
outstanding, in addition to any other vote for six or more quarterly periods (whether
or consent of partners required by law or by or not consecutive), the number of directors
the AIMCO Operating Partnership's agreement then constituting the AIMCO board of
of limited partnership, the affirmative vote directors shall be increased by two (if not
or consent of holders of at least 50% of the already increased by reason of similar types
outstanding Preferred OP Units will be of provisions with respect to shares of
necessary for effecting any amendment of any voting preferred stock), and the holders of
of the provisions of the Partnership Unit shares of Class I Preferred Stock, together
Designation of the Preferred OP Units that with the holders of shares of all other
materially and adversely affects the rights voting preferred stock then entitled to
or preferences of the holders of the exercise similar voting rights, voting as a
Preferred OP Units. The creation or issuance single class regardless of series, will be
of any class or series of AIMCO Operating entitled to vote for the election of two
Partnership units, including, without additional directors of AIMCO. Whenever
limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the
units that may have rights senior or current quarterly dividend period have been
superior to the Preferred OP Units, will not paid or declared and set aside in respect of
be deemed to materially adversely affect the the outstanding shares of the Class I
rights or preferences of the holders of Preferred Stock and the voting preferred
Preferred OP Units. With respect to the stock, then the right of the holders of
exercise of the above described voting Class I Preferred Stock and the voting
rights, each Preferred OP Units will have preferred stock to elect such additional two
one (1) vote per Preferred OP Unit. directors will cease and the terms of office
of such directors will terminate.
The affirmative vote or consent of at least
66 2/3% of the votes entitled to be cast by
the holders of Class I Preferred Stock and
Class I Parity Stock entitled to vote on
such matters, voting as a single class, will
be required to (i) authorize, create,
increase the authorized amount of, or issue
any shares of any class of Class I Senior
Stock or any security convertible into
shares of any class of Class I Senior Stock,
or (ii) amend, alter or repeal any provision
of, or add any provision to, the AIMCO
charter or by-laws, if such action would
materially adversely affect the
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
voting powers, rights or preferences of the
holders of the Class I Preferred Stock;
provided, however, that no such vote of the
Class I Preferred Stockholders shall be
required if, at or prior to the time such
proposed change, provisions are made for the
redemption of all outstanding shares of
Class I Preferred Stock. The amendment of
the AIMCO charter to authorize, create,
increase or decrease the authorized amount
of or to issue Class I Junior Stock, Class I
Preferred Stock or any shares of any class
of Class I Parity Stock shall not be deemed
to materially adversely affect the voting
powers, rights or preferences of the holders
of Class I Preferred Stock.
With respect to the exercise of the above
described voting rights, each share of Class
I Preferred Stock will have one vote per
share, except that when any other class or
series of preferred stock has the right to
vote with the Class I Preferred Stock as a
single class, then the Class I Preferred
Stock and such other class or series shall
have one quarter of one vote per $25 of
stated liquidation preference.
</TABLE>
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are
to receive, when and as declared by the entitled to receive, when and as declared by
board of directors of the general partner of the AIMCO board of directors, out of funds
the AIMCO Operating Partnership, quarterly legally available for payment, cash
cash distributions at the rate of $.50 per dividends at the rate of $2.00 per annum per
Preferred OP Unit; provided, however, that share. Such dividends are cumulative from
at any time and from time to time on or the date of original issue. Holders of Class
after the fifth anniversary of the issue I Preferred Stock are not be entitled to
date of the Preferred OP Units, the AIMCO receive any dividends in excess of
Operating Partnership may adjust the annual cumulative dividends on the Class I Pre-
distribution rate on the Preferred OP Units ferred Stock. No interest, or sum of money
to the lower of (i) % plus the annual in lieu of interest, shall be payable in
interest rate then applicable to U.S. respect of any dividend payment or payments
Treasury notes with a maturity of five on the Class I Preferred Stock that may be
years, and (ii) the annual dividend rate on in arrears.
the most recently issued AIMCO
non-convertible preferred stock which ranks When dividends are not paid in full upon the
on a parity with its Class H Cumulative Class I Preferred Stock or any other class
Preferred Stock. Such distributions will be or series of Class I Parity Stock, all
cumulative from the date of original issue. dividends declared upon the Class I
Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I
entitled to receive any distributions in Parity Stock will be declared ratably in
excess of cumulative distributions on the proportion to the respective amounts of
Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on
money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I
in respect of any distribution payment or Parity Stock. Unless dividends equal to the
payments on the Preferred OP Units that may full amount of all accumulated, accrued and
be in arrears. unpaid dividends on the Class I Preferred
Stock have been paid, or declared and set
When distributions are not paid in full upon apart for payment, except in limited
the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared
all distributions declared upon the or paid or set apart for payment by AIMCO
Preferred OP Units and any and no other distribution of cash or other
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
Parity Units will be declared ratably in property may be declared or made, directly
proportion to the respective amounts of or indirectly, by AIMCO with respect to any
distributions accumulated, accrued and shares of Class I Junior Stock, nor shall
unpaid on the Preferred OP Units and such any shares of Class I Junior Stock be
Parity Units. Unless full cumulative redeemed, purchased or otherwise acquired
distributions on the Preferred OP Units have for any consideration, nor shall any other
been declared and paid, except in limited cash or other property be paid or
circumstances, no distributions may be distributed to or for the benefit of holders
declared or paid or set apart for payment by of shares of Class I Junior Stock. See
the AIMCO Operating Partnership and no other "Description of Class I Preferred
distribution of cash or other property may Stock -- Dividends."
be declared or made, directly or indirectly,
by the AIMCO Operating Partnership with
respect to any Junior Units, nor shall any
Junior Units be redeemed, purchased or
otherwise acquired for consideration, nor
shall any other cash or other property be
paid or distributed to or for the benefit of
holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred Ownership of shares of Class I Preferred
OP Units and the Preferred OP Units are not Stock by any person will be limited such
listed on any securities exchange. The that the sum of the aggregate value of all
Preferred OP Units are subject to certain equity stock (including all shares of Class
restrictions on transferability set forth in I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed
8.7% (or 15% in the case of certain parties)
Pursuant to the AIMCO Operating of the aggregate value of all outstanding
Partnership's agreement of limited shares of equity stock. Further, certain
partnership, until the expiration of one transfers which may have the effect of
year from the date on which a holder of causing AIMCO to lose its status as a REIT
Preferred OP Units acquired Preferred OP are void ab initio.
Units, subject to certain exceptions, such
holder of Preferred OP Units may not If any transfer of Class I Preferred Stock
transfer all or any portion of its Preferred occurs which, if effective, would result in
OP Units to any transferee without the any person beneficially or constructively
consent of the general partner, which owning Class I Preferred Stock in excess or
consent may be withheld in its sole and in violation of the Class I Preferred
absolute discretion. After the expiration of Ownership Limit, such shares of Class I
one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I
has the right to transfer all or any portion Preferred Ownership Limit will be
of its Preferred OP Units to any person, automatically transferred to a trustee in
subject to the satisfaction of certain his capacity as trustee of a trust for the
conditions specified in the AIMCO Operating exclusive benefit of one or more charitable
Partnership's agreement of limited beneficiaries designated by AIMCO, and the
partnership, including the general partner's prohibited transferee will generally have no
right of first refusal. rights in such shares, except upon sale of
the shares by the trustee. The trustee will
After a one-year holding period, a holder have all voting rights and rights to
may redeem Preferred OP Units and receive in dividends with respect to shares of Class I
exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which
Partnership's option, (i) subject to the rights will be exercised for the benefit of
terms of any Senior Units, cash in an amount the charitable beneficiaries.
equal to the Liquidation Preference of the
Preferred OP Units tendered for redemp- The trustee may sell the Class I Preferred
tion, (ii) a number of shares of preferred Stock held in the trust to AIMCO or a
stock of AIMCO that have an aggregate person, designated by the trustee, whose
dividend yield ownership of the Class I Preferred Stock
will not violate the Class I Preferred
Owner-
</TABLE>
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PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
equivalent to the distribution yield of the ship Limit. Upon such sale, the interest of
Preferred OP Units tendered for redemption the charitable beneficiaries in the shares
and are part of a class or series of sold will terminate and the trustee will
preferred stock that is then listed on the distribute to the prohibited transferee, the
New York Stock Exchange or another national lesser of (i) the price paid by the
securities exchange, or (iii) a number of prohibited transferee for the shares or if
shares of Class A Common Stock of AIMCO that the prohibited transferee did not give value
is equal in value to the Liquidation for the shares in connection with the event
Preference of the Preferred OP Units causing the shares to be held in the trust,
tendered for redemption. The Preferred OP the market price of such shares on the day
Units may not be redeemed at the option of of the event causing the shares to be held
the AIMCO Operating Partnership. See in the trust and (ii) the price per share
"Description of Preferred OP received by the trustee from the sale or
Units -- Redemption." other disposition of the shares held in the
trust. Any proceeds in excess of the amount
payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO
may, at its option, redeem shares of Class I
Preferred Stock, in whole or from time to
time in part, at a cash redemption price
equal to 100% of the Class I Liquidation
Preference plus all accumulated, accrued and
unpaid dividends to the date fixed for
redemption. If full cumulative dividends on
all outstanding shares of Class I Preferred
Stock have not been paid or declared and set
apart for payment, no shares of Class I
Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred
Stock are simultaneously redeemed and
neither AIMCO nor any of its affiliates may
purchase or acquire shares of Class I
Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same
terms to all holders of Class I Preferred
Stock. The redemption price for the Class I
Preferred Stock (other than any portion
thereof consisting of accumulated, accrued
and unpaid dividends) will be payable solely
with the proceeds from the sale by AIMCO of
capital stock of AIMCO or the sale by the
AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership
(whether or not such sale occurs
concurrently with such redemption).
</TABLE>
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CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a majority-owned subsidiary
of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the
general partner of your partnership is an affiliate of the AIMCO Operating
Partnership and, therefore, has substantial conflicts of interest with respect
to the offer. The general partner of your partnership has a fiduciary obligation
to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has
a duty to remove the property manager for your partnership's property, under
certain circumstances, even though the property manager is also an affiliate of
AIMCO. The conflicts of interest include the fact that a decision to remove, for
any reason, the general partner of your partnership from its current position as
a general partner of your partnership would result in a decrease or elimination
of the substantial management fees paid to an affiliate of the general partner
of your partnership for managing your partnership property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We have a majority ownership interest in both the general partner of your
partnership and the manager of your partnership's property. The general partner
of your partnership receives no fee for its services as general partner but may
receive reimbursements for expenses incurred in that capacity. The general
partner of your partnership received total fees and reimbursements of $18,540 in
1996, $22,628 in 1997 and $6,364 for the first nine months of 1998. The property
manager received management fees of $108,745 in 1996, $112,600 in 1997 and
$88,821 for the first nine months of 1998. The AIMCO Operating Partnership has
no current intention of changing the fee structure for the manager of your
partnership's property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
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YOUR PARTNERSHIP
GENERAL
Shannon Manor Apartments, a Limited Partnership is a South Carolina limited
partnership which raised net proceeds in 1972 through a private offering.
Insignia acquired your partnership in November, 1992. AIMCO acquired Insignia in
October, 1998. There are currently a total of 17 limited partners of your
partnership and a total of 9,649 units of your partnership outstanding. Your
partnership is in the business of owning and managing residential housing.
Currently, your partnership owns and manages the property described below. Your
partnership has no employees. As of September 30, 1998, there were 9,649 units
issued and outstanding, which were held of record by 17 limited partners. Your
partnership's principal executive offices are located at 1873 South Bellaire
Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that
address is (303) 757-8101
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on December 22, 1972 for the purpose of owning
an apartment property located in Durham, North Carolina, known as "Shannon
Manor." Your partnership's property consists of 230 apartment units. There are
24 one-bedroom apartments, 138 two-bedroom apartments and 68 three-bedroom
apartments. Your partnership's property had an average occupancy rate of
approximately 98.26% in 1996 and 98.26% in 1997.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/ dryer, microwave, fireplace, and patio/balcony.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of September 30, 1998, your partnership had a current note
payable outstanding of $2,245,668, payable to USGI, Inc., which bears interest
at a rate of 7.00%. The note payable is due on August 2014. Your partnership's
agreement of limited partnership also allows the general partner of your
partnership to lend funds to your partnership. As of September 30, 1998, your
general partner had no loans outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
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HISTORY OF THE PARTNERSHIP
Your partnership raised sufficient funds to purchase certain property and
it has expended the funds so raised many years ago. Your partnership currently
owns the property described herein, which is subject to a substantial mortgage.
Your general partner (which is our affiliate) has not experienced any material
adverse financial developments from January 1, 1997 through the present.
Under your partnership's agreement of limited partnership, the term of the
partnership will continue until October 1, 2017, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
Consummation of the offer will not affect your partnership's agreement of
limited partnership, the financial condition or results of operations of your
partnership, the business and properties owned, the distributions and
compensation payable to your general partner (which is our affiliate) or its
affiliates or any other matter relating to your partnership, except it would
result in the AIMCO Operating Partnership obtaining a substantial interest in
units of your partnership. Further, we will be able to receive any future
distributions from your partnership for any units we purchase.
GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES
In general, your general partner (which is our affiliate) regularly
evaluates the partnership's properties by considering various factors, such as
the partnership's financial position and real estate and capital markets
conditions. The general partner monitors each property's specific locale and
sub-market conditions evaluating current trends, competition, new construction
and economic changes. The general partner oversees each asset's operating
performance and continuously evaluates the physical improvement requirements. In
addition, the financing structure for each property, tax implications and the
investment climate are all considered. Any of these factors, and possibly
others, could potentially contribute to any decision by the general partner to
sell, refinance, upgrade with capital improvements or hold a particular
partnership property. Based on the above considerations, the general partner has
determined that it is not in the best interests of limited partners to sell or
refinance any property at the present time.
PROPERTY MANAGEMENT
Your partnership's property is managed by an entity which is a
majority-owned subsidiary of AIMCO. Pursuant to the management agreement between
the property manager and your partnership, the property manager operates your
partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, the general partner of your partnership is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partners of your partnership are
not liable to the limited partners for any act or omission performed or omitted
in good faith, pursuant to the authority granted to them to promote the
interests of your partnership, except for act or omission which constitute fraud
or gross negligence. As a result, unitholders might have a more limited right of
action in certain circumstances than they would have in the absence of such a
provision in your partnership's agreement of limited partnership. The general
partner of your partnership is owned by AIMCO. See "Conflicts of Interest".
Your partnership's agreement of limited partnership does not provide for
indemnification of the general partners and their affiliates.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
S-81
<PAGE> 87
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
Your partnership has made the following distributions per unit.
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
<S> <C>
1994........................................................ $ 8.61
1995........................................................ 16.84
1996........................................................ 2.27
1997........................................................ 3.63
1998 (through September 30)................................. 2.50
------
Total............................................. $33.85
======
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no sale transactions (i.e., excluding transactions believed to be
between related parties, family members or the same beneficial owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Through subsidiaries, AIMCO currently owns, in the aggregate, approximately
a 2.1% interest in your partnership, including 0 units held by us and the
interest held by us, as general partner of your partnership. Except as set forth
above, neither the AIMCO Operating Partnership, nor, to the best of its
knowledge, any of its affiliates, (i) beneficially own or have a right to
acquire any units, (ii) have effected any transactions in the units in the past
two years, or (iii) have any contract, arrangement, understanding or
relationship with any other person with respect to any securities of your
partnership, including, but not limited to, contracts, arrangements,
understandings or relationships concerning transfer or voting thereof, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
Your general partner (which is our affiliate) received total compensation
(which includes all monies paid to the general partner by your partnership
including reimbursement for expenses) in respect of its capacity as general
partner of your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $13,250
1995........................................................ 13,553
1996........................................................ 18,540
1997........................................................ 22,628
1998 (through September 30)................................. $ 6,364
</TABLE>
S-82
<PAGE> 88
In addition, a majority-owned subsidiary of AIMCO manages the property of
your partnership. Your partnership has historically paid the property management
fees as described in the following table:
<TABLE>
<CAPTION>
YEAR FEES
- ---- ----
<S> <C>
1995........................................................ $103,821
1996........................................................ 108,745
1997........................................................ 112,600
1998 (through September 30)................................. $ 88,821
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to your
general partner (which is our affiliate), or the compensation paid to the
property manager or AIMCO and its affiliates.
S-83
<PAGE> 89
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. You are urged to read the Financial
Statements carefully before making any decision whether to tender your units in
the offer.
Below is selected financial information for Shannon Manor Apartments, a
Limited Partnership taken from the financial statements described above. The
amounts for 1994 and 1993 have been derived from audited financial statements
which are not included in this Prospectus Supplement. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
-----------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents.... $ 675,402 $ 169,480 $ 77,342 $ 71,271 $ 165,844 $ 237,815 $ 212,297
Land & Building.............. 5,480,997 5,315,334 5,449,390 5,128,357 4,430,794 4,261,377 4,109,205
Accumulated Depreciation..... (3,605,149) (3,423,978) (3,469,271) (3,288,100) (3,155,379) (3,050,097) (2,947,180)
Other Assets................. 419,153 511,250 552,094 465,675 546,854 354,062 240,351
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 2,970,403 $ 2,572,086 $ 2,609,555 $ 2,377,203 $ 1,988,113 $ 1,803,157 $ 1,614,673
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest................... $ 2,245,668 $ 2,319,795 $ 2,239,924 $ 2,386,059 $ 2,452,209 $ 2,513,898 $ 2,571,431
Other Liabilities............ 59,553 118,595 112,249 113,924 47,222 35,578 43,566
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... 2,305,221 2,438,390 2,352,173 2,499,983 2,499,431 2,549,476 2,614,997
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners Capital (Deficit)... $ 665,182 $ 133,696 $ 257,382 $ (122,780) $ (511,318) $ (746,319) $(1,000,324)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
-----------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA
Rental Revenue............... $ 1,194,684 $ 1,122,822 $ 1,519,975 $ 1,468,745 $ 1,381,641 $ 1,288,221 $ 1,258,844
Other Income................. 58,416 63,247 78,834 54,239 70,709 79,815 62,775
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenue....... 1,253,100 1,186,069 1,598,809 1,522,984 1,452,350 1,368,036 1,321,619
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses........... 289,071 396,321 426,044 428,044 421,696 371,603 494,988
General & Administrative..... 192,061 187,633 312,415 279,692 267,457 271,462 218,676
Depreciation................. 135,878 135,878 181,171 136,731 105,282 102,917 103,418
Interest Expense............. 126,129 131,882 163,821 168,192 172,652 176,810 193,744
Property Taxes............... 77,763 77,880 98,864 99,039 81,881 105,170 101,154
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Expenses...... 820,902 929,594 1,182,315 1,111,698 1,048,968 1,027,962 1,111,980
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income................... $ 432,198 $ 256,475 $ 416,494 $ 411,286 $ 403,382 $ 340,074 $ 209,639
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
S-84
<PAGE> 90
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Nine Months Ended September 30, 1998 to the Nine Months
Ended
September 30, 1997
Net Income
Your partnership recognized net income of $432,198 for the nine months
ended September 30, 1998, compared to $256,475 for the nine months ended
September 30, 1997. The increase in net income of $175,723, or 68.51% was
primarily the result of a decrease in operating expenses and an increase in
total revenue. These factors are discussed in more detail in the following
paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,253,100 for the nine months ended September 30, 1998, compared to $1,186,069
for the nine months ended September 30, 1997, an increase of $67,031, or 5.65%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $289,071 for the
nine months ended September 30, 1998, compared to $396,321 for the nine months
ended September 30, 1997, a decrease of $107,250 or 27.06%. Management fees
totaled $88,821 for the nine months ended September 30, 1998, compared to
$85,133 for the nine months ended September 30, 1997, an increase of $3,688, or
4.33%.
General and Administrative Expenses
General and administrative expenses totaled $192,061 for the nine months
ended September 30, 1998 compared to $187,633 for the nine months ended
September 30, 1997, an increase of $4,428.
Interest Expense
Interest expense totaled $126,129 for the nine months ended September 30,
1998, compared to $131,882 for the nine months ended September 30, 1997, a
decrease of $5,753, or 4.36%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $416,494 for the year ended
December 31, 1997, compared to $411,286 for the year ended December 31, 1996, an
increase in net income of $5,208, or 1.27%
Revenues
Rental and other property revenues from the partnership's property totaled
$1,598,809 for the year ended December 31, 1997, compared to $1,522,984 for the
year ended December 31, 1996, an increase of $75,825, or 4.98%. This increase
was primarily the result of an increase in occupancy.
S-85
<PAGE> 91
Expenses
Operating expenses, consisting of utilities (net of reimbursements received
from tenants), contract services, turnover costs, repairs and maintenance, and
insurance, totaled $426,044 for the year ended December 31, 1997, compared to
$428,044 for the year ended December 31, 1996, a decrease of $2,000 or 0.47%.
Management expenses totaled $112,600 for the year ended December 31, 1997,
compared to $108,745 for the year ended December 31, 1996, an increase of
$3,855, or 3.54%. The increase resulted from an increase in rental revenues as
management fees are calculated based on a percentage of revenue.
General and Administrative Expenses
General and administrative expenses totaled $312,415 for the year ended
December 31, 1997 compared to $279,692 for the year ended December 31, 1996, an
increase of $32,723 or 11.70%. The increase is primarily due to an increase in
manager rent-free unit expense. There was also an increase in bad debts due to a
higher amount of rent revenue being deemed uncollectible.
Interest Expense
Interest expense totaled $163,821 for the year ended December 31, 1997,
compared to $168,192 for the year ended December 31, 1996, a decrease of $4,371,
or 2.60%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized net income of $411,286 for the year ended
December 31, 1996, compared to $403,382 for the year ended December 31, 1995, an
increase in net income of $7,904, or 1.96%.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,522,984 for the year ended December 31, 1996, compared to $1,452,350 for the
year ended December 31, 1995, an increase of $70,634, or 4.86%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, and insurance, totaled $428,044 for the
year ended December 31, 1996, compared to $421,696 for the year ended December
31, 1995, an increase of $6,348 or 1.51%. Management expenses totaled $108,745
for the year ended December 31, 1996, compared to $103,821 for the year ended
December 31, 1995, an increase of $4,924, or 4.74%.
General and Administrative Expenses
General and administrative expenses totaled $279,692 for the year ended
December 31, 1996 compared to $267,457 for the year ended December 31, 1995, an
increase of $12,235 or 4.57%.
Interest Expense
Interest expense totaled $168,192 for the year ended December 31, 1996,
compared to $172,652 for the year ended December 31, 1995, a decrease of $4,460,
or 2.58%.
Liquidity and Capital Resources
As of September 30, 1998, your partnership had $675,402 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
S-86
<PAGE> 92
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $1,141,000 will
be required to purchase all of the units sought in the offer, if such units are
tendered for cash. The AIMCO Operating Partnership will obtain all such funds
from cash from operations, equity issuances and short term borrowings. The AIMCO
Operating Partnership will pay all of the costs of the offer and not your
partnership.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by the AIMCO Operating Partnership:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
If funds are borrowed to consummate the offer, we intend to use our amended
and restated credit agreement with Bank of America National Trust and Savings
Association ("Bank of America") and BankBoston, N.A. The credit agreement
provides a revolving credit facility of up to $100 million, including a swing
line of up to $30 million. The AIMCO Operating Partnership is the borrower under
the credit facility, and all obligations thereunder are guaranteed by AIMCO and
certain of its subsidiaries. The annual interest rate under the credit facility
is based on either LIBOR or a base rate which is the higher of Bank of America's
reference rate or 0.5% over the federal funds rate, plus, in either case, an
applicable margin. The AIMCO Operating Partnership elects which interest rate
will be applicable to particular borrowings under the credit facility. The
margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and
between negative 0.25% and positive 0.5% in the case of base rate loans,
depending upon a ratio of the AIMCO Operating Partnership's consolidated
unsecured indebtedness to the value of certain unencumbered assets. The credit
facility matures on September 30, 1999 unless extended, at the discretion of the
lenders. The credit facility provides for the conversion of the revolving
facility into a three year term loan. The availability of funds to the AIMCO
Operating Partnership under the credit facility is subject to certain borrowing
base restrictions and other customary restrictions, including compliance with
financial and other covenants thereunder. The financial covenants require the
AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of
no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed
charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to
1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In
addition, the credit facility limits the AIMCO Operating Partnership from
distributing more than 80% of its Funds From Operations (as defined) to holders
of OP Units, imposes minimum net worth requirements and provides other financial
covenants related to certain unencumbered assets.
Following the IPT merger, we may obtain funds pursuant to a credit
agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating
partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent,
First Union National Bank, as administrative agent and the lenders from time to
time parties thereto. Pursuant to the credit agreement, which is guaranteed by
IPT, the lenders have made available to IPLP a revolving credit facility of up
to $50,000,000 at any one time outstanding which matures in a single installment
on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the
adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as
defined in the credit agreement). IPT is obligated to pay a commitment fee at a
rate of 0.25% per annum on the undrawn portion of the line of credit. The credit
agreement includes customary covenants and restrictions on IPLP's ability to,
among other things, incur debt or contingent obligations, grant liens, sell
assets, make distributions or make investments. In addition, the credit
agreement contains certain financial covenants. The AIMCO Operating Partnership
intends to repay any funds borrowed out of working capital in the ordinary
course of business.
S-87
<PAGE> 93
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The consolidated financial statements of Shannon Manor Apartments, a
Limited Partnership at December 31, 1997, 1996 and 1995 and for the years then
ended, appearing in this Prospectus Supplement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
S-88
<PAGE> 94
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet as of September 30, 1998
(Unaudited)............................................... F-2
Condensed Statements of Operations for the nine months ended
September 30, 1998 and 1997
(Unaudited)............................................... F-3
Condensed Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (Unaudited)................... F-4
Note A -- Basis of Presentation............................. F-4
Independent Auditors' Report................................ F-5
Balance Sheet as of December 31, 1997....................... F-6
Statement of Profit and Loss for the year ended December 31,
1997...................................................... F-7
Statement of Changes in Deficit/Equity for the year ended
December 31, 1997......................................... F-11
Statement of Cash Flows for the year ended December 31,
1997...................................................... F-12
Notes to Financial Statements............................... F-13
Independent Auditors' Report................................ F-16
Balance Sheet as of December 31, 1996....................... F-17
Statement of Profit and Loss for the year ended December 31,
1996...................................................... F-18
Statement of Changes in Deficit/Equity for the year ended
December 31, 1996......................................... F-22
Statement of Cash Flows for the year ended December 31,
1996...................................................... F-23
Notes to Financial Statements............................... F-24
Independent Auditors' Report................................ F-27
Balance Sheet as of December 31, 1995....................... F-28
Statement of Profit and Loss for the year ended December 31,
1995...................................................... F-29
Statement of Changes in Deficit/Equity for the year ended
December 31, 1995......................................... F-33
Statement of Cash Flows for the year ended December 31,
1995...................................................... F-34
Notes to Financial Statements............................... F-35
</TABLE>
F-1
<PAGE> 95
SHANNON MANOR APARTMENTS
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 675,402
Receivables and Deposits.................................... 81,858
Restricted Escrows.......................................... 89,972
Other Assets................................................ 247,323
Investment Property:
Land...................................................... 211,500
Building and related personal property.................... 5,269,497
-----------
5,480,997
Less: Accumulated depreciation............................ $(3,605,149) 1,875,848
----------- ----------
Total Assets:..................................... $2,970,403
==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 5,153
Other Accrued Liabilities................................... 3,347
Property Taxes Payable...................................... 36,321
Tenant Security Deposits.................................... 14,732
Notes Payable............................................... 2,245,668
Partners' Capital........................................... 665,182
----------
Total Liabilities and Partners' Capital........... $2,970,403
==========
</TABLE>
See accompanying note.
F-2
<PAGE> 96
SHANNON MANOR APARTMENTS
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Rental Income............................................. $1,194,684 $1,122,822
Other Income.............................................. 58,416 63,247
---------- ----------
Total Revenues.................................... 1,253,100 1,186,069
Expenses:
Operating Expenses........................................ 289,071 396,321
General and Administrative Expenses....................... 192,061 187,633
Depreciation Expense...................................... 135,878 135,878
Interest Expense.......................................... 126,129 131,882
Property Tax Expense...................................... 77,763 77,880
---------- ----------
Total Expenses.................................... 820,902 929,594
---------- ----------
Net Income........................................ $ 432,198 $ 256,475
========== ==========
</TABLE>
See accompanying note.
F-3
<PAGE> 97
SHANNON MANOR APARTMENTS
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net Income (loss)......................................... $ 432,198 $ 256,475
Adjustments to reconcile net income (loss) to net cash
provided by operating Activities:
Depreciation and Amortization.......................... 135,878 135,878
Changes in accounts:
Receivables and deposits and other assets............ (178,583) (82,853)
Accounts Payable and accrued expenses................ 9,081 (9,167)
--------- ---------
Net cash provided by (used in) operating
activities...................................... 398,574 300,333
--------- ---------
Investing Activities
Property improvements and replacements.................... (31,607) (186,977)
Net (increase)/decrease in restricted escrows............. 311,522 37,279
--------- ---------
Net cash provided by (used in) investing
activities...................................... 279,915 (149,698)
--------- ---------
Financing Activities
Distributions to partners................................. (24,396) --
Payments on mortgage...................................... (56,033) (52,426)
--------- ---------
Net cash provided by (used in) financing
activities...................................... (80,429) (52,426)
--------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 598,060 98,209
Cash and cash equivalents at beginning of year.............. 77,342 71,271
--------- ---------
Cash and cash equivalents at end of period.................. $ 675,402 $ 169,480
========= =========
</TABLE>
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Shannon Manor Apartments
as of September 30, 1998 and for the nine months ended September 30, 1998 and
1997 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
all such adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year-end. The results of
operations for the interim periods presented are not necessarily indicative of
the results for the entire year.
F-4
<PAGE> 98
REPORT OF INDEPENDENT AUDITORS
The General Partners
Shannon Manor Apartments, A Limited Partnership
We have audited the accompanying balance sheet of Shannon Manor Apartments,
A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1997 and
the related statements of profit and loss, changes in deficit/equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shannon Manor Apartments, A
Limited Partnership at December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
February 10, 1998
Greenville, South Carolina
F-5
<PAGE> 99
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C> <C>
Current assets
Petty cash................................................ $ 300
Unrestricted cash......................................... 55,585
Tenant accounts receivable, net of allowance for doubtful
accounts of $10,087.................................... 10,536
----------
Total current assets.............................. 66,421
Deposits held in trust -- funded
Tenant security deposits.................................. 21,457
Prepaid expenses
Property insurance........................................ 13,246
Mortgage insurance........................................ 8,057
----------
Total prepaid expenses............................ 21,303
Restricted deposits and funded reserves
Mortgage escrow deposits.................................. 75,475
Reserve for replacements.................................. 79,997
Paint reserve............................................. 246,022
----------
Total deposits.................................... 401,494
Fixed assets, at cost (Notes 1 and 2)
Land...................................................... $ 211,500
Building.................................................. 5,237,890
-----------
5,449,390
Less accumulated depreciation............................... (3,469,271) 1,980,119
-----------
Other assets
Partnership cash.......................................... 118,761
----------
$2,609,555
==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 13,943
Accrued interest -- mortgage.............................. 13,838
Mortgage payable, current portion (Note 2)................ 75,615
----------
Total current liabilities......................... 103,396
Deposit and prepayment liabilities
Tenant security deposits.................................. 21,457
Rent received in advance.................................. 1,234
----------
Total deposit and prepayment liabilities.......... 22,691
Long-Term Liabilities
Mortgage payable (Note 2)................................. 2,301,701
Less current portion................................... (75,615)
----------
Total long-term liabilities....................... 2,226,086
----------
Total liabilities................................. 2,352,173
Partners' equity.......................................... 257,382
----------
$2,609,555
==========
</TABLE>
See accompanying notes.
F-6
<PAGE> 100
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
---------------------- ----------
<S> <C>
Rental Income
Apartments or Member Carrying Charges (Coops)............. $1,734,180
Tenant Assistance Payments................................
Furniture and Equipment...................................
Stores and Commercial.....................................
Garage and Parking Spaces.................................
Flexible Subsidy Income...................................
Miscellaneous (specify) Rent increases not implemented.... (72,130)
----------
Total Rent Revenue Potential at 100% Occupancy.... 1,662,050
Vacancies
Apartments................................................ (142,075)
Furniture and Equipment...................................
Stores and Commercial.....................................
Garage and Parking Spaces.................................
Miscellaneous (specify)...................................
----------
Total Vacancies................................... (142,075)
----------
Net Rental Revenue Rent Revenue Less Vacancies.... 1,519,975
Elderly and Congregate Services Income
----------
Total Service Income (Schedule Attached).......... --
Financial Revenue
Interest Income -- Project Operations.....................
Income from Investments -- Residual Receipts..............
Income from Investments -- Reserve for Replacement........
Income from Investments -- Miscellaneous*................. 11,755
----------
Total Financial Revenue........................... 11,755
Other Revenue
Laundry and Vending....................................... 27,178
NSF and Late Charges...................................... 14,271
Damages and Cleaning Fees................................. 11,084
Forfeited Tenant Security Deposits........................ 712
Other Revenues (specify).................................. 13,834
----------
Total Other Revenue............................... 67,079
----------
Total Revenue..................................... $1,598,809
==========
</TABLE>
F-7
<PAGE> 101
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
---------------------- ----------
<S> <C>
Administrative Expenses
Advertising............................................... $ 22,174
Other Administrative Expense.............................. 14,683
Office Salaries........................................... 18,287
Office Supplies........................................... 13,221
Office or Model Apartment Rent............................ 7,210
Management Fee............................................ 112,600
Manager or Superintendent Salaries........................ 24,201
Manager or Superintendent Rent Free Unit.................. 24,340
Legal Expenses (Project).................................. 12
Auditing Expenses (Project)............................... 6,050
Bookkeeping Fees/Accounting Services...................... 14,628
Telephone and Answering Service........................... 4,663
Bad Debts................................................. 30,555
Miscellaneous Administrative Expenses (specify)**......... 11,791
----------
Total Administrative Expenses..................... 304,415
Utilities Expense
Fuel Oil/Coal.............................................
Electricity (Light and Misc. Power)....................... 21,924
Water..................................................... 32,800
Gas....................................................... 1,588
Sewer..................................................... 51,717
----------
Total Utilities Expense........................... 108,029
</TABLE>
F-8
<PAGE> 102
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
---------------------- ----------
<S> <C>
Operating and Maintenance Expenses
Janitor and Cleaning Payroll..............................
Janitor and Cleaning Supplies............................. $ 10
Janitor and Cleaning Contract............................. 8,215
Exterminating Payroll/Contract............................ 2,583
Exterminating Supplies....................................
Garbage and Trash Removal................................. 17,656
Security Payroll/Contract.................................
Grounds Payroll...........................................
Grounds Supplies.......................................... 3,900
Grounds Contract.......................................... 36,713
Repairs Payroll........................................... 68,962
Repairs Material.......................................... 25,116
Repairs Contract.......................................... 33,822
Elevator Maintenance/Contract.............................
Heating/Cooling Repairs and Maintenance................... 7,295
Swimming Pool Maintenance/Contract........................ 1,999
Snow Removal.............................................. 172
Decorating Payroll/Contract............................... 30,619
Decorating Supplies....................................... 4,727
Other.....................................................
Miscellaneous Operating & Maintenance Exp.***............. 1,760
----------
Total Operating & Maintenance Expenses............ 243,549
Taxes and Insurance
Real Estate Taxes......................................... 98,864
Payroll Taxes (FICA)...................................... 10,060
Miscellaneous Taxes, Licenses and Permits................. 1,294
Property and Liability Insurance (Hazard)................. 36,948
Fidelity Bond Insurance...................................
Workmen's Compensation.................................... 7,672
Health Insurance & Other Employee Benefits................ 7,137
Other Insurance (specify).................................
----------
Total Taxes and Insurance......................... 161,975
Financial Expenses
Interest on Bonds Payable.................................
Interest on Mortgage Payable.............................. 163,821
Interest on Notes Payable (Long-Term).....................
Interest on Notes Payable (Short-Term)....................
Mortgage Insurance Premium/Service Charge................. 11,355
Miscellaneous Financial Expenses
----------
Total Financial Expenses.......................... 175,176
</TABLE>
F-9
<PAGE> 103
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
---------------------- ----------
<S> <C>
Elderly & Congregate Service Expenses
Total Service Expenses -- Schedule Attached.......
----------
Total Cost of Operations Before Depreciation...... $ 993,144
----------
Profit (Loss) Before Depreciation................. 605,665
Depreciation (Total) -- 6600 (specify).................... (181,171)
----------
Operating Profit or (Loss)........................ 424,494
Corporate or Mortgagor Entity Expenses
Officer Salaries..........................................
Legal Expenses (Entity)...................................
Taxes (Federal-State-Entity)..............................
Other Expenses (Entity) General partners fees and
expenses............................................... 8,000
----------
Total Corporate Expenses.......................... 8,000
----------
Net Profit or (Loss).............................. $ 416,494
==========
</TABLE>
See accompanying notes.
F-10
<PAGE> 104
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF CHANGES IN DEFICIT/EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
(Deficit) at December 31, 1996.............................. $(122,780)
Net income.................................................. 416,494
Distributions............................................... (36,332)
---------
Equity at December 31, 1997................................. $ 257,382
=========
</TABLE>
See accompanying notes.
F-11
<PAGE> 105
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Source of Funds
Operations:
Revenue:
Rental income........................................... $1,451,247
Other:
Legal and late fees................................... $ 14,271
Laundry income........................................ 27,178
Cleaning and damage................................... 11,084
Deposits forfeited.................................... 14,546
Interest income....................................... 11,755 78,834
-------- ----------
1,530,081
Expenses:
Administrative expenses................................. 72,594
Management fee.......................................... 112,600
Bookkeeper fee.......................................... 18,768
Operating expenses...................................... 109,526
Payrolls................................................ 111,450
Maintenance fees........................................ 174,587
Taxes -- payroll........................................ 10,060
Taxes -- real estate.................................... 98,864
Taxes -- miscellaneous.................................. 1,294
Property insurance...................................... 37,944
Workmen's compensation.................................. 7,672
Health insurance........................................ 7,137
Interest on mortgage note............................... 163,821
Mortgage insurance premium.............................. 11,553
Entity expenses......................................... 8,000 945,870
-------- ----------
Net cash provided by operating activities................... 584,211
Investing activities
Change in partnership cash.................................. (4,474)
Change in restricted deposits and funded reserves........... (73,702)
Purchase of fixed assets, including $69,679 of additions
capitalized and in accounts payable in the prior year..... (390,712)
----------
Net cash (used) for investing activities.................... (468,888)
Financing activities
Distributions............................................... $ (36,332)
Reduction of long-term debt................................. (70,520)
----------
Net cash (used) for financing activities.................... (106,852)
----------
Increase in unrestricted cash............................... 8,471
Unrestricted cash at December 31, 1996...................... 47,114
----------
Unrestricted cash at December 31, 1997...................... $ 55,585
==========
Operating activities
Net income.................................................. $ 416,494
Adjustments to adjust net income to net cash provided by
operating activities:
Depreciation.............................................. 181,171
Changes in operating assets and liabilities:
Prepaid expenses........................................ (1,194)
Deposits held in trust.................................. 2,400
Tenant accounts receivable.............................. (7,049)
Accounts payable........................................ (1,497)
Bookkeeper fee payable.................................. (4,140)
Rent received in advance................................ 426
Tenant security deposits................................ (2,400)
----------
Net cash provided by operating activities................... $ 584,211
==========
</TABLE>
See accompanying notes.
F-12
<PAGE> 106
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Organization
The Partnership is organized as a limited partnership formed to acquire an
interest in real property located in Durham, North Carolina and to operate
thereon an apartment complex of 230 units, under Section 221(d)4 of the National
Housing Act. Such projects are regulated by HUD as to rent charges and operating
methods. The regulatory agreement limits annual distributions of net operating
receipts to "surplus cash" available at the end of each year.
Depreciation
Depreciation is computed principally by the straight-line and accelerated
methods over estimated useful lives of 3 to 40 years.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents except for imprest
balances of petty cash.
Income Taxes
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners.
Management Agreement
The Partnership pays management fees equal to 7.5 percent of gross
collections to Insignia Residential Group.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LONG-TERM DEBT
A mortgage note is payable in monthly installments of $19,528 until August
2014, including interest at 7%, to USGI, Inc. The note is collateralized by
pledge of land and buildings and, in addition, is insured by HUD. The note was
confirmed in writing to our independent public accountants. Principal maturities
for the next five years are as follows:
<TABLE>
<S> <C>
1998...................................................... $75,615
1999...................................................... 81,080
2000...................................................... 86,946
2001...................................................... 93,232
2002...................................................... 99,971
</TABLE>
During the year, the Partnership incurred net interest costs on the
mortgage note of $163,821 and paid net interest costs of $163,821.
F-13
<PAGE> 107
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATED PARTY TRANSACTIONS
Transactions with affiliates of the general partners are summarized as
follows:
<TABLE>
<CAPTION>
RELATED PARTY TYPE OF TRANSACTION AMOUNT
- ------------- ------------------- --------
<S> <C> <C>
Insignia Residential Group Management fee $112,600
Insignia Residential Group Bookkeeper fee 14,628
AmReal Corporation General partner reimbursements 8,000
</TABLE>
4. FIXED ASSETS AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
<TABLE>
<CAPTION>
BUILDINGS COST
AND RELATED CAPITALIZED
PERSONAL SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION
----------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C>
Shannon Manor Apartments................. $2,301,701 $211,500 $3,175,539 $2,062,351
========== ======== ========== ==========
</TABLE>
GROSS AMOUNT AT WHICH CARRIED
<TABLE>
<CAPTION>
BUILDINGS
AND RELATED
PERSONAL ACCUMULATED DATE DEPRECIABLE
DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE -- YEARS
----------- -------- ----------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shannon Manor........... $211,500 $5,237,890 $5,449,390 $3,469,271 7/74 3-40
======== ========== ========== ==========
</TABLE>
Reconciliation of "Fixed Assets and Accumulated Depreciation":
<TABLE>
<S> <C>
FIXED ASSETS
Balance at beginning of year................................ $5,128,357
Property improvements....................................... 321,033
----------
Balance at end of year...................................... $5,449,390
==========
ACCUMULATED DEPRECIATION
Balance at beginning of year................................ $3,288,100
Additions charged to expense................................ 181,171
----------
Balance at end of year...................................... $3,469,271
==========
</TABLE>
The aggregate cost of the investment property for Federal income tax
purposes at December 31, 1997 is $5,724,465. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1997 is $3,927,037.
F-14
<PAGE> 108
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnership.
The following is a reconciliation of reported net loss and Federal taxable
loss:
<TABLE>
<S> <C>
Net income as reported...................................... $416,494
Add (deduct):
Depreciation differences.................................. (40,682)
Other..................................................... (1,332)
--------
Federal taxable (loss) income............................... $374,480
========
Federal taxable (loss) income per limited partnership
unit...................................................... $ 37.07
========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets and liabilities:
<TABLE>
<S> <C>
Net assets as reported...................................... $ 257,382
Land and Buildings.......................................... 275,076
Accumulated depreciation.................................... (457,766)
Other....................................................... (14,915)
---------
Net assets -- tax basis..................................... $ 59,777
=========
</TABLE>
6. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-15
<PAGE> 109
REPORT OF INDEPENDENT AUDITORS
The General Partners
Shannon Manor Apartments, A Limited Partnership
We have audited the accompanying balance sheet of Shannon Manor Apartments,
A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1996 and
the related statements of profit and loss, changes in deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shannon Manor Apartments, A
Limited Partnership at December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
February 10, 1997
Greenville, South Carolina
F-16
<PAGE> 110
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets
Petty cash................................................ $ 300
Unrestricted cash......................................... 47,114
Tenant accounts receivable................................ 3,487
-----------
Total current assets.............................. 50,901
Deposits held in trust -- funded
Tenant security deposits.................................. 23,857
Prepaid expenses
Property insurance........................................ 12,250
Mortgage insurance........................................ 7,859
-----------
Total prepaid expenses............................ 20,109
Restricted deposits and funded reserves
Mortgage escrow deposits.................................. 72,495
Reserve for replacements.................................. 66,697
Paint reserve............................................. 188,600
-----------
Total deposits.................................... 327,792
Fixed assets, at cost (Notes 1 and 2)
Land...................................................... $ 211,500
Building.................................................. 4,916,857
-----------
5,128,357
Less accumulated depreciation............................... (3,288,100)
1,840,257
-----------
Other assets
Partnership cash.......................................... 114,287
-----------
$ 2,377,203
===========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable.......................................... $ 85,119
Accrued interest -- mortgage.............................. 13,838
Bookkeeper fee payable.................................... 4,140
Mortgage payable, current portion (Note 2)................ 70,520
-----------
Total current liabilities......................... 173,617
Deposit and prepayment liabilities
Tenant security deposits.................................. 23,857
Rent received in advance.................................. 808
-----------
Total deposit and prepayment liabilities.......... 24,665
Long-term liabilities
Mortgage payable (Note 2)................................. 2,372,221
Less current portion................................... (70,520)
-----------
Total long-term liabilities....................... 2,301,701
-----------
Total liabilities................................. 2,499,983
Partners' (deficit)......................................... (122,780)
-----------
$ 2,377,203
===========
</TABLE>
See accompanying notes.
F-17
<PAGE> 111
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Rental Income
Apartments or Member Carrying Charges (Coops)............. $1,637,340
Tenant Assistance Payments................................
Furniture and Equipment...................................
Stores and Commercial.....................................
Garage and Parking Spaces.................................
Flexible Subsidy Income...................................
Miscellaneous (specify) -- Rent increases not
implemented............................................ (93,721)
----------
Total Rent Revenue Potential at 100% Occupancy.... 1,543,619
Vacancies
Apartments................................................ (74,874)
Furniture and Equipment...................................
Stores and Commercial.....................................
Garage and Parking Spaces.................................
Miscellaneous (specify)...................................
----------
Total Vacancies................................... (74,874)
----------
Net Rental Revenue Rent Revenue Less Vacancies.... 1,468,745
Elderly and Congregate Services Income
----------
Total Service Income (Schedule Attached).......... --
Financial Revenue
Interest Income -- Project Operations..................... 629
Income from Investments -- Residual Receipts..............
Income from Investments -- Reserve for Replacement........ 1,368
Income from Investments -- Miscellaneous*................. 15,553
----------
Total Financial Revenue........................... 17,550
Other Revenue
Laundry and Vending....................................... 9,012
NSF and Late Charges...................................... 10,061
Damages and Cleaning Fees................................. 7,219
Forfeited Tenant Security Deposits........................ 628
Other Revenue (specify)**................................. 9,769
----------
Total Other Revenue............................... 36,689
----------
Total Revenue..................................... $1,522,984
==========
</TABLE>
F-18
<PAGE> 112
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Administrative Expenses
Advertising............................................... $ 18,879
Other Administrative Expense.............................. 11,168
Office Salaries........................................... 21,751
Office Supplies........................................... 15,098
Office or Model Apartment Rent............................ 6,690
Management Fee............................................ 108,745
Manager or Superintendent Salaries........................ 26,550
Manager or Superintendent Rent Free Unit.................. 14,974
Legal Expenses (Project).................................. 190
Auditing Expenses (Project)............................... 7,150
Bookkeeping Fees/Accounting Services...................... 11,040
Telephone and Answering Service........................... 5,394
Bad Debts................................................. 20,932
Miscellaneous Administrative Expenses (specify)***........ 11,131
----------
Total Administrative Expenses..................... 279,692
Utilities Expense
Fuel Oil/Coal.............................................
Electricity (Light and Misc. Power)....................... 17,251
Water..................................................... 31,161
Gas....................................................... 2,155
Sewer..................................................... 47,955
----------
Total Utilities Expense........................... 98,522
</TABLE>
F-19
<PAGE> 113
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Operating and Maintenance Expenses
Janitor and Cleaning Payroll..............................
Janitor and Cleaning Supplies.............................
Janitor and Cleaning Contract............................. $ 10,219
Exterminating Payroll/Contract............................ 2,921
Exterminating Supplies
Garbage and Trash Removal................................. 3,719
Security Payroll/Contract.................................
Grounds Payroll...........................................
Grounds Supplies.......................................... 1,716
Grounds Contract.......................................... 35,395
Repairs Payroll........................................... 65,464
Repairs Material.......................................... 22,988
Repairs Contract.......................................... 53,305
Elevator Maintenance/Contract.............................
Heating/Cooling Repairs and Maintenance................... 10,888
Swimming Pool Maintenance/Contract........................ 1,742
Snow Removal.............................................. 247
Decorating Payroll/Contract............................... 29,243
Decorating Supplies....................................... 6,942
Other.....................................................
Miscellaneous Operating & Maintenance Exp.****............ 1,034
----------
Total Operating & Maintenance Expenses............ 245,823
Taxes and Insurance
Real Estate Taxes......................................... 99,039
Payroll Taxes (FICA)...................................... 8,951
Miscellaneous Taxes, Licenses and Permits.................
Property and Liability Insurance (Hazard)................. 35,981
Fidelity Bond Insurance................................... 314
Workmen's Compensation.................................... 8,050
Health Insurance & Other Employee Benefits................ 4,863
Other Insurance (specify).................................
----------
Total Taxes and Insurance......................... 157,198
Financial Expenses
Interest on Bonds Payable.................................
Interest on Mortgage Payable.............................. 168,192
Interest on Notes Payable (Long-Term).....................
Interest on Notes Payable (Short-Term)....................
Mortgage Insurance Premium/Service Charge................. 12,005
Miscellaneous Financial Expenses -- Loss on disposal of
fixed assets........................................... 6,035
----------
Total Financial Expenses.......................... 186,232
</TABLE>
F-20
<PAGE> 114
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Elderly & Congregate Service Expenses
Total Service Expenses -- Schedule Attached.......
----------
Total Cost of Operations Before Depreciation...... $ 967,467
----------
Profit (Loss) Before Depreciation................. 555,517
Depreciation (Total) -- 6600 (specify).................... (136,731)
----------
Operating Profit or (Loss)........................ 418,786
Corporate or Mortgagor Entity Expenses
Officer Salaries..........................................
Legal Expenses (Entity)...................................
Taxes (Federal-State-Entity)..............................
Other Expenses (Entity) -- General partners fees and
expenses............................................... 7,500
----------
Total Corporate Expenses.......................... 7,500
----------
Net Profit or (Loss).............................. $ 411,286
==========
</TABLE>
See accompanying notes.
F-21
<PAGE> 115
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF CHANGES IN DEFICIT
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
(Deficit) at December 31, 1995.............................. $(511,318)
Net income.................................................. 411,286
Distributions............................................... (22,748)
---------
(Deficit) at December 31, 1996.............................. $(122,780)
=========
</TABLE>
See accompanying notes.
F-22
<PAGE> 116
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
Source of Funds
Operations:
Revenue:
Rental income........................................... $1,424,142
Other:
Legal and late fees................................... $ 10,061
Laundry income........................................ 9,012
Cleaning and damage................................... 7,219
Deposits forfeited.................................... 10,397
Interest income....................................... 17,550 54,239
-------- ----------
1,478,381
Expenses:
Administrative expenses................................. 69,010
Management fee.......................................... 108,745
Bookkeeper fee.......................................... 6,900
Operating expenses...................................... 84,165
Payrolls................................................ 113,765
Maintenance fees........................................ 180,359
Taxes -- payroll........................................ 8,951
Taxes -- real estate.................................... 99,039
Property insurance...................................... 37,526
Fidelity bond........................................... 314
Workmen's compensation.................................. 8,050
Health insurance........................................ 4,863
Interest on mortgage note............................... 168,576
Mortgage insurance premium.............................. 11,789
Entity expenses......................................... 7,500 909,552
-------- ----------
Net cash provided by operating activities................... 568,829
Investing activities
Change in partnership cash.................................. (73,140)
Change in restricted deposits and funded reserves........... 137,956
Purchase of fixed assets, less $69,679 of additions in
accounts payable at year-end.............................. (637,929)
----------
Net cash (used) for investing activities.................... (573,113)
Financing activities
Distributions............................................... $ (22,748)
Reduction of long-term debt................................. (65,766)
----------
Net cash (used) for financing activities.................... (88,514)
----------
(Decrease) in unrestricted cash............................. (92,798)
Unrestricted cash at December 31, 1995...................... 139,912
----------
Unrestricted cash at December 31, 1996...................... $ 47,114
==========
Operating activities
Net income.................................................. $ 411,286
Adjustments to adjust net income to net cash provided by
operating activities:
Depreciation.............................................. 136,731
Loss on disposal.......................................... 6,035
Changes in operating assets and liabilities:
Prepaid expenses........................................ (1,329)
Deposits held in trust.................................. 1,775
Tenant accounts receivable.............................. 3,338
Accounts receivable -- other............................ 14,354
Accounts payable........................................ 3
Bookkeeper fee payable.................................. 4,140
Rent received in advance................................ (5,345)
Accrued interest -- mortgage............................ (384)
Tenant security deposits................................ (1,775)
----------
Net cash provided by operating activities................... $ 568,829
==========
</TABLE>
See accompanying notes.
F-23
<PAGE> 117
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Organization
The Partnership is organized as a limited partnership formed to acquire an
interest in real property located in Durham, North Carolina and to operate
thereon an apartment complex of 230 units, under Section 221(d)4 of the National
Housing Act. Such projects are regulated by HUD as to rent charges and operating
methods. The regulatory agreement limits annual distributions of net operating
receipts to "surplus cash" available at the end of each year.
Depreciation
Depreciation is computed principally by the straight-line and accelerated
methods over estimated useful lives of 3 to 40 years.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents except for imprest
balances of petty cash.
Income Taxes
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners.
Management Agreement
The Partnership pays management fees equal to 7.5 percent of gross
collections to Insignia Management Group.
Financial Accounting Standards Statement No. 107 Disclosures
The carrying amounts reported in the balance sheet, for those financial
instruments described in the schedule of funds in financial institutions
included in the supporting data required by HUD listed on the contents page,
approximate those assets' fair value. Payment of long-term liabilities are
generally dependent upon the Partnership's ability to achieve cash flow, the
partners providing additional funds, the sale of the project or refinancing of
the mortgage at the end of the Regulatory Agreement. Management believes that
estimating the fair value of these long-term liabilities is either not
appropriate or, because of excess costs, considers estimation of fair value to
otherwise be impracticable.
Long-Lived Assets
During 1996, the Partnership adopted FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which requires impairment losses to be recognized for long-lived assets
used in operations when indictors of impairment are present and the undiscounted
cash flows are not sufficient to recover the assets' carrying amount. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount. The adoption of FASB No. 121 did not have a material effect on
the Partnership's financial statements.
F-24
<PAGE> 118
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LONG-TERM DEBT
A mortgage note is payable in monthly installments of $19,528 until August
2014, including interest at 7%, to USGI, Inc. The note is collateralized by
pledge of land and buildings and, in addition, is insured by HUD. The note was
confirmed in writing to our independent public accountants. Principal maturities
for the next five years are as follows:
<TABLE>
<S> <C>
1997....................................................... $70,520
1998....................................................... 75,615
1999....................................................... 81,080
2000....................................................... 86,946
2001....................................................... 93,232
</TABLE>
During the year, the Partnership incurred net interest costs on the
mortgage note of $168,192 and paid net interest costs of $168,576.
3. RELATED PARTY TRANSACTIONS
Transactions with affiliates of the general partners are summarized as
follows:
<TABLE>
<CAPTION>
RELATED PARTY TYPE OF TRANSACTION AMOUNT
- ------------- ------------------- --------
<S> <C> <C>
Insignia Management Group Management fee $108,745
Insignia Management Group Bookkeeper fee 11,040
AmReal Corporation General partner reimbursements 7,500
</TABLE>
4. INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
<TABLE>
<CAPTION>
BUILDINGS AND COST CAPITALIZED
RELATED SUBSEQUENT
DESCRIPTION ENCUMBRANCES LAND PERSONAL PROPERTY TO ACQUISITION
----------- ------------ -------- ----------------- ----------------
<S> <C> <C> <C> <C>
Shannon Manor.................. $2,372,221 $211,500 $3,175,589 $1,741,318
========== ======== ========== ==========
</TABLE>
GROSS AMOUNT AT WHICH CARRIED
<TABLE>
<CAPTION>
BUILDINGS AND
RELATED ACCUMULATED DATE DEPRECIABLE
DESCRIPTION LAND PERSONAL PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS
----------- -------- ----------------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shannon Manor........ $211,500 $4,916,857 $5,128,357 $3,288,100 7-74 3-40
======== ========== ========== ==========
</TABLE>
F-25
<PAGE> 119
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of "Investment Property and Accumulated Depreciation" (in
thousands):
<TABLE>
<S> <C>
Investment Property
Balance at beginning of year.............................. $4,430,794
Property improvements..................................... 697,563
----------
Balance at end of year............................ $5,128,357
==========
Accumulated Depreciation
Balance at beginning of year.............................. $3,155,379
Additions charged to expense.............................. 132,721
----------
Balance at end of year............................ $3,288,100
==========
</TABLE>
The aggregate cost of the investment property for Federal income tax
purposes at December 31, 1996 is $5,403,432. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1996 is $3,705,184.
5. INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnership.
The following is a reconciliation of reported net loss and Federal taxable
loss:
<TABLE>
<S> <C>
Net income as reported...................................... $411,286
Add (deduct):
Depreciation differences.................................. (54,184)
Unearned income........................................... (5,345)
Other..................................................... 3,962
--------
Federal taxable (loss) income............................... $355,719
========
Federal taxable (loss) income per limited partnership
unit...................................................... $ 35.22
========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets and liabilities:
<TABLE>
<S> <C>
Net liabilities as reported................................. $(122,780)
Land and Buildings.......................................... 250,076
Accumulated depreciation.................................... (413,074)
Other....................................................... 7,407
---------
Net deficiency -- tax basis................................. $(278,371)
=========
</TABLE>
6. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-26
<PAGE> 120
REPORT OF INDEPENDENT AUDITORS
The General Partners
Shannon Manor Apartments, A Limited Partnership
We have audited the accompanying balance sheet of Shannon Manor Apartments,
A Limited Partnership (FHA Project No. 053-35064-PM) as of December 31, 1995 and
the related statements of profit and loss, changes in deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shannon Manor Apartments, A
Limited Partnership at December 31, 1995, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
February 9, 1996
Greenville, South Carolina
F-27
<PAGE> 121
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
Current assets
Petty cash................................................ $ 300
Unrestricted cash......................................... 139,912
Tenant accounts receivable................................ 6,825
Accounts receivable -- other.............................. 14,354
----------
Total current assets.............................. 161,391
Deposits held in trust-funded
Tenant security deposits.................................. 25,632
Prepaid expenses
Property insurance........................................ 10,705
Mortgage insurance........................................ 8,075
----------
Total prepaid expenses............................ 18,780
Restricted deposits and funded reserves
Mortgage escrow deposits.................................. 91,463
Reserve for replacements.................................. 52,033
Paint reserve............................................. 322,252
----------
Total deposits.................................... 465,748
Fixed assets, at cost (Notes 1 and 2)
Land...................................................... $ 211,500
Building.................................................. 4,219,294
-----------
4,430,794
Less accumulated depreciation............................. (3,155,379) 1,275,415
-----------
Other assets
Partnership cash.......................................... 41,147
----------
$1,988,113
==========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable.......................................... $ 15,437
Accrued interest -- mortgage.............................. 14,222
Mortgage payable, current portion (Note 2)................ 65,766
----------
Total current liabilities......................... 95,425
Deposit and prepayment liabilities
Tenant security deposits.................................. 25,632
Rent received in advance.................................. 6,153
----------
Total deposit and prepayment liabilities.......... 31,785
Long-term liabilities
Mortgage payable (Note 2)................................. 2,437,987
Less current portion...................................... (65,766)
----------
Total long-term liabilities....................... 2,372,221
----------
Total liabilities................................. 2,499,431
Partners' (deficit)......................................... (511,318)
----------
$1,988,113
==========
</TABLE>
See accompanying notes.
F-28
<PAGE> 122
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Rental Income
Apartments or Member Carrying Charges (Coops)............. $1,483,630
Tenant Assistance Payments................................
Furniture and Equipment...................................
Stores and Commercial.....................................
Garage and Parking Spaces.................................
Flexible Subsidy Income...................................
Miscellaneous (specify) Rent increases not implemented.... (51,729)
----------
Total Rent Revenue Potential at 100% Occupancy.... 1,431,901
Vacancies
Apartments................................................ (50,260)
Furniture and Equipment...................................
Stores and Commercial.....................................
Garage and Parking Spaces.................................
Miscellaneous (specify)...................................
----------
Total Vacancies................................... (50,260)
----------
Net Rental Revenue Rent Revenue Less Vacancies.... 1,381,641
Elderly and Congregate Services Income
----------
Total Service Income (Schedule Attached)..........
Financial Revenue
Interest Income -- Project Operations.....................
Income from Investments -- Residual Receipts..............
Income from Investments -- Reserve for Replacement........
Income from Investments -- Miscellaneous*................. 14,256
----------
Total Financial Revenue........................... 14,256
Other Revenue
Laundry and Vending....................................... 8,812
NSF and Late Charges...................................... 12,043
Damages and Cleaning Fees................................. 10,340
Forfeited Tenant Security Deposits........................ 400
Other Revenues (specify)**................................ 24,858
----------
Total Other Revenue............................... 56,453
----------
Total Revenue..................................... $1,452,350
==========
</TABLE>
F-29
<PAGE> 123
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Administrative Expenses
Advertising............................................... $ 12,931
Other Administrative Expense.............................. 7,137
Office Salaries........................................... 21,881
Office Supplies........................................... 13,650
Office or Model Apartment Rent............................ 5,760
Management Fee............................................ 103,821
Manager or Superintendent Salaries........................ 25,164
Manager or Superintendent Rent Free Unit.................. 22,099
Legal Expenses (Project).................................. 357
Auditing Expenses (Project)............................... 6,600
Bookkeeping Fees/Accounting Services...................... 6,900
Telephone and Answering Service........................... 5,483
Bad Debts................................................. 23,479
Miscellaneous Administrative Expenses (specify)***........ 12,195
----------
Total Administrative Expenses..................... 267,457
Utilities Expense
Fuel Oil/Coal.............................................
Electricity (Light and Misc. Power)....................... 16,238
Water..................................................... 46,057
Gas....................................................... 1,327
Sewer..................................................... 72,335
----------
Total Utilities Expense........................... 135,957
</TABLE>
F-30
<PAGE> 124
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Operating and Maintenance Expenses
Janitor and Cleaning Payroll..............................
Janitor and Cleaning Supplies.............................
Janitor and Cleaning Contract............................. $ 8,275
Exterminating Payroll/Contract............................
Exterminating Supplies.................................... 1,833
Garbage and Trash Removal................................. 3,257
Security Payroll/Contract.................................
Grounds Payroll...........................................
Grounds Supplies.......................................... 973
Grounds Contract.......................................... 58,350
Repairs Payroll........................................... 54,601
Repairs Material.......................................... 23,239
Repairs Contract.......................................... 13,155
Elevator Maintenance/Contract.............................
Heating/Cooling Repairs and Maintenance................... 4,200
Swimming Pool Maintenance/Contract........................ 1,265
Snow Removal.............................................. 140
Decorating Payroll/Contract............................... 28,407
Decorating Supplies....................................... 7,349
Other.....................................................
Miscellaneous Operating & Maintenance Exp.****............ 3,322
----------
Total Operating & Maintenance Expenses............ 208,366
Taxes and Insurance
Real Estate Taxes......................................... 81,881
Payroll Taxes (FICA)...................................... 8,207
Miscellaneous Taxes, Licenses and Permits................. 100
Property and Liability Insurance (Hazard)................. 33,551
Fidelity Bond Insurance................................... 186
Workmen's Compensation.................................... 8,883
Health Insurance & Other Employee Benefits................ 6,420
Other Insurance (specify).................................
----------
Total Taxes and Insurance......................... 139,228
Financial Expenses
Interest on Bonds Payable.................................
Interest on Mortgage Payable.............................. 172,652
Interest on Notes Payable (Long-Term).....................
Interest on Notes Payable (Short-Term)....................
Mortgage Insurance Premium/Service Charge................. 13,373
Miscellaneous Financial Expenses
----------
Total Financial Expenses.......................... 186,025
----------
</TABLE>
F-31
<PAGE> 125
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF PROFIT AND LOSS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
DESCRIPTION OF ACCOUNT AMOUNT
- ---------------------- ----------
<S> <C>
Elderly & Congregate Service Expenses
Total Service Expenses -- Schedule Attached.......
----------
Total Cost of Operations Before Depreciation...... $ 937,033
----------
Profit (Loss) Before Depreciation................. 515,317
Depreciation (Total)...................................... 105,282
----------
Operating Profit or (Loss)........................ 410,035
Corporate or Mortgagor Entity Expenses
Officer Salaries..........................................
Legal Expenses (Entity)...................................
Taxes (Federal-State-Entity)..............................
Other Expenses (Entity)................................... 6,653
----------
Total Corporate Expenses.......................... 6,653
----------
Net Profit or (Loss).............................. $ 403,382
==========
</TABLE>
See accompanying notes.
F-32
<PAGE> 126
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF CHANGES IN DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
(Deficit) at December 31, 1994.............................. $(746,319)
Net income.................................................. 403,382
Distributions............................................... (168,381)
---------
(Deficit) at December 31, 1995.............................. $(511,318)
=========
</TABLE>
See accompanying notes.
F-33
<PAGE> 127
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Source of Funds
Operations:
Revenue:
Rental income........................................... $1,325,966
Other:
Laundry income........................................ $ 8,812
Legal and late fees................................... 12,043
Cleaning and damage charges........................... 10,340
Interest income....................................... 14,256
Deposits forfeited.................................... 400
Other revenue......................................... 24,367 70,218
-------- ----------
1,396,184
Expenses:
Administrative expenses................................. 66,280
Management fee.......................................... 103,821
Bookkeeper fee.......................................... 6,900
Operating expenses...................................... 138,780
Payrolls................................................ 96,797
Maintenance expenses.................................... 153,763
Taxes -- payroll........................................ 8,207
Taxes -- real estate.................................... 81,881
Taxes -- miscellaneous.................................. 100
Property insurance...................................... 33,846
Health insurance........................................ 6,420
Fidelity bond........................................... 187
Workmen's compensation.................................. 8,884
Interest on mortgage note............................... 173,009
Mortgage insurance premium.............................. 12,123
Entity expenses......................................... 6,653 897,651
-------- ----------
Net cash provided by operating activities................... 498,533
Investing activities
Change in partnership cash.................................. (14,864)
Change in restricted deposits and funded reserves........... (158,504)
Purchase of fixed assets.................................... (169,417)
Tenant security deposits.................................... 1,994
Deposits held in trust...................................... (1,879)
----------
Net cash (used) for investing activities.................... (342,670)
Financing activities
Distributions............................................... $ (168,381)
Reduction of long-term debt................................. (61,332)
----------
Net cash (used) for investing activities.................... (229,713)
----------
(Decrease) in unrestricted cash............................. (73,850)
Unrestricted cash at December 31, 1994...................... 213,762
----------
Unrestricted cash at December 31, 1995...................... $ 139,912
==========
Operating activities
Net income.................................................. $ 403,382
Adjustments to adjust net income to net cash provided by
operating activities:
Depreciation............................................ 105,282
Changes in operating assets and liabilities:
Prepaid expenses...................................... 955
Tenant accounts receivable............................ (6,825)
Accounts receivable -- other.......................... (13,554)
Accounts payable...................................... 10,731
Rent received in advance.............................. 1,996
Accrued interest -- mortgage.......................... (357)
Accrued expenses -- other............................. (3,077)
----------
Net cash provided by operating activities................... $ 498,533
==========
</TABLE>
See accompanying notes.
F-34
<PAGE> 128
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Organization
The Partnership is organized as a limited partnership formed to acquire an
interest in real property located in Durham, North Carolina and to operate
thereon an apartment complex of 230 units, under Section 221(d)4 of the National
Housing Act. Such projects are regulated by HUD as to rent charges and operating
methods. The regulatory agreement limits annual distributions of net operating
receipts to "surplus cash" available at the end of each year.
Depreciation
Depreciation is computed principally by the straight-line and accelerated
methods over estimated useful lives of 3 to 40 years.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents except for imprest
balances of petty cash.
Income Taxes
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners.
Management Agreement
The Partnership pays management fees equal to 7.5 percent of gross
collections to a wholly-owned subsidiary of Insignia Financial Group, Inc.
Financial Accounting Standards Statement No. 107 Disclosures
The carrying amounts reported in the balance sheet, for those financial
instruments described in the schedule of funds in financial institutions
included in the supporting data required by HUD listed on the contents page,
approximate those assets' fair value. Payment of long-term liabilities are
generally dependent upon the Partnership's ability to achieve cash flow, the
partners providing additional funds, the sale of the project or refinancing of
the mortgage at the end of the Regulatory Agreement. Management believes that
estimating the fair value of these long-term liabilities is either not
appropriate or, because of excess costs, considers estimation of fair value to
otherwise be impracticable.
2. LONG-TERM DEBT
A mortgage note is payable in monthly installments of $19,528 until August
2014, including interest at 7%, to USGI, Inc. The note is collateralized by
pledge of land and buildings and, in addition, is insured by HUD. The note was
confirmed in writing to our independent public accountants. Principal maturities
for the next five years are as follows:
<TABLE>
<S> <C>
1996....................................................... $65,766
1997....................................................... 70,520
1998....................................................... 75,615
1999....................................................... 81,080
2000....................................................... 86,946
</TABLE>
F-35
<PAGE> 129
SHANNON MANOR APARTMENTS, A LIMITED PARTNERSHIP
FHA PROJECT NO. 053-35064-PM
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the year, the Partnership incurred net interest costs on the
mortgage note of $172,652 paid net interest costs of $173,009.
3. RELATED PARTY TRANSACTIONS
Transactions with affiliates of the general partners are summarized as
follows:
<TABLE>
<CAPTION>
RELATED PARTY TYPE OF TRANSACTION AMOUNT
- ------------- ------------------- --------
<S> <C> <C>
Insignia Management Group Management fee $103,821
Insignia Management Group Bookkeeper fee 6,900
AmReal Corporation General partner reimbursements 6,653
</TABLE>
4. INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
<TABLE>
<CAPTION>
BUILDINGS AND COST CAPITALIZED
RELATED SUBSEQUENT
DESCRIPTION ENCUMBRANCES LAND PERSONAL PROPERTY TO ACQUISITION
----------- ------------ -------- ----------------- ----------------
<S> <C> <C> <C> <C>
Shannon Manor............... $2,437,987 $211,500 $3,175,539 $1,043,755
========== ======== ========== ==========
</TABLE>
GROSS AMOUNT AT WHICH CARRIED
<TABLE>
<CAPTION>
BUILDINGS AND
RELATED
PERSONAL ACCUMULATED DATE DEPRECIABLE
DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS
----------- -------- ------------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shannon Manor........ $211,500 $4,219,294 $4,430,794 $3,155,379 7-74 3-40
======== ========== ========== ==========
</TABLE>
Reconciliation of "Investment Property and Accumulated Depreciation:"
<TABLE>
<CAPTION>
INVESTMENT PROPERTY
-------------------
<S> <C>
Balance at beginning of year................................ $4,261,377
Property improvements....................................... 169,417
----------
Balance at end of year...................................... $4,430,794
==========
ACCUMULATED DEPRECIATION
Balance at beginning of year................................ $3,050,097
Additions charged to expense................................ 105,282
----------
Balance at end of year...................................... $3,155,379
==========
</TABLE>
The aggregate cost of the investment property for Federal income tax
purposes at December 31, 1995 is $4,695,825. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1995 is $3,514,269.
5. INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnership.
F-36
<PAGE> 130
The following is a reconciliation of reported net loss and Federal taxable
loss:
<TABLE>
<S> <C>
Net loss as reported........................................ $403,382
Add (deduct):
Depreciation differences.................................. (59,924)
Other..................................................... 6,401
--------
Federal taxable (loss) income............................... $349,859
========
Federal taxable (loss) income per limited partnership
unit...................................................... $ 34.64
========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets and liabilities:
<TABLE>
<S> <C>
Net liabilities as reported................................. $(511,318)
Land and Buildings.......................................... 265,031
Accumulated depreciation.................................... (358,890)
Other....................................................... (6,177)
---------
Net deficiency -- tax basis................................. $(611,354)
=========
</TABLE>
6. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-37
<PAGE> 131
APPENDIX A
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending September 30,
1998, which the Partnership's management has indicated to be the most
current available financial statements;
3. Reviewed descriptive information concerning the real property owned
by the Partnership (the "Property"), including location, number of units
and unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
September 30, 1998;
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<PAGE> 132
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
7. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Properties and the Partnership; the physical
condition of the Properties including any deferred maintenance; and other
factors influencing value of the Properties and the Partnership;
8. Performed a site inspection of the Property;
9. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
10. Reviewed information provided by the Company relating to debt
encumbering the Property;
11. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the Partnership's present capitalization or distribution policy; or
any other material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership
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<PAGE> 133
Agreement or of any agreements or contracts between the Partnership and the
Company, (c) the Company's business decision to effect the Offer or alternatives
to the Offer, (d) the amount of expenses relating to the Offer or their
allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
November , 1998
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<PAGE> 134
APPENDIX B
DIRECTORS AND EXECUTIVE OFFICERS OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AND
AIMCO-GP, INC.
The names and positions of the executive officers of Apartment Investment
and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general
partner of your partnership and the directors of AIMCO, are set forth below. The
two directors of AIMCO-GP and the general partner of your partnership are Terry
Considine and Peter Kompaniez. Unless otherwise indicated, the business address
of each executive officer and director is 1873 South Bellaire Street, 17th
Floor, Denver, Colorado 80222. Each executive officer and director is a citizen
of the United States of America.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Terry Considine.............................. Chairman of the Board of Directors and Chief Executive
Officer
Peter K. Kompaniez........................... Vice Chairman, President and Director
Thomas W. Toomey............................. Executive Vice President -- Finance and Administration
Joel F. Bonder............................... Executive Vice President, General Counsel and
Secretary
Patrick J. Foye.............................. Executive Vice President
Robert Ty Howard............................. Executive Vice President -- Ancillary Services
Steven D. Ira................................ Executive Vice President and Co-Founder
David L. Williams............................ Executive Vice President -- Property Operations
Harry G. Alcock.............................. Senior Vice President -- Acquisitions
Troy D. Butts................................ Senior Vice President and Chief Financial Officer
Richard S. Ellwood........................... Director
J. Landis Martin............................. Director
Thomas L. Rhodes............................. Director
John D. Smith................................ Director
</TABLE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of AIMCO and AIMCO-GP since July
1994. 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 AIMCO's
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.
</TABLE>
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<PAGE> 135
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO
since July 1994 and was appointed President of AIMCO in July
1997. Mr. Kompaniez has served as Vice President of AIMCO-GP
from July 1994 through July 1998 and was appointed President
in July 1998. Mr. Kompaniez has been a director of AIMCO-GP
since July 1994. 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 the 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).
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. Mr. Toomey has been Executive
Vice President -- Finance and Administration of AIMCO-GP
since July 1998. From 1990 until 1995, Mr. Toomey served in
a similar capacity with Lincoln Property Company ("LPC") as
well 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.
Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and
General Counsel of AIMCO since December 8, 1997. Mr. Bonder
has been Executive Vice President and General Counsel of
AIMCO-GP since July 1998. 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.
</TABLE>
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<PAGE> 136
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and
AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye
was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP from 1989 to 1998 and was Managing
Partner of the firm's Brussels, Budapest and Moscow offices
from 1992 through 1994. Mr. Foye is also Deputy Chairman of
the Long Island Power Authority and serves as a member of
the New York State Privatization Council. He received a B.A.
from Fordham College and a J.D. from Fordham University Law
School.
Robert Ty Howard..................... Mr. Howard has served as Executive Vice
President -- Ancillary Services since February 1998. Mr.
Howard was appointed Executive Vice President -- Ancillary
Services of AIMCO-GP in July 1998. Prior to joining AIMCO,
Mr. Howard served as an officer and/or 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 is a Co-Founder of AIMCO and has served as Executive
Vice President of AIMCO since July 1994. Mr. Ira has been
Executive Vice President of AIMCO-GP since July 1998. 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 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 Board 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.
</TABLE>
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<PAGE> 137
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations
of AIMCO since January 1997. Mr. Williams has been Executive
Vice President -- Operations of AIMCO-GP since July 1998.
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 Vice President of AIMCO and
AIMCO-GP 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. Mr. Butts
has been Senior Vice President and Chief Financial Officer
of AIMCO-GP since July 1998. 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.
Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994
12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr.
Rumson, NJ 07660 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 on Wall Street 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 FelCor Suite
Hotels, Inc. and Florida East Coast Industries, Inc.
</TABLE>
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<PAGE> 138
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994
199 Broadway and became Chairman of the Compensation Committee in March
Suite 4300 1998. Mr. Martin has served as President and Chief Executive
Denver, CO 80202 Officer and a Director of NL Industries, Inc., a
manufacturer of titanium dioxide, since 1987. Mr. Martin has
served as Chairman of Tremont Corporation, a holding company
operating through its affiliates Titanium Metals Corporation
("TIMET") and NL Industries, Inc., since 1990 and as Chief
Executive Officer and a director of Tremont since 1998. Mr.
Martin has served as Chairman of Timet, an integrated
producer of titanium, since 1987 and Chief Executive Officer
since January 1995. From 1990 until its acquisition by
Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin
served as Chairman of the Board and Chief Executive Officer
of Baroid Corporation, an oilfield services company. In
addition to Tremont, NL and TIMET, Mr. Martin is a director
of Dresser, which is engaged in the petroleum services,
hydrocarbon and engineering industries.
Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994.
215 Lexington Avenue Mr. Rhodes has served as the President and a Director of
4th Floor National Review magazine since November 30, 1992, where he
New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992
, he held various positions at Goldman, Sachs & Co. and was
elected a General Partner in 1986 and served as a General
Partner from 1987 until November 27, 1992. He is currently
Co-Chairman of the Board , Co-Chief Executive Officer and a
Director of Commercial Assets Inc. and Asset Investors
Corporation. He also serves as a Director of Delphi
Financial Group, Inc. and its subsidiaries, Delphi
International Ltd., Oracle Reinsurance Company, and the
Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman
of the Empire Foundation for Policy Research, a Founder and
Trustee of Change NY, a Trustee of The Heritage Foundation,
and a Trustee of the Manhattan Institute.
John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November
3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith
Suite 831 Developments. Mr. Smith has been a shopping center
Atlanta, GA 30326 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 Shop ping 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.
</TABLE>
B-5
<PAGE> 139
Questions and requests for assistance or for additional copies of this
Prospectus Supplement and the Letter of Transmittal may be directed to the
Information Agent at its telephone number and address listed below. You may also
contact your broker, dealer, bank, trust company or other nominee for assistance
concerning the offer.
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
By Fax:
(201) 460-2881
On the Internet:
www.clc-online.com
<PAGE> 140
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UNITS OF LIMITED PARTNERSHIP INTEREST OF
WOODMERE ASSOCIATES, L.P.
IN EXCHANGE FOR YOUR CHOICE OF:
806.29 OF OUR 8.0% PARTNERSHIP PREFERRED UNITS;
OF OUR PARTNERSHIP COMMON UNITS; OR
$20,157 IN CASH.
<TABLE>
<S> <C>
GENERALLY, YOU WILL NOT RECOGNIZE ANY WE WILL ONLY ACCEPT A MAXIMUM OF 25% OF THE
IMMEDIATE TAXABLE GAIN OR LOSS IF YOU OUTSTANDING UNITS IN RESPONSE TO OUR OFFER.
EXCHANGE YOUR UNITS SOLELY FOR OUR IF MORE UNITS ARE TENDERED TO US, WE WILL
SECURITIES. HOWEVER, YOU WILL RECOGNIZE GENERALLY ACCEPT UNITS ON A PRO RATA BASIS
TAXABLE GAIN OR LOSS IF YOU EXCHANGE YOUR ACCORDING TO THE NUMBER OF UNITS TENDERED BY
UNITS FOR CASH. EACH PERSON. OUR OFFER IS NOT SUBJECT TO ANY
MINIMUM NUMBER OF UNITS BEING TENDERED.
WE HAVE RETAINED ROBERT A. STANGER &
CO., INC. TO CONDUCT AN ANALYSIS OF OUR YOU WILL NOT PAY ANY FEES OR COMMISSIONS IF
OFFER AND TO RENDER AN OPINION AS TO THE YOU TENDER YOUR UNITS.
FAIRNESS TO YOU OF THE OFFER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW. OUR OFFER, YOUR WITHDRAWAL RIGHTS AND THE
PRORATION PERIOD WILL EXPIRE AT 5:00 P.M.,
OUR OFFER CONSIDERATION WILL BE REDUCED DENVER, COLORADO TIME, ON ,
FOR ANY DISTRIBUTIONS SUBSEQUENTLY MADE BY 1998, UNLESS WE EXTEND THE DEADLINE.
YOUR PARTNERSHIP PRIOR TO THE EXPIRATION OF
OUR OFFER.
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE S-25 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN MATTERS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration without any arms-length
negotiations. Accordingly, our offer consideration may not reflect the
fair market value of your units. It is possible that if the offer is not
successful, we may revise or terminate the offer or conduct a subsequent
offer at a higher or lower price.
- Your general partner is an affiliate of ours and, therefore, has
substantial conflicts of interest with respect to our offer. We are
making this offer with a view to making a profit, and therefore, there is
a conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price. Consequently, there are
substantial conflicts of interest between you and us.
- If we acquire units in your partnership, we will increase our ability to
influence voting decisions of your partnership.
- An investment in our securities involves real estate investment,
financing, management, acquisition and development risks.
- We may change our investment, acquisition and financing policies without
a vote of our securityholders.
- If you acquire our securities, the nature of your investment will change
from holding an interest in a single apartment property to holding an
interest in our large portfolio of properties. In the future, the
property owned by your partnership may outperform our portfolio of
assets.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
November , 1998
<PAGE> 141
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE OFFER.......... S-1
SUMMARY........................................ S-4
The AIMCO Operating Partnership.............. S-4
The Offer.................................... S-4
Risk Factors................................. S-4
Background and Reasons for the Offer......... S-9
Terms of the Offer........................... S-11
Certain Federal Income Tax Matters........... S-13
Valuation of Units........................... S-14
Fairness of the Offer........................ S-14
Stanger Analysis............................. S-15
Comparison of Your Partnership and the AIMCO
Operating Partnership...................... S-15
Comparison of Your Units and AIMCO OP
Units...................................... S-15
Conflicts of Interest........................ S-16
Your Partnership............................. S-16
Source and Amount of Funds and Transactional
Expenses................................... S-17
Summary Financial Information of AIMCO
Properties, L.P............................ S-18
Summary Pro Forma Financial and Operating
Information of AIMCO Properties, L.P....... S-20
Summary Financial Information of Woodmere
Associates, L.P. .......................... S-23
Comparative Per Unit Data.................... S-23
THE AIMCO OPERATING PARTNERSHIP................ S-24
RISK FACTORS................................... S-24
Risks to Unitholders Who Tender Their Units
in the Offer............................... S-25
Risks to Unitholders Exchanging Units for OP
Units in the Offer......................... S-26
Risks to Unitholders Who Do Not Tender Their
Units in the Offer......................... S-27
BACKGROUND AND REASONS FOR THE OFFER........... S-28
Background of the Offer...................... S-28
Alternatives Considered...................... S-29
Expected Benefits of the Offer............... S-30
THE OFFER...................................... S-32
Terms of the Offer; Expiration Date.......... S-32
Acceptance for Payment and Payment for
Units...................................... S-32
Procedure for Tendering Units................ S-33
Withdrawal Rights............................ S-36
Extension of Tender Period; Termination;
Amendment.................................. S-36
Proration.................................... S-37
Fractional OP Units.......................... S-38
Future Plans of the AIMCO Operating
Partnership................................ S-38
Voting by the AIMCO Operating Partnership.... S-38
Dissenters' Rights........................... S-38
Conditions of the Offer...................... S-39
Effects of the Offer......................... S-41
Certain Legal Matters........................ S-41
Fees and Expenses............................ S-43
Accounting Treatment......................... S-43
</TABLE>
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CERTAIN FEDERAL INCOME TAX MATTERS............. S-44
Tax Consequences of Exchanging Units Solely
for OP Units............................... S-44
Tax Consequences of Exchanging Units for Cash
and OP Units............................... S-44
Tax Consequences of Exchanging Units Solely
for Cash................................... S-45
Adjusted Tax Basis........................... S-45
Character of Gain or Loss Recognized Pursuant
to the Offer............................... S-46
Passive Activity Losses...................... S-46
Foreign Offerees............................. S-47
VALUATION OF UNITS............................. S-47
FAIRNESS OF THE OFFER.......................... S-49
Position of the General Partner of Your
Partnership With Respect to the Offer;
Fairness................................... S-49
Fairness to Unitholders who Tender their
Units...................................... S-50
Fairness to Unitholders who do not Tender
their Units................................ S-50
Comparison of Consideration to Alternative
Consideration.............................. S-50
Allocation of Consideration.................. S-52
STANGER ANALYSIS............................... S-52
Experience of Stanger........................ S-52
Summary of Materials Considered.............. S-53
Summary of Reviews........................... S-53
Conclusions.................................. S-54
Assumptions, Limitations and
Qualifications............................. S-54
Compensation and Material Relationships...... S-55
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO
OPERATING PARTNERSHIP........................ S-56
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-64
DESCRIPTION OF PREFERRED OP UNITS.............. S-69
General...................................... S-69
Ranking...................................... S-69
Distributions................................ S-69
Allocation................................... S-70
Liquidation Preference....................... S-70
Redemption................................... S-71
Voting Rights................................ S-71
Restrictions on Transfer..................... S-71
DESCRIPTION OF CLASS I PREFERRED STOCK......... S-72
COMPARISON OF PREFERRED OP UNITS AND CLASS I
PREFERRED STOCK.............................. S-74
CONFLICTS OF INTEREST.......................... S-78
Conflicts of Interest with Respect to the
Offer...................................... S-78
Conflicts of Interest that Currently Exist
for Your Partnership....................... S-78
Competition Among Properties................. S-78
Features Discouraging Potential Takeovers.... S-78
Future Exchange Offers....................... S-78
YOUR PARTNERSHIP............................... S-79
General...................................... S-79
Your Partnership and its Property............ S-79
</TABLE>
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Capital Replacement.......................... S-79
Borrowing Policies........................... S-79
Competition.................................. S-79
Legal Proceedings............................ S-80
History of the Partnership................... S-80
General Policy Regarding Sales and
Refinancings of Partnership Properties..... S-80
Property Management.......................... S-80
Fiduciary Responsibility of the General
Partner of Your Partnership................ S-81
Distributions and Transfers of Units......... S-81
Beneficial Ownership of Interests in Your
Partnership................................ S-81
Compensation Paid to the General Partner and
its Affiliates............................. S-82
</TABLE>
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Selected Financial Information................. S-83
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... S-84
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL
EXPENSES..................................... S-86
LEGAL MATTERS.................................. S-87
EXPERTS........................................ S-87
OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1
DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT
INVESTMENT AND MANAGEMENT COMPANY AND
AIMCO-GP, INC. .............................. B-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE OFFER
Q: WHAT AM I BEING OFFERED?
A: We are offering to acquire your units of limited partnership interest in
Woodmere Associates, L.P. For each unit that you tender, you may choose to
receive 806.29 of our 8.0% Partnership Preferred Units (also referred to as
"Preferred OP Units"), of our Partnership Common Units (also
referred to as "Common OP Units"), or $20,157 in cash (subject, in each
case to adjustment for any distributions paid to you during the offer
period). If you like, you can choose to keep any or all of your units.
Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS IF I SELL MY UNITS?
A: No.
Q: WHO IS AIMCO PROPERTIES, L.P.?
A: AIMCO Properties, L.P. is the operating partnership which conducts
substantially all of the operations of Apartment Investment and Management
Company, a real estate investment trust ("AIMCO"). As of October 31, 1998,
AIMCO was the largest owner and manager of multifamily apartment properties
in the United States, with a total portfolio of 386,430 apartment units in
2,240 properties located in 49 states, the District of Columbia and Puerto
Rico. As of September 30, 1998, AIMCO had total assets of $3,121.9 million,
total debt of $1,275.4 million and stockholders' equity of $1,521.5
million. On a pro forma basis, giving effect to our recently completed
merger with Insignia Financial Group, Inc. and related transactions, as of
September 30, 1998, AIMCO had total assets of $4,389.4 million, total debt
of $1,627.0 million and stockholders' equity of $2,074.3 million.
Q: WHAT IS THE RELATIONSHIP BETWEEN AIMCO AND YOUR PARTNERSHIP?
A: On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired a majority ownership interest in Jacques-Miller Associates,
the managing general partner of your partnership (the "general partner"),
and the company that manages the property owned by your partnership.
Q: WHAT IS THE HISTORY OF YOUR PARTNERSHIP?
A: Your partnership was formed on May 28, 1985 and sold $1,887,000 of limited
partnership units in 1985 for $37,000 per unit. Between January 1, 1994 and
September 30, 1998 your partnership made a total of $2,753.06 of
distributions per unit. Your partnership currently owns a single apartment
property.
Q: WHY IS THE OFFER BEING MADE?
A: We are in the business of acquiring direct and indirect interests in
apartment properties. The offer provides us with an opportunity to increase
our ownership interest in the property owned by your partnership. The offer
also provides you and other investors in your partnership with an
opportunity to liquidate your current investment and to invest in our
securities or receive cash, or to retain your units.
Q: WHAT ARE PREFERRED OP UNITS?
A: Preferred OP Units are a class of our Partnership Preferred Units.
Preferred OP Units are not listed on any national securities exchange nor
quoted on NASDAQ. There is no active trading market for Preferred OP Units
and none is likely to develop because they are subject to restrictions on
transfer. The holders of the Preferred OP Units must hold such units for
one year, subject to certain exceptions. However, after a one-year holding
period, a holder of Preferred OP Units may redeem his or her units for
shares of AIMCO's Class I Preferred Stock, shares of AIMCO's Class A Common
Stock or cash, at our option. AIMCO's Class A Common Stock is, and AIMCO's
Class I Preferred Stock is expected to be, listed and traded on the NYSE.
S-1
<PAGE> 144
Q: WHAT ARE COMMON OP UNITS?
A: The Common OP Units are our Partnership Common Units. Common OP Units are
not listed on any national securities exchange nor quoted on the NASDAQ
System. There is no active trading market for Common OP Units and none is
likely to develop because they are subject to restrictions on transfer. The
holders of the Common OP Units must hold such units for one year, subject
to certain exceptions. However, after a one-year holding period, a holder
of Common OP Units may redeem his or her units for shares of AIMCO's Class
A Common Stock (on a one-for-one basis, subject to adjustment in certain
circumstances) or, at our option, an equivalent amount of cash. AIMCO's
Class A Common Stock is listed and traded on the NYSE under the symbol
"AIV."
Q: WHAT ARE MY ALTERNATIVES TO TENDERING UNITS?
A: As alternatives to tendering your units, you may retain your units or,
subject to the terms of your partnership's agreement of limited
partnership, seek a private sale of your units. However, your partnership's
agreement of limited partnership contains certain restrictions on the
resale of your units, and the market for your units may be limited. Your
partnership's agreement of limited partnership prohibits any transfer of an
interest if such transfer, together with all other transfers during the
preceding 12 months, would cause 50% or more of the total interest in your
partnership to be transferred within such 12-month period. If we acquire a
significant percentage of the interest in your partnership, you may not be
able to transfer your units for a 12-month period following the offer.
Q: WHAT HAPPENS IF I DON'T TENDER MY UNITS?
A: If you choose to retain your units, your investment will remain unchanged.
However, if we acquire interests in your partnership, we will increase our
ability to influence voting decisions with respect to your partnership.
Q: WHAT ARE MY UNITS WORTH?
A: Your general partner (which is our affiliate) has received an opinion of an
independent firm that our offer consideration is fair. However, your units
are not listed on any national securities exchange nor quoted on NASDAQ,
and there is no established trading market for your units. Secondary sales
activity for the units has been limited and sporadic. Your general partner
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sales transactions in the units have been
effectuated.
Q: HOW WAS THE CASH OFFER CONSIDERATION FOR MY UNITS DETERMINED?
A: We determined the cash offer consideration by estimating the proceeds that
you would receive if your partnership were liquidated. For this purpose, we
estimated the value of the property owned by your partnership using the
direct capitalization method. This method involves applying a
capitalization rate to your partnership's annual net operating income. We
determined an appropriate capitalization rate using our best judgment, but
our valuation is just an estimate. Although the direct capitalization
method is a widely-accepted way of valuing real estate, there are a number
of other methods available to value real estate, each of which may result
in different valuations of the property. The proceeds that you would
receive if you sold your units to someone else or if your partnership were
actually liquidated might be higher or lower than our offer consideration.
An actual liquidation may also result in your paying taxes.
Q: HOW DID YOU DETERMINE THE NUMBER OF PREFERRED OP UNITS TO BE OFFERED IN
EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by the $25 liquidation preference
of the Preferred OP Units.
Q: HOW DID YOU DETERMINE THE NUMBER OF COMMON OP UNITS TO BE OFFERED IN
EXCHANGE FOR MY UNITS?
A: We divided the cash offer consideration by $ , which represents the
average closing price of the AIMCO Class A Common Stock for the 20 trading
days prior to , 1998.
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<PAGE> 145
Q: HAS THERE BEEN ANY INDEPENDENT EVALUATION OF THE FAIRNESS OF THE OFFER
CONSIDERATION?
A: We have retained Robert A. Stanger & Co., Inc. ("Stanger") to conduct an
analysis of the offer and to render an opinion as to the fairness to you of
the offer consideration. Stanger is not affiliated with us or your general
partner (which is our affiliate). Stanger is one of the leaders in the
field of analyzing and evaluating complex real estate transactions.
However, we provided much of the information used by Stanger in evaluating
our offer. We believe that the information we provided to Stanger is
accurate.
Q: DOES MY GENERAL PARTNER RECOMMEND THAT I TENDER MY UNITS?
A: Your general partner is affiliated with us and, therefore, has substantial
conflicts of interest with respect to our offer. Accordingly, your general
partner makes no recommendation to you as to whether to tender or refrain
from tendering any of your units in the offer. However, your general
partner believes that you should make your decision based on a number of
factors, including your financial position, your risk profile, your desire
for liquidity, other financial opportunities available to you and your tax
position.
Q: WHAT DO I NEED TO DO NOW?
A: First, you should read this Prospectus Supplement and the accompanying
Prospectus thoroughly and discuss it with your financial and tax advisors.
Second, you should decide if you want to tender any of your units and, if
so, whether you prefer to receive Preferred OP Units, Common OP Units, cash
or a combination. Third, if you do want to tender any of your units, you
should fill out the Letter of Transmittal that accompanies these materials
and send it to the Information Agent listed on the back cover of this
Prospectus Supplement.
Q: ARE THERE ANY RESTRICTIONS ON THE NUMBER OF UNITS I MAY TENDER?
A: No.
Q: WHEN WILL THE OFFER BE COMPLETED AND WHEN WILL I RECEIVE PREFERRED OP
UNITS, COMMON OP UNITS OR CASH?
A: You have until , 1998 to send your Letter of Transmittal
to the Information Agent. As soon as practicable after the
, 1998 deadline, we will deliver to you the Preferred OP Units, Common OP
Units or cash to which you are entitled. However, we reserve the right to
extend, terminate or amend the offer and, under certain circumstances, to
delay payment for your units.
Q: CAN I CHANGE MY MIND AFTER I HAVE SENT MY LETTER OF TRANSMITTAL TO THE
INFORMATION AGENT?
A: Yes. You can withdraw your Letter of Transmittal or submit a new one,
changing the number of units you wish to tender or the form of payment you
choose to receive. However, you must do this before the expiration of the
offer, and you must follow the instructions provided with the Letter of
Transmittal and any instructions of the Information Agent.
Q: WHOM DO I CONTACT FOR ADDITIONAL INFORMATION OR IF I HAVE QUESTIONS?
A: You should feel free to contact the Information Agent listed on the back
cover of this Prospectus Supplement.
S-3
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SUMMARY
This summary highlights some of the information in this Prospectus
Supplement and the accompanying Prospectus.
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO". AIMCO is a real estate investment trust that owns and
manages multifamily apartment properties throughout the United States. Through
wholly owned subsidiaries, AIMCO acts as the sole general partner of, and owns
approximately an 90% interest in, the AIMCO Operating Partnership. As of October
31, 1998, our portfolio of owned or managed properties included 386,430
apartment units in 2,240 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that this made us the
largest owner and manager of multifamily apartment properties in the United
States. As of October 31, 1998, we:
- owned or controlled 62,955 units in 241 apartment properties;
- held an equity interest in 168,746 units in 897 apartment properties; and
- managed 154,729 units in 1,102 apartment properties for third party
owners and affiliates.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
AFFILIATION WITH YOUR GENERAL PARTNER
As a result of our October 1, 1998 merger with Insignia Financial Group,
Inc., we acquired a majority ownership interest in the general partner (which is
our affiliate) of your partnership and the company that manages the property
owned by your partnership.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- 806.29 of our Preferred OP Units;
- of our Common OP Units; or
- $20,157 in cash;
in each case, subject to reduction for any distribution subsequently made by
your partnership prior to the expiration of our offer.
We will only accept a maximum of 25% of the outstanding units in response
to our offer. If more units are tendered to us, we will generally accept units
on a pro rata basis according to the number of units tendered by each person.
Our offer is not subject to any minimum number of units being tendered.
Our offer will expire at 5:00 p.m., Denver, Colorado time, on
, 1998, unless we extend the deadline.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page S-25 of this Prospectus Supplement and on page 2 of the
accompanying Prospectus. The following highlights some of the
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risks associated with our offer and the potential disadvantages of the offer to
you and should be considered when you review "Summary -- Background and Reasons
for the Offer -- Expected Benefits of the Offer":
NO THIRD PARTY VALUATION OR APPRAISAL. We did not use any third-party
appraisal or valuation to determine the value of your partnership's property. We
established the terms of our offer, including the exchange ratios and the cash
consideration, without any arms-length negotiations. We have retained Robert A.
Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion
as to the fairness to you of our offer consideration, from a financial point of
view. It is possible that if the offer is not successful, we may revise or
terminate the offer or conduct a subsequent offer at a higher or lower price.
Such a decision will depend, among other things, on the performance of the
partnership, prevailing interest rates, and our interest in acquiring additional
limited partnership interests.
OFFER CONSIDERATION MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your
partnership's property may outperform our larger, more diversified portfolio of
assets. Although we cannot predict the future value of your partnership's
property, our offer consideration could be less than the net proceeds that you
would realize upon a future liquidation of your partnership. Accordingly, you
might receive more value if you retain your units until your partnership is
liquidated. However, you may prefer to receive the offer consideration now
rather than wait for uncertain future net liquidation proceeds.
OFFER CONSIDERATION MAY NOT NECESSARILY REPRESENT FAIR MARKET VALUE. There
is no established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of the units. If you
need or desire liquidity, you may wish to consider the offer. However, the offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units or upon a liquidation of your partnership's
assets. Such prices could be higher or lower than the offer consideration.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to our offer.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. You will not receive
any future distributions on units that we acquire from you. If you elect to
receive our Preferred OP Units or Common OP Units ("OP Units") in exchange for
your units, you will be entitled to future distributions from us.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, if you exchange your units
solely for our OP Units, it will not be a taxable transaction. If you sell your
units for cash, you will recognize taxable gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in your units. If you exchange your units for both cash and OP Units, it
will be treated, for Federal income tax purposes, as a partial taxable sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership. If you tender your units for cash or for both cash and OP
Units, the "amount realized" will be measured by the sum of the cash received
plus the portion of your partnership's liabilities allocated to the units sold
for Federal income tax purposes. To the extent that the amount of cash received
plus the allocable share of your partnership's liabilities exceeds your tax
basis for the units sold, you will recognize gain. Consequently, your tax
liability resulting from such gain could exceed the amount of cash you receive
from us. See "Certain Federal Income Tax Matters."
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Internal
Revenue Code of 1986, as amended. The particular tax consequences of the offer
to you will depend upon a number of factors related to your individual tax
situation, including your tax basis in your units, whether you dispose of all of
your units in your partnership, and whether the "passive loss" rules apply to
your investments. Because the income tax consequences of an exchange of units
will not be the same for everyone, you should consult your tax advisor before
determining whether to tender your units pursuant to our offer.
CERTAIN TAX RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS. There are
certain tax risks associated with the acquisition of, holding and disposing of
OP Units. Although your general partner (which is our affiliate) has no present
intention to liquidate or sell your partnership's property or prepay the current
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mortgage on the property within any specified time period, any such action in
the future generally will require you to fully recognize any deferred taxable
gain if you exchange your units for OP Units. See "Federal Income Taxation of
the AIMCO Operating Partnership and Unitholders" in the accompanying Prospectus.
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you tender your
units for our OP Units, you will have changed fundamentally the nature of your
investment from an interest in a partnership that owns and manages one property
to an interest in a partnership that invests in and manages a large portfolio of
properties.
UNCERTAINTY OF PUBLIC TRADING MARKET. We cannot predict the price at which
our stock will trade in the future. Recently, there have been fluctuations in
the trading prices for many real estate investment trust ("REIT") equity
securities, including ours.
COMPANY AUTHORITY. If you tender your units for OP Units, you will have
less effective power in influencing our policies than you currently have in
influencing the policies of your partnership.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership prohibits any transfer of an interest if such
transfer, together with all other transfers during the preceding 12 months,
would cause 50% or more of the total interest in your partnership to be
transferred within such 12-month period. If we acquire a significant percentage
of the interest in your partnership, you may not be able to transfer your units
for a 12-month period following our offer.
In determining the amount of units to tender for, we took into account the
number of units transferred in the past 12 months so as to allow for other
transfers without crossing the 50% threshold. It is possible that beginning
twelve months after the closing of this offer, or possibly earlier, we may make
another offer for your units and such offer may or may not be at a higher price.
CERTAIN RISKS RELATED TO OUR SECURITIES. Investors in our partnership must
hold their units for one year, subject to certain exceptions. Thereafter holders
may transfer such partnership units under certain conditions. Holders of the
units in our partnership do not have the right to remove the general partner,
and therefore, they cannot effect a change of control of the AIMCO Operating
Partnership. On and after , 20 , we may reduce, within certain
limits, the rate of distributions required to be paid on the Preferred OP Units,
thus reducing the rate of return and possibly encouraging you to redeem such
units. On and after , 20 , we may redeem each share of Series I
Preferred Stock for $25, plus any accrued but unpaid dividends, possibly forcing
you to sell such shares to AIMCO or to sell in the open market at a possible
lower price per share than would have occurred without the redemption.
UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes
quarterly distributions based on its available cash, there can be no assurance
regarding the amounts of available cash that our operating partnership will
generate or the portion that we will choose to distribute.
LIMITATIONS ON CHANGE OF CONTROL. Our charter has restrictions on the
ownership of our equity securities in order to comply with certain REIT tax
requirements. The limited partners of the AIMCO Operating Partnership are unable
to remove the general partner of the AIMCO Operating Partnership or to vote in
the election of AIMCO's directors unless they own shares of AIMCO. As a result,
our limited partners and stockholders are limited in their ability to effect a
change of control of the AIMCO Operating Partnership and AIMCO.
POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES. We have been,
and continue to be, involved in various transactions with a number of our
affiliates, including executive officers, directors, and entities in which they
own interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority or our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner of the AIMCO Operating Partnership and
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its affiliates, on the one hand, and the AIMCO Operating Partnership or any
partner thereof, on the other. The directors and officers of the general partner
of the AIMCO Operating Partnership have fiduciary duties to AIMCO, as its sole
stockholder. At the same time, as general partner of the AIMCO Operating
Partnership, it has fiduciary duties to the AIMCO Operating Partnership's
partners.
LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of OP
Units. As a result, holders of OP Units have limited influence on matters
affecting the operation of the AIMCO Operating Partnership and third parties may
find it difficult to attempt to gain control or influence the activities of our
operating partnership.
DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
POSSIBLE INCREASE IN CONTROL BY AIMCO. As a result of the offer, we may
increase our ability to influence voting decisions with respect to your
partnership. Also, removal of your general partner (which is our affiliate) or
the property manager of your partnership's property may become more difficult or
impossible without our consent or approval.
GENERAL RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES. The selective
acquisition, development and expansion of apartment properties is one component
of our growth strategy. However, we can make no assurance as to our ability to
complete future acquisitions. Although we seek acquisitions and development
activities that are accretive on a per share basis, acquisitions and development
activities may fail to perform in accordance with our expectations.
WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned and/or managed
properties from 132 properties with 29,343 units to 2,240 properties with
386,430 units. These acquisitions have included purchases of properties,
interests in entities that own or manage properties and corporate mergers. The
recent Insignia merger is our largest acquisition so far. We can provide no
assurance that we will be able to successfully integrate any acquired businesses
or properties.
LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire
interests in limited partnerships that own apartment properties. In some cases,
we have acquired the general partner of a partnership and then made an offer to
acquire the limited partners' interests in the partnership. In these
transactions, we are sometimes subject to litigation based on claims that the
general partner has breached its fiduciary duties to its limited partners or
that the transaction violates the relevant partnership agreement.
RISKS ASSOCIATED WITH DEBT FINANCING. Our organizational documents do not
limit the amount of debt that we may incur, and we have significant amounts of
debt outstanding. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. If we fail
to make required payments of principal and interest on any debt, our lenders
could foreclose on the properties securing such debt with a consequent loss of
income and asset value to us.
MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's Investors
Service ("Moody's") revised its outlook for our ratings from stable to negative
to reflect its concerns surrounding our ability to successfully implement our
financial strategy while maintaining a prudent capital structure as a result of
more
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difficult general capital market conditions. Moody's noted that our access to
the public markets may prove challenging in light of the volatility in both the
equity and capital markets for REITs and assigned a "ba3" rating to a class of
Preferred Stock proposed to be issued by us. Moody's indicated that its rating
action reflects our increasing leveraged profile, including high levels of
secured debt and preferred stock, limited financial flexibility and integration
risks resulting from the merger with Insignia. Moody's also noted our high level
of encumbered properties and material investments in loans to highly leveraged
partnerships in which we own a general partnership interest. At the same time,
Moody's, Standard & Poor's and Duff & Phelps confirmed their existing rating on
our preferred stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE. As of
September 30, 1998, approximately $182 million of our debt was subject to
variable interest rates. An increase in interest rates could increase our
interest expense and adversely affect our cash flow.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short-term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR
INVESTORS. Some of our debt and other securities contain covenants that restrict
our ability to make distributions or other payments to our investors unless
certain financial tests or other criteria are satisfied. In some cases, our
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to us.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES. Many
of our properties are owned by subsidiaries. As a result, we depend on
distributions and other payments from the subsidiaries in order to satisfy our
financial obligations and make payments to our investors. The ability of the
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations.
REAL ESTATE INVESTMENT RISKS. Our ability to make payments to our investors
depends on our ability to generate funds from operations in excess of required
debt payments and capital expenditure requirements. Funds from operations and
the value of our properties may be adversely affected by events or conditions
which are beyond our control, including local conditions that might adversely
affect apartment occupancy or rental rates, increases in operating costs, and
changes in governmental regulations and the related costs of compliance.
POSSIBLE ENVIRONMENTAL LIABILITIES. Various Federal, state and local laws
subject property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED
EXPENSES. Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Although we believe that our properties
are substantially in compliance with present requirements, we may incur
unanticipated expenses to comply with them.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. We own interests in or
manage many properties that benefit from governmental programs intended to
provide housing to people with low or moderate incomes. As a condition to the
receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
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THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES. We
manage some properties owned by third parties. We may suffer a loss of revenue
if we lose our right to manage these properties or if the rental revenues upon
which our management fees are based decline.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS. Although we have entered into
employment agreements with our Chairman of the Board and Chief Executive
Officer, our President and one of our Executive Vice Presidents, the loss of any
of their services could have an adverse effect on our operations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. If we fail to qualify
as a REIT, we would not be allowed a deduction for distributions to stockholders
in computing our taxable income and we would be subject to Federal income tax at
regular corporate rates. In addition, unless we are entitled to relief under the
tax law, we could not elect to be taxed as a REIT for four years following the
year during which we were disqualified. Therefore, if we lose our REIT status,
the funds available for payment to our investors would be reduced substantially
for each of the years involved.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. As a REIT, we are subject to
annual distribution requirements, which limit the amount of cash we have
available for other business purposes, including amounts to fund our growth.
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 our
investors.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES. Our charter
limits ownership of our common stock by any single shareholder to 8.7% of the
outstanding shares (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine). Our charter also prohibits anyone from
buying shares if the purchase would result in us losing our REIT status. If you
or anyone else acquires shares in excess of the ownership limit or in violation
of the ownership requirements of the Internal Revenue Code for REITs, the
transfer will be considered null and void.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our board of directors. Under our charter, our board of directors has
the authority to classify and reclassify any of our unissued shares of capital
stock into shares of preferred stock with such preferences, rights, powers and
restrictions as our board of directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders' best interests.
BACKGROUND AND REASONS FOR THE OFFER
Background of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to liquidate your current investment and to invest in our OP Units
or receive cash, or to retain your units.
On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing
so, we acquired a majority ownership interest in the general partner of your
partnership and the company that manages the property owned by your partnership.
Through our subsidiaries, we currently own, in the aggregate, approximately a
.992% interest in your partnership.
One of the consequences of the merger with Insignia is to allow us to make
the exchange offer and, if successful, to increase our ownership in your
partnership.
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We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the
possibility of Stanger providing an independent fairness opinion for our offer
consideration. We chose Stanger based on Stanger's expertise and strong
reputation in this area of work. On August 28, 1998, we entered into an
agreement with Stanger to provide such a fairness opinion for your partnership
and other partnerships.
Alternatives Considered
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our affiliate):
Liquidation. One alternative to our offer would be for your partnership
to sell its assets, distribute the net liquidation proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and
then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes,
at their option. If your partnership were to sell its assets and liquidate,
you and your partners would not need to rely upon capitalization of income
or other valuation methods to estimate the fair market value of your
partnership's assets. Instead, such assets would be valued through
negotiations with prospective purchasers. However, a liquidating sale of
your partnership's property would be a taxable event for you and your
partners and could result in significant amounts of taxable income to you
and your partners. Another option for liquidation of your investment would
be to sell your units in a private transaction. Any such sale could be at a
very substantial discount from your pro rata share of the fair market value
of your partnership's property and might involve significant expense and
delay.
Continuation of Your Partnership Without the Offer. A second alternative
would be for your partnership to continue its business without our offer. A
number of advantages could result from the continued operation of your
partnership. Given improving rental market conditions, the level of
distributions might increase over time. We believe it is possible that the
private resale market for apartment and retail properties could improve
over time, making a sale of your partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. However, there are several risks and disadvantages that result
from continuing the operations of your partnership without the offer. Your
partnership faces maturity or balloon payment dates on its mortgage loans
and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, it could be
forced to borrow on terms that could result in net losses from operations.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner (which is our
affiliate) expects to result from the offer. For example, a partner of your
partnership would have no opportunity for liquidity unless he were to sell
his units in a private transaction. Any such sale would likely be at a very
substantial discount from the partner's pro rata share of the fair market
value of your partnership's property.
Expected Benefits of the Offer
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. The offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership for cash
or for units in the AIMCO Operating Partnership.
There are four principal advantages of exchanging your units for Preferred
OP Units:
- Enhanced Liquidity. While holders of the Preferred OP Units must hold
such units for one year, subject to certain exceptions, after a one-year
holding period, you may choose to redeem your Preferred OP Units and
receive, at our option, shares of AIMCO's Class I Preferred Stock, shares
of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is,
and AIMCO's Class I Preferred Stock is expected to be, listed and traded
on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
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- Preferred Quarterly Distributions. Your partnership paid distributions of
$0 for the nine months ended September 30, 1998. We will pay fixed
quarterly distributions of $.50 per unit (equivalent to $2.00 on an
annualized basis) on the Preferred OP Units before any distributions are
paid to holders of Common OP Units. This is equivalent to a distribution
of $1,612.58 per year on the number of Preferred OP Units you will
receive in exchange for each of your partnership units. However, one
class of outstanding Partnership Preferred Units has prior distribution
rights and the Preferred OP Units rank equal to seven other outstanding
classes of Partnership Preferred Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of exchanging your units for Common OP
Units:
- Enhanced Liquidity. While the holders of the Common OP Units must hold
such units for one year, subject to certain exceptions, after a one-year
holding period, you may choose to redeem your Common OP Units and
receive, at our option, shares of AIMCO's Class A Common Stock (on a
one-for-one basis, subject to adjustment in certain circumstances) or an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Tax-Deferral Common OP Units.
- Quarterly Distributions. Your partnership paid distributions of $0 for
the nine months ended September 30, 1998. We pay quarterly distributions
on the Common OP Units. For the quarter ended September 30, 1998, we paid
distributions of $.5625 on each of the Common OP Units (equivalent to
$2.25 on an annual basis). This is equivalent to a distribution of
$ per year on the number of Common OP Units you will receive in
exchange for each of your partnership units.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of the offer, see "Risk Factors."
TERMS OF THE OFFER
General. We are offering to acquire up to 25% of the outstanding 51 units
of your partnership for consideration per unit of 806.29 Preferred OP Units,
Common OP Units, or $20,157 in cash. If you tender units pursuant to the
offer, you may chose to receive any combination of such forms of consideration
for your units. The offer is made upon the terms and subject to the conditions
set forth in this Prospectus Supplement, the accompanying Prospectus and the
accompanying Letter of Transmittal, including the instructions thereto, as the
same may be supplemented or amended from time to time (the "Letter of
Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or
cash pursuant to the offer, you must validly tender and not withdraw your units
on or prior to the Expiration Date. For administrative purposes, the transfer of
units tendered pursuant to the offer will be deemed to take effect as of
, 1998.
Expiration Date. Our offer will expire at 5:00 P.M., Denver, Colorado time,
on , 1998, unless extended.
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Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent (as defined below), either with
your units to be tendered or in compliance with the specified procedures for
guaranteed delivery of units. If you have units registered in the name of a
broker, dealer, commercial bank, trust company, custodian or nominee and you
wish to tender any units pursuant to the offer, you are urged to contact such
person promptly.
Proration. If the number of units properly tendered and not withdrawn prior
to the Expiration Date exceeds 25% of the outstanding units, upon the terms and
subject to the conditions of the offer, we will accept all units properly
tendered and not withdrawn prior to the Expiration Date on a pro rata basis. In
the event that proration of tendered units is required, we will determine the
final proration factor as promptly as practicable after the expiration date.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the expiration date of our offer, and unless already
accepted for payment as provided for herein, you may withdraw your tender of
units, pursuant to the offer on and after , 199 .
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in our operating partnership or receive cash, or to retain your units.
Fractional OP Units. We will issue fractional Common OP Units or Preferred
OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as
practicable after acceptance of units for purchase.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer (the "Information Agent"). Its
telephone number is (888) 349-2005 or (201) 896-1900. Its fax number is (201)
460-2881.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not theretofore
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, we, in our capacity as a
limited partner of your partnership, will participate in any subsequent
distributions to limited partners, to the extent of units we purchase pursuant
to the offer. The offer will not affect the operation of your partnership's
property because your general partner (which is our affiliate) and the property
manager of your partnership's property will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
amount of units pursuant to the offer, we may be in a position to influence
voting decisions with respect to your partnership.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your
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partnership's structure or business. We have no present intention to cause your
partnership to sell its property or to prepay the current mortgage within any
specified time period.
Certain Legal Matters. Except as set forth in this section, we are not,
based on information provided by your general partner (which is our affiliate),
aware of any licenses or regulatory permits that would be material to the
business of your partnership, and that might be adversely affected by our
acquisition of units as contemplated herein. On the same basis, we are not aware
of any filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to our acquisition of units pursuant to the offer as contemplated
herein that have not been made or obtained. We are not aware of any jurisdiction
in which the making of the offer is not in compliance with applicable law. If we
become aware of any jurisdiction in which the making of the offer would not be
in compliance with applicable law, we will make a good faith effort to comply
with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
Prospectus Supplement and the accompanying Prospectus and the legal fees and
expenses in connection therewith. We will also pay the fees of Stanger for
providing the fairness opinions for the offer. We estimate that our total costs
and expenses in making the offer (excluding the purchase price of the units
payable to you and your partners) will be approximately $50,000.
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
No Dissenters' Rights. You are not entitled to dissenters' (appraisal)
rights in connection with the offer.
Other Offers. The AIMCO Operating Partnership is also making similar
exchange offers to approximately other limited partnerships in which it
owns a majority interest and controls the general partner, substantially all of
which were acquired in the merger on October 1, 1998 with Insignia Financial
Group, Inc. Each of such exchange offers are being made by a separate prospectus
supplement similar to this Prospectus Supplement. The effects of the exchange
offers may be different for limited partners in each partnership. In general, we
do not believe any of the risk factors (except for certain tax-related risk
factors) described herein for the offer will differ substantially from the other
offers.
CERTAIN FEDERAL INCOME TAX MATTERS
You will generally not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for Preferred OP
Units or Common OP Units. You will recognize a gain or loss for Federal income
tax purposes on units you sell for cash. The exchange of your units for cash and
OP Units will be treated, for Federal income tax purposes, as a partial sale of
such units for cash and as a partial tax-free contribution of such units to our
operating partnership.
THIS SUMMARY IS A GENERAL DISCUSSION OF CERTAIN OF THE ANTICIPATED FEDERAL
INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT
DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN
LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT
UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER
TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU
SHOULD REVIEW "CERTAIN FEDERAL INCOME TAX MATTERS" IN THIS PROSPECTUS SUPPLEMENT
AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX
CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER.
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VALUATION OF UNITS
We determined the offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to the property's net operating
income. We determined an appropriate capitalization rate, but our valuation is
just an estimate. In estimating the capitalization rate, we considered the
property's physical condition, location and above-market mortgage interest
rates. In addition, we considered the recent decline in the market for equity
securities, including those of REITs and the decline in the availability of
commercial mortgage financing and the recent bankruptcy of a major provider of
subordinated mortgage financing. Although the direct capitalization method is a
widely-accepted way of valuing real estate, there are a number of other methods
available to value real estate, each of which may result in different valuations
of a property. The proceeds that you would receive if you sold your units to
someone else or if your partnership were actually liquidated might be higher or
lower than our offer consideration. We determined our offer consideration as
follows:
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $ 466,000
Capitalization rate......................................... 10.75%
Estimated gross valuation of your partnership's property.... 4,331,000
Plus: Cash and cash equivalents............................. 163,611
Plus: Other partnership assets, net of security deposits.... 235,464
Less: Mortgage debt, including accrued interest............. 3,063,493
Less: Accounts payable and accrued expenses................. 76,634
Less: Other liabilities..................................... 33,773
Partnership valuation before taxes and certain costs........ 1,556,175
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures and deferred
maintenance............................................... 419,880
Less: Closing costs......................................... 108,275
Estimated net valuation of your partnership................. 1,028,020
Percentage of estimated net valuation allocated to holders
of units.................................................. 100%
Estimated net valuation of units............................ 1,028,020
Total number of units............................. 51
Estimated valuation per unit................................ 20,157
----------
Cash consideration per unit................................. $ 20,157
==========
</TABLE>
In order to determine the number of Preferred OP Units we are offering for
each of your units, we divided the cash offer consideration by the $25
liquidation preference of each Preferred OP Unit to get 806.29 per unit.
In order to determine the number of Common OP Units we are offering for
each of your units, we divided the cash offer consideration by $ to get
per unit. This price represents the average closing price of AIMCO's
Class A Common Stock on the NYSE for the 20 trading days prior to , 1998.
FAIRNESS OF THE OFFER
Fairness to Unitholders. We have a majority ownership interest in your
general partner (which is our affiliate). As a result, your general partner has
a conflict of interest and makes no recommendation to you as to whether you
should tender or refrain from tendering your units. Your general partner did not
participate in the structuring of the offer. We and your general partner believe
that the offer is fair to you and the other limited partners of your
partnership. We have retained Stanger to conduct an analysis of the offer and to
render an opinion as to the fairness to you of our offer consideration. Stanger
is not affiliated with us or your general partner. Stanger is one of the leaders
in the field of analyzing and evaluating complex real estate transactions.
However, we provided much of the information used by Stanger in forming its
fairness opinion. We believe the information provided to Stanger is accurate in
all material respects. You should make your decision whether to tender based
upon a number of factors, including your financial needs, other financial
opportunities available to you and your tax position.
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The terms of our offer have been established by us and are not the result
of arms-length negotiations.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership interests in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner (which is our affiliate) has no present intention to liquidate,
sell, finance or refinance your partnership's property within any specified time
period.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner (which is our affiliate) has compared our cash offer
consideration to:
- prices at which the units have been sold in the illiquid secondary
market, where information concerning such transactions is known to the
general partner; and
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if your partnership was liquidated.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
<TABLE>
<S> <C>
Cash offer consideration.................................... $20,157
Alternatives:
Prices on secondary market................................ Not Available
Estimated liquidation proceeds............................ $20,157
</TABLE>
STANGER ANALYSIS
We engaged Stanger to conduct an analysis of our offer and to render its
opinion based on the review, analysis, scope and limitations described therein,
as to the fairness to you of our offer consideration from a financial point of
view. The full text of the opinion, which contains a description of the
assumptions and qualifications made, matters considered and limitations on the
review and analysis, is set forth in Appendix A and should be read in its
entirety. We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. We have agreed to indemnify Stanger against
certain liabilities arising out of its engagement to render the fairness
opinion. Based on its analysis, and subject to the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded that our offer
consideration is fair to you from a financial point of view. Stanger has
rendered similar fairness opinions with regard to the other tender offers being
made by the AIMCO Operating Partnership. Stanger rendered the opinions only as
to the individual fairness of the offer consideration in each proposed exchange
offer.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, your general
partner (which is our affiliate) may be removed by the limited partners while
the limited partners of the AIMCO Operating Partnership cannot remove the
general partner. Also, your partnership is limited as to the number of limited
partner interests it may issue while the AIMCO Operating Partnership has no such
limitation.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units, Preferred
OP Units and Common OP Units relating to, among other things, the nature of the
investment, voting rights, distributions and liquidity and
transferability/redemption. For example, unlike the AIMCO OP Units, you have no
redemption rights with respect to your units.
S-15
<PAGE> 158
Currently, the AIMCO Operating Partnership has approximately 6,156,145
Common OP Units outstanding and no Preferred OP Units outstanding. If you elect
to receive OP Units, you will receive a relatively insignificant number of OP
Units in the AIMCO Operating Partnership. The original cost of each unit of your
partnership was $37,000. In the offer you could elect to receive $20,157 in
cash, Common OP Units or 806.29 Preferred OP Units. Both your units and
the OP Units are subject to transfer restrictions and it is unlikely that a real
trading market will ever develop for any of such securities. If and when you may
seek to redeem OP Units for AIMCO Class A Common Stock or Class I Preferred
Stock of AIMCO, no assurances can be given that such shares of AIMCO will be
trading at a price equal to or in excess of $ .
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
affiliated with us and, therefore, has substantial conflicts of interest with
respect to the offer, including (i) the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing your partnership's property and (ii) our desire to
purchase units at a low price and your desire to sell units at a high price.
Your general partner makes no recommendation as to whether you should tender or
refrain from tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own a
majority of both the general partner of your partnership and the manager of your
partnership's property. The general partner of your partnership receives an
annual fee of 1% of the gross collected income from your partnership's property
and may receive reimbursements for expenses incurred in its capacity as general
partner. The general partner of your partnership received total fees and
reimbursements of $15,277 for the first nine months of 1998. The property
manager received management fees of $39,588 for the first nine months of 1998.
We have no current intention of changing the fee structure for your property
manager.
Competition Among Properties. Your partnership's property and other
properties owned or managed by us may compete with one another for tenants.
However, in some cases it may be difficult to determine precisely the confines
of the market area for particular properties and some competition may exist.
Furthermore, you should bear in mind that we anticipate acquiring properties in
general market areas where your partnership's property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts, staffing
and other operational efficiencies. In managing our properties, we will attempt
to reduce such conflicts between competing properties by referring prospective
tenants to the property considered to be most conveniently located for the
tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. If the results of operations were to improve for your partnership
under our management, we might be required to pay a higher price for any future
exchange offers we may make for units of your partnership.
YOUR PARTNERSHIP
Your Partnership and its Property. Woodmere Associates, L.P. is a Delaware
limited partnership which was formed on May 28, 1985 for the purpose of owning
and operating an apartment property located in Cincinnati, Ohio, known as
"Woodmere Apartments." Woodmere Apartments consists of 150 apartment units. Your
partnership has no employees. As of September 30, 1998, there were 51 units of
limited partnership interest issued and outstanding, which were held of record
by 41 limited partners. Your partnership's principal executive offices are
located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and
its telephone number at that address is (303) 757-8101.
S-16
<PAGE> 159
Your partnership sold $1,887,000 of limited partnership units in 1985 for
$37,000 per unit. Between January 1, 1994 and September 30, 1998 your
partnership made a total of $2,766.47 of distributions per unit. Your
partnership currently owns a single apartment property.
Property Management. Since December 1991, your partnership's property has
been managed by an affiliate of ours. Pursuant to the management agreement
between the property manager and your partnership, the property manager operates
your partnership property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors. The property manager is an
affiliate of your general partner and us.
Investment Objectives and Policies; Sale or Financing of Investments. The
principal investment objectives of your partnership are to preserve invested
capital, to maximize the potential for appreciation in property values and to
provide for partially tax sheltered cash distributions. Under your partnership
agreement, your partnership is not permitted to raise new capital and reinvest
cash in new properties. Your partnership will terminate on December 31, 2012,
unless earlier dissolved. Your general partner has no present intention to
liquidate, sell, finance or refinance your partnership property within any
specified time period. An investment in your partnership is a finite life
investment in which partners receive regular cash distributions out of your
partnership's distributable cash flow, if any, and upon liquidation.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of September 30, 1998, your
partnership had a current mortgage note outstanding of $2,766,526, payable to
Marine Midland, Bank of America and FNMA, which bears interest at the rate of
7.60%. The mortgage debt is due on November 2002. Your partnership also has a
second mortgage note outstanding of $103,182 on the same terms as the current
mortgage note. Your partnership's agreement of limited partnership also allows
your general partner to lend funds to your partnership. As of September 30,
1998, your general partner had no loans outstanding to your partnership.
Transfers. Your units are not listed on any national securities exchange or
quoted on NASDAQ, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic.
Your general partner monitors transfers of the units (a) because the admission
of the transferee as a substitute limited partner in your partnership requires
the consent of your general partner under your partnership agreement, and (b) in
order to track compliance with safe harbor provisions to avoid treatment as a
"publicly traded partnership" for tax purposes. However, your general partner
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $307,000 will be required to purchase all of
the units sought in our offer, if such units are tendered for cash. We will
obtain all such funds from cash from operations, equity issuances and short term
borrowings.
S-17
<PAGE> 160
SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The historical summary financial data for AIMCO Properties, L.P. for the
nine months ended September 30, 1998 and 1997 is unaudited. The historical
summary financial data for AIMCO Properties, L.P. for the years ended December
31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the
period January 10, 1994 through July 28, 1994, and the year ended December 31,
1993, is based on audited financial statements. This information should be read
in conjunction with such financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in AIMCO Properties, L.P.'s Registration Statement on Form
10, as amended, which is incorporated by reference herein. All dollar values are
in thousands, except per unit data.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------------------------------------------
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
----------------------- --------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947
Property operating expenses...... (101,600) (50,737) (76,168) (38,400) (30,150)
Owned property management
expenses....................... (7,746) (4,344) (6,620) (2,746) (2,276)
Depreciation..................... (59,792) (23,848) (37,741) (19,556) (15,038)
---------- ---------- ---------- -------- --------
96,562 48,154 72,477 39,814 27,483
---------- ---------- ---------- -------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 13,968 9,173 13,937 8,367 8,132
Management and other expenses.... (8,101) (5,029) (9,910) (5,352) (4,953)
Corporate overhead allocation.... (196) (441) (588) (590) (581)
Other assets, depreciation and
amortization................... (3) (236) (453) (218) (168)
Owner and seller bonuses......... -- -- -- -- --
Amortization of management
company goodwill............... -- -- (948) (500) (428)
---------- ---------- ---------- -------- --------
5,668 3,467 2,038 1,707 2,002
Minority interests in service
company business............... -- 48 (10) 10 (29)
---------- ---------- ---------- -------- --------
Company's shares of income from
service company business....... 5,668 3,515 2,028 1,717 1,973
---------- ---------- ---------- -------- --------
General and administrative
expenses....................... (7,444) (1,408) (5,396) (1,512) (1,804)
Interest income.................. 18,244 4,458 8,676 523 658
Interest expense................. (56,756) (33,359) (51,385) (24,802) (13,322)
Minority interest in other
partnerships................... (1,052) (777) 1,008 (111) --
Equity in losses of
unconsolidated
partnerships(c)................ (5,078) (463) (1,798) -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ 8,413 456 4,636 -- --
Amortization of goodwill......... (5,071) (711) -- -- --
---------- ---------- ---------- -------- --------
Income from operations........... 53,486 19,865 30,246 15,629 14,988
Gain on disposition of
properties..................... 2,783 (169) 2,720 44 --
Provision for income taxes....... -- -- -- -- --
---------- ---------- ---------- -------- --------
Income (loss) before
extraordinary item............. 56,269 19,696 32,966 15,673 14,988
Extraordinary item -- early
extinguishment of debt......... -- (269) (269) -- --
---------- ---------- ---------- -------- --------
Net income (loss)................ $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988
========== ========== ========== ======== ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 241 109 147 94 56
Total owned apartment units (end
of period)..................... 62,955 28,773 40,039 23,764 14,453
Units under management (end of
period)........................ 154,729 71,038 69,587 19,045 19,594
Basic earnings per Common OP
Unit........................... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86
Diluted earnings per Common OP
Unit........................... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86
Distributions paid per Common OP
Unit........................... $ 1.6875 $ 0.925 $ 1.85 $ 1.70 $ 1.66
Cash flows provided by operating
activities..................... 50,825 53,435 73,032 38,806 25,911
Cash flows used in investing
activities....................... (185,453) (314,814) (717,663) (88,144) (60,821)
Cash flows provided by (used in)
financing activities............. 141,221 293,984 668,549 60,129 30,145
<CAPTION>
AIMCO PROPERTIES, L.P.'S
AIMCO PROPERTIES, L.P. DECESSORS(A)
------------ --------------------------
FOR THE FOR THE
PERIOD PERIOD
JULY 29, JANUARY 10,
1994 1994 FOR THE YEAR
THROUGH THROUGH ENDED
DECEMBER 31, JULY 28, DECEMBER 31,
1994 1994(B) 1993
------------ ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income.......... $ 24,894 $ 5,805 $ 8,056
Property operating expenses...... (10,330) (2,263) (3,200)
Owned property management
expenses....................... (711) -- --
Depreciation..................... (4,727) (1,151) (1,702)
--------- ------- --------
9,126 2,391 3,154
--------- ------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income......................... 3,217 6,533 8,069
Management and other expenses.... (2,047) (5,823) (6,414)
Corporate overhead allocation.... -- -- --
Other assets, depreciation and
amortization................... (150) (146) (204)
Owner and seller bonuses......... -- (204) (468)
Amortization of management
company goodwill............... -- -- --
--------- ------- --------
1,020 360 983
Minority interests in service
company business............... (14) -- --
--------- ------- --------
Company's shares of income from
service company business....... 1,006 360 983
--------- ------- --------
General and administrative
expenses....................... (977) -- --
Interest income.................. 123 -- --
Interest expense................. (1,576) (4,214) (3,510)
Minority interest in other
partnerships................... -- -- --
Equity in losses of
unconsolidated
partnerships(c)................ -- -- --
Equity in earnings of
unconsolidated
subsidiaries(d)................ -- -- --
Amortization of goodwill......... -- -- --
--------- ------- --------
Income from operations........... 7,702 (1,463) 627
Gain on disposition of
properties..................... -- -- --
Provision for income taxes....... -- (36) (336)
--------- ------- --------
Income (loss) before
extraordinary item............. 7,702 (1,499) 291
Extraordinary item -- early
extinguishment of debt......... -- -- --
--------- ------- --------
Net income (loss)................ $ 7,702 $(1,499) $ 291
========= ======= ========
OTHER INFORMATION:
Total owned properties (end of
period)........................ 48 4 4
Total owned apartment units (end
of period)..................... 12,513 1,711 1,711
Units under management (end of
period)........................ 20,758 29,343 28,422
Basic earnings per Common OP
Unit........................... $ 0.42 N/A N/A
Diluted earnings per Common OP
Unit........................... $ 0.42 N/A N/A
Distributions paid per Common OP
Unit........................... $ 0.29 N/A N/A
Cash flows provided by operating
activities..................... 16,825 2,678 2,203
Cash flows used in investing
activities....................... (186,481) (924) (16,352)
Cash flows provided by (used in)
financing activities............. 176,800 (1,032) 14,114
</TABLE>
S-18
<PAGE> 161
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------------------------------------------
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
----------------------- --------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
Funds from operations(e)........... $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285
Weighted average number of Common
OP Units outstanding............. 53,007 24,347 29,119 14,994 11,461
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162
Real estate, net of accumulated
depreciation..................... 2,355,122 1,107,545 1,503,922 745,145 448,425
Total assets....................... 3,121,949 1,608,195 2,100,510 827,673 480,361
Total mortgages and notes
payable.......................... 1,275,401 661,715 808,530 522,146 268,692
Redeemable Partnership Units....... 232,405 111,632 197,086 96,064 38,463
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ -- -- -- -- --
Partners' Capital.................. 1,427,088 627,426 960,176 178,462 160,947
<CAPTION>
AIMCO PROPERTIES, L.P.'S
AIMCO PROPERTIES, L.P. DECESSORS(A)
------------ --------------------------
FOR THE FOR THE
PERIOD PERIOD
JULY 29, JANUARY 10,
1994 1994 FOR THE YEAR
THROUGH THROUGH ENDED
DECEMBER 31, JULY 28, DECEMBER 31,
1994 1994(B) 1993
------------ ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
Funds from operations(e)........... $ 9,391 N/A N/A
Weighted average number of Common
OP Units outstanding............. 10,920 N/A N/A
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation..................... $ 406,067 $47,500 $ 46,819
Real estate, net of accumulated
depreciation..................... 392,368 33,270 33,701
Total assets....................... 416,361 39,042 38,914
Total mortgages and notes
payable.......................... 141,315 40,873 41,893
Redeemable Partnership Units....... 32,047 -- --
Mandatorily redeemable 1994
Cumulative Senior Preferred
Units............................ 107,228 -- --
Partners' Capital.................. 137,354 (9,345) (7,556)
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Class A Common Stock and issued 966,000 shares of
convertible preferred stock and 513,514 unregistered shares of AIMCO Common
Stock. The proceeds from the offering and such other issuances were
contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units,
966,000 Preferred Units and 513,514 Common OP Units, respectively. On such
date, AIMCO Properties, L.P. and its predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO Properties, L.P. to continue and expand the property management and
related businesses of its predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of AIMCO Class A Common Stock that were
issued concurrently with the initial public offering were repurchased in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO Properties, L.P.
(c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships
that own 83,431 apartment units in which partnerships AIMCO Properties,
L.P. purchased an equity interest from the NHP Real Estate Companies.
(d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated
subsidiaries.
(e) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO", when considered with the financial data
determined in accordance with GAAP, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative 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 Properties, L.P. calculates FFO
consistent with the NAREIT definition, plus amortization of management
company goodwill, the non-cash deferred portion of the income tax provision
for unconsolidated subsidiaries and less the payments of dividends on
perpetual preferred stock. AIMCO Properties, L.P. management believes that
presentation of FFO provides investors with industry-accepted measurements
which help facilitate an understanding of its ability to make required
dividend payments, capital expenditures and principal payments on its debt.
There can be no assurance that AIMCO Properties, L.P.'s basis of computing
FFO is comparable with that of other REITs.
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE PERIOD
MONTHS ENDED FOR THE YEAR ENDED JANUARY 10,
SEPTEMBER 30, DECEMBER 31, 1994
------------------ --------------------------- THROUGH
1998 1997 1997 1996 1995 JULY 28, 1994
-------- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702
(Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- --
Extraordinary item.......................................... - 269 269 -- -- --
Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727
Amortization of goodwill.................................... 7,077 711 948 500 428 76
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation.................................. -- 2,689 3,584 -- -- --
Amortization of management contracts...................... 4,201 430 1,587 -- -- --
Deferred taxes............................................ 6,134 2,164 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation.................................. 17,379 2,781 6,280 -- -- --
Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114)
-------- ------- ------- ------- ------- -------
Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391
======== ======= ======= ======= ======= =======
</TABLE>
S-19
<PAGE> 162
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P.
The following table sets forth summary pro forma financial and operating
information of AIMCO Properties, L.P. for the nine months ended September 30,
1998 and for the year ended December 31, 1997. The pro forma financial and
operating information gives effect to AIMCO's merger with Insignia Financial
Group, Inc., the transfer of certain assets and liabilities of Insignia to
unconsolidated subsidiaries, a number of transactions completed before the
Insignia merger, and a number of exchange offers proposed to be made to limited
partnerships formerly controlled or managed by Insignia, including your
partnership.
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------------
FOR THE NINE FOR THE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 335,568 $ 429,390
Property operating expenses............................... (130,958) (181,959)
Owned property management expenses........................ (8,875) (11,760)
Depreciation.............................................. (76,136) (93,131)
--------- ---------
119,599 142,540
--------- ---------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 28,912 41,676
Management and other expenses............................. (14,386) (23,683)
Corporate overhead allocation............................. (196) (588)
Depreciation and amortization............................. (17,342) (31,517)
--------- ---------
Minority interests in service company business............ (3,012) (14,112)
--------- ---------
Partnership's shares of income from service company
business............................................... -- (10)
--------- ---------
(3,012) (14,122)
--------- ---------
General and administrative expenses....................... (9,207) (21,228)
Interest income........................................... (92,695) (99,898)
Interest expense.......................................... 39,312 21,734
Minority interest......................................... (8,052) (9,481)
Equity in losses of unconsolidated partnerships........... (14,539) (32,024)
Equity in earnings of unconsolidated subsidiaries......... 1,751 6,245
Amortization of Goodwill.................................. (5,071) --
--------- ---------
Net income........................................ $ 28,086 $ (6,234)
========= =========
PER OP UNIT DATA:
Basic earnings (loss) per Common OP Unit.................... $ (.05) $ (.71)
Diluted earnings (loss) per Common OP Unit.................. $ (.05) $ (.71)
Distributions paid per Common OP Unit....................... $ 1.6875 $ 1.85
CASH FLOW DATA:
Cash provided by operating activities(a).................... $ 151,012 $ 140,212
Cash used by investing activities(b)........................ (13,804) (18,405)
Cash used by financing activities(c)........................ (151,616) (176,564)
OTHER DATA:
Funds from operations(d).................................... $ 73,843 $ 72,991
Weighted average number of Common OP Units outstanding...... 68,215 67,183
</TABLE>
S-20
<PAGE> 163
<TABLE>
<CAPTION>
AIMCO PROPERTIES, L.P.
----------------------
SEPTEMBER 30, 1998
----------------------
(IN THOUSANDS, EXCEPT
PER UNIT DATA)
<S> <C>
BALANCE SHEET DATA:
Real estate, net of accumulated depreciation................ $ 2,539,582
Total assets................................................ 4,464,665
Total mortgages and notes payable........................... 1,576,239
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... 149,500
Redeemable partnership units................................ 259,831
Partners' capital........................................... 2,074,309
</TABLE>
- ---------------
(a) Pro forma cash provided by operating activities represents net income, plus
depreciation and amortization less the non-cash portion of AIMCO Properties
L.P.'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.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
distributions to be paid based on AIMCO Properties, L.P.'s historical
distribution rate of $1.6875 per Common OP Unit for the nine months ended
September 30, 1998 and $1.85 per Common OP Unit for the year ended December
31, 1997, on outstanding Common OP Units, (ii) estimated distributions to
be paid based on the rate of $5.34375 per unit for the nine months ended
September 30, 1998 and $7.125 per unit for the year ended December 31, 1997
on outstanding Class B Partnership Preferred Units, (iii) estimated
distributions to be paid based on the rate of $1.6875 per unit for the nine
months ended September 30, 1998 and $2.25 per unit for the year ended
December 31, 1997 on outstanding Class C Partnership Preferred Units, (iv)
estimated distributions to be paid based on the rate of $1.6425 per unit
for the nine months ended September 30, 1998 and $2.19 per unit for the
year ended December 31, 1997 on outstanding Class D Partnership Preferred
Units, (v) estimated distributions to be paid based on the rate of $1.7578
per unit for the nine months ended September 30, 1998 and $2.34375 per unit
for the year ended December 31, 1997 on outstanding Class G Partnership
Preferred Units, (vi) estimated distributions to be paid based on the rate
of $1.78125 per unit for the nine months ended September 30, 1998 and
$2.375 per unit for the year ended December 31, 1997 on outstanding Class H
Partnership Preferred Units, and, (vii) estimated distributions to be paid
based on the rate of $5.25 per unit for the nine months ended September 30,
1998 and $7.00 per unit for the year ended December 31, 1997 on outstanding
Class J Partnership Preferred Units.
(d) AIMCO Properties, L.P.'s management believes that the presentation of funds
from operations or "FFO," when considered with the financial data
determined in accordance with GAAP, provides useful measures of AIMCO
Properties, L.P. performance. However, FFO does not represent cash flow and
is not necessarily indicative of cash flow or liquidity available to AIMCO
Properties, L.P., nor should it be considered as an alternative 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 Properties, L.P. calculates FFO in a
manner consistent with the NAREIT definition, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. AIMCO Properties, L.P. management
believes that presentation of FFO provides investors with an industry
accepted measurement which helps facilitate an understanding of AIMCO
Properties, L.P.'s ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that AIMCO Properties, L.P.'s basis of computing FFO is comparable with
that of other REITs.
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The following is a reconciliation of pro forma net income to pro forma
funds from operations:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
ACCOUNT SEPTEMBER 30, 1998 DECEMBER 31, 1997
------- ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)................................. $ 28,086 $ (6,234)
HUD release fee and legal reserve................. -- 10,202
Real estate depreciation, net of minority
interests....................................... 71,588 86,466
Amortization of management contracts.............. 8,660 11,546
Amortization of management company goodwill....... 15,479 18,528
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation........................ 66,177 76,902
Amortization of management company goodwill..... 959 1,918
Amortization of management contracts............ 21,704 28,775
Deferred taxes.................................. 268 (231)
Equity in earnings of other partnerships:
Real estate depreciation........................ -- 1,715
Interest on convertible debentures................ (7,537) (10,003)
Preferred unit distributions...................... (22,074) (29,432)
-------- --------
Funds from operations............................. $183,310 $190,152
======== ========
</TABLE>
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SUMMARY FINANCIAL INFORMATION OF WOODMERE ASSOCIATES, L.P.
The summary financial information of Woodmere Associates, L.P. for the nine
months ended September 30, 1998 and 1997 is unaudited. The summary financial
information for Woodmere Associates, L.P. for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 is based on audited financial statements. This
information should be read in conjunction with such financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included herein.
WOODMERE ASSOCIATES, L.P.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total Revenues................ $ 777,042 $ 779,721 $ 1,057,000 $ 1,013,000 $ 995,026 $ 975,517 $ 936,168
Net Income (Loss)............. 25,178 61,244 73,000 (1,000) (80,695) (86,629) (109,861)
Balance Sheet Data:
Real Estate, Net of
Accumulated Depreciation.... $ 1,506,416 $ 1,483,280 $ 1,490,000 $ 1,503,000 $ 1,503,854 $ 1,621,109 $1,812,408
Total Assets............ 1,942,254 1,935,857 1,954,000 1,956,000 2,070,485 2,256,014 2,449,896
Mortgage Notes Payable,
including Accrued
Interest.................... 2,869,708 2,938,633 2,923,000 2,988,000 3,046,674 3,100,988 3,162,313
Partners' Deficit............. $(1,080,276) $(1,116,645) $(1,105,000) $(1,178,000) $(1,126,662) $(1,006,161) $ (868,267)
</TABLE>
COMPARATIVE PER UNIT DATA
Set forth below are cash distributions for OP Units and cash distributions
per unit of your partnership.
<TABLE>
<CAPTION>
AIMCO OPERATING
PARTNERSHIP WOODMERE ASSOCIATES, L.P.
---------------------------- ----------------------------
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1998 1997 1998 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Equivalent cash distributions on number of Common OP
Units tendered in the offer for each unit of your
partnership........................................... $ $ $0.00 $0.00
Equivalent cash distributions on number of Preferred OP
Units tendered in the offer for each unit of your
partnership........................................... $1,209.44 $1,612.58 $0.00 $0.00
</TABLE>
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<PAGE> 166
THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of AIMCO. AIMCO is a real estate investment
trust that owns and manages multifamily apartment properties throughout the
United States. As of October 31, 1998, AIMCO, through its wholly owned
subsidiaries, AIMCO-GP, Inc., the sole general partner of the AIMCO Operating
Partnership (the "AIMCO GP"), and AIMCO-LP, Inc., a limited partner in the AIMCO
Operating Partnership (the "Special Limited Partner"), held approximately a 90%
interest in the AIMCO Operating Partnership. Based on apartment unit data
compiled as of January 1, 1998 by the National Multi Housing Council, we believe
that, as of October 31, 1998, AIMCO was the largest owner and manager of
multifamily apartment properties in the United States, with a total portfolio of
386,430 apartment units in 2,240 properties located in 49 states, the District
of Columbia and Puerto Rico. As of October 31, 1998, AIMCO:
- owned or controlled 62,955 units in 241 apartment properties;
- held an equity interest in 168,746 units in 897 apartment properties; and
- managed 154,729 units in 1,102 apartment properties for third party
owners and affiliates.
AIMCO's Class A Common Stock is listed and traded on the NYSE under the
symbol "AIV." On November 19, 1998, the last reported sale price of AIMCO Class
A Common Stock on the NYSE was $33 3/4. The following table shows the high and
low reported sales prices and dividends declared per share of AIMCO's Class A
Common Stock for the periods indicated. The table also shows the distributions
per unit declared on the Common OP Units for the same periods.
<TABLE>
<CAPTION>
CLASS A PARTNERSHIP
COMMON STOCK COMMON
--------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through November 19,
1998)............................... $34 7/8 $32 5/8 $ -- $ --
Third Quarter.......................... 41 30 15/16 0.5625 0.5625
Second Quarter......................... 38 7/8 36 1/2 0.5625 0.5625
First Quarter.......................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter......................... 38 32 0.5625 0.5625
Third Quarter.......................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter......................... 29 3/4 26 0.4625 0.4625
First Quarter.......................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter......................... 28 3/8 21 1/8 0.4625 0.4625
Third Quarter.......................... 22 18 3/8 0.4250 0.4250
Second Quarter......................... 21 18 3/8 0.4250 0.4250
First Quarter.......................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited
Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire
Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101.
RISK FACTORS
The following sets forth certain risks and possible disadvantages of the
offer and should be read and considered when reviewing the potential benefits of
the offer set forth in "Background and Reasons for the Offer -- Expected
Benefits of the Offer." In addition, you should review the other risks of
investing in us beginning on page 2 of our accompanying Prospectus.
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<PAGE> 167
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
NO THIRD PARTY VALUATION OR APPRAISAL; NO ARMS-LENGTH NEGOTIATION AND NO
GENERAL PARTNER RECOMMENDATION. We did not base our valuation of your
partnership's property on any third-party appraisal or valuation. We established
the terms of our offer, including the exchange ratios and the cash
consideration. Such terms are not the result of arms-length negotiations. It is
uncertain whether our offer consideration reflects the value which would be
realized upon a sale of your units or a liquidation of your partnership's
assets. Because of our affiliation with your general partner, your general
partner makes no recommendation to you as to whether you should tender your
units. We have retained Stanger to conduct an analysis of our offer and to
render an opinion as to the fairness to you of our offer consideration from a
financial point of view. It is possible that if the offer is not successful, we
may revise or terminate the offer or conduct a subsequent offer at a higher or
lower price. Such a decision will depend, among other things, on the performance
of the partnership, prevailing interest rates, and our interest in acquiring
additional limited partnership interests.
OFFER PRICE MAY NOT REPRESENT FUTURE LIQUIDATION VALUE. Your partnership's
property may outperform our larger, more diversified portfolio of assets.
Although we cannot predict the future value of your partnership's property, our
offer consideration could be less than the net proceeds that you would realize
upon a future liquidation of your partnership. Accordingly, although there can
be no assurance, you might receive more consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. However, you may prefer to receive our
offer consideration now rather than wait for uncertain future net liquidation
proceeds. Furthermore, your general partner has no present intention to
liquidate your partnership, and your partnership's agreement of limited
partnership does not require a sale of your partnership's property by any
particular date.
ATTRACTIVE INVESTMENT FOR THE AIMCO OPERATING PARTNERSHIP. We are making
our offer with a view to making a profit. Accordingly, there is a conflict
between our desire to purchase your units at a low price and your desire to sell
your units at a high price.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a
subsidiary of AIMCO and an affiliate of the AIMCO Operating Partnership and,
therefore, has substantial conflicts of interest with respect to our offer.
These conflicts include the fact that a decision of the limited partners of your
partnership to remove, for any reason, your general partner or the manager of
your partnership's property from its current position would result in a decrease
or elimination of the substantial fees paid to your general partner or the
property manager for services provided to your partnership. Your general partner
makes no recommendation to you as to whether you should tender your units. Such
conflicts of interest in connection with our offer and our operation's differ
from those conflicts of interest that currently exist for your partnership.
LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your
units in response to our offer, you will transfer all rights title and interest
in and to all of the units that we accept, and all distributions in respect of
such units on or after the date on which we accept such units for purchase.
Accordingly, following the purchase of your units, we would be entitled to
receive any future distributions from the operations of your partnership to the
extent of the units we acquire. Similarly, if you tender your units for OP
Units, you will be entitled to future distributions from the operations of the
AIMCO Operating Partnership.
TAX RISKS ASSOCIATED WITH THE OFFER. In general, your exchange of units for
OP Units will not be a taxable transaction. Your sale of units for cash will be
a taxable sale, with the result that you will recognize gain or loss measured by
the difference between the amount realized on the sale and your adjusted tax
basis in the units you transfer to us. Your exchange of units for cash and OP
Units will be treated, for Federal income tax purposes, as a partial taxable
sale of such units for cash and as a partial tax-free contribution of such units
to the AIMCO Operating Partnership. If you exchange your units for cash or for
cash and OP Units, the "amount realized" will be measured by the sum of the cash
you receive plus the portion of your partnership's liabilities allocated to the
units sold for Federal income tax purposes. To the extent that the amount of
cash received plus the allocable share of your partnership's liabilities exceeds
your tax basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. Although we have no present intention to liquidate or sell your
partnership's property or prepay the current mortgage on your partnership's
property within any specified time period, any such
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<PAGE> 168
action in the future generally will require you to fully recognize any deferred
taxable gain if you exchange your units for OP Units. In addition, if the AIMCO
Operating Partnership were to be treated as a "publicly traded partnership" for
Federal income tax purposes, passive activity losses generated by other passive
activity investments held by you, including passive activity loss carryovers
attributable to your units, could not be used to offset your allocable share of
income generated by the AIMCO Operating Partnership. See "Certain Federal Income
Tax Matters." If you redeem OP Units for shares of AIMCO Class A Common Stock or
Preferred Stock, you will recognize gain or loss measured by the difference
between the amount realized from our tender offer and your adjusted tax basis in
the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you
will no longer be able to use income and loss from your investment to offset
"passive" income and losses from other investments, and the distributions from
AIMCO will constitute taxable income to the extent of AIMCO's earnings and
profits.
This summary is a general discussion of certain of the anticipated Federal
income tax consequences of the offer. This summary does not discuss all aspects
of Federal income taxation that may be relevant to you in light of your specific
circumstances or if you are subject to special treatment under the Internal
Revenue Code of 1986, as amended. The particular tax consequences for you of our
offer will depend upon a number of factors related to your tax situation,
including your tax basis in your units, whether you dispose of all of your units
in your partnership and whether you are no longer subject to the "passive loss"
rules with respect to your partnership. Because the income tax consequences of
tendering units will not be the same for everyone, you should consult your own
tax advisor with specific reference to your own tax situation.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
FUNDAMENTAL CHANGE IN NATURE AND TERM OF INVESTMENT. If you exchange your
units for OP Units, you will have changed fundamentally the nature of your
investment. Your partnership owns and manages one property. In contrast, the
AIMCO Operating Partnership is in the business of acquiring, marketing, managing
and operating a large portfolio of apartment properties. While diversification
of assets may reduce certain risks of investment attributable to a single
property or entity, there can be no assurance as to the value or performance of
our securities or our portfolio of properties as compared to the value of your
units or your partnership. Under the AIMCO Operating Partnership Agreement, the
general partner has the ability, without the concurrence of the limited
partners, to acquire and dispose of properties and to borrow funds. Further,
while it is the intent to distribute net income from operations, sales and
refinancing of your partnership, the general partner may not make such
distributions. The AIMCO Operating Partnership generally makes the same
distribution on the Common OP Units as AIMCO pays dividends on its Class A
Common Stock. Further, AIMCO must distribute a significant percentage of its
consolidated revenues each year in order to retain its status as a REIT. Your
partnership is permitted not to make distributions under certain circumstances
such as reinvesting in your partnership. Proceeds of future asset sales or
refinancings by the AIMCO Operating Partnership generally will be reinvested
rather than distributed.
UNCERTAINTY OF PUBLIC TRADING MARKET. Recently, there have been
fluctuations in the trading prices for many REIT securities. There may be
subsequent changes in public market valuations of real estate assets relative to
private market valuations of real estate assets. We cannot predict the price at
which the Class I Preferred Stock or the Class A Common Stock will trade
following the time at which Preferred OP Units or Common OP Units may be
redeemed for shares of Class I Preferred Stock or Class A Common Stock.
Furthermore, the liquidity of the Class I Preferred Stock and the Class A Common
Stock at the time at which OP Units may be redeemed is also uncertain.
COMPANY AUTHORITY. Under our organizational documents, we have the ability
to change our investment, acquisition and financing policies without a vote of
the limited partners of the AIMCO Operating Partnership or the stockholders of
AIMCO. If you tender your units for OP Units, you will have less effective power
in influencing our policies than you currently have in influencing the policies
of your partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN AIMCO. We face real estate
investment, financing, management, acquisition and development risks, many of
which are similar to the risks currently faced by your partnership, as well as
additional risks. See "Risk Factors" in the accompanying Prospectus.
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<PAGE> 169
CERTAIN RISKS RELATED TO OUR SECURITIES. Investors in our partnership must
hold their units for one year, subject to certain exceptions. Thereafter holders
may transfer such partnership units under certain conditions, including the
general partner's right of first refusal. Holders of the units in our
partnership do not have the right to remove the general partner, and therefore,
they cannot effect a change of control of the AIMCO Operating Partnership. On
and after , 20 , we may reduce, within certain limits, the rate of
distributions required to be paid on the Preferred OP Units, thus reducing the
rate of return and possibly encouraging you to redeem such units. On and after
, 20 , we may redeem each share of Series I Preferred Stock for
$25, plus any accrued but unpaid dividends, possibly forcing you to sell such
shares to AIMCO or to sell in the open market at a possible lower price per
share than would have occurred without the redemption.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
LACK OF TRADING MARKET FOR UNITS. There is no established or regular
trading market for your units, nor is there another reliable standard for
determining the fair market value of your units. If you desire or need
liquidity, you may wish to consider our offer. Our offer affords you an
opportunity to dispose of your units for cash, an opportunity which might not be
available to you in the foreseeable future. However, our offer consideration
does not necessarily reflect the price that you would receive in an open market
for your units or upon a liquidation of your partnership's assets. Such prices
may be higher or lower than our offer consideration.
DIFFERENT DISTRIBUTIONS. Anticipated annualized distributions with respect
to the Preferred OP Units are $2.00 and current annualized distributions with
respect to the Common OP Units are $2.25. This is equivalent to distributions of
$1,612.58 per year on the number of Preferred OP Units, or distributions of
$ per year on the number of Common OP Units, that you would receive in
exchange for each of your partnership's units. Distributions with respect to
your units for the nine months ended September 30, 1998 were $0 per unit.
Therefore, distributions with respect to the Preferred OP Units and Common OP
Units that we are offering are expected to be substantially greater, immediately
following our offer, than the distributions with respect to your units. See
"Comparison of Ownership of Your Units and AIMCO OP Units -- Distributions."
FUTURE CONTROL BY AIMCO. Because your general partner is a subsidiary of
AIMCO, we control the management of your partnership. In addition, if we acquire
more units, we will increase our ability to influence voting decisions with
respect to your partnership. Furthermore, in the event that we acquire a
substantial number of units pursuant to our offer, removal of your general
partner without our consent may become more difficult or impossible. We also own
a majority of the company that manages your partnership's property. In the event
that we acquire a substantial number of units pursuant to our offer, removal of
the property manager without our consent may become more difficult or
impossible.
RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR
PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner (which is our affiliate)
has no current plan or intention to reduce the liabilities of your partnership,
it is possible that future economic, market, legal, tax or other considerations
may cause your general partner to reduce the liabilities of your partnership. If
the liabilities of your partnership were to be reduced, and you do not tender
all of your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's
agreement of limited partnership restricts you from making any transfer that
would cause 50% or more of the total interest in your partnership to be
transferred within a 12-month period. If we acquire a significant interest in
your partnership, through this offer, you may not be able to transfer your units
for the 12-month period after our offer. In determining the amount of units to
tender for, we took into account the number of units transferred in the past 12
months so as to allow for other transfers without crossing the 50% threshold. It
is possible that beginning
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<PAGE> 170
twelve months after the closing of this offer, or possibly earlier, we may make
another offer for your units and such offer may or may not be at a higher price.
MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS. Recently, Moody's revised its
outlook for our ratings from stable to negative to reflect its concerns
surrounding our ability to successfully implement our financial strategy while
maintaining a prudent capital structure as a result of more difficult general
capital market conditions. Moody's noted that our access to the public markets
may prove challenging in light of the volatility in both the equity and capital
markets for REITs and assigned a "ba3" rating to a class of preferred stock
proposed to be issued by us. Moody's indicated that its rating action reflects
our increasing leveraged profile, including high levels of secured debt and
preferred stock, limited financial flexibility and integration risks resulting
from the merger with Insignia. Moody's also noted our high level of encumbered
properties and material investments in loans to highly leveraged partnerships in
which we own a general partnership interest. At the same time, Moody's, Standard
& Poor's and Duff & Phelps confirmed their existing ratings on our existing
preferred stock and senior debt.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
General
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in your
partnership's property while providing you and other investors with an
opportunity to retain or liquidate your investment in your partnership by
tendering for OP Units or for cash.
On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia
Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO
acquired approximately 51% of the outstanding common shares of beneficial
interest of Insignia Properties Trust ("IPT"). The general partner of your
partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger,
AIMCO also acquired a majority ownership interest in the entity that manages the
property owned by your partnership. Through subsidiaries, AIMCO currently owns,
in the aggregate, approximately a .992% interest in your partnership.
IPT and AIMCO have entered into an agreement and plan of merger, dated as
of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT is to be
merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger
Agreement provides that, upon consummation of the IPT Merger, IPT shareholders
will receive $13.25 per share in cash or $13.28 per share in shares of AIMCO's
Class A Common Stock, at AIMCO's option. The transactions contemplated by the
IPT Merger Agreement are subject to certain conditions. The IPT Merger requires
the approval of the holders of a majority of the outstanding IPT Shares. AIMCO
has to vote all of the IPT Shares owned by it in favor of the IPT Merger and the
related merger agreement and granted an irrevocable proxy to certain affiliates
of IPT to vote such shares. Accordingly, IPT shareholder approval is assured.
One of the consequences of our acquiring Insignia is that it allowed us to
make the exchange offers to acquire limited partnership interests of some of the
limited partnerships formerly controlled or managed by Insignia (the "Insignia
Partnerships"). If we are successful, we will increase our ownership in the
Insignia Partnerships. Such offers would provide liquidity for the limited
partners of the Insignia Partnerships. Such offers would also allow the AIMCO
Operating Partnership an opportunity to increase its ownership interest in
certain Insignia Partnerships which would provide a larger asset and capital
base and increased diversification. As of November , 1998, the AIMCO Operating
Partnership has made offers to of the Insignia Partnerships, including
your partnership.
Previous Tender Offers
We are not aware that any tender offers may have been made by unaffiliated
third parties to acquire units in your partnership in exchange for cash.
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<PAGE> 171
Engagement of Fairness Opinion Provider
The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss
the possibility of Stanger providing a fairness opinion for our offer. The AIMCO
Operating Partnership chose Stanger based on Stanger's expertise and strong
reputation in this area of work. The parties entered into a definitive agreement
dated August 28, 1998 for Stanger to provide such fairness opinion for your
partnership and other partnerships.
ALTERNATIVES CONSIDERED
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our affiliate).
Liquidation
Benefits of Liquidation. One alternative would be for your partnership to
sell its assets, distribute the net liquidation proceeds to its partners in
accordance with your partnership's agreement of limited partnership, and
thereafter dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If your partnership were to sell its assets and liquidate, you and
your partners would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of your partnership's
assets. Instead, such assets would be valued through negotiations with
prospective purchasers (in many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of part or all of your
partnership's property would be a taxable event for you and your partners and
would generally result in significant amounts of taxable income to you and your
partners. In the opinion of your general partner (which is our affiliate), the
present time may not be the most desirable time to sell the real estate assets
of your partnership in private transactions, and any liquidation sale would be
uncertain. Liquidation of the partnership's assets may trigger a substantial
prepayment penalty under the mortgage for the property. Your general partner
believes it currently is in the best interest of your partnership to continue
holding its real estate assets. Another option for liquidation would be to sell
your units in a private transaction. Any such sale likely would be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property and might involve significant expense and delay.
Continuation of the Partnership Without the Offer
Benefits of Continuation. A second alternative would be for your
partnership to continue as a separate legal entity, with its own assets and
liabilities and continue to be governed by its existing agreement of limited
partnership, without our offer. A number of advantages could result from the
continued operation of your partnership. Given improving rental market
conditions, the level of distributions might increase over time. It is possible
that the private resale market for properties could improve over time, making a
sale of the partnership's property in a private transaction at some point in the
future a more attractive option than it is currently.
Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing the operations of your partnership without our
offer. Your partnership faces maturity or balloon payment dates on its mortgage
loans and must either obtain refinancing or sell its property. If your
partnership were to continue operating as presently structured, your partnership
could be forced to borrow on terms that could result in net losses from
operations.
In addition, continuation of your partnership as a separate entity without
our offer would deny you and your partners the benefits of our offer. For
example, you would have no opportunity for liquidity unless you were to sell
your units in a private transaction. Any such sale would likely be at a very
substantial discount from your pro rata share of the fair market value of your
partnership's property. Continuation without our offer would deny you and your
partners the benefits of diversification into a company which has a much larger
and more diverse portfolio of apartment properties.
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<PAGE> 172
Alternative Structures Considered
We chose to make this offer as a tender/exchange offer because other forms
of reorganization such as a merger would have meant that holders of a majority
of the units in your partnership would bind all limited partners. With a
tender/exchange offer, each limited partner makes his own decision which does
not bind the other partners. Further, we have not offered to purchase all of the
units in your partnership which would occur in other types of reorganizations or
combinations.
Sale of Assets
Your partnership could sell the property it owns and not liquidate. The
general partner of your partnership considers sale of the partnership's property
from time to time. However, any such sale would likely be a taxable transaction.
Further, since your partnership only owns one property, it is unlikely that the
property would be sold without a subsequent liquidation.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the property owned by your partnership. Our offer
provides us with an opportunity to increase our ownership interest in the
property owned by your partnership while providing you and other investors with
an opportunity to retain or liquidate your investment or to invest in the AIMCO
Operating Partnership.
There are four principal advantages of tendering your units for Preferred
OP Units:
- Enhanced Liquidity. While holders of the Preferred OP Units must hold
such units for one year, subject to certain exceptions, after a one-year
holding period, you may choose to redeem your Preferred OP Units and
receive, at our option, shares of AIMCO's Class I Preferred Stock, shares
of AIMCO's Class A Common Stock or cash. AIMCO's Class A Common Stock is,
and AIMCO's Class I Preferred Stock is expected to be, listed and traded
on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Preferred OP Units.
- Preferred Quarterly Distributions. We will pay fixed quarterly
distributions of $.50 per unit on the Preferred OP Units (equivalent to
$2.00 on an annualized basis) before any distributions are paid to
holders of Common OP Units. However, one class of outstanding Partnership
Preferred Units has prior distribution rights and the Preferred OP Units
rank equal to seven other outstanding classes of Partnership Preferred
Units. Distributions with respect to the Preferred OP Units are expected
to be significantly greater, immediately following the offer, than the
distributions with respect to your units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
There are five principal advantages of tendering your units for Common OP
Units:
- Enhanced Liquidity. While the holders of the Common OP Units must hold
such units for one year, subject to certain exceptions, after a one-year
holding period, you may choose to redeem your Common OP Units and
receive, at our option, shares of AIMCO's Class A Common Stock (on a
one-for-one basis, subject to adjustment in certain circumstances) or an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the NYSE.
- Tax Deferral. You will generally not recognize any immediate taxable gain
if you exchange your units solely for Common OP Units.
- Quarterly Distributions. We pay quarterly distributions on the Common OP
Units. For the quarter ended September 30, 1998, we paid distributions of
$0.5625 on each of the Common OP Units (equivalent to $2.25 on an annual
basis). Historically, the quarterly distributions paid on the Common OP
Units have been equivalent to the dividends paid on AIMCO's Class A
Common Stock. We
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expect this to continue in the future. Distributions with respect to the
Common OP Units are expected to be significantly greater, immediately
following the offer, than the distributions with respect to your units.
- Growth Potential. Our organizational structure and access to capital
enables us to pursue acquisition and development opportunities that are
not available to your partnership. You would have the opportunity to
participate in the growth of our enterprise and would benefit from any
future increase in the AIMCO stock price and from any future increase in
distributions on the Common OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
For a description of certain risks of our offer, see "Risk Factors."
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to 25% of the outstanding 51 units of your
partnership for consideration per unit of (i) 806.29 Preferred OP Units, (ii)
Common OP Units, or (iii) $20,157 in cash. If you tender units pursuant to
our offer, you may choose to receive any of such forms of consideration for your
units or any combination of such forms of consideration.
The purchase price per unit will automatically be reduced by the aggregate
amount of distributions per unit, if any, made by your partnership to you on or
after , 1998 and prior to the date on which we acquire your units
pursuant to our offer.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at 5:00 p.m., Denver, Colorado time, on , 1998,
unless the AIMCO Operating Partnership in its sole discretion, extends the
offer. See "-- Extension of Tender Period; Termination; Amendment" for a
description of the AIMCO Operating Partnership's right to extend the period of
time during which the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration.
The AIMCO Operating Partnership will, upon the terms and subject to the
conditions of the offer, accept for payment and pay for all units validly
tendered and not withdrawn prior to the expiration of our offer (subject to
proration as described below).
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"Conditions of the Offer," which sets forth in full the conditions of our offer.
The AIMCO Operating Partnership reserves the right (but is not obligated), in
its sole discretion, to waive any or all of those conditions. If, on or prior to
the expiration of the offer, any or all of the conditions have not been
satisfied or waived, the AIMCO Operating Partnership reserves the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units, (ii) waive all the unsatisfied conditions and purchase all
units validly tendered, (iii) extend the offer and, subject to the right of
unitholders to withdraw units until the expiration of the offer, retain the
units that have been tendered during the period or periods for which the offer
is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of , 1998 (subject to
proration as described below).
This offer is being mailed to the persons shown by your partnership's
records to have been limited partners or, in the case of units owned of record
by IRAs and qualified plans, beneficial owners of units, as of ,
1998.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer consideration.
Instead, payment will be made to the custodian of such account or plan. In all
cases, payment for units purchased pursuant to the offer will be made only after
timely receipt by the Information Agent of a properly completed and duly
executed Letter of Transmittal and any other documents required by the Letter of
Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between
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, 1998, and the expiration of the offer. See "-- Procedure for Tendering
Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY
REASON OF ANY DELAY IN MAKING SUCH PAYMENT.
For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units, and those units may not be
withdrawn except to the extent that the tendering offerees are entitled to
withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to
the AIMCO Operating Partnership's obligation under Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the
offer consideration in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer. Specifically, we may assign our rights to
purchase your units for which you elect to receive cash to IPT or Insignia
Properties, L.P. ("IPLP"). IPLP is a Delaware limited partnership that conducts
substantially all of the operations of IPT.
PROCEDURE FOR TENDERING UNITS
Valid Tender
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this Prospectus Supplement, on or prior to the
expiration of the offer. You may tender all or any portion of your units. No
alternative, conditional or contingent tenders will be accepted.
Signature Requirements
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
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THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Appointment as Proxy
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies (in the manner set
forth in the Letter of Transmittal), each with full power of substitution, to
the fullest extent of your rights with respect to your units tendered and
accepted for payment by the AIMCO Operating Partnership. Each such proxy shall
be considered coupled with an interest in the tendered units. Such appointment
will be effective when, and only to the extent that, the AIMCO Operating
Partnership accepts the tendered units for payment. Upon such acceptance for
payment, all prior proxies given by you with respect to such units will, without
further action, be revoked, and no subsequent proxies may be given (and if given
will not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
Power of Attorney
By executing a Letter of Transmittal, you also irrevocably constitute and
appoint the AIMCO Operating Partnership and its managers and designees as your
attorneys-in-fact, each with full power of substitution, to the full extent of
your rights with respect to the units tendered by you and accepted for payment
by the AIMCO Operating Partnership. Such appointment will be effective when, and
only to the extent that, the AIMCO Operating Partnership accepts the tendered
units for payment. You agree not to exercise any rights pertaining to the
tendered units without the prior consent of the AIMCO Operating Partnership.
Upon such acceptance for payment, all prior powers of attorney granted by you
with respect to such units will, without further action, be revoked, and no
subsequent powers of attorney may be granted (and if granted will not be
effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO
Operating Partnership and its managers and designees each will have the power,
among other things, (i) to transfer ownership of such units on the partnership
books maintained by your general partner (which is our affiliate) (and execute
and deliver any accompanying evidences of transfer and authenticity any of them
may deem necessary or appropriate in connection therewith), (ii) upon receipt by
the Information Agent of the offer consideration, to become a substituted
limited partner, to receive any and all distributions made by your partnership
on or after the date on which the AIMCO Operating Partnership acquires such
units, and to receive all benefits and otherwise exercise all rights of
beneficial ownership of such units in accordance with the terms of our offer,
(iii) to execute and deliver to the general partner of your partnership a change
of address form instructing the general partner to send any and all future
distributions to which the AIMCO Operating Partnership is entitled pursuant to
the terms of the offer in respect of tendered units to the address specified in
such form, and (iv) to endorse any check payable to you or upon your order
representing a distribution to which the AIMCO Operating Partnership is entitled
pursuant to the terms of our offer, in each case, in your name and on your
behalf.
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Assignment of Interest in Future Distributions and All Other Rights, Etc.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
Election of Consideration
You may elect to receive Preferred OP Units, Common OP Units or cash
pursuant to our offer, by so indicating in the appropriate space on the Letter
of Transmittal. In the event that you tender units but do not indicate on the
Letter of Transmittal which type of consideration you want, the AIMCO Operating
Partnership will issue Preferred OP Units to you.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the Letters of Transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
Backup Federal Income Tax Withholding
To prevent the possible application of back-up Federal income tax
withholding of 31% with respect to payment of the offer consideration, you must
provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal and
"Certain Federal Income Tax Matters."
FIRPTA Withholding
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "Certain Federal Income Tax Matters."
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Transfer Taxes
The amount of any transfer taxes (whether imposed on the registered holder
of units or any person other than the person signing the Letter of Transmittal)
payable on account of the transfer to such person will be deducted from the
purchase price unless satisfactory evidence of the payment of such taxes or
exemption therefrom is submitted.
Binding Agreement
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to the expiration of our offer, as provided in this Prospectus Supplement, and
unless units have been accepted for payment as described in "-- Acceptance For
Payment and Payment For Units," tenders of units pursuant to this offer may be
made on or after , 199 .
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this Prospectus Supplement. Any such notice of withdrawal must specify
the name of the person who tendered, the number of units to be withdrawn and the
name of the registered holder of such units, if different from the person who
tendered. In addition, the notice of withdrawal must be signed by the person(s)
who signed the Letter of Transmittal in the same manner as the Letter of
Transmittal was signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for if any of the conditions to the
offer are not satisfied or if any event occurs that might reasonably be expected
to result in a failure to satisfy such conditions, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or Common
OP Units, or the amount of cash offered, eliminating any of the alternative
types of consideration being offered, or increasing or decreasing the percentage
of outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
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inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than 7:00 a.m., Denver, Colorado time, on the next business
day after the scheduled expiration date of the offer, in accordance with Rule
14e-1(d) under the Exchange Act.
If the AIMCO Operating Partnership extends the offer, or if the AIMCO
Operating Partnership (whether before or after its acceptance for payment of
units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds 25% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase all units properly tendered and not withdrawn
prior to the expiration of the offer on a pro rata basis.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
Prospectus Supplement. If the number of units properly tendered and not
withdrawn prior to the expiration of any such renewal (together with units
previously purchased in the offer) is 25% or less, the AIMCO Operating
Partnership will purchase such units so tendered and not withdrawn. If the
number of units in your partnership properly tendered and not withdrawn prior to
the expiration of any such renewal (together with any units previously purchased
in this offer) is greater than 25%, the AIMCO Operating Partnership will
purchase units in the order of priority described in the preceding paragraph.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
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FRACTIONAL OP UNITS
We will issue fractional Common OP Units or Preferred OP Units, if
necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns a majority of the general partner of your partnership
and thereby controls the management of your partnership. In addition, AIMCO owns
a majority of the company that manages your partnership's property. The AIMCO
Operating Partnership currently intends that, upon consummation of the offer,
your partnership will continue its business and operations substantially as they
are currently being conducted. The offer is not expected to have any effect on
your partnership's financial condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy your partnership's property, although
it has no present intention to do so. There can be no assurance, however, that
the AIMCO Operating Partnership will initiate or complete, or will cause your
partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the offer or at all.
We currently intend that, upon consummation of the offer, your partnership
will continue its business and operations substantially as they are currently
being conducted. We do not have any present plans or proposals which relate to
or would result in any material changes in your partnership's structure or
business such as a merger, reorganization or liquidation. We have no present
intention to cause your partnership to sell any of its properties or to prepay
current mortgages within any specified time period.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your partnership. Under your
partnership's agreement of limited partnership, holders of outstanding units are
entitled to take action with respect to a variety of matters, including
dissolution and most types of amendments to your partnership's agreement of
limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. In addition, we are not extending
appraisal rights in connection with the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
No provisions have been made with regard to the offer to allow you or other
limited partners to inspect the books and records of your partnership or to
obtain counsel or appraisal services at our expense or at the expense of your
partnership. However, as described under "Comparison of Your Partnership and the
AIMCO Operating Partnership -- Review of Investor Lists," you have the right
under your partnership's agreement of limited partnership to obtain a list of
the limited partners.
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CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after , 1998 and at or before the time of acceptance for payment of
any such units (whether or not any units have theretofore been accepted for
payment and paid for) pursuant to the offer, any of the following shall occur:
(a) any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the business,
properties, assets, liabilities, indebtedness, capitalization, condition
(financial or otherwise), operations, licenses or franchises, management
contract, or results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its property,
including any fire, flood, natural disaster, casualty loss, or act of God
that, in the sole judgment of the AIMCO Operating Partnership, is or may be
materially adverse to your partnership or the value of your units to the
AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness or
its operations which, in the sole judgment of the AIMCO Operating
Partnership, has or may have material significance with respect to the
value of your partnership or the value of your units to the AIMCO Operating
Partnership; or
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in the
closing share price of AIMCO's Class A Common Stock of more than 7.5% per
share, from , 1998 (iii) any extraordinary or material
adverse change in the financial, real estate or money markets or major
equity security indices in the United States such that there shall have
occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in
the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case from , 1998 (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (vi) a commencement of a war, armed hostilities or other national
or international calamity directly or indirectly involving the United
States, (vii) any limitation (whether or not mandatory) by any governmental
authority on, or any other event which, in the sole judgment of the AIMCO
Operating Partnership, might affect the extension of credit by banks or
other lending institutions, or (viii) in the case of any of the foregoing
existing at the time of the commencement of the offer, in the sole judgment
of the AIMCO Operating Partnership, a material acceleration or worsening
thereof (any changes to the offer resulting from the conditions set forth
in this paragraph will most likely involve a change in the amount or terms
of the consideration offered or the termination of the offer); or
(c) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim by any Federal, state, local or
foreign government, governmental authority or governmental agency, or by
any other person, before any governmental authority, court or regulatory or
administrative agency, authority or tribunal, which (i) challenges or seeks
to challenge the acquisition by the AIMCO Operating Partnership of the
units, restrains, prohibits or delays the making or consummation of the
offer, prohibits the performance of any of the contracts or other
arrangements entered into by the AIMCO Operating Partnership (or any
affiliates of the AIMCO Operating Partnership) seeks to obtain any material
amount of damages as a result of the transactions contemplated by the
offer, (ii) seeks to make the purchase of, or payment for, some or all of
the units pursuant to the offer illegal or results in a delay in the
ability of the AIMCO Operating Partnership to accept for payment or pay for
some or all of the units, (iii) seeks to prohibit or limit the ownership or
operation by AIMCO or any of its affiliates of the entity serving as your
general partner (which is our affiliate) or to remove such entity as the
general partner of your partnership, or seeks to impose any material
limitation on the ability of the AIMCO Operating Partnership or any of its
affiliates to conduct your partnership's business or own such assets, (iv)
seeks to impose material limitations on the ability of the AIMCO Operating
Partnership or any of
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its affiliates to acquire or hold or to exercise full rights of ownership
of the units including, but not limited to, the right to vote the units
purchased by it on all matters properly presented to unitholders or (v)
might result, in the sole judgment of the AIMCO Operating Partnership, in a
diminution in the value of your partnership or a limitation of the benefits
expected to be derived by the AIMCO Operating Partnership as a result of
the transactions contemplated by the offer or the value of units to the
AIMCO Operating Partnership; or
(d) there shall be any action taken, or any statute, rule, regulation,
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, in the sole judgment of the AIMCO
Operating Partnership, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (c) above;
or
(e) your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such equity
interests or any rights, warrants or options to acquire any such equity
interests or convertible securities, or (B) any other securities in respect
of, in lieu of, or in substitution for units outstanding on the date
hereof, (iii) purchased or otherwise acquired, or proposed or offered to
purchase or otherwise acquire, any outstanding units or other securities,
(iv) declared or paid any dividend or distribution on any units or issued,
authorized, recommended or proposed the issuance of any other distribution
in respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an agreement,
or intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition or
disposition of a material amount of assets or securities, or any release or
relinquishment of any material contract rights, or any comparable event,
not in the ordinary course of business, (vi) taken any action to implement
such a transaction previously authorized, recommended, proposed or publicly
announced, (vii) issued, or announced its intention to issue, any debt
securities, or securities convertible into, or rights, warrants or options
to acquire, any debt securities, or incurred, or announced its intention to
incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or proposed,
or entered into, any transaction which, in the sole judgment of the AIMCO
Operating Partnership, has or could have an adverse affect on the value of
your partnership or the units, (ix) proposed, adopted or authorized any
amendment of its organizational documents, (x) agreed in writing or
otherwise to take any of the foregoing actions, or (xi) been notified that
any debt of your partnership or any of its subsidiaries secured by any of
its or their assets is in default or has been accelerated (any changes to
the offer resulting from the conditions set forth in this paragraph will
most likely involve a change in the amount or terms of the consideration
offered or the termination of the offer); or
(f) a tender or exchange offer for any units shall have been commenced
or publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have
been publicly disclosed or the AIMCO Operating Partnership shall have
otherwise learned that (i) any person or group shall have acquired or
proposed or be attempting to acquire beneficial ownership of more than four
percent of the units, or shall have been granted any option, warrant or
right, conditional or otherwise, to acquire beneficial ownership of more
than four percent of the units, or (ii) any person or group shall have
entered into a definitive agreement or an agreement in principle or made a
proposal with respect to a merger, consolidation, purchase or lease of
assets, debt refinancing or other business combination with or involving
your partnership; or
(g) with respect to the cash portion of the offer consideration only,
the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration.
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The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its sole discretion. The failure by the AIMCO Operating Partnership at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances and each right shall be deemed a continuing right which may be
asserted at any time and from time to time.
EFFECTS OF THE OFFER
Future Control by AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership.
Furthermore, in the event that the AIMCO Operating Partnership acquires a
substantial number of units pursuant to the offer, removal of the general
partner of your partnership (which general partner is controlled by AIMCO)
without AIMCO's consent may become more difficult or impossible. AIMCO also owns
a majority of the company that manages your partnership's property. In the event
that the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, removal of the property manager may become more difficult
or impossible.
Limitations on Resales
Your partnership's agreement of limited partnership prohibits transfers of
units if a transfer, when considered with all other transfers during the same
applicable twelve-month period, would cause a termination of your partnership
for Federal or any applicable state income tax purposes. This provision may
limit sales of units in the secondary market and in private transactions for the
twelve-month period following completion of this offer. Your general partner
(which is our affiliate) has advised the AIMCO Operating Partnership that it
will not process any requests for recognition of substitution of limited
partners upon a transfer of units during such twelve-month period which the
general partner believes may cause a tax termination in contravention of the
agreement of limited partnership. The AIMCO Operating Partnership took this
restriction into account in determining the maximum number of units for which
this offer is made. Based on the general partner's records, no units in your
partnership have been transferred during the twelve months ended December 31,
1997. As a result, the AIMCO Operating Partnership does not believe that this
restriction will preclude it from acquiring the maximum number of units for
which this offer is made.
Distributions to the AIMCO Operating Partnership
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
Partnership Business
This offer will not affect the operation of your partnership's property.
The AIMCO Operating Partnership will continue to control the general partner of
your partnership and the property manager will remain the same. See "Your
Partnership -- History of the Partnership."
CERTAIN LEGAL MATTERS
General. Except as set forth in this section, the AIMCO Operating
Partnership is not, based on information provided by your general partner (which
is our affiliate), aware of any licenses or regulatory permits that would be
material to the business of your partnership, taken as a whole, and that might
be
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adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein. While there
is no present intent to delay the purchase of units tendered pursuant to the
offer pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to your partnership's business, or that certain
parts of your partnership's business might not have to be disposed of or other
substantial conditions complied with in order to obtain such approval or action,
any of which could cause the AIMCO Operating Partnership to elect to terminate
the offer without purchasing units hereunder. The AIMCO Operating Partnership's
obligation to purchase and pay for units is subject to certain conditions,
including conditions related to the legal matters discussed in this section.
Antitrust. The AIMCO Operating Partnership does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable
to the acquisition of units contemplated by this offer.
Margin Requirements. The units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to this offer.
State Laws. The AIMCO Operating Partnership is not aware of any
jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, the offer will not be made to (nor
will tenders be accepted from or on behalf of) limited partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the offer to be made by a licensed broker or dealer, the offer shall be made on
behalf of the AIMCO Operating Partnership, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
Certain Litigation
On March 24, 1998, certain persons claiming to own limited partner
interests in certain of the limited partnerships for which subsidiaries of IPT
act as general partner filed a purported class and derivative action in
California Superior Court in the County of San Mateo against AIMCO, Insignia,
the general partners of the partnerships, certain persons and entities who
purportedly formerly controlled the general partners, and additional entities
affiliated with and individuals who are officers, directors and/or principals of
several of the defendants. The complaint contains allegations that, among other
things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or
aided and abetted in those purported breaches, by selling or agreeing to sell
their "fiduciary positions" as stockholders, officers and directors of the
general partners for a profit and retaining said profit rather than distributing
it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided
and abetted in those purported breaches, by mismanaging the partnerships and
misappropriating assets of the partnerships by (a) manipulating the operations
of the partnerships to depress the trading price of limited partnership units of
the Partnerships; (b) coercing and fraudulently inducing unitholders to sell
units to certain of the defendants at depressed prices; and (c) using the voting
control obtained by purchasing units at depressed prices to entrench certain of
the defendants' positions of control over the partnerships; and (iii) the
defendants breached their fiduciary duties to the plaintiffs by (a) selling
assets of the partnerships such as mailing lists of unitholders and (b) causing
the general partners to enter into exclusive arrangements with their affiliates
to sell goods and services to the general partners, the unitholders and tenants
of properties owned by the partnerships. The complaint also alleges that the
foregoing allegations constitute violations of various California securities,
corporate and partnership statutes, as well as conversion and common law fraud.
The complaint seeks unspecified compensatory and punitive damages, an injunction
blocking the sale of control of the general partners and a court order directing
the defendants to discharge their fiduciary duties to the plaintiffs. On June
25, 1998, the defendants filed motions seeking dismissal of the action. In lieu
of responding to the motion, plaintiffs have filed an amended complaint. On
October 14, 1998, the AIMCO and
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Insignia defendants filed demurrers to the amended complaint. The demurrers are
scheduled to be heard on January 8, 1999.
On July 30, 1998, certain entities claiming to own limited partnership
interests in a number of the limited partnerships for which subsidiaries of IPT
act as general partner filed a complaint in the Superior Court of the State of
California, County of Los Angeles against Insignia, the partnerships, the
general partners and additional entities affiliated with several of the
defendants. Plaintiffs allege that they have requested from, but have been
denied by each of the partnerships, lists of their respective limited partners
for the purpose of making tender offers to purchase up to 4.9% of the units of
limited partnership interest in each of the partnerships. The complaint also
alleges that certain of the defendants made tender offers to purchase units of
limited partnership interest in many of the partnerships, with the alleged
result that plaintiffs have been deprived of the benefits they would have
realized from ownership of the additional units. The plaintiffs assert eleven
causes of action, including breach of contract, unfair business practices, and
violations of the partnership statutes of the states in which the partnerships
are organized. Plaintiffs seeks compensatory, punitive and treble damages.
Plaintiffs estimate compensatory damages to exceed $15 million. An answer to the
complaint was filed by the defendants on September 15, 1998.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
Prospectus Supplement and the Letter of Transmittal and its legal fees and
expenses. The AIMCO Operating Partnership will also pay the fees of Stanger for
providing the fairness opinion for the offer. The AIMCO Operating Partnership
estimates that its total costs and expenses in making the offer (excluding the
purchase price of the units) will be approximately $50,000.
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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CERTAIN FEDERAL INCOME TAX MATTERS
The following summary is a general discussion of certain Federal income tax
consequences of the Offer that may be relevant to (i) persons who tender some or
all of their units in exchange for OP Units pursuant to the offer, (ii) persons
who tender some or all of their units for cash pursuant to the offer and (iii)
persons who do not tender any of their units pursuant to the offer. This
discussion is based upon the Internal Revenue Code of 1986 as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
change, possibly retroactively. Such summary is based on the assumptions that
the AIMCO Operating Partnership and your partnership will be operated in
accordance with their respective organizational documents and partnership
agreements. This summary is for general information only and does not purport to
discuss all aspects of Federal income taxation which may be important to a
particular person in light of its investment or tax circumstances, or to certain
types of investors subject to special tax rules (including financial
institutions, broker-dealers, insurance companies, and, except to the extent
discussed below, tax-exempt organizations and foreign investors, as determined
for United States Federal income tax purposes). This summary assumes that your
units and any OP Units that you receive in the offer constitute capital assets
(generally, property held for investment). No advance ruling has been or will be
sought from the IRS regarding any matter discussed in this Prospectus
Supplement. Further, no opinion of tax counsel has been obtained with regard to
the offer. However, an opinion of counsel has been obtained with regard to
AIMCO's status as a REIT and that the OP Units will be validly issued, fully
paid and non-assessable. You may obtain a copy of such opinion by sending a
written request to the AIMCO Operating Partnership.
THE FEDERAL INCOME TAX TREATMENT OF AN OFFEREE PARTICIPATING IN THE OFFER
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF
SELLING OR EXCHANGING UNITS PURSUANT TO THE OFFER OR OF A DECISION NOT TO SELL
OR EXCHANGE IN LIGHT OR YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes upon an exchange of units solely for OP Units. You may
recognize gain upon such exchange, where, immediately prior to such exchange,
the amount of liabilities of your partnership allocable to the units transferred
by you exceeds the amount of the AIMCO Operating Partnership liabilities
allocated to the OP Units issued to you, as determined immediately after such
exchange. In such event, any such excess would be treated as a deemed
distribution to you of cash from the AIMCO Operating Partnership. Such deemed
cash distribution would be treated as a nontaxable return of capital to the
extent of your adjusted tax basis in the OP Units received, and thereafter as a
taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after an exchange of units pursuant to the offer, at
least equal to the amount of liabilities of your partnership that were allocable
to such units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most people would not recognize gain or loss as a
result of an exchange of units solely for OP Units pursuant to the offer.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "Certain Federal Income Tax
Considerations -- the AIMCO Operating Partnership Tax Considerations -- Tax
Consequences Upon Contribution of Property to the AIMCO Operating Partnership"
in the accompanying Prospectus.
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
Generally, if you exchange your units for cash and OP Units, it will be
treated, for Federal income tax purposes, as a partial taxable sale of such
units for cash and as a partial tax-free contribution of such units to the AIMCO
Operating Partnership. The portion of the units that will be treated as sold to
the AIMCO
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Operating Partnership will be equal to a fraction, the numerator of which will
be the sum of the cash received by you pursuant to the offer plus the amount of
your partnership liabilities deemed transferred to you pursuant to the offer,
and the denominator of which is the fair market value of the aggregate
consideration received by you pursuant to the offer (i.e., the sum of the
numerator of such fraction plus the fair market value of the OP Units received
by you pursuant to the offer). The transfer by you of the remaining portion of
such units will generally be treated as a tax-free contribution. At the time of
transfer, the adjusted tax basis of the transferred units is allocated between
the portion of the units deemed sold and the remaining portion of the units
deemed contributed on the basis of each such portion's respective fair market
value.
For purposes of the partial sale rules, the amount of your partnership's
liabilities deemed transferred in the exchange will be equal to the lesser of
(i) the excess of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange, over the AIMCO
Operating Partnership liabilities allocated to you as determined immediately
after the exchange or (ii) the product of (A) your partnership's liabilities
allocable to you in respect of such transferred units immediately prior to the
exchange and (B) a fraction, (x) the numerator of which is the cash received and
(y) the denominator of which is the excess of the fair market value of the
aggregate consideration received in the exchange over the amount of your
partnership liabilities allocable to you in respect of the transferred units
immediately prior to the exchange.
To the extent that your transfer of units to the AIMCO Operating
Partnership is treated as a taxable sale, you will recognize gain or loss in an
amount equal to the difference between (i) the cash received plus the amount of
your partnership's liabilities deemed transferred in the exchange and (ii) the
adjusted tax basis allocable to the portion of such units deemed sold. Thus,
your tax liability resulting from such sale of units could exceed the amount of
cash received upon such sale. To the extent that your transfer of units in
exchange for OP Units is treated as a tax-free contribution to the AIMCO
Operating Partnership, you will generally not recognize any gain or loss for
Federal income tax purposes. You may recognize gain upon such exchange if the
amount of your partnership's liabilities allocable to you, as determined
immediately prior to the exchange, in respect of the portion of units that are
treated as being transferred in a tax-free contribution exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to you, as determined
immediately after the exchange. In this event, such excess would be treated as a
deemed distribution of cash from the AIMCO Operating Partnership to you. Such
deemed cash distribution would be treated as a nontaxable return of capital to
the extent of your adjusted tax basis in the OP Units received, and thereafter
as a taxable gain. You will have a holding period in the OP Units received
pursuant to the portion of the exchange that is treated as a tax free
contribution that includes the holding period of your units transferred in
exchange therefor.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
In general, you will recognize gain or loss on a sale of a unit pursuant to
the offer equal to the difference between (i) your "amount realized" on the sale
and (ii) your adjusted tax basis in the units sold. The "amount realized" with
respect to a unit will be equal to the sum of the amount of cash received by you
for the unit sold pursuant to the offer (that is, the offer consideration) plus
the amount of the liabilities of your partnership allocable to such unit (as
determined under Section 752 of the Code). Thus, your tax liability resulting
from such sale of units could exceed the amount of cash received upon such sale.
ADJUSTED TAX BASIS
In general, investors in your partnership had an initial tax basis in their
units equal to the cash investment in the partnership increased by their share
of partnership liabilities at the time such units were acquired. Your initial
tax basis generally has been increased by (i) your share of your partnership's
income and gains and (ii) any increases in your share of liabilities of your
partnership, and has been decreased (but not below zero) by (i) your share of
cash distributions from your partnership, (ii) any decreases in your share of
liabilities of your partnership, (iii) your share of losses of your partnership,
and (iv) your share of nondeductible expenditures of your partnership that are
not chargeable to capital. For purposes of determining your adjusted tax basis
in units immediately prior to a disposition of such units, your adjusted tax
basis in such units will include your allocable share of your partnership's
income, gain or loss for the taxable year of
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disposition. If your adjusted tax basis is less than your share of your
partnership's liabilities (e.g., as a result of the effect of net loss
allocations and/or distributions exceeding the cost of your unit), your gain
recognized pursuant to the offer will exceed the cash proceeds realized upon the
sale of such unit. The initial adjusted tax basis of the OP Units received by
you in exchange for your units pursuant to the offer will be equal to (i) the
sum of your adjusted tax basis in such transferred units plus any gain
recognized in the exchange and reduced by (ii) cash received or deemed received
in the exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer generally will be treated as a capital
gain or loss and will be treated as long-term capital gain or loss if your
holding period for the unit exceeds one year. Long-term capital gains recognized
by individuals and certain other noncorporate taxpayers generally will be
subject to a maximum Federal income tax rate of 20%. If the amount realized with
respect to a unit attributable to your share of "unrealized receivables" of your
partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
depreciation recapture with respect to certain types of property. In addition,
the maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. Thus, you will recognize ordinary income or loss in an
amount equal to your partnership's accreted income or loss allocable to such
unit. You will not receive any future distributions on units that you tender on
or after the date on which such units are accepted for purchase, and
accordingly, you may not receive any distributions with respect to such accreted
income. Such allocation and any cash distributed by your partnership to you for
that year will affect your adjusted tax basis in your unit and, therefore, the
amount of your taxable gain or loss upon a sale of a unit pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in such activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with such losses in the manner described below. If you sell all or
a portion of your units pursuant to the offer and recognize a gain on such sale,
you will be entitled to use your current and "suspended" passive activity losses
(if any) from your partnership and other passive sources to offset that gain. If
you sell all or a portion of your units pursuant to the offer and recognizes a
loss on such sale, you will be entitled to deduct that loss currently (subject
to other applicable limitations) against the sum of your passive activity income
from your partnership for that year (if any) plus any passive activity income
from other sources for that year. If you sell all of your units pursuant to the
offer, the balance of any "suspended" losses that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). In such event, under the FIRPTA provisions of the Code, the AIMCO
Operating Partnership will be required to deduct and withhold 10% of the amount
realized by a foreign person on the disposition. Amounts would be creditable
against the foreign person's Federal income tax liability and, if in excess
thereof, a refund could be obtained from the Internal Revenue Service by filing
a U.S. income tax return. See the Instructions to the Letter of Transmittal.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE
OFFER.
VALUATION OF UNITS
We determined our cash offer consideration by estimating the value of the
property owned by your partnership using the direct capitalization method. This
method involves applying a capitalization rate to the property's annual net
operating income. We determined appropriate capitalization rates, but our
valuation is just an estimate. In estimating the capitalization rate, we
considered the property's physical condition, location and above-market mortgage
interest rates. In addition, we considered the recent decline in real estate
markets, and the decline in the availability of commercial mortgage financing
and the recent bankruptcy of a major provider of subordinated mortgage
financing. Although the direct capitalization method is a widely accepted way of
valuing real estate, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. The
proceeds that you would receive if you sold your units to someone else or if
your partnership were actually liquidated might be higher or lower than our cash
offer consideration. We determined our cash offer consideration as follows:
- First, we estimated the value of the property owned by your partnership
using the direct capitalization method. We selected capitalization rates
based on our experience in valuing similar properties. The lower the
capitalization rate applied to a property's income, the higher its value.
We considered local market sales information for comparable properties,
estimated actual capitalization rates (net operating income less capital
reserves divided by sales price) and then evaluated each property in
light of its relative competitive position, taking into account property
location, occupancy rate, overall property condition and other relevant
factors. The AIMCO Operating Partnership believes that arms-length
purchasers would base their purchase offers on capitalization rates
comparable to those used by us, however there is no single correct
capitalization rate and others might use different rates. We divided the
property's 1997 net operating income by its capitalization rate to derive
a gross property value as described in the following table:
<TABLE>
<CAPTION>
ESTIMATED
1997 NET CAPITALIZATION GROSS PROPERTY
PROPERTY OPERATING INCOME RATE VALUE
- ------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
Woodmere Apartments $466,000 10.75% $4,331,000
</TABLE>
- Second, we estimated the value of the equity of your partnership by
adding to the aggregate gross property value of the property owned by
your partnership, the value of the non-real estate assets of your
partnership, and deducting the liabilities of your partnership, including
mortgage debt and debt owed by your partnership to its general partner or
its affiliates after consideration of any applicable subordination
provisions affecting payment of such debt. We deducted from this value
certain other costs including required capital expenditures and deferred
maintenance to derive a net equity value for your partnership of
$1,028,020.
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- Third, using this net equity value, we determined the proceeds that would
be paid to holders of units in the event of a liquidation of your
partnership, based on the terms of your partnership's agreement of
limited partnership. Our cash offer consideration represents the per unit
liquidation proceeds determined in this manner.
<TABLE>
<S> <C>
Net operating income (January 1, 1997 to December 31,
1997)..................................................... $ 466,000
Capitalization rate......................................... 10.75%
Estimated gross valuation of your partnership's property.... 4,331,000
Plus: Cash and cash equivalents............................. 163,611
Plus: Other partnership assets, net of security deposits.... 235,464
Less: Mortgage debt, including accrued interest............. 3,063,493
Less: Accounts payable and accrued expenses................. 76,634
Less: Other liabilities..................................... 33,773
Partnership valuation before taxes and certain costs........ 1,556,175
Less: Disposition fees...................................... 0
Less: Extraordinary capital expenditures for deferred
maintenance............................................... 419,880
Less: Closing costs......................................... 108,275
Estimated net valuation of your partnership................. 1,028,020
Percentage of estimated net valuation allocated to units.... 100%
Estimated net valuation of units............................ 1,028,020
Total number of units............................. 51
Estimated valuation per unit................................ 20,157
-----------
Cash consideration per unit................................. 20,157
-----------
</TABLE>
- In order to determine the number of Preferred OP Units we are offering
you, we divided the cash offer consideration by the liquidation
preference of $25 per Preferred OP Unit.
- In order to determine the number of Common OP Units we are offering you,
we divided the cash offer consideration by $ , which represents the
average closing price of AIMCO's Class A Common Stock on the NYSE for the
20 trading days prior to , 1998.
- The total net valuation of all partnerships in which the AIMCO Operating
Partnership is making similar exchange offers, and which were valued
using the same methods as used for your partnership, is $ , of
which, $ or % is the net valuation of your partnership.
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FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
The AIMCO Operating Partnership has a majority ownership interest in the
general partner of your partnership. Therefore, the general partner of your
partnership makes no recommendation whether you should tender or refrain from
tendering your units since it did not participate in the structuring of the
offer and has substantial conflicts of interest with regard to the offer.
However, for all of the reasons discussed herein, we and your general partner
believe that the offer is fair to you and the other holders of units in your
partnership. We also reasonably believe that the similar offers to the limited
partners of the other partnerships are fair to such limited partners. The AIMCO
Operating Partnership has retained Stanger to conduct an analysis of the offer
and to render an opinion as to the fairness to unitholders of the offer
consideration from a financial point of view. Stanger is not affiliated with
AIMCO or your partnership. Stanger is one of the leaders in the field of
analyzing and evaluating complex real estate transactions. However, we provided
much of the information used by Stanger in forming its fairness opinion. We
believe the information provided to Stanger is accurate in all material
respects. See "Stanger Analysis." You should make your decision whether to
tender based upon a number of factors, including your financial needs, other
financial opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner (which is our affiliate) and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether to
tender your units in the offer and that the offer allows each investor to
continue to hold his or her units.
2. The estimated value of your partnership's property has been
determined based on a method believed to reflect the valuation of such
assets by buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer. See "Background and Reasons
for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations of
your partnership and the AIMCO Operating Partnership and their anticipated
level of operating results. The offer is not expected to have an effect on
your partnership's financial condition or results of operations.
5. The method of determining the offer consideration which is intended
to provide you with OP Units or cash that are substantially the financial
equivalent to your interest in your partnership, adjusted to reflect the
expenses of the offer. See "Valuation of Units."
6. The opinion of Stanger, an independent third party, that the offer
consideration is fair to holders of units from a financial point of view.
See "Stanger Analysis"
7. The fact that the units are illiquid and the offer provides holders
of units with liquidity.
8. The fact that the offer generally provides holders of units with the
opportunity to receive both cash and OP Units together.
9. The fact that the offer provides holders of units with the
opportunity to defer taxes by electing to accept Preferred OP Units or
Common OP Units.
10. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which Common OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
11. The estimated unit value of $20,157, based on an estimated value of
your partnership's property of $4,331,000. Your general partner (which is
our affiliate) has no present intention to liquidate your
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<PAGE> 192
partnership or to sell or finance your partnership's property. See
"Background and Reasons for the Offer".
12. Anticipated annualized distributions with respect to the Preferred
OP Units are $2.00 and current annualized distributions with respect to the
Common OP Units are $2.25. This is equivalent to distributions of $1,612.58
per year on the number of Preferred OP Units, or distributions of
$ per year on the number of Common OP Units, that you would
receive in exchange for each of your partnership's units. Distributions
with respect to your units for the nine months ended September 30, 1998
were $0. Therefore, distributions with respect to the Preferred OP Units
and Common OP Units that we are offering are expected to be substantially
greater, immediately following our offer, than the distributions with
respect to your units. See "Comparison of Ownership of Your Units and AIMCO
OP Units -- Distributions."
In evaluating these factors, your general partner (which is our affiliate)
and the AIMCO Operating Partnership did not quantify or otherwise attach
particular weight to any of them.
Your general partner (which is our affiliate) has not retained an
unaffiliated representative to act on behalf of the limited partners in
negotiating the terms of the offer since each individual limited partner can
make his own decision as to whether or not to tender and what consideration to
take. Unlike a merger or other form of partnership reorganization, a majority or
more of the holders of limited partnership interests in your partnership cannot
bind you. If an unaffiliated representative had been obtained, it is possible
that such representative could have negotiated a higher price for your units
than was unilaterally offered by the AIMCO Operating Partnership. We have
retained Stanger to conduct an analysis of our offer and to render an opinion as
to the fairness to you of the offer consideration from a financial point of
view.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
Your general partner (which is our affiliate) makes no recommendation as to
whether you should tender or refrain from tendering your units. The terms of the
offer have been established by the AIMCO Operating Partnership and are not the
result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment properties and, although there are
other ways to value real estate, is a reasonably fair method to determine the
consideration offered. A liquidation in the future might generate a higher or
lower price for holders of units.
The future value of the OP Units received in the offer will depend on some
of the same factors that will affect the value of the units, primarily the
condition of the real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units, which may preclude you from realizing the full value of your investment.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
Your general partner (which is our affiliate) makes no recommendation as to
whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
liquidate, sell, finance or refinance your partnership's property within any
specified time period.
COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
General
To assist holders of units in evaluating the offer, your general partner
(which is our affiliate) has attempted to compare the cash offer consideration
against: (a) the prices at which the units have been sold in
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the illiquid secondary market; and (b) estimates of the value of the units on a
liquidation basis. The general partner of your partnership believes that
analyzing the alternatives in terms of estimated value, established based upon
currently available data and, where appropriate, reasonable assumptions made in
good faith, establishes a reasonable framework for comparing alternatives. Since
the value of the consideration for alternatives to the Offer is dependent upon
varying market conditions, no assurance can be given that the estimated values
reflect the range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by your general partner (which is our affiliate). These assumptions
relate, among other things to: projections as to the future income, expenses,
cash flow and other significant financial matters of your partnership; and the
capitalization rates that will be used by prospective buyers when your
partnership's assets are liquidated.
In addition, these estimates are based upon certain information available
to your general partner (which is our affiliate) at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. The estimated values in the following chart are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results may vary from those set forth
below based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
your partnership's property is sold and changes in availability of capital to
finance acquisitions of apartment properties.
COMPARISON TABLE
<TABLE>
<S> <C>
Cash offer price............................................ $20,157
Alternatives:
Prices on secondary market................................ Not Available
Estimated liquidation proceeds............................ $20,157
</TABLE>
Prices on Secondary Market
There is no active market for your units. Your general partner (which is
our affiliate) is unaware of any secondary market activity in the units.
Therefore any comparison to prices on the secondary market is not possible at
the present time.
Estimated Liquidation Proceeds
Liquidation value is a measure of the price at which the assets of your
partnership would sell if disposed of in an arms-length transaction between a
willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. Your general
partner (which is our affiliate) estimated the liquidation value of units using
the same direct capitalization method and assumptions as we did in valuing the
units for the cash offer consideration. See "Valuation of Units." The
liquidation analysis also assumed that your partnership's property was sold to
an independent third-party buyer at the current property value and that other
balance sheet assets (excluding amortizing assets) and liabilities of your
partnership were sold at their book value, and that the net proceeds of sale
were allocated to your partners in accordance with your partnership's agreement
of limited partnership.
The liquidation analysis assumes that the assets of your partnership are
sold in a single transaction. Should the assets be liquidated over time, even at
prices equal to those projected, distributions to limited partners from cash
flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets.
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<PAGE> 194
However, for simplification purposes, the sales of the assets are assumed to
occur concurrently. The liquidation analysis assumes that the assets would be
disposed of in an orderly manner and not sold in forced or distressed sales
where sellers might be expected to dispose of their interests at substantial
discounts to their actual fair market value.
ALLOCATION OF CONSIDERATION
We have allocated the estimated liquidation proceeds in accordance with the
liquidation provisions of your partnership agreement of limited partnership.
Accordingly, 100% of the estimated liquidation proceeds are assumed to be
distributed to holders of units. See "Valuation of Units."
STANGER ANALYSIS
We engaged Stanger, an independent investment banking firm, to conduct an
analysis and to render an opinion (the "Fairness Opinion") as to whether the
offer consideration for the units is fair, from a financial point of view, to
the unitholders. We selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of our offer.
Stanger has advised us that, subject to the assumptions, limitations and
qualifications contained in its Fairness Opinion, the offer consideration for
the units is fair, from a financial point of view, to the unitholders. We
determined the offer consideration, and Stanger did not, and was not requested
to, make any recommendations as to the form or amount of consideration to be
paid in connection with the offer.
The full text of the Fairness Opinion, which contains a description of the
matters considered and the assumptions, limitations and qualifications made, is
set forth as Appendix A hereto and should be read in its entirety. The summary
set forth herein does not purport to be a complete description of the review
performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial analysis or
amenable to summary description.
We imposed no conditions or limitations on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
arriving at the fairness opinion. See "-- Assumptions, Limitations and
Qualifications." We have agreed to indemnify Stanger against certain liabilities
arising out of Stanger's engagement to prepare and deliver the Fairness Opinion.
EXPERIENCE OF STANGER
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major NYSE member firms,
insurance companies and over seventy companies engaged in the management and
operation of partnerships and real estate investment trusts. The investment
banking activities of Stanger include financial advisory and fairness opinion
services, asset and securities valuations, industry and company research and
analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
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SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger: (i)
reviewed a draft of the Prospectus Supplement related to the offer in
substantially the form which will be distributed; (ii) reviewed your
partnership's operating statements ending September 30, 1998 which reports your
partnership's management has indicated to be the most current available
financial statements; (iii) reviewed descriptive information concerning your
partnership's real estate assets (the "property") provided by management,
including location, number of units and unit mix or square footage, age, and
amenities; (iv) reviewed summary historical operating statements for your
partnership's property for 1996 and 1997 and through September 30, 1998; (v)
reviewed operating budgets for your partnership's property for 1998, as prepared
by your partnership; (vi) reviewed information prepared by management relating
to any debt encumbering your partnership's property; (vii) reviewed information
regarding market rental rates and conditions for similar properties in the
general market area of your partnership's property and other information
relating to acquisition criteria for similar properties; (viii) reviewed
internal financial analyses and forecasts prepared by your partnership of the
estimated current net liquidation value of your partnership; (ix) reviewed
information provided by AIMCO concerning the AIMCO Operating Partnership, the
Common OP Units and the Preferred OP Units; (x) reviewed available secondary
market trading information for the units; and (xi) conducted other studies,
analysis and inquiries as Stanger deemed appropriate.
In addition, Stanger discussed with management of your partnership and
AIMCO the market conditions for the property, conditions in the market for
sales/acquisitions of properties similar to that owned by your partnership,
historical, current and projected operations and performance of your
partnership's property and your partnership, the physical condition of your
partnership's property including any deferred maintenance, and other factors
influencing value of your partnership's property and your partnership. Stanger
also performed site inspections of your partnership's property, reviewed local
real estate market conditions, and discussed with property management personnel
conditions in local apartment rental markets and market conditions for sales and
acquisitions of properties similar to your partnership's property.
SUMMARY OF REVIEWS
The following is a summary of the material reviews conducted by Stanger in
connection with and in support of its Fairness Opinion. The summary of the
opinion and reviews of Stanger set forth in this Prospectus Supplement is
qualified in its entirety by reference to the full text of such opinion.
Property Evaluation. In preparing its Fairness Opinion, Stanger performed a
site inspection of your partnership's property during October and November 1998.
In the course of the site visit, the physical facilities of your partnership's
property were observed, current rental and occupancy information was obtained,
current local market conditions were reviewed, similar competing properties were
identified, and local property management personnel were interviewed concerning
your partnership's property and local market conditions. Stanger also reviewed
and relied upon information provided by your partnership and AIMCO, including,
but not limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix or
square footage; and information relating to the condition of the property,
including any deferred maintenance, capital budgets, status of ongoing or newly
planned property additions, reconfigurations, improvements and other factors
affecting the physical condition of the property improvements.
Stanger also reviewed historical operating statements for your
partnership's property for 1996, 1997, and for the nine month period ending
September 30, 1998, the operating budget for 1998 as prepared by your
partnership and discussed with management the current and anticipated operating
results of your partnership's property.
In addition, Stanger interviewed management personnel of your partnership
and AIMCO. Such interviews included discussions of conditions in the local
market, economic and development trends affecting your partnership's property,
historical and budgeted operating revenues and expenses and occupancies and the
physical condition of your partnership's property (including any deferred
maintenance and other factors affecting the physical condition of the
improvements), projected capital expenditures and building improve-
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ments, the terms of existing debt, encumbering your partnership's property, and
expectations of management regarding operating results of your partnership's
property.
Stanger also reviewed the acquisition criteria used by owners and investors
in the type of real estate owned by your partnership, utilizing available
published information and information derived from interviews conducted by
Stanger with various real estate owners and investors.
Review of Partnership Liquidation Analysis. Stanger reviewed an analysis
prepared by the management of your partnership of the estimated liquidation
values of units utilizing estimates prepared by your partnership of expenses
associated with such a liquidation. The liquidation analysis assumed that your
partnership's property was sold to an independent third-party buyer at the
current property value estimated by the management of your partnership and that
normal and customary costs of property sale were incurred, that other balance
sheet assets (excluding amortizing assets) and liabilities of your partnership
were sold at their book value, and that the net proceeds of sale were allocated
between the general and limited partners in accordance with your partnership
agreement of limited partnership.
CONCLUSIONS
Stanger concluded, based upon its analysis of the foregoing and the
assumptions, qualifications and limitations stated below, as of the date of the
Fairness Opinion, that the offer consideration to be paid for the units in
connection with the offer is fair to the unitholders from a financial point of
view. Stanger has rendered similar fairness opinions with regard to certain
other exchange offers being made by the AIMCO Operating Partnership. Stanger
rendered the opinions only as to the individual fairness of the offer
consideration in each proposed exchange offer.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
In rendering the Fairness Opinion, Stanger relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and data, and all other reports and information contained in this
Prospectus Supplement or that were provided, made available, or otherwise
communicated to Stanger by your partnership, AIMCO, or the management of the
partnership's property. Stanger has not performed an independent appraisal,
engineering study or environmental study of the assets and liabilities of your
partnership. Stanger relied upon the representations of your partnership and
AIMCO concerning, among other things, any environmental liabilities, deferred
maintenance and estimated capital expenditure and replacement reserve
requirements, the determination and valuation of non-real estate assets and
liabilities of your partnership, the allocation of your partnership's net values
between your general partner (which is our affiliate), special limited partner
and limited partners of your partnership, the terms and conditions of any debt
encumbering the partnership's property, and the transaction costs and fees
associated with a sale of the property. Stanger also relied upon the assurance
of your partnership, AIMCO, and the management of the partnership's property
that any financial statements, budgets, pro forma statements, projections,
capital expenditure estimates, debt, value estimates and other information
contained in this Prospectus Supplement or provided or communicated to Stanger
were reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of your partnership's agreement of
limited partnership, and reflect the best currently available estimates and good
faith judgments; that no material changes have occurred in the value of the
partnership's property or other balance sheet assets and liabilities or other
information reviewed between the date of such information provided and the date
of the Fairness Opinion; that your partnership, AIMCO, and the management of the
partnership's property are not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete or misleading; that
the highest and best use of the partnership's property is as improved; and that
all calculations were made in accordance with the terms of your partnership's
agreement of limited partnership.
Stanger was not requested to, and therefore did not: (i) select the offer
consideration or the method of determining the offer consideration; (ii) make
any recommendation to your partnership or its partners with respect to whether
to accept or reject the proposed offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of your partnership or all
or any part of your partnership; or (iv) express any opinion as to (a) the tax
consequences of the offer to unitholders, (b) the terms of your partnership's
agreement of limited
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partnership or the terms of any agreements or contracts between your partnership
or AIMCO; (c) AIMCO's or the general partner's business decision to effect the
offer, or alternatives to the offer, (d) the amount or allocation of expenses
relating to the offer between AIMCO and your partnership or tendering
unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the offer; and (f) any adjustments made to
determine the offer consideration and the net amounts distributable to the
unitholders, including but not limited to, balance sheet adjustments to reflect
your partnership's estimate of the value of current net working capital
balances, reserve accounts, and liabilities, and adjustments to the offer
consideration for distributions made by your partnership subsequent to the date
of the offer.
Stanger is not expressing any opinions as to the fairness of any terms of
the offer other than the offer consideration for the units. Stanger's opinion is
based on business, economic, real estate and capital market, and other
conditions as of the date of its analysis and addresses the offer in the context
of information available as of the date of its analysis. Events occurring after
such date and before the closing of the proposed offer could affect the
partnership's property or the assumptions used in preparing the Fairness
Opinion. Stanger has no obligation to update the Fairness Opinion on the basis
of subsequent events.
In connection with preparing the Fairness Opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the report set forth in Appendix A.
COMPENSATION AND MATERIAL RELATIONSHIPS
Stanger has been retained by AIMCO to provide fairness opinions with
respect to your partnership and other partnerships which are or will be the
subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with
respect to your partnership. In addition, Stanger is entitled to reimbursement
for reasonable legal, travel and out-of-pocket expenses incurred in making the
site visits and preparing the Fairness Opinion, and is entitled to
indemnification against certain liabilities, including certain liabilities under
Federal securities laws. No portion of Stanger's fee is contingent upon
consummation of the offer or the content of Stanger's opinion. Stanger has
performed other services for AIMCO in the past, including: general financial
advisory services relating to a potential acquisition by AIMCO. However, such
acquisition was never completed and no fee was paid to Stanger.
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COMPARISON OF YOUR PARTNERSHIP AND THE
AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with Common OP
Units and Preferred OP Units. These comparisons are intended to assist you in
understanding how your investment will be changed if, as a result of the offer,
your units are exchanged for Common OP Units or Preferred OP Units. FOR A
DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING
PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND
AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights
associated with an investment in the Common OP Units and the Class A Common
Stock, and a similar comparison in respect of the Preferred OP Units and the
Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common
Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and
Class I Preferred Stock" herein, respectively.
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
<TABLE>
<S> <C>
Your partnership is a limited partnership The AIMCO Operating Partnership is organized
organized under Delaware law. as a Delaware limited partnership. The AIMCO
Operating Partnership owns interests (either
directly or through subsidiaries) in
numerous multifamily apartment properties.
The AIMCO Operating Partnership conducts
substantially all of the operations of
AIMCO, a corporation organized under
Maryland and as a REIT.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
Your partnership was presented to limited The term of the AIMCO Operating Partnership
partners as a finite life investment, with continues until December 31, 2093, unless
limited partners to receive regular cash the AIMCO Operating Partnership is dissolved
distributions out of your partnership's sooner pursuant to the terms of the AIMCO
Distributable Cash (as defined in your Operating Partnership's agreement of limited
partnership's agreement of limited partnership (the "AIMCO Operating
partnership). The termination date of your Partnership Agreement") or as provided by
partnership is December 31, 2012. law. See "Description of OP Units --
General" and "Description of OP
Units -- Dissolution and Winding Up" in the
accompanying Prospectus.
</TABLE>
Purpose and Permitted Activities
<TABLE>
<S> <C>
Your partnership has been formed to acquire, The purpose of the AIMCO Operating
develop, operate, lease, manage and hold for Partnership is to conduct any business that
investment and production of income with may be lawfully conducted by a limited
your partnership's property. Subject to partnership organized pursuant to the
restrictions contained in your partnership's Delaware Revised Uniform Limited Part-
agreement of limited partnership, your nership Act (as amended from time to time,
partnership may perform all acts necessary, or any successor to such statute) (the
advisable or convenient to the business of "Delaware Limited Partnership Act"),
your partnership including borrowing money provided that such business is to be
and creating liens. conducted in a manner that permits AIMCO to
be qualified as a REIT, unless AIMCO ceases
to qualify as a REIT. The AIMCO Operating
Partner-
</TABLE>
S-56
<PAGE> 199
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
ship is authorized to perform any and all
acts for the furtherance of the purposes and
business of the AIMCO Operating Partnership,
provided that the AIMCO Operating
Partnership may not take, or refrain from
taking, any action which, in the judgment of
its general partner could (i) adversely
affect the ability of AIMCO to continue to
qualify as a REIT, (ii) subject AIMCO to
certain income and excise taxes, or (iii)
violate any law or regulation of any
governmental body or agency (unless such ac-
tion, or inaction, is specifically consented
to by AIMCO). Subject to the foregoing, the
AIMCO Operating Partnership may invest in or
enter into partnerships, joint ventures, or
similar arrangements. The AIMCO Operating
partnership currently invests, and intends
to continue to invest, in a real estate
portfolio primarily consisting of
multifamily rental apartment properties.
</TABLE>
Additional Equity
<TABLE>
<S> <C>
The general partner of your partnership is The general partner is authorized to issue
authorized to issue additional limited additional partnership interests in the
partnership interests in your partnership AIMCO Operating Partnership for any
and may admit additional limited partners by partnership purpose from time to time to the
selling not more than 51 units for cash and limited partners and to other persons, and
notes to selected persons who fulfill the to admit such other persons as additional
requirements set forth in your partnership's limited partners, on terms and conditions
agreement of limited partnership. The and for such capital contributions as may be
capital contribution need not be equal for established by the general partner in its
all limited partners and no action or sole discretion. The net capital
consent is required in connection with the contribution need not be equal for all OP
admission of any additional limited Unitholders. No action or consent by the OP
partners, except that the admission of the Unitholders is required in connection with
limited partners other than those who the admission of any additional OP
purchase the 51 units and substituted Unitholder. See "Description of OP
limited partners must be effected by an Units -- Management by the AIMCO GP" in the
amendment to your partnership's agreement of accompanying Prospectus. Subject to Delaware
limited partnership executed and law, any additional partnership interests
acknowledged by the general partner and all may be issued in one or more classes, or one
the limited partners. No property other than or more series of any of such classes, with
cash may be contributed by any limited such designations, preferences and relative,
partner. participating, optional or other special
rights, powers and duties as shall be
determined by the general partner, in its
sole and absolute discretion without the
approval of any OP Unitholder, and set forth
in a written document thereafter attached to
and made an exhibit to the AIMCO Operating
Partnership Agreement.
</TABLE>
Restrictions Upon Related Party Transactions
<TABLE>
<S> <C>
Under your partnership's agreement of The AIMCO Operating Partnership may lend or
limited partnership, your partnership may contribute funds or other assets to its
contract with the general partner or its subsidiaries or other persons in which it
affiliates for various goods and has an equity investment,
</TABLE>
S-57
<PAGE> 200
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
services as specified in your partnership's and such persons may borrow funds from the
agreement of limited partnership, provided AIMCO Operating Partnership, on terms and
the terms and conditions of such dealings conditions established in the sole and
are as favorable as could be reasonably absolute discretion of the general partner.
obtained from third parties offering simi- To the extent consistent with the business
lar goods and services of similar quality purpose of the AIMCO Operating Partnership
and reliability. In addition, the partners and the permitted activities of the general
are authorized to lend money to your partner, the AIMCO Operating Partnership may
partnership on commercially reasonable terms transfer assets to joint ventures, limited
without notification to any of the other liability companies, partnerships,
partners and all or a portion of your corporations, business trusts or other
partnership's property may be conveyed as business entities in which it is or thereby
security for any indebtedness; provided that becomes a participant upon such terms and
such borrowing from and granting of security subject to such conditions consistent with
to limited partners may be undertaken only the AIMCO Operating Partnership Agreement
the extent allowed under applicable law. All and applicable law as the general partner,
advances by any partner will be considered a in its sole and absolute discretion,
loan and the time and amount of the believes to be advisable. Except as
repayment of such loans will be in the sole expressly permitted by the AIMCO Operating
discretion of the general partners; provided Partnership Agreement, neither the general
that interest on such loans shall accrue at partner nor any of its affiliates may sell,
the greater of 2 1/2% over the prime transfer or convey any property to the AIMCO
interest rate charged by the Third National Operating Partnership, directly or
Bank in Nashville, adjusted monthly or the indirectly, except pursuant to transactions
general partner's actual interest cost in that are determined by the general partner
borrowing such amounts. The principal and in good faith to be fair and reasonable.
interest with respect to such loans will be
fully paid prior to the distributions of
funds to the partners unless such loans
contain a specific provision to the
contrary. Any partner who loans money to
your partnership will be considered an
unrelated creditor with respect to such loan
to the extent allowed by applicable law.
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The general partner of your partnership is The AIMCO Operating Partnership Agreement
authorized to obtain a loan of up to contains no restrictions on borrowings, and
$1,650,000 from an institutional lender and the general partner has full power and
a loan in the amount of up to $1,050,000 authority to borrow money on behalf of the
from an affiliate of the general partner and AIMCO Operating Partnership. The AIMCO
to execute, acknowledge and deliver such Operating Partnership has credit agreements
documents and instruments, including that restrict, among other things, its
promissory notes, collection agreements, ability to incur indebtedness. See "Risk
deeds to secure debts, deeds of trust, Factors -- Risks of Significant
mortgages, assignments and other documents Indebtedness" in the accompanying
and security instruments as may be necessary Prospectus.
or desirable in connection with obtaining
such loan and also borrow money in the
ordinary course of business and as security
therefor to mortgage all or any part of the
real property of your partnership.
</TABLE>
S-58
<PAGE> 201
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Review of Investor Lists
<TABLE>
<S> <C>
Your partnership's agreement of limited Each OP Unitholder has the right, upon
partnership entitles a limited partner to written demand with a statement of the
inspect the register containing the names purpose of such demand and at such OP
and addresses of all limited partners at all Unitholder's own expense, to obtain a
reasonable times at the principal office of current list of the name and last known
your partnership. business, residence or mailing address of
the general partner and each other OP
Unitholder.
</TABLE>
Management Control
<TABLE>
<S> <C>
The managing general partner of your All management powers over the business and
partnership is primarily responsible for the affairs of the AIMCO Operating Partnership
day-to-day operations of your partnership. are vested in AIMCO-GP, Inc., which is the
The general partners represent your general partner. No OP Unitholder has any
partnership in all transactions with third right to participate in or exercise control
parties, unless they designate in writing or management power over the business and
another person as representative of your affairs of the AIMCO Operating Partner-
partnership. No limited partner has any ship. The OP Unitholders have the right to
right or power to take part in any way in vote on certain matters described under
the control of your partnership business "Comparison of Ownership of Your Units and
except as may be expressly provided in your AIMCO OP Units -- Voting Rights" below. The
partnership's agreement of limited general partner may not be removed by the OP
partnership or by applicable statutes. Unitholders with or without cause.
In addition to the powers granted a general
partner of a limited partnership under
applicable law or that are granted to the
general partner under any other provision of
the AIMCO Operating Partnership Agreement,
the general partner, subject to the other
provisions of the AIMCO Operating
Partnership Agreement, has full power and
authority to do all things deemed necessary
or desirable by it to conduct the business
of the AIMCO Operating Partnership, to
exercise all powers of the AIMCO Operating
Partnership and to effectuate the purposes
of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may incur debt
or enter into other similar credit,
guarantee, financing or refinancing
arrangements for any purpose upon such terms
as the general partner determines to be
appropriate, and may perform such other acts
and duties for and on behalf of the AIMCO
Operating Partnership as are provided in the
AIMCO Operating Partnership Agreement. The
general partner is authorized to execute,
deliver and perform certain agreements and
transactions on behalf of the AIMCO
Operating Partnership without any further
act, approval or vote of the OP Unitholders.
</TABLE>
S-59
<PAGE> 202
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Management Liability and Indemnification
<TABLE>
<S> <C>
Under your partnership's agreement of Notwithstanding anything to the contrary set
limited partnership, the general partner of forth in the AIMCO Operating Partnership
your partnership will not incur any Agreement, the general partner is not liable
liability to your partnership or any limited to the AIMCO Operating Partnership for
partner for any mistakes or errors in judg- losses sustained, liabilities incurred or
ment or for any acts or omissions believed benefits not derived as a result of errors
by the general partner in good faith to be in judgment or mistakes of fact or law of
within the scope of authority conferred upon any act or omission if the general partner
it by your partnership agreement. In acted in good faith. The AIMCO Operating
addition, your partnership will, to the Partnership Agreement provides for
extent permitted by law, indemnify and save indemnification of AIMCO, or any director or
harmless the general partner against and officer of AIMCO (in its capacity as the
from any personal loss, liability (including previous general partner of the AIMCO
attorneys' fees) or damage incurred by it as Operating Partnership), the general partner,
the result of any act or omission in its any officer or director of general partner
capacity as general partner unless such or the AIMCO Operating Partnership and such
loss, liability or damage results from gross other persons as the general partner may
negligence or willful misconduct by the designate from and against all losses,
general partner. claims, damages, liabilities, joint or
several, expenses (including legal fees),
fines, settlements and other amounts
incurred in connection with any actions
relating to the operations of the AIMCO
Operating Partnership, as set forth in the
AIMCO Operating Partnership Agreement. The
Delaware Limited Partnership Act provides
that subject to the standards and
restrictions, if any, set forth in its
partnership agreement, a limited partnership
may, and shall have the power to, indemnify
and hold harmless any partner or other
person from and against any and all claims
and demands whatsoever. It is the position
of the Securities and Exchange Commission
that indemnification of directors and
officers for liabilities arising under the
Securities Act is against public policy and
is unenforceable pursuant to Section 14 of
the Securities Act of 1933.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Under your partnership's agreement of Except in limited circumstances, the general
limited partnership, the limited partners partner has exclusive management power over
may remove a general partner following the business and affairs of the AIMCO
notice and a failure to cure the injury to Operating Partnership. The general partner
your partnership within a reasonable time may not be removed as general partner of the
for cause upon the vote of the limited AIMCO Operating Partnership by the OP
partners holding 67% of the then outstanding Unitholders with or without cause. Under the
units. A general partner may withdraw AIMCO Operating Partnership Agreement, the
voluntarily from your partnership with the general partner may, in its sole discretion,
consent of holders of 67% of the then prevent a transferee of an OP Unit from
outstanding units. A substitute general becoming a substituted limited partner
partner may be elected upon the affirmative pursuant to the AIMCO Operating Partnership
vote of limited partners owning 51% of the Agreement. The general partner may exercise
units. A limited partner may not transfer this right of approval to deter, delay or
his interests without the consent of the hamper attempts by persons to acquire a
general partner which may be withheld at the controlling interest in the AIMCO Operating
sole discretion of the general partner. Partnership. Additionally, the AIMCO
Operating Partnership
</TABLE>
S-60
<PAGE> 203
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
Agreement contains restrictions on the
ability of OP Unitholders to transfer their
OP Units. See "Description of OP
Units -- Transfers and Withdrawals" in the
accompanying Prospectus.
</TABLE>
Amendment of Your Partnership Agreement
<TABLE>
<S> <C>
Your partnership's agreement of limited With the exception of certain circumstances
partnership may be amended by the limited set forth in the AIMCO Operating Partnership
partners owning more than 67% of the units. Agreement, whereby the general partner may,
Any amendment which alters a limited without the consent of the OP Unitholders,
partner's interest in the capital profits, amend the AIMCO Operating Partnership
Distributable Cash of your partnership must Agreement, amendments to the AIMCO Operating
be approved by the affected partner and the Partnership Agreement require the consent of
general partner except in limited the holders of a majority of the outstanding
circumstances described in your Common OP Units, excluding AIMCO and certain
partnership's agreement of limited other limited exclusions (a "Majority in
partnership. Such proposed amendments may be Interest"). Amendments to the AIMCO
presented to the limited partners upon the Operating Partnership Agreement may be
motion of the general partners or receipt of proposed by the general partner or by
a written request executed by limited holders of a Majority in Interest. Following
partners owning at least 10% of the units such proposal, the general partner will
then outstanding. For purposes of obtaining submit any proposed amendment to the OP
the consent of the limited partners, the Unitholders. The general partner will seek
general partner may require a response the written consent of the OP Unitholders on
within a specified time, not less than the proposed amendment or will call a
thirty days from the submission of the meeting to vote thereon. See "Description of
proposal to the limited partners. Failure to OP Units -- Amendment of the AIMCO Operating
respond in such time will constitute a vote Partnership Agreement" in the accompanying
which is consistent with the general Prospectus.
partner's recommendation with respect to
such proposal.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
In addition to the right to distributions in The general partner does not receive
respect of its partnership interest and compensation for its services as general
reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership.
set forth in your partnership's agreement of However, the general partner is entitled to
limited partnership, the general partner payments, allocations and distributions in
receives an annual fee of 1% of the gross its capacity as general partner of the AIMCO
collected income from your partnership's Operating Partnership. In addition, the
property. Moreover, the general partner or AIMCO Operating Partnership is responsible
certain affiliates may be entitled to for all expenses incurred relating to the
compensation for additional services AIMCO Operating Partnership's ownership of
rendered. its assets and the operation of the AIMCO
Operating Partnership and reimburses the
general partner for such expenses paid by
the general partner. The employees of the
AIMCO Operating Partnership receive
compensation for their services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Under your partnership's agreement of Except for fraud, willful misconduct or
limited partnership, the liability of each gross negligence, no OP Unitholder has
of the limited partners for his share of the personal liability for the AIMCO Operating
losses and debts of your partnership shall Partnership's debts and obligations, and
be limited to the total capital contribution liability of the OP Unitholders for the
of such limited partners (subject to the AIMCO Operating Partnership's debts and
terms and conditions pursuant to which such obligations is generally limited to the
capital contribu- amount of their
</TABLE>
S-61
<PAGE> 204
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
<TABLE>
<S> <C>
tion is to be paid) plus, to the extent that investment in the AIMCO Operating
such limited partner rightfully has received Partnership. However, the limitations on the
the return of such capital contribution, any liability of limited partners for the
sum, not in excess of such return, necessary obligations of a limited partnership have
to discharge liabilities of your partnership not been clearly established in some states.
to all creditors who extended credit before If it were determined that the AIMCO
such return; provided that the liability Operating Partnership had been conducting
with respect to rightfully returned capital business in any state without compliance
contribution is limited to one year from the with the applicable limited partnership
date of such return. statute, or that the right or the exercise
of the right by the holders of OP Units as a
group to make certain amendments to the
AIMCO Operating Partnership Agreement or to
take other action pursuant to the AIMCO
Operating Partnership Agreement constituted
participation in the "control" of the AIMCO
Operating Partnership's business, then a
holder of OP Units could be held liable
under certain circumstances for the AIMCO
Operating Partnership's obligations to the
same extent as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Under your partnership's agreement of Unless otherwise provided for in the
limited partnership, the general partner relevant partnership agreement, Delaware law
must devote such of its time and that of its generally requires a general partner of a
employees to your partnership business as Delaware limited partnership to adhere to
may be reasonably necessary to carry on and fiduciary duty standards under which it owes
conduct your partnership's business. The its limited partners the highest duties of
general partner must use its best effort to good faith, fairness and loyalty and which
do all other things and perform such other generally prohibit such general partner from
duties as may be reasonably necessary to the taking any action or engaging in any
successful operation of your partnership and transaction as to which it has a conflict of
the general partner must act as a fiduciary interest. The AIMCO Operating Partnership
with respect to the assets and business of Agreement expressly authorizes the general
your partnership. The general partner and partner to enter into, on behalf of the
its affiliates may engage in whatever AIMCO Operating Partnership, a right of
activities they choose, whether the same be first opportunity arrangement and other
competitive with your partnership or conflict avoidance agreements with various
otherwise, including, without limitation, affiliates of the AIMCO Operating
the acquisition, ownership, financing, Partnership and the general partner, on such
syndication, development, improvement, terms as the general partner, in its sole
leasing, operation, management and brokerage and absolute discretion, believes are
of real property (including real property advisable. The AIMCO Operating Partnership
that may be in the vicinity of an competi- Agreement expressly limits the liability of
tive with real property owned by your the general partner by providing that the
partnership), without having or incurring general partner, and its officers and
any obligation to disclose or to offer any directors will not be liable or accountable
interest in such activities to your in damages to the AIMCO Operating
partnership or the partners. See "Your Partnership, the limited partners or as-
Partnership -- Fiduciary Responsibility of signees for errors in judgment or mistakes
the General Partner of Your Partnership." of fact or law or of any act or omission if
the general partner or such director or
In general, your partnership's agreement of officer acted in good faith. See
limited partnership and the AIMCO Operating "Description of OP Units -- Fiduciary
Partnership Agreement have limitations on Responsibilities" in the accompanying
the liability of the general partner but Prospectus.
such limitations differ in terms and provide
more protection for the general partner of
the AIMCO Operating Partnership.
</TABLE>
S-62
<PAGE> 205
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Federal Income Taxation
<TABLE>
<S> <C>
In general, there are no material The AIMCO Operating Partnership is not
differences between the taxation of your subject to Federal income taxes. Instead,
partnership and the AIMCO Operating each holder of OP Units includes in income
Partnership. its allocable share of the AIMCO Operating
Partnership's taxable income or loss when it
determines its individual Federal income tax
liability.
Income and loss from the AIMCO Operating
Partnership may be subject to the passive
activity limitations. If an investment in an
OP Unit is treated as a passive activity,
income and loss from the AIMCO Operating
Partnership generally can be offset against
income and loss from other investments that
constitute "passive activities" (unless the
AIMCO Operating Partnership is considered a
"publicity traded partnership", in which
case income and loss from the AIMCO
Operating Partnership can only be offset
against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO
Operating Partnership, however, attributable
to dividends from the Management
Subsidiaries (as defined below) or interest
paid by the Management Subsidiaries does not
qualify as passive activity income and
cannot be offset against losses from "pas-
sive activities."
Cash distributions by the AIMCO Operating
Partnership are not taxable to a holder of
OP Units except to the extent they exceed
such Partner's basis in its interest in the
AIMCO Operating Partnership (which will
include such OP Unitholder's allocable share
of the AIMCO Operating Partnership's nonre-
course debt).
Each year, OP Unitholders receive a Schedule
K-1 tax form containing tax information for
inclusion in preparing their Federal income
tax returns.
OP Unitholders are required, in some cases,
to file state income tax returns and/or pay
state income taxes in the states in which
the AIMCO Operating Partnership owns
property or transacts business, even if they
are not residents of those states. The AIMCO
Operating Partnership may be required to pay
state income taxes in certain states.
</TABLE>
S-63
<PAGE> 206
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS
PREFERRED OP UNITS
COMMON OP UNITS
Nature of Investment
<TABLE>
<S> <C> <C>
The partnership interests in The Preferred OP Units The Common OP Units consti-
your partnership constitute constitute equity interests tute equity interests
equity interests entitling entitling each holder of entitling each OP Unitholder
each partner to its pro rata Preferred OP Units, when and to such partner's pro rata
share of distributions to be as declared by the board of share of cash distribu-
made to the partners of your directors of the general tions made from Available
partnership. partner of the AIMCO Cash (as such term is
Operating Partnership, defined in the AIMCO
quarterly cash distri- Operating Partnership
bution at a rate of $.50 per Agreement) to the partners
Preferred OP Unit, subject of the AIMCO Operating
to adjustments from time to Partnership. To the extent
time on or after the fifth the AIMCO Operating
anniversary of the issue Partnership sells or
date of the Preferred OP refinances its assets, the
Units. net proceeds therefrom
generally will be retained
by the AIMCO Operating
Partnership for working
capital and new investments
rather than being
distributed to the OP
Unitholders (including
AIMCO).
</TABLE>
Voting Rights
<TABLE>
<S> <C> <C>
Under your partnership's Except as otherwise required Under the AIMCO Operating
agreement of limited by applicable law or in the Partnership Agreement, the
partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting
of the limited partners Agreement, the holders of rights only with respect to
owning a majority of the the Preferred OP Units will certain limited matters such
outstanding units, the have the same voting rights as certain amendments and
limited partners may elect a as holders of the Common OP termination of the AIMCO
general partner and approve Units. See "Description of Operating Partnership
or disapprove the sale of OP Units" in the accompany- Agreement and certain
all or a material portion of ing Prospectus. So long as transactions such as the
your partnership's property. any Preferred OP Units are institution of bankruptcy
The approval of holders of outstanding, in addition to proceedings, an assignment
67% of the outstanding units any other vote or consent of for the benefit of creditors
is necessary to remove a partners required by law or and certain transfers by the
general partner, approve the by the AIMCO Operating general partner of its
withdrawal of a general Partnership Agreement, the interest in the AIMCO
partner, amend your affirmative vote or consent Operating Partnership or the
partnership's agreement of of holders of at least 50% admission of a successor
limited partnership, subject of the outstanding Preferred general partner.
to certain limitations, and OP Units will be necessary
terminate your partnership. for effecting any amendment Under the AIMCO Operating
of any of the provisions of Partnership Agreement, the
A general partner may cause the Partnership Unit general partner has the
the dissolution of the Designation of the Preferred power to effect the
partnership by retiring. OP Units that materially and acquisition, sale, transfer,
Upon such event, within adversely affects the rights exchange or other
ninety days of the or preferences of the disposition of any assets of
retirement, the limited holders of the the AIMCO Operating
partners owning 67% of the Partnership (including, but
units may vote to continue
</TABLE>
S-64
<PAGE> 207
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
the business of your Preferred OP Units. The not limited to, the exercise
partnership. If no general creation or issuance of any or grant of any conversion,
partner remains, all of the class or series of option, privilege or
limited partner by unani- partnership units, subscription right or any
mous consent may vote to including, without other right available in
reform your partnership and limitation, any partner- connection with any assets
the limited partners holding ship units that may have at any time held by the
67% of the units may elect rights senior or superior to AIMCO Operating Partnership)
one or more successor the Preferred OP Units, or the merger,
general partner to continue shall not be deemed to consolidation,
the business of your materially adversely affect reorganization or other
partnership. In such an the rights or preferences of combination of the AIMCO
event of such reformation, the holders of Preferred OP Operating Partnership with
your partnership will dis- Units. With respect to the or into another entity, all
solve and all of its assets exercise of the above without the consent of the
and liability will be described voting rights, OP Unitholders.
contributed to a new each Preferred OP Units
partnership and all parties shall have one (1) vote per The general partner may
of your partnership will Preferred OP Unit. cause the dissolution of the
become parties to the new AIMCO Operating Partnership
partnership. by an "event of withdrawal,"
as defined in the Delaware
In general, you have greater Limited Partnership Act
voting rights in your (including, without limi-
partnership than you will tation, bankruptcy), unless,
have as an OP Unitholder. OP within 90 days after the
Unitholders cannot remove withdrawal, holders of a
the general partner of the "majority in interest," as
AIMCO Operating Partnership. defined in the Delaware
Limited Partnership Act,
agree in writing, in their
sole and absolute
discretion, to continue the
business of the AIMCO Op-
erating Partnership and to
the appointment of a
successor general partner.
The general partner may
elect to dissolve the AIMCO
Operating Partnership in its
sole and absolute
discretion, with or with-
out the consent of the OP
Unitholders. See
"Description of OP
Units -- Dissolution and
Winding Up" in the
accompanying Prospectus.
OP Unitholders cannot remove
the general partner of the
AIMCO Operating Partnership
with or without cause.
</TABLE>
Distributions
<TABLE>
<S> <C> <C>
Your partnership's agreement Holders of Preferred OP Subject to the rights of
of limited partnership Units will be entitled to holders of any outstanding
specifies how the cash receive, when and as Preferred OP Units, the
available for distribution, declared by the board of AIMCO Operating Partnership
whether arising from directors of the general Agreement re-
operations partner of
</TABLE>
S-65
<PAGE> 208
YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
or sales or refinancing, is the AIMCO Operating Partner- quires the general partner
to be shared among the ship, quarterly cash to cause the AIMCO Operating
partners. Distributions of distributions at the rate of Partnership to distribute
Distributable Cash are to be $.50 per Preferred OP Unit; quarterly all, or such
made quarterly on or about provided, however, that at portion as the general
January 15, April 15, July any time and from time to partner may in its sole and
15 and October 15. The dis- time on or after the fifth absolute discretion
tributions payable to the anniversary of the issue determine, of Available Cash
partners are not fixed in date of the Preferred OP (as defined in the AIMCO
amount and depend upon the Units, the AIMCO Operating Operating Partnership
operating results and net Partnership may adjust the Agreement) generated by the
sales or refinancing pro- annual distribution rate on AIMCO Operating Partnership
ceeds available from the the Preferred OP Units to during such quarter to the
disposition of your the lower of (i) % plus general partner, the special
partnership's assets. the annual interest rate limited partner and the
then applicable to U.S. holders of Common OP Units
Treasury notes with a ma- on the record date es-
turity of five years, and tablished by the general
(ii) the annual dividend partner with respect to such
rate on the most recently quarter, in accordance with
issued AIMCO non-con- their respective interests
vertible preferred stock in the AIMCO Operating
which ranks on a parity with Partnership on such record
its Class H Cumulative date. Holders of any other
Preferred Stock. Such Preferred OP Units issued in
distributions will be cumu- the future may have priority
lative from the date of over the general partner,
original issue. Holders of the special limited partner
Preferred OP Units will not and holders of Common OP
be entitled to receive any Units with respect to
distributions in excess of distributions of Available
cumulative distributions on Cash, distributions upon
the Preferred OP Units. No liquidation or other
interest, or sum of money in distributions. See "Per
lieu of interest, shall be Share and Per Unit Data" in
payable in respect of any the accompanying Prospectus.
distribution payment or pay-
ments on the Preferred OP The general partner in its
Units that may be in sole and absolute discretion
arrears. may distribute to the OP
Unitholders Available Cash
When distributions are not on a more frequent basis and
paid in full upon the provide for an appropriate
Preferred OP Units or any record date.
Parity Units, all
distributions declared upon The AIMCO Operating Partner-
the Preferred OP Units and ship Agreement requires the
any Parity Units shall be general partner to take such
declared ratably in reasonable efforts, as
proportion to the respective determined by it in its sole
amounts of distributions and absolute discretion and
accumulated, accrued and consistent with AIMCO's
unpaid on the Preferred OP qualification as a REIT, to
Units and such Parity Units. cause the AIMCO Operating
Unless full cumulative Partnership to distribute
distributions on the sufficient amounts to enable
Preferred OP Units have been the general partner to
declared and paid, except in transfer funds to AIMCO and
limited circumstances, no enable AIMCO to pay
distributions may be stockholder dividends that
declared or paid or set
apart for payment by the
AIMCO Operating Partnership
and no other dis-
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
tribution of cash or other will (i) satisfy the
property may be declared or requirements for qualifying
made, directly or as a REIT under the Code and
indirectly, by the AIMCO Op- the Treasury Regulations and
erating Partnership with (ii) avoid any Federal
respect to any Junior Units, income or excise tax
nor shall any Junior Units liability of AIMCO. See
be redeemed, purchased or "Description of OP
otherwise acquired for Units -- Distributions" in
consideration, nor shall any the accompanying Prospectus.
other cash or other property
be paid or distributed to or
for the benefit of holders
of Junior Units. See
"Description of Preferred OP
Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption Rights
<TABLE>
<S> <C> <C>
A limited partner may There is no public market There is no public market
transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO
person and such person will and the Preferred OP Units Operating Partnership
become a substitute limited are not listed on any Agreement restricts the
partner if: (1) a written securities exchange. The transferability of the OP
assignment has been duly Preferred OP Units are Units. Until the expiration
executed and acknowledged by subject to restrictions on of one year from the date on
the assignor and assignee transfer as set forth in the which an OP Unitholder
and delivered to the general AIMCO Operating Partnership acquired OP Units, subject
partner, (2) the approval of Agreement. to certain exceptions, such
the general partner which OP Unitholder may not
may be withheld in the sole Pursuant to the AIMCO transfer all or any por-
discretion and which will be Operating Partnership tion of its OP Units to any
withheld if the general Agreement, until the transferee without the
partner reasonably believes expiration of one year from consent of the general
that the transfer violates the date on which a holder partner, which consent may
applicable securities law or of Preferred OP Units be withheld in its sole and
result in adverse tax acquired Preferred OP Units, absolute discretion. After
consequences, including the subject to certain the expiration of one year,
termination of your exceptions, such holder of such OP Unitholder has the
partnership for tax Preferred OP Units may not right to transfer all or any
purposes, (3) the assignee transfer all or any portion portion of its OP Units to
has agreement to bound by of its Preferred OP Units to any person, subject to the
all of the terms of your any transferee without the satisfaction of certain con-
partnership's agreement of consent of the general ditions specified in the
limited partnership and partner, which consent may AIMCO Operating Partnership
absolute discretion of the be withheld in its sole and Agreement, including the
general partner has been absolute discretion. After general partner's right of
granted, (4) the assignee the expiration of one year, first refusal. See
represents he is at least 18 such holders of Preferred OP "Description of OP Units --
years of age, is a citizen Units has the right to Transfers and Withdrawals"
and resident of the U.S., transfer all or any portion in the accompanying
has sufficient financial of its Preferred OP Units to Prospectus.
resources to maintain the any person, subject to the
interest acquired and that satisfaction of certain After the first anniversary
he is not acquiring the conditions specified in the of becoming a holder of
interest with a view to AIMCO Operating Partner- Common OP Units, an OP
resell the interest and (5) ship Agreement, including Unitholder has the right,
the assignor and assignee the general partner's right subject to the terms and
have complied with such of first refusal. conditions of the AIMCO
other conditions as set After a one-year holding Operating Partnership
forth in your partnership's period, a Agreement, to
agreement of
</TABLE>
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YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS
<TABLE>
<S> <C> <C>
limited partnership. holder may redeem Preferred require the AIMCO Operating
There are no redemption OP Units and receive in Partnership to redeem all or
rights associated with your exchange therefor, at the a portion of the Common OP
units. AIMCO Operating Units held by such party in
Partnership's option, (i) exchange for a cash amount
subject to the terms of any based on the value of shares
Senior Units, cash in an of Class A Common Stock. See
amount equal to the "Description of OP
Liquidation Preference of Units -- Redemption Rights"
the Preferred OP Units in the accompanying
tendered for redemption, Prospectus. Upon receipt of
(ii) a number of shares of a notice of redemption, the
Class I Cumulative Preferred AIMCO Operating Partnership
Stock of AIMCO that pay an may, in its sole and
aggregate amount of absolute discretion but
dividends yield equivalent subject to the restrictions
to the distributions on the on the ownership of Class A
Preferred OP Units tendered Common Stock imposed under
for redemption and are part AIMCO's charter and the
of a class or series of transfer restrictions and
preferred stock that is then other limitations thereof,
listed on the New York Stock elect to cause AIMCO to
Exchange or another national acquire some or all of the
securities exchange, or tendered Common OP Units in
(iii) a number of shares of exchange for Class A Common
Class A Common Stock of Stock, based on an exchange
AIMCO that is equal in Value ratio of one share of Class
to the Liquidation A Common Stock for each
Preference of the Preferred Common OP Unit, subject to
OP Units tendered for adjustment as provided in
redemption. The Preferred OP the AIMCO Operating
Units may not be redeemed at Partnership Agreement.
the option of the AIMCO Op-
erating Partnership. See
"Description of Preferred OP
Units -- Redemption."
</TABLE>
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<PAGE> 211
DESCRIPTION OF PREFERRED OP UNITS
GENERAL
The Preferred OP Units are a class of Partnership Preferred Units of the
AIMCO Operating Partnership.
RANKING
The Preferred OP Units will, with respect to distribution rights and rights
upon liquidation, dissolution or winding up of the AIMCO Operating Partnership,
effectively rank:(i) prior or senior to the Class E Partnership Preferred Units,
the Common OP Units and any other interest in the AIMCO Operating Partnership if
the holders of Preferred OP Units shall be entitled to the receipt of
distributions and amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of such interest (the Common OP
Units and such other interests are collectively referred to herein as "Junior
Units"); (ii) on a parity with the Class B Partnership Preferred Units, the
Class C Partnership Preferred Units, the Class D Partnership Preferred Units,
the Class G Partnership Preferred Units, the Class H Partnership Preferred
Units, the Class J Partnership Preferred Units, and with any other interest in
the AIMCO Operating Partnership if the holders of such interest and the
Preferred OP Units shall be entitled to the receipt of distributions and amounts
distributable upon liquidation, dissolution or winding up in proportion to their
respective amounts of accumulated, accrued and unpaid distributions or stated
preferences, without preference or priority of one over the other ("Parity
Units"); and (iii) junior to the Class F Partnership Preferred Units and any
other interest in the AIMCO Operating Partnership if the holders of such
interest shall be entitled to the receipt of distributions or amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Preferred OP Units ("Senior Units"). Junior
Units, Parity Units and Senior Units may be issued from time to time by the
AIMCO Operating Partnership without any approval or consent by holders of the
Preferred OP Units.
Although proceeds upon liquidation, dissolution or winding up of the AIMCO
Operating Partnership will be made in accordance with the positive balance of
all partners capital accounts, the AIMCO Operating Partnership creates, to the
extent possible, the preference upon such events by specially allocating income,
if necessary, to the Preferred OP Units in an amount equal to their liquidation
preference.
DISTRIBUTIONS
Holders of Preferred OP Units are entitled to receive, when and as declared
by the board of directors of the general partner of the AIMCO Operating
Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP
Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference);
provided, however, that at any time and from time to time on or after the fifth
anniversary of the issue date of the Preferred OP Units, the AIMCO Operating
Partnership may adjust the annual distribution rate on the Preferred OP Units to
the lower of (i) % plus the annual interest rate then applicable to U.S.
Treasury notes with a maturity of five years, and (ii) the annual dividend rate
on the most recently issued AIMCO non-convertible preferred stock which ranks on
a parity with its Class H Cumulative Preferred Stock. A reduction in the
distribution rate will reduce your rate of return on the Preferred OP Units and
possibly encourage you to redeem such Units. Such adjustment shall become
effective upon the date the AIMCO Operating Partnership issues a notice to such
effect to the holders of the Preferred OP Units. Such distributions are
cumulative from the date of original issue, whether or not in any distribution
period or periods such distributions have been declared, and shall be payable
quarterly on February 15, May 15, August 15 and November 15 of each year (or, if
not a business day, the next succeeding business day) (each a "Distribution
Payment Date"), commencing on the first such date occurring after the date of
original issue. If the Preferred OP Units are issued on any day other than a
Distribution Payment Date, the first distribution payable on such Preferred OP
Units will be prorated for the portion of the quarterly period that such
Preferred OP Units are outstanding on the basis of twelve 30-day months and a
360-day year. Distributions are payable in arrears to holders of record as they
appear on the records of the AIMCO Operating Partnership at the close of
business on the February 1, May 1, August 1 or November 1, as the case may be,
immediately preceding each Distribution Payment Date. Holders of Preferred OP
Units will not be entitled to receive any distributions in
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excess of cumulative distributions on the Preferred OP Units. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
distribution payment or payments on the Preferred OP Units that may be in
arrears. Holders of any Preferred OP Units that are issued after the date of
original issuance are entitled to receive the same distributions as holders of
any Preferred OP Units issued on the date of original issuance.
When distributions are not paid in full upon the Preferred OP Units or any
Parity Units, or a sum sufficient for such payment is not set apart, all
distributions declared upon the Preferred OP Units and any Parity Units shall be
declared ratably in proportion to the respective amounts of distributions
accumulated, accrued and unpaid on the Preferred OP Units and accumulated,
accrued and unpaid on such Parity Units. Except as set forth in the preceding
sentence, unless distributions on the Preferred OP Units equal to the full
amount of accumulated, accrued and unpaid distributions have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof has been or contemporaneously is set apart for such payment,
for all past distribution periods, no distributions shall be declared or paid or
set apart for payment by the AIMCO Operating Partnership with respect to any
Parity Units. Unless full cumulative distributions (including all accumulated,
accrued and unpaid distributions) on the Preferred OP Units have been declared
and paid, or declared and set apart for payment, for all past distribution
periods, no distributions (other than distributions or distributions paid in
Junior Units or options, warrants or rights to subscribe for or purchase Junior
Units) may be declared or paid or set apart for payment by the AIMCO Operating
Partnership and no other distribution of cash or other property may be declared
or made, directly or indirectly, by the AIMCO Operating Partnership with respect
to any Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (except for a redemption, purchase or other acquisition of
Common OP Units made for purposes of an employee incentive or benefit plan of
AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such Junior Units), directly or indirectly, by the AIMCO
Operating Partnership (except by conversion into or exchange for Junior Units,
or options, warrants or rights to subscribe for or purchase Junior Units), nor
shall any other cash or other property be paid or distributed to or for the
benefit of holders of Junior Units. Notwithstanding the foregoing provisions of
this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i)
declaring or paying or setting apart for payment any distribution on any Parity
Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in
each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain AIMCO's qualification as a REIT.
ALLOCATION
Holders of Preferred OP Units will be allocated net income of the AIMCO
Operating Partnership in an amount equal to the distributions made on such
holder's Preferred OP Units during the taxable year. Holders of Preferred OP
Units also will generally be allocated any net loss of the AIMCO Operating
Partnership that is not allocated to holders of Common OP Units or other
interests of the AIMCO Operating Partnership.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the AIMCO Operating Partnership, before any allocation of income or gain by the
AIMCO Operating Partnership shall be made to or set apart for the holders of any
Junior Units, to the extent possible, the holders of Preferred OP Units shall be
entitled to be allocated income and gain to effectively enable them to receive a
liquidation preference (the "Liquidation Preference") of $25 per Preferred OP
Unit (the "Stated Preference"), plus accumulated, accrued and unpaid
distributions (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 allocation of income or gain. Until the holders of the Preferred OP
Units have been paid the Liquidation Preference in full, no allocation of income
or gain will be made to any holder of Junior Units upon the liquidation,
dissolution or winding up of the AIMCO Operating Partnership. If, upon any
liquidation, dissolution or winding up of the AIMCO Operating Partnership, the
assets of the AIMCO Operating Partnership, or proceeds thereof, distributable
among the holders of Preferred OP Units shall be insufficient to pay in full the
above described preferential amount and liquidating payments on any Parity
Units, then following certain allocations made by the AIMCO Operating
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<PAGE> 213
Partnership, such assets, or the proceeds thereof, shall be distributed among
the holders of Preferred OP Units and any such Parity Units ratably in the same
proportion as the respective amounts that would be payable on such Preferred OP
Units and any such Parity Units if all amounts payable thereon were paid in
full. A voluntary or involuntary liquidation, dissolution or winding up of the
AIMCO Operating Partnership will not include a consolidation or merger of the
AIMCO Operating Partnership with one or more partnerships, corporations or other
entities, or a sale or transfer of all or substantially all of the AIMCO
Operating Partnership's assets. Upon any liquidation, dissolution or winding up
of the AIMCO Operating Partnership, after all allocations shall have been made
in full to the holders of Preferred OP Units and any Parity Units to enable them
to receive their Liquidation Preference, any Junior Units shall be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Preferred OP Units and any Parity Units shall not be entitled to share
therein.
REDEMPTION
The Preferred OP Units may not be redeemed at the option of the AIMCO
Operating Partnership, and will not be required to be redeemed or repurchased by
the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP
Unit effects a redemption, as described below. The AIMCO Operating Partnership
or AIMCO may purchase Preferred OP Units from time to time in the open market,
by tender or exchange offer, in privately negotiated purchases or otherwise.
After a one-year holding period, a holder may redeem Preferred OP Units and
receive in exchange therefor, at the AIMCO Operating Partnership's option, (i)
subject to the terms of any Senior Units, cash in an amount equal to the
Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a
number of shares of Class I Preferred Stock of AIMCO that pay an aggregate
amount of dividends equivalent to the distributions on the Preferred OP Units
tendered for redemption; provided that such shares are part of a class or series
of preferred stock that is then listed on the NYSE or another national
securities exchange, or (iii) a number of shares of Class A Common Stock of
AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP
Units tendered for redemption. The "Value" of shares of Class A Common Stock
will be determined based on a 10-day average trading price of the shares, as set
forth in the AIMCO Operating Partnership's agreement of limited partnership. If
shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in
exchange for any Preferred OP Units tendered for redemption, the Preferred OP
Units that are acquired by AIMCO will be converted to a class of AIMCO Operating
Partnership units that corresponds to the class of stock so issued.
VOTING RIGHTS
Except as otherwise required by applicable law or in the AIMCO Operating
Partnership's agreement of limited partnership, the holders of the Preferred OP
Units will have the same voting rights as holders of the Common OP Units. See
"Description of OP Units" in the accompanying Prospectus. So long as any
Preferred OP Units are outstanding, in addition to any other vote or consent of
partners required by law or by the AIMCO Operating Partnership's agreement of
limited partnership, the affirmative vote or consent of holders of at least 50%
of the outstanding Preferred OP Units will be necessary for effecting any
amendment of any of the provisions of the Partnership Unit Designation of the
Preferred OP Units that materially and adversely affects the rights or
preferences of the holders of the Preferred OP Units. The creation or issuance
of any class or series of AIMCO Operating Partnership units, including, without
limitation, any AIMCO Operating Partnership units that may have rights senior or
superior to the Preferred OP Units, will not be deemed to materially adversely
affect the rights or preferences of the holders of Preferred OP Units. With
respect to the exercise of the above described voting rights, each Preferred OP
Unit will have one (1) vote per Preferred OP Unit.
RESTRICTIONS ON TRANSFER
Preferred OP Units will be subject to the same restrictions on transfer
applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's
agreement of limited partnership.
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DESCRIPTION OF CLASS I PREFERRED STOCK
The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and
the Class E Preferred Stock, and any other class or series of capital stock of
AIMCO if the holders of the Class I Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred
Stock and with any other class or series of capital stock of AIMCO, if the
holders of such class of stock or series and the Class I Preferred Stock are
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 ("Class I Parity Stock") and (c) ranks
junior to any class or series of capital stock of AIMCO if the holders of such
class or series are 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 I Preferred Stock ("Class I Senior Stock").
Holders of Class I Preferred Stock are entitled to receive cash dividends
at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to
$2.00 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 January 15, 1999. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO may be made to or set apart for the holders of any shares of Class I
Junior Stock, the holders of Class I Preferred Stock are entitled to receive a
liquidation preference of $25 per share (the "Class I Liquidation Preference"),
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 are
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class I Parity Stock, then such
proceeds will be distributed among the holders of Class I Preferred Stock and
any such other Class I Parity Stock ratably in the same proportion as the
respective amount that would be payable on such Class I Preferred Stock and any
such other Class I Parity Stock if all amounts payable thereon were paid in
full.
On and after , , AIMCO may redeem shares of
Class I Preferred Stock, in whole or in part, at a cash redemption price equal
to 100% of the Class I Liquidation Preference plus all accrued and unpaid
dividends to the date fixed for redemption. The Class I Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class I Preferred Stock have no voting rights, except
that if distributions on Class I Preferred Stock or any series or class of Class
I Parity Stock are in arrears for six or more quarterly periods, the number of
directors constituting the AIMCO board of directors will be increased by two and
the holders of Class I Preferred Stock (voting together as a single class with
all other shares of Class I 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 I Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
I Preferred Stock will be required to amend the AIMCO charter in any manner that
would adversely affect the rights of the holders of Class I Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class I
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
Ownership of shares of Class I Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class I Preferred 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 shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership
Limit"). The AIMCO board of directors may waive such ownership limit if evidence
satisfactory to the AIMCO board of directors and AIMCO's tax counsel is
presented that such ownership will not then or
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in the future jeopardize AIMCO's status as a REIT. As a condition of such
waiver, the AIMCO 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 AIMCO. If shares of Class I Preferred Stock in
excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Code, or which would otherwise result in AIMCO failing to
qualify as a REIT, are issued or transferred to any person, such issuance or
transfer will be null and void to the intended transferee, and the intended
transferee would acquire no rights to the Class I Preferred Stock. Shares of
Class I Preferred Stock transferred in excess of the Class I Preferred 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 AIMCO. 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 Class I Preferred 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 Class I Preferred Stock held in such trust are purchasable by AIMCO
for a 90-day period at a price equal to the lesser of the price paid for the
Class I Preferred 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 Class I Preferred Stock on the date that AIMCO determines
to purchase the Class I Preferred Stock. The 90-day period commences on the date
of the violative transfer or the date that the AIMCO board of directors
determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class I Preferred Stock bear a
legend referring to the restrictions described above.
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COMPARISON OF PREFERRED OP UNITS AND
CLASS I PREFERRED STOCK
PREFERRED OP UNITS CLASS I PREFERRED STOCK
Nature of Investment
<TABLE>
<S> <C>
The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an
interests entitling each holder of Preferred equity interest entitling each holder of
OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and
the board of directors of the general as declared by the AIMCO board of directors,
partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per
quarterly cash distribution at a rate of annum per share.
$0.50 per Preferred OP Unit, subject to
adjustments from time to time on or after
the fifth anniversary of the issue date of
the Preferred OP Units.
</TABLE>
Voting Rights
<TABLE>
<S> <C>
Except as otherwise required by applicable Holders of Class I Preferred Stock do not
law or in the AIMCO Operating Partnership's have any voting rights, except as set forth
agreement of limited partnership, the below and except as otherwise required by
holders of the Preferred OP Units will have applicable law.
the same voting rights as holders of the
Common OP Units. See "Description of OP If and whenever dividends on any shares of
Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or
long as any Preferred OP Units are class of Class I Parity Stock are in arrears
outstanding, in addition to any other vote for six or more quarterly periods (whether
or consent of partners required by law or by or not consecutive), the number of directors
the AIMCO Operating Partnership's agreement then constituting the AIMCO board of
of limited partnership, the affirmative vote directors shall be increased by two (if not
or consent of holders of at least 50% of the already increased by reason of similar types
outstanding Preferred OP Units will be of provisions with respect to shares of
necessary for effecting any amendment of any voting preferred stock), and the holders of
of the provisions of the Partnership Unit shares of Class I Preferred Stock, together
Designation of the Preferred OP Units that with the holders of shares of all other
materially and adversely affects the rights voting preferred stock then entitled to
or preferences of the holders of the exercise similar voting rights, voting as a
Preferred OP Units. The creation or issuance single class regardless of series, will be
of any class or series of AIMCO Operating entitled to vote for the election of two
Partnership units, including, without additional directors of AIMCO. Whenever
limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the
units that may have rights senior or current quarterly dividend period have been
superior to the Preferred OP Units, will not paid or declared and set aside in respect of
be deemed to materially adversely affect the the outstanding shares of the Class I
rights or preferences of the holders of Preferred Stock and the voting preferred
Preferred OP Units. With respect to the stock, then the right of the holders of
exercise of the above described voting Class I Preferred Stock and the voting
rights, each Preferred OP Units will have preferred stock to elect such additional two
one (1) vote per Preferred OP Unit. directors will cease and the terms of office
of such directors will terminate.
The affirmative vote or consent of at least
66 2/3% of the votes entitled to be cast by
the holders of Class I Preferred Stock and
Class I Parity Stock entitled to vote on
such matters, voting as a single class, will
be required to (i) authorize, create,
increase the authorized amount of, or issue
any shares of any class of Class I Senior
Stock or any security convertible into
shares of any class of Class I Senior Stock,
or (ii) amend, alter or repeal any provision
of, or add any provision to, the AIMCO
charter or by-laws, if such action would
materially adversely affect the
</TABLE>
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<PAGE> 217
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
voting powers, rights or preferences of the
holders of the Class I Preferred Stock;
provided, however, that no such vote of the
Class I Preferred Stockholders shall be
required if, at or prior to the time such
proposed change, provisions are made for the
redemption of all outstanding shares of
Class I Preferred Stock. The amendment of
the AIMCO charter to authorize, create,
increase or decrease the authorized amount
of or to issue Class I Junior Stock, Class I
Preferred Stock or any shares of any class
of Class I Parity Stock shall not be deemed
to materially adversely affect the voting
powers, rights or preferences of the holders
of Class I Preferred Stock.
With respect to the exercise of the above
described voting rights, each share of Class
I Preferred Stock will have one vote per
share, except that when any other class or
series of preferred stock has the right to
vote with the Class I Preferred Stock as a
single class, then the Class I Preferred
Stock and such other class or series shall
have one quarter of one vote per $25 of
stated liquidation preference.
</TABLE>
Distributions
<TABLE>
<S> <C>
Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are
to receive, when and as declared by the entitled to receive, when and as declared by
board of directors of the general partner of the AIMCO board of directors, out of funds
the AIMCO Operating Partnership, quarterly legally available for payment, cash
cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per
Preferred OP Unit; provided, however, that share. Such dividends are cumulative from
at any time and from time to time on or the date of original issue. Holders of Class
after the fifth anniversary of the issue I Preferred Stock are not be entitled to
date of the Preferred OP Units, the AIMCO receive any dividends in excess of
Operating Partnership may adjust the annual cumulative dividends on the Class I Pre-
distribution rate on the Preferred OP Units ferred Stock. No interest, or sum of money
to the lower of (i) % plus the annual in lieu of interest, shall be payable in
interest rate then applicable to U.S. respect of any dividend payment or payments
Treasury notes with a maturity of five on the Class I Preferred Stock that may be
years, and (ii) the annual dividend rate on in arrears.
the most recently issued AIMCO
non-convertible preferred stock which ranks When dividends are not paid in full upon the
on a parity with its Class H Cumulative Class I Preferred Stock or any other class
Preferred Stock. Such distributions will be or series of Class I Parity Stock, all
cumulative from the date of original issue. dividends declared upon the Class I
Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I
entitled to receive any distributions in Parity Stock will be declared ratably in
excess of cumulative distributions on the proportion to the respective amounts of
Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on
money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I
in respect of any distribution payment or Parity Stock. Unless dividends equal to the
payments on the Preferred OP Units that may full amount of all accumulated, accrued and
be in arrears. unpaid dividends on the Class I Preferred
Stock have been paid, or declared and set
When distributions are not paid in full upon apart for payment, except in limited
the Preferred OP Units or any Parity Units, circumstances, no dividends may be declared
all distributions declared upon the or paid or set apart for payment by AIMCO
Preferred OP Units and any and no other distribution of cash or other
</TABLE>
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<PAGE> 218
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
Parity Units will be declared ratably in property may be declared or made, directly
proportion to the respective amounts of or indirectly, by AIMCO with respect to any
distributions accumulated, accrued and shares of Class I Junior Stock, nor shall
unpaid on the Preferred OP Units and such any shares of Class I Junior Stock be
Parity Units. Unless full cumulative redeemed, purchased or otherwise acquired
distributions on the Preferred OP Units have for any consideration, nor shall any other
been declared and paid, except in limited cash or other property be paid or
circumstances, no distributions may be distributed to or for the benefit of holders
declared or paid or set apart for payment by of shares of Class I Junior Stock. See
the AIMCO Operating Partnership and no other "Description of Class I Preferred
distribution of cash or other property may Stock -- Dividends."
be declared or made, directly or indirectly,
by the AIMCO Operating Partnership with
respect to any Junior Units, nor shall any
Junior Units be redeemed, purchased or
otherwise acquired for consideration, nor
shall any other cash or other property be
paid or distributed to or for the benefit of
holders of Junior Units. See "Description of
Preferred OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the Preferred Ownership of shares of Class I Preferred
OP Units and the Preferred OP Units are not Stock by any person will be limited such
listed on any securities exchange. The that the sum of the aggregate value of all
Preferred OP Units are subject to certain equity stock (including all shares of Class
restrictions on transferability set forth in I Preferred Stock) owned directly or
the AIMCO Operating Partnership Agreement. constructively by such person may not exceed
8.7% (or 15% in the case of certain parties)
Pursuant to the AIMCO Operating of the aggregate value of all outstanding
Partnership's agreement of limited shares of equity stock. Further, certain
partnership, until the expiration of one transfers which may have the effect of
year from the date on which a holder of causing AIMCO to lose its status as a REIT
Preferred OP Units acquired Preferred OP are void ab initio.
Units, subject to certain exceptions, such
holder of Preferred OP Units may not If any transfer of Class I Preferred Stock
transfer all or any portion of its Preferred occurs which, if effective, would result in
OP Units to any transferee without the any person beneficially or constructively
consent of the general partner, which owning Class I Preferred Stock in excess or
consent may be withheld in its sole and in violation of the Class I Preferred
absolute discretion. After the expiration of Ownership Limit, such shares of Class I
one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I
has the right to transfer all or any portion Preferred Ownership Limit will be
of its Preferred OP Units to any person, automatically transferred to a trustee in
subject to the satisfaction of certain his capacity as trustee of a trust for the
conditions specified in the AIMCO Operating exclusive benefit of one or more charitable
Partnership's agreement of limited beneficiaries designated by AIMCO, and the
partnership, including the general partner's prohibited transferee will generally have no
right of first refusal. rights in such shares, except upon sale of
the shares by the trustee. The trustee will
After a one-year holding period, a holder have all voting rights and rights to
may redeem Preferred OP Units and receive in dividends with respect to shares of Class I
exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which
Partnership's option, (i) subject to the rights will be exercised for the benefit of
terms of any Senior Units, cash in an amount the charitable beneficiaries.
equal to the Liquidation Preference of the
Preferred OP Units tendered for redemp- The trustee may sell the Class I Preferred
tion, (ii) a number of shares of preferred Stock held in the trust to AIMCO or a
stock of AIMCO that have an aggregate person, designated by the trustee, whose
dividend yield ownership of the Class I Preferred Stock
will not violate the Class I Preferred
Owner-
</TABLE>
S-76
<PAGE> 219
PREFERRED OP UNITS CLASS I PREFERRED STOCK
<TABLE>
<S> <C>
equivalent to the distribution yield of the ship Limit. Upon such sale, the interest of
Preferred OP Units tendered for redemption the charitable beneficiaries in the shares
and are part of a class or series of sold will terminate and the trustee will
preferred stock that is then listed on the distribute to the prohibited transferee, the
New York Stock Exchange or another national lesser of (i) the price paid by the
securities exchange, or (iii) a number of prohibited transferee for the shares or if
shares of Class A Common Stock of AIMCO that the prohibited transferee did not give value
is equal in value to the Liquidation for the shares in connection with the event
Preference of the Preferred OP Units causing the shares to be held in the trust,
tendered for redemption. The Preferred OP the market price of such shares on the day
Units may not be redeemed at the option of of the event causing the shares to be held
the AIMCO Operating Partnership. See in the trust and (ii) the price per share
"Description of Preferred OP received by the trustee from the sale or
Units -- Redemption." other disposition of the shares held in the
trust. Any proceeds in excess of the amount
payable to the prohibited transferee will be
payable to the charitable beneficiaries.
On and after , AIMCO
may, at its option, redeem shares of Class I
Preferred Stock, in whole or from time to
time in part, at a cash redemption price
equal to 100% of the Class I Liquidation
Preference plus all accumulated, accrued and
unpaid dividends to the date fixed for
redemption. If full cumulative dividends on
all outstanding shares of Class I Preferred
Stock have not been paid or declared and set
apart for payment, no shares of Class I
Preferred Stock may be redeemed unless all
outstanding shares of Class I Preferred
Stock are simultaneously redeemed and
neither AIMCO nor any of its affiliates may
purchase or acquire shares of Class I
Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same
terms to all holders of Class I Preferred
Stock. The redemption price for the Class I
Preferred Stock (other than any portion
thereof consisting of accumulated, accrued
and unpaid dividends) will be payable solely
with the proceeds from the sale by AIMCO of
capital stock of AIMCO or the sale by the
AIMCO Operating Partnership of partnership
interests in the AIMCO Operating Partnership
(whether or not such sale occurs
concurrently with such redemption).
</TABLE>
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<PAGE> 220
CONFLICTS OF INTEREST
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership became a majority-owned subsidiary
of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Accordingly, the
general partner of your partnership is an affiliate of the AIMCO Operating
Partnership and, therefore, has substantial conflicts of interest with respect
to the offer. The general partner of your partnership has a fiduciary obligation
to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has
a duty to remove the property manager for your partnership's property, under
certain circumstances, even though the property manager is also an affiliate of
AIMCO. The conflicts of interest include the fact that a decision to remove, for
any reason, the general partner of your partnership from its current position as
a general partner of your partnership would result in a decrease or elimination
of the substantial management fees paid to an affiliate of the general partner
of your partnership for managing your partnership property. Additionally, we
desire to purchase units at a low price and you desire to sell units at a high
price. The general partner of your partnership makes no recommendation as to
whether you should tender or refrain from tendering your units. Such conflicts
of interest in connection with the offer and the operation of AIMCO differ from
those conflicts of interest that currently exist for your partnership. See "Risk
Factors -- Risks to Offerees Who Tender Their Units in the Offer -- Conflicts of
Interest with Respect to the Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We have a majority ownership interest in both the general partner of your
partnership and the manager of your partnership's property. The general partner
of your partnership receives an annual fee of 1% of the gross collected income
from your partnership's property and may receive reimbursements for expenses
incurred in its capacity as general partner. The general partner of your
partnership received total fees and reimbursements of $30,000 in 1996, $33,000
in 1997 and $15,277 for the first nine months of 1998. The property manager
received management fees of $50,000 in 1996, $52,000 in 1997 and $39,588 for the
first nine months of 1998. The AIMCO Operating Partnership has no current
intention of changing the fee structure for the manager of your partnership's
property.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where your partnership property is located. It is
believed that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, the AIMCO Operating
Partnership will attempt to reduce such conflicts between competing properties
by referring prospective customers to the property considered to be most
conveniently located for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership."
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might be required to pay a higher price for any future
exchange offers it may make for units of your partnership. Although we have no
current plans to conduct future exchange offers for your units, our plans may
change based on future circumstances. Any such future offers that we might make
could be for consideration that is more or less than the consideration we are
currently offering.
S-78
<PAGE> 221
YOUR PARTNERSHIP
GENERAL
Woodmere Associates, L.P. is a Delaware limited partnership which raised
net proceeds of $1,887,000 for $37,000 per unit in 1985 through a private
offering. The promoter for the private offering of your partnership was
Jacques-Miller. Insignia acquired your partnership in November 1992. AIMCO
acquired Insignia in October, 1998. There are currently a total of 41 limited
partners of your partnership and a total of 51 units of your partnership
outstanding. Your partnership is in the business of owning and managing
residential housing. Currently, your partnership owns and manages the property
described below. Your partnership has no employees. As of September 30, 1998,
there were 51 units issued and outstanding, which were held of record by 41
limited partners. Your partnership's principal executive offices are located at
1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its
telephone number at that address is (303) 757-8101.
YOUR PARTNERSHIP AND ITS PROPERTY
Your partnership was formed on May 28, 1985 for the purpose of owning an
apartment property located in Cincinnati, Ohio, known as "Woodmere Apartments".
Your partnership's property consists of 150 apartment units. There are 24
one-bedroom apartments, 84 two-bedroom apartments and 42 three-bedroom
apartments. Your partnership's property had an average occupancy rate of
approximately 92.67% in 1996 and 92.67% in 1997.
Your partnership's property provides residents with a number of amenities
and services, such as 24-hour desk service, exercise room and/or sauna, and
party or meeting rooms. Nearly all apartment units are wired for cable
television, and many apartment units also offer one or more additional features,
such as washer/ dryer, microwave, fireplace, and patio/balcony.
CAPITAL REPLACEMENT
Your partnership maintains an ongoing program of capital improvements,
replacements and renovations, including roof replacements, kitchen and bath
renovations, balcony repairs (where applicable), replacement of various building
systems and other replacements and renovations in the ordinary course of
business. All capital improvement and renovation costs are expected to be paid
from operating cash flows, cash reserves, or from short-term or long-term
borrowings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Your Partnership."
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of September 30, 1998, your partnership had a current mortgage
note outstanding of $2,766,526, payable to Marine Midland, Bank of America and
FNMA, which bears interest at a rate of 7.60%. The mortgage debt is due on
November 2002. Your partnership also has a second mortgage note outstanding of
$103,182, on the same terms as the current mortgage note. Your partnership's
agreement of limited partnership also allows the general partner of your
partnership to lend funds to your partnership. As of September 30, 1998, your
general partner had no loans outstanding to your partnership.
COMPETITION
There are other residential properties within the market area of your
partnership's property. The number of competitive properties in such an area
could have a material effect on the rental market for the apartments at your
partnership's property and the rents that may be charged for such apartments.
S-79
<PAGE> 222
LEGAL PROCEEDINGS
Your partnership is party to a variety of legal proceedings related to its
ownership of the partnership's property and management and leasing business,
respectively, arising in the ordinary course of the business, which are not
expected to have a material adverse effect on your partnership.
HISTORY OF THE PARTNERSHIP
Your partnership raised sufficient funds to purchase certain property and
it has expended the funds so raised many years ago. Your partnership currently
owns the property described herein, which is subject to a substantial mortgage.
Your general partner (which is our affiliate) has not experienced any material
adverse financial developments from January 1, 1997 through the present.
Under your partnership's agreement of limited partnership, the term of the
partnership will continue until December 31, 2012, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
Consummation of the offer will not affect your partnership's agreement of
limited partnership, the financial condition or results of operations of your
partnership, the business and properties owned, the distributions and
compensation payable to your general partner (which is our affiliate) or its
affiliates or any other matter relating to your partnership, except it would
result in the AIMCO Operating Partnership obtaining a substantial interest in
units of your partnership. Further, we will be able to receive any future
distributions from your partnership for any units we purchase.
GENERAL POLICY REGARDING SALES AND REFINANCINGS OF PARTNERSHIP PROPERTIES
In general, your general partner (which is our affiliate) regularly
evaluates the partnership's properties by considering various factors, such as
the partnership's financial position and real estate and capital markets
conditions. The general partner monitors each property's specific locale and
sub-market conditions evaluating current trends, competition, new construction
and economic changes. The general partner oversees each asset's operating
performance and continuously evaluates the physical improvement requirements. In
addition, the financing structure for each property, tax implications and the
investment climate are all considered. Any of these factors, and possibly
others, could potentially contribute to any decision by the general partner to
sell, refinance, upgrade with capital improvements or hold a particular
partnership property. Based on the above considerations, the general partner has
determined that it is not in the best interests of limited partners to sell or
refinance any property at the present time.
A mortgage with regard to Woodmere Apartments, along with a balloon payment
of $2,416,546, is due and payable by November 2002. In the near future, your
general partner (which is our affiliate) will review the local market for the
sale of similar properties, the market for refinancing the mortgage and the tax
consequences to the limited partners of a sale or refinancing. The general
partner will then determine whether a sale or refinancing would be in the best
interests of the partnership and its limited partners. However, no assurances
can be given that the general partner could carry out any planned sale or
refinancing on terms acceptable to it as general partner of your partnership.
PROPERTY MANAGEMENT
Your partnership's property is managed by an entity which is a
majority-owned subsidiary of AIMCO. Pursuant to the management agreement between
the property manager and your partnership, the property manager operates your
partnership's property, establishes rental policies and rates and directs
marketing activities. The property manager also is responsible for maintenance,
the purchase of equipment and supplies, and the selection and engagement of all
vendors, suppliers and independent contractors.
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<PAGE> 223
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, your general partner (which is our affiliate) is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner of your partnership will
not incur any liability to your partnership or any limited partner for any
mistakes or errors in judgment or for any acts or omission believed by the
general partner in good faith to be within the scope of authority conferred upon
it by your partnership agreement. As a result, unitholders might have a more
limited right of action in certain circumstances than they would have in the
absence of such a provision in your partnership's agreement of limited
partnership. The general partner of your partnership is majority-owned by AIMCO.
See "Conflicts of Interest".
Your partnership will, to the extent permitted by law, indemnify and save
harmless the general partner against and from any personal loss, liability
(including attorneys' fees) or damage incurred by it as the result of any act or
omission in its capacity as general partner unless such loss, liability or
damage results from gross negligence or willful misconduct by the general
partner. As part of its assumption of liabilities in the consolidation, AIMCO
will indemnify the general partner of your partnership and their affiliates for
periods prior to and following the consolidation to the extent of the indemnity
under the terms of your partnership's agreement of limited partnership and
applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
Distributions
The following table set forth the distributions paid per unit in the
periods indicated below. The original cost per unit was $37,000.
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------
<S> <C>
1994........................................................ 1,000.00
1995........................................................ 772.67
1996........................................................ 980.39
1997........................................................ 0.00
1998 (through September 30)................................. 0.00
---------
Total............................................. $2,753.06
=========
</TABLE>
Transfers
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, and there is no established public trading market for the
units. Secondary sales activity for the units has been limited and sporadic. The
general partner of your partnership monitors transfers of the units (a) because
the admission of the transferee as a substitute limited partner in your
partnership require the consent of the general partner of your partnership under
your partnership's agreement of limited partnership, and (b) in order to track
compliance with safe harbor provisions to avoid treatment as a "publicly traded
partnership" for tax purposes. However, the general partner of your partnership
does not monitor or regularly receive or maintain information regarding the
prices at which secondary sale transactions in the units have been effectuated.
The general partner of your partnership estimates, based solely on the transfer
records of your partnership (or your partnership's transfer agent), that there
have been no sale transactions (i.e., excluding transactions believed to be
between related parties, family members or the same beneficial owner).
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Through subsidiaries, AIMCO currently owns, in the aggregate, approximately
a .992% interest in your partnership, including 0 units held by us and the
interest held by us, as general partner of your partnership. In addition to the
tender offers described under "Background and Reasons for the Offer -- Previous
Tender Offers," Except as set forth above, neither the AIMCO Operating
Partnership, nor, to the best of its
S-81
<PAGE> 224
knowledge, any of its affiliates, (i) beneficially own or have a right to
acquire any units, (ii) have effected any transactions in the units in the past
two years, or (iii) have any contract, arrangement, understanding or
relationship with any other person with respect to any securities of your
partnership, including, but not limited to, contracts, arrangements,
understandings or relationships concerning transfer or voting thereof, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
Your general partner (which is our affiliate) received total compensation
(which includes all monies paid to the general partner by your partnership
including reimbursement for expenses) in respect of its capacity as general
partner of your partnership as described in the following table:
<TABLE>
<CAPTION>
YEAR COMPENSATION
- ---- ------------
<S> <C>
1994........................................................ $23,249
1995........................................................ 20,524
1996........................................................ 30,000
1997........................................................ 33,000
1998 (through September 30)................................. 15,277
</TABLE>
In addition, a majority-owned subsidiary of AIMCO manages the property of
your partnership. Your partnership has historically paid the property management
fees as described in the following table:
<TABLE>
<CAPTION>
YEAR FEES
- ---- ----
<S> <C>
1994........................................................ $49,536
1995........................................................ 49,536
1996........................................................ 50,000
1997........................................................ 52,000
1998 (through September 30)................................. 39,588
</TABLE>
If the offer had been made in such prior periods, there would not have been
any material difference in the compensation that would have been paid to your
general partner (which is our affiliate), or the compensation paid to the
property manager or AIMCO and its affiliates.
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<PAGE> 225
SELECTED FINANCIAL INFORMATION
Set forth on page F-1 of this Prospectus Supplement is the Index to the
Financial Statements of Your Partnership. You are urged to read the Financial
Statements carefully before making any decision whether to tender your units in
the offer.
Below is selected financial information for Woodmere Associates, L.P. taken
from the financial statements described above. The amounts for 1994 and 1993
have been derived from audited financial statements which are not included in
this Prospectus Supplement. See "Index to Financial Statements."
<TABLE>
<CAPTION>
WOODMERE ASSOCIATES, L.P.
-----------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
BALANCE SHEET DATA ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents.... $ 165,422 $ 162,917 $ 161,000 $ 175,000 $ 254,986 $ 291,578 $ 251,497
Land & Building.............. 4,722,940 4,581,779 4,618,000 4,513,000 4,409,584 4,319,112 4,253,420
Accumulated Depreciation..... (3,216,524) (3,098,499) (3,128,000) (3,010,000) (2,905,730) (2,698,003) (2,441,012)
Other Assets................. 270,416 289,640 303,000 278,000 311,645 343,327 385,991
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets........ $ 1,942,254 $ 1,935,837 $ 1,954,000 $ 1,956,000 $ 2,070,485 $ 2,256,014 $ 2,449,896
=========== =========== =========== =========== =========== =========== ===========
Mortgage & Accrued
Interest................... $ 2,869,708 $ 2,938,633 $ 2,923,000 $ 2,988,000 $ 3,046,674 $ 3,100,988 $ 3,162,313
Other Liabilities............ 152,822 113,849 136,000 146,000 150,473 161,187 155,850
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities... $ 3,022,530 3,052,482 3,059,000 3,134,000 3,197,147 3,262,175 3,318,163
----------- ----------- ----------- ----------- ----------- ----------- -----------
Partners deficit............. $(1,080,276) $(1,116,645) $(1,105,000) $(1,178,000) $(1,126,662) $(1,006,161) $ (868,267)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
WOODMERE ASSOCIATES, L.P.
------------------------------------------------------------------------------------
FOR THE NINE MONTHS
ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
STATEMENT OF OPERATIONS DATA -------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue......................... $716,239 $734,822 $ 992,000 $ 932,000 $ 931,883 $ 920,571 $ 890,560
Other Income........................... 60,803 44,899 65,000 81,000 63,143 54,946 45,608
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Revenue................. 777,042 779,721 1,057,000 1,013,000 995,026 975,517 936,168
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Expenses..................... 374,016 349,454 482,000 554,000 516,864 420,531 428,439
General & Administrative............... 30,412 22,291 36,000 10,000 9,865 33,291 52,344
Depreciation........................... 88,500 88,500 118,000 104,000 207,727 256,991 252,492
Interest Expense....................... 199,255 203,506 272,000 277,000 281,316 285,645 258,663
Property Taxes......................... 59,681 54,726 76,000 69,000 59,949 65,688 54,091
-------- -------- ---------- ---------- ---------- ---------- ----------
Total Expenses................ 751,864 718,477 984,000 1,014,000 1,075,721 1,062,146 1,046,029
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)...................... $ 25,178 $ 61,244 $ 73,000 $ (1,000) $ (80,695) $ (86,629) $ (109,861)
======== ======== ========== ========== ========== ========== ==========
</TABLE>
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<PAGE> 226
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The following discussion and analysis of the results of operations and
financial condition of your partnership should be read in conjunction with the
audited financial statements of your partnership included herein.
Results of Operations
Comparison of the Nine Months Ended September 30, 1998 to the Nine Months
Ended September 30, 1997
Net Income
Your partnership recognized net income of $25,178 for the nine months ended
September 30, 1998, compared to $61,244 for the nine months ended September 30,
1997. The decrease in net income was $36,066, or 58.89% . This decrease was due
to a decrease in rental revenue and increases in operating, general and
administrative expenses. These factors are discussed in more detail in the
following paragraphs.
Revenues
Rental and other property revenues from the partnership's property totaled
$777,042 for the nine months ended September 30, 1998, compared to $779,721 for
the nine months ended September 30, 1997, a decrease of $2,679, or 0.34%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$374,016 for the nine months ended September 30, 1998, compared to $349,454 for
the nine months ended September 30, 1997, an increase of $24,562 or 7.03%.
Management expenses totaled $39,588 for the nine months ended September 30,
1998, compared to $38,917 for the nine months ended September 30, 1997, an
increase of $671, or 1.72%.
General and Administrative Expenses
General and administrative expenses totaled $30,412 for the nine months
ended September 30, 1998 compared to $22,291 for the nine months ended September
30, 1997, an increase of $8,121 or 36.43%. The increase is primarily due to an
increase in training, travel and office supplies.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $199,255 for the nine months ended September 30, 1998, compared
to $203,506 for the nine months ended September 30, 1997, a decrease of $4,251,
or 2.08%.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996
Net Income
Your partnership recognized net income of $73,000 for the year ended
December 31, 1997, compared to a net loss of $1,000 for the year ended December
31, 1996. The increase in net income of $74,000, or 7,400% was primarily the
result of an increase in rental revenue in conjunction with a decrease in
operating expenses. These factors are discussed in more detail in the following
paragraphs.
S-84
<PAGE> 227
Revenues
Rental and other property revenues from the partnership's property totaled
$1,057,000 for the year ended December 31, 1997, compared to $1,013,000 for the
year ended December 31, 1996, an increase of $44,000, or 4.34%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$482,000 for the year ended December 31, 1997, compared to $554,000 for the year
ended December 31, 1996, a decrease of $72,000 or 13%. This is due to the
property incurred non-capitalized parking lot repair and exterior painting
expenses in 1996. Management expenses totaled $52,000 for the year ended
December 31, 1997, compared to $50,000 for the year ended December 31, 1996, an
increase of $2,000, or 4.00%.
General and administrative expenses totaled $36,000 for the year ended
December 31, 1997 compared to $10,000 for the year ended December 31, 1996, an
increase of $26,000 or 260%. The increase is primarily due to expenses included
in operating expense for 1996 were reclassed to general administrative expenses
for 1997. These reclassed expenses relate to audit fees and general partner
reimbursements.
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $272,000 for the year ended December 31, 1997, compared to
$277,000 for the year ended December 31, 1996, a decrease of $5,000, or 1.81%.
Comparison of the Year Ended December 31, 1996 to the Year Ended December
31, 1995
Net Income
Your partnership recognized a net loss of $1,000 for the year ended
December 31, 1996, compared to a net loss of $80,695 for the year ended December
31, 1995. The decrease in the net loss of $79,695, or 98.76% was primarily the
result of a decrease in maintenance expense.
Revenues
Rental and other property revenues from the partnership's property totaled
$1,013,000 for the year ended December 31, 1996, compared to $995,026 for the
year ended December 31, 1995, an increase of $17,974, or 1.81%.
Expenses
Operating expenses, consisting of, utilities (net of reimbursements
received from tenants), contract services, turnover costs, repairs and
maintenance, advertising and marketing, property taxes and insurance, totaled
$554,000 for the year ended December 31, 1996, compared to $516,864 for the year
ended December 31, 1995, an increase of $37,136 or 7.18%. The majority of the
increase is due an increase in advertising expenses of approximately $20,000
related to concessions and periodicals expense. These expenses did not exist
during 1995. Management expenses totaled $50,000 for the year ended December 31,
1996, compared to $49,536 for the year ended December 31, 1995, a increase of
$464, or 0.94%.
General and Administrative Expenses
General and administrative expenses totaled $10,000 for the year ended
December 31, 1996 compared to $9,865 for the year ended December 31, 1995, an
increase of $135 or 1.37%.
S-85
<PAGE> 228
Interest Expense
Interest expense, which includes the amortization of deferred financing
costs, totaled $277,000 for the year ended December 31, 1996, compared to
$281,316 for the year ended December 31, 1995, a decrease of $4,316, or 1.53%.
Liquidity and Capital Resources
As of September 30, 1998, your partnership had $165,422 in cash and cash
equivalents. Your partnership's principal demands for liquidity include normal
operating activities, payments of principal and interest on outstanding debt,
capital improvements, and distributions paid to limited partners. Your
partnership has adequate sources of cash to finance its operations, both on a
short-term and long-term basis.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $307,000 will be
required to purchase all of the units sought in the offer, if such units are
tendered for cash. The AIMCO Operating Partnership will obtain all such funds
from cash from operations, equity issuances and short term borrowings. The AIMCO
Operating Partnership will pay all of the costs of the offer and not your
partnership.
Below is an itemized statement of the estimated expenses incurred and to be
incurred in the offer by the AIMCO Operating Partnership:
<TABLE>
<S> <C>
Information Agent Fees...................................... $
Accountant's Fees........................................... $
Legal Fees.................................................. $
Printing Fees............................................... $
Stanger's Fees.............................................. $
Other....................................................... $
</TABLE>
If funds are borrowed to consummate the offer, we intend to use our amended
and restated credit agreement with Bank of America National Trust and Savings
Association ("Bank of America") and BankBoston, N.A. The credit agreement
provides a revolving credit facility of up to $100 million, including a swing
line of up to $30 million. The AIMCO Operating Partnership is the borrower under
the credit facility, and all obligations thereunder are guaranteed by AIMCO and
certain of its subsidiaries. The annual interest rate under the credit facility
is based on either LIBOR or a base rate which is the higher of Bank of America's
reference rate or 0.5% over the federal funds rate, plus, in either case, an
applicable margin. The AIMCO Operating Partnership elects which interest rate
will be applicable to particular borrowings under the credit facility. The
margin ranges between 1.25% and 2.0% in the case of LIBOR-based loans and
between negative 0.25% and positive 0.5% in the case of base rate loans,
depending upon a ratio of the AIMCO Operating Partnership's consolidated
unsecured indebtedness to the value of certain unencumbered assets. The credit
facility matures on September 30, 1999 unless extended, at the discretion of the
lenders. The credit facility provides for the conversion of the revolving
facility into a three year term loan. The availability of funds to the AIMCO
Operating Partnership under the credit facility is subject to certain borrowing
base restrictions and other customary restrictions, including compliance with
financial and other covenants thereunder. The financial covenants require the
AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of
no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed
charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to
1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In
addition, the credit facility limits the AIMCO Operating Partnership from
distributing more than 80% of its Funds From Operations (as defined) to holders
of OP Units, imposes minimum net worth requirements and provides other financial
covenants related to certain unencumbered assets.
Following the IPT merger, we may obtain funds pursuant to a credit
agreement entered into by Insignia Properties, L.P. ("IPLP"), the operating
partnership for IPT, with Lehman Commercial Paper, Inc., as syndication agent,
First Union National Bank, as administrative agent and the lenders from time to
time
S-86
<PAGE> 229
parties thereto. Pursuant to the credit agreement, which is guaranteed by IPT,
the lenders have made available to IPLP a revolving credit facility of up to
$50,000,000 at any one time outstanding which matures in a single installment on
December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the
adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as
defined in the credit agreement). IPT is obligated to pay a commitment fee at a
rate of 0.25% per annum on the undrawn portion of the line of credit. The credit
agreement includes customary covenants and restrictions on IPLP's ability to,
among other things, incur debt or contingent obligations, grant liens, sell
assets, make distributions or make investments. In addition, the credit
agreement contains certain financial covenants. The AIMCO Operating Partnership
intends to repay any funds borrowed out of working capital in the ordinary
course of business.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion to the
effect that the Common OP Units and the Preferred OP Units offered by this
Prospectus Supplement will be validly issued, fully paid and nonassessable.
Skadden, Arps, Slate, Meagher & Flom LLP will deliver an opinion as to the
status of AIMCO as a REIT. Skadden, Arps, Slate, Meagher & Flom LLP has
previously performed certain legal services on behalf of AIMCO and the AIMCO
Operating Partnership and their affiliates.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is not attached to
this Prospectus Supplement. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinion
will be sent by the Information Agent.
EXPERTS
The consolidated financial statements of Woodmere Associates, L.P. at
December 31, 1997, 1996 and 1995 and for the years then ended, appearing in this
Prospectus Supplement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
S-87
<PAGE> 230
WOODMERE ASSOCIATES, L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Balance Sheet -- As of September 30, 1998
(unaudited)............................................... F-2
Condensed Statements of Operations -- For the nine months
ended September 30, 1998 and 1997 (unaudited)............. F-3
Condensed Statements of Cash Flows -- For the nine months
ended September 30, 1998 and 1997 (unaudited)............. F-4
Independent Auditors' Report................................ F-5
Notes to Condensed Financial Statements..................... F-4
Balance Sheet -- As of December 31, 1997.................... F-6
Statements of Operations -- For the year ended December 31,
1997...................................................... F-7
Statement of Partners' Deficit -- For the year ended
December 31, 1997......................................... F-8
Statement of Cash Flows -- For the year ended December 31,
1997...................................................... F-9
Notes to Financial Statements............................... F-10
Independent Auditors' Report................................ F-14
Balance Sheet -- As of December 31, 1996.................... F-15
Statements of Operations -- For the year ended December 31,
1996...................................................... F-16
Statement of Partners' Deficit -- For the year ended
December 31, 1996......................................... F-17
Statement of Cash Flows -- For the year ended December 31,
1996...................................................... F-18
Notes to Financial Statements............................... F-19
Independent Auditors' Report................................ F-23
Balance Sheet -- As of December 31, 1995.................... F-24
Statements of Operations -- For the year ended December 31,
1995...................................................... F-25
Statement of Partners' Deficit -- For the year ended
December 31, 1995......................................... F-26
Statement of Cash Flows -- For the year ended December 31,
1995...................................................... F-27
Notes to Financial Statements............................... F-28
</TABLE>
F-1
<PAGE> 231
WOODMERE ASSOCIATES, LP
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 165,422
Receivables and Deposits.................................... 49,365
Restricted Escrows.......................................... 165,215
Other Assets................................................ 55,836
Investment Property:
Land...................................................... $ 255,000
Building and related personal property.................... 4,467,940
-----------
4,722,940
Less: Accumulated depreciation............................ (3,216,524) 1,506,416
----------- -----------
Total Assets...................................... $ 1,942,254
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable............................................ $ 64,623
Property Taxes Payable...................................... 59,681
Tenant Security Deposits.................................... 28,518
Notes Payable............................................... 2,869,708
Partners' Capital........................................... (1,080,276)
-----------
Total Liabilities and Partners' Capital........... $ 1,942,254
===========
</TABLE>
See accompanying note.
F-2
<PAGE> 232
WOODMERE ASSOCIATES, LP
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Rental Income............................................. $716,239 $734,822
Other Income.............................................. 60,803 44,899
-------- --------
Total Revenues:................................... 777,042 779,721
Expenses:
Operating Expenses........................................ 374,016 349,454
General and Administrative Expenses....................... 30,412 22,291
Depreciation Expense...................................... 88,500 88,500
Interest Expense.......................................... 199,255 203,506
Property Tax Expense...................................... 59,681 54,726
-------- --------
Total Expenses:................................... 751,864 718,477
-------- --------
Net Income........................................ $ 25,178 $ 61,244
======== ========
</TABLE>
See accompanying note.
F-3
<PAGE> 233
WOODMERE ASSOCIATES, LP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------
1998 1997
--------- --------
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 25,178 $ 61,244
Adjustments to reconcile net income to net cash provided
by operating Activities:
Depreciation and Amortization............................. 115,472 114,574
Changes in accounts:...................................... -- --
Receivables and deposits and other assets................. 27,925 (17,918)
Accounts Payable and accrued expenses..................... 16,822 (32,152)
--------- --------
Net cash provided by operating activities......... 185,397 125,748
--------- --------
Investing Activities
Property improvements and replacements.................... (104,916) (68,779)
Net (increase)/decrease in restricted escrows............. (5,215) (3,031)
--------- --------
Net cash used in investing activities..................... (110,131) (71,810)
--------- --------
Financing Activities
Distributions to partners................................. -- --
Payments on mortgage...................................... (70,844) (66,021)
--------- --------
Net cash used in financing activities..................... (70,844) (66,021)
--------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 4,422 (12,083)
Cash and cash equivalents at beginning of year............ 161,000 175,000
--------- --------
Cash and cash equivalents at end of period........ $ 165,422 $162,917
========= ========
</TABLE>
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of Woodmere Associates,
L.P. as of September 30, 1998 and for the nine months ended September 30, 1998
and 1997 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
all such adjustments are of a recurring nature.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year-end. The results of
operations for the interim periods presented are not necessarily indicative of
the results for the entire year.
F-4
<PAGE> 234
REPORT OF INDEPENDENT AUDITORS
Members of the Partnership
Woodmere Associates, L.P.
We have audited the accompanying balance sheet of Woodmere Associates,
L.P., as of December 31, 1997, and the related statements of operations,
partners' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Woodmere Associates, L.P. at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 9, 1998
Greenville, South Carolina
F-5
<PAGE> 235
WOODMERE ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 161
Receivables and deposits.................................... 76
Restricted escrows.......................................... 160
Other assets................................................ 67
Investment property (Note B):
Land...................................................... $ 255
Buildings and related personal property................... 4,363
-------
4,618
Less accumulated depreciation............................. (3,128) 1,490
------- -------
$ 1,954
=======
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accrued taxes............................................. $ 76
Tenant security deposits.................................. 30
Other liabilities......................................... 30
Mortgage notes payable (Note B)........................... 2,923
Partners' deficit........................................... (1,105)
-------
$ 1,954
=======
</TABLE>
See accompanying notes.
F-6
<PAGE> 236
WOODMERE ASSOCIATES, L.P.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $ 992
Other income.............................................. 65
------
1,057
Expenses:
Operating................................................. $482
General and administrative................................ 36
Depreciation.............................................. 118
Interest.................................................. 272
Property taxes............................................ 76 984
---- ------
Net income.................................................. $ 73
======
</TABLE>
See accompanying notes.
F-7
<PAGE> 237
WOODMERE ASSOCIATES, L.P.
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
-------- -------- -------
<S> <C> <C> <C>
Partners' deficit at December 31, 1996...................... $(1,150) $(28) $(1,178)
Net income................................................ 72 1 73
------- ---- -------
Partners' deficit at December 31, 1997...................... $(1,078) $(27) $(1,105)
======= ==== =======
</TABLE>
See accompanying notes.
F-8
<PAGE> 238
WOODMERE ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities
Net income................................................ $ 73
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 118
Amortization of discounts and loan costs............... 36
Changes in assets and liabilities:
Receivables and deposits............................. 4
Other assets......................................... (7)
Accounts payable..................................... (25)
Accrued taxes........................................ 7
Other liabilities.................................... 8
-----
Net cash provided by operating activities......... 214
-----
Cash flows from investing activities
Property improvements and replacements.................... (105)
Net deposits to restricted escrows........................ (5)
-----
Net cash used in investing activities............. (110)
-----
Cash flows from financing activities
Payments on mortgage notes payable........................ (88)
-----
Net increase in cash and cash equivalents......... 16
Cash and cash equivalents at December 31, 1996.............. 145
-----
Cash and cash equivalents at December 31, 1997.............. $ 161
=====
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 236
=====
</TABLE>
See accompanying notes.
F-9
<PAGE> 239
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Woodmere Associates, L.P., is a Delaware limited partnership which began
operations in 1985 with the purchase of an apartment complex in Cincinnati,
Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates.
Investment Property
The investment property is recorded at the Partnership's acquisition cost.
Buildings and related personal property are depreciated using the straight-line
method over the estimated useful lives of the assets, ranging from 5 to 25
years.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Income Taxes
No provision has been made for Federal and state income taxes since such
taxes are the personal responsibility of the partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Partnership Allocations
Net earnings or loss and taxable income or loss are allocated 99% to the
limited partners and 1% to the general partners. Distributions of available cash
or proceeds from financing or sale of the property are allocated among the
limited partners and the general partners in accordance with the limited
partnership agreement.
Cash and Cash Equivalents
It is the Partnership's policy to classify all liquid short-term
investments with a maturity of three months or less as cash equivalents. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Tenant Security Deposits
The Partnership requires security deposits from all apartment lessees for
the duration of the lease and includes the deposits in "Receivables and
deposits". Deposits are refunded when the tenant vacates the apartment if there
has been no damage to the unit and the tenant is current on its rental payments.
Restricted Escrows -- Reserve Account
At the time of the refinancing of the mortgage notes payable in 1992, the
Reserve Escrow was established with the refinancing proceeds. These funds were
established to cover necessary repairs and replacements of existing
improvements, debt service, out-of-pocket expenses incurred for ordinary and
necessary administra-
F-10
<PAGE> 240
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
tive tasks, and payment of real property taxes and insurance premiums. The
Partnership is required to deposit net operating income (as defined in the
mortgage note) from the refinanced property to the reserve account until the
reserve account equals $1,000 per apartment unit or $150,000 in total. At
December 31, 1997, the reserve account balance was approximately $160,000.
Loan Costs
In connection with the refinancing of certain mortgage notes payable in
1992, loan costs of approximately $123,000 were incurred which are being
amortized on a straight-line basis over the life of the loans. Accumulated
amortization as of December 31, 1997, is approximately $63,000.
NOTE B -- MORTGAGE NOTES PAYABLE
The principal terms of mortgage notes payable are as follows (dollar
amounts in thousands):
<TABLE>
<CAPTION>
MONTHLY PRINCIPAL PRINCIPAL
PAYMENT STATED BALANCE BALANCE AT
INCLUDING INTEREST MATURITY DUE AT DECEMBER 31,
PROPERTY INTEREST RATE DATE MATURITY 1997
-------- --------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Woodmere Apartments:
1st mortgage............................. $26 7.6% 11/15/02 $2,417 $2,951
2nd mortgage............................. 1 7.6% 11/15/02 103 103
--- ------
$27 3,054
Less unamortized discounts at 8.76%........ (131)
------
$2,923
======
</TABLE>
Mortgages are collateralized by the related property and improvements of
the Partnership.
The Partnership exercised interest rate buy-down options when the debt was
refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the
interest rate reduction amounted to approximately $239,000 and is being
amortized as a loan discount on the interest method over the life of the loans.
The discount fee is reflected as a reduction of the mortgage notes payable and
increases the effective rate of the debt to 8.76%.
Scheduled principal payments of mortgage notes payable subsequent to
December 31, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 95
1999........................................................ 103
2000........................................................ 111
2001........................................................ 119
2002........................................................ 2,626
------
$3,054
======
</TABLE>
NOTE C -- RELATED PARTY TRANSACTIONS AND BALANCES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the
controlling ownership interest in the Partnership's Managing General Partner,
with certain affiliates of Insignia providing property management and asset
management services to the Partnership.
The following payments were made to Insignia and its affiliates in 1997 (in
thousands):
<TABLE>
<S> <C>
Property management fees.................................... $52
Reimbursements for services of affiliates................... 33
</TABLE>
F-11
<PAGE> 241
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
(In thousands)
<TABLE>
<CAPTION>
BUILDINGS COST
AND RELATED CAPITALIZED
PERSONAL SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND PROPERTY ACQUISITION
----------- ------------ ---- ----------- -------------
<S> <C> <C> <C> <C>
Woodmere......................................... $3,054 $255 $3,886 $477
====== ==== ====== ====
</TABLE>
GROSS AMOUNT AT WHICH CARRIED
(In thousands)
<TABLE>
<CAPTION>
BUILDINGS
AND RELATED DEPRECIABLE
PERSONAL ACCUMULATED DATE LIFE --
DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED YEARS
----------- ------ ----------- ------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Woodmere........................ $ 255 $4,363 $4,618 $3,128 9/85 5-25
====== ====== ====== ====== ===== =====
</TABLE>
Reconciliation of "Investment Property and Accumulated Depreciation" (in
thousands):
<TABLE>
<S> <C>
INVESTMENT PROPERTY
Balance at beginning of year................................ $4,513
Property improvements....................................... 105
------
Balance at end of year...................................... $4,618
======
</TABLE>
<TABLE>
<S> <C>
ACCUMULATED DEPRECIATION
Balance at beginning of year................................ $3,010
Property improvements....................................... 118
------
Balance at end of year...................................... $3,128
======
</TABLE>
The aggregate cost of the investment property for Federal income tax
purposes at December 31, 1997 is $4,618,000. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1997 is $3,031,000.
NOTE E -- INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnership.
F-12
<PAGE> 242
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of reported net income and Federal
taxable loss (in thousands, except unit data):
<TABLE>
<S> <C>
Net income as reported...................................... $ 73
Add (deduct):
Depreciation differences.................................. (85)
Unearned income........................................... 9
Accruals and prepaids..................................... (4)
--------
Federal taxable (loss) income............................... $ (7)
========
Federal taxable (loss) income per limited partnership
unit...................................................... $(135.88)
========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets and liabilities (in thousands):
<TABLE>
<S> <C>
Net liabilities as reported................................. $(1,105)
Accumulated depreciation.................................... 98
Other....................................................... 11
-------
Net deficiency -- tax basis....................... $ (996)
=======
</TABLE>
NOTE F -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-13
<PAGE> 243
REPORT OF INDEPENDENT AUDITORS
Members of the Partnership
Woodmere Associates, L.P.
We have audited the accompanying balance sheet of Woodmere Associates,
L.P., as of December 31, 1996, and the related statements of operations,
partners' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Woodmere Associates, L.P. as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
February 25, 1997
Greenville, South Carolina
F-14
<PAGE> 244
WOODMERE ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 145
Restricted -- tenant security deposits.................... 30
Accounts receivable......................................... 7
Escrow for taxes............................................ 43
Restricted escrows.......................................... 155
Loan costs, net............................................. 73
Investment property (Note B):
Land...................................................... $ 255
Buildings and related personal property................... 4,258
-------
4,513
Less accumulated depreciation............................. (3,010) 1,503
------- -------
$ 1,956
=======
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 25
Accrued taxes............................................. 69
Tenant security deposits.................................. 30
Other liabilities......................................... 22
Mortgage notes payable (Note B)........................... 2,988
Partners' deficit........................................... (1,178)
-------
$ 1,956
=======
</TABLE>
See accompanying notes.
F-15
<PAGE> 245
WOODMERE ASSOCIATES, L.P.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $ 932
Other income.............................................. 81
------
1,013
Expenses:
Operating................................................. $381
General and administrative................................ 10
Maintenance............................................... 173
Depreciation.............................................. 104
Interest.................................................. 277
Property taxes............................................ 69 1,014
---- ------
Net loss.................................................... $ (1)
======
</TABLE>
See accompanying notes.
F-16
<PAGE> 246
WOODMERE ASSOCIATES, L.P.
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
-------- -------- -------
<S> <C> <C> <C>
Partners' deficit at December 31, 1995...................... $(1,099) $(27) $(1,126)
Net loss.................................................. (1) -- (1)
Distributions............................................. (50) (1) (51)
------- ---- -------
Partners' deficit at December 31, 1996...................... $(1,150) $(28) $(1,178)
======= ==== =======
</TABLE>
See accompanying notes.
F-17
<PAGE> 247
WOODMERE ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities
Net (loss)................................................ $ (1)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation........................................... 104
Amortization of discounts and loan costs............... 35
Changes in assets and liabilities:
Restricted cash -- tenant security deposits.......... (1)
Accounts receivable.................................. (5)
Escrow for taxes..................................... 13
Accounts payable..................................... 20
Tenant security deposit liabilities.................. 2
Accrued taxes........................................ 8
Other liabilities.................................... (34)
-----
Net cash provided by operating activities......... 141
-----
Cash flows from investing activities
Property improvements and replacements.................... (103)
Deposits to restricted escrows............................ (4)
Receipts from restricted escrows.......................... 18
-----
Net cash used in investing activities............. (89)
-----
Cash flows from financing activities
Payments on mortgage notes payable........................ (82)
Partners' distributions................................... (51)
-----
Net cash used in financing activities............. (133)
-----
Decrease in cash............................................ (81)
Unrestricted cash at December 31, 1995...................... 226
-----
Unrestricted cash at December 31, 1996...................... $ 145
=====
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 242
=====
</TABLE>
See accompanying notes.
F-18
<PAGE> 248
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Woodmere Associates, L.P., is a Delaware limited partnership which began
operations in 1985 with the purchase of an apartment complex in Cincinnati,
Ohio. The Partnership's Managing General Partner is Jacques-Miller Associates.
Investment Property
The investment property is recorded at the Partnership's acquisition cost.
In 1995 the Partnership adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount. The effect of
adoption was not material. Buildings and related personal property are
depreciated using the straight-line method over the estimated useful lives of
the assets, ranging from 5 to 25 years.
Leases
The Partnership generally leases apartment units for twelve-month terms or
less.
Income Taxes
No provision has been made for Federal and state income taxes since such
taxes are the personal responsibility of the partners.
Fair Value
In 1995, the Partnership implemented Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosure of fair value information about financial instruments for
which it is practical to estimate that value. The carrying amount of the
Partnership's cash and cash equivalents approximates fair value due to
short-term maturities. The Partnership estimates the fair value of its fixed
rate mortgages by discounted cash flow analysis, based on estimated borrowing
rates currently available to the Partnership (Note B).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Partnership Allocations
Net earnings or loss and taxable income or loss are allocated 99% to the
limited partners and 1% to the general partners. Distributions of available cash
or proceeds from financing or sale of the property are allocated among the
limited partners and the general partners in accordance with the limited
partnership agreement.
F-19
<PAGE> 249
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents -- Unrestricted Cash
It is the Partnership's policy to classify all liquid short-term
investments with a maturity of three months or less as cash equivalents. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Restricted Cash -- Tenant Security Deposits
The Partnership requires security deposits from all apartment lessees for
the duration of the lease and consider the deposits to be restricted cash.
Deposits are refunded when the tenant vacates the apartment if there has been no
damage to the unit.
Restricted Escrows -- Reserve Account
At the time of the refinancing of the mortgage notes payable in 1992, the
Reserve Escrow was established with the refinancing proceeds. These funds were
established to cover necessary repairs and replacements of existing
improvements, debt service, out-of-pocket expenses incurred for ordinary and
necessary administrative tasks, and payment of real property taxes and insurance
premiums. The Partnership is required to deposit net operating income (as
defined in the mortgage note) from the refinanced property to the reserve
account until the reserve account equals $1,000 per apartment unit or $150,000
in total. At December 31, 1996, the reserve account balance was $153,000.
Loan Costs
In connection with the refinancing of certain mortgage notes payable in
1992, loan costs of $123,000 were incurred which are being amortized on a
straight-line basis over the life of the loans. Accumulated amortization as of
December 31, 1996 is $50,000.
NOTE B -- MORTGAGE NOTES PAYABLE
The principal terms of mortgage notes payable are as follows (dollar
amounts in thousands):
<TABLE>
<CAPTION>
MONTHLY PRINCIPAL PRINCIPAL
PAYMENT STATED BALANCE BALANCE AT
INCLUDING INTEREST MATURITY DUE AT DECEMBER 31,
PROPERTY INTEREST RATE DATE MATURITY 1996
-------- --------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Woodmere Apartments:
1st mortgage............................. $26 7.6% 11/15/02 $2,417 $3,039
2nd mortgage............................. 1 7.6% 11/15/02 103 103
--- ------
$27 3,142
Less unamortized discounts at 8.76%........ (154)
------
$2,988
======
</TABLE>
Mortgages are collateralized by the related property and improvements of
the Partnership.
The Partnership exercised interest rate buy-down options when the debt was
refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the
interest rate reduction amounted to $239,000 and is being amortized as a loan
discount on the interest method over the life of the loans. The discount fee is
reflected as a reduction of the mortgage notes payable and increases the
effective rate of the debt to 8.76%.
The carrying value of the mortgage notes payable approximates its estimated
fair value at December 31, 1996.
F-20
<PAGE> 250
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal payments of mortgage notes payable subsequent to
December 31 are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 88
1998........................................................ 95
1999........................................................ 103
2000........................................................ 111
2001........................................................ 119
Thereafter.................................................. 2,626
------
$3,142
======
</TABLE>
NOTE C -- RELATED PARTY TRANSACTIONS AND BALANCES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the
controlling ownership interest in the Partnership's Managing General Partner,
with certain affiliates of Insignia providing property management and asset
management services to the Partnership.
The following payments were made to Insignia and its affiliates in 1996 (in
thousands):
<TABLE>
<S> <C>
Property management fees.................................... $50
Reimbursements for services of affiliates................... 30
</TABLE>
NOTE D -- INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
<TABLE>
<CAPTION>
BUILDINGS AND COST CAPITALIZED
RELATED SUBSEQUENT
DESCRIPTION ENCUMBRANCES LAND PERSONAL PROPERTY TO ACQUISITION
- ----------- ------------ ---- ----------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Woodmere................................... $3,142 $255 $3,886 $372
====== ==== ====== ====
</TABLE>
GROSS AMOUNT AT WHICH CARRIED
<TABLE>
<CAPTION>
BUILDINGS AND
RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE
DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS
- ----------- ---- ---------------- ------ ------------ -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Woodmere...................... $255 $4,258 $4,513 $3,010 9-85 5-25
==== ====== ====== ======
</TABLE>
F-21
<PAGE> 251
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of "Investment Property and Accumulated Depreciation" (in
thousands):
<TABLE>
<S> <C>
INVESTMENT PROPERTY
Balance at beginning of year................................ $4,410
Property improvements....................................... 103
------
Balance at end of year...................................... $4,513
======
ACCUMULATED DEPRECIATION
Balance at beginning of year................................ $2,906
Additions charged to expense................................ 104
------
Balance at end of year...................................... $3,010
======
</TABLE>
The aggregate cost of the investment property for Federal income tax
purposes at December 31, 1996 is $4,513,000. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1996 is $2,827,000.
NOTE E -- INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnership.
The following is a reconciliation of reported net loss and Federal taxable
loss (in thousands, except unit data):
<TABLE>
<S> <C>
Net loss as reported........................................ $ (1)
Add (deduct):
Depreciation differences.................................. (84)
Unearned income........................................... (34)
Accruals and prepaids..................................... (1)
----------
Federal taxable (loss) income............................... $ (120)
==========
Federal taxable (loss) income per limited partnership
unit...................................................... $(2,329.41)
==========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and federal tax basis of net assets and liabilities (in thousands):
<TABLE>
<S> <C>
Net liabilities as reported................................. $(1,178)
Accumulated depreciation.................................... 183
Other....................................................... 6
-------
Net deficiency -- tax basis....................... $ (989)
=======
</TABLE>
NOTE F -- EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-22
<PAGE> 252
REPORT OF INDEPENDENT AUDITORS
Members of the Partnership
Woodmere Associates, L.P.
We have audited the accompanying balance sheet of Woodmere Associates,
L.P., as of December 31, 1995, and the related statements of operations,
partners' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Woodmere Associates, L.P. as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
March 6, 1996
Greenville, South Carolina
F-23
<PAGE> 253
WOODMERE ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
Cash and cash equivalents:
Unrestricted.............................................. $ 226,424
Restricted -- tenant security deposits.................... 28,562
Accounts receivable......................................... 1,682
Escrow for taxes............................................ 55,521
Restricted escrows (Note 1)................................. 168,795
Loan costs, net (Note 1).................................... 85,647
Investment property, at cost (Notes 1 and 2):
Land...................................................... $ 255,000
Buildings and related personal property................... 4,154,584
-----------
4,409,584
Less accumulated depreciation............................. (2,905,730) 1,503,854
----------- -----------
$ 2,070,485
===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 5,591
Accrued taxes............................................. 61,205
Tenant security deposits.................................. 27,923
Other liabilities......................................... 55,754
Mortgage notes payable (Note 2)........................... 3,046,674
Partners' deficit........................................... (1,126,662)
-----------
$ 2,070,485
===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 254
WOODMERE ASSOCIATES, L.P.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
Revenues:
Rental income............................................. $ 931,883
Other income.............................................. 63,143
----------
995,026
Expenses:
Operating................................................. $309,188
General and administrative................................ 9,865
Maintenance............................................... 158,140
Depreciation.............................................. 207,727
Property management fees (Note 3)......................... 49,536
Interest.................................................. 281,316
Property taxes............................................ 59,949 1,075,721
-------- ----------
Net loss.................................................... $ (80,695)
==========
</TABLE>
See accompanying notes.
F-25
<PAGE> 255
WOODMERE ASSOCIATES, L.P.
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
----------- -------- -----------
<S> <C> <C> <C>
Partners' deficit at December 31, 1994.................. $ (979,877) $(26,284) $(1,006,161)
Net loss.............................................. (79,888) (807) (80,695)
Distributions......................................... (39,406) (400) (39,806)
----------- -------- -----------
Partners' deficit at December 31, 1995.................. $(1,099,171) $(27,491) $(1,126,662)
=========== ======== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 256
WOODMERE ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities
Net (loss)................................................ $ (80,695)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation........................................... 207,727
Amortization of discounts and loan costs............... 33,762
Changes in assets and liabilities:
Restricted cash...................................... (151)
Accounts receivable.................................. 785
Escrow for taxes..................................... 1,109
Accounts payable..................................... (10,242)
Tenant security deposit liabilities.................. (88)
Accrued taxes........................................ (3,687)
Other liabilities.................................... 3,303
---------
Net cash provided by operating activities......... 151,823
Cash flows from investing activities
Property improvements and replacements.................... (90,472)
Deposits to restricted escrows............................ (5,797)
Receipts from restricted escrows.......................... 23,202
---------
Net cash used in investing activities............. (73,067)
Cash flows from financing activities
Payments on mortgage notes payable........................ (75,693)
Partners' distributions................................... (39,806)
---------
Net cash used in financing activities............. (115,499)
---------
Decrease in cash............................................ (36,743)
Cash at December 31, 1994................................... 263,167
---------
Cash at December 31, 1995................................... $ 226,424
=========
</TABLE>
See accompanying notes.
F-27
<PAGE> 257
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Woodmere Associates, L.P., (an apartment complex) is a Delaware limited
partnership which began operations in 1985 with the purchase in Cincinnati,
Ohio.
Investment Property
The investment property is recorded at the Partnership's acquisition cost.
In 1995 the Partnership adopted FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The effect of adoption was not material.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over estimated service lives, using the
straight-line method.
Income Taxes
No provision has been made for Federal and state income taxes since such
taxes are the personal responsibility of the partners.
Fair Value
In 1995, the Partnership implemented Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosure of fair value information about financial instruments for
which it is practical to estimate that value. The carrying amount of the
Partnership's cash and cash equivalents approximates fair value due to
short-term maturities. The Partnership estimates the fair value of its fixed
rate mortgages by discounted cash flow analysis, based on estimated borrowing
rates currently available to the Partnership (Note 2).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Partnership Allocations
Net earnings or loss and taxable income or loss are allocated 99% to the
limited partners and 1% to the general partners. Distributions of available cash
or proceeds from financing or sale of the property are allocated among the
limited partners and the general partners in accordance with the limited
partnership agreement.
Cash and Cash Equivalents
It is the Partnership's policy to classify all liquid short-term
investments with a maturity of three months or less as cash equivalents.
F-28
<PAGE> 258
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Escrows
1) Capital Improvement Reserves
At the time of the refinancing of Woodmere Associates, L.P. mortgage note
payable in 1992, $65,300 of the proceeds were designated for a "capital
improvement escrow" for certain capital improvements. At December 31, 1995,
approximately $49,000 of the reserves had been expended. The capital
improvements are anticipated to be completed in calendar year 1996 and any
excess funds will be returned for property operations.
2) Reserve Account
In addition to the Capital Improvement Reserve, the Reserve Escrow was
established with the refinancing proceeds for the refinanced property. These
funds were established to cover necessary repairs and replacements of existing
improvements, debt service, out-of-pocket expenses incurred for ordinary and
necessary administrative tasks, and payment of real property taxes and insurance
premiums. The Partnership is required to deposit net operating income (as
defined in the mortgage note) from the refinanced property to the reserve
account until the reserve account equals $1,000 per apartment unit or $150,000
in total. At December 31, 1995, the reserve account balance was $152,578.
Loan Costs
In connection with the refinancing of certain mortgage notes payable in
1992, loan costs of $123,468 were incurred which are being amortized on a
straight-line basis over the life of the loans.
2. MORTGAGE NOTES PAYABLE
The principal terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
MONTHLY PRINCIPAL PRINCIPAL
PAYMENT STATED BALANCE BALANCE AT
INCLUDING INTEREST MATURITY DUE AT DECEMBER 31,
PROPERTY INTEREST RATE DATE MATURITY 1995
-------- --------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Woodmere Apartments:
1st mortgage.......................... $26,331 7.6% 11/15/02 $2,416,547 $3,120,090
2nd mortgage.......................... 653 7.6% 11/15/02 103,182 103,182
$26,984 3,223,272
Less unamortized discounts at 8.76%..... (176,598)
----------
$3,046,674
==========
</TABLE>
Mortgages are collateralized by the related property and improvements of
the Partnership.
Total interest paid during fiscal 1995 was $247,794.
The Partnership exercised interest rate buy-down options when the debt was
refinanced, reducing the stated rate from 8.76% to 7.60%. The fee for the
interest rate reduction amounted to $239,388 and is being amortized as a loan
discount on the interest method over the life of the loans. The discount fee is
reflected as a reduction of the mortgage notes payable and increases the
effective rate of the debt to 8.76%.
The carrying value of the mortgage notes payable approximates its estimated
fair value at December 31, 1995.
F-29
<PAGE> 259
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal payments of mortgage notes payable subsequent to
December 31 are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 81,650
1997..................................................... 88,077
1998..................................................... 95,009
1999..................................................... 102,486
2000..................................................... 110,552
Thereafter............................................... 2,745,498
----------
$3,223,272
==========
</TABLE>
3. RELATED PARTY TRANSACTIONS AND BALANCES
Affiliates of Insignia Financial Group, Inc. ("Insignia") own the
controlling ownership interest in the Partnership's Managing General Partner,
with certain affiliates of Insignia providing property management and asset
management services to the Partnership.
The following payments were made to Insignia and its affiliates in 1995:
<TABLE>
<S> <C>
Property management fees.................................... $49,536
Reimbursements for services of affiliates................... 20,524
</TABLE>
4. INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
INITIAL COST TO PARTNERSHIP
<TABLE>
<CAPTION>
BUILDINGS AND COST CAPITALIZED
RELATED SUBSEQUENT
DESCRIPTION ENCUMBRANCES LAND PERSONAL PROPERTY TO ACQUISITION
- ----------- ------------ -------- ----------------- ----------------
<S> <C> <C> <C> <C>
Woodmere............................... $3,223,272 $255,000 $3,886,000 $268,584
========== ======== ========== ========
</TABLE>
GROSS AMOUNT AT WHICH CARRIED
<TABLE>
<CAPTION>
BUILDINGS AND
RELATED PERSONAL ACCUMULATED DATE DEPRECIABLE
DESCRIPTION LAND PROPERTY TOTAL DEPRECIATION ACQUIRED LIFE-YEARS
- ----------- -------- ----------------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Woodmere............... $255,000 $4,154,584 $4,409,584 $2,905,730 9-85 5-25
======== ========== ========== ==========
</TABLE>
Reconciliation of "Investment Property and Accumulated Depreciation:"
<TABLE>
<S> <C>
INVESTMENT PROPERTY
Balance at beginning of year................................ $4,319,112
Property improvements....................................... 90,472
----------
Balance at end of year...................................... $4,409,584
==========
ACCUMULATED DEPRECIATION
Balance at beginning of year................................ $2,698,003
Additions charged to expense................................ 207,727
----------
Balance at end of year...................................... $2,905,730
==========
</TABLE>
The aggregate cost of the improvement property for Federal income tax
purposes at December 31, 1995 is $4,409,584. The accumulated depreciation taken
for Federal income tax purposes at December 31, 1995 is $2,639,154.
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<PAGE> 260
WOODMERE ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnership.
The following is a reconciliation of reported net loss and Federal taxable
loss:
<TABLE>
<S> <C>
Net loss as reported........................................ $(80,695)
Add (deduct):
Depreciation differences.................................. 30,020
Unearned income........................................... 30,072
Other..................................................... 314
--------
Federal taxable (loss) income............................... $(20,289)
========
Federal taxable (loss) income per limited partnership
unit...................................................... $(393.85)
========
</TABLE>
The following is a reconciliation between the Partnership's reported
amounts and Federal tax basis of net assets and liabilities:
<TABLE>
<S> <C>
Net liabilities as reported................................. $(1,126,662)
Accumulated depreciation.................................... 266,576
Other....................................................... 41,465
-----------
Net deficiency -- tax basis....................... $ (818,621)
===========
</TABLE>
6. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS REPORT
On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the
corporate general partner of the Partnership, entered into an agreement to merge
its national residential property management operations and its controlling
interest in Insignia Properties Trust, with Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. The merger
was completed effective October 1, 1998, and accordingly, as of that date AIMCO
acquired the corporate general partner and the company that manages the
Partnership.
F-31
<PAGE> 261
APPENDIX A
OPINION OF ROBERT A. STANGER & CO., INC.
PRELIMINARY FORM OF OPINION
AIMCO Properties, L.P.
1873 South Bellaire -- Suite 1700
Denver, Colorado 80222
Re: [ ]
Gentlemen:
You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a
subsidiary of Apartment Investment and Management Company ("AIMCO"), which
directly or indirectly owns the general partner (the "General Partner") of
[ ] (the "Partnership") (the Purchaser,
AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are
referred to herein collectively as the "Company"), is contemplating a
transaction (the "Offer") in which a minority of the outstanding limited
partnership interests in the Partnership (the "Units") will be acquired by the
Purchaser in exchange for an offer price per Unit of $ in cash, or
Common OP Units of the Purchaser, or Preferred OP Units of the Purchaser,
or a combination of any of such forms of consideration. The limited partners of
the Partnership (the "Limited Partners") will have the choice to maintain their
current interest in the Partnership or exchange their Units for any or a
combination of such forms of consideration. The amount of cash, Common OP Units
or Preferred OP Units offered per Unit is referred to herein as the "Offer
Price."
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
its opinion as to whether the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Since its founding in 1978, Stanger and its affiliates have provided
information, research, investment banking and consulting services to clients
located throughout the United States, including major New York Stock Exchange
member firms, insurance companies and over seventy companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves partnerships, partnership
securities and the assets typically held through partnerships, such as real
estate, oil and gas reserves, cable television systems and equipment leasing
assets.
In the course of our analysis for rendering this opinion, we have, among
other things:
1. Reviewed a draft of the Prospectus Supplement related to the Offer
in a form management has represented to be substantially the same as will
be distributed to the Limited Partners;
2. Reviewed the Partnership's financial statements for the years ended
December 31, 1995, 1996 and 1997, and for the period ending September 30,
1998, which the Partnership's management has indicated to be the most
current available financial statements;
3. Reviewed descriptive information concerning the real property owned
by the Partnership (the "Property"), including location, number of units
and unit mix, age, amenities and land acreage;
4. Reviewed summary historical operating statements for the Property,
for the years ended December 31, 1996 and 1997, and the six months ending
September 30, 1998;
A-1
<PAGE> 262
5. Reviewed the 1998 operating budget for the Property prepared by the
Partnership's management;
6. [Reviewed internal analysis prepared by the Partnership of the
estimated current net liquidation value of the Partnership per Unit of
limited partnership interest;]
7. Discussed with management market conditions for the Property;
conditions in the market for sales/acquisitions of properties similar to
that owned by the Partnership; historical, current and expected operations
and performance of the Property and the Partnership; the physical condition
of the Property including any deferred maintenance; and other factors
influencing value of the Property and the Partnership;
8. Performed a site inspection of the Property;
9. Reviewed data and discussed with local sources real estate rental
market conditions in the market of the Property, and reviewed available
information relating to acquisition criteria for income-producing
properties similar to the Property;
10. Reviewed information provided by the Company relating to debt
encumbering the Property;
11. Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information contained in the Prospectus Supplement or that were provided, made
available or otherwise communicated to us by the Partnership and the Company. We
have not performed an independent appraisal, engineering study or environmental
study of the assets and liabilities of the Partnership. We have relied upon the
representations of the Partnership and the Company concerning, among other
things, any environmental liabilities, deferred maintenance and estimated
capital expenditures and replacement reserve requirements, the determination and
valuation of non-real estate assets and liabilities of the Partnership, the
terms and conditions of any debt encumbering the Property, the allocation of net
Partnership values between the General Partner, Special Limited Partner and
Limited Partners, and the transaction costs and fees associated with a sale of
the Property. We have also relied upon the assurance of the Partnership and the
Company that any financial statements, projections, capital expenditure
estimates, debt summaries, value estimates and other information contained in
the Prospectus Supplement or otherwise provided or communicated to us were
reasonably prepared and adjusted on bases consistent with actual historical
experience, are consistent with the terms of the Partnership Agreement, and
reflect the best currently available estimates and good faith judgments; that no
material changes have occurred in the value of the Property or other information
reviewed between the date such information was provided and date of this letter;
that the Partnership and the Company are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading;
that the highest and best use of the Property is as improved; and that all
calculations were made in accordance with the terms of the Partnership
Agreement.
In addition, you have advised us that upon consummation of the Offer, the
Partnership will continue its business and operations substantially as they are
currently being conducted and that the Partnership and the Company do not have
any present plans, proposals or intentions which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation
involving the Partnership; a sale of the Partnership's Property or the sale or
transfer of a material amount of the Partnership's other assets; any changes to
the Partnership's senior management or personnel or their compensation; any
changes in the Partnership's present capitalization or distribution policy; or
any other material changes in the Partnership's structure or business.
We have not been requested to, and therefore did not: (i) select the Offer
Price or the method of determining the Offer Price in connection with the Offer;
(ii) make any recommendation to the Partnership or its partners with respect to
whether to accept or reject the Offer or whether to accept the cash, Preferred
OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third
party indications of interest in acquiring the assets of the Partnership or all
or any part of the Partnership; or (iv) express any opinion as to (a) the tax
consequences of the proposed Offer to the Limited Partners, (b) the terms of the
Partnership
A-2
<PAGE> 263
Agreement or of any agreements or contracts between the Partnership and the
Company, (c) the Company's business decision to effect the Offer or alternatives
to the Offer, (d) the amount of expenses relating to the Offer or their
allocation between the Company and the Partnership or tendering Limited
Partners; (e) the relative value of the cash, Preferred OP Units or Common OP
Units to be issued in connection with the Offer; and (f) any adjustments made to
determine the Offer price and the net amounts distributable to the Limited
Partners, including but not limited to, balance sheet adjustments to reflect the
Partnership's estimate of the value of current net working capital balances,
reserve accounts, and liabilities, and adjustments to the Offer Price for
distributions made by the Partnership subsequent to the date of the initial
Offer. We are not expressing any opinion as to the fairness of any terms of the
Offer other than the Offer Price for the Units.
Our opinion is based on business, economic, real estate and capital market,
and other conditions as they existed and could be evaluated as of the date of
our analysis and addresses the Offer in the context of information available as
of the date of our analysis. Events occurring after that date could affect the
assumptions used in preparing the opinion.
The summary of the opinion set forth in the Prospectus Supplement does not
purport to be a complete description of the analyses performed, or the matters
considered, in rendering our opinion. The analyses and the summary set forth
must be considered as a whole, and selecting portions of such summary or
analyses, without considering all factors and analyses, would create an
incomplete view of the processes underlying this opinion. In rendering this
opinion, judgment was applied to a variety of complex analyses and assumptions.
The assumptions made, and the judgments applied, in rendering the opinion are
not readily susceptible to partial analysis or summary description. The fact
that any specific analysis is referred to in the Prospectus Supplement is not
meant to indicate that such analysis was given greater weight than any other
analysis.
Based upon and subject to the foregoing, it is our opinion that as of the
date of this letter the Offer Price is fair to the Limited Partners of the
Partnership from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
November , 1998
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<PAGE> 264
APPENDIX B
DIRECTORS AND EXECUTIVE OFFICERS OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AND
AIMCO-GP, INC.
The names and positions of the executive officers of Apartment Investment
and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP"), and the general
partner of your partnership and the directors of AIMCO, are set forth below. The
two directors of AIMCO-GP and the general partner of your partnership are Terry
Considine and Peter Kompaniez. Unless otherwise indicated, the business address
of each executive officer and director is 1873 South Bellaire Street, 17th
Floor, Denver, Colorado 80222. Each executive officer and director is a citizen
of the United States of America.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Terry Considine.............................. Chairman of the Board of Directors and Chief Executive
Officer
Peter K. Kompaniez........................... Vice Chairman, President and Director
Thomas W. Toomey............................. Executive Vice President -- Finance and Administration
Joel F. Bonder............................... Executive Vice President, General Counsel and
Secretary
Patrick J. Foye.............................. Executive Vice President
Robert Ty Howard............................. Executive Vice President -- Ancillary Services
Steven D. Ira................................ Executive Vice President and Co-Founder
David L. Williams............................ Executive Vice President -- Property Operations
Harry G. Alcock.............................. Senior Vice President -- Acquisitions
Troy D. Butts................................ Senior Vice President and Chief Financial Officer
Richard S. Ellwood........................... Director
J. Landis Martin............................. Director
Thomas L. Rhodes............................. Director
John D. Smith................................ Director
</TABLE>
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of AIMCO and AIMCO-GP since July
1994. 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 AIMCO's
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.
</TABLE>
B-1
<PAGE> 265
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO
since July 1994 and was appointed President of AIMCO in July
1997. Mr. Kompaniez has served as Vice President of AIMCO-GP
from July 1994 through July 1998 and was appointed President
in July 1998. Mr. Kompaniez has been a director of AIMCO-GP
since July 1994. 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 the 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).
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. Mr. Toomey has been Executive
Vice President -- Finance and Administration of AIMCO-GP
since July 1998. From 1990 until 1995, Mr. Toomey served in
a similar capacity with Lincoln Property Company ("LPC") as
well 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.
Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and
General Counsel of AIMCO since December 8, 1997. Mr. Bonder
has been Executive Vice President and General Counsel of
AIMCO-GP since July 1998. 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.
</TABLE>
B-2
<PAGE> 266
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and
AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye
was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP from 1989 to 1998 and was Managing
Partner of the firm's Brussels, Budapest and Moscow offices
from 1992 through 1994. Mr. Foye is also Deputy Chairman of
the Long Island Power Authority and serves as a member of
the New York State Privatization Council. He received a B.A.
from Fordham College and a J.D. from Fordham University Law
School.
Robert Ty Howard..................... Mr. Howard has served as Executive Vice
President -- Ancillary Services since February 1998. Mr.
Howard was appointed Executive Vice President -- Ancillary
Services of AIMCO-GP in July 1998. Prior to joining AIMCO,
Mr. Howard served as an officer and/or 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 is a Co-Founder of AIMCO and has served as Executive
Vice President of AIMCO since July 1994. Mr. Ira has been
Executive Vice President of AIMCO-GP since July 1998. 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 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 Board 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.
</TABLE>
B-3
<PAGE> 267
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
David L. Williams.................... Mr. Williams has been Executive Vice President -- Operations
of AIMCO since January 1997. Mr. Williams has been Executive
Vice President -- Operations of AIMCO-GP since July 1998.
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 Vice President of AIMCO and
AIMCO-GP 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. Mr. Butts
has been Senior Vice President and Chief Financial Officer
of AIMCO-GP since July 1998. 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.
Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994
12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr.
Rumson, NJ 07660 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 on Wall Street 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 FelCor Suite
Hotels, Inc. and Florida East Coast Industries, Inc.
</TABLE>
B-4
<PAGE> 268
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
<S> <C>
J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994
199 Broadway and became Chairman of the Compensation Committee in March
Suite 4300 1998. Mr. Martin has served as President and Chief Executive
Denver, CO 80202 Officer and a Director of NL Industries, Inc., a
manufacturer of titanium dioxide, since 1987. Mr. Martin has
served as Chairman of Tremont Corporation, a holding company
operating through its affiliates Titanium Metals Corporation
("TIMET") and NL Industries, Inc., since 1990 and as Chief
Executive Officer and a director of Tremont since 1998. Mr.
Martin has served as Chairman of Timet, an integrated
producer of titanium, since 1987 and Chief Executive Officer
since January 1995. From 1990 until its acquisition by
Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin
served as Chairman of the Board and Chief Executive Officer
of Baroid Corporation, an oilfield services company. In
addition to Tremont, NL and TIMET, Mr. Martin is a director
of Dresser, which is engaged in the petroleum services,
hydrocarbon and engineering industries.
Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994.
215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of
4th Floor National Review magazine since November 30, 1992, where he
New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992
, he held various positions at Goldman, Sachs & Co. and was
elected a General Partner in 1986 and served as a General
Partner from 1987 until November 27, 1992. He is currently
Co-Chairman of the Board , Co-Chief Executive Officer and a
Director of Commercial Assets Inc. and Asset Investors
Corporation. He also serves as a Director of Delphi
Financial Group, Inc. and its subsidiaries, Delphi
International Ltd., Oracle Reinsurance Company, and the
Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman
of the Empire Foundation for Policy Research, a Founder and
Trustee of Change NY, a Trustee of The Heritage Foundation,
and a Trustee of the Manhattan Institute.
John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November
3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith
Suite 831 Developments. Mr. Smith has been a shopping center
Atlanta, GA 30326 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 Shop ping 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.
</TABLE>
B-5
<PAGE> 269
Questions and requests for assistance or for additional copies of this
Prospectus Supplement and the Letter of Transmittal may be directed to the
Information Agent at its telephone number and address listed below. You may also
contact your broker, dealer, bank, trust company or other nominee for assistance
concerning the offer.
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
By Fax:
(201) 460-2881
On the Internet:
www.clc-online.com
<PAGE> 270
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 23, 1998
PROSPECTUS
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
$600,000,000 OF
PREFERRED STOCK AND
CLASS A COMMON STOCK
AIMCO PROPERTIES, L.P.
$200,000,000 OF PARTNERSHIP PREFERRED UNITS
$200,000,000 OF PARTNERSHIP COMMON UNITS
We may offer and issue these securities in connection with acquisitions of
businesses, properties, securities or other assets. In addition, we may issue
our Class A Common Stock upon conversion of shares our Preferred Stock, and we
may also issue shares of our Preferred Stock and shares of our Class A Common
Stock in exchange for our Partnership Preferred Units or our Partnership Common
Units tendered for redemption.
Apartment Investment and Management Company has elected to be taxed for
Federal income tax purposes as a REIT. Our Class A Common Stock is listed on the
New York Stock Exchange under the symbol "AIV." On November 19, 1998, the last
reported sales price of our Class A Common Stock on the NYSE was $33 3/4 per
share. There is no public market for our Partnership Preferred Units or our
Partnership Common Units. However, after a one-year holding period, each of our
Partnership Common Units may be redeemed in exchange for a share of our Class A
Common Stock or, at our option, a cash amount equal to the market value of one
share of our Class A Common Stock at the time of the redemption (subject to
antidilution adjustments).
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF MATERIAL RISKS
IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES, INCLUDING WITHOUT
LIMITATION, THE FOLLOWING RISKS:
- Our acquisition and development activities expose us to several negative
factors, including difficulty in managing our rapid growth, the
incurrence of unforeseen costs, possible failure to realize projected
occupancy and rental rates.
- Our organizational documents do not limit the amount of debt that we may
incur, and our Board of Directors may change our leverage policy at any
time. Our cash flow from operations might be insufficient to make
required debt payments, and we might be unable to refinance our debt at
all or on terms as favorable as the terms of our existing debt. In
addition, we are subject to debt covenants that may restrict our ability
to make distributions to investors.
- Our real estate investment and management activities expose us to several
potentially negative factors that are beyond our control such as local
economic conditions, intense competition, potential environmental
liabilities and change of laws, any of which could negatively affect our
financial condition or results of operations.
- We and certain of our officers and/or directors and unconsolidated
subsidiaries have entered into, and may in the future into certain
transactions that may result in conflicts of interest between the us and
such officers and/or directors and unconsolidated subsidiaries. Such
conflicts of interest include certain subsidiaries of ours which have
income not allowed to REITs and which are controlled by the principal
officers of AIMCO in order to maintain REIT status.
- If Apartment Investment and Management Company fails to qualify as a
REIT, it (i) would not be allowed a deduction for dividends it pays, (ii)
would be subject to federal income tax at corporate rates, (iii) might
need to borrow funds or liquidate investments on unfavorable terms in
order to pay the applicable tax and (iv) would no longer be required to
make distributions to stockholders.
- Our charter limits the number of shares of our stock that may be held by
any one investor to 8.7% (15% in the case of certain pension trusts,
registered investment companies and Terry Considine, Chairman of the
Board of Directors and Chief Executive Officer of AIMCO) without the
consent of AIMCO's Board of Directors. Consequently, our stockholders are
limited in their ability to effect a change of our control.
- Investors in our partnership units must hold their units for one year,
subject to certain exceptions. Thereafter investors may transfer such
partnership units, subject to the satisfaction of certain conditions,
including the general partner's right of first refusal. Holders of our
partnership units do not have the ability to vote for or remove the
general partner, and therefor they can not effect a change of control of
AIMCO Properties, L.P.
To the extent not otherwise described herein, the form in which the
securities are to be issued, and the terms of such securities, including without
limitation, their specific designation, or aggregate initial offering price,
rate and times of payment of dividends, if any, redemption, conversion and
exchange terms, if any, voting or other rights, if any, and other specific terms
will be set forth in a Prospectus Supplement, together with the terms of
offering of such securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is , 1998.
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TABLE OF CONTENTS
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THE COMPANY..................................... 1
RISK FACTORS.................................... 2
Risks of Acquisition and Development
Activities.................................. 2
Risks Associated With Debt Financing.......... 3
Moody's Negative Outlook for AIMCO Ratings.... 3
Increases in Interests Rates May Increase our
Interest Expense............................ 3
Risks of Interest Rate Hedging Arrangements... 3
Covenant Restrictions May Limit Our Ability to
Make Payments to Our Investors.............. 4
We Depend on Distributions and Other Payments
from Our Subsidiaries....................... 4
Real Estate Investment Risks.................. 4
Possible Environmental Liabilities............ 4
Laws Benefitting Disabled Persons May Result
in Unanticipated Expenses................... 5
Risks Relating to Regulation of Affordable
Housing..................................... 5
The Loss of Property Management Contracts
Would Reduce Our Revenues................... 5
Dependence on Certain Executive Officers...... 5
Possible Conflicts of Interest; Transactions
with Affiliates............................. 6
Tax Risks..................................... 6
Possible Adverse Consequences of Limits on
Ownership of Shares......................... 7
Our Charter and Maryland Law May Limit the
Ability of a Third Party to Acquire Control
of the Company.............................. 7
Year 2000 Readiness Disclosure................ 8
Risks Associated With an Investment in OP
Units....................................... 8
SECURITIES COVERED BY THIS PROSPECTUS........... 15
RATIO OF EARNINGS TO FIXED CHARGES.............. 17
SELECTED HISTORICAL FINANCIAL DATA.............. 18
PER SHARE AND PER UNIT DATA..................... 21
Per Share Data................................ 21
Per Unit Data................................. 21
Stock Prices, Dividends and Distributions..... 22
BUSINESS OF THE COMPANY......................... 23
Operating and Financial Strategies............ 23
Growth Strategies............................. 24
Property Management Strategies................ 27
Accounting Policies and Definitions........... 29
Policies of the Company with Respect to
Certain Other Activities.................... 30
Year 2000 Readiness Disclosure................ 32
DESCRIPTION OF PREFERRED STOCK.................. 34
General....................................... 34
Dividends..................................... 35
Convertibility................................ 36
Redemption and Sinking Fund................... 36
Liquidation Rights............................ 36
Voting Rights................................. 36
Miscellaneous................................. 37
Other Rights.................................. 37
Transfer Agent and Registrar.................. 37
Class B Preferred Stock....................... 37
Class C Preferred Stock....................... 39
Class D Preferred Stock....................... 40
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Class E Preferred Stock....................... 40
Class G Preferred Stock....................... 42
Class H Preferred Stock....................... 43
Class J Preferred Stock....................... 44
DESCRIPTION OF COMMON STOCK..................... 46
General....................................... 46
Class A Common Stock.......................... 46
Restrictions on Transfer...................... 46
Class B Common Stock.......................... 47
Business Combinations......................... 49
Control Share Acquisitions.................... 49
DESCRIPTION OF OP UNITS......................... 50
General....................................... 50
Purpose and Business.......................... 50
Management by the AIMCO GP.................... 50
Management Liability and Indemnification...... 51
Compensation and Fees......................... 52
Fiduciary Responsibilities.................... 52
Class B Partnership Preferred Units........... 53
Class C Partnership Preferred Units........... 53
Class D Partnership Preferred Units........... 53
Class E Partnership Preferred Units........... 53
Class F Partnership Preferred Units........... 54
Class G Partnership Preferred Units........... 54
Class H Partnership Preferred Units........... 54
Class J Partnership Preferred Units........... 55
High Performance Units........................ 55
Distributions................................. 55
Allocations of Net Income and Net Loss........ 56
Withholding................................... 57
Return of Capital............................. 57
Redemption Rights............................. 58
Partnership Right to Call Common OP Units..... 58
Transfers and Withdrawals..................... 58
Issuance of Capital Stock by AIMCO............ 59
Dilution...................................... 59
Amendment of the AIMCO Operating Partnership
Agreement................................... 60
Procedures for Actions and Consents of
Partners.................................... 60
Records and Accounting; Fiscal Year........... 61
Reports....................................... 61
Tax Matters................................... 61
Dissolution and Winding Up.................... 61
COMPARISON OF THE AIMCO OPERATING PARTNERSHIP
AND AIMCO..................................... 63
COMPARISON OF COMMON OP UNITS AND CLASS A COMMON
STOCK......................................... 72
FEDERAL INCOME TAXATION OF AIMCO AND AIMCO
STOCKHOLDERS.................................. 75
General....................................... 75
Tax Aspects of AIMCO's Investments in
Partnerships................................ 80
Taxation of Management Subsidiaries........... 81
Taxation of Taxable Domestic Stockholders..... 81
Taxation of Foreign Stockholders.............. 82
Information Reporting Requirements and Backup
Withholding................................. 84
Taxation of Tax-Exempt Stockholders........... 84
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FEDERAL INCOME TAXATION OF THE AIMCO OPERATING
PARTNERSHIP AND OP UNITHOLDERS................ 85
Partnership Status............................ 85
Taxation of OP Unitholders.................... 87
Allocations of AIMCO Operating Partnership
Profits and Losses.......................... 87
Tax Basis of a Partnership Interest........... 87
Cash Distributions............................ 88
Tax Consequences Upon Contribution of Property
to the AIMCO Operating Partnership.......... 88
Limitations on Deductibility of Losses........ 89
Section 754 Election.......................... 90
Depreciation.................................. 90
Sale, Redemption, or Exchange of OP Units..... 91
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Termination of the AIMCO Operating
Partnership................................. 91
Alternative Minimum Tax....................... 92
Information Returns and Audit Procedures...... 92
Taxation of Foreign OP Unitholders............ 93
OTHER TAX CONSEQUENCES.......................... 93
Possible Legislative or Other Actions
Affecting REITs............................. 93
State, Local and Foreign Taxes................ 93
WHERE YOU CAN FIND MORE INFORMATION............. 93
LEGAL MATTERS................................... 94
EXPERTS......................................... 95
APPENDIX A: GLOSSARY............................ A-1
APPENDIX B: THIRD AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF AIMCO PROPERTIES,
L.P........................................... B-1
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THE COMPANY
Apartment Investment and Management Company ("AIMCO"), a Maryland
corporation formed on January 10, 1994, is a self-administered and self-managed
REIT engaged in the ownership, acquisition, development, expansion and
management of multi-family apartment properties. As of October 31, 1998, we
owned or managed 386,430 apartment units in 2,240 properties located in 49
states, the District of Columbia and Puerto Rico. Based on apartment unit data
compiled as of January 1, 1998 by the National Multi Housing Council, we believe
that, as of October 1, 1998, we were the largest owner and manager of
multifamily apartment properties in the United States. As of October 31, 1998,
we:
- owned or controlled 62,955 units in 241 apartment properties;
- held an equity interest in 168,746 units in 897 apartment properties; and
- managed 154,729 units in 1,102 apartment properties for third party
owners and affiliates.
We conduct substantially all of our operations through AIMCO Properties,
L.P., a Delaware limited partnership (the "AIMCO Operating Partnership"). Our
wholly owned subsidiary, AIMCO-GP, Inc. (the "AIMCO GP") is the sole general
partner of the AIMCO Operating Partnership. Through the AIMCO GP and another of
our wholly owned subsidiaries, AIMCO-LP, Inc. (the "Special Limited Partner"),
as of October 31, 1998, we owned approximately an 90% interest in the AIMCO
Operating Partnership. We manage apartment properties for third parties and
affiliates through unconsolidated subsidiaries that we refer to as the
"management companies." Generally, when we refer to "we," "us" or the "Company"
in this prospectus, we are referring to AIMCO, the AIMCO Operating Partnership,
the management companies and their respective subsidiaries.
Our principal executive offices are located at 1873 South Bellaire Street,
17th Floor, Denver, Colorado 80222, and our telephone number is (303) 757-8101.
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RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus before you decide to purchase our securities.
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
Generally. The selective acquisition, development and expansion of
apartment properties is one component of our growth strategy. However, we can
make no assurance as to our ability to identify or complete transactions in the
future. Although we seek to acquire, develop and expand properties only when
such activities are accretive on a per share basis, such transactions may fail
to perform in accordance with our expectations. When we develop or expand
properties, we are subject to the risks that:
- costs may exceed original estimates;
- projected occupancy and rental rates at the property may not be realized;
- financing may not be available on favorable terms;
- construction and lease-up may not be completed on schedule; and
- we may experience difficulty or delays in obtaining necessary zoning,
land-use, building, occupancy, and other governmental permits and
authorizations.
We May Have Difficulty Managing Our Rapid Growth. We have grown rapidly.
Since our initial public offering in July 1994, we have completed numerous
acquisition transactions, expanding our portfolio of owned or managed properties
from 132 apartment properties with 29,343 units to 2,240 apartment properties
with 386,430 units as of October 31, 1998. These acquisitions have included
purchases of properties and interests in entities that own or manage properties,
as well as corporate mergers. Our recent merger with Insignia Financial Group,
Inc. ("Insignia") is our largest acquisition so far. Our ability to successfully
integrate acquired businesses and properties depends on our ability to:
- attract and retain qualified personnel;
- integrate the personnel and operations of the acquired businesses;
- maintain uniform standards, controls, procedures and policies; and
- maintain adequate accounting and information systems.
We can provide no assurance that we will be able to accomplish these goals
and successfully integrate any acquired businesses or properties. If we fail to
successfully integrate such businesses, our results of operations could be
adversely affected.
Litigation Associated with Partnership Acquisitions. We have engaged in,
and intend to continue to engage in, the selective acquisition of interests in
limited partnerships that own apartment properties. In some cases, we have
acquired the general partner of a partnership and then made an offer to acquire
the limited partners' interests in the partnership. In these transactions, we
are subject to litigation based on claims that the general partner has breached
its fiduciary duties to its limited partners or that the transaction violates
the
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relevant partnership agreement. Although we intend to comply with our fiduciary
obligations and relevant partnership agreements, we may incur additional costs
in connection with the defense or settlement of such litigation. In some cases,
such litigation may adversely affect our desire to proceed with, or our ability
to complete, a particular transaction. Such litigation could also have a
material adverse effect on our results of operations.
RISKS ASSOCIATED WITH DEBT FINANCING
Our strategy is generally to incur debt to increase the return on our
equity while maintaining acceptable interest coverage ratios. We seek to
maintain a ratio of free cash flow to combined interest expense and preferred
stock dividends of between 2:1 and 3:1. However, our Board of Directors could
change this strategy at any time and increase our leverage. Our organizational
documents do not limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal and interest may
leave us with insufficient cash resources to operate our properties or pay
distributions required to be paid in order to maintain our qualification as a
REIT. We are also subject to the risk that our cash flow from operations will be
insufficient to make required payments of principal and interest, and the risk
that existing indebtedness may not be refinanced or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. If
we fail to make required payments of principal and interest on any debt, our
lenders could foreclose on the properties securing such debt with a consequent
loss of income and asset value to us. As of September 30, 1998, 95% of the
properties that we own or control and 41% of our assets were encumbered by debt.
On a pro forma basis, giving effect to the recent Insignia merger, as of
September 30, 1998, we had $1,627.0 million of indebtedness outstanding on a
consolidated basis, of which $350.8 million was secured.
MOODY'S NEGATIVE OUTLOOK FOR AIMCO RATINGS
Recently, Moody's Investors Service ("Moody's") revised its outlook for our
ratings from stable to negative to reflect its concerns surrounding our ability
to successfully implement our financial strategy while maintaining a prudent
capital structure as a result of more difficult general capital market
conditions. Moody's noted that our access to the public markets may prove
challenging in light of the volatility in both the equity and capital markets
for REITs and assigned a "ba3" rating to a class of preferred stock proposed to
be issued by us. Moody's indicated that its rating action reflects our
increasing leveraged profile, including high levels of secured debt and
preferred stock, limited financial flexibility and integration risks resulting
from the merger with Insignia. Moody's also noted our high level of encumbered
properties and material investments in loans to highly leveraged partnerships in
which we own a general partnership interest. At the same time, Moody's, Standard
& Poors and Duff & Phelps confirmed their existing ratings on our preferred
stock and senior debt.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE
As of September 30, 1998, approximately $115 million of our debt was
subject to variable interest rates. An increase in interest rates could increase
our interest expense and adversely affect our cash flow and our ability to
service our indebtedness and make distributions.
RISKS OF INTEREST RATE HEDGING ARRANGEMENTS
From time to time, in anticipation of refinancing debt, we enter into
agreements to reduce the risks associated with increases in short term interest
rates. Although these agreements provide us with some protection against rising
interest rates, these agreements also reduce the benefits to us when interest
rates decline. These agreements involve the following risks:
- interest rate movements during the term of the agreement may result in a
gain or loss to us;
- we may be exposed to losses if the hedge is not indexed to the same rate
as the debt anticipated to be incurred; and
- if the counterparty to the agreement fails to pay, we may incur a loss.
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COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS
Some of our debt and other securities contain covenants that restrict our
ability to make distributions or other payments to our investors unless certain
financial tests or other criteria are satisfied. In some cases, our subsidiaries
are subject to similar provisions, which may restrict their ability to make
distributions to us. Our primary credit facility provides that we may make
distributions to our investors during any 12-month period in an aggregate amount
that does not exceed the greater of 80% of our funds from operations for such
period or such amount as may be necessary to maintain our REIT status. This
credit facility prohibits all distributions if certain financial ratios and
tests are not satisfied. The preferred stock that we issued in the Insignia
merger prohibits the payment of dividends on our common stock if we fail to make
the payments required by the preferred stock.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES
All of our properties are owned, and all of our operations are conducted,
by the AIMCO Operating Partnership and our other subsidiaries. As a result, we
depend on distributions and other payments from subsidiaries in order to satisfy
our financial obligations and make payments to our investors. The ability of our
subsidiaries to make such distributions and other payments is dependent upon
their earnings and may be subject to statutory or contractual limitations. As an
equity investor in our subsidiaries, our right to receive assets upon their
liquidation or reorganization will be effectively subordinated to the claims of
their creditors. To the extent that we are recognized as a creditor of such
subsidiaries, our claims would still be subordinated to any security interest in
or other lien on their assets and to any of their debt or other obligations that
are senior to us.
REAL ESTATE INVESTMENT RISKS
Our ability to make payments to our investors depends on our ability to
generate funds from operations in excess of required debt payments and capital
expenditure requirements. Funds from operations and the value of our properties
may be adversely affected by events or conditions which are beyond our control.
Such events or conditions could include:
- the general economic climate;
- competition from other apartment communities and alternative housing;
- local conditions, such as an increase in unemployment or an oversupply of
apartments, that might adversely affect apartment occupancy or rental
rates;
- increases in operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily be offset by
increased rents;
- changes in governmental regulations and the related costs of compliance;
- changes in tax laws and housing laws, including the enactment of rent
control laws or other laws regulating multifamily housing;
- changes in interest rate levels and the availability of financing; and
- the relative illiquidity of real estate investments.
POSSIBLE ENVIRONMENTAL LIABILITIES
Various Federal, state and local laws subject property owners or operators
to liability for the costs of removal or remediation of certain hazardous
substances released on a property. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of the hazardous substances. The presence of, or the failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and our ability to sell or borrow against contaminated
properties. In addition to the costs associated with investigation and
remediation actions brought by governmental agencies, the presence of hazardous
wastes on a property could result in personal injury or
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similar claims by private plaintiffs. Various laws also impose, on persons who
arrange for the disposal or treatment of hazardous or toxic substances,
liability for the cost of removal or remediation of hazardous substances at the
disposal or treatment facility. These laws often impose liability whether or not
the person arranging for the disposal ever owned or operated the disposal
facility.
LAWS BENEFITTING DISABLED PERSONS MAY RESULT IN UNANTICIPATED EXPENSES
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 our properties, or restrict certain
further renovations of the properties, 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 we believe that our
properties are substantially in compliance with present requirements, we may
incur unanticipated expenses to comply with the ADA and FHAA.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING
As of October 31, 1998, we owned or controlled 12 properties, held an
equity interest in 495 properties and managed for third parties and affiliates
645 properties that benefit from governmental programs intended to provide
housing to people with low or moderate incomes. These programs, which are
usually administered by the United States Department of Housing and Urban
Development ("HUD") or state housing finance agencies, typically provide
mortgage insurance, favorable financing terms or rental assistance payments to
the property owners. As a condition to the receipt of assistance under these
programs, the properties must comply with various requirements, which typically
limit rents to pre-approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary, which
could result in a loss of management fee revenue. We usually need to obtain the
approval of HUD in order to manage, or acquire a significant interest in, a
HUD-assisted or HUD-insured property. We can make no assurance that we will
always receive such approval.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS WOULD REDUCE OUR REVENUES
We manage some properties owned by third parties. For the year ended
December 31, 1997, we derived approximately 2% of our gross revenue from
management of properties owned by third parties. During the same period,
Insignia, which merged with us on October 1, 1998, derived approximately 15% of
its gross revenue from management of properties owned by third parties. We may
suffer a loss of revenue if we lose our right to manage these properties or if
the rental revenues upon which our management fees are based declines. In
general, management contracts may be terminated or otherwise lost as a result
of:
- a disposition of the property by the owner in the ordinary course or as a
result of financial distress of the property owner;
- the property owner's determination that our management of the property is
unsatisfactory;
- willful misconduct, gross negligence or other conduct that constitutes
grounds for termination; or
- with respect to certain affordable properties, termination of such
contracts by HUD or state housing finance agencies, generally at their
discretion.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS
Although we have entered into employment agreements with our Chairman and
Chief Executive Officer, Terry Considine, our President, Peter K. Kompaniez and
our Executive Vice President, Steven D. Ira, the loss of any of their services
could have an adverse effect on our operations.
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POSSIBLE CONFLICTS OF INTEREST; TRANSACTIONS WITH AFFILIATES
We have been, and continue to be, involved in various transactions with a
number of our affiliates, including executive officers, directors and entities
in which they own interests. For example, in order to satisfy certain REIT
requirements, Messrs. Considine and Kompaniez directly or indirectly control the
management companies which manage properties for third parties and affiliates.
Although we own a 95% non-voting interest in these management companies, we have
no control over them or their operations. As a result, the management companies
could implement business decisions or policies that are not in our best
interests. We have adopted certain policies designed to minimize or eliminate
the conflicts of interest inherent in these transactions, including a
requirement that a majority of our disinterested directors approve certain
transactions with affiliates. However, there can be no assurance that these
policies will be successful in eliminating the influence of such conflicts.
Furthermore, such policies are subject to change without the approval of our
stockholders.
TAX RISKS
Adverse Consequences of Failure to Qualify as a REIT. Although we believe
that we operate in a manner that enables us to meet the requirements for
qualification as a REIT for Federal income tax purposes, we do not plan to
request a ruling from the IRS that we qualify as a REIT. We have, however,
received an opinion from the law firm of Skadden, Arps, Slate, Meagher & Flom
LLP to the effect that, beginning with our initial taxable year ended December
31, 1994, we were organized in conformity with the requirements for
qualification as a REIT under the Internal Revenue Code and that our proposed
method of operation, and our actual method of operation since our formation
through the date of such opinion, will enable us to meet the requirements for
qualification and taxation as a REIT.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Our opinion of counsel is based upon certain representations and
covenants made by us regarding the past, present and future conduct of our
business operations. Furthermore, our opinion of counsel is conditioned on, and
our continued qualification as a REIT will depend on, our ability to meet,
through actual annual operating results, the various REIT qualification tests.
Such requirements are discussed in more detail under the heading "Federal Income
Taxation of AIMCO and AIMCO Stockholders -- General."
If we fail to qualify as a REIT, we would not be allowed a deduction for
distributions to shareholders in computing our taxable income and we would be
subject to Federal income tax at regular corporate rates. We also could be
subject to the Federal alternative minimum tax. Unless we are entitled to relief
under the tax law, we could not elect to be taxed as a REIT for four years
following the year during which we were disqualified. Therefore, if we lose our
REIT status, the funds available for payment to our investors would be reduced
substantially for each of the years involved. See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- General -- Failure to Qualify." Also, if we fail
to qualify as a REIT, (i) we would be obligated to repurchase 750,000 shares of
our preferred stock at a price of $105 per share, plus accrued and unpaid
dividends to the date of repurchase, and (ii) we would be in default under our
primary credit facilities and certain other loan documents. See "Federal Income
Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify."
If we acquire a corporation that is not a REIT (such as Insignia), we will
qualify as a REIT only if we distribute all of the acquired corporation's
"earnings and profits" by the end of the year in which the acquisition occurs.
The determination of earnings and profits, however, is difficult and requires
the resolution of technical tax issues. In addition, the IRS can consider all
taxable years as open for review for purposes of determining the amount of its
earnings and profits. Our failure to distribute an amount equal to Insignia's
earnings and profits on or before December 31, 1998, would result in our failure
to qualify as a REIT.
Effect of Distribution Requirements. As a REIT, we are subject to annual
distribution requirements, which limit the amount of cash we have available for
other business purposes, including amounts to fund our growth. See "Federal
Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution
Requirements."
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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 tax law could adversely affect our investors. It cannot be predicted
whether, when, in what forms, or with what effective dates, the tax laws
applicable to us or our investors will be changed.
Other Tax Liabilities. Even if we qualify as a REIT, we and our
subsidiaries may be subject to certain Federal, state and local taxes on our
income and property that could reduce operating cash flow.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
Our Charter limits ownership of our common stock by any single shareholder
to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and Mr. Considine). The Charter also prohibits
anyone from buying shares if the purchase would result in us losing our REIT
status. This could happen if a share transaction results in fewer than 100
persons owning all of our shares or in five or fewer persons, applying certain
broad attribution rules of the Internal Revenue Code, owning 50% or more of our
shares. If you or anyone else acquires shares in excess of the ownership limit
or in violation of the ownership requirements of the Internal Revenue Code for
REITs:
- the transfer will be considered null and void;
- we will not reflect the transaction on our books;
- we may institute legal action to enjoin the transaction;
- we may demand repayment of any dividends received by the affected person
on those shares;
- we may redeem the shares at their then current market price;
- the affected person will not have any voting rights for those shares; and
- the shares (and all voting and dividend rights of the shares) will be
held in trust for the benefit of one or more charitable organizations
designated by us.
We may purchase the shares held in trust at a price equal to the lesser of
the price paid by the transferee of the shares or the then current market price.
If the trust transfers any of the shares, the affected person will receive the
lesser of the price he paid for the shares or the then current market price. An
individual who acquires shares that violate the above rules bears the risk that:
- he may lose control over the power to dispose of the shares;
- he may not recognize profit from the sale of such shares if the market
price of the shares increases;
- he may be required to recognize a loss from the sale of such shares if
the market price decreases; and
- he may be required to repay any distributions received as a result of his
ownership of such shares.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO ACQUIRE
CONTROL OF THE COMPANY
Ownership Limit. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our Board of Directors.
Preferred Stock. Our Charter authorizes our Board of Directors to issue up
to 510,750,000 shares of capital stock. As of November 15, 1998, 484,027,500
shares were classified as Class A Common Stock, 262,500 shares were classified
as Class B Common Stock and 26,460,000 were classified as preferred stock. Under
the Charter, our Board of Directors has the authority to classify and reclassify
any of our unissued shares of capital stock into shares of preferred stock with
such preferences, rights, powers and restrictions as the Board of Directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our shareholders' best interests.
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Maryland Business Statutes. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our shareholders' best interests. The
Maryland General Corporation Law restricts mergers and other business
combination transactions between us and any person who acquires beneficial
ownership of shares of our stock representing 10% or more of the voting power
without our Board of Directors' prior approval. Any such business combination
transaction could not be completed until five years after the person acquired
such voting power, and only with the approval of shareholders representing 80%
of all votes entitled to be cast and 66% of the votes entitled to be cast,
excluding the interested shareholder. Maryland law also provides that a person
who acquires shares of our stock that represent 20% or more of the voting power
in electing directors will have no voting rights unless approved by a vote of
two-thirds of the shares eligible to vote.
YEAR 2000 READINESS DISCLOSURE
Over the past twenty months, the Company has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The total cost of the Year 2000 project is estimated at $3.4 million and is
being funded through operating cash flows. To date, the Company has incurred
approximately $2.8 million ($0.4 million expensed and $2.4 million capitalized
for new systems and equipment), related to all phases of the Year 2000 project.
Of the total remaining project costs, approximately $0.4 million is attributable
to the purchase of new software and operating equipment, which will be
capitalized. The remaining $0.2 million relates to repair of hardware and
software and will be expensed as incurred.
Management believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. The Company has not yet completed all
necessary phases of the Year 2000 program. In the event that the Company does
not complete any additional phases, certain worst case scenarios could occur.
The worst case scenarios include elevators, security and HVAC systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change is annoying to
residents, it is not business critical. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The Company could be subject to litigation for computer systems
failure, for example, equipment shutdown or failure to properly date business
records. The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds and selecting new relationships for such activities
as banking relationships and elevator operating systems.
RISKS ASSOCIATED WITH AN INVESTMENT IN OP UNITS
We refer to interests in the AIMCO Operating Partnership as "OP Units." The
Partnership Common Units are referred to as "Common OP Units" and the
Partnership Preferred Units are referred to as "Preferred OP Units." The
agreement of limited partnership of the AIMCO Operating Partnership is referred
to as the "AIMCO Operating Partnership Agreement."
Restrictions on Transferability of OP Units. There is no public market for
our OP Units. In addition, our partnership agreement restricts the
transferability of OP Units. Until the expiration of a one year holding period,
subject to certain exceptions, investors may not transfer OP Units without the
consent of the general partner of the AIMCO Operating Partnership. Thereafter
investors may transfer such OP Units subject to the satisfaction of certain
conditions, including the general partner's right of first refusal. See
"Description of OP Units -- Transfers and Withdrawals." We have no plans to list
our OP Units on a securities exchange. It is unlikely that any person will make
a market in our OP Units, or that an active market for our OP Units will
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develop. If a market for our OP Units develops and our OP Units are considered
"readily tradable" on a "secondary market (or the substantial equivalent
thereof)," the AIMCO Operating Partnership would be classified as a publicly
traded partnership for federal income tax purposes. See "-- Tax Treatment is
Dependent on Partnership Status; Publicly Traded Partnership Risks."
Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership
Performance. Although we make quarterly distributions on our OP Units, there can
be no assurance regarding the amounts of available cash that the AIMCO Operating
Partnership will generate or the portion that the general partner will choose to
distribute. The actual amounts of available cash will depend upon numerous
factors, including profitability of operations, required principal and interest
payments on our debt, the cost of acquisitions (including related debt service
payments), our issuance of debt and equity securities, fluctuations in working
capital, capital expenditures, adjustments in reserves, prevailing economic
conditions and financial, business and other factors, some of which may be
beyond the our control. Cash distributions are dependent primarily on cash flow,
including from reserves, and not on profitability, which is affected by non-cash
items. Therefore, cash distributions may be made during periods when the we
record losses and may not be made during periods when we record profits. We make
quarterly distributions to holders of Common OP Units (on a per unit basis) that
generally are equal to the dividends paid on the Class A Common Stock (on a per
share basis). However, such distributions will not necessarily continue to be
equal to such dividends.
Our partnership agreement gives our general partner discretion in
establishing reserves for the proper conduct of the partnership's business that
will affect the amount of available cash. We are required to make reserves for
the future payment of principal and interest under our credit facilities and
other indebtedness. In addition, our credit facilities limit our ability to
distribute cash to holders of our OP Units. As a result of these and other
factors, there can be no assurance regarding our actual levels of cash
distributions on our OP Units, and our ability to distribute cash may be limited
during the existence of any events of default under any of our debt instruments.
The AIMCO GP Manages and Operates the AIMCO Operating Partnership; OP
Unitholders Have Limited Voting Rights. The AIMCO GP manages and operates the
AIMCO Operating Partnership. Unlike the holders of common stock in a
corporation, OP Unitholders have only limited voting rights on matters affecting
the AIMCO Operating Partnership's business. OP Unitholders have no right to
elect the AIMCO GP on an annual or other continuing basis, and the AIMCO GP may
not be removed by OP Unitholders. As a result, OP Unitholders have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of the AIMCO Operating Partnership.
We May Issue Additional Partnership Interests, Diluting OP Unitholders'
Interests. We may issue an unlimited number of additional OP Units or other
limited partner interests of the AIMCO Operating Partnership for such
consideration and on such terms as may be established by the AIMCO GP in its
sole discretion, in most cases, without the approval of OP Unitholders. The
effect of any such issuance may be to dilute the interests of OP Unitholders in
distributions by the AIMCO Operating Partnership.
OP Unitholders May Not Have Limited Liability in Certain Circumstances. The
limitations on the liability of limited partners for the obligations of a
limited partnership have not been clearly established in some states. If it were
determined that the AIMCO Operating Partnership had been conducting business in
any state without compliance with the applicable limited partnership statute, or
that the right or the exercise of the right by the OP Unitholders as a group to
make certain amendments to the AIMCO Operating Partnership Agreement or to take
other action pursuant to the AIMCO Operating Partnership Agreement constituted
participation in the "control" of the AIMCO Operating Partnership's business,
then an OP Unitholder could be held liable under certain circumstances for the
AIMCO Operating Partnership's obligations to the same extent as the AIMCO GP.
Conflicts of Interest and Fiduciary Responsibility. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the AIMCO GP and its affiliates, on the one hand, and the AIMCO
Operating Partnership or any partner thereof, on the other. The directors and
officers of the AIMCO GP have fiduciary duties to manage the AIMCO GP in a
manner beneficial to AIMCO, as the sole
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stockholder of the AIMCO GP. At the same time, the AIMCO GP, as general partner,
has fiduciary duties to manage the AIMCO Operating Partnership in a manner
beneficial to the AIMCO Operating Partnership and its partners. The duties of
the AIMCO GP, as general partner, to the AIMCO Operating Partnership and its
partners, therefore, may come into conflict with the duties of the directors and
officers of the AIMCO GP to its sole stockholder, AIMCO. Such conflicts of
interest might arise in the following situations, among others:
- Decisions of the AIMCO GP with respect to the amount and timing of cash
expenditures, borrowings, issuances of additional interests and reserves
in any quarter will affect whether or the extent to which there is
available cash to make distributions in a given quarter.
- Under the terms of its partnership agreement, the AIMCO Operating
Partnership will reimburse the AIMCO GP and its affiliates for costs
incurred in managing and operating the AIMCO Operating Partnership,
including compensation of officers and employees.
- Whenever possible, the AIMCO GP seeks to limit the AIMCO Operating
Partnership's liability under contractual arrangements to all or
particular assets of the AIMCO Operating Partnership, with the other
party thereto to have no recourse against the AIMCO GP or its assets.
- Any agreements between the AIMCO Operating Partnership and the AIMCO GP
and its affiliates will not grant to the OP Unitholders, separate and
apart from the AIMCO Operating Partnership, the right to enforce the
obligations of the AIMCO GP and such affiliates in favor of the AIMCO
Operating Partnership. Therefore, the AIMCO GP, in its capacity as the
general partner of the AIMCO Operating Partnership, will be primarily
responsible for enforcing such obligations.
- Under the terms of the AIMCO Operating Partnership Agreement, the AIMCO
GP is not restricted from causing the AIMCO Operating Partnership to pay
the AIMCO GP or its affiliates for any services rendered on terms that
are fair and reasonable to the AIMCO Operating Partnership or entering
into additional contractual arrangements with any of such entities on
behalf of the AIMCO Operating Partnership. Neither the AIMCO Operating
Partnership Agreement nor any of the other agreements, contracts and
arrangements between the AIMCO Operating Partnership, on the one hand,
and the AIMCO GP and its affiliates, on the other, are or will be the
result of arms-length negotiations.
Unless otherwise provided for in the relevant partnership agreement,
Delaware law generally requires a general partner of a Delaware limited
partnership to adhere to fiduciary duty standards under which it owes its
limited partners the highest duties of good faith, fairness and loyalty and
which generally prohibit such general partner from taking any action or engaging
in any transaction as to which it has a conflict of interest. The AIMCO
Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into,
on behalf of the AIMCO Operating Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various affiliates of
the AIMCO Operating Partnership and the AIMCO GP, on such terms as the AIMCO GP,
in its sole and absolute discretion, believes are advisable. The latitude given
in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving
conflicts of interest may significantly limit the ability of an OP Unitholder to
challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP
believes, however, that such latitude is necessary and appropriate to enable it
to serve as the general partner of the AIMCO Operating Partnership without undue
risk of liability.
The AIMCO Operating Partnership Agreement expressly limits the liability of
the AIMCO GP by providing that the AIMCO GP, and its officers and directors will
not be liable or accountable in damages to the AIMCO Operating Partnership, the
limited partners or assignees for errors in judgment or mistakes of fact or law
or of any act or omission if the AIMCO GP or such director or officer acted in
good faith. In addition, the AIMCO Operating Partnership is required to
indemnify the AIMCO GP, its affiliates and their respective officers, directors,
employees and agents to the fullest extent permitted by applicable law, against
any and all losses, claims, damages, liabilities, joint or several, expenses,
judgments, fines and other actions incurred by the AIMCO GP or such other
persons, provided that the AIMCO Operating Partnership will not indemnify for
(i) willful misconduct or a knowing violation of the law or (ii) for any
transaction for which such person received an improper personal benefit in
violation or breach of any provision of the AIMCO Operating Partnership
Agreement.
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The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
resolved in a court of law, and the AIMCO GP has not obtained an opinion of
counsel covering the provisions set forth in the AIMCO Operating Partnership
Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP
that would be in effect under common law were it not for the AIMCO Operating
Partnership Agreement.
Certain Tax Risks Associated with an Investment in the OP Units. For a
general discussion of certain federal income tax consequences resulting from the
acquisition, holding, exchanging, and otherwise disposing of OP Units, see
"Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders."
Tax Treatment is Dependent on Partnership Status; Publicly Traded
Partnership Risks. The availability to an OP Unitholder of the federal income
tax benefits of an investment in the AIMCO Operating Partnership depends on the
classification of the AIMCO Operating Partnership as a partnership for federal
income tax purposes. In the opinion of our legal counsel, which opinion is based
upon certain assumptions and representations by the AIMCO Operating Partnership
and on opinions of local counsel, with respect to matters of local law, the
AIMCO Operating Partnership will be classified as a partnership for federal
income tax purposes. The opinion is expressed as of its date and our counsel has
no obligation to advise OP Unitholders of any subsequent change in the matters
stated, represented or assumed or any subsequent change in the applicable law.
No advance ruling has been or will be sought from the IRS as to the
classification of the AIMCO Operating Partnership as a partnership. An opinion
of counsel is not binding on the IRS, and no assurance can be given that the IRS
will not challenge the status of the AIMCO Operating Partnership as a
partnership.
If a market for the OP Units develops and the OP Units are considered
"readily tradable" on a "secondary market (or the substantial equivalent
thereof)," the AIMCO Operating Partnership would be classified as a publicly
traded partnership. We believe and intend to take the position that the AIMCO
Operating Partnership should not be classified as a publicly traded partnership
because (i) our OP Units are not traded on an established securities market and
(ii) our OP Units should not be considered readily tradable on a secondary
market or the substantial equivalent thereof. The determination of whether
interests in a partnership are readily tradable on a secondary market or the
substantial equivalent thereof, however, depends on various facts and
circumstances (including facts that are not within the control of the AIMCO
Operating Partnership). Although the Treasury regulations promulgated by the
U.S. Treasury Department under the Internal Revenue Code (the "Treasury
Regulations") and an IRS pronouncement provide limited safe harbors, which, if
satisfied, will prevent a partnership's interests from being treated as readily
tradable on a secondary market or the substantial equivalent thereof, the AIMCO
Operating Partnership may not have satisfied any of these safe harbors in its
previous tax years. In addition, because the AIMCO Operating Partnership's
ability to satisfy a safe harbor may involve facts that are not within its
control, it is impossible to predict whether the AIMCO Operating Partnership
will satisfy a safe harbor in future tax years. Such safe harbors are not
intended to be substantive rules for the determination of whether partnership
interests are readily tradable on a secondary market or the substantial
equivalent thereof, and consequently, the failure to meet these safe harbors
will not necessarily cause the AIMCO Operating Partnership to be treated as a
publicly traded partnership. No assurance can be given, however, that the IRS
will not assert that partnerships such as the AIMCO Operating Partnership
constitute publicly traded partnerships, or that facts and circumstances will
not develop which could result in the AIMCO Operating Partnership being treated
as a publicly traded partnership.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, real property rents (as defined
by section 856 of the Internal Revenue Code) and gain from the sale or
disposition of real property. We believe that more than 90% of the gross income
of the AIMCO Operating Partnership consists of qualifying income and we expect
that more than 90% of its gross income in future tax years will consist of
qualifying income. In such event, even if the AIMCO Operating Partnership were
characterized as a publicly traded partnership, it would not be taxable as a
corporation. If the AIMCO Operating Partnership were characterized as a publicly
traded partnership, however, each OP Unitholder would be subject to special
rules under section 469 of the Internal
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Revenue Code. See "Federal Income Taxation of the AIMCO Operating Partnership
and OP Unitholders -- Limitations on Deductibility of Losses; "Passive Activity
Loss" Limitation." No assurance can be given that the actual results of the
AIMCO Operating Partnership's operations for any one taxable year will enable it
to satisfy the qualifying income exception.
If the AIMCO Operating Partnership were characterized as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. Thus, the AIMCO
Operating Partnership would be subject to federal tax (and possibly state and
local taxes) on its net income, determined without reduction for any
distributions made to the OP Unitholders, at regular federal corporate income
tax rates, thereby reducing the amount of any cash available for distribution to
the OP Unitholders, which reduction could also materially and adversely impact
the liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and credit would not be
passed through to the OP Unitholders and the OP Unitholders would not be subject
to tax on the income earned by the AIMCO Operating Partnership. Distributions
received by an OP Unitholder from the AIMCO Operating Partnership, however,
would be treated as dividend income for federal income tax purposes, subject to
tax as ordinary income to the extent of current and accumulated earnings and
profits of the AIMCO Operating Partnership, and the excess, if any, as a
nontaxable return of capital to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest (without taking into account
partnership liabilities), and thereafter as gain from the sale of a capital
asset. Characterization of the AIMCO Operating Partnership as an association or
publicly traded partnership taxable as a corporation would also result in the
termination of AIMCO's status as a REIT for federal income tax purposes which
would have a material adverse impact on AIMCO. See "Federal Income Taxation of
the AIMCO Operating Partnership and OP Unitholders -- Partnership Status." No
assurances can be given that the IRS would not challenge the status of the AIMCO
Operating Partnership as a "partnership" which is not "publicly traded" for
federal income tax purposes or that a court would not reach a result contrary to
such positions. Accordingly, each prospective investor is urged to consult his
tax advisor regarding the classification and treatment of the AIMCO Operating
Partnership as a "partnership" for federal income tax purposes.
Consequences of Exchanging Property for OP Units. In general, no gain or
loss will be recognized for federal income tax purposes by a person contributing
property to the AIMCO Operating Partnership (the "Contributing Partner") in
exchange for OP Units, and the Contributing Partner will take a tax basis in the
OP Unit received equal to his adjusted tax basis in the contributed property.
Notwithstanding this general rule of nonrecognition, a Contributing Partner may
recognize a gain where the property transferred is subject to liabilities, or
the AIMCO Operating Partnership assumes liabilities in connection with the
transfer of property, and the amount of such liabilities exceeds the amount of
the AIMCO Operating Partnership liabilities allocated to such person as
determined immediately after the transfer. Such excess is treated as a deemed
distribution of cash to the Contributing Partner from the AIMCO Operating
Partnership which, in turn, is treated as a nontaxable return of capital to the
extent of the Contributing Partner's adjusted tax basis in his OP Unit and
thereafter as gain from the sale of such partnership interest. If the
Contributing Partner transfers property to the AIMCO Operating Partnership and
the adjusted tax basis of the property differs from its fair market value, then
AIMCO Operating Partnership tax items must be allocated, for federal income tax
purposes, in a manner such that the Contributing Partner is charged with the
unrealized gain, or benefits from the unrealized loss, associated with the
property at the time of the contribution. See "Federal Income Taxation of the
AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon
Contribution of Property to the AIMCO Operating Partnership."
There are a variety of transactions that the AIMCO Operating Partnership
may in its sole discretion undertake following such contribution with respect to
the contributed property or the debt securing such property which could cause
the Contributing Partner to recognize taxable gain, even though little or no
cash is distributable to him as a result thereof. Such transactions include but
are not limited to (i) the sale of a particular property, which could result in
an allocation of gain only to those OP Unitholders who received OP Units for
such property (even if cash attributable to sale proceeds were distributed
proportionately to all OP
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Unitholders); and (ii) a reduction in the nonrecourse debt allocable to property
(either because such debt becomes a recourse liability or is paid off with cash
flow, new equity, or proceeds of debt secured by other property of the AIMCO
Operating Partnership), which would result in a deemed distribution of money to
the OP Unitholders who received OP Units for such property as well as to the
other OP Unitholders. See "Federal Income Taxation of the AIMCO Operating
Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property
to the AIMCO Operating Partnership" and "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders -- Cash Distributions." The AIMCO
Operating Partnership Agreement grants the AIMCO GP broad authority to undertake
such transactions and does not grant the OP Unitholders affected by these
actions any rights to prevent the AIMCO GP from taking such actions. Even if the
AIMCO GP does not intend to sell or otherwise dispose of contributed property or
to reduce the debt, if any, securing such property within any specified time
period after the Contributing Partner transfers such property to the AIMCO
Operating Partnership, it is possible that future economic, market, legal, tax
or other considerations may cause the AIMCO Operating Partnership to dispose of
the contributed property or to reduce its debt. In this regard, the AIMCO
Operating Partnership Agreement provides that the AIMCO GP, while acting in its
capacity as general partner of the AIMCO Operating Partnership, may, but is not
required to, take into account the tax consequences to the OP Unitholders of its
actions in such capacity. The AIMCO GP intends to make decisions in its capacity
as general partner of the AIMCO Operating Partnership so as to maximize the
profitability of the AIMCO Operating Partnership as a whole, independent of the
tax effects on individual OP Unitholders.
Tax Liability Exceeding Cash Distribution. An OP Unitholder will be
required to pay federal income tax and, in certain cases, state and local income
taxes, on his allocable share of the AIMCO Operating Partnership's income, even
if he receives no cash distributions from the AIMCO Operating Partnership. No
assurance can be given that an OP Unitholder will receive cash distributions
equal to his allocable share of taxable income from the AIMCO Operating
Partnership or even the tax liability to him resulting from that income.
Further, upon the sale of his OP Units, an OP Unitholder may incur a tax
liability in excess of the amount of cash received. See "Federal Income Taxation
of the AIMCO Operating Partnership and OP Unitholders -- Taxation of OP
Unitholders of AIMCO Operating Partnership," and "Federal Income Taxation of the
AIMCO Operating Partnership and OP Unitholders -- Sale, Redemption, or Exchange
of OP Units."
Deductibility of Losses. An OP Unitholder's ability to use his allocable
share of losses, if any, from the AIMCO Operating Partnership at the end of the
taxable year in which the loss is incurred may be limited by certain provisions
of the Internal Revenue Code. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders -- Limitations on Deductibility of
Losses."
Potential Audits. The AIMCO Operating Partnership's tax return may be
audited, and any such audit could result in an audit of an OP Unitholder's tax
return as well as increased liabilities for taxes because of adjustments
resulting from the audit. No assurance can be given that the AIMCO Operating
Partnership will not be audited by the IRS or various state authorities or that
tax adjustments will not be made. Any adjustments in the AIMCO Operating
Partnership's tax return will lead to adjustments in an OP Unitholder's tax
return and may lead to audits of an OP Unitholder's tax return and adjustments
of items unrelated to the AIMCO Operating Partnership. Each OP Unitholder would
bear the cost of any expenses incurred in connection with an examination of such
OP Unitholder's tax return. See "Federal Income Taxation of the AIMCO Operating
Partnership and OP Unitholders -- Information Returns and Audit Procedures."
State, Local and Other Tax Considerations. In addition to federal income
taxes, the AIMCO Operating Partnership and its OP Unitholders may be subject to
state, local and foreign taxation in various jurisdictions in which the AIMCO
Operating Partnership does business, owns property or resides. See "Other Tax
Consequences -- State, Local and Foreign Taxes."
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Tax Gain or Loss on Disposition of OP Units. An OP Unitholder who sells OP
Units will recognize gain or loss equal to the difference between the amount
realized (including his share of AIMCO Operating Partnership nonrecourse
liabilities) and his adjusted tax basis in such OP Units. Thus, prior AIMCO
Operating Partnership distributions in excess of cumulative net taxable income
in respect of an OP Unit which decreased an OP Unitholder's tax basis in such OP
Unit will, in effect, become taxable income if the OP Unit is sold at a price
greater than the OP Unitholder's tax basis in such OP Units, even if the price
is less than his original cost. A portion of the amount realized (whether or not
representing gain) may be ordinary income.
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SECURITIES COVERED BY THIS PROSPECTUS
The securities covered by this Prospectus (the "Securities") may be offered
and issued from time to time by AIMCO or the AIMCO Operating Partnership in
connection with acquisitions of businesses, properties, securities or other
assets. In addition, AIMCO may issue (i) shares of its Class A Common Stock, par
value $0.01 per share ("Class A Common Stock") covered hereby upon conversion of
shares its Preferred Stock, par value $0.01 per share ("Preferred Stock"), (ii)
shares of its Preferred Stock covered hereby and shares of its Class A Common
Stock covered hereby, in each case in exchange for Partnership Preferred Units
of the AIMCO Operating Partnership ("Preferred OP Units") tendered for
redemption pursuant to the AIMCO Operating Partnership Agreement and (iii)
shares of its Class A Common Stock covered hereby in exchange for Partnership
Common Units of the AIMCO Operating Partnership ("Common OP Units" and together
with the Preferred OP Units, the "OP Units") tendered for redemption pursuant to
the AIMCO Operating Partnership Agreement.
It is expected that the terms of acquisitions involving the issuance of the
Securities will be determined by direct negotiations with owners or controlling
persons of the business, properties, securities or other assets to be acquired
or through exchange offers. It is expected that any shares of Class A Common
Stock or Common OP Units issued will be valued at prices based on or related to
market prices for the Class A Common Stock at or near the time the terms of such
acquisition are established or at or near the time such Securities are
delivered, or based on average market prices for periods ending at or near such
times. No underwriting discounts or commissions will be paid, although brokers'
or finders' fees may be paid from time to time with respect to specific
acquisitions, and AIMCO or the AIMCO Operating Partnership may issue the
Securities in full or partial payment of such fees. Any person receiving such
fees may be deemed to be an "underwriter," within the meaning of the Securities
Act.
This Prospectus has also been prepared for use by the persons who may
receive from AIMCO or the AIMCO Operating Partnership Securities covered by the
Registration Statement in acquisitions and who may be entitled to offer such
Securities under circumstances requiring the use of a Prospectus (such persons
being referred to under this caption as "Securityholders"); provided, however,
that no Securityholder will be authorized to use this Prospectus for any offer
of such Security without first obtaining the consent of AIMCO and the AIMCO
Operating Partnership. AIMCO and the AIMCO Operating Partnership may consent to
the use of this Prospectus for a limited period of time by the Securityholders
and subject to limitations and conditions which may be varied by agreement
between AIMCO and the AIMCO Operating Partnership and the Securityholders.
Resales of such Securities may be made on the NYSE or such other exchange on
which the Securities may be listed, in the over-the-counter market, in private
transactions or pursuant to underwriting agreements.
Agreements with Securityholders permitting use of this Prospectus may
provide that any such offering be effected in an orderly manner through
securities dealers, acting as broker or dealer, selected by AIMCO and the AIMCO
Operating Partnership; that Securityholders enter into custody agreements with
one or more banks with respect to such shares; and that sales be made only by
one or more of the methods described in this Prospectus, as appropriately
supplemented or amended when required. The Securityholders may be deemed to be
underwriters within the meaning of the Securities Act.
When resales are to be made through a broker or dealer selected by AIMCO
and the AIMCO Operating Partnership, it is anticipated that a member firm of the
NYSE may be engaged to act as the Securityholders' agent in the sale of shares
by such Securityholders. The member firm will be entitled to commissions
(including negotiated commissions to the extent permissible). Sales of shares by
the member firm may be made on the NYSE or other exchange from time to time at
prices related to prices then prevailing. Any such sales may be by block trade.
Any such member firm may be deemed to be an underwriter within the meaning of
the Securities Act and any commissions earned by such member firm may be deemed
to be underwriting discounts and commissions under such act.
Upon AIMCO and the AIMCO Operating Partnership being notified by a
Securityholder that any block trade has taken place, a supplementary prospectus,
if required, will be filed pursuant to Rule 424 under the Securities Act,
disclosing the name of the member firm, the number of shares involved, the price
at which
15
<PAGE> 288
such shares were sold by such Securityholder, and the commissions to be paid by
such Securityholder to such member firm.
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who received Securities for whom AIMCO and the
AIMCO Operating Partnership have consented to the use of this Prospectus in
connection with resales of such Securities.
In addition to the Securities offered hereby, AIMCO and the AIMCO Operating
Partnership may from time to time issue additional Securities through public
offerings or private placements. AIMCO and the AIMCO Operating Partnership may
make such future issuances of Securities in connection with its acquisition of
other businesses, properties, securities or other assets in business combination
transactions or for other purposes.
16
<PAGE> 289
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
COMPANY COMPANY
THE COMPANY PREDECESSORS(1) PRO FORMA(6)
------------------------------------------------ ------------------- --------------------
FOR THE
NINE FOR THE FOR THE FOR THE
MONTHS FOR THE YEARS PERIOD PERIOD FOR THE NINE FOR THE
ENDED ENDED JAN. 10, JAN. 1, YEAR MONTHS YEAR
SEPT. 30, DECEMBER 31, 1994 TO 1994 TO ENDED ENDED ENDED
------------- --------------------- DEC. 31, JULY 28, DEC. 31, SEPT. 30, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(3) 1993 1998 1997
----- ----- ----- ----- ----- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earning to fixed
charges(2)...................... 1.8:1 1.6:1 1.5:1 1.6:1 2.1:1 5.8:1 N/A 1.2:1 1.5:1 2.1:1
Ratio of earnings to combined
fixed charges and preferred
stock dividends(4)(5)........... 1.4:1 1.5:1 1.5:1 1.6:1 1.5:1 2.0:1 N/A 1.2:1 1.2:1 1.5:1
</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., and its affiliated companies and PDI Realty Enterprises,
Inc. (collectively, the "Company Predecessors") engaged in a business
combination and consummated a series of related transactions which enabled
the Company to continue and to expand the property management and related
businesses of the Company Predecessors.
(2) 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 interests (which includes equity in earnings of
unconsolidated subsidiaries and partnerships only to the extent of dividends
and distributions received) 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 Company
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).
(3) The earnings of the Company 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 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 interests (which includes equity in
earnings of unconsolidated subsidiaries and partnerships only to the extent
of dividends and distributions received) 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 Company Predecessors did not have any shares of preferred stock
outstanding during the period from January 1, 1993 through July 28, 1994.
(6) Gives pro forma effect, as of the beginning of the period indicated, to
AIMCO's May 8, 1998 merger with Ambassador Apartments, Inc., AIMCO's October
1, 1998 merger with Insignia Financial Group, Inc. and certain other
transactions completed by AIMCO subsequent to December 31, 1997.
17
<PAGE> 290
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial and operating
information for the Company. The Selected Historical Financial Data for the nine
months ended September 30, 1998 and 1997 is based on unaudited financial
statements of AIMCO as included in AIMCO's Quarterly Report on Form 10-Q for the
nine months ended September 30, 1998, incorporated by reference herein. Results
for the quarter ended September 30, 1998 are not necessarily indicative of the
results to be expected for a full year. The selected historical financial
information for the years ended December 31, 1997, 1996 and 1995 is based on the
audited financial statements of AIMCO incorporated by reference herein. The
selected historical financial information for the period January 10, 1994 (the
date of AIMCO's inception) through December 31, 1994 for AIMCO and for the
period from January 1, 1994 through July 28, 1994 and for the year ended
December 31, 1993 for the Company's Predecessors is based on the audited
financial statements of AIMCO and the Company's Predecessors, respectively. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth in AIMCO's Annual Report on Form 10-K/A for the year ended December 31,
1997 and in AIMCO's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and the historical financial statements of AIMCO and notes
thereto incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY'S
THE COMPANY PREDECESSORS(A)
-------------------------------------------------------------------------- ------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FOR THE JAN. 10, JAN. 1, FOR THE
NINE MONTHS ENDED YEAR ENDED 1994 1994 YEAR
SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED
----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(B) 1993
---------- ---------- ---------- -------- -------- ------------- ------------- --------
(RESTATED)(C) (RESTATED)(C)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY
OPERATIONS:
Rental and other property
revenues................ $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056
Property operating
expenses................ (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) (2,263) (3,200)
Owned property management
expenses................ (7,746) (4,344) (6,620) (2,746) (2,276) (711) -- --
Depreciation.............. (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) (1,151) (1,702)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income from Rental
Property Operations..... 96,562 48,154 72,477 39,814 27,483 9,126 2,391 3,154
---------- ---------- ---------- -------- -------- -------- ------- --------
SERVICE COMPANY BUSINESS:
Management fees and other
income.................. 13,968 9,173 13,937 8,367 8,132 3,217 6,533 8,069
Management and other
expenses................ (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) (5,823) (6,414)
Corporate overhead
allocation.............. (196) (441) (588) (590) (581) -- -- --
Amortization of
Goodwill................ -- -- (948) (500) (428) -- -- --
Owner and seller
bonuses................. -- -- -- -- -- -- (204) (468)
Depreciation and
amortization............ (3) (236) (453) (218) (168) (150) (146) (204)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income from service
business................ 5,668 3,467 2,038 1,707 2,002 1,020 360 983
Minority interests in
service company
business................ -- 48 (10) 10 (29) (14) -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Company's shares of income
from service company
business................ 5,668 3,515 2,028 1,717 1,973 1,006 360 983
---------- ---------- ---------- -------- -------- -------- ------- --------
General and administrative
expenses................ (7,444) (1,408) (5,396) (1,512) (1,804) (977) -- --
Interest income........... 18,244 4,458 8,676 523 658 123 -- --
Interest expense.......... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) (4,214) (3,510)
Minority interest in other
partnerships............ (1,052) (777) 1,008 (111) -- -- -- --
Equity in earnings of
other partnerships(d)... (5,078) (463) (1,798) -- -- -- -- --
Equity in earnings of
Unconsolidated
Subsidiaries(e)......... 8,413 456 4,636 -- -- -- -- --
Amortization of
Goodwill................ (5,071) (711) -- -- -- -- -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Income (loss) before gain
on disposition of
property, extraordinary
item, income taxes and
minority interest in
AIMCO Operating
Partnership............. 53,486 19,865 30,246 15,629 14,988 7,702 (1,463) 627
---------- ---------- ---------- -------- -------- -------- ------- --------
Gain on disposition of
property................ 2,783 (169) 2,720 44 -- -- -- --
Extraordinary (loss) --
forgiveness of debt..... -- (269) (269) -- -- -- -- --
Provisions for income
taxes................... -- -- -- -- -- -- (36) (336)
---------- ---------- ---------- -------- -------- -------- ------- --------
Income (loss) before
minority interest in
AIMCO Operating
Partnership............. 56,269 19,427 32,697 15,673 14,988 7,702 (1,499) 291
Minority interest in AIMCO
Operating Partnership... (4,425) (2,612) (4,064) (2,689) (1,613) (599) -- --
---------- ---------- ---------- -------- -------- -------- ------- --------
Net income (loss)......... $ 51,844 $ 16,815 $ 28,633 $ 12,984 $ 13,375 $ 7,103 $(1,499) $ 291
========== ========== ========== ======== ======== ======== ======= ========
</TABLE>
18
<PAGE> 291
<TABLE>
<CAPTION>
THE COMPANY'S
THE COMPANY PREDECESSORS(A)
-------------------------------------------------------------------------- ------------------------
FOR THE FOR THE
PERIOD PERIOD
FOR THE FOR THE JAN. 10, JAN. 1, FOR THE
NINE MONTHS ENDED YEAR ENDED 1994 1994 YEAR
SEPTEMBER 30, DECEMBER 31, THROUGH THROUGH ENDED
----------------------- -------------------------------- DEC. 31, JULY 28, DEC. 31,
1998 1997 1997 1996 1995 1994 1994(B) 1993
---------- ---------- ---------- -------- -------- ------------- ------------- --------
(RESTATED)(C) (RESTATED)(C)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Real Estate, before
accumulated
depreciation............ $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $406,067 $47,500 $ 46,819
Real Estate, net of
accumulated
depreciation............ 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 32,270 33,701
Total assets.............. 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 39,042 38,914
Total mortgages and notes
payable................. 1,275,401 661,715 808,503 522,146 268,692 141,315 40,873 41,893
Mandatory redeemable 1994
Cumulative Convertible
Senior Preferred
Stock................... -- -- -- -- -- 96,600 -- --
Stockholder's equity...... 1,521,527 627,426 1,045,300 215,749 169,032 140,319 (9,345) (7,556)
OTHER DATA:
Total owned properties
(end of period)......... 241 109 147 94 56 48 4 4
Total owned apartment
units (end of period)... 62,955 28,773 40,039 23,764 14,453 12,513 1,711 1,711
Equity Owned Properties... 168,746 87,182 83,431 -- -- -- -- --
Units under management
(end of period)......... 154,729 71,038 69,587 19,045 19,594 20,758 29,343 28,422
Basic earnings per common
share................... $ 0.80 $ 0.77 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A N/A
Diluted earnings per
common share............ $ 0.79 $ 0.77 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A N/A
Distributions paid per
common share............ $ 1.6875 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A N/A
Cash flows provided by
operating activities.... 50,825 53,435 73,032 38,806 25,911 16,825 2,678 2,203
Cash flows used in
investing activities.... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) (924) (16,352)
Cash flows provided by
(used in) financing
activities.............. 141,221 293,984 668,549 60,129 30,145 176,800 (1,032) 14,114
Funds from
operations(f)........... $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 N/A N/A
Weighted average number of
common shares and OP
Units outstanding(g).... 53,007 24,347 29,119 14,994 11,461 10,920 N/A N/A
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of Class A Common Stock and issued 966,000 shares of convertible
preferred stock and 513,514 unregistered shares of Class A Common Stock. On
such date, the Company and the Company Predecessors engaged in a business
combination and consummated a series of related transactions which enabled
the Company to continue and expand the property management and related
businesses of the Company Predecessors. The 966,000 shares of convertible
preferred stock and 513,514 shares of Class A Common Stock were repurchased
by AIMCO in 1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO.
(c) In the second quarter of 1996, the Company reorganized its ownership of the
service company business. Prior to the 1996 reorganization, the Company
reported the service company business on the equity method. After the 1996
reorganization, the service company business was conducted by a limited
partnership controlled by the Company and was, therefore, consolidated. The
Company has restated the balance sheet as of December 31, 1995 and 1994,
and the statements of income and statements of cash flows for the year
ended December 31, 1995 and the period from January 10, 1994 through
December 31, 1994 to reflect the change. 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. In the third
quarter of 1998, the Company reorganized its ownership of the service
company business so that it is now conducted by the management companies,
which are not consolidated.
(d) Represents the Company's share of earnings from 83,431 units in which the
Company purchased an equity interest from the NHP Real Estate Companies.
(e) Represents the Company's equity earnings in the unconsolidated
subsidiaries.
(f) The Company's management believes that the presentation of funds from
operations ("FFO"), when considered with the financial data determined in
accordance with generally accepted accounting principles ("GAAP"), provides
a useful measure of the Company's performance. However, FFO does not
represent cash flow and is not necessarily indicative of cash flow or
liquidity available to the Company, 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
19
<PAGE> 292
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. AIMCO calculates FFO
consistent with the NAREIT definition, adjusted for AIMCO's minority
interest in the AIMCO Operating Partnership, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on perpetual preferred stock. The Company's management believes
that presentation of FFO provides investors with industry-accepted
measurements which help facilitate an understanding of the Company's
ability to make required dividend payments, capital expenditures and
principal payments on its debt. There can be no assurance that AIMCO's
basis of computing FFO is comparable with that of other REITs.
The following is a reconciliation of income before minority interest in the
AIMCO Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS FOR THE PERIOD
ENDED YEAR ENDED JANUARY 10,
SEPTEMBER 30, DECEMBER 31, 1994 TO
------------------ --------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
-------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income before minority interest in
AIMCO
Operating Partnership.............. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property.... (2,783) 169 (2,720) (44) -- --
Extraordinary item................. -- 269 269 -- -- --
Real estate depreciation, net of
minority interests............... 56,900 21,052 33,751 19,056 15,038 4,727
Amortization of goodwill........... 7,077 711 948 500 428 76
Equity in earnings of
Unconsolidated Subsidiaries:
Real estate depreciation......... -- 2,689 3,584 -- -- --
Amortization of management
contracts..................... 4,201 430 1,587 -- -- --
Deferred taxes................... 6,134 2,164 4,894 -- -- --
Equity in earnings of other
partnerships:
Real estate depreciation......... 17,379 2,781 6,280 -- -- --
Preferred stock dividends.......... (12,296) -- (135) -- (5,169) (3,114)
-------- ------- ------- ------- ------- -------
Funds from operations.............. $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391
======== ======= ======= ======= ======= =======
</TABLE>
(g) Generally, after a one-year holding period, Common 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 Common OP Unit (subject to
adjustment).
20
<PAGE> 293
PER SHARE AND PER UNIT DATA
PER SHARE DATA
Set forth below are historical earnings per share of Class A Common Stock,
cash dividends per share of Class A Common Stock and book value per share of
Class A Common Stock data of AIMCO. The data set forth below should be read in
conjunction with the AIMCO audited financial statements and unaudited interim
financial statements, including the notes thereto, which are incorporated by
reference herein.
<TABLE>
<CAPTION>
AIMCO
----------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Basic earnings per weighted average share of Class A Common
Stock outstanding......................................... $ 0.80 $ 1.09
Diluted earnings per weighted average share of Class A
Common Stock outstanding.................................. $ 0.79 $ 1.08
Cash dividends per weighted average share of Class A Common
Stock outstanding......................................... $1.6875 $ 1.85
Book value per share of Class A Common Stock outstanding.... $ 31.71 $22.51
</TABLE>
PER UNIT DATA
Set forth below are historical earnings per Common OP Unit, cash
distributions per Common OP Unit and book value per Common OP Unit. The data set
forth below should be read in conjunction with the AIMCO Operating Partnership
audited financial statements and unaudited interim financial statements,
including the notes thereto, which are incorporated by reference herein.
<TABLE>
<CAPTION>
AIMCO OPERATING PARTNERSHIP
----------------------------
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Basic earnings per weighted average Common OP Unit
outstanding............................................... $ 0.80 $ 1.09
Diluted earnings per weighted average Common OP Unit
outstanding............................................... $ 0.79 $ 1.08
Cash distributions per Common OP Unit outstanding........... $1.6875 $ 1.85
Book value per Common OP Unit outstanding................... $ 30.65 $22.33
</TABLE>
21
<PAGE> 294
STOCK PRICES, DIVIDENDS AND DISTRIBUTIONS
The Class A Common Stock is listed and traded on the NYSE under the symbol
"AIV." The following table sets forth, for the periods indicated, the high and
low reported sales prices per share of Class A Common Stock, as reported on the
NYSE Composite Tape, dividends per share declared on Class A Common Stock for
the same periods, and distributions per unit declared on Common OP Units for the
same periods. Common OP Units are subject to restrictions on transfer, and there
is no trading market for the Common OP Units.
<TABLE>
<CAPTION>
COMMON
CLASS A COMMON STOCK OP UNITS
------------------------------ ------------
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ---- --- -------- ------------
<S> <C> <C> <C> <C>
1998
Fourth Quarter (through November 19,
1998).................................... $34 7/8 $32 5/8 $ -- $ --
Third Quarter............................... 41 30 15/16 0.5625 0.5625
Second Quarter.............................. 38 7/8 36 1/2 0.5625 0.5625
First Quarter............................... 38 5/8 34 1/4 0.5625 0.5625
1997
Fourth Quarter.............................. 38 32 0.5625 0.5625
Third Quarter............................... 36 3/16 28 1/8 0.4625 0.4625
Second Quarter.............................. 29 3/4 26 0.4625 0.4625
First Quarter............................... 30 1/2 25 1/2 0.4625 0.4625
1996
Fourth Quarter.............................. 28 3/8 21 1/8 0.4625 0.4625
Third Quarter............................... 22 18 3/8 0.4250 0.4250
Second Quarter.............................. 21 18 3/8 0.4250 0.4250
First Quarter............................... 21 1/8 19 3/8 0.4250 0.4250
</TABLE>
Because AIMCO has elected to be taxed for federal income tax purposes as a
REIT, it is required to distribute annually to its stockholders at least 95% of
its "REIT taxable income," which, as defined by the Code and the Treasury
Regulations, is generally equivalent to net taxable ordinary income. AIMCO
measures its economic profitability and pays regular dividends to its
stockholders based on its operating results during the relevant period. The
future payment of dividends by AIMCO will be at the discretion of the AIMCO
Board of Directors and will depend on numerous factors, including financial
condition, capital requirements, the annual distribution requirements under the
provisions of the Code applicable to REITs and such other factors the AIMCO
Board of Directors deems relevant. See "Business of the Company -- Operating and
Financial Strategies; Dividend Policy."
On January 22, 1998, the AIMCO Board of Directors voted to increase the
annual dividend rate on the Class A Common Stock to $2.25 per share. Such
dividend increase was effective commencing with the dividend with respect to the
fourth quarter of 1997 paid on February 13, 1998 and is subject to the factors
described above, including AIMCO's future results of operations. Historically,
the AIMCO Operating Partnership has made quarterly distributions to holders of
Common OP Units (on a per unit basis) that are equal to the dividends paid on
the Class A Common Stock (on a per share basis). Although this is expected to be
true in the future, there can be no assurance that distributions on the Common
OP Units will always be equal to the dividends on the Class A Common Stock. See
"Risk Factors -- Risks Associated With an Investment in OP Units."
22
<PAGE> 295
BUSINESS OF THE COMPANY
The Company is engaged in the ownership, acquisition, development,
expansion and management of multi-family apartment properties. As of October 31,
1998, the Company owned or managed 386,430 apartment units in 2,240 properties
located in 49 states, the District of Columbia and Puerto Rico. Based on
apartment unit data compiled as of January 1, 1998 by the National Multi Housing
Council, we believe that, as of October 31, 1998, we were the largest owner and
manager of multifamily apartment properties in the United States. The "AIMCO
Properties" include:
- "Owned Properties" -- properties that the Company owns or controls;
- "Equity Properties" -- properties in which the Company owns a
non-controlling (usually less than 30%) interest; and
- "Managed Properties" -- properties that the Company manages for third
parties and affiliates.
As of October 31, 1998, the Company had 241 Owned Properties with 62,955
units, 897 Equity Properties with 168,746 units and 1,102 Managed Properties
with 154,729 units. The Company manages all of the Owned Properties, a majority
of the Equity Properties and all of the Managed Properties.
OPERATING AND FINANCIAL STRATEGIES
The Company uses the following operating and financing strategies to
attempt to meet its objective of providing long-term, predictable FFO per share
(certain terms used herein are defined below in "-- Accounting Policies and
Definitions"):
- Acquisition of Properties at Less Than Replacement Cost. The Company
attempts to acquire properties at a significant discount to their
replacement cost, which the Company believes will provide it with a
competitive cost advantage in comparison to newly constructed properties.
- Geographic Diversification. The Company operates in 49 states, the
District of Columbia and Puerto Rico. This geographic diversification
insulates the Company, to some degree, from inevitable downturns in any
one market. Among Owned Properties and Equity Properties, Houston, Texas,
the Company's largest single regional market, and Dallas, Texas, the
Company's second largest regional market, accounted for approximately
13.9% and 8.0%, respectively, of the properties in which the Company has
an ownership interest, on a pro rata basis.
- 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. The average annual population and employment growth rates
from 1990 to 1995 in The Company's five largest regional markets were
2.3% and 2.6%, respectively, compared to national averages of 1.1% and
1.7%, respectively. For the 1996 to 1999 period, average annual
population and employment growth rates in The Company's five largest
regional markets are forecasted to be 2.2% and 3.6%, respectively,
compared with projected national averages of 0.9% and 2.0%, respectively.
- Product Diversification. The Company's portfolio of apartment properties
also span a range of apartment community types, both within and among
markets. The Company's properties are located in both urban and suburban
areas and range from garden apartments to high rises and from luxury
townhomes to affordable properties.
- 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 also believes
that a program of regular maintenance of the quality of its apartments,
rather than episodic renovation, contributes to the reliability of
earnings per share. The Company presently allocates approximately $300
annually per owned apartment unit for Capital Replacements and reserves
unexpended amounts for future Capital Replacements. From time to time,
the Company reevaluates its Capital Replacement requirements and updates
the amount of its budgeted Capital
23
<PAGE> 296
Replacements per owned apartment unit accordingly. For the nine months
ended September 30, 1998, the Company charged approximately $10.9 million
for Capital Replacements to its reserve, and spent approximately $33.0
million.
- 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 seeks to match debt maturities to the
character of the assets financed. Accordingly, 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 September 30, 1998,
approximately 6% of the Company's outstanding debt was short-term debt
and 94% 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 real estate values
justify the continued investment in the properties. Three properties in
Houston and one property in each of Dallas and Phoenix were sold in
October 1997. The Company recognized a net gain of approximately $2.8
million on the sales.
During the nine months ended September 30, 1998, the Company sold
two apartment communities containing an aggregate 702 apartment units for
aggregate sales price of $18.3 million, less selling costs of $0.3
million. The Company recognized gains of $3.4 million on the sales. The
Company used the cash proceeds to pay down a portion of the outstanding
balance on the Credit Facilities and to pay closing costs.
- Dividend Policy. The Company pays dividends and distributions to share
its profitability with its stockholders and limited partners. For the
years ended December 31, 1997, 1996 and 1995, AIMCO distributed 66.5%,
72.3% and 75.1% of FFO to its stockholders. Amounts not distributed are
available for reinvestment, stock repurchases, amortization of debt and
provide a margin to insulate annual dividends from fluctuations in the
Company's business. AIMCO's dividend for 1997 was $1.85 per share. It is
the present policy of AIMCO to increase the dividend annually in an
amount equal to one-half the rate of the projected increase in FFO,
adjusted for capital replacements. In January 1998, AIMCO increased its
dividend to $0.5625 per share per quarter, commencing with the February
13, 1998 dividend payment which is equivalent to an annualized dividend
of $2.25 per share of Class A Common Stock. The minimum annual
distribution requirement for REITs, which require the distribution of
approximately 95% of "REIT taxable income" (see "Federal Income Taxation
of AIMCO and AIMCO Stockholders -- General"), may result in dividends
increasing at a greater rate in the future.
GROWTH STRATEGIES
The Company seeks growth through two primary sources -- acquisition 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
traditional ancillary services to tenants at the AIMCO Properties. Since AIMCO's
initial public offering in July 1994 (the "AIMCO IPO"), the Company has
completed numerous acquisition transactions, expanding its portfolio of owned or
managed properties from 132 apartment properties with 29,343 units to 2,240
apartment properties with 386,430 units as of October 31, 1998.
The Company believes that its demonstrated ability to evaluate and complete
acquisitions, its property management record and its economies of scale, to the
extent that the Company can operate a property more efficiently than the
existing owner or some competing purchasers, all provide credibility and
advantage in negotiating acquisitions. In addition, the ability to issue OP
Units to sellers of properties may provide tax
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deferral opportunities to sellers and could give the Company an advantage over
competing buyers that cannot offer such tax deferral opportunities. 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 $467.4 million, consisting of $191.0 million in
cash, approximately 1.9 million Common OP Units valued at $56.0 million
and the assumption or incurrence of $220.4 million of indebtedness. See
"-- Recent Property Acquisitions and Dispositions."
- Acquisition of Managed Properties. The Company believes that its property
management operations support its acquisition activities. Its
relationships with owners of the Managed Properties may provide it with a
means of learning of acquisition opportunities at an early stage of the
sale process. In addition, its familiarity with the property and its
ability to quickly evaluate the property give it an advantage in pursuing
and completing any such acquisition in a timely fashion. Since the AIMCO
IPO, the Company has acquired 12 properties comprising 3,530 units from
its managed portfolio for $129.0 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
outstanding limited partnership interests for cash or, in some cases, in
exchange for Common OP Units. After consummation of the Insignia Merger,
the AIMCO Operating Partnership intends to offer to purchase limited
partnership interests in syndicated real estate limited partnerships in
which AIMCO holds partnership interests. The AIMCO Operating Partnership,
subject to applicable law, plans to offer to purchase certain of such
limited partnership interests in exchange for (i) equity securities of
the AIMCO Operating Partnership to be issued pursuant to the Registration
Statement of which this Prospectus forms a part, (ii) cash or (iii) a
combination of such equity securities and cash. Such offers are expected
to include terms that allow limited partners to continue to hold their
limited partnership interests.
- In November 1996, the Company acquired the English Partnerships, which
owned 22 apartment properties. The Company subsequently purchased
pursuant to tender offers to acquire all of the outstanding limited
partnership interests of 25 of the English Partnerships, approximately
46%, in the aggregate, of the outstanding limited partnership interests
in such partnerships for $15.0 million in cash and approximately 71,500
OP Units valued at $1.7 million.
- As of December 31, 1997, the Company has also commenced tender offers to
acquire all of the outstanding limited partnership interests in 26
partnerships owning 25 properties for an aggregate amount of
approximately $79.0 million. Through September 30, 1997, pursuant to such
tender offers, the Company has purchased approximately 20.2%, in the
aggregate, of the outstanding limited partnership interests for $16.0
million in cash.
Internal Growth Strategies. The Company pursues internal growth through the
following strategies:
- Revenue Increases. The Company increases rents where feasible and seeks
to improve occupancy rates. The Company believes that its policy of
capital improvements, amenities and customer service allows it to
maintain demand and to increase its rents above the rate of inflation in
the local market. The Company's "same store" revenues from the Owned
Properties (based on properties owned from period to period) have grown
by 3.3% from the fiscal year ended December 31, 1995 to that ended
December 31, 1996, and by 2.1% from the year ended December 31, 1996 to
that ended December 31, 1997, compared to an urban consumer price
inflation rate of 2.8% and 2.3% over the same periods.
- 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. Recently the Company acquired
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and redeveloped Sun Katcher, a 360-unit property in Jacksonville,
Florida, at a cost of $8.9 million, including $4.9 million in
redevelopment costs. The Company also recently commenced the renovation
and upgrading of Bay West, a 376-unit property in Tampa, Florida, for a
projected cost of $4.8 million, to reposition the property in the
marketplace. In addition, the Company expects to undertake a major
renovation of the Morton Towers apartments, a 1,277 unit property located
in Miami Beach, Florida, at an estimated cost of $35 million. The Company
generally finances redevelopment initially with borrowings from the
Credit Facilities, and subsequently arranges permanent financing.
- 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 expanded property. Recently the Company
constructed 92 additional units at Fairways, in Phoenix, Arizona, at a
cost of $6.5 million. The Company is planning the construction of 42
additional units at Township, in Littleton, Colorado, for a projected
cost of more than $3.0 million. In addition, the Company owns or controls
approximately 136 acres of vacant land, adjacent to existing Owned
Properties or Equity Properties, which the Company believes is suitable
for the development of approximately 1,300 apartment units. The Company
generally finances expansions initially with borrowings from the Credit
Facilities, and subsequently arranges permanent financing.
- 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 its properties to
conventional properties. While management of the Company has commenced
review of the affordable properties, it has not yet made any
determination as to the conversion of any affordable property.
- Ancillary Services. The Company's 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 and carport, garage and storage space rental at
certain AIMCO Properties. For example, as of September 21, 1998, the
Company has installed cable television service to 14,090 units and
currently has more than 8,142 subscribers.
- 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. For
example, the Company's insurance subsidiary provides workers'
compensation and employer liability insurance company-wide, without
incurring material incremental costs as the Company's property assets
grow.
The Company also instills cost discipline in its property managers by
benchmarking their operations against the local market and other AIMCO
Properties.
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PROPERTY MANAGEMENT STRATEGIES
Divisions. The Company's property management strategy is to achieve
improvements in operating results by combining centralized financial control and
uniform operating procedures with localized property management decision making
and market knowledge. The Company's management operations are organized into
five divisions, each supervised by a Division Vice President, who has, on
average, 17 years of experience in apartment management.
<TABLE>
<CAPTION>
APARTMENT APARTMENT
UNITS COMMUNITIES
DIVISIONS MANAGED(1) MANAGED(1)
--------- ---------- -----------
<S> <C> <C>
Great West.......................................... 62,313 411
Southwest........................................... 59,949 298
Southeast........................................... 68,006 337
Mid Atlantic........................................ 61,020 460
Midwest............................................. 67,282 340
------- -----
318,570 1,846
======= =====
</TABLE>
- ---------------
(1) Includes only units and apartment communities managed by the Company as of
October 31, 1998. Does not include 31,625 units in 228 apartment communities
in which the Company has an ownership interest but does not manage, 35,750
units in 164 apartment communities, all of which are managed as a separate
portfolio, and 485 Senior Living Units in 2 properties.
Customer Service. The Company believes that resident satisfaction is
directly related to the experience and training of on-site management personnel.
The Company provides on-site management trained to respond promptly to
residents' needs. To improve customer service, the Company conducts annual
resident satisfaction surveys, guarantees that material defects will be
corrected in 24 hours and refunds related rent if that commitment is not met.
Personnel Policies. The Company has attempted to reduce turnover and retain
experienced personnel by establishing an employee mentoring program and
providing managers with incentive-based compensation. In addition, managing
properties for third parties, the Company believes, improves performance at
Managed Properties and Owned Properties alike by subjecting property managers to
market-based pricing and service standards.
START. Properties that are behind budget or face other significant
operating difficulties receive direct supervision and intervention from START, a
team of professionals, led by Executive Vice President Steven Ira, a founder of
the Company. Members of START focus on not more than 10 to 15 properties at any
one time, which allows them to focus sharply on the subject properties. START
also oversees due diligence on acquisitions and major construction activities.
Management Incentives. The Company believes that equity ownership by
management and equity- and incentive-based compensation are important factors in
attracting, retaining and motivating the most qualified and experienced
personnel and directors. The Company's goal is to align management's interests
with those of stockholders through the use of equity-based compensation plans to
direct management's efforts towards enhancing shareholder value.
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<PAGE> 300
The following table reflects the ownership of Class A Common Stock and OP
Units by senior management of the Company, which, as of September 30, 1998
(assuming full conversion of OP Units), represented approximately 7.3% of the
outstanding Class A Common Stock.
<TABLE>
<CAPTION>
TOTAL SHARES OF
COMMON STOCK AND
OP UNITS OWNED PERCENTAGE
BY MANAGEMENT(1) OWNED INVESTMENT
---------------- ---------- ------------
<S> <C> <C> <C>
AIMCO IPO................................. 926,000 8.6% $ 17 million
December 31, 1995......................... 1,067,000 7.7% $ 21 million
December 31, 1996......................... 2,303,000 12.5% $ 65 million
December 31, 1997......................... 3,843,000 8.4% $141 million
September 30, 1998........................ 3,970,619 7.3% $134 million
</TABLE>
- ---------------
(1) Encumbered by outstanding secured partially recourse notes in the
amount of $43.6 million as of September 30, 1998.
- On July 25, 1997, eleven senior managers of AIMCO purchased 1.1 million
shares of Class A Common Stock at a price of $30 per share in exchange
for promissory notes secured by such stock, which notes are recourse as
to 25% of the principal owed.
- AIMCO pays a majority of the compensation to its outside directors in
Class A Common Stock.
- AIMCO issues all stock options at the then-current market price, and
requires that employees own Class A Common Stock before receiving their
options. As of September 30, 1998, the number of outstanding options was
5,668,562.
On January 21, 1998, the AIMCO Operating Partnership sold an aggregate of
15,000 OP Units designated as Class I High Performance Units (the "High
Performance Units") to a joint venture formed by fourteen of the Company's
officers, and to three of AIMCO's non-employee directors for an aggregate
purchase price of $2,070,000, of which $1,980,300 was paid by the joint venture
and an aggregate of $89,700 was paid by three non-employee directors. The
purchase price of the High Performance Units was determined by the AIMCO Board
of Directors, based upon the advice of an independent valuation expert that this
purchase price represented the fair market value of the High Performance Units.
The sale of the High Performance Units was ratified by the stockholders on May
8, 1998.
Holders of High Performance Units have no rights to receive distributions
or allocations of income or loss, or to redeem their High Performance Units
prior to the date (the "Valuation Date") that is the earlier of (i) January 1,
2001, or (ii) the date on which a change of control occurs. If, on the Valuation
Date, the cumulative Total Return of the Class A Common Stock from January 1,
1998 to the Valuation Date (the "Measurement Period") exceeds 115% of the
cumulative Total Return (as defined below) of a peer group index over the same
period, and is at least the equivalent of a 30% cumulative Total Return over
three years (the "Minimum Return"), then, on and after the Valuation Date,
holders of the 15,000 High Performance Units will be entitled to receive
distributions and allocations of income and loss from the AIMCO Operating
Partnership in the same amounts and at the same times (subject to certain
exceptions upon liquidation of the AIMCO Operating Partnership) as would holders
of a number of OP Units equal to the quotient obtained by dividing (i) the
product of (A) 15% of the amount by which the cumulative Total Return of the
Class A Common Stock over the Measurement Period exceeds the greater of 115% of
the peer group index or the Minimum Return, multiplied by (B) the weighted
average market value of the Company's equity capitalization (including Class A
Common Stock and OP Units) by (ii) the market value of one share of Class A
Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative
Total Return of the Class A Common Stock does not satisfy these criteria, then,
on and after the Valuation Date, holders of the 15,000 High Performance Units
will be entitled to receive distributions and allocations of income and loss
from the AIMCO Operating Partnership in the same amounts and at the same times
(subject to certain exceptions upon a liquidation of the AIMCO Operating
Partnership) as would holders of 150 OP Units. For purposes of
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<PAGE> 301
determining the market value of Class A Common Stock or OP Units as of any date,
the average closing price of the Class A Common Stock for the 20 trading days
immediately preceding such date is used. It is expected that the Morgan Stanley
REIT Index, a capitalization-weighted index with dividends reinvested of the
most actively traded real estate investment trusts, will be used as the peer
group index for purposes of the High Performance Units.
"Total Return" means, for any security and for any period, the cumulative
total return for such security over such period, as measured by (i) the sum of
(a) the cumulative amount of dividends paid in respect of such security for such
period (assuming that all cash dividends are reinvested in such security as of
the payment date for such dividend based on the security price on the dividend
payment date), and (b) an amount equal to (x) the security price at the end of
such period, minus (y) the security price at the beginning of such period,
divided by (ii) the security price at the beginning of the measurement period;
provided, however, that if the foregoing calculation results in a negative
number, the "Total Return" shall be equal to zero.
Upon the occurrence of a change of control, any holder of High Performance
Units may, subject to certain restrictions, require the AIMCO Operating
Partnership to redeem all or a portion of the High Performance Units held by
such party in exchange for a cash payment per unit equal to the market value of
a share of Class A Common Stock at the time of redemption. However, in the event
that any High Performance Units are tendered for redemption, the AIMCO Operating
Partnership's obligation to pay the redemption price is subject to the prior
right of AIMCO to acquire such High Performance Units in exchange for an equal
number of shares of Class A Common Stock (subject to certain adjustments).
ACCOUNTING POLICIES AND DEFINITIONS
The Company has the following accounting policies and definitions:
Funds from Operations. The Board of Governors of NAREIT defines FFO as net
income (loss), computed in accordance with generally accepted accounting
principles, 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. The Company calculates FFO in a manner
consistent with the NAREIT definition, which includes adjustments for minority
interest in the AIMCO 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 perpetual
preferred stock. The Company's management believes that presentation of FFO
provides investors with industry accepted measurements which help facilitate
understanding of the Company's ability to meet required dividend payments,
capital expenditures, and principal payments on its debt. There can be no
assurance that the Company's basis of computing FFO is comparable with that of
other REITs.
Capital Replacements. The Company capitalizes spending for items which
generally cost more than $250 and have a useful life of more than one year, such
as carpet replacement, new appliances, new roofs or parking lot repaving.
Capitalized spending which maintains a property is termed a "Capital
Replacement." In the experience of the Company's management, this spending is
better considered a recurring cost of preserving an asset rather than an
additional investment.
Consolidation. For financial reporting purposes, the Company consolidates
the results of those corporations in which it owns a majority of the outstanding
voting stock, and those limited partnerships and limited liability companies in
which it owns both a general partnership or managing member interest and
controls investment decisions with respect to the underlying assets. The Company
generally has a 30% to 51% economic interest in such entities. Entities in which
the Company has less than a 30% economic interest or limited control are
accounted for on the equity method. The Company policy is generally to hold
Class C properties and affordable properties (substantially all of which are
Class C properties) in unconsolidated partnerships. The Company accounts for
these properties on the equity method in accordance with GAAP.
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POLICIES OF THE COMPANY WITH RESPECT TO CERTAIN OTHER ACTIVITIES
The following is a discussion of certain other investment objectives and
policies, financing policies and other policies of the Company. These policies
are determined by the officers and directors of AIMCO and may be amended or
revised from time to time at their discretion without a vote of AIMCO's
stockholders. As the sole general partner of the AIMCO Operating Partnership,
AIMCO also determines the investment policies of the AIMCO Operating
Partnership.
Investment in Others. The Company may also participate with other entities
in property ownership, through joint ventures or other types of co-ownership.
Any such equity investment may be subject to existing mortgage financing and
other indebtedness which would have priority over the equity of the Company in
that property.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities. The Company may also acquire securities of or interests in persons
engaged in the acquisition, redevelopment and/or management of multifamily
apartment properties.
Investments in Real Estate Mortgages. While the Company generally
emphasizes direct real estate investments, it may, in its discretion and subject
to the percentage ownership limitations and gross income tests necessary for
REIT qualification, invest in mortgage and other indirect real estate interests,
including securities of other real estate investment trusts. The Company has not
previously invested in mortgages or securities of other real estate investment
trusts and the Company does not presently intend to invest to a significant
extent in mortgages or securities of other real estate investment trusts.
Operating and Financing Policies. The Company seeks to maintain a ratio of
EBITDA (less a provision of approximately $300 per owned apartment unit) to debt
(the "Debt Coverage Ratio") of at least 2 to 1, and to match debt maturities to
the character of the assets financed. See "-- Operating and Financial
Strategies -- Debt Financing." The Company, however, may from time to time
re-evaluate borrowing policies in light of then current economic conditions,
relative costs of debt and equity capital, market values of properties, growth
and acquisition opportunities and other factors. The Company may modify its
borrowing policy and may increase or decrease its Debt Coverage Ratio policy.
To the extent that the AIMCO Board of Directors determines to seek
additional capital, the Company may raise such capital through additional equity
offerings, debt financing or retention of cash flow (after consideration of
provisions of the Code requiring the distribution by a REIT of a certain
percentage of taxable income and taking into account taxes that would be imposed
on undistributed taxable income), or through a combination of these sources. The
Company presently anticipates that any additional borrowings will be made
through the AIMCO Operating Partnership, although AIMCO might incur borrowings
that would be reloaned to the AIMCO Operating Partnership. The AIMCO Operating
Partnership cannot incur indebtedness that is recourse to AIMCO without AIMCO's
approval. AIMCO may approve the AIMCO Operating Partnership's incurring
additional debt that is recourse to the AIMCO Operating Partnership. Borrowings
may be unsecured or may be secured by any or all assets of AIMCO, the AIMCO
Operating Partnership, or any existing or new property and may have full or
limited recourse to all or any portion of the assets of AIMCO, the AIMCO
Operating Partnership, or any existing or new property.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
AIMCO may also determine to issue securities senior to the Class A Common
Stock, including preferred stock and debt securities (either of which may be
convertible into capital stock or be accompanied by warrants to purchase capital
stock). The Company may also determine to finance acquisitions through the
exchange of properties or issuance of additional OP Units, shares of Class A
Common Stock or other securities.
If the AIMCO Board of Directors determines to raise additional equity
capital, the AIMCO Board of Directors has the authority, without stockholder
approval, to issue additional shares of Class A Common Stock or other capital
stock (including securities senior to the Class A Common Stock) in any manner
(and on such terms and for such consideration) it deems appropriate, including
in exchange for property. Such
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issuances might cause a dilution of a stockholder's investment in AIMCO. If the
AIMCO Board of Directors determines to raise additional equity capital to fund
investments by the AIMCO Operating Partnership, AIMCO will contribute such funds
to the AIMCO Operating Partnership as a contribution to capital and purchase of
additional general partnership interests. AIMCO may issue additional shares of
Class A Common Stock in connection with the acquisition of OP Units that are
tendered to the AIMCO Operating Partnership for redemption.
The AIMCO Board of Directors also has the authority to cause the AIMCO
Operating Partnership to issue additional OP Units in any manner (and on such
terms and for such consideration) as it deems appropriate, including in exchange
for property. Any such new OP Units will be redeemable at the option of the
holder, which redemption AIMCO intends to cause to be made in Class A Common
Stock pursuant to the redemption rights.
Conflict of Interest Policies. The Company has adopted certain policies
designed to minimize or eliminate conflicts of interests between the Company and
its executive officers and directors. Without the approval of a majority of the
disinterested directors, the Company will not (i) acquire from or sell to any
director, officer or employee of the Company or any entity in which a director,
officer or employee of the Company owns more than a 1% interest, or acquire from
or sell to any affiliate of any of the foregoing, any assets or other property
of the Company, (ii) make any loan to or borrow from any of the foregoing
persons, or (iii) engage in any material transaction with the foregoing. In
addition, the Company has entered in to employment agreements with Messrs.
Considine, Kompaniez and Ira which include provisions intended to eliminate or
minimize potential conflicts of interest, and which provide that those persons
will be prohibited from engaging directly or indirectly in the acquisition,
development, operation or management of other multifamily apartment properties
outside of the Company, except with respect to certain investments currently
held by such persons, as to which investments those persons have committed to an
orderly liquidation. There can be no assurance, however, that these policies
always will be successful in eliminating the influence of such conflicts, and if
they are not successful, decisions could be made that might fail to reflect
fully the interests of AIMCO's stockholders as a whole.
Policies with Respect to Other Activities. The Company has authority to
offer shares of its capital stock or other securities and to repurchase or
otherwise reacquire its shares or any other securities, has done so, and may
engage in such activities in the future. From its inception, the Company has
made loans aggregating $5.1 million to certain entities owning properties
subsequently acquired by the Company. No balances remain outstanding on such
loans. In the same period, the Company has made loans aggregating $76.5 million
to its officers for the purchase of Class A Common Stock and $5.1 million to its
officers and other entities to acquire interests in subsidiaries of the Company.
The outstanding balances on such loans as of August 31, 1998 were $42.7 million
and $3.1 million, respectively. Messrs. Considine and Kompaniez have repaid in
part, using $2.0 million in proceeds distributed to them from the sale of NHP
Common Stock by AIMCO/NHP Holdings, Inc. ("ANHI") to AIMCO, outstanding
promissory notes payable by them to ANHI in an aggregate amount of $3.2 million,
which loan was made to them by ANHI to acquire their interest in ANHI. In
addition, the Company from time to time advances amounts for relocation and
other expenses. The Company has not engaged in underwriting securities of other
issuers. Each of AIMCO and the AIMCO Operating Partnership intend to make
investments in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940, as amended.
The Company may invest in the securities of other issuers engaged in the
ownership, acquisition or management of multifamily apartment properties for the
purpose of exercising control.
At all times, the Company intends to make investments in such a manner as
to be consistent with the requirements of the Code for AIMCO to qualify as a
REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the AIMCO Board of Directors determines that it is no
longer in the best interest of AIMCO to qualify as a REIT.
AIMCO, as a REIT, is required to distribute annually to holders of Class A
Common Stock at least 95% of its "REIT taxable income," which, as defined by the
Code and the Treasury Regulations, is generally equivalent to net taxable
ordinary income. AIMCO measures its economic profitability, and intends to pay
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regular dividends to its stockholders, based on earnings during the relevant
period. However, the future payment of dividends by AIMCO will be at the
discretion of the AIMCO Board of Directors and will depend on numerous factors,
including AIMCO's financial condition, its capital requirements, the annual
distribution requirements under the provisions of the Code applicable to REITs
and such other factors as the AIMCO Board deems relevant.
YEAR 2000 READINESS DISCLOSURE
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Over the past twenty months, the Company has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. To date, the
Company has fully completed its assessment of all information systems that could
be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each is
detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware
During 1997, AIMCO identified all of the computer systems at risk and
formulated a plan to repair or replace each of the affected systems. The Company
has replaced its mainframe system, including the creation of new applications,
at a total cost of approximately $1.1 million. In August 1998, the Year-2000
compliant system became fully functional. In addition to the mainframe, PC-based
network servers and routers and desktop PCs were analyzed for compliance. AIMCO
has begun to replace each of the non-compliant network connections and desktop
PCs and, as of September 30, 1998, is approximately 85% complete with this
effort. The total cost to replace the PC-based network servers and routers and
desktop PCs is expected to be approximately $1.2 million, of which $886,000 has
been incurred to date. The remaining network connections and desktop PCs are
expected to be upgraded to Year-2000 compliant systems by March 31, 1999.
Computer Software
As for software, AIMCO utilizes a combination of off-the-shelf commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In 1997, when AIMCO merged with NHP Incorporated, the core financial system
used by NHP was Year-2000 compliant. During 1998, AIMCO integrated all of its
core financial systems to this compliant system for general ledger and financial
reporting purposes. In 1997, AIMCO determined that the software used for
property management and rent collection was not Year-2000 compliant. During
1998, AIMCO has
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implemented a Year-2000 compliant system at each of its 926 property sites,
including owned and managed, at a cost of $700,000. Since then, AIMCO has
acquired 75 properties and has also merged with Insignia Financial Group
("IFG"). IFG owned or managed 140 properties. As properties are acquired, AIMCO
converts the existing property management and rent collection systems to AIMCO's
Year-2000 compliant systems. The estimated additional costs to convert such
systems at all recently acquired properties, including those acquired in the
merger with IFG, is $200,000, and the implementation and testing process is
expected to be completed by March 31, 1999.
The final software area is the office software and server operating
systems. AIMCO has upgraded all non-compliant office software systems on each PC
and has upgraded 93% of the server operating systems. The remaining server
operating systems are planned to be upgraded to be Year-2000 compliant by
December 1998.
Operating Equipment
AIMCO has operating equipment, primarily at the property sites, which
needed to be evaluated for Year-2000 compliance. In September 1997, AIMCO began
taking a census and inventorying embedded systems issues. At that time,
management chose to focus its attention mainly upon security systems, elevators,
heating-ventilation-air-conditioning systems (HVAC), telephone systems and
switches, and sprinkler systems. While this area is the most difficult to fully
research adequately, management has not yet found any major non-compliance
issues that put AIMCO at risk financially or operationally. We intend to have a
third-party conduct an audit of these systems and report their findings by
December 1998.
Any of the above operating equipment that has been found to be
non-compliant to date has been replaced or repaired. To date, these have
consisted only of security systems and phone systems. As of September 30, 1998,
we have evaluated approximately 86% of the operating equipment for Year-2000
compliance. The total cost incurred as of September 30, 1998 to replace or
repair the operating equipment was approximately $70,000. We estimate the cost
to replace or repair any remaining operating equipment is approximately
$325,000, and we expect to be completed by April 30, 1999. We continue to have
"awareness campaigns" throughout the organization designed to raise awareness
and report any possible compliance issues regarding operating equipment within
our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
AIMCO is currently actively conducting surveys of its banking and vendor
relationships to assess risks regarding their Year-2000 readiness. AIMCO has
banking relationships with three major financial institutions, all of which have
indicated their compliance efforts will be complete before May 1999. AIMCO has
updated data transmission standards with two of the three financial
institutions. AIMCO's contingency plan in this regard is to move accounts from
any institution that cannot be certified 2000 compliant by June 1, 1999.
The Company does not rely heavily on any single vendor for goods and
services and does not have significant suppliers and subcontractors who share
information systems with the Company (external agents). To date, the Company is
not aware of any external agent with a Year 2000 issue that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that external agents will be Year
2000 ready. Management does not believe that the inability of external agents to
complete their Year 2000 resolution process in a timely manner will have a
material impact on the financial position or results of operations of the
Company. However, the effect of non-compliance by external agents is not readily
determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project is estimated at $3.4 million and is
being funded through operating cash flows. To date, the Company has incurred
approximately $2.8 million ($0.4 million expensed and $2.4 million capitalized
for new systems and equipment), related to all phases of the Year 2000 project.
Of the total remaining project costs, approximately $0.4 million is attributable
to the purchase of new software and operating equipment, which will be
capitalized. The remaining $0.2 million relates to repair of hardware and
software and will be expensed as incurred.
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Risks Associated with the Year 2000
Management believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
completed all necessary phases of the Year 2000 program. In the event that the
Company does not complete any additional phases, certain worst case scenarios
could occur. The worst case scenarios include elevators, security and HVAC
systems that read incorrect dates and operate with incorrect schedules (e.g.,
elevators will operate on Monday as if it were Sunday). Although such a change
is annoying to residents, it is not business critical. In addition, disruptions
in the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
Contingency Plans Associated with the Year 2000
The Company has contingency plans for certain critical application and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds and selecting new relationships for such activities
as banking relationships and elevator operating systems.
DESCRIPTION OF PREFERRED STOCK
GENERAL
AIMCO 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 that may be issued
and sold pursuant hereto, 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 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.
The Charter authorizes the issuance of up to 510,750,000 shares of its
capital Stock. As of November 15, 1998, 484,027,500 shares were classified as
Class A Common Stock, 262,500 shares were classified as Class B Common Stock,
750,000 shares were classified as Class B Cumulative Convertible Preferred
Stock, par value $.01 per share ("Class B Preferred Stock"), 2,760,000 shares
were classified as Class C Cumulative Preferred Stock, par value $.01 per share
("Class C Preferred Stock"), 4,600,000 shares were classified as Class D
Cumulative Preferred Stock, par value $.01 per share ("Class D Preferred
Stock"), 10,000,000 shares were classified as Class E Cumulative Preferred
Stock, par value $.01 per share ("Class E Preferred Stock"), 4,050,000 shares
were classified as Class G Cumulative Preferred Stock, par value $.01 per share
("Class G Preferred Stock"), 2,300,000 shares were classified as Class H
Cumulative Preferred Stock, par value $.01 per share ("Class H Preferred Stock")
and 2,000,000 shares were classified as Class J Cumulative Convertible Preferred
Stock, par value $.01 per share ("Class J Preferred Stock"). Under the Charter,
the AIMCO Board of Directors has the authority to classify and reclassify any of
its unissued capital Stock into 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 capital Stock including, but not
limited to, ownership restrictions consistent with the Ownership Limit with
respect to each series or class of capital Stock, and the number of shares
constituting each series or class, and to increase or decrease the number of
shares of any such series or class, to the extent permitted by the Maryland
General Corporation Law (the "MGCL").
The AIMCO Board of Directors is authorized to determine for each series of
Preferred Stock, and the Prospectus Supplement will set forth with respect to
each class or series that may be issued and sold pursuant
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hereto: (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 AIMCO,
(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 AIMCO and any other rights of the shares of such
series upon any liquidation or winding-up of AIMCO, (vi) whether or not and on
what terms the shares of such series will be subject to redemption or repurchase
at the option of AIMCO, (vii) whether and on what terms the shares of such
series will be convertible into or exchangeable for other debt or equity
securities of AIMCO, (viii) whether the shares of such series of Preferred Stock
will be listed on a securities exchange, (ix) any special United States federal
income tax considerations applicable to such series, and (x) 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 AIMCO Board of Directors, out of funds of AIMCO 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.
Each series of Preferred Stock that may be issued and sold pursuant hereto,
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 AIMCO has failed to pay accrued dividends on any such senior shares
at the time such dividends are payable, AIMCO 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 AIMCO.
No dividends (other than in Class A Common Stock or Class B Common Stock
(collectively, the "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 AIMCO
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 AIMCO
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 AIMCO (except by
conversion into or exchange for other capital stock of AIMCO 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 AIMCO 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.
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CONVERTIBILITY
The applicable Prospectus Supplement for each series of Preferred Stock
that may be issued and sold pursuant hereto will set forth the terms and
conditions of such series of Preferred Stock with respect to whether such series
of Preferred Stock will be convertible into, or exchangeable for, other
securities or property, 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
The applicable Prospectus Supplement for each series of Preferred Stock
that may be issued and sold pursuant hereto will set forth the terms and
conditions of such series of Preferred Stock with respect to redemption rights
and the benefit of any sinking fund, including the dates and redemption prices
of any such redemption, any conditions thereto, and any other redemption or
sinking fund provisions.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of AIMCO, the
holders of shares of each series of Preferred Stock that may be issued and sold
pursuant hereto are entitled to receive out of assets of AIMCO available for
distribution to stockholders, before any distribution of assets is made to
holders of: (i) any other shares of Preferred Stock ranking junior to such
series of Preferred Stock as to rights upon liquidation, dissolution or winding
up; and (ii) shares of Common Stock, liquidating distributions per share in the
amount of the liquidation preference specified in the applicable Prospectus
Supplement for such series of Preferred Stock plus any dividends accrued and
accumulated but unpaid to the date of final distribution; but the holders of
each series of Preferred Stock will not be entitled to receive the liquidating
distribution of, plus such dividends on, such shares until the liquidation
preference of any shares of AIMCO'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 AIMCO,
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. 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 AIMCO.
Neither a consolidation or merger of AIMCO with another corporation nor a sale
of securities shall be considered a liquidation, dissolution or winding up of
AIMCO.
VOTING RIGHTS
Holders of Preferred Stock that may be issued and sold pursuant hereto will
have the voting rights required by law and the voting rights described below.
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 AIMCO 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. Holders of shares of Preferred Stock that
may be issued and sold pursuant hereto will have one vote for each share held.
So long as any shares of any series of Preferred Stock remain outstanding,
AIMCO 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 AIMCO upon
which like voting rights
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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 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 that may be issued and sold pursuant hereto, 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
AIMCO shall resume the status of authorized and unissued shares of Preferred
Stock undesignated as to series, and shall be available for subsequent issuance.
The applicable Prospectus Supplement will set forth the restrictions, if any, on
repurchase or redemption of the Preferred Stock while there is any arrearage on
sinking fund installments. 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 AIMCO. The
applicable Prospectus Supplement will describe any material contractual
restrictions on such dividend payments.
OTHER RIGHTS
The shares of a series of Preferred Stock that may be issued and sold
pursuant hereto will have the preferences, voting powers or relative,
participating, optional or other special rights 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 that
may be issued and sold pursuant hereto will be designated in the applicable
Prospectus Supplement.
CLASS B PREFERRED STOCK
On August 4, 1997, AIMCO issued 750,000 shares of its Class B Preferred
Stock to an institutional investor (the "Preferred Share Investor") in a private
transaction. The Class B Preferred Stock (a) ranks prior to the Common Stock and
the Class E Preferred Stock with respect to dividends, liquidation, dissolution
and winding-up, and has an aggregate liquidation value of $75 million and (b)
ranks on parity with the Class C Preferred Stock, the Class D Preferred Stock,
the Class G Preferred Stock, the Class H Preferred Stock and the Class J
Preferred Stock. Holders of the Class B Preferred Stock are entitled to receive,
when, as and if declared by the AIMCO 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 AIMCO capital stock that ranks on a parity with the Class B Preferred Stock
with respect to the payment of dividends or upon liquidation, dissolution,
winding up or otherwise ("Class B Parity Stock"), will be entitled to elect (i)
two directors of AIMCO if six quarterly dividends (regardless of whether
consecutive) on the Class B Preferred Stock or any Class B 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.
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The affirmative vote of the holders of two-thirds of the outstanding shares of
Class B Preferred Stock will be required to amend the 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 in accordance with Sections
856 through 860 of the Internal Revenue Code, the Base Rate for the quarterly
cash dividends on the Class B Preferred Stock would increase 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% of the liquidation preference thereof,
plus accrued and unpaid dividends on the purchased shares, if (i) AIMCO shall
fail to continue to be taxed as a REIT pursuant to Sections 856 through 860 of
the Internal Revenue Code, 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 AIMCO 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 interest, taxes, depreciation and
amortization to aggregate consolidated fixed charges for the four fiscal
quarters immediately preceding such issuance would be less than 1.5 to 1.
Subject to certain exceptions specified in the provisions of the Charter
establishing the terms of the Class B Preferred Stock, no holder may own, or be
deemed to own by virtue of various attribution and constructive ownership
provisions of the Internal Revenue Code and Rule 13d-3 under the Securities
Exchange Act of 1934, shares of Class B Preferred Stock with a value in excess
of the amount by which (i) 8.7% (or 15% in the case of certain pension trusts
described in the Internal Revenue Code, investment companies registered under
the Investment Company Act of 1940 and Mr. Considine) of the aggregate value of
all shares of capital stock of AIMCO exceeds (ii) the aggregate value of all
shares of capital stock of AIMCO, other than Class B Preferred Stock, that are
owned by such holder (the "Class B Preferred Ownership Limit"). The AIMCO Board
of Directors may waive such ownership limit if evidence satisfactory to the
AIMCO Board and AIMCO's tax counsel is presented that such ownership will not
then or in the future jeopardize AIMCO's status as a REIT. As a condition of
such waiver, the AIMCO 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 AIMCO. If shares of Class B Preferred Stock in
excess of the Class B Preferred Ownership Limit, or shares of Class B Preferred
Stock which would result in AIMCO being "closely held," within the meaning of
Section 856(h) of the Internal Revenue Code, or which would otherwise result in
AIMCO failing to qualify as a REIT, are issued or transferred to any person,
such issuance or transfer will be null and void to the intended transferee, and
the intended transferee would acquire no rights to the stock. Shares of Class B
Preferred Stock transferred in excess of the Class B Preferred 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 AIMCO. 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 Class B Preferred 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 AIMCO 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 AIMCO determines to purchase the
stock. The 90-day period commences on the date of the violative transfer or the
date that the AIMCO Board
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determines in good faith that a violative transfer has occurred, whichever is
later. All certificates representing shares of Class B Preferred Stock bear a
legend referring to the restrictions described above.
CLASS C PREFERRED STOCK
On December 23, 1997, AIMCO issued 2,400,000 shares of its 9% Class C
Preferred Stock in an underwritten public offering for net proceeds of
approximately $57.9 million. The Class C Preferred Stock (a) ranks prior to the
Common Stock, the Class E Preferred Stock and any other class or series of
capital stock of AIMCO if the holders of the Class C Preferred Stock are
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution, and winding-up in preference or priority to the
holders of shares of such class or series ("Class C Junior Stock"), (b) ranks on
parity with the Class B Preferred Stock, the Class D Preferred Stock, the Class
G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock, and
with any other class or series of capital stock of AIMCO if the holders of such
class of stock or series and the Class C 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 ("Class C Parity Stock") and (c) ranks junior to any
class or series of capital stock of AIMCO if 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 C Preferred Stock ("Class C 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. 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 Class C Junior Stock, the holders of
Class C Preferred Stock shall be entitled to receive a liquidation preference of
$25 per share (the "Class C Liquidation Preference"), 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 and any liquidating payments on any other shares of
any class or series of Class C Parity Stock, then such proceeds shall be
distributed among the holders of Class C Preferred Stock and any such other
Class C 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 Class C
Parity Stock if all amounts payable thereon were paid in full.
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 the Class C Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class C Preferred Stock has no stated
maturity and will not be subject to any sinking find 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 Class
C Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class C Preferred Stock (voting together as a single class with all
other shares of Class C 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 such purpose. The
affirmative vote of the holders of two thirds of the outstanding shares of Class
C Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class C Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class C
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class C Preferred Stock
that are similar to those for the Class B Preferred Stock.
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CLASS D PREFERRED STOCK
On February 19, 1998, AIMCO issued 4,200,000 shares of its 8 3/4% Class D
Preferred Stock, in an underwritten public offering, for net proceeds of
approximately $101.5 million. The Class D Preferred Stock (a) ranks prior to the
Common Stock, the Class E Preferred Stock, and any other class or series of
capital stock of AIMCO if the holders of the Class D Preferred Stock are to be
entitled to the receipt of dividends of or amounts distributable upon
liquidation, dissolution, and winding-up in preference or priority to the
holders of shares of such class or series ("Class D Junior Stock"), (b) ranks on
parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class
G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock, and
with any other class or series of capital stock of AIMCO if the holders of such
class of stock or series 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 ("Class D Parity Stock") and (c) ranks junior to any
class or series of capital stock of AIMCO if 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 ("Class D Senior Stock").
Holders of Class D Preferred Stock are entitled to receive 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 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. 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 Class D Junior Stock, the holders of
Class D Preferred Stock shall be entitled to receive a liquidation preference of
$25 per share (the "Class D Liquidation Preference"), 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 and any liquidating payments on any other shares of
any class or series of Class D Parity Stock, then such proceeds shall be
distributed among the holders of Class D Preferred Stock and any such other
Class D 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 Class D
Parity Stock if all amounts payable thereon were paid in full.
On and after February 19, 2003, AIMCO may redeem shares of Class D
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class D Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class D Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class D Preferred Stock have no voting rights, except
that if distributions on Class D Preferred Stock or any series or class of Class
D Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class D Preferred Stock (voting together as a single class with all
other shares of Class D 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 D Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
D Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class D Preferred Stock, and to
approve the issuance of any capital stock that ranks senior to the Class D
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class D Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS E PREFERRED STOCK
On October 1, 1998, Insignia Financial Group, Inc. was merged into AIMCO.
As merger consideration, AIMCO issued to the former Insignia stockholders 8.4
million shares of Class E Preferred Stock and reserved an additional 0.5 million
shares for options and warrants, in the aggregate. The Class E Preferred Stock
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(a) ranks prior to Common Stock, and any other class or series of capital stock
of AIMCO if holders of the Class E Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class E Junior Stock"), (b) ranks on a parity with any class or
series of capital stock of AIMCO if the holders of such class or series of stock
and the Class E 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
("Class E Parity Stock") and (c) ranks junior to the Class B Preferred Stock,
the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred
Stock, the Class H Preferred Stock, the Class J Preferred Stock and any other
class or series of capital stock of AIMCO if 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 E Preferred Stock ("Class E Senior Stock").
On any date (each, a "Dividend Payment Date") on which cash dividends are
paid on the Class A Common Stock prior to the Class E Conversion Date (as
defined below), holders of Class E Preferred Stock are entitled to receive cash
dividends payable in an amount per share of Class E Preferred Stock equal to the
per share dividend payable on Class A Common Stock on such Dividend Payment
Date. Such dividends shall be cumulative from the date of original issue, and
shall be payable quarterly in arrears on the Dividend Payment Dates, commencing
on the first Dividend Payment Date after the date of original issue. 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 Class E
Junior Stock, the holders of Class E Preferred Stock shall be entitled to
receive a liquidation preference of $1 per share plus the Special Dividend if
such dividend is unpaid on the date of the final distribution to such holders
(collectively, the "Class E Liquidation Preference"), and thereafter each share
of Class E Preferred Stock shall have the same rights with respect to assets of
AIMCO as one share of Class A Common Stock.
On or after the twentieth anniversary of the Effective Time, AIMCO may
redeem shares of Class E Preferred Stock, in whole or in part, at a cash
redemption price equal to the sum of (i) the greater of (A) the Current Market
Price (as defined below) of the Class A Common Stock on the date specified for
redemption by AIMCO in a notice sent to holders of Class E Preferred Stock (the
"Class E Call Date") or (B) the AIMCO Index Price, but determined without giving
effect to the limitation of $38.00 per share, plus (ii) all accrued and unpaid
dividends to the Call Date. The Class E Preferred Stock has no stated maturity
and will not be subject to any sinking fund or mandatory redemption provisions.
"Current Market Price" per share of Class A Common Stock on any date means
the average of the daily market prices of a share of Class A Common Stock for
the five consecutive trading days preceding such date. The market price for each
such day shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Class A Common Stock is not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Class A Common Stock is listed or admitted to
trading or, if the Class A Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted price, or if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Class A Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Class A Common Stock selected by the AIMCO Board.
Holders of shares of Class E Preferred Stock are entitled to one-half
( 1/2) of one vote with respect to all matters in which holders of Class A
Common Stock are entitled to vote thereon. In addition, if any portion of the
Special Dividend has yet to be declared and paid to the holders of Class E
Preferred Stock on January 15, 1999, or if distributions on Class E Preferred
Stock or any series or class of Parity Stock shall be in arrears for
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six or more quarterly periods, the number of directors constituting the AIMCO
Board shall be increased by two and the holders of Class E Preferred Stock
(voting together as a single class with all other shares of Class E Parity Stock
which are entitled to similar voting rights) will be entitled to vote for the
election of such additional directors. Such right shall continue until full
cumulative dividends for all past dividend periods on all shares of Preferred
Stock, including any shares of Class E Preferred Stock, have been paid or
declared and set apart for payment.
On any date which the Special Dividend, or any portion thereof, is paid
(which may be declared by the AIMCO Board in its sole discretion), the holders
of Class E Preferred Stock shall be entitled to receive an amount per share of
Class E Preferred Stock equal to the Special Dividend divided by the Series E
Conversion Ratio (as defined in the Insignia Merger Agreement). After January
15, 1999, if any portion of the Special Dividend or any other dividend has yet
to be declared and paid to the holders of Class E Preferred Stock, no dividends
may be declared or paid or set apart for payment by AIMCO on its Common Stock.
On the close of business on the day on which the Special Dividend (or any
remaining unpaid portion thereof) is paid to the holders of the Class E
Preferred Stock, each share of Class E Preferred Stock will be automatically
converted into one share of Class A Common Stock without any action on the part
of AIMCO or the holder of such share (the "Class E Conversion Date"). If AIMCO
at any time following the Effective Time pays a dividend or makes a
distribution, subdivides, combines, reclassifies, issues rights, options or
warrants or makes any other distribution in securities in relation to its
outstanding Class A Common Stock, then AIMCO will contemporaneously do the same
with respect to the Class E Preferred Stock.
CLASS G PREFERRED STOCK
On July 15, 1998, AIMCO issued 4,050,000 shares of its Class G Preferred
Stock, in an underwritten public offering for net proceeds of approximately
$98.0 million. The Class G Preferred Stock (a) ranks prior to the Common Stock,
the Class E Preferred Stock and any other class or series of capital Stock of
AIMCO, if the holders of the Class G Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class G Junior Stock"), (b) ranks on parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class H Preferred Stock, the Class J Preferred Stock and with any other class or
series of capital Stock of AIMCO, if the holders of such class of Stock or
series and the Class G 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 ("Class G Parity Stock") and (c) ranks junior to any class or
series of capital Stock of AIMCO if 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
G Preferred Stock ("Class G Senior Stock").
Holders of Class G Preferred Stock are entitled to receive cash dividends
at the rate of 9 3/8% per annum of the $25 liquidation preference (equivalent to
$2.34375 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 October 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 Class G
Junior Stock, the holders of Class G Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class G Liquidation
Preference"), 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 and any
liquidating payments on any other shares of any class or series of Class G
Parity Stock, then such proceeds shall be distributed among the holders of Class
G Preferred Stock and any such other Class G Parity Stock ratably in the same
proportion as the respective amount that would be payable on such Class G
Preferred Stock and any such other Class G Parity Stock if all amounts payable
thereon were paid in full.
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On and after July 15, 2008, AIMCO may redeem shares of Class G Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class G Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class G Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class G Preferred Stock have no voting rights, except
that if distributions on Class G Preferred Stock or any series or class of Class
G Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class G Preferred Stock (voting together as a single class with all
other shares of Class G 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 G Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
G Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class G Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class G
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class G Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS H PREFERRED STOCK
On August 11, 1998, AIMCO issued 2,000,000 shares of its Class H Preferred
Stock, in an underwritten public offering for net proceeds of approximately
$48.1 million. The Class H Preferred Stock (a) ranks prior to the Common Stock,
the Class E Preferred Stock and any other class or series of capital Stock of
AIMCO if the holders of the Class H Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class H Junior Stock"), (b) ranks on parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and
the Class G Preferred Stock, and with any other class or series of capital Stock
of AIMCO, if the holders of such class of Stock or series, the Class G Preferred
Stock, the Class J 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
("Class H Parity Stock") and (c) ranks junior to any class or series of capital
Stock of AIMCO if 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 H Preferred
Stock ("Class H Senior Stock").
Holders of Class H Preferred Stock are entitled to receive cash dividends
at the rate of 9 1/2% per annum of the $25 liquidation preference (equivalent to
$2.375 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 October 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 Class H
Junior Stock, the holders of Class H Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class H Liquidation
Preference"), 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 and any
liquidating payments on any other shares of any class or series of Class H
Parity Stock, then such proceeds shall be distributed among the holders of Class
H Preferred Stock and any such other Class H Parity Stock ratably in the same
proportion as the respective amount that would be payable on such Class H
Preferred Stock and any such other Class H Parity Stock if all amounts payable
thereon were paid in full.
On and after August 14, 2003, AIMCO may redeem shares of Class H Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class H Liquidation Preference plus all accrued and
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unpaid dividends to the date fixed for redemption. The Class H Preferred Stock
has no stated maturity and will not be subject to any sinking fund or mandatory
redemption provisions.
Holders of shares of Class H Preferred Stock have no voting rights, except
that if distributions on Class H Preferred Stock or any series or class of Class
H Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class H Preferred Stock (voting together as a single class with all
other shares of Class H 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 H Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
H Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class H Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class H
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class H Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS J PREFERRED STOCK
On November 6, 1998, AIMCO issued 1,250,000 shares of its Class J Preferred
Stock in a private transaction, including 250,000 shares of Class J Preferred
Stock to the AIMCO Operating Partnership. The Class J Preferred Stock (a) ranks
prior to the Common Stock and the Class E Preferred Stock with respect to
dividends, liquidation, dissolution and winding-up, and has a liquidation value
of $100 per share and (b) ranks on parity with the Class B Preferred Stock, the
Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred
Stock and the Class H Preferred Stock ("Class J Parity Stock"). Holders of the
Class J Preferred Stock are entitled to receive, when, as and if declared by the
AIMCO Board of Directors, quarterly cash dividends per share equal to (i) 7% per
annum of the liquidation preference thereof for the period beginning on and
including November 6, 1998 and lasting until November 15, 1998; (ii) 8% per
annum of the per share liquidation preference for the period beginning on and
including November 15, 1998 and lasting until November 15, 1999; (iii) 9% per
annum of the per share liquidation preference for the period beginning on and
including November 15, 1999 and lasting until November 15, 2000; and (iv) 9.5%
per annum of the per share liquidation preference thereafter. Such dividends
will be cumulative from November 6, 1998, whether or not in any quarterly
dividend period(s) such dividends will be declared or there will be funds
legally available for the payment of such dividends.
On or after November 6, 1998, each share of Class J Preferred Stock may be
converted at the option of the holder into 2.5 shares of Class A Common Stock,
subject to certain anti-dilution adjustments. AIMCO may convert each share of
Class J Preferred Stock into 2.5 shares of Class A Common Stock (subject to
certain anti-dilution adjustments) (a) after November 6, 2002, if the market
price of the Class A Common Stock in the five most recent trading days is equal
to or greater than $40 or (b) at any time on or prior to November 6, 2002, if
the internal rate of return associated with an outstanding share of Class J
Preferred Stock exceeds 12.5%.
Holders of Class J Preferred Stock, voting as a class with the holders of
all Class J Parity Stock, will be entitled to elect two directors of AIMCO if
six quarterly dividends (regardless of whether consecutive) on the Class J
Preferred Stock or any Class J Parity Stock are in arrears, whether or not
earned or declared. The affirmative vote of the holders of two-thirds of the
outstanding shares of Class J Preferred Stock will be required to amend the
Charter in any manner that would adversely affect the rights of the holders of
Class J Preferred Stock, and to approve the issuance of any capital stock that
ranks senior to the Class J Preferred Stock with respect to payment of dividends
or upon liquidation, dissolution, winding up or otherwise.
Subject to certain exceptions specified in the provisions of the Charter
establishing the terms of the Class J Preferred Stock, no holder may own, or be
deemed to own by virtue of various attribution and constructive ownership
provisions of the Internal Revenue Code and Rule 13d-3 under the Securities
Exchange Act of 1934, shares of Class J Preferred Stock with a value in excess
of the amount by which
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(i) 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 aggregate value of all shares of capital stock of AIMCO
exceeds (ii) the aggregate value of all shares of capital stock of AIMCO, other
than Class J Preferred Stock, that are owned by such holder (the "Class J
Preferred Ownership Limit"). The AIMCO Board of Directors may waive such
ownership limit if evidence satisfactory to the AIMCO Board and AIMCO's tax
counsel is presented that such ownership will not then or in the future
jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO
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
AIMCO.
If shares of Class J Preferred Stock in excess of the Class J Preferred
Ownership Limit, or shares of Class J Preferred Stock that would result in AIMCO
being "closely held," within the meaning of Section 856(h) of the Internal
Revenue Code, or that would otherwise result in AIMCO failing to qualify as a
REIT, are issued or transferred to any person, (a) such issuance or transfer
will be null and void to the intended transferee, (b) the intended transferee
would acquire no rights to the Shares of Class J Preferred Stock transferred in
excess of the Class J Preferred Ownership Limit or other applicable limitations
and (c) such shares will automatically be transferred to a trust for the
exclusive benefit of one or more qualifying charitable organizations to be
designated by AIMCO. 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 Class J Preferred 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 (i) such transferee's original purchase price (or the
original market value of such shares if purportedly acquired by gift or devise)
and (ii) the price received by the trustee. Any remaining proceeds from such
sale will be paid to the charitable beneficiary. In addition, shares of stock
held in such trust are purchasable by AIMCO 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 AIMCO, or
its designee, decides to purchase the stock. The 90-day period commences on the
date of the violative transfer or the date that the AIMCO Board determines in
good faith that a violative transfer has occurred, whichever is later. All
certificates representing shares of Class J Preferred Stock bear a legend
referring to the restrictions described above.
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DESCRIPTION OF COMMON STOCK
GENERAL
The Charter authorizes the issuance of up to 510,750,000 shares of capital
Stock with a par value of $.01 per share, of which 484,027,500 shares were
classified as Class A Common Stock and 262,500 shares were classified as Class B
Common Stock as of November 15, 1998. As of November 15, 1998, there were
48,130,525 shares of Class A Common Stock issued and outstanding. In addition,
up to 150,000 shares of Class A Common Stock have been reserved for issuance
under AIMCO's 1994 Stock Option Plan, up to 500,000 shares of Class A Common
Stock have been reserved for issuance under AIMCO's 1996 Stock Award and
Incentive Plan, and up to 500,000 shares of Class A Common Stock have been
reserved for issuance under AIMCO's Non-Qualified Stock Option Plan. Under
AIMCO's 1997 Stock Award and Incentive Plan, AIMCO may issue up to 10% of the
shares of Class A Common Stock outstanding as of the first day of the fiscal
year during which any award is made, but in no event more than 20,000,000 shares
of Class A Common Stock. The Class A Common Stock is traded on the NYSE under
the symbol "AIV." BankBoston, N.A. serves as transfer agent and registrar of the
Class A Common Stock. As of November 15, 1998, the Charter authorized 750,000
shares of Class B Preferred Stock, all of which were issued and outstanding;
2,760,000 shares of Class C Preferred Stock, of which 2,400,000 shares were
issued and outstanding; 4,600,000 shares of Class D Preferred Stock, of which
4,200,000 shares were issued and outstanding; 10,000,000 shares of Class E
Preferred Stock, of which up to 8,945,921 shares are expected to be issued as
consideration for the Insignia merger; 4,050,000 shares of Class G Preferred
Stock, all of which shares were issued and outstanding; 2,300,000 shares of
Class H Preferred Stock, of which 2,000,000 shares were issued and outstanding;
and 2,000,000 shares of Class J Preferred Stock of which 1,250,000 shares were
issued and outstanding. In addition, the Charter authorizes 262,500 shares of
Class B Common Stock, which number is subject to reduction by the number of
shares of Class B Common Stock that have been converted into shares of Class A
Common Stock. As of November 15, 1998, 162,500 shares of Class B Common Stock
were issued and outstanding. See "-- Class B Common Stock."
CLASS A COMMON STOCK
Holders of the Class A Common Stock are entitled to receive dividends, when
and as declared by the AIMCO Board, out of funds legally available therefor. The
holders of shares of Class A Common Stock, upon any liquidation, dissolution or
winding up of AIMCO, are entitled to receive ratably any assets remaining after
payment in full of all liabilities of AIMCO 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 AIMCO at a subsequent date.
RESTRICTIONS ON TRANSFER
For AIMCO to qualify as a REIT under 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 capital 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.
Because the AIMCO Board believes that it is essential for AIMCO to continue to
qualify as a REIT and to provide additional protection for AIMCO's stockholders
in the event of certain transactions, the AIMCO Board has adopted, and the
stockholders have approved, provisions of the Charter restricting the
acquisition of shares of Common Stock.
Subject to certain exceptions specified in the Charter, no holder may own,
or be deemed to own by virtue of various attribution and constructive ownership
provisions of the Internal Revenue Code and Rule 13d-3
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under the Exchange Act, more than 8.7% (or 15% in the case of certain pension
trusts described in the Internal Revenue Code, investment companies registered
under the Investment Company Act of 1940 and Mr. Considine) of the outstanding
shares of Common Stock. For purposes of calculating the amount of stock owned by
a given individual, the individual's Common Stock and Common OP Units are
aggregated. The AIMCO Board of Directors may waive the Ownership Limit if
evidence satisfactory to the AIMCO Board of Directors and AIMCO's tax counsel is
presented that such ownership will not then or in the future jeopardize AIMCO'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 AIMCO 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 AIMCO. The foregoing restrictions
on transferability and ownership will not apply if the AIMCO Board of Directors
determines that it is no longer in the best interests of AIMCO to attempt to
qualify, or to continue to quality as a REIT and a resolution terminating
AIMCO's status as a REIT and amending the Charter to remove the foregoing
restrictions is duly adopted by the AIMCO Board of Directors and a majority of
AIMCO's stockholders. 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 fewer than 100 persons, or which would result in AIMCO being "closely
held," within the meaning of Section 856(h) of the Internal Revenue Code, or
which would otherwise result in AIMCO 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 AIMCO. 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 AIMCO 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 AIMCO determines to purchase the
stock. The 90-day period commences on the date of the violative transfer or the
date that the AIMCO 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 Internal Revenue Code and Rule 13d-3 under the Securities Exchange Act of
1934, more than a specified percentage of the outstanding shares of Common Stock
must file a written statement or an affidavit with AIMCO containing the
information specified in the Charter within 30 days after January 1 of each
year. In addition, each stockholder shall upon demand be required to disclose to
AIMCO in writing such information with respect to the direct, indirect and
constructive ownership of shares as the AIMCO Board deems necessary to comply
with the provisions of the Internal Revenue 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 AIMCO by a third party unless the AIMCO Board of Directors determines
that maintenance of REIT status is no longer in the best interests of AIMCO.
CLASS B COMMON STOCK
In connection with the initial formation of AIMCO, Terry Considine, Peter
Kompaniez, Steven Ira and Robert P. Lacy (a former officer of AIMCO) acquired an
aggregate of 650,000 shares of Class B Common Stock. The Charter, which
initially authorized 750,000 shares of Class B Common Stock, was amended in
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June 1998 to authorize 262,500 shares of Class B Common Stock, of which 162,500
shares are issued and outstanding. 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 AIMCO as described below. As of December 31
of each of the years 1994 through 1998 (each, a "Year-End Testing Date"), a
number of the shares of Class B Common Stock outstanding as of such date (the
"Eligible Class B Shares") become eligible for automatic conversion (subject to
the Ownership Limit) into an equal number of shares of Class A Common Stock
(subject to adjustment upon the occurrence of certain events in respect of the
Class A Common Stock, including stock dividends, subdivisions, combinations and
reclassifications). Once Class B Common Stock has been converted into Class A
Common Stock, holders of such shares of converted Class A Common Stock will have
voting and dividend rights of Class A Common Stock generally. Once converted or
forfeited, the Class B Common Stock may not be reissued by AIMCO.
The Eligible Class B Shares convert to Class A Common Stock if (i) AIMCO'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 AIMCO 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>
ANNUAL FFO AVERAGE
ELIGIBLE PER SHARE CUMULATIVE FFO MARKET
CLASS B GROWTH PER SHARE PRICE
YEAR-END TESTING DATE SHARES(1) TARGET GROWTH TARGET TARGET
--------------------- --------- ---------- -------------- -------
<S> <C> <C> <C> <C>
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, 1997 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 AIMCO 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 Charter). The AIMCO Board may
increase the number of shares which are eligible for conversion as of any
Year-End Testing Date and may, under certain circumstances, accelerate the
conversion of outstanding Class B Common Stock at such time and in such amount
as it may determine appropriate.
All of the 65,000 shares of Class B Common Stock eligible for conversion as
of the December 31, 1994 Year-End Testing Date, all of the 130,000 shares of
Class B Common Stock eligible for conversion as of the December 31, 1995
Year-End Testing Date, all of the 130,000 shares of Class B Common Stock
eligible for conversion as of December 31, 1996 and all of the 162,500 shares of
Class B Common Stock eligible for conversion as of December 31, 1997, have been
converted into shares of Class A Common Stock. As of
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December 31, 1997, the outstanding Class B Common Stock was held as follows:
93,428 shares by Mr. Considine, 41,438 shares by Mr. Kompaniez, 13,821 shares by
Mr. Ira and 13,813 shares by Mr. Lacy.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of outstanding voting shares of the corporation, voting together
as a single voting group, and (b) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder or an affiliate of the Interested Stockholder with
whom the business combination is to be effected, unless, among other conditions,
the corporation's stockholders 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. For purposes of
determining whether a person is an Interested Stockholder, ownership of Common
OP Units will be treated as beneficial ownership of the shares of Common Stock
for which the Common OP Units may be redeemed. The business combination statute
could have the effect of discouraging offers to acquire AIMCO 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. The AIMCO Board has not passed
such a resolution.
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 stockholders, 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 stockholders 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 the
absence of voting rights, as of the date of the last control share acquisition
or of any meeting of stockholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the appraisal
rights may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions
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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. No
such exemption appears in the Charter or in AIMCO's bylaws (the "Bylaws"). The
control share acquisition statute could have the effect of discouraging offers
to acquire AIMCO and of increasing the difficulty of consummating any such
offer.
DESCRIPTION OF OP UNITS
The following description sets forth certain general terms and provisions
of the OP Units and the AIMCO Operating Partnership Agreement. The AIMCO
Operating Partnership Agreement is included as Appendix B hereto, and this
description is qualified in its entirety by the terms thereof.
GENERAL
The AIMCO Operating Partnership is a limited partnership organized pursuant
to the provisions of the Delaware Revised Uniform Limited Partnership Act (as
amended from time to time, or any successor to such statute, the "Delaware LP
Act") and upon the terms and subject to the conditions set forth in the AIMCO
Operating Partnership Agreement. AIMCO GP, a Delaware corporation and a wholly
owned subsidiary of AIMCO, is the sole general partner of the AIMCO Operating
Partnership. Another wholly owned subsidiary of AIMCO, the Special Limited
Partner, is a limited partner in the AIMCO Operating Partnership. The term of
the AIMCO Operating Partnership commenced on May 16, 1994, and will continue
until December 31, 2093, unless the AIMCO Operating Partnership is dissolved
sooner pursuant to the provisions of the AIMCO Operating Partnership Agreement
or as otherwise provided by law.
PURPOSE AND BUSINESS
The purpose and nature of the AIMCO Operating Partnership is to conduct any
business, enterprise or activity permitted by or under the Delaware LP Act,
including, but not limited to, (i) to conduct the business of ownership,
construction, development and operation of multifamily rental apartment
communities, (ii) to enter into any partnership, joint venture, business trust
arrangement, limited liability company or other similar arrangement to engage in
any business permitted by or under the Delaware LP Act, or to own interests in
any entity engaged in any business permitted by or under the Delaware LP Act,
(iii) to conduct the business of providing property and asset management and
brokerage services, whether directly or through one or more partnerships, joint
ventures, subsidiaries, business trusts, limited liability companies or other
similar arrangements, and (iv) to do anything necessary or incidental to the
foregoing; provided, however, such business and arrangements and interests may
be limited to and conducted in such a manner as to permit AIMCO, in the sole and
absolute discretion of the AIMCO GP, at all times to be classified as a REIT.
MANAGEMENT BY THE AIMCO GP
Except as otherwise expressly provided in the AIMCO Operating Partnership
Agreement, all management powers over the business and affairs of the AIMCO
Operating Partnership are exclusively vested in the AIMCO GP. None of the
limited partners of the AIMCO Operating Partnership or any other person to whom
one or more OP Units have been transferred (each, an "Assignee") will take part
in the operations, management or control (within the meaning of the Delaware LP
Act) of the AIMCO Operating Partnership's business, transact any business in the
AIMCO Operating Partnership's name or have the power to sign documents for or
otherwise bind the AIMCO Operating Partnership. The AIMCO GP may not be removed
by the partners with or without cause, except with the consent of the AIMCO GP.
In addition to the powers granted a general partner of a limited partnership
under applicable law or that are granted to the AIMCO GP under any other
provision of the AIMCO Operating Partnership Agreement, the AIMCO GP, subject to
the other provisions of the AIMCO Operating Partnership Agreement, has full
power and authority to do all things deemed necessary or desirable by it to
conduct the business of the AIMCO Operating Partnership, to
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exercise all powers of the AIMCO Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may
incur debt or enter into other similar credit, guarantee, financing or
refinancing arrangements for any purpose (including, without limitation, in
connection with any acquisition of properties) upon such terms as the AIMCO GP
determines to be appropriate. The AIMCO GP is authorized to execute, deliver and
perform certain agreements and transactions on behalf of the AIMCO Operating
Partnership without any further act, approval or vote of the partners.
Restrictions on AIMCO GP's Authority. The AIMCO GP may not take any action
in contravention of the AIMCO Operating Partnership Agreement. The AIMCO GP may
not, without the prior consent of the limited partners, undertake, on behalf of
the AIMCO Operating Partnership, any of the following actions or enter into any
transaction that would have the effect of such transactions: (i) except as
provided in the AIMCO Operating Partnership Agreement, amend, modify or
terminate the AIMCO Operating Partnership Agreement other than to reflect the
admission, substitution, termination or withdrawal of partners; (ii) make a
general assignment for the benefit of creditors or appoint or acquiesce in the
appointment of a custodian, receiver or trustee for all or any part of the
assets of the AIMCO Operating Partnership; (iii) institute any proceeding for
bankruptcy on behalf of the AIMCO Operating Partnership; or (iv) subject to
certain exceptions, approve or acquiesce to the transfer of the AIMCO Operating
Partnership interest of the AIMCO GP, or admit into the AIMCO Operating
Partnership any additional or successor general partners of the AIMCO Operating
Partnership.
Issuance of Additional OP Limited Partnership Interests. The AIMCO GP is
authorized to admit additional limited partners to the AIMCO Operating
Partnership from time to time, on terms and conditions and for such capital
contributions as may be established by the AIMCO GP in its reasonable
discretion. The net capital contribution need not be equal for all partners. No
action or consent by the limited partners is required in connection with the
admission of any additional limited partner. The AIMCO GP is expressly
authorized to cause the AIMCO Operating Partnership to issue additional
interests (i) upon the conversion, redemption or exchange of any debt, OP Units
or other securities issued by the AIMCO Operating Partnership, (ii) for less
than fair market value, so long as the AIMCO GP concludes in good faith that
such issuance is in the best interests of the AIMCO GP and the AIMCO Operating
Partnership, and (iii) in connection with any merger of any other entity into
the AIMCO Operating Partnership if the applicable merger agreement provides that
persons are to receive interests in the AIMCO Operating Partnership in exchange
for their interests in the entity merging into the AIMCO Operating Partnership.
Subject to Delaware law, any additional partnership interests may be issued in
one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties as shall be determined by the AIMCO GP, in its sole
and absolute discretion without the approval of any limited partners, and set
forth in a written document thereafter attached to and made an exhibit to the
AIMCO Operating Partnership Agreement. Without limiting the generality of the
foregoing, the AIMCO GP shall have authority to specify (a) the allocations of
items of partnership income, gain, loss, deduction and credit to each such class
or series of partnership interests; (b) the right of each such class or series
of partnership interests to share in distributions by the AIMCO Operating
Partnership; (c) the rights of each such class or series of partnership
interests upon dissolution and liquidation of the AIMCO Operating Partnership;
(d) the voting rights, if any, of each such class or series of partnership
interests; and (e) the conversion, redemption or exchange rights applicable to
each such class or series of partnership interests. Interests in the AIMCO
Operating Partnership that have distribution rights, or rights upon liquidation,
winding up or dissolution, that are superior or prior to the Common OP Units are
Preferred OP Units. No person will be admitted as an additional limited partner
without the consent of the AIMCO GP, which consent may be given or withheld in
the AIMCO GP's sole and absolute discretion.
MANAGEMENT LIABILITY AND INDEMNIFICATION
Notwithstanding anything to the contrary set forth in the AIMCO Operating
Partnership Agreement, the AIMCO GP is not liable to the AIMCO Operating
Partnership for losses sustained, liabilities incurred or benefits not derived
as a result of errors in judgment or mistakes of fact or law of any act or
omission if the AIMCO GP acted in good faith. The AIMCO Operating Partnership
Agreement provides for indemnification
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of AIMCO, or any director or officer of AIMCO (in its capacity as the previous
general partner of the AIMCO Operating Partnership), the AIMCO GP, any officer
or director of AIMCO GP or the AIMCO Operating Partnership and such other
persons as the AIMCO GP may designate from and against all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection with any actions relating
to the operations of the AIMCO Operating Partnership, as set forth in the AIMCO
Operating Partnership Agreement. The Delaware LP Act provides that subject to
the standards and restrictions, if any, set forth in its partnership agreement,
a limited partnership may, and shall have the power to, indemnify and hold
harmless any partner or other person from and against any and all claims and
demands whatsoever. It is the position of the SEC that indemnification of
directors and officers for liabilities arising under the Securities Act of 1933
is against public policy and is unenforceable pursuant to Section 14 of the
Securities Act of 1933.
COMPENSATION AND FEES
The AIMCO GP does not receive compensation for its services as general
partner of the AIMCO Operating Partnership. However, the AIMCO GP is entitled to
payments, allocations and distributions in its capacity as general partner of
the AIMCO Operating Partnership. In addition, the AIMCO Operating Partnership is
responsible for all expenses incurred relating to the AIMCO Operating
Partnership's ownership of its assets and the operation of the AIMCO Operating
Partnership and reimburses the AIMCO GP for such expenses paid by the AIMCO GP.
The employees of the AIMCO Operating Partnership receive compensation for their
services.
FIDUCIARY RESPONSIBILITIES
The directors and officers of the AIMCO GP have fiduciary duties to manage
the AIMCO GP in a manner beneficial to AIMCO, as the sole stockholder of the
AIMCO GP. At the same time, the AIMCO GP, as general partner, has fiduciary
duties to manage the AIMCO Operating Partnership in a manner beneficial to the
AIMCO Operating Partnership and its partners. The duties of the AIMCO GP, as
general partner, to the AIMCO Operating Partnership and its partners, therefore,
may come into conflict with the duties of the directors and officers of the
AIMCO GP to its sole stockholder, AIMCO.
Unless otherwise provided for in the relevant partnership agreement,
Delaware law generally requires a general partner of a Delaware limited
partnership to adhere to fiduciary duty standards under which it owes its
limited partners the highest duties of good faith, fairness and loyalty and
which generally prohibit such general partner from taking any action or engaging
in any transaction as to which it has a conflict of interest. The AIMCO
Operating Partnership Agreement expressly authorizes the AIMCO GP to enter into,
on behalf of the AIMCO Operating Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various affiliates of
the AIMCO Operating Partnership and the AIMCO GP, on such terms as the AIMCO GP,
in its sole and absolute discretion, believes are advisable. The latitude given
in the AIMCO Operating Partnership Agreement to the AIMCO GP in resolving
conflicts of interest may significantly limit the ability of a limited partner
to challenge what might otherwise be a breach of fiduciary duty. The AIMCO GP
believes, however, that such latitude is necessary and appropriate to enable it
to serve as the general partner of the AIMCO Operating Partnership without undue
risk of liability.
The AIMCO Operating Partnership Agreement expressly limits the liability of
the AIMCO GP by providing that the AIMCO GP, and its officers and directors will
not be liable or accountable in damages to the AIMCO Operating Partnership, the
limited partners or assignees for errors in judgment or mistakes of fact or law
or of any act or omission if the AIMCO GP or such director or officer acted in
good faith. In addition, the AIMCO Operating Partnership is required to
indemnify the AIMCO GP, its affiliates and their respective officers, directors,
employees and agents to the fullest extent permitted by applicable law, against
any and all losses, claims, damages, liabilities, joint or several, expenses,
judgments, fines and other actions incurred by the AIMCO GP or such other
persons, provided that the AIMCO Operating Partnership will not indemnify for
(i) willful misconduct or a knowing violation of the law or (ii) for any
transaction for which such person received an improper personal benefit in
violation or breach of any provision of the AIMCO Operating Partnership
Agreement.
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The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
resolved in a court of law, and the AIMCO GP has not obtained an opinion of
counsel covering the provisions set forth in the AIMCO Operating Partnership
Agreement that purport to waive or restrict the fiduciary duties of the AIMCO GP
that would be in effect under common law were it not for the AIMCO Operating
Partnership Agreement. See "Risk Factors -- Risks Associated With an Investment
in OP Units -- Conflicts of Interest and Fiduciary Responsibility."
CLASS B PARTNERSHIP PREFERRED UNITS
On August 4, 1997, in connection with AIMCO's issuance of 750,000 shares of
Class B Preferred Stock, the AIMCO Operating Partnership issued 750,000 Class B
Partnership Preferred Units to the Special Limited Partner. The terms of the
Class B Partnership Preferred Units are substantially the same as the terms of
the Class B Preferred Stock. The Class B Partnership Preferred Units entitle the
Special Limited Partner to receive preferred quarterly cash distributions of
$1.78125 per unit or, if greater, the distributions then payable on Common OP
Units into which such Class B Partnership Preferred Units are convertible. On or
after August 4, 1998, upon the conversion of Class B Preferred Stock into Class
A Common Stock, a number of Class B Partnership Preferred Units equal to the
number of shares of Class B Preferred Stock so converted will be converted into
Common OP Units. The number of Common OP Units issued upon conversion of Class B
Partnership Preferred Units is determined by dividing the Class B Partnership
Preferred Unit's liquidation preference of $100 per unit by $30.45. In addition,
each Class B Partnership Preferred Unit has a priority in liquidation equal to
$100 per unit plus an amount equal to the accumulated, accrued and unpaid
dividends on a share of Class B Preferred Stock.
CLASS C PARTNERSHIP PREFERRED UNITS
On December 23, 1997, in connection with AIMCO's issuance of 2,400,000
shares of Class C Preferred Stock, the AIMCO Operating Partnership issued
2,400,000 Class C Partnership Preferred Units to the Special Limited Partner.
The terms of the Class C Partnership Preferred Units are substantially the same
as the terms of the Class C Preferred Stock. The Class C Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of $0.5625 per unit ($2.25 per annum). In addition, each Class C
Partnership Preferred Unit has a priority in liquidation equal to $25 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class C Preferred Stock.
CLASS D PARTNERSHIP PREFERRED UNITS
On February 19, 1998, in connection with AIMCO's issuance of 4,200,000
shares of Class D Preferred Stock, the AIMCO Operating Partnership issued
4,200,000 Class D Partnership Preferred Units to the Special Limited Partner.
The terms of the Class D Partnership Preferred Units are substantially the same
as the terms of the Class D Preferred Stock. The Class D Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of $0.546875 ($2.1875 per annum). In addition, each Class D
Partnership Preferred Unit has a priority in liquidation equal to $25 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class D Preferred Stock.
CLASS E PARTNERSHIP PREFERRED UNITS
In connection with the Insignia Merger, AIMCO issued 8.4 million shares of
Class E Preferred Stock and reserved an additional 0.5 million shares for
options and warrants, in the aggregate. AIMCO will contribute assets formerly
held by Insignia to the AIMCO Operating Partnership in exchange for Class E
Partnership Preferred Units issued to the Special Limited Partner. The terms of
the Class E Partnership Preferred Units are substantially the same as the terms
of the Class E Preferred Stock. The Class E Partnership Preferred Units entitle
the Special Limited Partner to receive preferred quarterly distributions equal
(on a per unit basis) to the dividends paid on the AIMCO Class A Common Stock
(on a per share basis), and a special distribution of $50 million in the
aggregate. Upon payment of the special distribution, the Class E Partnership
Preferred Units automatically convert into an equal number of Common OP Units.
Each
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Class E Partnership Preferred Unit has a priority in liquidation equal to $1.00
per unit plus an amount equal to the accumulated, accrued and unpaid dividends
on a share of Class E Preferred Stock.
CLASS F PARTNERSHIP PREFERRED UNITS
In connection with the Insignia Merger, AIMCO has assumed Insignia's
obligations under its 6 1/2% Convertible Subordinated Debentures due 2016 (the
"Convertible Debentures"), and the AIMCO Operating Partnership has issued Class
F Partnership Preferred Units to the Special Limited Partner that are
economically equivalent to the Convertible Debentures. The Convertible
Debentures bear interest at the rate of 6 1/2% per annum and are convertible
into shares of AIMCO Class E Preferred Stock at a price of $57.21. After the
conversion of Class E Preferred Stock into Class A Common Stock, the Convertible
Debentures will be convertible into shares of Class A Common Stock at a
conversion price that is adjusted for the $50 million dividend paid on the Class
E Preferred Stock. The Class F Partnership Preferred Units have a liquidation
value of $50 per Class F Partnership Preferred Unit, plus an amount per Class F
Partnership Unit equal to all accrued and unpaid interest on Convertible
Debentures in a principal amount of $50 to the date of final distribution to
holders of Class F Partnership Preferred Units (but such holders would not be
entitled to any further payment). Holders of Class F Partnership Preferred Units
are entitled to receive, on any date on which payments of interest or principal
are made on Convertible Debentures, distributions payable in cash in an amount
per Class F Partnership Preferred Unit equal to the interest and principal
payment made in respect of Convertible Debentures in a principal amount of $50
on such distribution date. Class F Partnership Preferred Units are redeemable by
the AIMCO Operating Partnership at any time that AIMCO redeems all or any of the
Convertible Debentures, in number equal to the quotient obtained by dividing the
aggregate principal amount of Convertible Debentures so redeemed by $50, at a
price per Class F Partnership Preferred Unit equal to the price paid by AIMCO to
redeem Convertible Debentures in a principal amount of $50. Upon any conversion
of Convertible Debentures into shares of AIMCO Class E Preferred Stock or Class
A Common Stock, a number of Class F Partnership Preferred Units equal to the
quotient obtained by dividing the aggregate principal amount of Convertible
Debentures so converted by $50 will be converted into Class E Partnership
Preferred Units or Partnership Common Units, respectively. The conversion ratio
in effect from time to time for such conversion of Class F Partnership Preferred
Units into Class E Partnership Preferred Units or Partnership Common Units will
be equal to, and automatically adjusted to reflect, the conversion ratio in
effect from time to time for the conversion of Convertible Debentures in a
principal amount equal to $50 into shares of AIMCO's Class E Preferred Stock or
Class A Common Stock, as the case may be. The Class F Partnership Preferred
Units may be owned and held solely by AIMCO GP or the Special Limited Partner.
CLASS G PARTNERSHIP PREFERRED UNITS
On July 15, 1998, in connection with AIMCO's issuance of 4,050,000 shares
of Class G Preferred Stock, the AIMCO Operating Partnership issued 4,050,000
Class G Partnership Preferred Units to the Special Limited Partner. The terms of
the Class G Partnership Preferred Units are substantially the same as the terms
of the Class G Preferred Stock. The Class G Partnership Preferred Units entitle
the Special Limited Partner to receive preferred quarterly cash distributions of
$0.5859375 ($2.34375 per annum). In addition, each Class G Partnership Preferred
Unit has a priority in liquidation equal to $25 per unit plus an amount equal to
the accumulated, accrued and unpaid dividends on a share of Class G Preferred
Stock.
CLASS H PARTNERSHIP PREFERRED UNITS
On August 11, 1998, in connection with AIMCO's issuance of 2,000,000 shares
of Class H Preferred Stock, the AIMCO Operating Partnership issued 2,000,000
Class H Partnership Preferred Units to the Special Limited Partner. The terms of
the Class H Partnership Preferred Units are substantially the same as the terms
of the Class H Preferred Stock. The Class H Partnership Preferred Units entitle
the Special Limited Partner to receive preferred quarterly cash distributions of
$0.59375 ($2.375 per annum). In addition, each Class H Partnership Preferred
Unit has a priority in liquidation equal to $25 per unit plus an amount equal to
the accumulated, accrued and unpaid dividends on a share of Class H Preferred
Stock.
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CLASS J PARTNERSHIP PREFERRED UNITS
On November 6, 1998, in connection with AIMCO's issuance of 1,250,000
shares of Class J Preferred Stock, the AIMCO Operating Partnership issued
1,250,000 Class J Partnership Preferred Units to the Special Limited Partner.
The terms of the Class J Partnership Preferred Units are substantially the same
as the terms of the Class J Preferred Stock. The Class J Partnership Preferred
Units entitle the Special Limited Partner to receive preferred quarterly cash
distributions of (i) $1.75 from November 6 through November 15, 1998, (ii) $2.00
from November 15, 1998 through November 15, 1999, (iii) $2.25 from November 15,
1999 through November 15, 2000 and (iv) $2.38 thereafter. Each Class J
Partnership Preferred Unit has a priority in liquidation equal to $100 per unit
plus an amount equal to the accumulated, accrued and unpaid dividends on a share
of Class J Preferred Stock.
HIGH PERFORMANCE UNITS
In January 1998, the AIMCO Operating Partnership sold an aggregate of
15,000 High Performance Units to a joint venture formed by fourteen of AIMCO's
officers and to three of AIMCO's independent directors, Messrs. Martin, Rhodes
and Smith. Holders of High Performance Units have no rights to receive
distributions or allocations of income or loss, or to redeem their High
Performance Units prior to the Valuation Date that is the earlier of (i) January
1, 2001, or (ii) the date on which a change of control (as defined in the AIMCO
Operating Partnership Agreement) occurs. If, on the Valuation Date, the
cumulative Total Return of the Class A Common Stock during the Measurement
Period exceeds the Minimum Return, then, on and after the Valuation Date,
holders of the 15,000 High Performance Units will be entitled to receive
distributions and allocations of income and loss from the AIMCO Operating
Partnership in the same amounts and at the same times (subject to certain
exceptions upon liquidation of the AIMCO Operating Partnership) as would holders
of a number of Common OP Units equal to the quotient obtained by dividing (i)
the product of (A) 15% of the amount by which the cumulative Total Return of the
Class A Common Stock over the Measurement Period exceeds the greater of 115% of
the peer group index or the Minimum Return, multiplied by (B) the weighted
average market value of AIMCO's equity capitalization (including Class A Common
Stock and Common OP Units) by (ii) the market value of one share of Class A
Common Stock on the Valuation Date. If, on the Valuation Date, the cumulative
Total Return of the Class A Common Stock does not satisfy these criteria, then,
on and after the Valuation Date, holders of the 15,000 High Performance Units
will be entitled to receive distributions and allocations of income and loss
from the AIMCO Operating Partnership in the same amounts and at the same times
(subject to certain exceptions upon a liquidation of the AIMCO Operating
Partnership) as would holders of 150 Common OP Units. For purposes of
determining the market value of Class A Common Stock or Common OP Units as of
any date, the average closing price of the Class A Common Stock for the 20
trading days immediately preceding such date is used. It is expected that the
Morgan Stanley REIT Index, a capitalization-weighted index with dividends
reinvested of the most actively traded REITs, will be used as the peer group
index for purposes of the High Performance Units.
Upon the occurrence of a change of control, any holder of High Performance
Units may, subject to certain restrictions, require the AIMCO Operating
Partnership to redeem all or a portion of the High Performance Units held by
such party in exchange for (i) a cash payment per unit equal to the estimated
proceeds that a holder of one unit would be entitled to receive in the event of
a liquidation of the AIMCO Operating Partnership, or (ii) a number of shares of
Class A Common Stock with a value equal to such cash payment. The AIMCO
Operating Partnership may elect, in its sole discretion, to pay cash or direct
AIMCO to issue shares to satisfy any such redemption.
DISTRIBUTIONS
Preferred OP Units. Holders of Preferred OP Units to be issued hereunder
will have rights to distributions as set forth in the Prospectus Supplement.
With respect to rights of holders of Class B Partnership Preferred Units, Class
C Partnership Preferred Units, Class D Partnership Preferred Units, Class E
Partnership Preferred Units, Class F Partnership Preferred Units, Class G
Partnership Preferred Units, Class H Partnership Preferred Units, and Class J
Partnership Preferred Units, see "-- Class B
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Partnership Preferred Units; -- Class C Partnership Preferred Units; -- Class D
Partnership Preferred Units; -- Class E Partnership Preferred Units; -- Class F
Partnership Preferred Units; -- Class G Partnership Preferred Units; -- Class H
Partnership Preferred Units, and -- Class J Partnership Preferred Units."
High Performance Units. On and after the Valuation Date, holders of High
Performance Units may be entitled to receive distributions in accordance with
the terms of the High Performance Units. See "-- High Performance Units."
Common OP Units. Subject to the rights of holders of any outstanding
Preferred OP Units, the AIMCO Operating Partnership Agreement requires the AIMCO
GP to cause the AIMCO Operating Partnership to distribute quarterly all, or such
portion as the AIMCO GP may in its sole and absolute discretion determine, of
Available Cash (as defined in the AIMCO Operating Partnership Agreement)
generated by the AIMCO Operating Partnership during such quarter to the AIMCO
GP, the Special Limited Partner and the holders of Common OP Units ("Common OP
Unitholders") on the record date established by the AIMCO GP with respect to
such quarter, in accordance with their respective interests in the AIMCO
Operating Partnership on such record date. Holders of any other Preferred OP
Units issued in the future may have priority over the AIMCO GP, the Special
Limited Partner and holders of Common OP Units with respect to distributions of
Available Cash, distributions upon liquidation or other distributions.
Distributions payable with respect to any interest in the AIMCO Operating
Partnership that was not outstanding during the entire quarterly period in
respect of which any distribution is made will be prorated based on the portion
of the period that such interest was outstanding. The AIMCO GP in its sole and
absolute discretion may distribute to the OP Unitholders Available Cash on a
more frequent basis and provide for an appropriate record date. The AIMCO
Operating Partnership Agreement requires the AIMCO GP to take such reasonable
efforts, as determined by it in its sole and absolute discretion and consistent
with AIMCO's qualification as a REIT, to cause the AIMCO Operating Partnership
to distribute sufficient amounts to enable the AIMCO GP to transfer funds to
AIMCO and enable AIMCO to pay stockholder dividends that will (i) satisfy the
requirements (the "REIT Requirements") for qualifying as a REIT under the
Internal Revenue Code, and the Treasury Regulations and (ii) avoid any federal
income or excise tax liability of AIMCO.
No Common OP Unitholder has any right to demand or receive property other
than cash as provided in the AIMCO Operating Partnership Agreement. The AIMCO GP
may determine, in its sole and absolute discretion, to make a distribution in
kind of assets of the AIMCO Operating Partnership to the OP Unitholders, and
such assets will be distributed in such a fashion as to ensure that the fair
market value is distributed and allocated in accordance with the AIMCO Operating
Partnership Agreement.
Subject to the rights of holders of any outstanding Preferred OP Units, net
proceeds from the sale or other disposition of all or substantially all of the
assets of the AIMCO Operating Partnership or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the assets of the AIMCO Operating Partnership (a
"Terminating Capital Transaction"), and any other cash received or reductions in
reserves made after commencement of the liquidation of the AIMCO Operating
Partnership, will be distributed to the OP Unitholders in accordance with the
AIMCO Operating Partnership Agreement.
The AIMCO Operating Partnership Agreement prohibits the AIMCO Operating
Partnership and the AIMCO GP, on behalf of the AIMCO Operating Partnership, from
making a distribution to any OP Unitholder on account of its interest in OP
Units if such distribution would violate Section 17-607 of the Delaware LP Act
or other applicable law.
ALLOCATIONS OF NET INCOME AND NET LOSS
Preferred OP Units. With respect to the Class B Partnership Preferred
Units, the Class C Partnership Preferred Units, the Class D Partnership
Preferred Units, the Class E Partnership Preferred Units, the Class F
Partnership Preferred Units, the Class G Partnership Preferred Units, the Class
H Partnership Preferred Units, the Class J Partnership Preferred Units and any
similar class of Preferred OP Unit that may be
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subsequently issued, gross income and, if necessary, gain will be allocated to
the holders of the Preferred OP Units for any fiscal year (and, if necessary,
subsequent fiscal years) to the extent that the holders of the Preferred OP
Units receive a distribution on any Preferred OP Units (other than an amount
included in any redemption of Preferred OP Units). If any Preferred OP Units are
redeemed, for the fiscal year that includes such redemption (and, if necessary,
for subsequent fiscal years) (i) gross income and gain (in such relative
proportions as the AIMCO GP in its discretion will determine) will be allocated
to the holders of such class of Preferred OP Units to the extent that the
redemption amounts paid or payable with respect to the Preferred OP Units so
redeemed exceeds the aggregate capital contributions (net of liabilities assumed
or taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit
allocable to the Preferred OP Units so redeemed and (ii) deductions and losses
(in such relative proportions as the AIMCO GP in its discretion will determine)
will be allocated to the holders of such class of Preferred OP Units to the
extent that the aggregate Capital Contributions (net of liabilities assumed or
taken subject to by the AIMCO Operating Partnership) per Preferred OP Unit
allocable to the Preferred OP Units so redeemed exceeds the redemption amount
paid or payable with respect to the Preferred OP Units so redeemed.
High Performance Units. On and after the Valuation Date, holders of High
Performance Units may be allocated income and loss in accordance with the terms
of the High Performance Units. See "-- High Performance Units."
Common OP Units. Net Income (as defined in the AIMCO Operating Partnership
Agreement) and Net Loss (as defined in the AIMCO Operating Partnership
Agreement) of the AIMCO Operating Partnership will be determined and allocated
with respect to each fiscal year of the AIMCO Operating Partnership as of the
end of each such year. Except as otherwise provided in the AIMCO Operating
Partnership Agreement, an allocation to a Common OP Unitholder of a share of Net
Income or Net Loss will be treated as an allocation of the same share of each
item of income, gain, loss or deduction that is taken into account in computing
Net Income or Net Loss. Except as otherwise provided in the AIMCO Operating
Partnership Agreement and subject to the terms of any outstanding Partnership
Preferred Units, Net Income and Net Loss will be allocated to the holders of
Common OP Units in accordance with their respective Common OP Units at the end
of each fiscal year. The AIMCO Operating Partnership Agreement contains
provisions for special allocations intended to comply with certain regulatory
requirements, including the requirements of Treasury Regulations Sections
1.704-1(b) and 1.704-2. Except as otherwise provided in the AIMCO Operating
Partnership Agreement and subject to the terms of any outstanding Preferred OP
Units, for income tax purposes under the Internal Revenue Code and the Treasury
Regulations, each Partnership item of income, gain, loss and deduction will be
allocated among the Common OP Unitholders in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to the
AIMCO Operating Partnership Agreement.
WITHHOLDING
The AIMCO Operating Partnership is authorized to withhold from or pay on
behalf of or with respect to each limited partner any amount of federal, state,
local or foreign taxes that the AIMCO GP determines that the AIMCO Operating
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such limited partner pursuant to the AIMCO
Operating Partnership Agreement.
RETURN OF CAPITAL
No limited partner is entitled to interest on its capital contribution or
on such limited partner's capital account. Except (i) pursuant to the rights of
redemption set forth in the AIMCO Operating Partnership Agreement, (ii) as
provided by law, or (iii) pursuant to the terms of any outstanding Preferred OP
Units, no limited partner has any right to demand or receive the withdrawal or
return of its capital contribution from the AIMCO Operating Partnership, except
to the extent of distributions made pursuant to the AIMCO Operating Partnership
Agreement or upon termination of the AIMCO Operating Partnership. Except to the
extent otherwise expressly provided in the AIMCO Operating Partnership Agreement
and subject to the terms of any outstanding Preferred OP Units, no limited
partner or assignee will have priority over any other limited partner or
assignee either as to the return of capital contributions or as to profits,
losses or distributions.
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REDEMPTION RIGHTS
Preferred OP Units. Holders of Preferred OP Units to be issued hereunder
will have rights to redemption as set forth in the applicable Prospectus
Supplement. With respect to rights of holders of Class B Partnership Preferred
Units, Class C Partnership Preferred Units, Class D Partnership Preferred Units,
Class E Partnership Preferred Units, Class F Partnership Preferred Units, Class
G Partnership Preferred Units and Class H Partnership Preferred Units, see
"-- Class B Partnership Preferred Units; -- Class C Partnership Preferred Units;
- -- Class D Partnership Preferred Units; -- Class E Partnership Preferred Units;
- -- Class F Partnership Preferred Units; -- Class H Partnership Preferred Units;
and -- Class J Partnership Preferred Units."
High Performance Units. In the event of a change of control, holders of
High Performance Units will have redemption rights similar to those of holders
of Common OP Units. See "-- High Performance Units."
Common OP Units. After the first anniversary of becoming a holder of Common
OP Units, each Common OP Unitholder and certain assignees have the right,
subject to the terms and conditions set forth in the AIMCO Operating Partnership
Agreement, to require the AIMCO Operating Partnership to redeem all or a portion
of the Common OP Units held by such party in exchange for shares of Class A
Common Stock, on a one-for-one basis, or a cash amount equal to the value of
such shares. On or before the close of business on the fifth business day after
the AIMCO GP receives a notice of redemption, the AIMCO Operating Partnership
may, in its sole and absolute discretion but subject to the restrictions on the
ownership of Class A Common Stock imposed under the AIMCO Charter and the
transfer restrictions and other limitations thereof, elect to cause AIMCO to
acquire some or all of the tendered Common OP Units from the tendering party in
exchange for Class A Common Stock, based on an exchange ratio of one share of
Class A Common Stock for each Common OP Unit, subject to adjustment as provided
in the AIMCO Operating Partnership Agreement.
PARTNERSHIP RIGHT TO CALL COMMON OP UNITS
Notwithstanding any other provision of the AIMCO Operating Partnership
Agreement, on and after the date on which the aggregate percentage interests of
the limited partners, other than the Special Limited Partner, are less than one
percent (1%), the AIMCO Operating Partnership will have the right, but not the
obligation, from time to time and at any time to redeem any and all outstanding
limited partner interests (other than the Special Limited Partner's interest) in
the AIMCO Operating Partnership by treating any limited partner as if such
limited partner had tendered for redemption pursuant to the AIMCO Operating
Partnership Agreement the amount of Common OP Units specified by the AIMCO GP,
in its sole and absolute discretion, by notice to the limited partner.
TRANSFERS AND WITHDRAWALS
Restrictions on Transfer. The AIMCO Operating Partnership Agreement
restricts the transferability of OP Units. Any transfer or purported transfer of
an OP Unit not made in accordance with the AIMCO Operating Partnership Agreement
will be null and void ab initio. Until the expiration of one year from the date
on which a limited partner acquired OP Units, subject to certain exceptions,
such limited partner may not transfer all or any portion of its OP Units to any
transferee without the consent of the AIMCO GP, which consent may be withheld in
its sole and absolute discretion. After the expiration of one year from the date
on which a limited partner acquired OP Units, such limited partner has the right
to transfer all or any portion of its OP Units to any person, subject to the
satisfaction of certain conditions specified in the AIMCO Operating Partnership
Agreement, including the AIMCO GP's right of first refusal. It is a condition to
any transfer (regardless of whether such transfer is effected before or after
the one year holding period) that the transferee assumes by operation of law or
express agreement all of the obligations of the transferor limited partner under
the AIMCO Operating Partnership Agreement with respect to such OP Units, and no
such transfer (other than pursuant to a statutory merger or consolidation
wherein all obligations and liabilities of the transferor partner are assumed by
a successor corporation by operation of law) will relieve the transferor partner
of its
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obligations under the AIMCO Operating Partnership Agreement without the approval
of the AIMCO GP, in its sole and absolute discretion.
In connection with any transfer of OP Units, the AIMCO GP will have the
right to receive an opinion of counsel reasonably satisfactory to it to the
effect that the proposed transfer may be effected without registration under the
Securities Act of 1933 and will not otherwise violate any federal or state
securities laws or regulations applicable to the AIMCO Operating Partnership or
the OP Units transferred.
No transfer by a limited partner of its OP Units (including any redemption
or any acquisition of OP Units by the AIMCO GP or by the AIMCO Operating
Partnership) may be made to any person if (i) in the opinion of legal counsel
for the AIMCO Operating Partnership, it would result in the AIMCO Operating
Partnership being treated as an association taxable as a corporation, or (ii)
such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Internal Revenue Code.
Substituted Limited Partners. No limited partner will have the right to
substitute a transferee as a limited partner in its place. A transferee of the
interest of a limited partner may be admitted as a substituted limited partner
only with the consent of the AIMCO GP, which consent may be given or withheld by
the AIMCO GP in its sole and absolute discretion. If the AIMCO GP, in its sole
and absolute discretion, does not consent to the admission of any permitted
transferee as a substituted limited partner, such transferee will be considered
an assignee for purposes of the AIMCO Operating Partnership Agreement. An
assignee will be entitled to all the rights of an assignee of a limited
partnership interest under the Delaware LP Act, including the right to receive
distributions from the AIMCO Operating Partnership and the share of Net Income,
Net Losses and other items of income, gain, loss, deduction and credit of the
AIMCO Operating Partnership attributable to the OP Units assigned to such
transferee and the rights to transfer the OP Units provided in the AIMCO
Operating Partnership Agreement, but will not be deemed to be a limited partner
for any other purpose under the AIMCO Operating Partnership Agreement, and will
not be entitled to effect a consent or vote with respect to such OP Units on any
matter presented to the limited partners for approval (such right to consent or
vote, to the extent provided in this Agreement or under the Delaware LP Act,
fully remaining with the transferor limited partner).
Withdrawals. No limited partner may withdraw from the AIMCO Operating
Partnership other than as a result of a permitted transfer of all of such
limited partner's OP Units in accordance with the AIMCO Operating Partnership
Agreement, with respect to which the transferee becomes a substituted limited
partner, or pursuant to a redemption (or acquisition by AIMCO) of all of such
limited partner's OP Units.
Restrictions on the General Partner. The AIMCO GP may not transfer any of
its general partner interest or withdraw from the AIMCO Operating Partnership
unless (i) the limited partners consent or (ii) immediately after a merger of
the AIMCO GP into another entity, substantially all of the assets of the
surviving entity, other than the general partnership interest in the AIMCO
Operating Partnership held by the AIMCO GP, are contributed to the AIMCO
Operating Partnership as a capital contribution in exchange for OP Units.
ISSUANCE OF CAPITAL STOCK BY AIMCO
Pursuant to the AIMCO Operating Partnership Agreement, upon the issuance of
its capital stock, AIMCO is generally obligated to contribute the cash proceeds
or other consideration received from such issuance to the AIMCO Operating
Partnership in exchange for, in the case of Class A Common Stock, Common OP
Units, or in the case of an issuance of Preferred Stock, Preferred OP Units with
designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of such Preferred Stock.
DILUTION
The AIMCO GP has the power, without the consent of the limited partners, to
cause the AIMCO Operating Partnership to issue additional Common OP Units and
Preferred OP Units. Any such issuance may dilute the interests of existing OP
Unitholders. In addition, the terms of the Preferred OP Units entitle the
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holders thereof to receive preferential distributions of cash and a priority in
liquidation, as well as certain class voting rights.
AMENDMENT OF THE AIMCO OPERATING PARTNERSHIP AGREEMENT
By the AIMCO GP Without the Consent of the Limited Partners. The AIMCO GP
has the power, without the consent of the limited partners, to amend the AIMCO
Operating Partnership Agreement as may be required to facilitate or implement
any of the following purposes: (1) to add to the obligations of the AIMCO GP or
surrender any right or power granted to the AIMCO GP or any affiliate of the
AIMCO GP for the benefit of the limited partners; (2) to reflect the admission,
substitution or withdrawal of partners or the termination of the AIMCO Operating
Partnership in accordance with the AIMCO Operating Partnership Agreement; (3) to
reflect a change that is of an inconsequential nature and does not adversely
affect the limited partners in any material respect, or to cure any ambiguity,
correct or supplement any provision in the AIMCO Operating Partnership Agreement
not inconsistent with law or with other provisions, or make other changes with
respect to matters arising under the AIMCO Operating Partnership Agreement that
will not be inconsistent with law or with the provisions of the AIMCO Operating
Partnership Agreement; (4) to satisfy any requirements, conditions or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; (5) to reflect such changes
as are reasonably necessary for AIMCO to maintain its status as a REIT; and (6)
to modify the manner in which capital accounts are computed (but only to the
extent set forth in the definition of "Capital Account" in the AIMCO Operating
Partnership Agreement or contemplated by the Internal Revenue Code or the
Treasury Regulations).
With the Consent of the Limited Partners. With the exception of the
circumstances described above whereby the AIMCO GP may, without the consent of
the limited partners, amendments to the AIMCO Operating Partnership Agreement
require the limited partners' consent. Amendments to the AIMCO Operating
Partnership Agreement may be proposed by the AIMCO GP or by limited partners
holding a majority of the outstanding Common OP Units, excluding the Special
Limited Partner (a "Majority in Interest"). Following such proposal, the AIMCO
GP will submit any proposed amendment to the limited partners. The AIMCO GP will
seek the written consent of the limited partners on the proposed amendment or
will call a meeting to vote thereon and to transact any other business that the
AIMCO GP may deem appropriate. For purposes of obtaining a written consent, the
AIMCO GP may require a written response within a reasonable specified time, but
not less than fifteen (15) days, and failure to respond in such time period
shall constitute a consent that is consistent with the AIMCO GP's recommendation
with respect to the proposal, provided, however, that an action shall become
effective at such time as requisite consents are received even if prior to such
specified time.
PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS
Meetings of the partners may be called by the AIMCO GP and will be called
upon the receipt by the AIMCO GP of a written request by a Majority in Interest
of the limited partners. Notice of any such meeting will be given to all
partners not less than seven (7) days nor more than thirty (30) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Each meeting of partners will be conducted by the AIMCO GP or such
other person as the AIMCO GP may appoint pursuant to such rules for the conduct
of the meeting as the AIMCO GP or such other person deems appropriate in its
sole and absolute discretion. Any action required or permitted to be taken at a
meeting of the partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by partners holding a majority of
outstanding Common OP Units (or such other percentage as is expressly required
by the AIMCO Operating Partnership Agreement for the action in question). Such
consent may be in one instrument or in several instruments, and shall have the
same force and effect as a vote of the partners holding a majority of
outstanding Common OP Units (or such other percentage as is expressly required
by the AIMCO Operating Partnership Agreement for the action in question). Such
consent shall be filed with the AIMCO GP. An action so taken shall be deemed to
have been taken at a meeting held on the effective date so certified.
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RECORDS AND ACCOUNTING; FISCAL YEAR
The AIMCO Operating Partnership Agreement requires the AIMCO GP to keep or
cause to be kept at the principal office of the AIMCO Operating Partnership
those records and documents required to be maintained by the Delaware LP Act and
other books and records deemed by the AIMCO GP to be appropriate with respect to
the AIMCO Operating Partnership's business. The books of the AIMCO Operating
Partnership will be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles, or on
such other basis as the AIMCO GP determines to be necessary or appropriate. To
the extent permitted by sound accounting practices and principles, the AIMCO
Operating Partnership, the AIMCO GP and AIMCO may operate with integrated or
consolidated accounting records, operations and principles. The fiscal year of
the AIMCO Operating Partnership is the calendar year.
REPORTS
As soon as practicable, but in no event later than one hundred five (105)
days after the close of each calendar quarter and each fiscal year, the AIMCO GP
will cause to be mailed to each limited partner, of record as of the last day of
the calendar quarter or as of the close of the fiscal year, as the case may be,
a report containing financial statements of the AIMCO Operating Partnership, or
of AIMCO if such statements are prepared solely on a consolidated basis with
AIMCO, for such calendar quarter or fiscal year, as the case may be, presented
in accordance with generally accepted accounting principles, and such other
information as may be required by applicable law or regulation or as the AIMCO
GP determines to be appropriate. Statements included in quarterly reports are
not audited. Statements included in annual reports are audited by a nationally
recognized firm of independent public accountants selected by the AIMCO GP.
TAX MATTERS
The AIMCO GP is the "tax matters partner" of the AIMCO Operating
Partnership for federal income tax purposes. The tax matters partner is
authorized, but not required, to take certain actions on behalf of the AIMCO
Operating Partnership with respect to tax matters. In addition, the AIMCO GP
will arrange for the preparation and timely filing of all returns with respect
to the AIMCO Operating Partnership's income, gains, deductions, losses and other
items required of the AIMCO Operating Partnership for federal and state income
tax purposes and will use all reasonable effort to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by limited partners for federal and state income tax reporting purposes. The
limited partners will promptly provide the AIMCO GP with such information as may
be reasonably requested by the AIMCO GP from time to time.
DISSOLUTION AND WINDING UP
Dissolution. The AIMCO Operating Partnership will dissolve, and its affairs
will be wound up, upon the first to occur of any of the following (each a
"Liquidating Event") (i) December 31, 2093; (ii) an event of withdrawal, as
defined in the Delaware LP Act (including, without limitation, bankruptcy), of
the sole general partner unless, within ninety (90) days after the withdrawal, a
"majority in interest" (as such phrase is used in Section 17-801(3) of the
Delaware LP Act) of the remaining partners agree in writing, in their sole and
absolute discretion, to continue the business of the AIMCO Operating Partnership
and to the appointment, effective as of the date of withdrawal, of a successor
general partner; (iii) an election to dissolve the AIMCO Operating Partnership
made by the general partner in its sole and absolute discretion, with or without
the consent of the limited partners; (iv) entry of a decree of judicial
dissolution of the AIMCO Operating Partnership pursuant to the provisions of the
Delaware LP Act; (v) the occurrence of a Terminating Capital Transaction; or
(vi) the redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special
Limited Partner) of all Common OP Units other than Common OP Units held by the
AIMCO GP or the Special Limited Partner.
Winding Up. Upon the occurrence of a Liquidating Event, the AIMCO Operating
Partnership will continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets and
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<PAGE> 334
satisfying the claims of its creditors and partners. The AIMCO GP (or, in the
event that there is no remaining AIMCO GP or the AIMCO GP has dissolved, become
bankrupt within the meaning of the Delaware LP Act or ceased to operate, any
person elected by a Majority in Interest of the limited partners) will be
responsible for overseeing the winding up and dissolution of the AIMCO Operating
Partnership and will take full account of the AIMCO Operating Partnership's
liabilities and property, and the AIMCO Operating Partnership's property will be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the AIMCO GP,
include Class A Common Stock) will be applied and distributed in the following
order: (i) first, to the satisfaction of all of the AIMCO Operating
Partnership's debts and liabilities to creditors other than the partners and
their assignees (whether by payment or the making of reasonable provision for
payment thereof); (ii) second, to the satisfaction of all the AIMCO Operating
Partnership's debts and liabilities to the general partner (whether by payment
or the making of reasonable provision for payment thereof), including, but not
limited to, amounts due as reimbursements under the AIMCO Operating Partnership
Agreement; (ii) third, to the satisfaction of all of the AIMCO Operating
Partnership's debts and liabilities to the other partners and any assignees
(whether by payment or the making of reasonable provision for payment thereof);
(iv) fourth, to the satisfaction of all liquidation preferences of outstanding
Preferred OP Units, if any, and (v) the balance, if any, to the AIMCO GP, the
limited partners and any assignees in accordance with and in proportion to their
positive capital account balances, after giving effect to all contributions,
distributions and allocations for all periods.
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COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO
Generally, the nature of an investment in the Common OP Units is
substantially equivalent economically to an investment in the Class A Common
Stock. The AIMCO Operating Partnership makes quarterly distributions to holders
of Common OP Units (on a per unit basis) that generally are equal to the
dividends paid on the Class A Common Stock (on a per share basis). However, such
distributions will not necessarily continue to be equal to such dividends.
Common OP Unitholders generally share in the risks and rewards of ownership in
the enterprise being conducted by AIMCO (through the AIMCO Operating
Partnership). However, there are some differences between ownership of Common OP
Units and ownership of Class A Common Stock, some of which may be material to
investors.
The information below highlights a number of the significant differences
between the AIMCO Operating Partnership and AIMCO relating to, among other
things, form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and federal income
taxation, and compares certain legal rights associated with the ownership of
Common OP Units and Class A Common Stock, respectively. These comparisons are
intended to assist OP Unitholders in understanding how their investment will be
changed if their Common OP Units are exchanged for Class A Common Stock. COMMON
OP UNITHOLDERS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE
REGISTRATION STATEMENT AND THE EXHIBITS THERETO OF WHICH THIS PROSPECTUS IS A
PART AND ANY APPLICABLE PROSPECTUS SUPPLEMENT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT THE COMPANY.
AIMCO OPERATING PARTNERSHIP AIMCO
Form of Organization and Assets Owned
<TABLE>
<S> <C>
The AIMCO Operating Partnership is organized AIMCO is a Maryland corporation. AIMCO has
as a Delaware limited partnership. The AIMCO elected to be taxed as a REIT under the
Operating Partnership owns interests (either Internal Revenue Code, commencing with its
directly or through subsidiaries) in the taxable year ended December 31, 1994, and
apartment properties. intends to maintain its election as a REIT.
With certain limited exceptions, AIMCO's
only significant assets are its equity
interests in the AIMCO GP and the Special
Limited Partner, which in turn collectively
hold a controlling interest in the AIMCO
Operating Partnership.
</TABLE>
Duration of Existence
<TABLE>
<S> <C>
The term of the AIMCO Operating Partnership AIMCO has a perpetual existence, unless
continues until December 31, 2093, unless liquidated or dissolved.
the AIMCO Operating Partnership is dissolved
sooner pursuant to the terms of the AIMCO
Operating Partnership Agreement or as
provided by law. See "Description of OP
Units -- General" and "Description of OP
Units -- Dissolution and Winding Up."
</TABLE>
Purpose and Permitted Activities/Investments
<TABLE>
<S> <C>
The purpose of the AIMCO Operating Under its Charter, AIMCO may engage in any
Partnership is to conduct any business that lawful activity permitted to be engaged in
may be lawfully conducted by a limited by a Maryland corporation pursuant to
partnership organized pursuant to the Maryland law. The Charter prohibits the
Delaware LP Act, provided that such business AIMCO Board of Directors from taking any
is to be conducted in a manner that permits action to terminate AIMCO's status as a
AIMCO to be qualified as a REIT, unless REIT, unless the AIMCO Board of
AIMCO
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
ceases to qualify as a REIT. The AIMCO Directors recommends such action and the
Operating Partnership is authorized to holders of a majority of the shares entitled
perform any and all acts for the furtherance to vote on such matter approve such action.
of the purposes and business of the AIMCO The Internal Revenue Code defines a REIT as
Operating Partnership, provided that the a corporation, trust or association (1) that
AIMCO Operating Partnership may not take, or is managed by one or more trustees or
refrain from taking, any action which, in directors; (2) the beneficial ownership of
the judgment of the AIMCO GP could (i) which is evidenced by transferable shares,
adversely affect the ability of AIMCO to or by transferable certificates of
continue to qualify as a REIT, (ii) subject beneficial interest; (3) which would be
AIMCO to certain income and excise taxes, or taxable as a domestic corporation, but for
(iii) violate any law or regulation of any the special Internal Revenue Code provisions
governmental body or agency (unless such ac- applicable to REITs; (4) that is neither a
tion, or inaction, is specifically consented financial institution nor an insurance
to by AIMCO). Subject to the foregoing, the company subject to certain provisions of the
AIMCO Operating Partnership may invest in or Internal Revenue Code; (5) the beneficial
enter into partnerships, joint ventures, or ownership of which is held by 100 or more
similar arrangements 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 Internal
Revenue Code to include certain entities);
and (7) which meets certain other tests
described in this Prospectus (including with
respect to the nature of its income and
assets). See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- General."
The Internal Revenue 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 Charter
also contains certain restrictions regarding
transfers of its shares, which provisions
are intended to assist AIMCO in satisfying
the share ownership requirements described
in conditions (5) and (6) above. See
"Federal Income Taxation of AIMCO and AIMCO
Stockholders -- General."
Substantially all of the operations of AIMCO
are conducted through the AIMCO Operating
Partnership and its subsidiaries. Through
its controlling interests in the AIMCO
Operating Partnership and other limited
partnerships and limited liability com-
panies, AIMCO owns and controls interests in
numerous multi-family rental apartment
properties.
</TABLE>
Additional Equity
<TABLE>
<S> <C>
The AIMCO GP is authorized to issue Under the Charter, the AIMCO Board of
additional partnership interests in the Directors has the authority to classify and
AIMCO Operating Partnership for any reclassify any of its unissued capital stock
partnership purpose from time to time to the into shares of Preferred Stock by setting or
limited partners and to other persons, and changing in any one or more respects the
to admit such other persons as additional preferences, conversion or other rights,
limited partners, on terms and conditions voting powers, restrictions, limitations as
and for such capi- to dividends, qual-
</TABLE>
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
tal contributions as may be established by ifications or terms or conditions of
the AIMCO GP in its sole discretion. The net redemption of such shares of capital stock
capital contribution need not be equal for including, but not limited to, ownership
all partners. No action or consent by the restrictions consistent with the Ownership
limited partners is required in connection Limit with respect to each series or class
with the admission of any additional limited of capital stock, and the number of shares
partner. See "Description of OP Units -- constituting each series or class, and to
Management by the AIMCO GP." Subject to increase or decrease the number of shares of
Delaware law, any additional partnership any such series or class, to the extent
interests may be issued in one or more permitted by the MGCL. AIMCO is authorized
classes, or one or more series of any of to issue, in its discretion, additional eq-
such classes, with such designations, pref- uity securities including Class A Common
erences and relative, participating, Stock or Preferred Stock; provided, however,
optional or other special rights, powers and that the total number of equity securities
duties as shall be determined by the AIMCO outstanding may not exceed the total number
GP, in its sole and absolute discretion of authorized shares set forth in the
without the approval of any limited part- Charter (i.e., not more than 510,750,000
ner, and set forth in a written document shares of capital stock). Additionally,
thereafter attached to and made an exhibit AIMCO may issue additional Class A Common
to the AIMCO Operating Partnership Stock upon exchange of Common OP Units for
Agreement. Class A Common Stock, and upon exercise of
options granted pursuant to AIMCO's stock
incentive plan. Pursuant to the AIMCO
Operating Partnership Agreement, upon the
issuance of its capital stock, AIMCO is
generally obligated to contribute the cash
proceeds or other consideration received
from such issuance to the AIMCO Operating
Partnership in exchange for, in the case of
Class A Common Stock, Common OP Units, or in
the case of an issuance of Preferred Stock,
Preferred OP Units with designations,
preferences and other rights, terms and
provisions that are substantially the same
as the designations, preferences and other
rights, terms and provisions of such
Preferred Stock. See "Description of OP
Units -- Issuance of Class A Common Stock by
AIMCO."
Neither AIMCO's Charter nor its By-Laws
impose any restrictions upon dealings
between AIMCO and its directors, officers
and affiliates. Under Maryland law, however,
material facts of the relationship, the
transaction and the conflict of interest
must (i) be disclosed to the Board of
Directors and approved by the affirmative
vote of a majority of the disinterested
directors; or (ii) be disclosed to the
stockholders and approved by the affirmative
vote of a majority of the disinterested
stockholders or (iii) be in fact fair and
reasonable. In addition, AIMCO has adopted
certain policies designed to minimize or
eliminate conflicts of interests between
AIMCO and its executive officers and
directors. Without the approval of a ma-
jority of the disinterested directors, AIMCO
will not (i) acquire from or sell to any
director, officer or employee of AIMCO or
any entity in which a director, officer or
employee of AIMCO owns more
</TABLE>
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<PAGE> 338
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
than a 1% interest, or acquire from or sell
to any affiliate of any of the foregoing,
any assets or other property of AIMCO, (ii)
make any loan to or borrow from any of the
foregoing persons, or (iii) engage in any
material transaction with the foregoing. In
addition, AIMCO has entered into employment
agreements with certain officers and
directors which include provisions intended
to eliminate or minimize potential conflicts
of interest. See "Business of the
Company -- Policies of the Company with
Respect to Certain Other Activities."
</TABLE>
Borrowing Policies
<TABLE>
<S> <C>
The AIMCO Operating Partnership Agreement AIMCO is not restricted under its Charter or
contains no restrictions on borrowings, and Bylaws from incurring borrowings.
the AIMCO GP has full power and authority to
borrow money on behalf of the AIMCO
Operating Partnership.
</TABLE>
Review of Investor Lists
<TABLE>
<S> <C>
Each limited partner has the right, upon Under Maryland law, a stockholder holding at
written demand with a statement of the least 5% of the outstanding stock of a
purpose of such demand and at such limited corporation may, upon written request,
partner's own expense, to obtain a current inspect and copy during usual business hours
list of the name and last known business, the list of the stockholders of such
residence or mailing address of the AIMCO GP corporation.
and each other partner.
</TABLE>
Management Control
<TABLE>
<S> <C>
All management powers over the business and The AIMCO Board of Directors has exclusive
affairs of the AIMCO Operating Partnership control over AIMCO's business and affairs
are vested in the AIMCO GP. No limited subject only to the restrictions in the
partner has any right to participate in or Charter and the Bylaws. The policies adopted
exercise control or management power over by the AIMCO Board of Directors may be
the business and affairs of the AIMCO altered or eliminated without a vote of
Operating Partnership. The limited partners AIMCO's stockholders. Accordingly, except
have the right to vote on certain matters for their vote in the election of directors,
described under "Voting Rights" below. The holders of Class A Common Stock have no
AIMCO GP may not be removed by the limited control over the ordinary business policies
partners with or without cause. of AIMCO.
</TABLE>
Management Liability and Indemnification
<TABLE>
<S> <C>
Notwithstanding anything to the contrary set The Charter limits the liability of AIMCO's
forth in the AIMCO Operating Partnership directors and officers to AIMCO and its
Agreement, the AIMCO GP is not liable to the stockholders to the fullest extent permitted
AIMCO Operating Partnership for losses from time to time by Maryland law. Maryland
sustained, liabilities incurred or benefits law presently permits the liability of
not derived as a result of errors in judg- directors and officers to a corporation or
ment or mistakes of fact or law of any act its stockholders for money damages to be
or omission if the AIMCO GP acted in good limited, except (i) to the extent that it is
faith. The AIMCO Operating Partnership proved that the director or officer actually
Agreement provides for indemnification of received an improper benefit or profit in
AIMCO, or any director or money, property or services actu-
</TABLE>
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<PAGE> 339
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
officer of AIMCO (in its capacity as the ally received, or (ii) if a judgment or
previous general partner of the AIMCO other final adjudication is entered in a
Operating Partnership), the AIMCO GP, any proceeding based on a finding that the
officer or director of AIMCO GP or the AIMCO director's or officer's action, or failure
Operating Partnership and such other persons to act, was the result of active and
as the AIMCO GP may designate from and deliberate dishonesty and was material to
against all losses, claims, damages, the cause of action adjudicated in the
liabilities, joint or several, expenses proceeding. This provision does not limit
(including legal fees), fines, settlements the ability of AIMCO or its stockholders to
and other amounts incurred in connection obtain other relief, such as an injunction
with any actions relating to the operations or recission.
of the AIMCO Operating Partnership, as set
forth in the AIMCO Operating Partnership The Charter and Bylaws require AIMCO to
Agreement. The Delaware LP Act provides that indemnify its directors, officers and
subject to the standards and restrictions, certain other parties to the fullest extent
if any, set forth in its partnership permitted from time to time by Maryland law.
agreement, a limited partnership may, and The MGCL permits a corporation to indemnify
shall have the power to, indemnify and hold its directors, officers and certain other
harmless any partner or other person from parties against judgments, penalties, fines,
and against any and all claims and demands settlements and reasonable expenses actually
whatsoever. It is the position of the SEC incurred by them in connection with any
that indemnification of directors and proceeding to which they may be made a party
officers for liabilities arising under the by reason of their service to or at the
Securities Act is against public policy and request of the corporation, unless it is
is unenforceable pursuant to Section 14 of established that (i) the act or omission of
the Securities Act of 1933. the indemnified party was material to the
matter giving rise to the proceeding and (x)
was committed in bad faith or (y) was the
result of active and deliberate dishon-
esty, (ii) the indemnified party actually
received an improper personal benefit in
money, property or services of (iii) in the
case of any criminal proceeding, the
indemnified party had reasonable cause to
believe that the act or omission was
unlawful. Indemnification may be made
against judgments, penalties, fines,
settlements and reasonable expenses actually
incurred by the director or officer in
connection with the proceeding; provided
however, that if the proceeding is one by or
in the right of the corporation,
indemnification may not be made with respect
to any proceeding in which the director or
officer has been adjudged to be liable to
the corporation. In addition, a director or
officer may not be indemnified with respect
to any proceeding charging improper personal
benefit to the director or officer was
adjudged to be liable on the basis that
personal benefit was improperly received.
The termination of any proceeding by
conviction, or upon a plea of nolo
contendere or its equivalent, or an entry of
any order of probation prior to judgment,
creates a rebuttable presumption that the
director or officer did not meet the
requisite standard or conduct required for
indemnification to be permitted. It is the
position of the SEC that indemnification of
directors and officers for liabilities
arising under the Securities Act of 1933 is
against public policy and is unenforceable
pursuant to Section 14 of the Securities Act
of 1933.
</TABLE>
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<PAGE> 340
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
AIMCO has entered into agreements with
certain of its officers, pursuant to which
AIMCO has agreed to indemnify such officers
to the fullest extent permitted by
applicable law.
</TABLE>
Anti-Takeover Provisions
<TABLE>
<S> <C>
Except in limited circumstances, the AIMCO The Charter and Bylaws of AIMCO contain a
GP has exclusive management power over the number of provisions that may have the
business and affairs of the AIMCO Operating effect of delaying or discouraging an
Partnership. The AIMCO GP may not be removed unsolicited proposal for the acquisition of
as general partner of the AIMCO Operating AIMCO or the removal of incumbent
Partnership by the limited partners with or management. These provisions include, among
without cause. Under the AIMCO Operating others: (1) authorized shares of stock that
Partnership Agreement, the AIMCO GP, as a may be issued, in the discretion of the
general partner, may, in its sole AIMCO Board of Directors, as Preferred Stock
discretion, prevent a transferee of an OP with superior voting rights to the Class A
Unit from becoming a substituted limited Common Stock; (2) a requirement that
partner pursuant to the AIMCO Operating directors may be removed only for cause and
Partnership Agreement. The AIMCO GP may by a vote of holders of at least two-thirds
exercise this right of approval to deter, of the votes entitled to be cast in the
delay or hamper attempts by persons to ac- election of directors; (3) advance notice
quire a controlling interest in the AIMCO required in order to nominate persons for
Operating Partnership. Additionally, the election to the AIMCO Board of Directors or
AIMCO Operating Partnership Agreement to propose business to be considered by
contains restrictions on the ability of stockholders at a stockholder's meeting; and
limited partners to transfer their OP Units. (4) provisions designed to avoid
See "Description of OP Units -- Transfers concentration of stock ownership in a manner
and Withdrawals." that would jeopardize AIMCO's status as a
REIT under the Internal Revenue Code. See
"Description of Common Stock -- Restrictions
on Transfer" and "Risk Factors --Ownership
Limit."
The MGCL contains provisions concerning
certain "business combinations" and "control
share acquisitions" (each as defined in the
MGCL) that could have the effect of
discouraging offers to acquire AIMCO and of
increasing the difficulty of consummating
any such offer. See "Description of Common
Stock -- Business Combinations" and
"Description of Common Stock -- Control
Share Acquisitions."
</TABLE>
Amendment of the Partnership Agreement or the Charter and Bylaws
<TABLE>
<S> <C>
With the exception of certain circumstances AIMCO may amend, alter or repeal any
set forth in the AIMCO Operating Partnership provision contained in its Charter upon (i)
Agreement, whereby the AIMCO GP may, without adoption by the AIMCO Board of Directors of
the consent of the limited partners, amend a resolution recommending such amendment,
the AIMCO Operating Partnership Agreement, alteration, or repeal, (ii) presentation by
amendments to the AIMCO Operating the AIMCO Board of Directors to the
Partnership Agreement require the consent of stockholders of a resolution at an annual or
the limited partners holding a majority of special meeting of the stockholders and
the outstanding Common OP Units, excluding (iii) approval of such resolution by the
the Special Limited Partner and certain affirmative vote of the holders of a
other lim- majority (or, in certain cases,
</TABLE>
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<PAGE> 341
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
ited exclusions (a "Majority in Interest"). two-thirds) of the aggregate number of votes
Amendments to the AIMCO Operating entitled to be cast generally in the
Partnership Agreement may be proposed by the election of directors.
AIMCO GP or by holders of a Majority in
Interest. Following such proposal, the AIMCO Under the MGCL, unless otherwise provided in
GP will submit any proposed amendment to the a corporation's charter, a proposed charter
limited partners. The AIMCO GP will seek the amendment requires an affirmative vote of
written consent of the limited partners on two-thirds of the outstanding stock entitled
the proposed amendment or will call a to be cast on the matter. However, the
meeting to vote thereon. See "Description of Charter provides that it may be amended upon
OP Units -- Amendment of the AIMCO Operating the affirmative vote of a majority (or, as
Partnership Agreement." applicable, two-thirds) of the stock
entitled to be cast generally in the
election of directors ("voting stock").
Under the MGCL, the power to adopt, alter,
and repeal the bylaws is vested in the
stockholders, except to the extent that the
charter or bylaws vest it in the board of
directors. The Bylaws provide that they may
be amended by vote of a majority of the
AIMCO Board of Directors. An amendment to
any provision of the Bylaws relating to
their repeal or the removal of directors may
be effected only by the vote of two-thirds
of the voting stock.
</TABLE>
Compensation and Fees
<TABLE>
<S> <C>
The AIMCO GP does not receive compensation The employees, officers and directors of
for its services as general partner of the AIMCO receive compensation for their
AIMCO Operating Partnership. However, the services.
AIMCO GP is entitled to payments,
allocations and distributions in its
capacity as general partner of the AIMCO
Operating Partnership. In addition, the
AIMCO Operating Partnership is responsible
for all expenses incurred relating to the
AIMCO Operating Partnership's ownership of
its assets and the operation of the AIMCO
Operating Partnership and reimburses the
AIMCO GP for such expenses paid by the AIMCO
GP. The employees of the AIMCO Operating
Partnership receive compensation for their
services.
</TABLE>
Liability of Investors
<TABLE>
<S> <C>
Except for fraud, willful misconduct or The MGCL provides that no stockholder of a
gross negligence, no limited partner has corporation will be personally liable for
personal liability for the AIMCO Operating any obligations of such corporation.
Partnership's debts and obligations, and Generally the liability of stockholders for
liability of the limited partners for the AIMCO's debts and obligations is limited to
AIMCO Operating Partnership's debts and the amount of their investment in AIMCO.
obligations is generally limited to the
amount of their investment in the AIMCO
Operating Partnership. However, the
limitations on the liability of limited
partners for the obligations of a limited
partnership have not been clearly
established in some states. If it were
determined that the AIMCO Operating Part-
nership had been conducting business in any
state
</TABLE>
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<PAGE> 342
AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
without compliance with the applicable
limited partnership statute, or that the
right or the exercise of the right by the
limited partners holding OP Units as a group
to make certain amendments to the AIMCO
Operating Partnership Agreement or to take
other action pursuant to the AIMCO Operating
Partnership Agreement constituted
participation in the "control" of the AIMCO
Operating Partnership's business, then a
limited partner could be held liable under
certain circumstances for the AIMCO Oper-
ating Partnership's obligations to the same
extent as the general partner.
</TABLE>
Fiduciary Duties
<TABLE>
<S> <C>
Unless otherwise provided for in the Under Maryland law, the members of the AIMCO
relevant partnership agreement, Delaware law Board of Directors must perform their duties
generally requires a general partner of a in good faith, in a manner that they
Delaware limited partnership to adhere to reasonably believe to be in the best
fiduciary duty standards under which it owes interests of AIMCO and with the care of an
its limited partners the highest duties of ordinarily prudent person in a like
good faith, fairness and loyalty and which position. Members of the AIMCO Board of
generally prohibit such general partner from Directors who act in such a manner will
taking any action or engaging in any generally not be liable to AIMCO for
transaction as to which it has a conflict of monetary damages arising from their
interest. The AIMCO Operating Partnership activities as members of the AIMCO Board of
Agreement expressly authorizes the AIMCO GP Directors.
to enter into, on behalf of the AIMCO
Operating Partnership, a right of first
opportunity arrangement and other conflict
avoidance agreements with various affiliates
of the AIMCO Operating Partnership and the
AIMCO GP, on such terms as the AIMCO GP, in
its sole and absolute discretion, believes
are advisable. The AIMCO Operating
Partnership Agreement expressly limits the
liability of the AIMCO GP by providing that
the AIMCO GP, and its officers and directors
will not be liable or accountable in damages
to the AIMCO Operating Partnership, the
limited partners or assignees for errors in
judgment or mistakes of fact or law or of
any act or omission if the AIMCO GP or such
director or officer acted in good faith. See
"Risk Factors -- Risks Associated With an
Investment in OP Units -- Conflicts of
Interest and Fiduciary Responsibility" and
"Description of OP Units -- Fiduciary
Responsibilities."
</TABLE>
Federal Income Taxation
<TABLE>
<S> <C>
The AIMCO Operating Partnership is not AIMCO has elected to be taxed as a REIT
subject to federal income taxes. Instead, beginning with its fiscal year ended
each OP Unitholder includes in income its December 31, 1994. So long as it qualifies
allocable share of the AIMCO Operating as a REIT, AIMCO will be permitted to deduct
Partnership's taxable income or loss when it distributions paid to its stockholders,
determines its individual federal income tax which effectively will reduce the "double
liability. taxation" that typically results when a
corporation
</TABLE>
70
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AIMCO OPERATING PARTNERSHIP AIMCO
<TABLE>
<S> <C>
earns income and distributes that income to
its stockholders in the form of dividends. A
qualified REIT, however, is subject to
federal income tax on income that is not
distributed and also may be subject to
federal income and excise taxes in certain
circumstances. The maximum federal income
tax rate for corporations under current law
is 35%, but in certain circumstances a REIT
is subject to a 100% tax on certain kinds of
income.
Income and loss from the AIMCO Operating Dividends paid by AIMCO will be treated as
Partnership may be subject to the passive "portfolio" income and cannot be offset with
activity limitations. If an investment in an losses from "passive activities."
OP Unit is treated as a passive activity,
income and loss from the AIMCO Operating
Partnership generally can be offset against
income and loss from other investments that
constitute "passive activities" (unless the
AIMCO Operating Partnership is considered a
"publicity traded partnership", in which
case income and loss from the AIMCO
Operating Partnership can only be offset
against other income and loss from the AIMCO
Operating Partnership). Income of the AIMCO
Operating Partnership, however, attributable
to dividends from the management companies
or interest paid by the management companies
does not qualify as passive activity income
and cannot be offset against losses from
"passive activities."
Cash distributions by the AIMCO Operating Distributions by AIMCO to its taxable
Partnership are not taxable to an OP domestic stockholders out of current or
Unitholder except to the extent they exceed accumulated earnings and profits will be
such Partner's basis in its interest in the taxed as ordinary income. Distributions that
AIMCO Operating Partnership (which will are designated as capital gain dividends
include such OP Unitholder's allocable share generally will be taxed as long-term capital
of the AIMCO Operating Partnership's nonre- gain, subject to certain limitations. A
course debt). distribution in excess of current or
accumulated earnings and profits will be
treated as a non-taxable return of basis to
the extent of a stockholder's adjusted basis
in its shares of stock of AIMCO with respect
to which such distribution is received, with
the excess, if any, taxed as capital gain.
Each year, OP Unitholders receive a Schedule Each year, stockholders of AIMCO receive a
K-1 tax form containing tax information for Form 1099 used by REITs to report dividends
inclusion in preparing their federal income paid to their stockholders.
tax returns.
OP Unitholders are required, in some cases, Stockholders who are individuals generally
to file state income tax returns and/or pay will not be required to file state income
state income taxes in the states in which tax returns and/or pay state income taxes
the AIMCO Operating Partnership owns outside of their states of residence solely
property or transacts business, even if they as a result of the fact that AIMCO owns
are not residents of those states. The AIMCO property or transacts business in various
Operating Partnership may be required to pay jurisdictions. AIMCO may be required to pay
state income taxes in certain states. state income taxes in various states.
</TABLE>
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COMPARISON OF COMMON OP UNITS AND CLASS A COMMON STOCK
COMMON CLASS A
OP UNITS COMMON STOCK
Nature of Investment
<TABLE>
<S> <C>
The Common OP Units constitute equity The Class A Common Stock constitute equity
interests entitling each OP Unitholder to interests in AIMCO. Dividends are paid, when
his or her pro rata share of cash and as declared by the AIMCO Board of
distributions made from Available Cash (as Directors. In order to qualify as a REIT,
such term is defined in the AIMCO Operating AIMCO is required to distribute dividends
Partnership Agreement) to the partners of (other than capital gain dividends) to its
the AIMCO Operating Partnership. stockholders in an amount at least equal to
(A) the sum of (i) 95% of AIMCO's "REIT
taxable income" (computed without regard to
the dividends paid deduction and AIMCO'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.
</TABLE>
Voting Rights
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<S> <C>
Under the AIMCO Operating Partnership Agree- Each outstanding share of Class A Common
ment, the limited partners have voting Stock entitles the holder thereof to one
rights only with respect to certain limited vote on all matters submitted to
matters such as certain amendments and stockholders for vote, including the
termination of the AIMCO Operating election of directors. See "Description of
Partnership Agreement and certain trans- Common Stock -- Class A Common Stock."
actions such as the institution of Holders of Class A Common Stock have the
bankruptcy proceedings, an assignment for right to vote on, among other things, a
the benefit of creditors and certain merger of AIMCO, amendments to the Charter
transfers by the AIMCO GP of its interest in and the dissolution of AIMCO. Certain
the AIMCO Operating Partnership or the amendments to the Charter require the
admission of a successor general partner. affirmative vote of not less than two-thirds
of votes entitled to be cast on the matter.
The Charter permits the AIMCO Board of
Directors to classify and issue capital
stock in one or more series having voting
power which may differ from that of the
Class A Common Stock.
Under Maryland law, a consolidation, merger,
share exchange or transfer of all or
substantially all of the assets of AIMCO
requires the affirmative vote of not less
than two-thirds of all of the votes entitled
to be cast on the matter. With respect to
each of these transactions, only the holders
of Class A Common Stock are entitled to vote
on the matters. No approval of the
stockholders is required for the sale of
less than all or substantially all of
AIMCO's assets.
Maryland law provides that the AIMCO Board
of Directors must obtain the affirmative
vote of at least two-thirds of the votes
entitled to be cast on the matter in order
to dissolve AIMCO. Only the holders of Class
A Common Stock are entitled to vote on
AIMCO's dissolution.
</TABLE>
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COMMON OP UNITS CLASS A COMMON STOCK
Distributions
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Subject to the rights of holders of any Holders of the Class A Common Stock are
outstanding Preferred OP Units, the AIMCO entitled to received dividends, when and as
Operating Partnership Agreement requires the declared by the AIMCO Board of Directors,
AIMCO GP to cause the AIMCO Operating out of funds legally available therefor. See
Partnership to distribute quarterly all, or "Per Share and Per Unit Data."
such portion as the AIMCO GP may in its sole
and absolute discretion determine, of Holders of Class B Common Stock do not have
Available Cash generated by the AIMCO dividend rights. A certain number of shares
Operating Partnership during such quarter to of Class B Common Stock are eligible for
the AIMCO GP, the Special Limited Partner conversion into an equal number of shares of
and the holders of Common OP Units on the Class A Common Stock. Once Class B Common
record date established by the AIMCO GP with Stock has been converted into Class A Common
respect to such quarter, in accordance with Stock, holders of such shares of converted
their respective interests in the AIMCO Class A Common Stock will have dividend
Operating Partnership on such record date. rights of Class A Common Stock generally.
Holders of any other Preferred OP Units See "Description of Common Stock -- Class B
issued in the future may have priority over Common Stock."
the AIMCO GP, the Special Limited Partner
and holders of Common OP Units with respect AIMCO, in order to qualify as a REIT, is
to distributions of Available Cash, required to distribute dividends (other than
distributions upon liquidation or other capital gain dividends) to its stockholders
distributions. See "Per Share and Per Unit in an amount at least equal to (A) the sum
Data." of (i) 95% of AIMCO's "REIT taxable income"
The AIMCO GP in its sole and absolute (computed without regard to the dividends
discretion may distribute to the OP paid deduction and AIMCO's net capital gain)
Unitholders Available Cash on a more and (ii) 95% of the net income (after tax),
frequent basis and provide for an if any, from foreclosure property, minus (B)
appropriate record date. The AIMCO Operating the sum of certain items of noncash income.
Partnership Agreement requires the AIMCO GP See "Federal Income Taxation of AIMCO and
to take such reasonable efforts, as AIMCO Stockholders -- General."
determined by it in its sole and absolute
discretion and consistent with AIMCO's
qualification as a REIT, to cause the AIMCO
Operating Partnership to distribute suffi-
cient amounts to enable the AIMCO GP to
transfer funds to AIMCO and enable AIMCO to
pay stockholder dividends that will (i)
satisfy the requirements for qualifying as a
REIT under the Code, and the Treasury
Regulations and (ii) avoid any federal
income or excise tax liability of AIMCO. See
"Description of OP Units -- Distributions."
</TABLE>
Liquidity and Transferability/Redemption
<TABLE>
<S> <C>
There is no public market for the OP Units The Class A Common Stock is transferable
and the OP Units are not listed on any subject to the Ownership Limit set forth in
securities exchange. the Charter. The Class A Common Stock is
listed on the NYSE.
Pursuant to the AIMCO Operating Partnership
Agreement, until the expiration of one year
from the date on which an OP Unitholder
acquired OP Units, subject to certain
exceptions, such OP Unitholder may not
transfer all or any portion of its OP Units
to any transferee without the consent of the
AIMCO GP, which consent may be withheld in
its sole and absolute discretion. After the
expiration of
</TABLE>
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COMMON OP UNITS CLASS A COMMON STOCK
<TABLE>
<S> <C>
one year, such OP Unitholder has the right
to transfer all or any portion of its OP
Units to any person, subject to the
satisfaction of certain conditions specified
in the AIMCO Operating Partnership
Agreement, including the AIMCO GP's right of
first refusal. See "Description of OP
Units -- Transfers and Withdrawals."
After the first anniversary of becoming a
holder of Common OP Units, an OP Unitholder
has the right, subject to the terms and
conditions of the AIMCO Operating
Partnership Agreement, to require the AIMCO
Operating Partnership to redeem all or a
portion of the Common OP Units held by such
party in exchange for shares of Class A
Common Stock or a cash amount equal to the
value of such shares, as the AIMCO Operating
Partnership may elect. See "Description of
OP Units -- Redemption Rights." Upon receipt
of a notice of redemption, the AIMCO
Operating Partnership may, in its sole and
absolute discretion but subject to the
restrictions on the ownership of Class A
Common Stock imposed under the AIMCO Charter
and the transfer restrictions and other
limitations thereof, elect to cause AIMCO to
acquire some or all of the tendered Common
OP Units in exchange for Class A Common
Stock, based on an exchange ratio of one
share of Class A Common Stock for each
Common OP Unit, subject to adjustment as
provided in the AIMCO Operating Partnership
Agreement.
</TABLE>
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FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS
The following is a summary of certain federal income tax consequences
resulting from the acquisition of, holding, exchanging, and otherwise disposing
of Class A Common Stock and the Preferred Stock (collectively, the Class A
Common Stock and the Preferred Stock are referred to herein as the "AIMCO
Stock"). This discussion is based upon the Code, the Treasury Regulations,
rulings issued by the IRS, and judicial decisions, all in effect as of the date
of this Registration Statement and all of which are subject to change, possibly
retroactively. Such summary is also based on the assumptions that the operation
of AIMCO, the AIMCO Operating Partnership and the limited liability companies
and limited partnerships in which they own controlling interests (collectively,
the "Subsidiary Partnerships") will be in accordance with their respective
organizational documents and partnership agreements. This summary is for general
information only and does not purport to discuss all aspects of federal income
taxation which may be important to a particular investor in light of its
investment or tax circumstances, or to certain types of investors subject to
special tax rules (including financial institutions, broker-dealers, insurance
companies, and, except to the extent discussed below, tax-exempt organizations
and foreign investors, as determined for United States federal income tax
purposes). This summary assumes that investors will hold their AIMCO Stock as
"capital assets" (generally, property held for investment). No advance ruling
has been or will be sought from the IRS regarding any matter discussed in this
Registration Statement.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF AIMCO STOCK DEPENDS IN SOME
INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF
FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF AIMCO STOCK AND OF AIMCO'S
ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
GENERAL
The REIT provisions of the Code are highly technical and complex. The
following summary sets forth certain 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, Treasury
Regulations, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly retroactively.
AIMCO has elected to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1994, and AIMCO intends to continue such
election. Although AIMCO believes, and it has received an opinion of Counsel to
the effect that, commencing with the AIMCO's initial taxable year ended December
31, 1994, AIMCO 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 its formation, will enable it to meet the requirements
for qualification and taxation as a REIT under the Code. No assurance can be
given that AIMCO has been or will remain so qualified. It must be emphasized
that this opinion is based and conditioned upon certain assumptions and
representations and covenants made by AIMCO as to factual matters (including
representations of AIMCO concerning its business and properties as set forth in
this Registration Statement). The opinion is expressed as of its date and
Counsel 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 AIMCO'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 Counsel. Accordingly, no assurance can be given that the actual
results of AIMCO's operation for any one taxable year will satisfy such
requirements. See " -- Failure to Qualify." An opinion of counsel is not binding
on the IRS, and no assurance can be given that the IRS will not challenge
AIMCO's eligibility for taxation as a REIT.
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Provided AIMCO qualifies for taxation as a REIT, it will generally not be
subject to federal corporate income tax on its net income that is currently
distributed to its stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, notwithstanding AIMCO's
qualification as a REIT, AIMCO will be subject to federal income tax as follows:
First, AIMCO will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, AIMCO may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if AIMCO 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 AIMCO 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 AIMCO fails the 75% or 95%
test multiplied by (b) a fraction intended to reflect AIMCO's profitability.
Fifth, if AIMCO 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 (other than certain long-term capital
gains that AIMCO elects to retain and pay the tax thereon), and (iii) any
undistributed taxable income from prior periods, AIMCO would be subjected to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Sixth, if AIMCO acquires assets from a subchapter C
corporation in a transaction in which the adjusted tax basis of the assets in
the hands of AIMCO is determined by reference to the adjusted tax basis of such
assets in the hands of the subchapter C corporation (such as the assets acquired
from Insignia in the Insignia Merger), under Treasury Regulations not yet
promulgated, the subchapter C corporation would be required to recognize any net
Built-In Gain (as defined below) that would have been realized if the Subchapter
C corporation had liquidated on the day before the date of the transfer.
Pursuant to IRS Notice 88-19, AIMCO may elect, in lieu of the treatment
described above, to be subject to tax at the highest regular corporate tax rate
on such gain to the extent of the excess, if any, of the fair market value over
the adjusted basis of such asset as of the beginning of the ten-year period
("Built-in Gain"). AIMCO intends to make such an election and, therefore, will
be taxed at the highest regular corporate rate on such Built-in Gain if, and to
the extent, such assets are sold within the specified ten-year period. It should
be noted that AIMCO has acquired (and will acquire in the Insignia Merger) a
significant amount of assets with Built-in Gain and a taxable disposition by
AIMCO of any of these assets within ten years of their acquisitions would
subject AIMCO to tax under the foregoing rule. Seventh, AIMCO could be subject
to foreign taxes on its investments and activities in foreign jurisdictions. In
addition, AIMCO 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 Charter
provides certain restrictions regarding transfers of its shares, which
provisions are intended to assist AIMCO in satisfying the share ownership
requirements described in conditions (5) and (6) above.
To monitor AIMCO's compliance with the share ownership requirements, AIMCO
is required to maintain records regarding the actual ownership of its shares. To
do so, AIMCO must demand written statements each year from the record holders of
certain percentages of its stock in which the record holders are
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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 AIMCO'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. AIMCO satisfies this requirement.
Ownership of Partnership Interests
In the case of a REIT that is a partner in a partnership, Treasury
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,
AIMCO's proportionate share of the assets, liabilities and items of income of
the partnerships and limited liability companies in which it has ownership
interests (the "Subsidiary Partnerships") will be treated as assets, liabilities
and items of income of AIMCO for purposes of applying the REIT requirements
described herein. A summary of certain rules governing the federal income
taxation of partnerships and their partners is provided below in "Tax Aspects of
AIMCO's Investments in Partnerships."
Income Tests
In order to maintain qualification as a REIT, AIMCO annually must satisfy
two gross income requirements. First, at least 75% of AIMCO'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 AIMCO's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, and from dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing).
Rents received by AIMCO 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, including the following. If rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Moreover, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an "independent contractor" from which the REIT derives no revenue.
However, AIMCO (or its affiliates) is permitted to 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. In addition, AIMCO (or its affiliates) may provide
non-customary services to tenants of its properties without disqualifying all of
the rent from the property if the payment for such services does not exceed 1%
of the total gross income from the property. For purposes of this test, the
income received from such non-customary services is deemed to be at least 150%
of the direct cost of providing the services.
PAMS LP and the other subsidiaries of the Company that manage the Managed
Properties (collectively, the "Management Subsidiaries") receive management fees
and other income. A portion of such fees and other income accrue to AIMCO
through distributions from the Management Subsidiaries that will be classified
as dividend income to the extent of the earnings and profits of the Management
Subsidiaries. Such distributions will generally qualify under the 95% gross
income test but not under the 75% gross income test.
If AIMCO fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if AIMCO's failure to meet such tests was
due to reasonable
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cause and not due to willful neglect, AIMCO 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 AIMCO would be entitled to the benefit of these
relief provisions. If these relief provisions are inapplicable to a particular
set of circumstances involving AIMCO, AIMCO 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
AIMCO, 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 AIMCO's total assets must be represented by real estate assets
(including its allocable share of real estate assets held by the Subsidiary
Partnerships), certain stock or debt instruments purchased by AIMCO with new
capital, cash, cash items and U.S. government securities. Second, not more than
25% of AIMCO'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 AIMCO may not exceed 5% of the
value of AIMCO's total assets, and AIMCO may not own more than 10% of any one
issuer's outstanding voting securities.
AIMCO 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 or the investment of more than 5% of the REIT's total assets in
any one issuer's securities is prohibited by the asset tests. AIMCO believes
that its indirect ownership interests in the Management Subsidiaries qualify
under the asset tests set forth above. However, no independent appraisals have
been obtained to support AIMCO's conclusions as to the value of the AIMCO
Operating Partnership's total assets and the value of the AIMCO Operating
Partnership's interest in the Management Subsidiaries and these values are
subject to change in the future. Accordingly, there can be no assurance that the
IRS will not contend that the AIMCO Operating Partnership's ownership interests
in the Management Subsidiaries disqualifies AIMCO from treatment as a REIT.
AIMCO's indirect interests in the AIMCO Operating Partnership and other
Subsidiary Partnerships are held through wholly owned corporate subsidiaries of
AIMCO 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 AIMCO. Each qualified
REIT subsidiary therefore is not subject to federal corporate income taxation,
although it may be subject to state or local taxation. In addition, AIMCO'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
AIMCO, in order to qualify as a REIT, is required to distribute dividends
(other than capital gain dividends) to its stockholders in an amount at least
equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income" (computed
without regard to the dividends paid deduction and AIMCO'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 AIMCO 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 AIMCO distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at ordinary
corporate tax rates. AIMCO may elect to retain, rather than distribute, its net
long-term capital gains and pay tax on such gains. In such a case, AIMCO's
stockholders would include their proportionate share of such undistributed
long-term capital gains in income and receive a credit for their share of the
tax paid by AIMCO. AIMCO's stockholders would then increase the adjusted basis
of their AIMCO shares by the difference between the designated amounts included
in their long-term capital gains and the tax deemed paid with respect to their
shares. If AIMCO should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year and (ii) 95% of its
REIT capital gain net income for such
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year (excluding retained long-term capital gains), and (iii) any undistributed
taxable income from prior periods, AIMCO would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually distributed.
AIMCO believes that it has made, and intends to make, timely distributions
sufficient to satisfy these annual distribution requirements.
It is possible that AIMCO, from time to time, may not have sufficient cash
to meet the 95% distribution requirement due to timing differences between (i)
the actual receipt of cash (including receipt of distributions from the AIMCO
Operating Partnership) and (ii) the inclusion of certain items in income by
AIMCO for federal income tax purposes. In the event that such timing differences
occur, in order to meet the 95% distribution requirement, AIMCO 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, AIMCO may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in AIMCO's deduction for
dividends paid for the earlier year. Thus, AIMCO may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, AIMCO will be
required to pay interest and a penalty based on the amount of any deduction
taken for deficiency dividends.
Distribution of Acquired Earnings and Profits
The Code provides that when a REIT acquires a corporation that is currently
a C corporation (i.e., a corporation without a REIT election, such as Insignia),
the REIT may qualify as a REIT only if, as of the close of the year of
acquisition, the REIT has no "earnings and profits" acquired from such C
corporation. In the Insignia Merger, AIMCO will succeed to the earnings and
profits of Insignia and, therefore, AIMCO must distribute such earnings and
profits effective on or before December 31, 1998. Insignia has retained
independent certified public accountants to determine Insignia's earnings and
profits for purposes of this requirement. The determination of the independent
certified public accountants will be based upon Insignia's tax returns as filed
with the IRS and other assumptions and qualifications set forth in the reports
issued by such accountants. Any adjustments to Insignia's income for taxable
years ending on or before the closing of the Insignia Merger, including as a
result of an examination of its returns by the IRS or the receipt of certain
indemnity or other payments, could affect the calculation of Insignia's earnings
and profits. Furthermore, the determination of earnings and profits requires the
resolution of certain technical tax issues with respect to which there is no
authority directly on point and, consequently, the proper treatment of these
issues for earnings and profits purposes is not free from doubt. There can be no
assurance that the IRS will not examine the tax returns of Insignia and propose
adjustments to increase its taxable income and therefore its earnings and
profits. In this regard, the IRS can consider all taxable years of Insignia as
open for review for purposes of determining the amount of such earnings and
profits. Moreover, if the Special Dividend is not treated as a dividend under
the Code, AIMCO may, depending upon the amount of other distributions made by
AIMCO subsequent to the Insignia Merger, fail to distribute an amount equal to
Insignia's earnings and profits. AIMCO's failure to distribute an amount equal
to such earnings and profits effective on or before December 31, 1998, would
result in AIMCO's failure to qualify as a REIT.
Failure to Qualify
If AIMCO fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, AIMCO 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 AIMCO fails to qualify
will not be deductible by AIMCO nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless AIMCO is entitled to relief under
specific statutory provisions, AIMCO would 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 AIMCO would
be entitled to such statutory relief.
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TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS
General
Substantially all of AIMCO's investments are held indirectly through the
AIMCO 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. AIMCO 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, AIMCO will include its proportionate share of assets held by the
Subsidiary Partnerships. See "-- Federal Income Taxation of AIMCO and AIMCO
Stockholders -- General."
Entity Classification
AIMCO's direct and indirect investment in partnerships involves special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of the Subsidiary 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 subject to an entity-level tax on its income. In such a situation,
the character of AIMCO's assets and items of gross income would change and could
preclude AIMCO from satisfying the asset tests and the income tests (see "--
Federal Income Taxation of AIMCO and AIMCO Stockholders -- Asset Tests" and "--
Federal Income Taxation of AIMCO and AIMCO Stockholders -- Income Tests"), and
in turn could prevent AIMCO from qualifying as a REIT. See "-- Federal Income
Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify" above for a
discussion of the effect of AIMCO'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
AIMCO might incur a tax liability without any related cash distributions.
Tax Allocations with Respect to the Properties
Under the Code and the Treasury Regulations, 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 the 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. See "-- Federal Income Taxation of the AIMCO Operating
Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property
to the AIMCO Operating Partnership." The AIMCO 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
AIMCO to the AIMCO Operating Partnership of the cash proceeds received in any
offerings of its stock.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on the sale by the AIMCO Operating Partnership or other Subsidiary Partnerships
of the contributed 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 properties in the hands of the AIMCO
Operating Partnership or other Subsidiary Partnerships may cause AIMCO to be
allocated lower depreciation and other deductions, and
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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 AIMCO to recognize taxable income in excess
of cash proceeds, which might adversely affect AIMCO's ability to comply with
the REIT distribution requirements. See "-- Federal Income Taxation of AIMCO and
AIMCO Stockholders -- Annual Distribution Requirements."
With respect to any property purchased or to be purchased by any of the
Subsidiary Partnerships (other than through the issuance of OP Units) subsequent
to the formation of AIMCO, 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
AIMCO's share of any gain realized by the AIMCO Operating Partnership or
any other Subsidiary 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 "-- Taxation of AIMCO and AIMCO Stockholders -- General --
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 AIMCO Operating
Partnership and the other Subsidiary 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 to make such occasional sales of the Owned Properties, including peripheral
land, as are consistent with AIMCO'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 distributions made by the Management Subsidiaries to
the AIMCO Operating Partnership, and interest paid by the Management
Subsidiaries on certain notes held by the AIMCO Operating Partnership. In
general, the Management Subsidiaries pay federal, state and local income taxes
on their taxable income at normal corporate rates. Any federal, state or local
income taxes that the Management Subsidiaries are required to pay will reduce
AIMCO's cash flow from operating activities and its ability to make payments to
holders of its securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
Distributions
Provided AIMCO qualifies as a REIT, distributions made to AIMCO'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 (and retained long-term capital gains) that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed AIMCO's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. In addition, net capital
gains attributable to the sale of depreciable real property held for more than
12 months is subject to a 25% maximum federal income tax rate to the extent of
previously claimed real property depreciation.
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 in respect of which the distributions
were made, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares in respect of which the distributions were made, 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
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addition, any dividend declared by AIMCO in October, November or December of any
year and payable to a stockholder of record on a specified date in any such
month will be treated as both paid by AIMCO and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by AIMCO
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 AIMCO. 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 AIMCO required to be treated by such stockholder as
long-term capital gain.
Dispositions of AIMCO Stock
In general, under the recently enacted Internal Revenue Service
Restructuring and Reform Act of 1988, capital gains recognized by individuals
and other non-corporate taxpayers upon the sale or disposition of AIMCO Stock
will be subject to a maximum federal income tax rate of 20% if the AIMCO Stock
is held for more than 12 months and will be taxed at ordinary income rates if
the AIMCO Stock is held for 12 months or less. Capital losses recognized by a
stockholder upon the disposition of AIMCO Stock held for more than one year at
the time of disposition will be a long-term capital loss. In addition, any loss
upon a sale or exchange of shares of AIMCO Stock 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
AIMCO required to be treated by such stockholder as long-term capital gain.
A redemption of the Preferred Stock will be treated under Section 302 of
the Code as a dividend subject to tax at ordinary income tax rates (to the
extent of AIMCO's current or accumulated earnings and profits), unless the
redemption satisfies certain tests set forth in Section 302(b) of the Code
enabling the redemption to be treated as a sale or exchange of the Preferred
Stock. The redemption will satisfy such test if it (i) is "substantially
disproportionate" with respect to the holder (which will not be the case if only
the Preferred Stock is redeemed, since it generally does not have voting
rights), (ii) results in a "complete termination" of the holder's stock interest
in AIMCO, or (iii) is "not essentially equivalent to a dividend" with respect to
the holder, all within the meaning of Section 302(b) of the Code. In determining
whether any of these tests have been met, shares considered to be owned by the
holder by reason of certain constructive ownership rules set forth in the Code,
as well as shares actually owned, must generally be taken into account. Because
the determination as to whether any of the alternative tests of Section 302(b)
of the Code is satisfied with respect to any particular holder of the Preferred
Stock will depend upon the facts and circumstances as of the time the
determination is made, prospective investors are advised to consult their own
tax advisors to determine such tax treatment. If a redemption of the Preferred
Stock is treated as a distribution that is taxable as a dividend, the amount of
the distribution would be measured by the amount of cash and the fair market
value of any property received by the stockholders. The stockholder's adjusted
tax basis in such redeemed Preferred Stock would be transferred to the holder's
remaining stockholdings in AIMCO. If, however, the stockholder has no remaining
stockholdings in AIMCO, such basis may, under certain circumstances, be
transferred to a related person or it may be lost entirely.
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 AIMCO Stock
applicable to Non-U.S. Holders of AIMCO 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 the District of Columbia, (iii) an
estate whose income is includible 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. 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.
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Ordinary Dividends
The portion of dividends received by Non-U.S. Holders payable out of
AIMCO's earnings and profits which are not attributable to capital gains of
AIMCO and which are not effectively 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
AIMCO Stock. In cases where the dividend income from a Non-U.S. Holder's
investment in AIMCO Stock 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. Holders 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
corporation).
Non-Dividend Distributions
Unless AIMCO Stock constitutes a United States Real Property Interest (a
"USRPI"), distributions by AIMCO which are not dividends out of the 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 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 accumulated earnings and profits of AIMCO. If AIMCO 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 AIMCO 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 rates 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 Non-U.S. Holder that is a corporation.
Dispositions of AIMCO Stock
Unless AIMCO 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 AIMCO 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. AIMCO believes that it is, and it expects to
continue to be, a domestically controlled REIT and, therefore, the sale of AIMCO
Stock should not be subject to taxation under FIRPTA. Because the Class A Common
Stock is publicly traded, however, no assurance can be given that AIMCO is or
will continue to be a domestically controlled REIT.
If AIMCO 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 AIMCO Class A Common Stock is listed) and (ii) the
selling Non-U.S. Holder held 5% or less of AIMCO's outstanding stock at all
times during a specified testing period.
If gain on the sale of stock of AIMCO 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)
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and the purchaser of the stock could be required to withhold 10% of the purchase
price and remit such amount to the IRS.
Gain from the sale of AIMCO Stock that would not otherwise be 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 AIMCO Stock 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
AIMCO Stock 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 includible 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 includible in the estate for U.S. federal
estate tax purposes.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
AIMCO will report to its U.S. stockholders and to the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide AIMCO with his correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, AIMCO may be required to withhold a portion
of capital gain distributions to any Non-U.S. Holders who fail to certify their
foreign status to AIMCO. The IRS has issued final Treasury Regulations regarding
the backup withholding rules as applied to Non-U.S. Holders. Those final
Treasury Regulations alter the current system of backup withholding compliance
and will be effective for payments made after December 31, 1999. Prospective
investors in AIMCO Stock should consult their tax advisors regarding the
application of these Treasury Regulations.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the IRS has ruled that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the shares of the REIT are not otherwise used in an
unrelated trade or business of the exempt employee pension trust. Based on that
ruling, amounts distributed by AIMCO to Exempt Organizations should generally
not constitute UBTI. However, if an Exempt Organization finances its acquisition
of the AIMCO Stock with debt, a portion of its income from AIMCO will constitute
UBTI pursuant to the "debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17) and (20), respectively, of Section 501(c) of the
Code are subject to different UBTI rules, which generally will require them to
characterize distributions from AIMCO as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of AIMCO's stock is
required to treat a percentage of the dividends from AIMCO as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by AIMCO from an
unrelated trade or business (determined as if AIMCO were a pension trust)
divided by the gross income of AIMCO for the year in which the dividends are
paid. The UBTI rule applies to a pension trust holding more than 10% of
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AIMCO's stock only if (i) the UBTI Percentage is at least 5%, (ii) AIMCO
qualifies as a REIT by reason of the modification of the 5/50 Rule that allows
the beneficiaries of the pension trust to be treated as holding shares of AIMCO
in proportion to their actuarial interest in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of AIMCO's stock or (B) a
group of pension trusts each individually holding more than 10% of the value of
AIMCO's stock collectively owns more that 50% of the value of AIMCO's stock. The
restrictions on ownership and transfer of AIMCO's stock should prevent an Exempt
Organization from owning more than 10% of the value of AIMCO's stock.
FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP
AND OP UNITHOLDERS
The following is a summary of certain federal income tax consequences
resulting from the acquisition of, holding, exchanging, and otherwise disposing
of OP Units. This discussion is based upon the Code, the Treasury Regulations,
rulings issued by the IRS, and judicial decisions, all in effect as of the date
of this Registration Statement and all of which are subject to change, possibly
retroactively. Such summary is also based on the assumptions that the operation
of AIMCO, the AIMCO Operating Partnership and the Subsidiary Partnerships will
be in accordance with their respective organizational documents and partnership
agreements. This summary is for general information only and does not purport to
discuss all aspects of federal income taxation which may be important to a
particular investor in light of its investment or tax circumstances, or to
certain types of investors subject to special tax rules (including financial
institutions, broker-dealers, insurance companies, and, except to the extent
discussed below, tax-exempt organizations and foreign investors, as determined
for United States federal income tax purposes). This summary assumes that
investors will hold their OP Units as "capital assets' (generally, property held
for investment). No advance ruling has been or will be sought from the IRS
regarding any matter discussed in this Registration Statement.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OP UNITS DEPENDS IN SOME
INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF
FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF OP UNITS AND OF AIMCO'S ELECTION
TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
PARTNERSHIP STATUS
AIMCO has received an opinion of Counsel to the effect that the AIMCO
Operating Partnership is classified as a partnership for federal income tax
purposes, and not as an association taxable as a corporation. It must be
emphasized that this opinion of Counsel is based on and conditioned upon certain
assumptions and representations and on opinions of local counsel with respect to
matters of local law. The opinion is expressed as of its date and Counsel has no
obligation to advise AIMCO of any subsequent change in matters stated,
represented or assumed or any subsequent change in the applicable law. An
opinion of Counsel is not binding on the IRS, and no assurance can be given that
the IRS will not challenge the status of the AIMCO Operating Partnership as a
partnership.
Some partnerships are, for federal income tax purposes, characterized not
as a partnership but as an association taxable as a corporation or as a
"publicly traded partnership" taxable as a corporation. A partnership will be
classified as a publicly traded partnership if interests therein are traded on
an "established securities market" or are "readily tradable" on a "secondary
market (or the substantial equivalent thereof)."
The AIMCO Operating Partnership believes and intends to take the position
that the AIMCO Operating Partnership should not be classified as a publicly
traded partnership because (i) the OP Units are not traded on an established
securities market and (ii) the OP Units should not be considered readily
tradable on a secondary market or the substantial equivalent thereof. The
determination of whether interests in a partnership are readily tradable on a
secondary market or the substantial equivalent thereof, however, depends
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on various facts and circumstances (including facts that are not within the
control of the AIMCO Operating Partnership). Treasury Regulations generally
effective for taxable years beginning after December 31, 1995 (the "PTP
Regulations") provide limited safe harbors, which, if satisfied, will prevent a
partnership's interests from being treated as readily tradable on a secondary
market or the substantial equivalent thereof. Under a grandfather rule, certain
existing partnerships may rely on safe harbors contained in IRS Notice 88-75
rather than on the safe harbors contained in the PTP Regulations for all taxable
years of the partnership beginning before January 1, 2006. The AIMCO Operating
Partnership believes that it is subject to such grandfather rule and that it
cannot rely on the safe harbors contained in the PTP Regulations. The AIMCO
Operating Partnership may not have satisfied any of the safe harbors in Notice
88-75 in its previous tax years. In addition, because the AIMCO Operating
Partnership's ability to satisfy a safe harbor in Notice 88-75 (or to the extent
applicable, a safe harbor in the PTP Regulations) may involve facts that are not
within its control, it is impossible to predict whether the AIMCO Operating
Partnership will satisfy a safe harbor in future tax years. The safe harbors in
Notice 88-75 are not intended to be substantive rules for the determination of
whether partnership interests are readily tradable on a secondary market or the
substantial equivalent thereof, and consequently, the failure to meet these safe
harbors will not necessarily cause the AIMCO Operating Partnership to be treated
as a publicly traded partnership. No assurance can be given, however, that the
IRS will not assert that partnerships such as the AIMCO Operating Partnership
constitute publicly traded partnerships, or that facts and circumstances will
not develop which could result in the AIMCO Operating Partnership being treated
as a publicly traded partnership.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, real property rents (as defined
by section 856 of the Code) and gain from the sale or disposition of real
property. The AIMCO Operating Partnership believes that more than 90% of its
gross income consists of qualifying income and expects that more than 90% of its
gross income in future tax years will consist of qualifying income. In such
event, even if the AIMCO Operating Partnership were characterized as a publicly
traded partnership, it would not be taxable as a corporation. If the AIMCO
Operating Partnership were characterized as a publicly traded partnership,
however, each OP Unitholder would be subject to special rules under section 469
of the Code. See "Limitations on Deductibility of Losses -- Passive Activity
Loss Limitation." No assurance can be given that the actual results of the AIMCO
Operating Partnership's operations for any one taxable year will enable it to
satisfy the qualifying income exception.
If the AIMCO Operating Partnership were characterized as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. Thus, the AIMCO
Operating Partnership would be subject to federal tax (and possibly state and
local taxes) on its net income, determined without reduction for any
distributions made to the OP Unitholders, at regular federal corporate income
tax rates, thereby reducing the amount of any cash available for distribution to
the OP Unitholders, which reduction could also materially and adversely impact
the liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and credit would not be
passed through to the OP Unitholders and the OP Unitholders would not be subject
to tax on the income earned by the AIMCO Operating Partnership. Distributions
received by an OP Unitholder from the AIMCO Operating Partnership, however,
would be treated as dividend income for federal income tax purposes, subject to
tax as ordinary income to the extent of current and accumulated earnings and
profits of the AIMCO Operating Partnership, and the excess, if any, as a
nontaxable return of capital to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest (without taking into account
Partnership liabilities), and thereafter as gain from the sale of a capital
asset. Characterization of the AIMCO Operating Partnership as an association or
publicly traded partnership taxable as a corporation would also result in the
termination of AIMCO's status as a REIT for federal income tax purposes which
would have a material adverse impact on AIMCO. See "Federal Income Taxation of
AIMCO and AIMCO Stockholders -- Tax Aspects of AIMCO's Investments in
Partnerships."
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No assurances can be given that the IRS would not challenge the status of
the AIMCO Operating Partnership as a "partnership" which is not "publicly
traded" for federal income tax purposes or that a court would not reach a result
contrary to such positions. Accordingly, each prospective investor is urged to
consult his tax advisor regarding the classification and treatment of the AIMCO
Operating Partnership as a "partnership" for federal income tax purposes.
The following discussion assumes that the AIMCO Operating Partnership is,
and will continue to be, classified and taxed as a partnership for federal
income tax purposes.
TAXATION OF OP UNITHOLDERS
In general, a partnership is treated as a "pass-through" entity for federal
income tax purposes and is not itself subject to federal income taxation. Each
partner of a partnership, however, is subject to tax on his allocable share of
partnership tax items, including partnership income, gains, losses, deductions,
and credits ("Partnership Tax Items") for each taxable year of the partnership
ending within or with such taxable year of the partner, regardless of whether he
receives any actual distributions from the partnership during the taxable year.
Generally, the characterization of any particular Partnership Tax Item is
determined at the partnership, rather than at the partner level, and the amount
of a partner's allocable share of such item is governed by the terms of the
partnership agreement.
No federal income tax will be payable by the AIMCO Operating Partnership.
Instead, each OP Unitholder will be (i) required to include in income his
allocable share of any AIMCO Operating Partnership income or gains and (ii)
entitled to deduct his allocable share of any AIMCO Operating Partnership
deductions or losses, but only to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest and subject to the "at risk"
and "passive activity loss" rules discussed below under the heading "Limitations
on the Deductibility of Losses." An OP Unitholder's allocable share of the AIMCO
Operating Partnership's taxable income may exceed the cash distributions to the
OP Unitholder for any year if the AIMCO Operating Partnership retains its
profits rather than distributing them.
ALLOCATIONS OF AIMCO OPERATING PARTNERSHIP PROFITS AND LOSSES
For federal income tax purposes, an OP Unitholder's allocable share of the
AIMCO Operating Partnership's Partnership Tax Items will be determined by the
AIMCO Operating Partnership Agreement if such allocations either have
"substantial economic effect" or are determined to be in accordance with the OP
Unitholder's interests in the AIMCO Operating Partnership. The manner in which
Partnership Tax Items of the AIMCO Operating Partnership are allocated is
described above under the heading "Description of OP Units--Allocations of Net
Income and Net Loss." If the allocations provided by the AIMCO Operating
Partnership Agreement were successfully challenged by the IRS, the
redetermination of the allocations to a particular OP Unitholder for federal
income tax purposes may be less favorable than the allocation set forth in the
AIMCO Operating Partnership Agreement.
TAX BASIS OF A PARTNERSHIP INTEREST
A partner's adjusted tax basis in his partnership interest is relevant,
among other things, for determining (i) gain or loss upon a taxable disposition
of his partnership interest, (ii) gain upon the receipt of partnership
distributions, and (iii) the limitations imposed on the use of partnership
deductions and losses allocable to such partner. Generally, the adjusted tax
basis of an OP Unitholder's interest in the AIMCO Operating Partnership is equal
to (A) the sum of the adjusted tax basis of the property contributed by the OP
Unitholder to the AIMCO Operating Partnership in exchange for an interest in the
AIMCO Operating Partnership and the amount of cash, if any, contributed by the
OP Unitholder to the AIMCO Operating Partnership, (B) reduced, but not below
zero, by the OP Unitholder's allocable share of AIMCO Operating Partnership
distributions, deductions, and losses, (C) increased by the OP Unitholder's
allocable share of AIMCO Operating Partnership income and gains, and (D)
increased by the OP Unitholder's allocable share of the AIMCO Operating
Partnership liabilities and decreased by the OP Unitholder's liabilities assumed
by the AIMCO Operating Partnership.
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CASH DISTRIBUTIONS
Cash distributions received from a partnership do not necessarily correlate
with income earned by the partnership as determined for federal income tax
purposes. Thus, an OP Unitholder's federal income tax liability in respect of
his allocable share of the AIMCO Operating Partnership taxable income for a
particular taxable year may exceed the amount of cash, if any, received by the
OP Unitholder from the AIMCO Operating Partnership during such year.
If cash distributions, including a "deemed" cash distribution as discussed
below, received by an OP Unitholder in any taxable year exceed his allocable
share of the AIMCO Operating Partnership taxable income for the year, the excess
will constitute, for federal income tax purposes, a return of capital to the
extent of such OP Unitholder's adjusted tax basis in his AIMCO Operating
Partnership interest. Such return of capital will not be includible in the
taxable income of the OP Unitholder, for federal income tax purposes, but it
will reduce, but not below zero, the adjusted tax basis of the AIMCO Operating
Partnership interest held by the OP Unitholder. If an OP Unitholder's tax basis
in his AIMCO Operating Partnership interest is reduced to zero, a subsequent
cash distribution received by the OP Unitholder will be subject to tax as
capital gain income, but only if, and to the extent that, such distribution
exceeds the subsequent positive adjustments, if any, to the tax basis of the OP
Unitholder's AIMCO Operating Partnership interest as determined at the end of
the taxable year during which such distribution is received. A decrease in an OP
Unitholder's share of the AIMCO Operating Partnership liabilities resulting from
the payment or other settlement of such liabilities is generally treated, for
federal income tax purposes, as a deemed cash distribution. A decrease in an OP
Unitholder's percentage interest in the AIMCO Operating Partnership, because of
the issuance by the AIMCO Operating Partnership of additional OP Units, or
otherwise, will decrease an OP Unitholder's share of nonrecourse liabilities of
the AIMCO Operating Partnership, if any, and thus, will result in a
corresponding deemed distribution of cash.
A non-pro rata distribution (or deemed distribution) of money or property
may result in ordinary income to an OP Unitholder, regardless of such OP
Unitholder's tax basis in his OP Units, if the distribution reduces such OP
Unitholder's share of the AIMCO Operating Partnership's "Section 751 Assets."
"Section 751 Assets" are defined by the Code to include "unrealized receivables"
or "substantially appreciated inventory". For this purpose, inventory is
substantially appreciated if its value exceeds 120% of its adjusted basis. Among
other things, "unrealized receivables" include amounts attributable to
previously claimed depreciation deductions on certain types of property. To the
extent that such a reduction in an OP Unitholder's share of Section 751 Assets
occurs, the AIMCO Operating Partnership will be deemed to have distributed a
proportionate share of the Section 751 Assets to the OP Unitholder followed by a
deemed exchange of such assets with the AIMCO Operating Partnership in return
for the non-pro rata portion of the actual distribution made to such OP
Unitholder. This deemed exchange will generally result in the realization of
ordinary income under Section 751(b) by the OP Unitholder. Such income will
equal the excess of (1) the non-pro rata portion of such distribution over (2)
the OP Unitholder's tax basis in such OP Unitholder's share of such Section 751
Assets deemed relinquished in the exchange.
TAX CONSEQUENCES UPON CONTRIBUTION OF PROPERTY TO THE AIMCO OPERATING
PARTNERSHIP
Generally, Section 721 of the Code provides that neither the Contributing
Partner nor the AIMCO Operating Partnership will recognize a gain or loss, for
federal income tax purposes, upon a contribution of property to the AIMCO
Operating Partnership in exchange for OP Units. Notwithstanding this general
rule of nonrecognition, the Contributing Partner may recognize a gain where the
property transferred is subject to liabilities, or the AIMCO Operating
Partnership assumes liabilities in connection with a transfer of property, and
the amount of such liabilities exceeds the amount of the AIMCO Operating
Partnership liabilities allocated to the Contributing Partner as determined
immediately after the transfer. Such excess is treated by the Contributing
Partner, for federal income tax purposes, as the receipt of a deemed
distribution of cash to the Contributing Partner from the AIMCO Operating
Partnership. If a person transfers to the AIMCO Operating Partnership an
interest in another partnership (the "Underlying Partnership") in exchange for
an OP Unit, the person will be treated, for federal income tax purposes, as
having transferred to the AIMCO Operating Partnership his allocable share of the
liabilities of the Underlying Partnership, which could result in,
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or increase the amount of, a deemed cash distribution. As discussed above, such
deemed cash distributions are generally treated as a nontaxable return of
capital to the extent of the Contributing Partner's adjusted tax basis in his OP
Units and thereafter as gain from the sale of such partnership interest.
If a Contributing Partner receives or is deemed to receive for federal
income tax purposes, cash in addition to OP Units upon the contribution of
property to the AIMCO Operating Partnership, the transaction will likely be
treated as part contribution of property and part sale of property. In such
event, the Contributing Partner will recognize gain or loss with respect to the
portion of the property that is deemed sold to the AIMCO Operating Partnership.
If a Contributing Partner transfers property to the AIMCO Operating
Partnership in exchange for an OP Unit and the adjusted tax basis of such
property differs from its fair market value, AIMCO Operating Partnership Tax
Items 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. 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 may apply to a contribution by AIMCO to the AIMCO
Operating Partnership of cash proceeds received by AIMCO from the offering of
its stock. 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 OP Unitholders. The general purpose underlying this provision is to
specially allocate certain Partnership Tax Items in order to place both the
noncontributing and Contributing Partners in the same tax position that they
would have been in had the Contributing Partner contributed property with an
adjusted tax basis equal its fair market value. Treasury Regulations provide the
AIMCO Operating Partnership with several alternative methods and allow the AIMCO
Operating Partnership to adopt any other reasonable method to make allocations
to reduce or eliminate Book-Tax Differences. The AIMCO GP, in its discretion and
in a manner consistent with the Treasury Regulations, will select and adopt a
method of allocating AIMCO Operating Partnership Tax Items, including the
remedial allocation method, for purposes of eliminating such disparities.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased amounts of taxable income
and gain on the sale by the AIMCO Operating Partnership or other Subsidiary
Partnerships of the contributed properties. Accordingly, in the event the AIMCO
Operating Partnership disposes of contributed property, income attributable to
the Book-Tax Difference of such contributed property generally will be allocated
to the Contributing Partner, and the other OP Unitholders generally will be
allocated only their share of gains attributable to appreciation, if any,
occurring after the contribution of the contributed property. These incremental
allocations of income will not result in additional cash distributions to the
Contributing Partner, with the result that the Contributing Partner may not
necessarily receive cash sufficient to pay the taxes attributable to such
income. These allocations will tend to eliminate the Book-Tax Differences with
respect to the contributed property over the life of the AIMCO Operating
Partnership. However, the special allocation rules of Section 704(c) do not
always entirely rectify the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed property in the hands of the AIMCO Operating
Partnership may cause a noncontributing OP Unitholder to be allocated lower
amounts of depreciation and other deductions for tax purposes than would be
allocated to such OP Unitholder if the contributed property had a tax basis
equal to its fair market value at the time of contribution, and possibly to be
allocated taxable gain in the event of a sale of the contributed property in
excess of the economic or book income allocated to it as a result of such sale.
This may cause noncontributing OP Unitholders to recognize taxable income in
excess of cash proceeds.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES
Basis Limitation. To the extent that an OP Unitholder's allocable share of
AIMCO Operating Partnership deductions and losses exceeds his adjusted tax basis
in his AIMCO Operating Partnership interest at the end of the of the taxable
year in which the losses and deductions flow through, the excess losses and
deductions cannot be utilized, for federal income tax purposes, by the OP
Unitholder in such year. The excess losses and deductions may, however, be
utilized in the first succeeding taxable year in which, and to the extent
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that, there is an increase in the tax basis of the AIMCO Operating Partnership
interest held by such OP Unitholder, but only to the extent permitted under the
"at risk" and "passive activity loss" rules discussed below.
"At Risk" Limitation. Under the "at risk" rules of section 465 of the Code,
a noncorporate taxpayer and a closely held corporate taxpayer are generally not
permitted to claim a deduction, for federal income tax purposes, in respect of a
loss from an activity, whether conducted directly by the taxpayer or through an
investment in a partnership, to the extent that the loss exceeds the aggregate
dollar amount which the taxpayer has "at risk" in such activity at the close of
the taxable year. To the extent that losses are not permitted to be used in any
taxable year, such losses may be carried over to subsequent taxable years and
may be claimed as a deduction by the taxpayer if, and to the extent that, the
amount which the taxpayer has "at risk" is increased. Provided certain
requirements are met, the at risk rules generally do not apply to losses arising
from any activity which constitutes "the holding of real property," which the
holding of an OP Unit should constitute.
"Passive Activity Loss" Limitation. The passive activity loss rules of
section 469 of the Code limit the use of losses derived from passive activities,
which generally includes an investment in limited partnership interests such as
the OP Units. If an investment in an OP Unit is treated as a passive activity,
an OP Unitholder who is an individual investor, as well as certain other types
of investors, would not be able to use losses from the AIMCO Operating
Partnership to offset nonpassive activity income, including salary, business
income, and portfolio income (e.g., dividends, interest, royalties, and gain on
the disposition of portfolio investments) received during the taxable year.
Passive activity losses that are disallowed for a particular taxable year may,
however, be carried forward to offset passive activity income earned by the OP
Unitholder in future taxable years. In addition, such disallowed losses may be
claimed as a deduction, subject to the basis and at risk limitations discussed
above, upon a taxable disposition of an OP Unit by the OP Unitholder, regardless
of whether such OP Unitholder has received any passive activity income during
the year of disposition.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, each OP Unitholder would be required to treat any loss derived from
the AIMCO Operating Partnership separately from any income or loss derived from
any other publicly traded partnership, as well as from income or loss derived
from other passive activities. In such case, any net losses or credits
attributable to the AIMCO Operating Partnership which are carried forward may
only be offset against future income of the AIMCO Operating Partnership.
Moreover, unlike other passive activity losses, suspended losses attributable to
the AIMCO Operating Partnership would only be allowed upon the complete
disposition of the OP Unitholder's "entire interest" in the AIMCO Operating
Partnership (rather than upon the disposition of an interest in an "activity").
SECTION 754 ELECTION
The AIMCO Operating Partnership has made the election permitted by Section
754 of the Code. Election is irrevocable without the consent of the IRS. The
election will generally permit a purchaser of OP Units, such as AIMCO when it
acquires AIMCO OP Units from OP Unitholders, to adjust its share of the basis in
the AIMCO Operating Partnership's properties pursuant to Section 743(b) of the
Code to fair market value (as reflected by the value of consideration paid for
the OP Units), as if such purchaser had acquired a direct interest in the AIMCO
Operating Partnership assets. The Section 743(b) adjustment is attributed solely
to a purchaser of OP Units and is not added to the bases of the AIMCO Operating
Partnership's assets associated with all of the OP Unitholders in the AIMCO
Operating Partnership.
DEPRECIATION
Section 168(i)(7) of the Code provides that in the case of property
transferred to a partnership in a Section 721 transaction, the transferee shall
be treated as the transferor for purposes of computing the depreciation
deduction with respect to so much of the basis in the hands of the transferee as
does not exceed the adjusted basis in the hands of the transferor. The effect of
this rule would be to continue the historic basis, placed in service dates and
methods with respect to the depreciation of the properties being contributed by
a
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Contributing Partner to the AIMCO Operating Partnership in exchange for OP
Units. However, an acquiror of OP Units that obtains a Section 743(b) adjustment
by reason of such acquisition (see "Section 754 Election," above) generally will
be allowed depreciation with respect to such adjustment beginning as of the date
of the exchange as if it were new property placed in service as of that date.
SALE, REDEMPTION, OR EXCHANGE OF OP UNITS
An OP Unitholder will recognize a gain or loss upon a sale of an OP Unit, a
redemption of an OP Unit for cash, an exchange of an OP Unit for shares of AIMCO
Stock, or other taxable disposition of an OP Unit. Gain or loss recognized upon
a sale or exchange of an OP Unit will be equal to the difference between (i) the
sum of the amount realized in the transaction, which, in the case of the receipt
of shares of AIMCO Stock will be an amount equal to their fair market value at
the time that the transaction is consummated, plus the amount of AIMCO Operating
Partnership liabilities allocable to the OP Unit at such time and (ii) the OP
Unitholder's tax basis in the OP Unit disposed of, which tax basis will be
adjusted for the OP Unitholder's allocable share of the AIMCO Operating
Partnership's income or loss for the taxable year of the disposition. In the
case of a gift of an OP Unit, an OP Unitholder will be deemed to have an amount
realized equal to the amount of the AIMCO Operating Partnership's nonrecourse
liabilities allocable to such OP Unit, and to the extent that the amount
realized exceeds the OP Unitholder's basis for the OP Unit disposed of, such OP
Unitholder will recognize gain for federal income tax purposes. The tax
liability resulting from the gain recognized on a disposition of an OP Unit
could exceed the amount of cash and the fair market value of property received.
If the AIMCO Operating Partnership redeems an OP Unitholder's OP Units for
cash (which is not contributed by AIMCO to effect the redemption), the tax
consequences generally would be the same as described in the preceding
paragraphs, except that if the AIMCO Operating Partnership redeems less than all
of an OP Unitholder's OP Units, the OP Unitholder would recognize no taxable
loss and would recognize taxable gain only to the extent that the cash, plus the
amount of AIMCO Operating Partnership liabilities allocable to the redeemed OP
Units, exceeded the OP Unitholder's adjusted tax basis in all of such OP
Unitholder's OP Units immediately before the redemption.
Under the recently enacted Internal Revenue Service Restructuring and
Reform Act of 1988, capital gains recognized by individuals and certain other
noncorporate taxpayers upon the sale or disposition of an OP Unit will be
subject to a maximum federal income tax rate of 20% if the OP Unit is held for
more than 12 months and will be taxed at ordinary income tax rates if the OP
Unit is held for 12 months or less. Generally, gain or loss recognized by an OP
Unitholder on the sale or other taxable disposition of an OP Unit will be
taxable as capital gain or loss. However, to the extent that the amount realized
upon the sale or other taxable disposition of an OP Unit attributable to an OP
Unitholder's share of "unrealized receivables" of the AIMCO Operating
Partnership exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Among other things, "unrealized receivables" include
amounts attributable to previously claimed depreciation deductions on certain
types of property. In addition, the maximum federal income tax rate for net
capital gains attributable to the sale of depreciable real property (which may
be determined to include an interest in a partnership such as the AIMCO
Operating Partnership) held for more than 12 months is currently 25% (rather
than 20%) to the extent of previously claimed depreciation deductions that would
not be treated as "unrealized receivables."
TERMINATION OF THE AIMCO OPERATING PARTNERSHIP
In the event of the dissolution of the AIMCO Operating Partnership, a
distribution of AIMCO Operating Partnership property (other than money and
marketable securities) will not result in taxable gain to an OP Unitholder
(except to the extent provided in Section 737 of the Code for liquidations
occurring within seven years of the date of contribution by an OP Unitholder of
property to the AIMCO Operating Partnership), and the OP Unitholder will hold
such distributed property with a basis equal to the adjusted basis of such OP
Units exchanged therefor, reduced by any money distributed in liquidation.
Further, the liquidation of the AIMCO Operating Partnership will be taxable to a
holder of Units to the extent that the value of any money and marketable
securities distributed in liquidation (including any money deemed distributed as
a result of relief from liabilities) exceeds such OP Unitholder's tax basis in
his OP Units.
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ALTERNATIVE MINIMUM TAX
The Code contains different sets of minimum tax rules applicable to
corporate and noncorporate investors. The discussion below relates only to the
alternative minimum tax applicable to noncorporate taxpayers. Accordingly,
corporate investors should consult with their tax advisors with respect to the
effect of the corporate minimum tax provisions that may be applicable to them.
Noncorporate taxpayers are subject to an alternative minimum tax to the extent
the tentative minimum tax ("TMT") exceeds the regular income tax otherwise
payable. The rate of tax imposed on the alternative minimum taxable income
("AMTI") in computing TMT is 26% on the first $175,000 of alternative minimum
taxable income in excess of an exemption amount and 28% on any additional
alternative minimum taxable income of noncorporate investors. In general, AMTI
consists of the taxpayer's taxable income, determined with certain adjustments,
plus his items of tax preference. For example, alternative minimum taxable
income is calculated using an alternative cost recovery (depreciation) system
that is not as favorable as the methods provided for under Section 168 of the
Code which the AIMCO Operating Partnership will use in computing its income for
regular federal income tax purposes. Accordingly, an OP Unitholder's AMTI
derived from the AIMCO Operating Partnership may be higher than such OP
Unitholder's share of the AIMCO Operating Partnership's net taxable income.
Prospective investors should consult with their tax advisors as to the impact of
an investment in OP Units on their liability for the alternative minimum tax.
INFORMATION RETURNS AND AUDIT PROCEDURES
The AIMCO Operating Partnership will use all reasonable efforts to furnish
to each OP Unitholder within 90 days after the close of each taxable year of the
AIMCO Operating Partnership, certain tax information, including a Schedule K-1,
which sets forth each OP Unitholder's allocable share of the AIMCO Operating
Partnership's Taxable Items. In preparing this information the AIMCO GP will use
various accounting and reporting conventions to determine the respective OP
Unitholder's allocable share of Partnership Tax Items. There is no assurance
that any such conventions will yield a result which conforms to the requirements
of the Code, the Treasury Regulations or administrative interpretations of the
IRS. The AIMCO GP cannot assure a current or prospective OP Unitholder that the
IRS will not successfully contend in court that such accounting and reporting
conventions are impermissible.
No assurance can be given that the AIMCO Operating Partnership will not be
audited by the IRS or that tax adjustments will not be made. Further, any
adjustments in the AIMCO Operating Partnership's tax returns will lead to
adjustments in OP Unitholders' tax returns and may lead to audits of their
returns and adjustments of items unrelated to the AIMCO Operating Partnership.
Each OP Unitholder would bear the cost of any expenses incurred in connection
with an examination of such OP Unitholder's personal tax return.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of Partnership Tax Items generally
are determined at the partnership level in a unified partnership proceeding
rather than in separate proceedings with the partners. The Code provides for one
partner to be designated as the Tax Matters Partner for these purposes.
The Tax Matters Partner is authorized, but not required, to take certain
actions on behalf of the AIMCO Operating Partnership and OP Unitholders and can
extend the statute of limitations for assessment of tax deficiencies against OP
Unitholders with respect to the AIMCO Operating Partnership Tax Items. The Tax
Matters Partner may bind an OP Unitholder with less than a 1% profits interest
in the AIMCO Operating Partnership to a settlement with the IRS, unless such OP
Unitholder elects, by filing a statement with the IRS, not to give such
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review (to which all the OP Unitholders are bound) of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, such review may be sought by any OP Unitholder having at least a 1%
interest in the profits of the AIMCO Operating Partnership or by OP Unitholders
having in the aggregate at least a 5% profits interest. However, only one action
for judicial review will go forward, and each OP Unitholder with an interest in
the outcome may participate.
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TAXATION OF FOREIGN OP UNITHOLDERS
A Non-U.S. Holder will be considered to be engaged in a United States trade
or business on account of its ownership of an OP Unit. As a result, a Non-U.S.
Holder will be required to file federal tax returns with respect to its
allocable share of the AIMCO Operating Partnerships income which is effectively
connected to its trade or business. A Non-U.S. Holder that is a corporation may
also be subject to United States branch profit tax at a rate of 30%, in addition
to regular federal income tax, on its allocable share of such income. Such a tax
may be reduced or eliminated by an income tax treaty between the United States
and the country with respect to which the Non-U.S. Holder is resident for tax
purposes. Non-U.S. Holders are advised to consult their tax advisors regarding
the effects an investment in the AIMCO Operating Partnership may have on
information return requirements and other United States and non-United States
tax matters, including the tax consequences of an investment in the AIMCO
Operating Partnership for the country or other jurisdiction of which such
Non-U.S. Holder is a citizen or in which such Non-U.S. Holder resides or is
otherwise located.
OTHER TAX CONSEQUENCES
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 an investment in AIMCO or the AIMCO Operating
Partnership. For example, a proposal issued 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 the AIMCO Operating Partnership, or an investment in
AIMCO or the AIMCO Operating Partnership, will be changed.
STATE, LOCAL AND FOREIGN TAXES
The AIMCO Operating Partnership, OP Unitholders, AIMCO and AIMCO
stockholders may be subject to state, local or foreign taxation in various
jurisdictions, including those in which it or they transact business, own
property or reside. It should be noted that the AIMCO Operating Partnership owns
properties located in a number of states and local jurisdictions, and the AIMCO
Operating Partnership and OP Unitholders may be required to file income tax
returns in some or all of those jurisdictions. The state, local or foreign tax
treatment of the AIMCO Operating Partnership and OP Unitholders and of AIMCO and
its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective investors should consult their own
tax advisors regarding the application and effect of state, local foreign tax
laws on an investment in the AIMCO Operating Partnership or AIMCO.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made by Apartment Investment and
Management Company and AIMCO Properties, L.P. with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our offering is
completed.
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- Apartment Investment and Management Company's Annual Report on Form
10-K/A for the year ended December 31, 1997;
- Apartment Investment and Management Company's Quarterly Reports on
Form 10-Q/A and Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998, respectively;
- Apartment Investment and Management Company's Current Reports on Form
8-K, dated December 23, 1997 (and Amendment No. 1 thereto filed
February 6, 1998 and Amendment No. 2 thereto filed May 22, 1998),
January 31, 1998, March 17, 1998 (and Amendment No. 1 thereto filed
April 3, 1998, Amendment No. 2 thereto filed June 22, 1998, Amendment
No. 3 thereto filed July 2, 1998, Amendment No. 4 thereto filed August
6, 1998, Amendment No. 5 thereto filed September 4, 1998 and Amendment
No. 6 thereto filed September 25, 1998), September 2, 1998, October 1,
1998, October 19, 1998 and November 2, 1998;
- the description of Apartment Investment and Management Company's
capital stock contained in its 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; and
- AIMCO Properties, L.P.'s Registration Statement on Form 10, filed
September 4, 1998 and Amendment 1, filed October 16, 1998.
- AIMCO Properties, L.P.'s Current Report on Form 8-K dated November 2,
1998.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address and telephone number:
Corporate Secretary
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
(303) 757-8101
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of the document.
LEGAL MATTERS
Certain matters as to Maryland law and the validity of the Class A Common
Stock and the Preferred Stock will be passed upon for AIMCO by Piper & Marbury
L.L.P., Baltimore, Maryland. Certain matters as to the validity of the OP Units
will be passed upon for the AIMCO Operating Partnership by Skadden, Arps, Slate,
Meagher & Flom LLP.
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EXPERTS
The consolidated financial statements of AIMCO included in AIMCO's Annual
Report on Form 10-K/A for the year ended December 31, 1997, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. The consolidated
financial statements of the AIMCO Operating Partnership as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in the AIMCO Operating Partnership's Registration Statement on Form 10
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. The
consolidated financial statements of Ambassador Apartments, Inc. as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, included in AIMCO's Current Report on Form 8-K dated March 17, 1998
(as amended on April 3, 1998) and the consolidated financial statements of
Ambassador Apartments, Inc. as of December 31, 1996 and 1995, and for each of
the two years in the period ended December 31, 1996 and the period from August
31, 1994 through December 31, 1994, and the combined financial statements of
Prime Properties (Predecessor to Ambassador Apartments, Inc.) for the period
from January 1, 1994 through August 30, 1994, included in Amendment No. 1 to
AIMCO's Current Report on Form 8-K dated December 23, 1997, filed on February 6,
1998, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their reports thereon included therein and incorporated herein by reference.
The consolidated financial statements of Insignia Financial Group, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17,
1998 (and Amendment No. 1 thereto filed April 3, 1998), have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. The Combined Historical
Summary of Gross Income and Direct Operating Expenses of the Cirque Apartments
Communities for the year ended December 31, 1997 included in AIMCO's Current
Report on Form 8-K dated November 2, 1998, 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 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 Historical Summary of Gross Income and Direct Operating
Expenses of Realty Investment Apartment Communities I for the year ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November
2, 1998, have been audited by Beers & Cutler PLLC, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. The Combined Historical Summary of Gross Income and Direct Operating
Expenses of Realty Investment Apartment Communities II for the year ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November
2, 1998, have been audited by Beers & Cutler PLLC, independent auditors, 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.
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APPENDIX A
GLOSSARY
Unless the context requires otherwise, the following terms used in this
Prospectus have the respective meanings set forth below:
"1997 Housing Act" means the Multifamily Assisted Housing Reform and
Affordability Act of 1997.
"ACMs" means asbestos-containing materials.
"ADA" means the Americans with Disabilities Act of 1990.
"affordable" means, with respect to apartment units or residential
properties, that such units or properties benefit from an interest rate or
rental subsidy or are otherwise subject to governmental programs intended to
provide housing to persons with low or moderate incomes.
"Aggregate Cash Amount" means the aggregate amount that AIMCO elects to pay
in cash to the Insignia stockholders, pursuant to the Insignia Merger; provided,
however, that the Aggregate Cash Amount may not exceed the lesser of (i)
$15,000,000 and (ii) the product of (x) $36.50 less the AIMCO Index Price,
multiplied by (y) the sum of the number of shares of Insignia common stock
outstanding at the Effective Time plus the number of shares of Insignia common
stock for which outstanding Insignia Convertible Securities are exercisable,
whether or not vested, at the Effective Time.
"AIMCO" means Apartment Investment and Management Company, a Maryland
corporation.
"AIMCO Board" means the board of directors of AIMCO.
"AIMCO GP" means AIMCO-GP, Inc., a wholly owned subsidiary of AIMCO and the
general partner of the AIMCO Operating Partnership.
"AIMCO Index Price" means the average trading price of Class A Common Stock
over the 20-day period ended five trading days prior to the Effective Time, but
in no event greater than $38.00.
"AIMCO IPO" means AIMCO's initial public offering of Class A Common Stock
in July 1994.
"AIMCO Operating Partnership" means AIMCO Properties, L.P., a Delaware
limited partnership.
"AIMCO Operating Partnership Agreement" means the agreement of limited
partnership of the AIMCO Operating Partnership.
"AIMCO Properties" means the Managed Properties, Owned Properties and
Equity Properties.
"AIMCO Stock" means the Class A Common Stock and the Preferred Stock.
"Ambassador" means the Ambassador Apartments, Inc.
"Ambassador Common Stock" means the common stock, par value $.01 per share,
of Ambassador.
"Ambassador Merger" means the merger of Ambassador with and into AIMCO on
May 8, 1998.
"AMIT" means Angeles Mortgage Investment Trust.
"AMTI" means alternative minimum taxable income.
"ANHI" means AIMCO/NHP Holdings, Inc.
"Assignee" means any person to whom one or more OP Units have been
transferred.
"Bank of America" means Bank of America National Trust and Savings
Association.
"Base Rate" means quarterly cash dividends per share equal to $1.78125.
"BOA Credit Facility" means the $100 million unsecured revolving credit
facility entered into in October 1, 1998 between the Company, Bank of America,
and BankBoston, N.A.
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"Book-Tax Difference" means, generally, the difference between the fair
market value of the contributed property at the time of contribution, and the
adjusted tax basis of such property at the time of contribution.
"Built-in Gain" means to be subject to tax at the highest regular corporate
tax rate on the excess, if any, of the fair market value over the adjusted basis
of any particular asset as of the beginning of a ten-year period.
"Bylaws" means the bylaws of AIMCO.
"California Actions" means the two complaints filed in Superior Court of
the State of California against the Company and the J.W. English Companies.
"Capital Replacement" means capitalized spending which maintains a
property.
"Charter" means AIMCO's charter.
"City of Austin" means Austin, Texas.
"CK" means CK Services, Inc.
"CK Contribution Agreement" means the Contribution Agreement, dated January
31, 1998, among AIMCO, CK and the stockholders of CK.
"Class A Common Stock" means the Class A Common Stock, par value $.01 per
share, of AIMCO.
"Class B Common Stock" means the Class B Common Stock, par value $.01 per
share, of AIMCO.
"Class B Parity Stock" means capital stock of AIMCO that ranks on parity
with Class B Preferred Stock with respect to payments of dividends or upon
liquidation, dissolution, winding up or otherwise.
"Class B Partnership Preferred Units" means the Class B Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class B Preferred Ownership Limit" means a number of shares of Class B
Preferred Stock with a value equal to the excess of (i) 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 aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class B Preferred Stock that are
owned by such holder.
"Class B Preferred Stock" means the Class B Cumulative Convertible
Preferred Stock, par value $.01 per share, of AIMCO.
"Class C Junior Stock" means Common Stock and Class E Preferred Stock, and
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 the Class C
Preferred Stock are entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution, and winding-up in preference or
priority to the holders of shares of such class or series.
"Class C Liquidation Preference" means the liquidation preference of $25
per share on the Class C Preferred Stock.
"Class C Parity Stock" means the Class B Preferred Stock, the Class D
Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the
Class J Preferred Stock and any other class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class of stock or series and the Class C 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.
"Class C Partnership Preferred Units" means the Class C Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class C Preferred Ownership Limit" means a number of shares of Class C
Preferred Stock with a value equal to the excess of (i) 8.7% (or 15% in the case
of certain pension trusts described in the Code, investment
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companies registered under the Investment Company Act of 1940 and Mr. Considine)
of the aggregate value of all shares of capital stock of AIMCO over (ii) the
aggregate value of all shares of capital stock of AIMCO other than Class C
Preferred Stock that are owned by such holder.
"Class C Preferred Stock" means the Class C Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class C Senior Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, 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 C Preferred Stock.
"Class D Junior Stock" means Common Stock and Class E Preferred Stock, and
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 the Class D
Preferred Stock are entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution, and winding-up in preference or
priority to the holders of shares of such class or series.
"Class D Liquidation Preference" means the liquidation preference of $25
per share on the Class D Preferred Stock.
"Class D Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the
Class J Preferred Stock and any other class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class of stock or series 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.
"Class D Partnership Preferred Units" means the Class D Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class D Preferred Ownership Limit" means a number of shares of Class D
Preferred Stock with a value equal to the excess of (i) 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 aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class D Preferred Stock that are
owned by such holder.
"Class D Preferred Stock" means the Class D Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class D Senior Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, 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.
"Class E Call Date" means the date specified for redemption by AIMCO in a
notice sent to holders of Class E Preferred Stock.
"Class E Conversion Date" means the date on which the Special Dividend is
paid to the holders of the Class E Preferred Stock, on which each share of Class
E Preferred Stock will be automatically converted into one share of Class A
Common Stock without any action of AIMCO or the holder of such share.
"Class E Junior Stock" means Common Stock, and 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 the Class E Preferred Stock are entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series.
"Class E Liquidation Preference" means the liquidation preference of $1 per
share plus the Special Dividend if such dividend is unpaid on the date of the
final distribution to such holders.
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"Class E Parity Stock" means any class or series of capital stock of AIMCO,
if, pursuant to the specific terms of such class of stock or series, the holders
of such class or series of stock and the Class E 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.
"Class E Partnership Preferred Units" means the Class E Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class E Preferred Stock" means Class E Preferred Stock, par value $.01 per
share, of AIMCO.
"Class E Senior Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class H Preferred Stock, the Class J Preferred Stock and any other class or
series of capital stock of AIMCO, if, pursuant to the specific terms of such
class of stock or series, 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
E Preferred Stock.
"Class G Junior Stock" means the Common Stock, Class E Preferred Stock and
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 the Class G
Preferred Stock are entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution, and winding-up in preference or
priority to the holders of shares of such class or series.
"Class G Liquidation Preference" means the liquidation preference of $25
per share on the Class G Preferred Stock.
"Class G Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class H Preferred Stock, the
Class J Preferred Stock and any other class or series of stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class of stock or series and the Class G 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.
"Class G Partnership Preferred Units" means the Class G Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class G Preferred Ownership Limit" means a number of shares of Class G
Preferred Stock with a value equal to the excess of (i) 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 aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class G Preferred Stock that are
owned by such holder.
"Class G Preferred Stock" means the Class G Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class G Senior Stock" means any class or series of capital stock of AIMCO
which if, pursuant to the specific terms of such class of stock or series, the
holders of such class or series shall be entitled to the receipt of dividends of
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class G Preferred Stock.
"Class H Junior Stock" means the Common Stock, Class E Preferred Stock and
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 the Class H
Preferred Stock are entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution, and winding-up in preference or
priority to the holders of shares of such class or series.
"Class H Liquidation Preference" means the liquidation preference of $25
per share on the Class H Preferred Stock.
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"Class H Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class J Preferred Stock and any other class or series of stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class of stock or series and the Class H 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.
"Class H Partnership Preferred Units" means the Class H Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class H Preferred Ownership Limit" means a number of shares of Class H
Preferred Stock with a value equal to the excess of (i) 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 aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class H Preferred Stock that are
owned by such holder.
"Class H Preferred Stock" means the Class H Cumulative Preferred Stock, par
value $.01 per share, of AIMCO.
"Class H Senior Stock" means any class or series of capital stock of AIMCO
which if, pursuant to the specific terms of such class of stock or series, the
holders of such class or series shall be entitled to the receipt of dividends of
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class H Preferred Stock.
"Class J Junior Stock" means the Common Stock, Class E Preferred Stock and
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 the Class J
Preferred Stock are entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution, and winding-up in preference or
priority to the holders of shares of such class or series.
"Class J Liquidation Preference" means the liquidation preference of $100
per share on the Class J Preferred Stock.
"Class J Parity Stock" means the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class H Preferred Stock and any other class or series of stock of AIMCO, if,
pursuant to the specific terms of such class of stock or series, the holders of
such class of stock or series and the Class J 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.
"Class J Partnership Preferred Units" means the Class J Partnership
Preferred Units of the AIMCO Operating Partnership.
"Class J Preferred Ownership Limit" means a number of shares of Class J
Preferred Stock with a value equal to the excess of (i) 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 aggregate
value of all shares of capital stock of AIMCO over (ii) the aggregate value of
all shares of capital stock of AIMCO other than Class J Preferred Stock that are
owned by such holder.
"Class J Preferred Stock" means the Class J Cumulative Convertible
Preferred Stock, par value $.01 per share, of AIMCO.
"Class J Senior Stock" means any class or series of capital stock of AIMCO
which if, pursuant to the specific terms of such class of stock or series, the
holders of such class or series shall be entitled to the receipt of dividends of
amounts distributable upon liquidation, dissolution or winding up in preference
or priority to the holders of the Class J Preferred Stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Security and Exchange Commission.
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"Common OP Units" means Partnership Common Units of the AIMCO Operating
Partnership.
"Common Stock" means the Class A Common Stock and the Class B Common Stock.
"Common OP Unitholders" means the holders of Common OP Units.
"Company" means AIMCO, together with its consolidated subsidiaries,
including the AIMCO Operating Partnership.
"Company Predecessors" means AIMCO and Property Asset Management, L.L.C.,
and its affiliated companies and PDI Realty Enterprises, Inc.
"Complaint" means the purported class and derivative complaint filed in
California Superior Court in the County of San Mateo by persons claiming to own
limited partner interests in the Insignia Partnerships against Insignia, the
Insignia GPs, AIMCO, certain persons and entities who purportedly formerly
controlled the Insignia GPs and additional entities affiliated with, and
individuals who are officers, directors or principals of, several of the
defendants.
"Consolidated Amended Complaint" means the consolidated amended complaint
filed by plaintiffs on February 25, 1998 relating to the California Actions.
"Contributing Partner" means a person contributing property to the AIMCO
Operating Partnership in exchange for OP Units.
"control share acquisition" means the acquisition of control shares,
subject to certain exceptions.
"control shares" means 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.
"Convertible Securities" means warrants, options, convertible debt
securities, equity securities, contingent rights or other similar securities
upon which the Securities may be exchanged, exercised or converted.
"Counsel" means Skadden, Arps, Slate, Meagher & Flom LLP, counsel to AIMCO.
"Credit Facilities" means the WMF Credit Facility, the BOA Credit Facility,
and the Lehman Credit Facility.
"Current Market Price" per share of Class A Common Stock on any date means
the average of the daily market prices of a share of Class A Common Stock for
the five consecutive trading days preceding such date. The market price for each
such day shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Class A Common Stock is not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Class A Common Stock is listed or admitted to
trading or, if the Class A Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted price, or if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Class A Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Class A Common Stock selected by the AIMCO Board.
"Debt Coverage Ratio" means the ratio of EBITDA (less a provision of
approximately $300 per owned apartment) to debt.
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"Delaware LP Act" means the Delaware Revised Uniform Limited Partnership
Act, as amended from time to time, or any successor to such statute.
"Distribution" means the transfer of the remaining business of Insignia to
Holdings and the distribution of all of the capital stock of Holdings to
Insignia's stockholders prior to the Insignia Merger.
"Dividend Payment Date" means any date on which cash dividends are paid on
the Class A Common Stock.
"DOJ" means the U.S. Department of Justice.
"domestically controlled REIT" means 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.
"Effective Time" means the effective time of the Insignia Merger.
"Eligible Class B Shares" means the number of shares of Class B Common
Stock outstanding as of the Year-end Test Date which become eligible for
automatic conversion into an equal number of shares of Class A Common Stock
(subject to the Ownership Limit).
"English Acquisition" means the Company's acquisition in November 1996 of
certain partnership interests, real estate and related assets owned by the J.W.
English Companies.
"English Partnerships" means 31 limited partnerships, interests in which
were purchased by the Company from the J.W. English Companies pursuant to the
English Acquisition.
"English Tender Offers" means the separate tender offers made by the AIMCO
Operating Partnership to the limited partners of 25 of the English Partnerships.
"EPA" means the U.S. Environmental Protection Agency.
"Equity Properties" means the apartment properties in which AIMCO holds an
equity interest.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.
"Federal Action" means the class action lawsuit filed in November 1996 by
purported limited partners of certain of the Tender Offer English Partnerships
against the Company and J.W. English in the U.S. District Court for the Northern
District of California.
"FFO" means funds from operations.
"FFO Per Share" or "Funds from Operating 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 AIMCO serves
as general partner and (y) are outstanding on the last day of such period.
"FHAA" means the Fair Housing Amendments Act of 1988.
"FIRPTA" means Foreign Investment in Real Property Tax Act of 1980.
"FNMA" means the Federal National Mortgage Association.
"GAAP" means generally accepted accounting principles.
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"GMAC" means General Motors Acceptance Corporation.
"GMAC Loans" means the 93 loans made by GMAC as of June 30, 1998 with an
aggregate outstanding principal balance of $420.1 million to property owning
partnerships of the Company, each of which is secured by the Owned Property of
such partnership.
"HAP Contracts" means Housing Assistance Payment Contracts.
"High Performance Units" means the OP Units designated as Class I High
Performance Units.
"Holdings" means Insignia/ESG Holdings, Inc.
"HUD" means the U.S. Department of Housing and Urban Development.
"Indemnitee" means the AIMCO Operating Partnership's directors and
officers.
"Insignia" means the Insignia Financial Group, Inc.
"Insignia Convertible Securities" means any and all securities issued by
Insignia or any subsidiary of Insignia (excluding stock options issued under the
Insignia 1992 Stock Incentive Plan, as amended, and the Insignia 1995
Non-Employee Director Stock Option Plan) which are exercisable, convertible or
exchangeable for or into shares of Insignia common stock, but specifically
excluding the Convertible Preferred Securities.
"Insignia GPs" means the general partners of the Insignia Partnerships.
"Insignia Merger" means the merger of Insignia with and into AIMCO.
"Insignia Merger Agreement" means the merger agreement between AIMCO, the
AIMCO Operating Partnership, Insignia and Holdings pursuant to which Insignia
will be merged with and into AIMCO.
"Insignia Partnerships" means the limited partnerships whose general
partners are affiliates of Insignia.
"Insignia Reorganization" means the transfer of certain assets and
liabilities of Insignia to the Unconsolidated Subsidiaries.
"Interested Stockholder" means 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.
"IPT" means Insignia Properties Trust, a Maryland REIT, which is a majority
owned subsidiary of Insignia.
"IPT Shares" means the shares of beneficial interest of IPT, par value $.01
per share.
"IRS" means the Internal Revenue Service.
"J.W. English Companies" means J.W. English, a Houston, Texas-based real
estate syndicator and developer, and certain affiliated entities.
"Lehman Credit Facility" means the $300 million senior unsecured interim
one-year term loan entered into on October 1, 1998 between the Company and an
affiliate of Lehman Brothers, Inc.
"LDP" means a limited denial of participation by any HUD office.
"Liquidating Event" means any of the following: (i) December 31, 2093; (ii)
an event of withdrawal, as defined in the Delaware LP Act (including, without
limitation, bankruptcy), of the sole AIMCO GP unless, within ninety (90) days
after the withdrawal, a majority in interest (as such phrase is used in Section
17-801(3) of the Delaware LP Act) of the remaining OP Unitholders agree in
writing, in their sole and absolute discretion, to continue the business of the
AIMCO Operating Partnership and to the appointment, effective as of the date of
withdrawal, of a successor AIMCO GP; (iii) an election to dissolve the AIMCO
Operating Partnership made by the AIMCO GP in its sole and absolute discretion,
with or without the
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consent of the OP Unitholders; (iv) entry of a decree of judicial dissolution of
the AIMCO Operating Partnership pursuant to the provisions of the Delaware LP
Act; (v) the occurrence of a Terminating Capital Transaction; or (vi) the
Redemption (or acquisition by AIMCO, the AIMCO GP and/or the Special Limited
Partner) of all Common OP Units other than Common OP Units held by the AIMCO GP
or the Special Limited Partner.
"Majority in Interest" means OP Unitholders (other than (i) the Special
Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more of whose
equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any REIT as
to which the AIMCO GP is a "qualified REIT subsidiary" (within the meaning of
Code Section 856(i)(2))) holding more than fifty percent (50%) of the
outstanding Common OP Units held by all OP Unitholders (other than (i) the
Special Limited Partner and (ii) any OP Unitholder fifty percent (50%) or more
of whose equity is owned, directly or indirectly, by (a) the AIMCO GP or (b) any
REIT as to which the AIMCO GP is a "qualified REIT subsidiary" (within the
meaning of Code Section 856(i)(2))).
"Managed Properties" means the apartment properties managed by AIMCO for
third party owners and affiliates.
"Management Subsidiaries" means PAMS LP and the other subsidiaries of the
Company that manage the Managed Properties.
"March Hedge" means the interest rate hedging agreement entered into in
March 1997 between the Company and an investment banking company in anticipation
of certain indebtedness.
"Measurement Period" means the January 1, 1998 to the Valuation Date.
"MGCL" means the Maryland General Corporation Law.
"Minimum Return" means a 30% cumulative Total Return over three years.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NHP" means NHP Incorporated.
"NHP Properties" means the 534 multifamily apartment properties containing
87,689 apartment units, a captive insurance subsidiary and certain related
assets.
"NHP Real Estate Companies" means a group of companies previously owned by
NHP that hold interests in the NHP Properties.
"NHP Real Estate Reorganization" means the reorganization of the Company's
interests in the NHP Real Estate Companies.
"Non-U.S. Holder" means 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
the District of Columbia, (iii) an estate whose income is includible 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.
"NYSE" means the New York Stock Exchange.
"OP Merger" means the merger of the Ambassador Operating Partnership with
and into the AIMCO Operating Partnership.
"OP Unitholder" means a holder of OP Units.
"OP Units" means Preferred OP Units and the Common OP Units.
"Owned Properties" means the apartment properties owned or controlled by
AIMCO.
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"Ownership Limit" means the limit by the AIMCO Charter of direct or
constructive ownership of shares of Class A Common Stock representing more than
8.7% (or 15% in the case of certain pension trusts, registered investment
companies and Mr. Considine) of the combined total of outstanding shares of
AIMCO's Class A Common Stock or Class B Common Stock by any person.
"Partner" means the AIMCO GP or an OP Unitholder, and "Partners" means the
AIMCO GP and the OP Unitholders.
"Partnership Tax Items" means partnership tax items including partnership
income, gains, losses, deductions, and credits.
"Preferred OP Units" means Partnership Preferred Units of the AIMCO
Operating Partnership.
"Preferred Share Investor" means the institutional investor to whom AIMCO
issued 750,000 shares of Class B Preferred Stock in a private transaction.
"Preferred Share Purchase Agreement" means the agreement pursuant to which
AIMCO issued the Class B Preferred Stock.
"Preferred Stock" means the preferred stock of AIMCO, par value $.01 per
share.
"Prospectus" means this prospectus, as it may be further supplemented or
amended from time to time.
"Prospectus Supplement" means a prospectus supplement accompanying the
Prospectus.
"PTP Regulations" means the Treasury Regulations generally effective for
taxable years beginning after December 31, 1995.
"publicly traded partnership" means a partnership classified as a publicly
traded partnership for federal income tax purposes.
"qualifying income" means, in general, income which includes interest,
dividends, real property rents (as defined by Section 856 of the Code) and gain
from the sale or disposition of real property.
"Redemption" means to redeem all or a portion of the Common OP Units held
by a Common OP Unitholder and certain Assignees in exchange for a cash amount
based on the value of shares of Class A Common Stock.
"Registration Statement" means the registration statement on Form S-4 of
which the Prospectus forms a part, together with all amendments and exhibits,
filed by AIMCO and the AIMCO Operating Partnership with the Commission.
"REIT" means a real estate investment trust.
"REIT Requirements" means the requirements for qualifying a REIT under the
Code.
"Schedule K-1" means the report which the AIMCO Operating Partnership
furnishes to each OP Unitholder that sets forth his allocable share of income,
gains, losses and deductions.
"Section 751 Assets" has the meaning given to such term in the Code.
"Section 8" means Section 8 of the United States Housing Act of 1937.
"Securities" means the Preferred Stock, the Class A Common Stock and the OP
Units.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders" means persons who may receive from AIMCO or the AIMCO
Operating Partnership Securities covered by the Registration Statement in
acquisitions and who may be entitled to offer such Securities under
circumstances requiring the use of a Prospectus.
"September Hedge" means the interest rate agreement entered into in
September 1997 between the Company and an investment banking company.
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"Special Dividend" means the special dividend of $50 million in the
aggregate of which holders of Class E Preferred Stock will be entitled to
receive a pro rata share.
"Special Limited Partner" means AIMCO-LP, Inc., a limited partner in the
AIMCO Operating Partnership.
"Subsidiary Partnerships" means other limited partnerships and limited
liability companies in which AIMCO has a controlling interest.
"Tax Matters Partner" means AIMCO GP, which is authorized, but not
required, to take certain actions on behalf of the AIMCO Operating Partnership
with respect to tax matters.
"Tender Offer English Partnerships" means the 25 English Partnerships that
received English Tender Offers.
"Terminating Capital Transaction" means the sale or other disposition of
all or substantially all of the assets of the AIMCO Operating Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the AIMCO Operating
Partnership.
"TMT" means tentative minimum tax.
"TNRCC" means the Texas Natural Resources Conservation Commission.
"Total Return" means, for any security and for any period, the cumulative
total return for such security over such period, as measured by (i) the sum of
(a) the cumulative amount of dividends paid in respect of such security for such
period (assuming that all cash dividends are reinvested in such security as of
the payment date for such dividend based on the security price on the dividend
payment date), and (b) an amount equal to (x) the security price at the end of
such period, minus (y) the security price at the beginning of such period,
divided by (ii) the security price at the beginning of the measurement period;
provided, however, that if the foregoing calculation results in a negative
number, the "Total Return" shall be equal to zero.
"Treasury Regulations" means the Treasury regulations promulgated under the
Code.
"UBTI" means unrelated business taxable income.
"UBTI Percentage" means the gross income derived by AIMCO from an unrelated
trade or business (determined as if AIMCO were a pension trust) divided by the
gross income of AIMCO for the year in which the dividends are paid.
"Unconsolidated Partnership" means a limited partnership in which the AIMCO
Operating Partnership will hold a 99% limited partnership interest and certain
directors and officers of AIMCO will, directly or indirectly, hold a 1% general
partner interest.
"Unconsolidated Subsidiaries" means the unconsolidated subsidiaries of
AIMCO, which from time to time, the Company has organized in order to satisfy
certain requirements for AIMCO's continued qualification as a REIT.
"Underlying Partnership" means another partnership other than the AIMCO
Operating Partnership.
"USRPI" means a United States Real Property Interest.
"USRPI Capital Gains" means 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.
"Valuation Date" means the date that is the earlier of (i) January 1, 2001,
or (ii) the date on which a change of control occurs.
"voting stock" means the stock entitled to be cast generally in the
election of directors.
"Washington Mortgage" means Washington Mortgage Financial Group, Ltd.
"WMF Credit Facility" means the $50 million secured revolving credit
facility entered into in February 1998 between the Company and Washington
Mortgage.
"Year-End Test Date" means December 31 of each of the years 1994 through
1998.
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APPENDIX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
AIMCO PROPERTIES, L.P.
A DELAWARE LIMITED PARTNERSHIP
------------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF
COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM AND SUBSTANCE SATISFACTORY TO
THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER
DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
DATED AS OF JULY 29, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 380
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1 DEFINED TERMS............................................... B-1
ARTICLE 2 ORGANIZATIONAL MATTERS...................................... B-14
Section 2.1 Organization.................................. B-14
Section 2.2 Name.......................................... B-14
Section 2.3 Registered Office and Agent; Principal
Office...................................................... B-14
Section 2.4 Power of Attorney............................. B-14
Section 2.5 Term.......................................... B-15
ARTICLE 3 PURPOSE..................................................... B-15
Section 3.1 Purpose and Business.......................... B-15
Section 3.2 Powers........................................ B-16
Section 3.3 Partnership Only for Purposes Specified....... B-16
Section 3.4 Representations and Warranties by the
Parties..................................................... B-16
ARTICLE 4 CAPITAL CONTRIBUTIONS....................................... B-18
Section 4.1 Capital Contributions of the Partners......... B-18
Section 4.2 Issuances of Additional Partnership
Interests................................................... B-18
Section 4.3 Additional Funds.............................. B-19
Section 4.4 Stock Option Plans............................ B-20
Section 4.5 No Interest; No Return........................ B-21
Section 4.6 Conversion of Junior Shares................... B-21
ARTICLE 5 DISTRIBUTIONS............................................... B-21
Section 5.1 Requirement and Characterization of
Distributions............................................... B-21
Section 5.2 Distributions in Kind......................... B-21
Section 5.3 Amounts Withheld.............................. B-22
Section 5.4 Distributions Upon Liquidation................ B-22
Section 5.5 Restricted Distributions...................... B-22
ARTICLE 6 ALLOCATIONS................................................. B-22
Section 6.1 Timing and Amount of Allocations of Net Income
and Net Loss.................................. B-22
Section 6.2 General Allocations........................... B-22
Section 6.3 Additional Allocation Provisions.............. B-22
Section 6.4 Tax Allocations............................... B-24
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS....................... B-24
Section 7.1 Management.................................... B-24
Section 7.2 Certificate of Limited Partnership............ B-27
Section 7.3 Restrictions on General Partner's Authority... B-27
Section 7.4 Reimbursement of the General Partner.......... B-29
Section 7.5 Outside Activities of the Previous General
Partner and the General Partner............................. B-29
</TABLE>
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<TABLE>
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<S> <C> <C>
Section 7.6 Contracts with Affiliates..................... B-30
Section 7.7 Indemnification............................... B-30
Section 7.8 Liability of the General Partner.............. B-32
Section 7.9 Other Matters Concerning the General
Partner..................................................... B-32
Section 7.10 Title to Partnership Assets................... B-33
Section 7.11 Reliance by Third Parties..................... B-33
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................. B-34
Section 8.1 Limitation of Liability....................... B-34
Section 8.2 Management of Business........................ B-34
Section 8.3 Outside Activities of Limited Partners........ B-34
Section 8.4 Return of Capital............................. B-34
Section 8.5 Rights of Limited Partners Relating to the
Partnership................................................. B-34
Section 8.6 Redemption Rights of Qualifying Parties....... B-35
Section 8.7 Partnership Right to Call Limited Partner
Interests................................................... B-38
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS...................... B-38
Section 9.1 Records and Accounting........................ B-38
Section 9.2 Fiscal Year................................... B-39
Section 9.3 Reports....................................... B-39
ARTICLE 10 TAX MATTERS................................................. B-39
Section 10.1 Preparation of Tax Returns.................... B-39
Section 10.2 Tax Elections................................. B-39
Section 10.3 Tax Matters Partner........................... B-39
Section 10.4 Withholding................................... B-40
ARTICLE 11 TRANSFERS AND WITHDRAWALS................................... B-41
Section 11.1 Transfer...................................... B-41
Section 11.2 Transfer of General Partner's Partnership
Interest.................................................... B-41
Section 11.3 Limited Partners' Rights to Transfer.......... B-42
Section 11.4 Substituted Limited Partners.................. B-44
Section 11.5 Assignees..................................... B-44
Section 11.6 General Provisions............................ B-44
ARTICLE 12 ADMISSION OF PARTNERS....................................... B-46
Section 12.1 Admission of Successor General Partner........ B-46
Section 12.2 Admission of Additional Limited Partners...... B-46
Section 12.3 Amendment of Agreement and Certificate of
Limited Partnership........................... B-46
Section 12.4 Admission of Initial Limited Partners......... B-46
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION.................... B-47
Section 13.1 Dissolution................................... B-47
Section 13.2 Winding Up.................................... B-47
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
Section 13.3 Deemed Distribution and Recontribution........ B-48
Section 13.4 Rights of Limited Partners.................... B-48
Section 13.5 Notice of Dissolution......................... B-49
Section 13.6 Cancellation of Certificate of Limited
Partnership................................................. B-49
Section 13.7 Reasonable Time for Winding-Up................ B-49
ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS;
MEETINGS.................................................... B-49
Section 14.1 Procedures for Actions and Consents of
Partners.................................................... B-49
Section 14.2 Amendments.................................... B-49
Section 14.3 Meetings of the Partners...................... B-49
ARTICLE 15 GENERAL PROVISIONS.......................................... B-50
Section 15.1 Addresses and Notice.......................... B-50
Section 15.2 Titles and Captions........................... B-50
Section 15.3 Pronouns and Plurals.......................... B-50
Section 15.4 Further Action................................ B-50
Section 15.5 Binding Effect................................ B-50
Section 15.6 Waiver........................................ B-50
Section 15.7 Counterparts.................................. B-51
Section 15.8 Applicable Law................................ B-51
Section 15.9 Entire Agreement.............................. B-51
Section 15.10 Invalidity of Provisions...................... B-51
Section 15.11 Limitation to Preserve REIT Status............ B-51
Section 15.12 No Partition.................................. B-52
Section 15.13 No Third-Party Rights Created Hereby.......... B-52
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
EXHIBIT A PARTNERS AND PARTNERSHIP UNITS.............................. A-1
EXHIBIT B EXAMPLES REGARDING ADJUSTMENT FACTOR........................ B-1
EXHIBIT C LIST OF DESIGNATED PARTIES.................................. C-1
EXHIBIT D INTENTIONALLY OMITTED....................................... D-1
EXHIBIT E NOTICE OF REDEMPTION........................................ E-1
EXHIBIT F FORM OF UNIT CERTIFICATE.................................... F-1
EXHIBIT G PARTNERSHIP UNIT DESIGNATION OF THE CLASS B PARTNERSHIP
PREFERRED UNITS............................................. G-1
EXHIBIT H PARTNERSHIP UNIT DESIGNATION OF THE CLASS C PARTNERSHIP
PREFERRED UNITS............................................. H-1
EXHIBIT I PARTNERSHIP UNIT DESIGNATION OF THE CLASS D PARTNERSHIP
PREFERRED UNITS............................................. I-1
EXHIBIT J PARTNERSHIP UNIT DESIGNATION OF THE CLASS E PARTNERSHIP
PREFERRED UNITS............................................. J-1
EXHIBIT K PARTNERSHIP UNIT DESIGNATION OF THE CLASS I HIGH PERFORMANCE
PARTNERSHIP UNITS........................................... K-1
EXHIBIT L PARTNERSHIP UNIT DESIGNATION OF THE CLASS G PARTNERSHIP
PREFERRED UNITS............................................. L-1
EXHIBIT M PARTNERSHIP UNIT DESIGNATION OF THE CLASS H PARTNERSHIP
PREFERRED UNITS............................................. M-1
EXHIBIT N PARTNERSHIP UNIT DESIGNATION OF THE CLASS J PARTNERSHIP
PREFERRED UNITS............................................. N-1
</TABLE>
NONE OF THE ABOVE EXHIBITS ARE INCLUDED IN THIS PROSPECTUS.
THEY ARE AVAILABLE UPON REQUEST OF AIMCO PROPERTIES, L.P.
iv
<PAGE> 384
THIRD AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF AIMCO PROPERTIES, L.P.
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF AIMCO
PROPERTIES, L.P., dated as of July 29, 1994, and amended and restated as of
October 1, 1998, is entered into by and among Apartment Investment and
Management Company, a Maryland corporation (the "Previous General Partner"),
AIMCO-GP, Inc., a Delaware corporation (the "General Partner"), AIMCO-LP, Inc.,
a Delaware corporation (the "Special Limited Partner"), and the other Limited
Partners (as defined below).
WHEREAS, the General Partner has submitted, and the Limited Partners have
approved, an amendment and restatement of the Agreement of Limited Partnership
of AIMCO Properties, L.P. on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
"Actions" has the meaning set forth in Section 7.7 hereof.
"Additional Funds" has the meaning set forth in Section 4.3.A hereof.
"Additional Limited Partner" means a Person who is admitted to the
Partnership as a Limited Partner pursuant to Section 4.2 and Section 12.2 hereof
and who is shown as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(i) decrease such deficit by any amounts that such Partner is
obligated to restore pursuant to this Agreement or by operation of law upon
liquidation of such Partner's Partnership Interest or is deemed to be
obligated to restore pursuant to the penultimate sentence of each of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) increase such deficit by the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account Deficit" is intended
to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
"Adjustment Factor" means 1.0; provided, however, that in the event that:
(i) the Previous General Partner (a) declares or pays a dividend on
its outstanding REIT Shares in REIT Shares or makes a distribution to all
holders of its outstanding REIT Shares in REIT Shares, (b) splits or
subdivides its outstanding REIT Shares or (c) effects a reverse stock split
or otherwise combines its outstanding REIT Shares into a smaller number of
REIT Shares, the Adjustment Factor shall be adjusted by multiplying the
Adjustment Factor previously in effect by a fraction, (i) the numerator of
which shall be the number of REIT Shares issued and outstanding on the
record date for
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<PAGE> 385
such dividend, distribution, split, subdivision, reverse split or
combination (assuming for such purposes that such dividend, distribution,
split, subdivision, reverse split or combination has occurred as of such
time) and (ii) the denominator of which shall be the actual number of REIT
Shares (determined without the above assumption) issued and outstanding on
the record date for such dividend, distribution, split, subdivision,
reverse split or combination;
(ii) the Previous General Partner distributes any rights, options or
warrants to all holders of its REIT Shares to subscribe for or to purchase
or to otherwise acquire REIT Shares (or other securities or rights
convertible into, exchangeable for or exercisable for REIT Shares) at a
price per share less than the Value of a REIT Share on the record date for
such distribution (each a "Distributed Right"), then the Adjustment Factor
shall be adjusted by multiplying the Adjustment Factor previously in effect
by a fraction (a) the numerator of which shall be the number of REIT Shares
issued and outstanding on the record date plus the maximum number of REIT
Shares purchasable under such Distributed Rights and (b) the denominator of
which shall be the number of REIT Shares issued and outstanding on the
record date plus a fraction (1) the numerator of which is the maximum
number of REIT Shares purchasable under such Distributed Rights times the
minimum purchase price per REIT Share under such Distributed Rights and (2)
the denominator of which is the Value of a REIT Share as of the record
date; provided, however, that, if any such Distributed Rights expire or
become no longer exercisable, then the Adjustment Factor shall be adjusted,
effective retroactive to the date of distribution of the Distributed
Rights, to reflect a reduced maximum number of REIT Shares or any change in
the minimum purchase price for the purposes of the above fraction; and
(iii) the Previous General Partner shall, by dividend or otherwise,
distribute to all holders of its REIT Shares evidences of its indebtedness
or assets (including securities, but excluding any dividend or distribution
referred to in subsection (i) above), which evidences of indebtedness or
assets relate to assets not received by the Previous General Partner, the
General Partner and/or the Special Limited Partner pursuant to a pro rata
distribution by the Partnership, then the Adjustment Factor shall be
adjusted to equal the amount determined by multiplying the Adjustment
Factor in effect immediately prior to the close of business on the date
fixed for determination of shareholders entitled to receive such
distribution by a fraction (i) the numerator shall be such Value of a REIT
Share on the date fixed for such determination and (ii) the denominator
shall be the Value of a REIT Share on the dates fixed for such
determination less the then fair market value (as determined by the General
Partner, whose determination shall be conclusive) of the portion of the
evidences of indebtedness or assets so distributed applicable to one REIT
Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event, provided, however, that any Limited Partner may waive, by
written notice to the General Partner, the effect of any adjustment to the
Adjustment Factor applicable to the Partnership Common Units held by such
Limited Partner, and, thereafter, such adjustment will not be effective as to
such Partnership Common Units. For illustrative purposes, examples of
adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Third Amended and Restated Agreement of Limited
Partnership of AIMCO Properties, L.P., as it may be amended, supplemented or
restated from time to time.
"Applicable Percentage" has the meaning set forth in Section 8.6.B hereof.
"Appraisal" means, with respect to any assets, the written opinion of an
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith. Such opinion may
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<PAGE> 386
be in the form of an opinion by such independent third party that the value for
such property or asset as set by the General Partner is fair, from a financial
point of view, to the Partnership.
"Assignee" means a Person to whom one or more Partnership Common Units have
been Transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"Available Cash" means, with respect to any period for which such
calculation is being made,
(i) the sum, without duplication, of:
(1) the Partnership's Net Income or Net Loss (as the case may be)
for such period,
(2) Depreciation and all other noncash charges to the extent
deducted in determining Net Income or Net Loss for such period,
(3) the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(6) below (including, without limitation,
reductions resulting because the General Partner determines such amounts
are no longer necessary),
(4) the excess, if any, of the net cash proceeds from the sale,
exchange, disposition, financing or refinancing of Partnership property
for such period over the gain (or loss, as the case may be) recognized
from such sale, exchange, disposition, financing or refinancing during
such period (excluding Terminating Capital Transactions), and
(5) all other cash received (including amounts previously accrued
as Net Income and amounts of deferred income) or any net amounts
borrowed by the Partnership for such period that was not included in
determining Net Income or Net Loss for such period;
(ii) less the sum, without duplication, of:
(1) all principal debt payments made during such period by the
Partnership,
(2) capital expenditures made by the Partnership during such
period,
(3) investments in any entity (including loans made thereto) to the
extent that such investments are not otherwise described in clause
(ii)(1) or clause (ii)(2) above,
(4) all other expenditures and payments not deducted in determining
Net Income or Net Loss for such period (including amounts paid in
respect of expenses previously accrued),
(5) any amount included in determining Net Income or Net Loss for
such period that was not received by the Partnership during such period,
(6) the amount of any increase in reserves (including, without
limitation, working capital reserves) established during such period
that the General Partner determines are necessary or appropriate in its
sole and absolute discretion, and
(7) any amount distributed or paid in redemption of any Limited
Partner Interest or Partnership Units including, without limitation, any
Cash Amount paid.
Notwithstanding the foregoing, Available Cash shall not include (a) any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Partnership or (b) any Capital Contributions,
whenever received.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Denver, Colorado, Los Angeles, California or New York,
New York are authorized or required by law to close.
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"Capital Account" means, with respect to any Partner, the Capital Account
maintained by the General Partner for such Partner on the Partnership's books
and records in accordance with the following provisions:
(a) To each Partner's Capital Account, there shall be added such
Partner's Capital Contributions, such Partner's distributive share of Net
Income and any items in the nature of income or gain that are specially
allocated pursuant to Section 6.3 hereof, and the principal amount of any
Partnership liabilities assumed by such Partner or that are secured by any
property distributed to such Partner.
(b) From each Partner's Capital Account, there shall be subtracted the
amount of cash and the Gross Asset Value of any property distributed to
such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Net Losses and any items in the nature of expenses or
losses that are specially allocated pursuant to Section 6.3 hereof, and the
principal amount of any liabilities of such Partner assumed by the
Partnership or that are secured by any property contributed by such Partner
to the Partnership.
(c) In the event any interest in the Partnership is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed
to the Capital Account of the transferor to the extent that it relates to
the Transferred interest.
(d) In determining the principal amount of any liability for purposes
of subsections (a) and (b) hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
(e) The provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations Sections
1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner
consistent with such Regulations. If the General Partner shall determine
that it is prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the General Partner
may make such modification provided that such modification will not have a
material effect on the amounts distributable to any Partner without such
Partner's Consent. The General Partner also shall (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and the amount of Partnership capital reflected on
the Partnership's balance sheet, as computed for book purposes, in
accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any
appropriate modifications in the event that unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any Contributed Property that such
Partner contributes to the Partnership pursuant to Section 4.1, 4.2 or 4.3
hereof or is deemed to contribute pursuant to Section 4.4 hereof.
"Cash Amount" means the lesser of (a) an amount of cash equal to the
product of (i) the Value of a REIT Share and (ii) the REIT Shares Amount
determined as of the applicable Valuation Date or (b) in the case of a
Declination followed by a Public Offering Funding, the Public Offering Funding
Amount.
"Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Charter" means the Articles of Amendment and Restatement of the Previous
General Partner filed with the Maryland State Department of Assessments and
Taxation on July 19, 1994, as amended, supplemented or restated from time to
time.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time or any successor statute thereto, as interpreted by the
applicable Regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
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"Company Employee" has the meaning ascribed thereto in the Previous General
Partner's 1994 Stock Option Plan.
"Consent" means the consent to, approval of, or vote in favor of a proposed
action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a Majority in
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and, except as
otherwise provided in this Agreement, may be given or withheld by a Majority in
Interest of the Limited Partners, in their reasonable discretion.
"Contributed Property" means each Property or other asset, in such form as
may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (or deemed contributed to the Partnership on
termination and reconstitution thereof pursuant to Code Section 708).
"Controlled Entity" means, as to any Limited Partner, (a) any corporation
more than fifty percent (50%) of the outstanding voting stock of which is owned
by such Limited Partner or such Limited Partner's Family Members, (b) any trust,
whether or not revocable, of which such Limited Partner or such Limited
Partner's Family Members are the sole beneficiaries, (c) any partnership of
which such Limited Partner is the managing partner and in which such Limited
Partner or such Limited Partner's Family Members hold partnership interests
representing at least twenty-five percent (25%) of such partnership's capital
and profits and (d) any limited liability company of which such Limited Partner
is the manager and in which such Limited Partner or such Limited Partner's
Family Members hold membership interests representing at least twenty-five
percent (25%) of such limited liability company's capital and profits.
"Controlling Person" means any Person, whatever his or her title, who
performs executive or senior management functions for the General Partner or its
Affiliates similar to those of directors, executive management and senior
management, or any Person who either holds a two percent (2%) or more equity
interest in the General Partner or its Affiliates, or has the power to direct or
cause the direction of the General Partner or its Affiliates, whether through
the ownership of voting securities, by contract or otherwise, or, in the absence
of a specific role or title, any Person having the power to direct or cause the
direction of the management-level employees and policies of the General Partner
or its Affiliates. It is not intended that every Person who carries a title such
as vice president, senior vice president, secretary or treasurer be included in
the definition of "Controlling Person."
"Cut-Off Date" means the fifth (5th) Business Day after the General
Partner's receipt of a Notice of Redemption.
"Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
that, in accordance with generally accepted accounting principles, should be
capitalized.
"Declination" has the meaning set forth in Section 8.6.D hereof.
"Depreciation" means, for each Fiscal Year or other applicable period, an
amount equal to the federal income tax depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
period, Depreciation shall be in an amount that bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction
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for such year or period is zero, Depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
"Designated Parties" means the Persons designated on Exhibit C attached
hereto. The General Partner may, in its sole and absolute discretion, amend
Exhibit C to add Persons to be designated as Designated Parties.
"Distributed Right" has the meaning set forth in the definition of
"Adjustment Factor."
"Effective Date" means July 29, 1994.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Family Members" means, as to a Person that is an individual, such Person's
spouse, ancestors, descendants (whether by blood or by adoption), brothers,
sisters and inter vivos or testamentary trusts of which only such Person and his
spouse, ancestors, descendants (whether by blood or by adoption), brothers and
sisters are beneficiaries.
"Fiscal Year" means the fiscal year of the Partnership, which shall be the
calendar year.
"Funding Debt" means any Debt incurred by or on behalf of the Previous
General Partner, the General Partner or the Special Limited Partner for the
purpose of providing funds to the Partnership.
"General Partner" means AIMCO-GP, Inc., a Delaware corporation, and its
successors and assigns, as the general partner of the Partnership in their
capacities as general partner of the Partnership.
"General Partner Interest" means the Partnership Interest held by the
General Partner, which Partnership Interest is an interest as a general partner
under the Act. A General Partner Interest may be expressed as a number of
Partnership Common Units, Partnership Preferred Units or any other Partnership
Units.
"General Partner Loan" has the meaning set forth in Section 4.3.D hereof.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market values of such
assets as determined by the General Partner and agreed to by the
contributing Partner. In any case in which the General Partner and the
contributing Partner are unable to agree as to the gross fair market value
of any contributed asset or assets, such gross fair market value shall be
determined by Appraisal.
(b) The Gross Asset Values of all Partnership assets immediately prior
to the occurrence of any event described in clause (i), clause (ii), clause
(iii), clause (iv) or clause (v) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the General Partner
using such reasonable method of valuation as it may adopt, as of the
following times:
(i) the acquisition of an additional interest in the Partnership
(other than in connection with the execution of this Agreement but
including, without limitation, acquisitions pursuant to Section 4.2
hereof or contributions or deemed contributions by the General Partner
pursuant to Section 4.2 hereof) by a new or existing Partner in exchange
for more than a de minimis Capital Contribution, if the General Partner
reasonably determines that such adjustment is necessary or appropriate
to reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner of more than
a de minimis amount of Partnership property as consideration for an
interest in the Partnership, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;
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(iii) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g);
(iv) upon the admission of a successor General Partner pursuant to
Section 12.1 hereof; and
(v) at such other times as the General Partner shall reasonably
determine necessary or advisable in order to comply with Regulations
Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner
provided that, if the distributee is the General Partner or if the
distributee and the General Partner cannot agree on such a determination,
such gross fair market value shall be determined by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m);
provided, however, that Gross Asset Values shall not be adjusted pursuant
to this subsection (d) to the extent that the General Partner reasonably
determines that an adjustment pursuant to subsection (b) above is necessary
or appropriate in connection with a transaction that would otherwise result
in an adjustment pursuant to this subsection (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or
subsection (d) above, such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset for
purposes of computing Net Income and Net Losses.
"Holder" means either (a) a Partner or (b) an Assignee, owning a
Partnership Unit, that is treated as a member of the Partnership for federal
income tax purposes.
"Incapacity" or "Incapacitated" means, (i) as to any Partner who is an
individual, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her person
or his or her estate; (ii) as to any Partner that is a corporation or limited
liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; (iii) as to
any Partner that is a partnership, the dissolution and commencement of winding
up of the partnership; (iv) as to any Partner that is an estate, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust that is a Partner, the termination
of the trust (but not the substitution of a new trustee); or (vi) as to any
Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief of or against such Partner under any bankruptcy, insolvency or other
similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt
or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment, or (h) an appointment referred to in clause (g)
above is not vacated within ninety (90) days after the expiration of any such
stay.
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"Indemnitee" means (i) any Person made a party to a proceeding by reason of
its status as (A) the Previous General Partner or the General Partner or (B) a
director of the Previous General Partner or the General Partner or an officer or
employee of the Partnership or the Previous General Partner or the General
Partner and (ii) such other Persons (including Affiliates of the General Partner
or the Partnership) as the General Partner may designate from time to time
(whether before or after the event giving rise to potential liability), in its
sole and absolute discretion.
"Independent Director" has the meaning ascribed thereto in the Previous
General Partner's 1994 Stock Option Plan.
"Interest" means interest, original issue discount and other similar
payments or amounts paid by the Partnership for the use or forbearance of money.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Junior Share" means a share of the Previous General Partner's Class B
Common Stock, par value $.01 per share.
"Limited Partner" means the Special Limited Partner and any Person named as
a Limited Partner in Exhibit A attached hereto, as such Exhibit A may be amended
from time to time, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Limited Partners and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Limited Partner Interest may be expressed as
a number of Partnership Common Units, Partnership Preferred Units or other
Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1 hereof.
"Liquidator" has the meaning set forth in Section 13.2.A hereof.
"Majority in Interest of the Limited Partners" means Limited Partners
(other than (i) the Special Limited Partner and (ii) any Limited Partner fifty
percent (50%) or more of whose equity is owned, directly or indirectly, by the
(a) General Partner or (b) any REIT as to which the General Partner is a
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)))
holding more than fifty percent (50%) of the outstanding Partnership Common
Units and Class I High Performance Partnership Units held by all Limited
Partners (other than (i) the Special Limited Partner and (ii) any Limited
Partner fifty percent (50%) or more of whose equity is owned, directly or
indirectly, by (a) the General Partner or (b) any REIT as to which the General
Partner is a "qualified REIT subsidiary" (within the meaning of Code Section
856(i)(2))).
"Net Income" or "Net Loss" means, for each Fiscal Year of the Partnership,
an amount equal to the Partnership's taxable income or loss for such year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Income (or Net
Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be
added to (or subtracted from, as the case may be) such taxable income (or
loss);
(b) Any expenditure of the Partnership described in Code Section
705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Net Income (or Net Loss) pursuant to this definition
of "Net Income" or "Net Loss," shall be subtracted from (or added to, as
the case may be) such taxable income (or loss);
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(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subsection (b) or subsection (c) of the definition of
"Gross Asset Value," the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost recovery
deductions that would otherwise be taken into account in computing such
taxable income or loss, there shall be taken into account Depreciation for
such Fiscal Year;
(f) To the extent that an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Partner's interest in the
Partnership, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the
asset and shall be taken into account for purposes of computing Net Income
or Net Loss; and
(g) Notwithstanding any other provision of this definition of "Net
Income" or "Net Loss," any item that is specially allocated pursuant to
Section 6.3 hereof shall not be taken into account in computing Net Income
or Net Loss. The amounts of the items of Partnership income, gain, loss or
deduction available to be specially allocated pursuant to Section 6.3
hereof shall be determined by applying rules analogous to those set forth
in this definition of "Net Income" or "Net Loss."
"New Securities" means (i) any rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase REIT
Shares or Preferred Shares, excluding Junior Shares, Preferred Shares and grants
under the Previous General Partner's Stock Option Plans, or (ii) any Debt issued
by the Previous General Partner that provides any of the rights described in
clause (i).
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption substantially in the
form of Exhibit E attached to this Agreement.
"Optionee" means a Company Employee, Partnership Employee or Independent
Director to whom a stock option is granted under the Previous General Partner's
Stock Option Plans.
"Original Limited Partners" means the Persons listed as the Limited
Partners on Exhibit A originally attached to this Agreement, without regard to
any amendment thereto, and does not include any Assignee or other transferee,
including, without limitation, any Substituted Limited Partner succeeding to all
or any part of the Partnership Interest of any such Person.
"Ownership Limit" means the applicable restriction on ownership of shares
of the Previous General Partner imposed under the Charter.
"Partner" means the General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
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"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section
1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"Partnership Common Unit" means a fractional share of the Partnership
Interests of all Partners issued pursuant to Sections 4.1 and 4.2 hereof, but
does not include any Partnership Preferred Unit or any other Partnership Unit
specified in a Partnership Unit Designation as being other than a Partnership
Common Unit; provided, however, that the General Partner Interest and the
Limited Partner Interests shall have the differences in rights and privileges as
specified in this Agreement. The ownership of Partnership Common Units may (but
need not, in the sole and absolute discretion of the General Partner) be
evidenced by the form of certificate for Partnership Common Units attached
hereto as Exhibit F.
"Partnership Employee" has the meaning ascribed thereto in the Previous
General Partner's 1994 Stock Option Plan.
"Partnership Interest" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
may be expressed as a number of Partnership Common Units, Partnership Preferred
Units or other Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Fiscal Year shall be
determined in accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Preferred Unit" means a fractional share of the Partnership
Interests that the General Partner has authorized pursuant to Section 4.2 hereof
that has distribution rights, or rights upon liquidation, winding up and
dissolution, that are superior or prior to the Partnership Common Units.
"Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash pursuant to Section 5.1 hereof,
which record date shall generally be the same as the record date established by
the Previous General Partner for a distribution to its shareholders of some or
all of its portion of such distribution.
"Partnership Subsidiary" has the meaning ascribed thereto in the Apartment
Investment and Management Company 1997 Stock Award and Incentive Plan.
"Partnership Unit" shall mean a Partnership Common Unit, a Partnership
Preferred Unit or any other fractional share of the Partnership Interests that
the General Partner has authorized pursuant to Section 4.2 hereof.
"Partnership Unit Designation" shall have the meaning set forth in Section
4.2 hereof.
"Percentage Interest" means, as to each Partner, its interest in the
Partnership Units as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding.
"Permitted Transfer" has the meaning set forth in Section 11.3.A hereof.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"Pledge" has the meaning set forth in Section 11.3.A hereof.
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"Preferred Share" means a share of capital stock of the Previous General
Partner now or hereafter authorized or reclassified that has dividend rights, or
rights upon liquidation, winding up and dissolution, that are superior or prior
to the REIT Shares.
"Previous General Partner" means Apartment Investment and Management
Company, a Maryland corporation.
"Previous General Partner's 1994 Stock Option Plan" means the 1994 Stock
Option Plan of Apartment Investment and Management Company and Affiliates.
"Previous General Partner's Stock Option Plans" means the Previous General
Partner's 1994 Stock Option Plan, the Apartment Investment and Management
Company 1996 Stock Award and Incentive Plan, the Amended and Restated Apartment
Investment and Management Company Non-Qualified Employee Stock Option Plan, the
Apartment Investment and Management Company 1997 Stock Award and Incentive Plan
and any other stock option plan adopted by the Previous General Partner.
"Primary Offering Notice" has the meaning set forth in Section 8.6.F(4)
hereof.
"Properties" means any assets and property of the Partnership such as, but
not limited to, interests in real property and personal property, including,
without limitation, fee interests, interests in ground leases, interests in
limited liability companies, joint ventures or partnerships, interests in
mortgages, and Debt instruments as the Partnership may hold from time to time.
"Public Offering Funding" has the meaning set forth in Section 8.6.D(2)
hereof.
"Public Offering Funding Amount" means the dollar amount equal to (i) the
product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts
and commissions in such Public Offering Funding.
"Qualified Transferee" means an "accredited investor" as defined in Rule
501 promulgated under the Securities Act.
"Qualifying Party" means (a) an Original Limited Partner, (b) an Additional
Limited Partner, (c) a Designated Party that is either a Substituted Limited
Partner or an Assignee, (d) a Family Member, or a lending institution as the
pledgee of a Pledge, who is the transferee in a Permitted Transfer or (e) with
respect to any Notice of Redemption delivered to the General Partner within the
time period set forth in Section 11.3.A(4) hereof, a Substituted Limited Partner
succeeding to all or part of the Limited Partner Interest of (i) an Original
Limited Partner, (ii) an Additional Limited Partner, (iii) a Designated Party
that is either a Substituted Limited Partner or an Assignee or (iv) a Family
Member, or a lending institution who is the pledgee of a Pledge, who is the
transferee in a Permitted Transfer.
"Redeemable Units" means those Partnership Common Units issued to the
Original Limited Partners as of the Effective Date together with such additional
Partnership Common Units that, after the Effective Date, may be issued to
Additional Limited Partners pursuant to Section 4.2 hereof.
"Redemption" has the meaning set forth in Section 8.6.A hereof.
"Registrable Shares" has the meaning set forth in Section 8.6.D(2) hereof.
"Regulations" means the applicable income tax regulations under the Code,
whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 6.3.B(viii)
hereof.
"REIT" means a real estate investment trust qualifying under Code Section
856.
"REIT Partner" means (a) a Partner that is, or has made an election to
qualify as, a REIT, (b) any "qualified REIT subsidiary" (within the meaning of
Code Section 856(i)(2)) of any Partner that is, or has made an election to
qualify as, a REIT and (c) any Partner, including, without limitation, the
General Partner
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and the Special Limited Partner, that is a "qualified REIT subsidiary" (within
the meaning of Code Section 856(i)(2)) of a REIT.
"REIT Payment" has the meaning set forth in Section 15.11 hereof.
"REIT Requirements" has the meaning set forth in Section 5.1.A hereof.
"REIT Share" means a share of the Previous General Partner's Class A Common
Stock, par value $.01 per share. Where relevant in this Agreement, "REIT
Shares" includes shares of the Previous General Partner's Class A Common Stock,
par value $.01 per share, issued upon conversion of Preferred Shares or Junior
Shares.
"REIT Shares Amount" means a number of REIT Shares equal to the product of
(a) the number of Tendered Units and (b) the Adjustment Factor; provided,
however, that, in the event that the Previous General Partner issues to all
holders of REIT Shares as of a certain record date rights, options, warrants or
convertible or exchangeable securities entitling the Previous General Partner's
shareholders to subscribe for or purchase REIT Shares, or any other securities
or property (collectively, the "Rights"), with the record date for such Rights
issuance falling within the period starting on the date of the Notice of
Redemption and ending on the day immediately preceding the Specified Redemption
Date, which Rights will not be distributed before the relevant Specified
Redemption Date, then the REIT Shares Amount shall also include such Rights that
a holder of that number of REIT Shares would be entitled to receive, expressed,
where relevant hereunder, in a number of REIT Shares determined by the Previous
General Partner in good faith.
"Related Party" means, with respect to any Person, any other Person whose
ownership of shares of the Previous General Partner's capital stock would be
attributed to the first such Person under Code Section 544 (as modified by Code
Section 856(h)(1)(B)).
"Rights" has the meaning set forth in the definition of "REIT Shares
Amount."
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Single Funding Notice" has the meaning set forth in Section 8.6.D(3)
hereof.
"Special Limited Partner" means AIMCO-LP, Inc., a Delaware corporation.
"Specified Redemption Date" means the later of (a) the tenth (10th)
Business Day after the receipt by the General Partner of a Notice of Redemption
or (b) in the case of a Declination followed by a Public Offering Funding, the
Business Day next following the date of the closing of the Public Offering
Funding; provided, however, that no Specified Redemption Date shall occur during
the first Twelve-Month Period; provided, further, that the Specified Redemption
Date, as well as the closing of Redemption, or an acquisition of Tendered Units
by the Previous General Partner pursuant to Section 8.6.B hereof, on any
Specified Redemption Date, may be deferred, in the General Partner's sole and
absolute discretion, for such time (but in any event not more than one hundred
fifty (150) days in the aggregate) as may reasonably be required to effect, as
applicable, (i) a Public Offering Funding or other necessary funding
arrangements, (ii) compliance with the Securities Act or other law (including,
but not limited to, (a) state "blue sky" or other securities laws and (b) the
expiration or termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii)
satisfaction or waiver of other commercially reasonable and customary closing
conditions and requirements for a transaction of such nature.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person; provided, however, that, with respect to the
Partnership, "Subsidiary" means solely a partnership or limited liability
company (taxed, for federal income tax purposes, as a partnership and not as an
association or publicly traded partnership taxable as a corporation) of which
the Partnership is a member unless the General Partner has received an
unqualified opinion from independent counsel of recognized standing, or a ruling
from the IRS, that the ownership of shares of stock of a corporation or other
entity will
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not jeopardize the Previous General Partner's status as a REIT or the General
Partner's or the Special Limited Partner's status as a "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)), in which event the
term "Subsidiary" shall include the corporation or other entity which is the
subject of such opinion or ruling.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.4 hereof.
"Tax Items" has the meaning set forth in Section 6.4.A hereof.
"Tendered Units" has the meaning set forth in Section 8.6.A hereof.
"Tendering Party" has the meaning set forth in Section 8.6.A hereof.
"Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"Transfer," when used with respect to a Partnership Unit, or all or any
portion of a Partnership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), Pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law; provided,
however, that when the term is used in Article 11 hereof, "Transfer" does not
include (a) any Redemption of Partnership Common Units by the Partnership, or
acquisition of Tendered Units by the Previous General Partner, pursuant to
Section 8.6 hereof or (b) any redemption of Partnership Units pursuant to any
Partnership Unit Designation. The terms "Transferred" and "Transferring" have
correlative meanings.
"Twelve-Month Period" means (a) as to an Original Limited Partner or any
successor-in-interest that is a Qualifying Party, a twelve-month period ending
on the day before the first (1st) anniversary of the Effective Date or on the
day before a subsequent anniversary thereof and (b) as to any other Qualifying
Party, a twelve-month period ending on the day before the first (1st)
anniversary of such Qualifying Party's becoming a Holder of Partnership Common
Units or on the day before a subsequent anniversary thereof; provided, however,
that the General Partner may, in its sole and absolute discretion, by written
agreement with a Qualifying Party, shorten the first Twelve-Month Period to a
period of less than twelve (12) months with respect to a Qualifying Party other
than an Original Limited Partner or successor-in-interest.
"Unitholder" means the General Partner or any Holder of Partnership Units.
"Valuation Date" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the immediately
preceding Business Day.
"Value" means, on any Valuation Date with respect to a REIT Share, the
average of the daily market prices for ten (10) consecutive trading days
immediately preceding the Valuation Date (except that, as provided in Section
4.4.C. hereof, the market price for the trading day immediately preceding the
date of exercise of a stock option under the Previous General Partner's Stock
Option Plans shall be substituted for such average of daily market prices for
purposes of Section 4.4 hereof). The market price for any such trading day shall
be:
(i) if the REIT Shares are listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System,
the closing price, regular way, on such day, or if no such sale takes place
on such day, the average of the closing bid and asked prices on such day,
in either case as reported in the principal consolidated transaction
reporting system,
(ii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System,
the last reported sale price on such day or, if no sale takes place on such
day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner,
or
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(iii) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System and
no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on
such day, as reported by a reliable quotation source designated by the
General Partner, or if there shall be no bid and asked prices on such day,
the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than ten (10) days prior to the date in question)
for which prices have been so reported;
provided, however, that, if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Value of the REIT Shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event that the REIT Shares Amount includes Rights
(as defined in the definition of "REIT Shares Amount") that a holder of REIT
Shares would be entitled to receive, then the Value of such Rights shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization. The Partnership is a limited partnership
organized pursuant to the provisions of the Act and upon the terms and subject
to the conditions set forth in this Agreement. Except as expressly provided
herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name. The name of the Partnership is "AIMCO Properties, L.P."
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Partners of such change in the next regular communication to the Partners.
Section 2.3 Registered Office and Agent; Principal Office. The address of
the registered office of the Partnership in the State of Delaware is located at
32 Lockerman Square, Suite L-100, Dover, Delaware 19901, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office is The Prentice-Hall Corporation System, Inc. The principal
office of the Partnership is located at 1873 South Bellaire Street, Denver,
Colorado 80222, or such other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4 Power of Attorney.
A. Each Limited Partner and each Assignee hereby irrevocably constitutes
and appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, seal, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate and all amendments, supplements or restatements thereof) that
the General Partner or the Liquidator deems appropriate or necessary to
form, qualify or continue the existence or qualification of the Partnership
as a limited partnership (or a partnership in which the limited partners
have limited liability to the extent provided by applicable law) in the
State of Delaware and in all other jurisdictions in which the Partnership
may conduct business or own property; (b) all instruments that the General
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Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms;
(c) all conveyances and other instruments or documents that the General
Partner or the Liquidator deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms of
this Agreement, including, without limitation, a certificate of
cancellation; (d) all conveyances and other instruments or documents that
the General Partner or the Liquidator deems appropriate or necessary to
reflect the distribution or exchange of assets of the Partnership pursuant
to the terms of this Agreement; (e) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article 11, Article 12 or Article 13 hereof
or the Capital Contribution of any Partner; and (f) all certificates,
documents and other instruments relating to the determination of the
rights, preferences and privileges relating to Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner, to
make, evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action that is made or given by the Partners hereunder
or is consistent with the terms of this Agreement or appropriate or
necessary, in the sole and absolute discretion of the General Partner,
effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article 14 hereof or as may be
otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable and
a special power coupled with an interest, in recognition of the fact that each
of the Limited Partners and Assignees will be relying upon the power of the
General Partner or the Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the Transfer all or any portion of such Limited Partner's or
Assignee's Partnership Units or Partnership Interest and shall extend to such
Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be bound
by any representation made by the General Partner or the Liquidator, acting in
good faith pursuant to such power of attorney; and each such Limited Partner or
Assignee hereby waives any and all defenses that may be available to contest,
negate or disaffirm the action of the General Partner or the Liquidator, taken
in good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
fifteen (15) days after receipt of the General Partner's or the Liquidator's
request therefor, such further designation, powers of attorney and other
instruments as the General Partner or the Liquidator, as the case may be, deems
necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.5 Term. The term of the Partnership commenced on May 16, 1994,
the date that the original Certificate was filed in the office of the Secretary
of State of Delaware in accordance with the Act, and shall continue until
December 31, 2093 unless the Partnership is dissolved sooner pursuant to the
provisions of Article 13 hereof or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the
Partnership is to conduct any business, enterprise or activity permitted by or
under the Act, including, but not limited to, (i) to conduct the business of
ownership, construction, development and operation of multifamily rental
apartment communities, (ii) to enter into any partnership, joint venture,
business trust arrangement, limited liability company or other similar
arrangement to engage in any business permitted by or under the Act, or to own
interests in any entity engaged in any business permitted by or under the Act,
(iii) to conduct the business of providing property and asset management and
brokerage services, whether directly or through one or more partnerships, joint
ventures, subsidiaries, business trusts, limited liability companies or other
similar arrangements, and (iv) to do
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anything necessary or incidental to the foregoing; provided, however, such
business and arrangements and interests may be limited to and conducted in such
a manner as to permit the Previous General Partner, in the sole and absolute
discretion of the General Partner, at all times to be classified as a REIT.
Section 3.2 Powers.
A. The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership.
B. Notwithstanding any other provision in this Agreement, the General
Partner may cause the Partnership not to take, or to refrain from taking, any
action that, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the Previous General
Partner to continue to qualify as a REIT, (ii) could subject the Previous
General Partner to any additional taxes under Code Section 857 or Code Section
4981 or (iii) could violate any law regulation of any governmental body or
agency having jurisdiction over the Previous General Partner, the General
Partner, their securities or the Partnership, unless such action (or inaction)
under clause (i), clause (ii) or clause (iii) above shall have been specifically
consented to by the Previous General Partner and the General Partner in writing.
Section 3.3 Partnership Only for Purposes Specified. The Partnership shall
be a limited partnership only for the purposes specified in Section 3.1 hereof,
and this Agreement shall not be deemed to create a company, venture or
partnership between or among the Partners with respect to any activities
whatsoever other than the activities within the purposes of the Partnership as
specified in Section 3.1 hereof. Except as otherwise provided in this Agreement,
no Partner shall have any authority to act for, bind, commit or assume any
obligation or responsibility on behalf of the Partnership, its properties or any
other Partner. No Partner, in its capacity as a Partner under this Agreement,
shall be responsible or liable for any indebtedness or obligation of another
Partner, nor shall the Partnership be responsible or liable for any indebtedness
or obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4 Representations and Warranties by the Parties.
A. Each Partner that is an individual (including, without limitation, each
Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner)
represents and warrants to each other Partner(s) that (i) the consummation of
the transactions contemplated by this Agreement to be performed by such Partner
will not result in a breach or violation of, or a default under, any material
agreement by which such Partner any of such Partner's property is bound, or any
statute, regulation, order or other law to which such Partner is subject, (ii)
such Partner is neither a "foreign person" within the meaning of Code Section
1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e),
(iii) such Partner does not own, directly or indirectly, (a) five percent (5%)
or more of the total combined voting power of all classes of stock entitled to
vote, or five percent (5%) or more of the total number of shares of all classes
of stock, of any corporation that is a tenant of either (I) the Previous General
Partner, the General Partner, the Special Limited Partner or any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the
Previous General Partner, (II) the Partnership or (III) any partnership, venture
or limited liability company of which the Previous General Partner, the General
Partner, the Special Limited Partner, any "qualified REIT subsidiary" (within
the meaning of Code Section 856(i)(2)) with respect to the Previous General
Partner or the Partnership is a member or (b) an interest of five percent (5%)
or more in the assets or net profits of any tenant of either (I) the Previous
General Partner, the General Partner, the Special Limited Partner or any
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with
respect to the Previous General Partner, (II) the Partnership or (III) any
partnership, venture, or limited liability company of which the Previous General
Partner, the General Partner, the Special Limited Partner, any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the
Previous General Partner or the Partnership is a member and (iv) this Agreement
is binding upon, and enforceable against, such Partner in accordance with its
terms.
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B. Each Partner that is not an individual (including, without limitation,
each Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner)
represents and warrants to each other Partner(s) that (i) all transactions
contemplated by this Agreement to be performed by it have been duly authorized
by all necessary action, including, without limitation, that of its general
partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership or operating agreement, trust agreement, charter or bylaws, as
the case may be, any material agreement by which such Partner or any of such
Partner's properties or any of its partners, members, beneficiaries, trustees or
shareholders, as the case may be, is or are bound, or any statute, regulation,
order or other law to which such Partner or any of its partners, members,
trustees, beneficiaries or shareholders, as the case may be, is or are subject,
(iii) such Partner is neither a "foreign person" within the meaning of Code
Section 1445(f) nor a "foreign partner" within the meaning of Code Section
1446(e), (iv) such Partner does not own, directly or indirectly, (a) five
percent (5%) or more of the total combined voting power of all classes of stock
entitled to vote, or five percent (5%) or more of the total number of shares of
all classes of stock, of any corporation that is a tenant of either (I) the
Previous General Partner, the General Partner, the Special Limited Partner or
any "qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2))
with respect to the Previous General Partner, (II) the Partnership or (III) any
partnership, venture or limited liability company of which the Previous General
Partner, the General Partner, the Special Limited Partner, any "qualified REIT
subsidiary" (within the meaning of Code Section 856(i)(2)) with respect to the
Previous General Partner or the Partnership is a member or (b) an interest of
five percent (5%) or more in the assets or net profits of any tenant of either
(I) the Previous General Partner, the General Partner the Special Limited
Partner or any "qualified REIT subsidiary" (within the meaning of Code Section
856(i)(2)) with respect to the Previous General Partner, (II) the Partnership or
(III) any partnership, venture or limited liability company for which the
Previous General Partner, the General Partner, the Special Limited Partner, any
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)) with
respect to the Previous General Partner or the Partnership is a member and (v)
this Agreement is binding upon, and enforceable against, such Partner in
accordance with its terms.
C. Each Partner (including, without limitation, each Substituted Limited
Partner as a condition to becoming a Substituted Limited Partner) represents,
warrants and agrees that it has acquired and continues to hold its interest in
the Partnership for its own account for investment only and not for the purpose
of, or with a view toward, the resale or distribution of all or any part
thereof, nor with a view toward selling or otherwise distributing such interest
or any part thereof at any particular time or under any predetermined
circumstances. Each Partner further represents and warrants that it is a
sophisticated investor, able and accustomed to handling sophisticated financial
matters for itself, particularly real estate investments, and that it has a
sufficiently high net worth that it does not anticipate a need for the funds
that it has invested in the Partnership in what it understands to be a highly
speculative and illiquid investment.
D. The representations and warranties contained in Sections 3.4.A, 3.4.B
and 3.4.C hereof shall survive the execution and delivery of this Agreement by
each Partner (and, in the case of an Additional Limited Partner or a Substituted
Limited Partner, the admission of such Additional Limited Partner or Substituted
Limited Partner as a Limited Partner in the Partnership) and the dissolution,
liquidation and termination of the Partnership.
E. Each Partner (including, without limitation, each Substituted Limited
Partner as a condition to becoming a Substituted Limited Partner) hereby
acknowledges that no representations as to potential profit, cash flows, funds
from operations or yield, if any, in respect of the Partnership or the General
Partner have been made by any Partner or any employee or representative or
Affiliate of any Partner, and that projections and any other information,
including, without limitation, financial and descriptive information and
documentation, that may have been in any manner submitted to such Partner shall
not constitute any representation or warranty of any kind or nature, express or
implied.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners. The Partners have
heretofore made Capital Contributions to the Partnership. Each Partner owns
Partnership Units in the amount set forth for such Partner on Exhibit A, as the
same may be amended from time to time by the General Partner to the extent
necessary to reflect accurately sales, exchanges or other Transfers,
redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on a Partner's ownership of
Partnership Units. Except as provided by law or in Section 4.2, 4.3 or 10.4
hereof, the Partners shall have no obligation or right to make any additional
Capital Contributions or loans to the Partnership.
Section 4.2 Issuances of Additional Partnership Interests.
A. General. The General Partner is hereby authorized to cause the
Partnership to issue additional Partnership Interests, in the form of
Partnership Units, for any Partnership purpose, at any time or from time to
time, to the Partners (including the General Partner and the Special Limited
Partner) or to other Persons, and to admit such Persons as Additional Limited
Partners, for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole and absolute discretion, all
without the approval of any Limited Partners. Without limiting the foregoing,
the General Partner is expressly authorized to cause the Partnership to issue
Partnership Units (i) upon the conversion, redemption or exchange of any Debt,
Partnership Units or other securities issued by the Partnership, (ii) for less
than fair market value, so long as the General Partner concludes in good faith
that such issuance is in the best interests of the General Partner and the
Partnership, and (iii) in connection with any merger of any other Person into
the Partnership if the applicable merger agreement provides that Persons are to
receive Partnership Units in exchange for their interests in the Person merging
into the Partnership. Subject to Delaware law, any additional Partnership
Interests may be issued in one or more classes, or one or more series of any of
such classes, with such designations, preferences and relative, participating,
optional or other special rights, powers and duties as shall be determined by
the General Partner, in its sole and absolute discretion without the approval of
any Limited Partner, and set forth in a written document thereafter attached to
and made an exhibit to this Agreement (each, a "Partnership Unit Designation").
Without limiting the generality of the foregoing, the General Partner shall have
authority to specify (a) the allocations of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership
Interests; (b) the right of each such class or series of Partnership Interests
to share in Partnership distributions; (c) the rights of each such class or
series of Partnership Interests upon dissolution and liquidation of the
Partnership; (d) the voting rights, if any, of each such class or series of
Partnership Interests; and (e) the conversion, redemption or exchange rights
applicable to each such class or series of Partnership Interests. Upon the
issuance of any additional Partnership Interest, the General Partner shall amend
Exhibit A as appropriate to reflect such issuance.
B. Issuances to the General Partner or Special Limited Partner. No
additional Partnership Units shall be issued to the General Partner or the
Special Limited Partner unless (i) the additional Partnership Units are issued
to all Partners in proportion to their respective Percentage Interests, (ii) (a)
the additional Partnership Units are (x) Partnership Common Units issued in
connection with an issuance of REIT Shares, or (y) Partnership Units (other than
Partnership Common Units) issued in connection with an issuance of Preferred
Shares, New Securities or other interests in the Previous General Partner (other
than REIT Shares), which Preferred Shares, New Securities or other interests
have designations, preferences and other rights, terms and provisions that are
substantially the same as the designations, preferences and other rights, terms
and provisions of the additional Partnership Units issued to the General Partner
or the Special Limited Partner, and (b) the General Partner or the Special
Limited Partner, as the case may be, contributes to the Partnership the cash
proceeds or other consideration received in connection with the issuance of such
REIT Shares, Preferred Shares, New Securities or other interests in the Previous
General Partner, (iii) the additional Partnership Units are issued upon the
conversion, redemption or exchange of Debt, Partnership Units or other
securities issued by the Partnership, or (iv) the additional Partnership Units
are issued pursuant to Section 4.6.
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C. No Preemptive Rights. No Person, including, without limitation, any
Partner or Assignee, shall have any preemptive, preferential, participation or
similar right or rights to subscribe for or acquire any Partnership Interest.
Section 4.3 Additional Funds.
A. General. The General Partner may, at any time and from time to time,
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition or development of additional Properties, for the redemption
of Partnership Units or for such other purposes as the General Partner may
determine. Additional Funds may be obtained by the Partnership, at the election
of the General Partner, in any manner provided in, and in accordance with, the
terms of this Section 4.3 without the approval of any Limited Partners.
B. Additional Capital Contributions. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by accepting Capital Contributions
from any Partners or other Persons and issuing additional Partnership Units in
consideration therefor.
C. Loans by Third Parties. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to incur
Debt to any Person (other than the Previous General Partner, the General Partner
or the Special Limited Partner) upon such terms as the General Partner
determines appropriate, including making such Debt convertible, redeemable or
exchangeable for Partnership Units; provided, however, that the Partnership
shall not incur any such Debt if (i) breach, violation or default of such Debt
would be deemed to occur by virtue of the Transfer of any Partnership Interest,
or (ii) such Debt is recourse to any Partner (unless the Partner otherwise
agrees).
D. General Partner Loans. The General Partner, on behalf of the
Partnership, may obtain any Additional Funds by causing the Partnership to incur
Debt with the Previous General Partner, the General Partner or the Special
Limited Partner (each, a "General Partner Loan") if (i) such Debt is, to the
extent permitted by law, on substantially the same terms and conditions
(including interest rate, repayment schedule, and conversion, redemption,
repurchase and exchange rights) as Funding Deb incurred by the Previous General
Partner, the General Partner or the Special Limited Partner, the net proceeds of
which are loaned to the Partnership to provide such Additional Funds, or (ii)
such Debt is on terms and conditions no less favorable to the Partnership than
would be available to the Partnership from any third party; provided, however,
that the Partnership shall not incur any such Debt if (a) a breach, violation or
default of such Debt would be deemed to occur by virtue of the Transfer of any
Partnership Interest, or (b) such Debt is recourse to any Partner (unless the
Partner otherwise agrees).
E. Issuance of Securities by the Previous General Partner. The Previous
General Partner shall not issue any additional REIT Shares, Preferred Shares,
Junior Shares or New Securities unless (i) the Previous General Partner
contributes the cash proceeds or other consideration received from the issuance
of such additional REIT Shares, Preferred Shares, Junior Shares or New
Securities, as the case may be, and from the exercise of the rights contained in
any such additional New Securities, either or both of the General Partner and
the Special Limited Partner, and (ii) it or they, as the case may be, contribute
such cash proceeds or other consideration to the Partnership in exchange for (x)
in the case of an issuance of REIT Shares, Partnership Common Units, or (y) in
the case of an issuance of Preferred Shares, Junior Shares or New Securities,
Partnership Units with designations, preferences and other rights, terms and
provisions that are substantially the same as the designations, preferences and
other rights, terms and provisions of such Preferred Shares, Junior Shares or
New Securities; provided, however, that notwithstanding the foregoing, the
Previous General Partner may issue REIT Shares, Preferred Shares, Junior Shares
or New Securities (a) pursuant to Section 4.4 or Section 8.6.B hereof, (b)
pursuant to a dividend or distribution (including any stock split) of REIT
Shares, Preferred Shares, Junior Shares or New Securities to all of the holders
of REIT Shares, Preferred Shares, Junior Shares or New Securities, as the case
may be, (c) upon a conversion, redemption or exchange of Preferred Shares, (d)
upon a conversion of Junior Shares into REIT Shares, (e) upon a conversion,
redemption, exchange or exercise of New Securities, or (f) in connection with an
acquisition of a property or other asset to be owned, directly or indirectly, by
the Previous General Partner if the General Partner determines that such
acquisition is in the best interests of the Partnership. In the event of any
issuance
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of additional REIT Shares, Preferred Shares, Junior Shares or New Securities by
the Previous General Partner, and the contribution to the Partnership, by the
General Partner or the Special Limited Partner, of the cash proceeds or other
consideration received from such issuance, the Partnership shall pay the
Previous General Partner's expenses associated with such issuance, including any
underwriting discounts or commissions.
Section 4.4 Stock Option Plans.
A. Options Granted to Company Employees and Independent Directors. If at
any time or from time to time, in connection with the Previous General Partner's
Stock Option Plans, a stock option granted to a Company Employee or Independent
Director is duly exercised:
(1) The Special Limited Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership in an amount
equal to the exercise price paid to the Previous General Partner by such
exercising party in connection with the exercise of such stock option.
(2) Notwithstanding the amount of the Capital Contribution actually
made pursuant to Section 4.4.A(1) hereof, the Special Limited Partner shall
be deemed to have contributed to the Partnership as a Capital Contribution,
in consideration of an additional Limited Partner Interest (expressed in
and as additional Partnership Common Units), an amount equal to the Value
of a REIT Share as of the date of exercise multiplied by the number of REIT
Shares then being issued in connection with the exercise of such stock
option.
(3) An equitable Percentage Interest adjustment shall be made in which
the Special Limited Partner shall be treated as having made a cash
contribution equal to the amount described in Section 4.4.A(2) hereof.
B. Options Granted to Partnership Employees. If at any time or from time to
time, in connection with the Previous General Partner's Stock Option Plans, a
stock option granted to a Partnership Employee is duly exercised:
(1) The General Partner shall cause the Previous General Partner to
sell to the Partnership, and the Partnership shall purchase from the
Previous General Partner, the number of REIT Shares as to which such stock
option is being exercised. The purchase price per REIT Share for such sale
of REIT Shares to the Partnership shall be the Value of a REIT Share as of
the date of exercise of such stock option.
(2) The Partnership shall sell to the Optionee (or if the Optionee is
an employee of a Partnership Subsidiary, the Partnership shall sell to such
Partnership Subsidiary, which in turn shall sell to the Optionee), for a
cash price per share equal to the Value of a REIT Share at the time of the
exercise, the number of REIT Shares equal to (a) the exercise price paid to
the Previous General Partner by the exercising party in connection with the
exercise of such stock option divided by (b) the Value of a REIT Share at
the time of such exercise.
(3) The Partnership shall transfer to the Optionee (or if the Optionee
is an employee of a Partnership Subsidiary, the Partnership shall transfer
to such Partnership Subsidiary, which in turn shall transfer to the
Optionee) at no additional cost, as additional compensation, the number of
REIT Shares equal to the number of REIT Shares described in Section
4.4.B(1) hereof less the number of REIT Shares described in Section
4.4.B(2) hereof.
(4) The Special Limited Partner shall, as soon as practicable after
such exercise, make a Capital Contribution to the Partnership of an amount
equal to all proceeds received (from whatever source, but excluding any
payment in respect of payroll taxes or other withholdings) by the Previous
General Partner, the General Partner or the Special Limited Partner in
connection with the exercise of such stock option. An equitable Percentage
Interest adjustment shall be made in which the Special Limited Partner
shall be treated as having made a cash contribution equal to the amount
described in Section 4.4.B(1) hereof.
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C. Special Valuation Rule. For purposes of this Section 4.4, in determining
the Value of a REIT Share, only the trading date immediately preceding the
exercise of the relevant stock option under the Previous General Partner's Stock
Option Plans shall be considered.
D. Future Stock Incentive Plans. Nothing in this Agreement shall be
construed or applied to preclude or restrain the Previous General Partner, the
General Partner or the Special Limited Partner from adopting, modifying or
terminating stock incentive plans, in addition to the Previous General Partner's
Stock Option Plans, for the benefit of employees, directors or other business
associates of the Previous General Partner, the General Partner, the Special
Limited Partner, the Partnership any of their Affiliates. The Limited Partners
acknowledge and agree that, in the event that any such plan is adopted, modified
or terminated by the Previous General Partner, the General Partner or the
Special Limited Partner amendments to this Section 4.4 may become necessary or
advisable and that any approval or consent to any such amendments requested by
the Previous General Partner, the General Partner or the Special Limited Partner
shall not be unreasonably withheld or delayed.
Section 4.5 No Interest; No Return. No Partner shall be entitled to
interest on its Capital Contribution or on such Partner's Capital Account.
Except as provided herein or by law, no Partner shall have any right to demand
or receive the return of its Capital Contribution from the Partnership.
Section 4.6 Conversion of Junior Shares. If, at any time, any of the
Junior Shares are converted into REIT Shares, in whole or in part, then a number
of Partnership Common Units equal to (i) the number of REIT Shares issued upon
such conversion divided by (ii) the Adjustment Factor then in effect shall be
issued to the General Partner and the Special Limited Partner (and between the
General Partner and the Special Limited Partner in proportion to their ownership
of Partnership Common Unit immediately preceding such conversion), and the
Percentage Interests of the General Partner and the Limited Partners (including
the Special Limited Partner) shall be adjusted to reflect such conversion.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. Subject to
the terms of any Partnership Unit Designation, the General Partner shall cause
the Partnership to distribute quarterly all, or such portion as the General
Partner may in its sole and absolute discretion determine, of Available Cash
generated by the Partnership during such quarter to the Holders of Partnership
Common Units in accordance with their respective Partnership Common Units held
on such Partnership Record Date. Except as otherwise provided in the terms of
any Partnership Unit Designation, distributions payable with respect to any
Partnership Units (other than Partnership Units held by the General Partner or
the Special Limited Partner) that were not outstanding during the entire
quarterly period in respect of which any distribution is made shall be prorated
based on the portion of the period that such units were outstanding. The General
Partner in its sole and absolute discretion may distribute to the Unitholders
Available Cash on a more frequent basis and provide for an appropriate record
date. The General Partner shall take such reasonable efforts, as determined by
it in its sole and absolute discretion and consistent with the Previous General
Partner's qualification as a REIT, to cause the Partnership to distribute
sufficient amounts to enable (i) the General Partner and the Special Limited
Partner to transfer funds to the Previous General Partner and (ii) the Previous
General Partner to pay shareholder dividends that will (a) satisfy the
requirements for qualifying as a REIT under the Code and Regulations (the "REIT
Requirements") and (b) avoid any federal income or excise tax liability of the
Previous General Partner.
Section 5.2 Distributions in Kind. No right is given to any Unitholder to
demand and receive property other than cash as provided in this Agreement. The
General Partner may determine, in its sole and absolute discretion, to make a
distribution in kind of Partnership assets to the Unitholders, and such assets
shall be distributed in such a fashion as to ensure that the fair market value
is distributed and allocated in accordance with Articles 5, 6 and 10 hereof.
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Section 5.3 Amounts Withheld. All amounts withheld pursuant to the Code or
any provisions of any state or local tax law and Section 10.4 hereof with
respect to any allocation, payment or distribution to any Unitholder shall be
treated as amounts paid or distributed to such Unitholder pursuant to Section
5.1 hereof for all purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation. Notwithstanding the other
provisions of this Article 5, net proceeds from a Terminating Capital
Transaction, and any other cash received or reductions in reserves made after
commencement of the liquidation of the Partnership, shall be distributed to the
Unitholders in accordance with Section 13.2 hereof.
Section 5.5 Restricted Distributions. Notwithstanding any provision to the
contrary contained in this Agreement, neither the Partnership nor the General
Partner, on behalf of the Partnership, shall make a distribution to any
Unitholder on account of its Partnership Interest or interest in Partnership
Units if such distribution would violate Section 17-607 of the Act or other
applicable law.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net
Loss. Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each Fiscal Year of the Partnership as of the end of
each such year. Except as otherwise provided in this Article 6, and subject to
Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income or
Net Loss shall be treated as an allocation of the same share of each item of
income, gain, loss or deduction that taken into account in computing Net Income
or Net Loss.
Section 6.2 General Allocations. Subject to the terms of any Partnership
Unit Designation, except as otherwise provided in this Article 6 and subject to
Section 11.6.C hereof, Net Income and Net Loss shall be allocated to each of the
Holders of Partnership Common Units in accordance with their respective
Partnership Common Units at the end of each Fiscal Year.
Section 6.3 Additional Allocation Provisions. Notwithstanding the
foregoing provisions of this Article 6:
A. Intentionally Omitted.
B. Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of Section
6.2 hereof, or any other provision of this Article 6, if there is a net
decrease in Partnership Minimum Gain during any Fiscal Year, each Holder of
Partnership Common Units shall be specially allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in an
amount equal to such Holder's share of the net decrease in Partnership
Minimum Gain, as determined under Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each Holder pursuant
thereto. The items to be allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.B(i)
is intended to qualify as a "minimum gain chargeback" within the meaning of
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith.
(ii) Partner Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4) or in Section 6.3.B(i) hereof, if there
is a net decrease in Partner Minimum Gain attributable to a Partner
Nonrecourse Debt during any Fiscal Year, each Holder of Partnership Common
Units who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal
to such Holder's share of the net decrease in Partner Minimum Gain
attributable to such Partner
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Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
General Partner, Limited Partner and other Holder pursuant thereto. The
items to be so allocated shall be determined in accordance with Regulations
Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.B(ii) is
intended to qualify as a "chargeback of partner nonrecourse debt minimum
gain" within the meaning of Regulations Section 1.704-2(i) and shall be
interpreted consistently therewith.
(iii) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any
Nonrecourse Deductions for any Fiscal Year shall be specially allocated to
the Holders of Partnership Common Units in accordance with their
Partnership Common Units. Any Partner Nonrecourse Deductions for any Fiscal
Year shall be specially allocated to the Holder(s) who bears the economic
risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable, in accordance with
Regulations Section 1.704-2(i).
(iv) Qualified Income Offset. If any Holder of Partnership Common
Units unexpectedly receives an adjustment, allocation or distribution
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items
of Partnership income and gain shall be allocated, in accordance with
Regulations Section 1.704-1(b)(2)(ii)(d), to such Holder in an amount and
manner sufficient to eliminate, to the extent required by such Regulations,
the Adjusted Capital Account Deficit of such Holder as quickly as possible,
provided that an allocation pursuant to this Section 6.3.B(iv) shall be
made if and only to the extent that such Holder would have an Adjusted
Capital Account Deficit after all other allocations provided in this
Article 6 have been tentatively made as if this Section 6.3.B(iv) were not
in the Agreement. It is intended that this Section 6.3.B(iv) qualify and be
construed as a "qualified income offset" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
(v) Gross Income Allocation. In the event that any Holder of
Partnership Common Units has a deficit Capital Account at the end of any
Fiscal Year that is in excess of the sum of (1) the amount (if any) that
such Holder is obligated to restore to the Partnership upon complete
liquidation of such Holder's Partnership Interest (including, the Holder's
interest in outstanding Partnership Preferred Units and other Partnership
Units) and (2) the amount that such Holder is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Holder shall be specially
allocated items of Partnership income and gain in the amount of such excess
to eliminate such deficit as quickly as possible, provided that an
allocation pursuant to this Section 6.3.B(v) shall be made if and only to
the extent that such Holder would have a deficit Capital Account in excess
of such sum after all other allocations provided in this Article 6 have
been tentatively made as if this Section 6.3.B(v) and Section 6.3.B(iv)
hereof were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent that any
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Holder of Partnership Common Units, such allocation of
Net Loss shall be reallocated among the other Holders of Partnership Common
Units in accordance with their respective Partnership Common Units, subject
to the limitations of this Section 6.3.B(vi).
(vii) Section 754 Adjustment. To the extent that an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to
be taken into account in determining Capital Accounts as the result of a
distribution to a Holder of Partnership Common Units in complete
liquidation of its interest in the Partnership, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated
to the Holders in accordance with their Partnership Common Units in the
event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
Holders to whom such distribution was made in the event that Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
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(viii) Curative Allocations. The allocations set forth in Sections
6.3.B(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof (the "Regulatory
Allocations") are intended to comply with certain regulatory requirements,
including the requirements of Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding the provisions of Section 6.1 hereof, the Regulatory
Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Holders of Partnership Common
Units so that to the extent possible without violating the requirements
giving rise to the Regulatory Allocations, the net amount of such
allocations of other items and the Regulatory Allocations to each Holder of
a Partnership Common Unit shall be equal to the net amount that would have
been allocated to each such Holder if the Regulatory Allocations had not
occurred.
C. Special Allocations Upon Liquidation. Notwithstanding any provision in
this Article VI to the contrary, in the event that the Partnership disposes of
all or substantially all of its assets in a transaction that will lead to a
liquidation of the Partnership pursuant to Article XIII hereof, then any Net
Income or Net Loss realized in connection with such transaction and thereafter
(and, if necessary, constituent items of income, gain, loss and deduction) shall
be specially allocated the Partners as required so as to cause liquidating
distributions pursuant to Section 13.2.A(4) hereof to be made in the same
amounts and proportions as would have resulted had such distributions instead
been made pursuant to Section 5.1 hereof.
D. Allocation of Excess Nonrecourse Liabilities. For purposes of
determining a Holder's proportional share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), each Holder's interest in Partnership profits shall be such
Holder's share of Partnership Common Units.
Section 6.4 Tax Allocations.
A. In General. Except as otherwise provided in this Section 6.4, for income
tax purposes under the Code and the Regulations each Partnership item of income,
gain, loss and deduction (collectively, "Tax Items") shall be allocated among
the Holders of Partnership Common Units in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to Sections
6.2 and 6.3 hereof.
B. Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.4.A hereof, Tax Items with respect to Property that is contributed to
the Partnership with a Gross Asset Value that varies from its basis in the hands
of the contributing Partner immediately preceding the date of contribution shall
be allocated among the Holders of Partnership Common Units for income tax
purposes pursuant to Regulations promulgated under Code Section 704(c) so as to
take into account such variation. The Partnership shall account for such
variation under any method approved under Code Section 704(c) and the applicable
Regulations as chosen by the General Partner, including, without limitation, the
"traditional method" as described in Regulations Section 1.704-3(b). In the
event that the Gross Asset Value of any partnership asset is adjusted pursuant
to subsection (b) of the definition of "Gross Asset Value" (provided in Article
1 hereof), subsequent allocations of Tax Items with respect to such asset shall
take account of the variation, if any, between the adjusted basis of such asset
and its Gross Asset Value in the same manner as under Code Section 704(c) and
the applicable Regulations.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
A. Except as otherwise expressly provided in this Agreement, all management
powers over the business and affairs of the Partnership are and shall be
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Partners with or without cause, except with the Consent of the General
Partner. In addition to the now or hereafter granted a general partner of a
limited partnership under applicable law or that are granted to the General
Partner under any other
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provision of this Agreement, the General Partner, subject to the other
provisions hereof including Section 7.3, shall have full power and authority to
do all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans and borrowing
money to permit the Partnership to make distributions to its Partners in
such amounts as will permit the Previous General Partner (so long as the
Previous General Partner qualifies as a REIT) to avoid the payment of any
federal income tax (including, for this purpose, any excise tax pursuant to
Code Section 4981) and to make distribution its shareholders sufficient to
permit the Previous General Partner to maintain REIT status or otherwise to
satisfy the REIT Requirements), the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by deed to secure
debt, mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations that it deems
necessary for the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(3) the acquisition, sale, transfer, exchange or other disposition of
any assets of the Partnership (including, but not limited to, the exercise
or grant of any conversion, option, privilege or subscription right or any
other right available in connection with any assets at any time held by the
Partnership) or the merger, consolidation, reorganization or other
combination of the Partnership with or into another entity;
(4) the mortgage, pledge, encumbrance or hypothecation of any assets
of the Partnership, the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent with the terms
of this Agreement and on any terms that it sees fit, including, without
limitation, the financing of the operations and activities of the General
Partner, the Partnership or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without limitation, the
Partnership's Subsidiaries) and the repayment of obligations of the
Partnership, its Subsidiaries and any other Person in which it has an
equity investment, and the making of capital contributions to and equity
investments in the Partnership's Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any Property,
including, without limitation, any Contributed Property, or other asset of
the Partnership or any Subsidiary;
(6) the negotiation, execution and performance of any contracts,
leases, conveyances or other instruments that the General Partner considers
useful or necessary to the conduct of the Partnership's operations or the
implementation of the General Partner's powers under this Agreement,
including contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents
and the payment of their expenses and compensation out of the Partnership's
assets;
(7) the distribution of Partnership cash or other Partnership assets
in accordance with this Agreement, the holding, management, investment and
reinvestment of cash and other assets of the Partnership, and the
collection and receipt of revenues, rents and income of the Partnership;
(8) the selection and dismissal of employees of the Partnership or the
General Partner (including, without limitation, employees having titles or
offices such as "president," "vice president," "secretary" and
"treasurer"), and agents, outside attorneys, accountants, consultants and
contractors of the Partnership or the General Partner and the determination
of their compensation and other terms of employment or hiring;
(9) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
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(10) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general partnerships,
limited liability companies, joint ventures or other relationships that it
deems desirable (including, without limitation, the acquisition of
interests in, and the contributions of property to, any Subsidiary and any
other Person in which it has an equity investment from time to time);
provided, however, that, as long as the Previous General Partner has
determined to continue to qualify as a REIT, the General Partner may not
engage in any such formation, acquisition or contribution that would cause
the Previous General Partner to fail to qualify as a REIT or the General
Partner to fail to qualify as a "qualified REIT subsidiary" within the
meaning of Code Section 856(i)(2);
(11) the control of any matters affecting the rights and obligations
of the Partnership, including the settlement, compromise, submission to
arbitration or any other form of dispute resolution, or abandonment, of any
claim, cause of action, liability, debt or damages, due or owing to or from
the Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitrations or other forms of dispute
resolution, and the representation of the Partnership in all suits or legal
proceedings, administrative proceedings, arbitrations or other forms of
dispute resolution, the incurring of legal expense, and the indemnification
of any Person against liabilities and contingencies to the extent permitted
by law;
(12) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Subsidiary or any other
Person (including, without limitation, the contribution or loan of funds by
the Partnership to such Persons);
(13) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as
it may adopt; provided that such methods are otherwise consistent with the
requirements of this Agreement;
(14) the enforcement of any rights against any Partner pursuant to
representations, warranties, covenants and indemnities relating to such
Partner's contribution of property or assets to the Partnership;
(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(16) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the Partnership
has a direct or indirect interest, or jointly with any such Subsidiary or
other Person;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest, pursuant to contractual or other
arrangements with such Person;
(18) the making, execution and delivery of any and all deeds, leases,
notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or legal instruments or agreements in writing necessary
or appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner enumerated in
this Agreement;
(19) the issuance of additional Partnership Units, as appropriate and
in the General Partner's sole and absolute discretion, in connection with
Capital Contributions by Additional Limited Partners and additional Capital
Contributions by Partners pursuant to Article 4 hereof; and
(20) an election to dissolve the Partnership pursuant to Section
13.1.C hereof.
B. Each of the Limited Partners agrees that, except as provided in Section
7.3 hereof, the General Partner is authorized to execute, deliver and perform
the above-mentioned agreements and transactions on behalf of the Partnership
without any further act, approval or vote of the Partners, notwithstanding any
other provision of this Agreement (except as provided in Section 7.3 hereof),
the Act or any applicable law, rule or regulation. The execution, delivery or
performance by the General Partner or the Partnership of any
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agreement authorized or permitted under this Agreement shall not constitute a
breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement or
of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to obtain and maintain (i) casualty, liability and other
insurance on the Properties of the Partnership and (ii) liability insurance for
the Indemnitees hereunder.
D. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain working capital and other
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the General Partner) of any action taken by it. The
General Partner and the Partnership shall not have liability to a Limited
Partner under any circumstances as a result of an income tax liability incurred
by such Limited Partner as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement so long as the action or
inaction is taken in good faith.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other state, the
District of Columbia or any other jurisdiction, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner shall not be required, before or after filing, to
deliver or mail a copy of the Certificate or any amendment thereto to any
Limited Partner. The General Partner shall use all reasonable efforts to cause
to be filed such other certificates or documents as may be reasonable and
necessary or appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability to the extent provided by applicable law) in the
State of Delaware and any other state, or the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3 Restrictions on General Partner's Authority.
A. The General Partner may not take any action in contravention of this
Agreement, including, without limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(4) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability except as
provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
prohibits or restricts, or has the effect of prohibiting or restricting,
the ability of (a) the General Partner, the Previous General Partner or the
Partnership from satisfying its obligations under Section 8.6 hereof in
full or (b) a Limited Partner from exercising its rights under Section 8.6
hereof to effect a Redemption in full, except, in either case, with the
written consent of such Limited Partner affected the prohibition or
restriction.
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B. The General Partner shall not, without the prior Consent of the Limited
Partners, undertake, on behalf of the Partnership, any of the following actions
or enter into any transaction that would have the effect of such transactions:
(1) except as provided in Section 7.3.C hereof, amend, modify or
terminate this Agreement other than to reflect the admission, substitution,
termination or withdrawal of Partners pursuant to Article 11 or Article 12
hereof;
(2) make a general assignment for the benefit of creditors or appoint
or acquiesce in the appointment of a custodian, receiver or trustee for all
or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership; or
(4) subject to the rights of Transfer provided in Sections 11.1.C and
11.2 hereof, approve or acquiesce to the Transfer of the Partnership
Interest of the General Partner, or admit into the Partnership any
additional or successor General Partners.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall have the
power, without the Consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution or withdrawal of Partners
or the termination of the Partnership in accordance with this Agreement,
and to amend Exhibits A and C in connection with such admission,
substitution or withdrawal;
(3) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement
not inconsistent with law or with other provisions, or make other changes
with respect to matters arising under this Agreement that will not be
inconsistent with law or with the provisions of this Agreement;
(4) to satisfy any requirements, conditions or guidelines contained in
any order, directive, opinion, ruling or regulation of a federal or state
agency or contained in federal or state law;
(5) (a) to reflect such changes as are reasonably necessary (i) for
either the General Partner or the Special Limited Partner, as the case may
be, to maintain its status as a "qualified REIT subsidiary" within the
meaning of Code Section 856(i)(2) or (ii) for the Previous General Partner
to maintain its status as a REIT or to satisfy the REIT Requirement; (b) to
reflect the Transfer of all or any part of a Partnership Interest among the
Previous General Partner, the General Partner, the Special Limited Partner
or any other "qualified REIT subsidiary" (within the meaning of Code
Section 856(i)(2)) with respect to the Previous General Partner;
(6) to modify the manner in which Capital Accounts are computed (but
only to the extent set forth in the definition of "Capital Account" or
contemplated by the Code or the Regulations); and
(7) the issuance of additional Partnership Interests in accordance
with Section 4.2.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement shall
not be amended, and no action may be taken by the General Partner, without the
Consent of each Partner adversely affected, if such amendment or action would
(i) convert a Limited Partner Interest in the Partnership into a General Partner
Interest (except as a result of the General Partner acquiring such Partnership
Interest), (ii) modify the limited liability of a Limited Partner, (iii) alter
the rights of any Partner to receive the distributions to which such Partner is
entitled, pursuant to Article 5 or Section 13.2.A(4) hereof, or alter the
allocations specified in
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Article 6 hereof (except, in any case, as permitted pursuant to Sections 4.2 and
7.3.C hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT
Shares Amount as set forth in Sections 8.6 and 11.2 hereof, or amend or modify
any related definitions, or (v) amend this Section 7.3.D; provided, however,
that the Consent of each Partner adversely affected shall not be required for
any amendment or action that affects all Partners holding the same class or
series of Partnership Units on a uniform or pro rata basis. Further, no
amendment may alter the restrictions on the General Partner's authority set
forth elsewhere in this Section 7.3 without the Consent specified therein. Any
such amendment or action consented to by any Partner shall be effective as to
that Partner, notwithstanding the absence of such consent by any other Partner.
Section 7.4 Reimbursement of the General Partner.
A. The General Partner shall not be compensated for its services as general
partner of the Partnership except as provided in elsewhere in this Agreement
(including the provisions of Articles 5 and 6 hereof regarding distributions,
payments and allocations to which it may be entitled in its capacity as the
General Partner).
B. Subject to Sections 7.4.C and 15.11 hereof, the Partnership shall be
liable for, and shall reimburse the General Partner on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all sums expended in connection with the Partnership's business,
including, without limitation, (i) expenses relating to the ownership of
interests in and management and operation of, or for the benefit of, the
Partnership, (ii) compensation of officers and employees, including, without
limitation, payments under future compensation plans of the General Partner that
may provide for stock units, or other phantom stock, pursuant to which employees
of the General Partner will receive payments based upon dividends on or the
value of REIT Shares, (iii) director fees and expenses and (iv) all costs and
expenses of the General Partner being a public company, including costs of
filings with the SEC, reports and other distributions to its shareholders;
provided, however, that the amount of any reimbursement shall be reduced by any
interest earned by the General Partner with respect to bank accounts or other
instruments or accounts held by it on behalf of the Partnership as permitted
pursuant to Section 7.5 hereof. Such reimbursements shall be in addition to any
reimbursement of the General Partner as a result of indemnification pursuant to
Section 7.7 hereof.
C. To the extent practicable, Partnership expenses shall be billed directly
to and paid by the Partnership and, subject to Section 15.11 hereof,
reimbursements to the General Partner or any of its Affiliates by the
Partnership pursuant to this Section 7.4 shall be treated as "guaranteed
payments" within the meaning of Code Section 707(c).
Section 7.5 Outside Activities of the Previous General Partner and the
General Partner. Neither the General Partner nor the Previous General Partner
shall directly or indirectly enter into or conduct any business, other than in
connection with (a) the ownership, acquisition and disposition of Partnership
Interests as General Partner, (b) the management of the business of the
Partnership, (c) the operation of the Previous General Partner as a reporting
company with a class (or classes) of securities registered under the Exchange
Act, (d) the Previous General Partner's operations as a REIT, (e) the offering,
sale, syndication, private placement or public offering of stock, bonds,
securities or other interests, (f) financing or refinancing of any type related
to the Partnership or its assets or activities, (g) the General Partner's
qualification as a "qualified REIT subsidiary" (within the meaning of Code
Section 856(i)(2)) and (h) such activities as are incidental thereto. Nothing
contained herein shall be deemed to prohibit the General Partner or the Previous
General Partner from executing guarantees of Partnership debt for which it would
otherwise be liable in its capacity as General Partner. Subject to Section 7.3.B
hereof, the General Partner, the Previous General Partner, the Special Limited
Partner and all "qualified REIT subsidiaries" (within the meaning of Code
Section 856(i)(2)), taken as a group, shall not own any assets or take title to
assets (other than temporarily in connection with an acquisition prior to
contributing such assets to the Partnership) other than Partnership Interests as
the General Partner or Special Limited Partner and other than such cash and cash
equivalents, bank accounts or similar instruments or accounts as such group
deems reasonably necessary, taking into account Section 7.1.D hereof and the
requirements necessary for the Previous General Partner to qualify as a REIT and
for the Previous General Partner, the General Partner and the Special Limited
Partner to carry out
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their respective responsibilities contemplated under this Agreement and the
Charter. Notwithstanding the foregoing, if the Previous General Partner or the
General Partner acquires assets in its own name and owns Property other than
through the Partnership, the Partners agree to negotiate in good faith to amend
this Agreement, including, without limitation, the definition of "Adjustment
Factor," to reflect such activities and the direct ownership of assets by the
Previous General Partner or the General Partner. The General Partner and any
Affiliates of the General Partner may acquire Limited Partner Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partner Interests.
Section 7.6 Contracts with Affiliates.
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.5 hereof and subject to Section 3.1
hereof, the Partnership may transfer assets to joint ventures, limited liability
companies, partnerships, corporations, business trusts or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law as
the General Partner, in its sole and absolute discretion, believes to be
advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property to
the Partnership, directly or indirectly, except pursuant to transactions that
are determined by the General Partner in good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion and without the
approval of the Limited Partners, may propose and adopt on behalf of the
Partnership employee benefit plans funded by the Partnership for the benefit of
employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership or any of the
Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the name
and on behalf of the Partnership, a right of first opportunity arrangement and
other conflict avoidance agreements with various Affiliates of the Partnership
and the General Partner, on such terms as the General Partner, in its sole and
absolute discretion, believes are advisable.
Section 7.7 Indemnification.
A. To the fullest extent permitted by applicable law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, civil, criminal, administrative or investigative, that
relate to the operations of the Partnership ("Actions") as set forth in this
Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise; provided, however, that the Partnership shall
not indemnify an Indemnitee (i) for willful misconduct or a knowing violation of
the law or (ii) for any transaction for which such Indemnitee received an
improper personal benefit in violation or breach of any provision of this
Agreement. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of
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probation against an Indemnitee prior to judgment, does not create a presumption
that such Indemnitee acted in a manner contrary to that specified in this
Section 7.7.A with respect to the subject matter of such proceeding. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, and neither the General Partner nor any Limited
Partner shall have any obligation to contribute to the capital of the
Partnership or otherwise provide funds to enable the Partnership to fund its
obligations under this Section 7.7.
B. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the Indemnitee in advance of the final disposition of the Action
upon receipt by the Partnership of (i) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Partnership as authorized in this Section 7.7.A has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
C. The indemnification provided by this Section 7.7 shall be in addition to
any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee unless otherwise provided in a written
agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
E. Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the IRS, penalties
assessed by the Department of Labor, restitutions to such a plan or trust or
other funding mechanism or to a participant or beneficiary of such plan, trust
or other funding mechanism, or otherwise) shall be treated as liabilities or
judgments or fines under this Section 7.7, unless such liabilities arise as a
result of (i) such Indemnitee's intentional misconduct or knowing violation of
the law, or (ii) any transaction in which such Indemnitee received a personal
benefit in violation or breach of any provision of this Agreement or applicable
law.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. It is the intent of the Partners that any amounts paid by the
Partnership to the General Partner pursuant to this Section 7.7 shall be treated
as "guaranteed payments" within the meaning of Code Section 707(c).
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Section 7.8 Liability of the General Partner.
A. Notwithstanding anything to the contrary set forth in this Agreement,
neither the General Partner nor any of its directors or officers shall be liable
or accountable in damages or otherwise to the Partnership, any Partners or any
Assignees for losses sustained, liabilities incurred or benefits not derived as
a result of errors in judgment or mistakes of fact or law or of any act or
omission if the General Partner or such director or officer acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is
acting for the benefit of the Partnership, the Limited Partners and the General
Partner's shareholders collectively and that the General Partner is under no
obligation to give priority to the separate interests of the Limited Partners or
the General Partner's shareholders (including, without limitation, the tax
consequences to Limited Partners, Assignees or the General Partner's
shareholders) in deciding whether cause the Partnership to take (or decline to
take) any actions.
C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its employees or agents (subject to the
supervision and control of the General Partner). The General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
E. Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express indemnities
given to the Partnership by any Partner pursuant to any other written
instrument, no Partner shall have any personal liability whatsoever, to the
Partnership or to the other Partner(s), for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partner(s) shall be limited interest of that Partner in the
Partnership. To the fullest extent permitted by law, no officer, director or
shareholder of the General Partner shall be liable to the Partnership for money
damages except for (i) active and deliberate dishonesty established by a non-
appealable final judgment or (ii) actual receipt of an improper benefit or
profit in money, property or services. Without limitation of the foregoing, and
except for fraud, willful misconduct or gross negligence, or pursuant to any
such express indemnity, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) in favor of any other Partner(s) and arising out of, or in connection
with, this Agreement. This Agreement is executed by the officers of the General
Partner solely as officers of the same and not in their own individual
capacities.
F. To the extent that, at law or in equity, the General Partner has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or the Limited Partners, the General Partner shall not be liable to the
Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of the General Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such General Partner.
Section 7.9 Other Matters Concerning the General Partner.
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties.
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B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters that the General Partner reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty that
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provision of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Previous General Partner to
continue to qualify as a REIT, (ii) for the Previous General Partner otherwise
to satisfy the REIT Requirements, (iii) to avoid the Previous General Partner
incurring any taxes under Code Section 857 or Code Section 4981 or (iv) for the
General Partner or the Special Limited Partner to continue to qualify as a
"qualified REIT subsidiary" (within the meaning of Code Section 856(i)(2)), is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively with other Partners or Persons, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority,
without the consent or approval of any other Partner or Person, to encumber,
sell or otherwise use in any manner any and all assets of the Partnership and to
enter into any contracts on behalf of the Partnership, and take any and all
actions on behalf of the Partnership, and such Person shall be entitled to deal
with the General Partner as if it were the Partnership's sole party in interest,
both legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner in connection with any
such dealing. In no event shall any Person dealing with the General Partner or
its representatives be obligated to ascertain that the terms of this Agreement
have been complied with or to inquire into the necessity or expediency of any
act or action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
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ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement
(including, without limitation, Section 10.4 hereof) or under the Act.
Section 8.2 Management of Business. No Limited Partner or Assignee (other
than the General Partner, any of its Affiliates or any officer, director,
member, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such) shall take
part in the operations, management or control (within the meaning of the Act) of
the Partnership's business, transact any business in the Partnership's name or
have the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, member, employee, partner, agent, representative, or
trustee of the General Partner, the Partnership or any of their Affiliates, in
their capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners. Subject to any
agreements entered into pursuant to Section 7.6.D hereof and any other
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership or a Subsidiary (including, without limitation, any
employment agreement), any Limited Partner and any Assignee, officer, director,
employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities that are in direct or indirect competition with the Partnership
or that are enhanced by the activities of the Partnership. Neither the
Partnership nor any Partners shall have any rights by virtue of this Agreement
in any business ventures of any Limited Partner or Assignee. Subject to such
agreements, none of the Limited Partners nor any other Person shall have any
rights by virtue of this Agreement or the partnership relationship established
hereby in any business ventures of any other Person (other than the General
Partner, to the extent expressly provided herein), and such Person shall have no
obligation pursuant to this Agreement, subject to Section 7.6.D hereof and any
other agreements entered into by a Limited Partner or its Affiliates with the
General Partner, the Partnership or a Subsidiary, to offer any interest in any
such business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character that, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital. Except pursuant to the rights of
Redemption set forth in Section 8.6 hereof, no Limited Partner shall be entitled
to the withdrawal or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided in Article 6
hereof or otherwise expressly provided in this Agreement, no Limited Partner or
Assignee shall have priority over any other Limited Partner or Assignee either
as to the return of Capital Contributions or as to profits, losses or
distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
A. In addition to other rights provided by this Agreement or by the Act,
and except as limited by Section 8.5.C hereof, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon written demand with a statement of
the purpose of such demand and at such Limited Partner's own expense:
(1) to obtain a copy of (i) the most recent annual and quarterly
reports filed with the SEC by the Previous General Partner or the General
Partner pursuant to the Exchange Act and (ii) each report or other written
communication sent to the shareholders of the Previous General Partner;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Fiscal Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
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(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments
thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and that each Partner has agreed to contribute
in the future, and the date on which each became a Partner.
B. The Partnership shall notify any Limited Partner that is a Qualifying
Party, on request, of the then current Adjustment Factor or any change made to
the Adjustment Factor.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner believes to be in the
nature of trade secrets or other information the disclosure of which the General
Partner in good faith believes is not in the best interests of the Partnership
or the General Partner or (ii) the Partnership or the General Partner is
required by law or by agreements with unaffiliated third parties to keep
confidential.
Section 8.6 Redemption Rights of Qualifying Parties.
A. After the first Twelve-Month Period, a Qualifying Party, but no other
Limited Partner or Assignee, shall have the right (subject to the terms and
conditions set forth herein) to require the Partnership to redeem all or a
portion of the Redeemable Units held by such Tendering Party (such Redeemable
Units being hereafter "Tendered Units") in exchange (a "Redemption") for REIT
shares issuable on, or the Cash Amount payable on, the Specified Redemption
Date, as determined by the Partnership in its sole discretion. Any Redemption
shall be exercised pursuant to a Notice of Redemption delivered to the General
Partner by the Qualifying Party when exercising the Redemption right (the
"Tendering Party"). A Tendering Party shall have no right to receive
distributions with respect to any Tendered Units (other than the Cash Amount)
paid after delivery of the Notice of Redemption, whether or not the Partnership
Record Date for such distribution precedes or coincides with such delivery of
the Notice of Redemption. If the Partnership elects to redeem Tendered Units for
cash, the Cash Amount shall be delivered as a certified check payable to the
Tendering Party or, in the General Partner's sole and absolute discretion, in
immediately available funds.
B. If the Partnership elects to redeem Tendered Units for REIT Shares
rather than cash, then the Partnership shall direct the Previous General Partner
to issue and deliver such REIT Shares to the Tendering Party pursuant to the
terms set forth in this Section 8.6.B, in which case, (i) the Previous General
Partner, acting as a distinct legal entity, shall assume directly the obligation
with respect thereto and shall satisfy the Tendering Party's exercise of its
Redemption right, and (ii) such transaction shall be treated, for federal income
tax purposes, as a transfer by the Tendering Party of such Tendered Units to the
Previous General Partner in exchange for REIT shares. The percentage of the
Tendered Units tendered for Redemption by the Tendering Party for which the
Partnership elects to cause the Previous General Partner to issue REIT Shares
(rather than cash) is referred to as the "Applicable Percentage." In making such
election to cause the Previous General Partner to acquire Tendered Units, the
Partnership shall act in a fair, equitable and reasonable manner that neither
prefers one group or class of Qualifying Parties over another nor discriminates
against a group or class of Qualifying Parties. If the Partnership elects to
redeem any number of Tendered Units for REIT Shares, rather than cash, on the
Specified Redemption Date, the Tendering Party shall sell such number of the
Tendered Units to the Previous General Partner in exchange for a number of REIT
Shares equal to the product of the REIT Shares Amount and the Applicable
Percentage. The Tendering Party shall submit (i) such information, certification
or affidavit as the Previous General Partner may reasonably require in
connection with the application of the Ownership Limit and other restrictions
and limitations of the Charter to any such acquisition and (ii) such written
representations, investment letters, legal opinions or other instruments
necessary, in the Previous General Partner's view, to effect compliance with the
Securities Act. The product of the Applicable Percentage and the REIT Shares
Amount, if applicable, shall be delivered by the Previous General Partner as
duly authorized, validly issued, fully paid and accessible REIT Shares and, if
applicable, Rights, free of any pledge, lien, encumbrance or restriction, other
than the Ownership Limit and
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other restrictions provided in the Charter, the Bylaws of the Previous General
Partner, the Securities Act and relevant state securities or "blue sky" laws.
Neither any Tendering Party whose Tendered Units are acquired by the Previous
General Partner pursuant to this Section 8.6.B, any Partner, any Assignee nor
any other interested Person shall have any right to require or cause the
Previous General Partner or the General Partner to register, qualify or list any
REIT Shares owned or held by such Person, whether or not such REIT Shares are
issued pursuant to this Section 8.6.B, with the SEC, with any state securities
commissioner, department or agency, under the Securities Act or the Exchange Act
or with any stock exchange; provided, however, that this limitation shall not be
in derogation of any registration or similar rights granted pursuant to any
other written agreement between the Previous General Partner and any such
Person. Notwithstanding any delay in such delivery, the Tendering Party shall be
deemed the owner of such REIT Shares and Rights for all purposes, including,
without limitation, rights to vote or consent, receive dividends, and exercise
rights, as of the Specified Redemption Date. REIT Shares issued upon an
acquisition of the Tendered Units by the Previous General Partner pursuant to
this Section 8.6.B may contain such legends regarding restrictions under the
Securities Act and applicable state securities laws as the Previous General
Partner in good faith determines to be necessary or advisable in order to ensure
compliance with such laws.
C. Notwithstanding the provisions of Section 8.6.A and 8.6.B hereof, the
Tendering Parties (i) where the Redemption would consist of less than all the
Partnership Common Units held by Partners other than the General Partner and the
Special Limited Partner, shall not be entitled to elect or effect a Redemption
to the extent that the aggregate Percentage Interests of the Limited Partners
(other than the Special Limited Partner) would be reduced, as a result of the
Redemption, to less that percent (1%) and (ii) shall have no rights under this
Agreement that would otherwise be prohibited under the Charter. To the extent
that any attempted Redemption would be in violation of this Section 8.6.C, it
shall be null and void ab initio, and the Tendering Party shall not acquire any
rights or economic interests in REIT Shares otherwise issuable by the Previous
General Partner under Section 8.6.B hereof.
D. In the event that the Partnership declines to cause the Previous General
Partner to acquire all of the Tendered Units from the Tendering Party in
exchange for REIT Shares pursuant to Section 8.6.B hereof following receipt of a
Notice of Redemption (a "Declination"):
(1) The Previous General Partner or the General Partner shall give
notice of such Declination to the Tendering Party on or before the close of
business on the Cut-Off Date.
(2) The Partnership may elect to raise funds for the payment of the
Cash Amount either (a) by requiring that the General Partner contribute
such funds from the proceeds of a registered public offering (a "Public
Offering Funding") by the Previous General Partner of a number of REIT
Shares ("Registrable Shares") equal to the REIT Shares Amount with respect
to the Tendered Units or (b) from any other sources (including, but not
limited to, the sale of any Property and the incurrence of additional Debt)
available to the Partnership.
(3) Promptly upon the General Partner's receipt of the Notice of
Redemption and the Previous General Partner or the General Partner giving
notice of the Partnership's Declination, the General Partner shall give
notice (a "Single Funding Notice") to all Qualifying Parties then holding a
Partnership Interest (or an interest therein) and having Redemption rights
pursuant to this Section 8.6 and require that all such Qualifying Parties
elect whether or not to effect a Redemption of their Partnership Common
Units to be funded through such Public Offering Funding. In the event that
any such Qualifying Party elects to effect such a Redemption, it shall give
notice thereof and of the number of Partnership Common Units to be made
subject thereon in writing to the General Partner within ten (10) Business
Days after receipt of the Single Funding Notice, and such Qualifying Party
shall be treated as a Tendering Party for all purposes of this Section 8.6.
In the event that a Qualifying Party does not so elect, it shall be deemed
to have waived its right to effect a Redemption for the current
Twelve-Month Period; provided, however, that the Previous General Partner
shall not be required to acquire Partnership Common Units pursuant to this
Section 8.6.D more than twice within a Twelve-Month Period.
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Any proceeds from a Public Offering Funding that are in excess of the Cash
Amount shall be for the sole benefit of the Previous General Partner and/or the
General Partner. The General Partner and/or the Special Limited Partner shall
make a Capital Contribution of such amounts to the Partnership for an additional
General Partner Interest and/or Limited Partner Interest. Any such contribution
shall entitle the General Partner and the Special Limited Partner, as the case
may be, to an equitable Percentage Interest adjustment.
E. Notwithstanding the provisions of Section 8.6.B hereof, the Previous
General Partner shall not, under any circumstances, elect to acquire Tendered
Units in exchange for the REIT Shares Amount if such exchange would be
prohibited under the Charter.
F. Notwithstanding anything herein to the contrary (but subject to Section
8.6.C hereof), with respect to any Redemption pursuant to this Section 8.6:
(1) All Partnership Common Units acquired by the Previous General
Partner pursuant to Section 8.6.B hereof shall be contributed by the
Previous General Partner to either or both of the General Partner and the
Special Limited Partner in such proportions as the Previous General
Partner, the General Partner and the Special Limited Partner shall
determine. Any Partnership Common Units so contributed to the General
Partner shall automatically, and without further action required, be
converted into and deemed to be a General Partner Interest comprised of the
same number of Partnership Common Units. Any Partnership Common Units so
contributed to the Special Limited Partner shall remain outstanding.
(2) Subject to the Ownership Limit, no Tendering Party may effect a
Redemption for less than five hundred (500) Redeemable Units or, if such
Tendering Party holds (as a Limited Partner or, economically, as an
Assignee) less than five hundred (500) Redeemable Units, all of the
Redeemable Units held by such Tendering Party.
(3) Each Tendering Party (a) may effect a Redemption only once in each
fiscal quarter of a Twelve-Month Period and (b) may not effect a Redemption
during the period after the Partnership Record Date with respect to a
distribution and before the record date established by the Previous General
Partner for a distribution to its shareholders of some or all of its
portion of such Partnership distribution.
(4) Notwithstanding anything herein to the contrary, with respect to
any Redemption or acquisition of Tendered Units by the Previous General
Partner pursuant to Section 8.6.B hereof, in the event that the Previous
General Partner or the General Partner gives notice to all Limited Partners
(but excluding any Assignees) then owning Partnership Interests (a "Primary
Offering Notice") that the Previous General Partner desires to effect a
primary offering of its equity securities then, unless the Previous General
Partner and the General Partner otherwise consent, commencement of the
actions denoted in Section 8.6.E hereof as to a Public Offering Funding
with respect to any Notice of Redemption thereafter received, whether or
not the Tendering Party is a Limited Partner, may be delayed until the
earlier of (a) the completion of the primary offering or (b) ninety (90)
days following the giving of the Primary Offering Notice.
(5) Without the Consent of the Previous General Partner, no Tendering
Party may effect a Redemption within ninety (90) days following the closing
of any prior Public Offering Funding.
(6) The consummation of such Redemption shall be subject to the
expiration or termination of the applicable waiting period, if any, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(7) The Tendering Party shall continue to own (subject, in the case of
an Assignee, to the provision of Section 11.5 hereof) all Redeemable Units
subject to any Redemption, and be treated as a Limited Partner or an
Assignee, as applicable, with respect to such Redeemable Units for all
purposes of this Agreement, until such Redeemable Units are either paid for
by the Partnership pursuant to Section 8.6.A hereof or transferred to the
Previous General Partner (or directly to the General Partner or Special
Limited Partner) and paid for, by the issuance of the REIT Shares, pursuant
to Section 8.6.B hereof on the Specified Redemption Date. Until a Specified
Redemption Date and an acquisition of the Tendered Units by the Previous
General Partner pursuant to Section 8.6.B hereof, the Tendering Party shall
have
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no rights as a shareholder of the Previous General Partner with respect to
the REIT Shares issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 8.6.F, all Partnership Common Units beneficially owned by a Related
Party of a Tendering Party shall be considered to be owned or held by such
Tendering Party.
G. In connection with an exercise of Redemption rights pursuant to this
Section 8.6, the Tendering Party shall submit the following to the General
Partner, in addition to the Notice of Redemption:
(1) A written affidavit, dated the same date as the Notice of
Redemption, (a) disclosing the actual and constructive ownership, as
determined for purposes of Code Sections 856(a)(6) and 856(h), of REIT
Shares by (i) such Tendering Party and (ii) any Related Party and (b)
representing that, after giving effect to the Redemption, neither the
Tendering Party nor any Related Party will own REIT Shares in excess of the
Ownership Limit;
(2) A written representation that neither the Tendering Party nor any
Related Party has any intention to acquire any additional REIT Shares prior
to the closing of the Redemption on the Specified Redemption Date; and
(3) An undertaking to certify, at and as a condition to the closing of
the Redemption on the Specified Redemption Date, that either (a) the actual
and constructive ownership of REIT Shares by the Tendering Party and any
Related Party remain unchanged from that disclosed in the affidavit
required by Section 8.6.G(1) or (b) after giving effect to the Redemption,
neither the Tendering Party nor any Related Party shall own REIT Shares in
violation of the Ownership Limit.
Section 8.7 Partnership Right to Call Limited Partner
Interests. Notwithstanding any other provision of this Agreement, on and after
the date on which the aggregate Percentage Interests of the Limited Partners
(other than the Special Limited Partner) are less than one percent (1%), the
Partnership shall have the right, but not the obligation, from time to time and
at any time to redeem any and all outstanding Limited Partner Interests (other
than the Special Limited Partner's Limited Partner Interest) by treating any
Limited Partner as a Tendering Party who has delivered a Notice of Redemption
pursuant to Section 8.6 hereof for the amount of Partnership Common Units to be
specified by the General Partner, in its sole and absolute discretion, by notice
to such Limited Partner that the Partnership has elected to exercise its rights
under this Section 8.7. Such notice given by the General Partner to a Limited
Partner pursuant to this Section 8.7 shall be treated as if it were a Notice of
Redemption delivered to the General Partner by such Limited Partner. For
purposes of this Section 8.7, (a) any Limited Partner (whether or not otherwise
a Qualifying Party) may, in the General Partner's sole and absolute discretion,
be treated as a Qualifying Party that is a Tendering Party and (b) the
provisions of Sections 8.6.C(1), 8.6.F(2), 8.6.F(3) and 8.6.F(5) hereof shall
not apply, but the remainder of Section 8.6 hereof shall apply, mutatis
mutandis.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
A. The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 8.5.A or Section 9. hereof. Any records maintained by or on behalf of
the Partnership in the regular course of its business may be kept on, or be in
the form for, punch cards, magnetic tape, photographs, micrographics or any
other information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time.
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B. The books of the Partnership shall be maintained, for financial and tax
reporting purposes, on an accrual basis in accordance with generally accepted
accounting principles, or on such other basis as the General Partner determines
to be necessary or appropriate. To the extent permitted by sound accounting
practices and principles, the Partnership, the General Partner and the Previous
General Partner may operate with integrated or consolidated accounting records,
operations and principles.
Section 9.2 Fiscal Year. The Fiscal Year of the Partnership shall be the
calendar year.
Section 9.3 Reports.
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Fiscal Year, the General Partner shall cause
to be mailed to each Limited Partner, of record as of the close of the Fiscal
Year, an annual report containing financial statements of the Partnership, or of
the Previous General Partner if such statements are prepared solely on a
consolidated basis with the Previous General Partner, for such Fiscal Year,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner, of record as of the last day of the calendar quarter, a report
containing unaudited financial statements of the Partnership, or of the Previous
General Partner if such statements are prepared solely on a consolidated basis
with the Previous General Partner, and such other information as may be required
by applicable law or regulation or as the General Partner determines to be
appropriate. At the request of any Limited Partner, the General Partner shall
provide access to the books, records and workpapers upon which the reports
required by this Section 9.3 are based, to the extent required by the Act.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall arrange
for the preparation and timely filing of all returns with respect to Partnership
income, gains, deductions, losses and other items required of the Partnership
for federal and state income tax purposes and shall use all reasonable effort to
furnish, within ninety (90) days of the close of each taxable year, the tax
information reasonably required by Limited Partners for federal and state income
tax reporting purpose The Limited Partners shall promptly provide the General
Partner with such information relating to the Contributed Properties, including
tax basis and other relevant information, as may be reasonably requested by the
General Partner from time to time.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code, including, but not limited to,
the election under Code Section 754 and the election to use the "recurring item"
method of accounting provided under Code Section 461(h) with respect to property
taxes imposed on the Partnership's Properties; provided, however, that, if the
"recurring item" method of accounting is elected with respect to such property
taxes, the Partnership shall pay the applicable property taxes prior to the date
provided in Code Section 461(h) for purposes of determining economic
performance. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, any election under Code Sections 461(h)
and 754) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. The tax matters partner shall
receive no compensation for its services. All third-party costs and expenses
incurred by the tax matters partner in performing its duties as such (including
legal and accounting fees and expenses) shall be borne by the Partnership in
addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist
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the tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable. At the
request of any Limited Partner, the General Partner agrees to consult with such
Limited Partner with respect to the preparation and filing of any returns and
with respect to any subsequent audit or litigation relating to such returns;
provided, however, that the filing of such returns shall be in the sole and
absolute discretion of the General Partner.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax
purposes (such administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners, except such
settlement agreement shall not bind any Partner (i) who (within the time
prescribed pursuant to the Code and Regulations) files a statement with the
IRS providing that the tax matters partner shall not have the authority to
enter into a settlement agreement on behalf of such Partner or (ii) who is
a "notice partner" (as defined in Code Section 6231) or a member of a
"notice group" (as defined in Code Section 6223(b)(2));
(2) in the event that a notice of a final administrative adjustment at
the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax
matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the United States
Tax Court or the United States Claims Court, or the filing of a complaint
for refund with the District Court of the United States the district in
which the Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS at
any time and, if any part of such request is not allowed by the IRS, to
file an appropriate pleading (petition or complaint) for judicial review
with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax that is attributable to any item required to be taken
into account by a Partner for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Partners in connection
with any tax audit or judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the tax matters
partner in connection with any such proceeding, except to the extent required by
law, is a matter in the sole and absolute discretion of the tax matters partner
and the provisions relating to indemnification of the General Partner set forth
in Section 7.7 hereof shall be fully applicable to the tax matters partner in
its capacity as such.
Section 10.4 Withholding. Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partners pursuant to Code Section 1441, Code Section
1442, Code Section 1445 or Code Section 1446. Any amount paid on behalf of or
with respect to a Limited Partner shall constitute a loan by the Partnership to
such Limited Partner, which loan shall be repaid by such Limited Partner within
fifteen (15) days after notice from the General Partner that such payment must
be made unless (i) the Partnership withholds such payment from a distribution
that would otherwise be made to the Limited Partner or (ii) the General Partner
determines, in its sole and absolute discretion, that such payment may be
satisfied out of the Available Funds of the Partnership that would, but for such
payment, be distributed to the Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such
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Limited Partner's obligation to pay to the Partnership any amounts required to
be paid pursuant to this Section 10.4. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 10.4 when
due, the General Partner may, in its sole and absolute discretion, elect to make
the payment to the Partnership on behalf of such defaulting Limited Partner, and
in such event shall be deemed to have loaned such amount to such defaulting
Limited Partner and shall succeed to all rights and remedies of the Partnership
as against such defaulting Limited Partner (including, without limitation, the
right to receive distributions). Any amounts payable by a Limited Partner
hereunder shall bear interest at the base rate on corporate loans at large
United States money center commercial banks, as published from time to time in
the Wall Street Journal, plus four (4) percentage points (but not higher than
the maximum lawful rate) from the date such amount is due (i.e., fifteen (15)
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
A. No part of the interest of a Partner shall be subject to the claims of
any creditor, to any spouse for alimony or support, or to legal process, and may
not be voluntarily or involuntarily alienated or encumbered except as may be
specifically provided for in this Agreement.
B. No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void ab initio.
C. Notwithstanding the other provisions of this Article 11 (other than
Section 11.6.D hereof), the Partnership Interests of the General Partner and the
Special Limited Partner may be Transferred, in whole or in part, at any time or
from time to time, to or among the Previous General Partner, the General
Partner, the Special Limited Partner, and any other Person that is, at the time
of such Transfer, a "qualified REIT subsidiary" (within the meaning of Code
Section 856(i)(2)) with respect to the Previous General Partner. Any transferee
of the entire General Partner Interest pursuant to this Section 11.1.C shall
automatically become, without further action or Consent of any Limited Partners,
the sole general partner of the Partnership, subject to all the rights,
privileges, duties and obligations under this Agreement and the Act relating to
a general partner. Any transferee of a Limited Partner Interest pursuant to this
Section 11.1.C shall automatically become, without further action or Consent of
any Limited Partners, a Substituted Limited Partner. Upon any Transfer permitted
by this Section 11.1.C, the transferor Partner shall be relieved of all its
obligations under this Agreement. The provisions of Section 11.2.B (other than
the last sentence thereof), 11.3, 11.4.A and 11.5 hereof shall not apply to any
Transfer permitted by this Section 11.1.C.
Section 11.2 Transfer of General Partner's Partnership Interest.
A. The General Partner may not Transfer any of its General Partner Interest
or withdraw from the Partnership except as provided in Sections 11.2.B and
11.2.C hereof.
B. The General Partner shall not withdraw from the Partnership and shall
not Transfer all or any portion of its interest in the Partnership (whether by
sale, disposition, statutory merger or consolidation, liquidation or otherwise)
without the Consent of the Limited Partners, which Consent may be given or
withheld in the sole and absolute discretion of the Limited Partners. Upon any
Transfer of such a Partnership Interest pursuant to the Consent of the Limited
Partners and otherwise in accordance with the provisions of this Section 11.2.B,
the transferee shall become a successor General Partner for all purposes herein,
and shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for all duties
of the General Partner, once such transferee has executed such instruments as
may be necessary to effectuate such admission and to confirm the agreement of
such transferee to be bound by all the terms and provisions of this Agreement
with respect to the Partnership Interest so acquired. It is a condition to any
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Transfer otherwise permitted hereunder that the transferee assumes, by operation
of law or express agreement, all of the obligations of the transferor General
Partner under this Agreement with respect to such Transferred Partnership
Interest, and such Transfer shall relieve the transferor General Partner of its
obligations under this Agreement without the Consent of the Limited Partners. In
the event that the General Partner withdraws from the Partnership, in violation
of this Agreement or otherwise, or otherwise dissolves or terminates, or upon
the bankruptcy of the General Partner, a Majority in Interest of the Limited
Partners may elect to continue the Partnership business by selecting a successor
General Partner in accordance with the Act.
C. The General Partner may merge with another entity if immediately after
such merger substantially all of the assets of the surviving entity, other than
the General Partner Interest held by the General Partner, are contributed to the
Partnership as a Capital Contribution in exchange for Partnership Units.
Section 11.3 Limited Partners' Rights to Transfer.
A. General. Prior to the end of the first Twelve-Month Period, no Limited
Partner shall Transfer all or any portion of its Partnership Interest to any
transferee without the Consent of the General Partner, which Consent may be
withheld in its sole and absolute discretion; provided, however, that any
Limited Partner may, at any time, without the consent of the General Partner,
(i) Transfer all or part of its Partnership Interest to any Designated Party,
any Family Member, any Controlled Entity or any Affiliate, provided that the
transferee is, in any such case, a Qualified Transferee, or (ii) pledge (a
"Pledge") all or any portion of its Partnership Interest to a lending
institution, that is not an Affiliate of such Limited Partner, as collateral or
security for a bona fide loan or other extension of credit, and Transfer such
pledged Partnership Interest to such lending institution in connection with the
exercise of remedies under such loan or extension or credit (any Transfer or
Pledge permitted by this proviso is hereinafter referred to as a "Permitted
Transfer"). After such first Twelve-Month Period, each Limited Partner, and each
transferee of Partnership Units or Assignee pursuant to a Permitted Transfer,
shall have the right to Transfer all or any portion of its Partnership Interest
to any Person, subject to the provisions of Section 11.6 hereof and to
satisfaction of each of the following conditions:
(1) General Partner Right of First Refusal. The transferring Partner
shall give written notice of the proposed Transfer to the General Partner,
which notice shall state (i) the identity of the proposed transferee and
(ii) the amount and type of consideration proposed to be received for the
Transferred Partnership Units. The General Partner shall have ten (10)
Business Days upon which to give the Transferring Partner notice of its
election to acquire the Partnership Units on the proposed terms. If it so
elects, it shall purchase the Partnership Units on such terms within ten
(10) Business Days after giving notice of such election; provided, however,
that in the event that the proposed terms involve a purchase for cash, the
General Partner may at its election deliver in lieu of all or any portion
of such cash a note payable to the Transferring Partner at a date as soon
as reasonably practicable, but in no event later than one hundred eighty
(180) days after such purchase, and bearing interest at an annual rate
equal to the total dividends declared with respect to one (1) REIT Share
for the four (4) preceding fiscal quarters of the General Partner, divided
by the Value as of the closing of such purchase; provided, further, that
such closing may be deferred to the extent necessary to effect compliance
with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
applicable, and any other applicable requirements of law. If it does not so
elect, the Transferring Partner may Transfer such Partnership Units to a
third party, on terms no more favorable to the transferee than the proposed
terms, subject to the other conditions of this Section 11.3.
(2) Qualified Transferee. Any Transfer of a Partnership Interest shall
be made only to a single Qualified Transferee; provided, however, that, for
such purposes, all Qualified Transferees that are Affiliates, or that
comprise investment accounts or funds managed by a single Qualified
Transferee and its Affiliates, shall be considered together to be a single
Qualified Transferee; provided, further, that each Transfer meeting the
minimum Transfer restriction of Section 11.3.A(3) hereof may be to a
separate Qualified Transferee.
(3) Minimum Transfer Restriction. Any Transferring Partner must
Transfer not less than the lesser of (i) the greater of five hundred (500)
Partnership Units or one-third ( 1/3) of the number of Partnership Units
owned by such Partner as of the Effective Date or (ii) all of the remaining
Partnership
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Units owned by such Transferring Partner; provided, however, that, for
purposes of determining compliance with the foregoing restriction, all
Partnership Units owned by Affiliates of Limited Partner shall be
considered to be owned by such Limited Partner.
(4) Transferee Agreement to Effect a Redemption. Any proposed
transferee shall deliver to the General Partner a written agreement
reasonably satisfactory to the General Partner to the effect that the
transferee will, within six (6) months after consummation of a Partnership
Common Units Transfer, tender its Partnership Common Units for Redemption
in accordance with the terms of the Redemption rights provided in Section
8.6 hereof.
(5) No Further Transfers. The transferee (other than a Designated
Party) shall not be permitted to effect any further Transfer of the
Partnership Units, other than to the General Partner.
(6) Exception for Permitted Transfers. The conditions of Sections
11.3.A(1) through 11.3.A(5) hereof shall not apply in the case of a
Permitted Transfer.
It is a condition to any Transfer otherwise permitted hereunder (whether or not
such Transfer is effected during or after the first Twelve-Month Period) that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such Transferred Partnership Interest, and no such Transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion. Notwithstanding the foregoing, any transferee of any
Transferred Partnership Interest shall be subject to any and all ownership
limitations (including, without limitation, the Ownership Limit) contained in
the Charter that may limit or restrict such transferee's ability to exercise its
Redemption rights, including, without limitation, the Ownership Limit. Any
transferee, whether or not admitted as a Substituted Limited Partner, shall take
subject to the obligations of the transferor hereunder. Unless admitted as a
Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by
operation of law or otherwise, shall have any rights hereunder, other than the
rights of an Assignee as provided in Section 11.5 hereof.
B. Incapacity. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate, and such power as the Incapacitated Limited
Partner possessed to Transfer all or any part of its interest in the
Partnership. The Incapacity of Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. Opinion of Counsel. In connection with any Transfer of a Limited Partner
Interest, the General Partner shall have the right to receive an opinion of
counsel reasonably satisfactory to it to the effect that the proposed Transfer
may be effected without registration under the Securities Act and will not
otherwise violate any federal or state securities laws or regulations applicable
to the Partnership or the Partnership Interests Transferred. If, in the opinion
of such counsel, such Transfer would require the filing of a registration
statement under the Securities Act or would otherwise violate any federal or
state securities laws or regulations applicable to the Partnership or the
Partnership Units, the General Partner may prohibit any Transfer otherwise
permitted under this Section 11.3 by a Limited Partner of Partnership Interests.
D. Adverse Tax Consequences. No Transfer by a Limited Partner of its
Partnership Interests (including any Redemption, any other acquisition of
Partnership Units by the General Partner or any acquisition of Partnership Units
by the Partnership) may be made to any person if (i) in the opinion of legal
counsel for the Partnership, it would result in the Partnership being treated as
an association taxable as a corporation, or (ii) such Transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Code Section 7704.
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Section 11.4 Substituted Limited Partners.
A. No Limited Partner shall have the right to substitute a transferee
(including any Designated Party or other transferees pursuant to Transfers
permitted by Section 11.3 hereof) as a Limited Partner in its place. A
transferee (including, but not limited to, any Designated Party) of the interest
of a Limited Partner may be admitted as a Substituted Limited Partner only with
the Consent of the General Partner, which Consent may be given or withheld by
the General Partner in its sole an absolute discretion. The failure or refusal
by the General Partner to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action against
the Partnership or the General Partner. Subject to the foregoing, an Assignee
shall not be admitted as a Substituted Limited Partner until and unless it
furnishes to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all the terms, conditions and
applicable obligations of this Agreement, (ii) a counterpart signature page to
this Agreement executed by such Assignee and (iii) such other documents and
instruments as may be required or advisable, in the sole and absolute discretion
of the General Partner, to effect such Assignee's admission as a Substituted
Limited Partner.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit A to reflect the name, address and number of Partnership
Units of such Substituted Limited Partner and to eliminate or adjust, if
necessary, the name, address and number of Partnership Units of the predecessor
of such Substituted Limited Partner.
Section 11.5 Assignees. If the General Partner, in its sole and absolute
discretion, does not consent to the admission of any permitted transferee under
Section 11.3 hereof as a Substituted Limited Partner, as described in Section
11.4 hereof, such transferee shall be considered an Assignee for purposes of
this Agreement. An Assignee shall be entitled to all the rights of an assignee
of a limited partnership interest under the Act, including the right to receive
distributions from the Partnership and the share of Net Income, Net Losses and
other items of income, gain, loss, deduction and credit of the Partnership
attributable to the Partnership Units assigned to such transferee and the rights
to Transfer the Partnership Units provided in this Article 11, but shall not be
deemed to be a holder of Partnership Units for any other purpose under this
Agreement (other than as expressly provided in Section 8.6 hereof with respect
to a Qualifying Party that becomes a Tendering Party), and shall not be entitled
to effect a Consent or vote with respect to such Partnership Units on any matter
presented to the Limited Partners for approval (such right to Consent or vote,
to the extent provided in this Agreement or under the Act, fully remaining with
the transferor Limited Partner). In the event that any such transferee desires
to make a further assignment of any such Partnership Units, such transferee
shall be subject to all the provisions of this Article 11 to the same extent and
in the same manner as any Limited Partner desiring to make an assignment of
Partnership Units.
Section 11.6 General Provisions.
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11, with respect to which the transferee
becomes a Substituted Limited Partner, or pursuant to a redemption (or
acquisition by the Previous General Partner) of all of its Partnership Units
pursuant to a Redemption under Section 8.6 hereof and/or pursuant to any
Partnership Unit Designation.
B. Any Limited Partner who shall Transfer all of its Partnership Units in a
Transfer (i) permitted pursuant to this Article 11 where such transferee was
admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of its
rights to effect a redemption of all of its Partnership Units pursuant to a
Redemption under Section 8.6 hereof and/or pursuant to any Partnership Unit
Designation or (iii) to the Previous General Partner or the General Partner,
whether or not pursuant to Section 8.6.B hereof, shall cease to be a Limited
Partner.
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C. If any Partnership Unit is Transferred in compliance with the provisions
of this Article 11, or is redeemed by the Partnership, or acquired by the
Previous General Partner pursuant to Section 8.6 hereof, on any day other than
the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof
and all other items of income, gain, loss, deduction and credit attributable to
such Partnership Unit for such Fiscal Year shall be allocated to the transferor
Partner or the Tendering Party, as the case may be, and, in the case of a
Transfer or assignment other than a Redemption, to the transferee Partner
(including, without limitation, the General Partner and the Special Limited
Partner as transferees of the Previous General Partner in the case of an
acquisition of Partnership Common Units pursuant to Section 8.6 hereof), by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 706(d), using the "interim closing of the books" method or
another permissible method selected by the General Partner. Solely for purposes
of making such allocations, each of such items for the calendar month in which a
Transfer occurs shall be allocated to the transferee Partner and none of such
items for the calendar month in which a Transfer or a Redemption occurs shall be
allocated to the transferor Partner or the Tendering Party, as the case may be,
if such Transfer occurs on or before the fifteenth (15th) day of the month,
otherwise such items shall be allocated to the transferor. All distributions of
Available Cash attributable to such Partnership Unit with respect to which the
Partnership Record Date is before the date of such Transfer, assignment or
Redemption shall be made to the transferor Partner or the Tendering Party, as
the case may be, and, in the case of a Transfer other than a Redemption, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
D. In addition to any other restrictions on Transfer herein contained, in
no event may any Transfer or assignment of a Partnership Interest by any Partner
(including any Redemption, any acquisition of Partnership Units by the Previous
General Partner or any other acquisition of Partnership Units by the
Partnership) be made (i) to any person or entity who lacks the legal right,
power or capacity to own a Partnership Interest; (ii) in violation of applicable
law; (iii) of any component portion of a Partnership Interest, such as the
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) in the event that such Transfer would
cause either (a) the Previous General Partner to cease to comply with the REIT
Requirements or (b) the General Partner or the Special Limited Partner to cease
to qualify as a "qualified REIT subsidiary" (within the meaning of Code Section
856(i)(2)); (v) if such Transfer would, in the opinion of counsel to the
Partnership or the General Partner, cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the Redemption (or
acquisition by the Previous General Partner) of all Partnership Common Units
held by all Limited Partners other than the Special Limited Partner); (vi) if
such Transfer would, in the opinion of legal counsel to the Partnership, cause
the Partnership to cease to be classified as a partnership for federal income
tax purposes (except as a result of the Redemption (or acquisition by the
Previous General Partner) of all Partnership Common Units held by all Limited
Partners other than the Special Limited Partner); (vii) if such Transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in ERISA Section
3(14)) or a "disqualified person" (as defined in Code Section 4975(c)); (viii)
if such Transfer would, in the opinion of legal counsel to the Partnership,
cause any portion of the assets of the Partnership to constitute assets of any
employee benefit plan pursuant to Department of Labor Regulations Section
2510.2-101; (ix) if such Transfer requires the registration of such Partnership
Interest pursuant to any applicable federal or state securities laws; (x) if
such Transfer causes the Partnership to become a "publicly traded partnership,"
as such term is defined in Code Section 469(k)(2) or Code 7704(b); or (xi) if
such Transfer subjects the Partnership to regulation under the Investment
Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as
amended.
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ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all of
the General Partner's General Partner Interest pursuant to Section 11.2 hereof
who is proposed to be admitted as a successor General Partner shall be admitted
to the Partnership as the General Partner, effective immediately prior to such
Transfer. Any such successor shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners.
A. After the admission to the Partnership of an Original Limited Partner on
the date hereof, a Person (other than an existing Partner) who makes a Capital
Contribution to the Partnership in accordance with this Agreement shall be
admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to
this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the sole and absolute discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no Person
shall be admitted as an Additional Limited Partner without the consent of the
General Partner, which consent may be given or withheld in the General Partner's
sole and absolute discretion. The admission of any Person as an Additional
Limited Partner shall become effective on the date upon which the name of such
Person is recorded on the books and records of the Partnership, following the
consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Fiscal Year, then Net Income, Net Losses, each
item thereof and all other items of income, gain, loss, deduction and credit
allocable among Partners and Assignees for such Fiscal Year shall be allocated
among such Additional Limited Partner and all other Partners and Assignees by
taking into account their varying interests during the Fiscal Year in accordance
with Code Section 7 using the "interim closing of the books" method or another
permissible method selected by the General Partner. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
the Partners and Assignees including such Additional Limited Partner, in
accordance with the principles described in Section 11.6.C hereof. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership. For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power attorney granted pursuant to Section
2.4 hereof.
Section 12.4 Admission of Initial Limited Partners. The Persons listed on
Exhibit A as limited partners of the Partnership shall be admitted to the
Partnership as Limited Partners upon their execution and delivery of this
Agreement.
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ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership without
dissolution. However, the Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of an of the following (each a "Liquidating
Event"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal, as defined in the Act (including, without
limitation, bankruptcy), of the sole General Partner unless, within ninety (90)
days after the withdrawal, a "majority in interest" (as such phrase is used in
Section 17-801(3) of the Act) of the remaining Partners agree in writing, in
their sole and absolute discretion, to continue the business of the Partnership
and to the appointment, effective as of the date of withdrawal, of a successor
General Partner:
C. an election to dissolve the Partnership made by the General Partner in
its sole and absolute discretion, with or without the Consent of the Limited
Partners;
D. entry of a decree of judicial dissolution of the Partnership pursuant to
the provisions of the Act;
E. the occurrence of a Terminating Capital Transaction;
F. the Redemption (or acquisition by the Previous General Partner, the
General Partner and/or the Special Limited Partner) of all Partnership Common
Units other than Partnership Common Units held by the General Partner or the
Special Limited Partner; or
G. the Redemption (or acquisition by the General Partner) of all
Partnership Common Units other than Partnership Common Units held by the General
Partner.
Section 13.2 Winding Up.
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its creditors and Partners.
After the occurrence of a Liquidating Event, no Partner shall take any action
that is inconsistent with, or not necessary to or appropriate for, the winding
up of the Partnership's business and affairs. The General Partner (or, in the
event that there is no remaining General Partner or the General Partner has
dissolved, become bankrupt within the meaning of the Act or ceased to operate,
any Person elected by a Majority in Interest of the Limited Partners (the
General Partner or such other Person being referred to herein as the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property, and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the Previous General Partner) shall be applied and
distributed in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners and their Assignees
(whether by payment or the making of reasonable provision for payment
thereof);
(2) Second, to the satisfaction of all of the Partnership's debts and
liabilities to the General Partner (whether by payment or the making of
reasonable provision for payment thereof), including, but not limited to,
amounts due as reimbursements under Section 7.4 hereof;
(3) Third, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners and any Assignees (whether by payment or
the making of reasonable provision for payment thereof); and
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(4) Subject to the terms of any Partnership Unit Designation, the
balance, if any, to the General Partner, the Limited Partners and any
Assignees in accordance with and in proportion to their positive Capital
Account balances, after giving effect to all contributions, distributions
and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof that require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the event that the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the Partners and Assignees that have positive Capital
Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the
extent of, and in proportion to, positive Capital Account balances. If any
Partner has a deficit balance in its Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall have no
obligation to make any contribution to the capital of the Partnership with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Partnership or to any other Person for any purpose whatsoever. In the sole
and absolute discretion of the General Partner or the Liquidator, a pro rata
portion of the distributions that would otherwise be made to the Partners
pursuant to this Article 13 may be withheld or escrowed to provide a reasonable
reserve for Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed to the
General Partner and Limited Partners in the manner and order of priority set
forth in Section 13.2.A hereof as soon as practicable.
Section 13.3 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article 13, in the event that the Partnership is
liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but
no Liquidating Event has occurred, the Partnership's Property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged and
the Partnership's affairs shall not be wound up. Instead, for federal income tax
purposes the Partnership shall be deemed to have distributed the Property in
kind to the Partners and the Assignees, who shall be deemed to have assumed and
taken such Property subject to all Partnership liabilities, all in accordance
with their respective Capital Accounts. Immediately thereafter, the Partners and
the Assignees shall be deemed to have recontributed the Partnership Property in
kind to the Partnership, which shall be deemed to have assumed and taken such
Property subject to all such liabilities; provided, however, that nothing in
this Section 13.3 shall be deemed to have constituted any Assignee as a
Substituted Limited Partner without compliance with the provisions of Section
11.4 hereof.
Section 13.4 Rights of Limited Partners. Except as otherwise provided in
this Agreement, (a) each Limited Partner shall look solely to the assets of the
Partnership for the return of its Capital Contribution, (b) no Limited Partner
shall have the right or power to demand or receive property other than cash from
the Partnership and (c) no Limited Partner shall have priority over any other
Limited Partner as to the return of its Capital Contributions, distributions or
allocations.
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Section 13.5 Notice of Dissolution. In the event that a Liquidating Event
occurs or an event occurs that would, but for an election or objection by one or
more Partners pursuant to Section 13.1 hereof, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and, in the General
Partner's sole and absolute discretion or as required by the Act, to all other
parties with whom the Partners regularly conducts business (as determined in the
sole and absolute discretion of the General Partner), and the General Partner
may, or, if required by the Act, shall, publish notice thereof in a newspaper of
general circulation in each place in which the Partnership regularly conducts
business (as determined in the sole and absolute discretion of the General
Partner).
Section 13.6 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership cash and property as provided
in Section 13.2 hereof, the Partnership shall be terminated, a certificate of
cancellation shall be filed with the State of Delaware, all qualifications of
the Partnership as a foreign limited partnership or association in jurisdictions
other than the State of Delaware shall be cancelled, and such other actions as
may be necessary to terminate the Partnership shall be taken.
Section 13.7 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS
Section 14.1 Procedures for Actions and Consents of Partners. The actions
requiring consent or approval of Limited Partners pursuant to this Agreement,
including Section 7.3 hereof, or otherwise pursuant to applicable law, are
subject to the procedures set forth in this Article 14.
Section 14.2 Amendments. Amendments to this Agreement may be proposed by
the General Partner or by a Majority in Interest of the Limited Partners.
Following such proposal, the General Partner shall submit any proposed amendment
to the Limited Partners. The General Partner shall seek the written consent of
the Limited Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that the General Partner may deem
appropriate. For purposes of obtaining a written consent, the General Partner
may require a response within a reasonable specified time, but not less than
fifteen (15) days, and failure to respond in such time period shall constitute a
consent that is consistent with the General Partner's recommendation with
respect to the proposal; provided, however, that an action shall become
effective at such time as requisite consents are received even if prior to such
specified time.
Section 14.3 Meetings of the Partners.
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by a
Majority in Interest of the Limited Partners. The call shall state the nature of
the business to be transacted. Notice of any such meeting shall be given to all
Partners not less than seven (7) days nor more than thirty (30) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the Consent of Partners is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of Partners or may be
given in accordance with the procedure prescribed in Section 14.3.B hereof.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement
for the action in question). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of Partners (or such other percentage as is expressly
required by this Agreement). Such consent shall be filed with the General
Partner. An action so taken shall be deemed to have been taken at a meeting held
on the effective date so certified.
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C. Each Limited Partner may authorize any Person or Persons to act for it
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy (or there is
receipt of a proxy authorizing a later date). Every proxy shall be revocable at
the pleasure of the Limited Partner executing it, such revocation to be
effective upon the Partnership's receipt of written notice of such revocation
from the Limited Partner executing such proxy.
D. Each meeting of Partners shall be conducted by the General Partner or
such other Person as the General Partner may appoint pursuant to such rules for
the conduct of the meeting as the General Partner or such other Person deems
appropriate in its sole and absolute discretion. Without limitation, meetings of
Partners may be conducted in the same manner as meetings of the General
Partner's shareholders and may be held at the same time as, and as part of, the
meetings of the General Partner's shareholders.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first class United States mail or by other means of
written communication (including by telecopy, facsimile, or commercial courier
service) to the Partner or Assignee at the address set forth in Exhibit A or
such other address of which the Partner shall notify the General Partner in
writing.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" or "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver.
A. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
B. The restrictions, conditions and other limitations on the rights and
benefits of the Limited Partners contained in this Agreement, and the duties,
covenants and other requirements of performance or notice by the Limited
Partners, are for the benefit of the Partnership and, except for an obligation
to pay money to the Partnership, may be waived or relinquished by the General
Partner, in its sole and absolute discretion, on behalf of the Partnership in
one or more instances from time and at any time; provided, however, that any
such waiver or relinquishment may not be made if it would have the effect of (i)
creating liability for any other Limited Partner, (ii) causing the Partnership
to cease to qualify as a limited partnership, (iii) reducing the amount of cash
otherwise distributable to the Limited Partners, (iv) resulting in the
classification of the Partnership as an association or publicly traded
partnership taxable as a corporation or (v) violating the
B-50
<PAGE> 434
Securities Act, the Exchange Act or any state "blue sky" or other securities
laws; provided, further, that any waiver relating to compliance with the
Ownership Limit or other restrictions in the Charter shall be made and shall be
effective only as provided in the Charter.
Section 15.7 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto.
Section 15.8 Applicable Law. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Delaware,
without regard to the principles of conflicts of law. In the event of a conflict
between any provision of this Agreement and any non-mandatory provision of the
Act, the provisions of this Agreement shall control and take precedence.
Section 15.9 Entire Agreement. This Agreement contains all of the
understandings and agreements between and among the Partners with respect to the
subject matter of this Agreement and the rights, interests and obligations of
the Partners with respect to the Partnership.
Section 15.10 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
Section 15.11 Limitation to Preserve REIT Status. Notwithstanding anything
else in this Agreement, to the extent that the amount paid, credited,
distributed or reimbursed by the Partnership to any REIT Partner or its
officers, directors, employees or agents, whether as a reimbursement, fee,
expense or indemnity (a "REIT Payment"), would constitute gross income to the
REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3),
then, notwithstanding any other provision of this Agreement, the amount of such
REIT Payments, as selected by the General Partner in its discretion from among
items of potential distribution, reimbursement, fees, expenses and indemnities,
shall be reduced for any Fiscal Year so that the REIT Payments, as so reduced,
for or with respect to such REIT Partner shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) four and nine-tenths
percent (4.9%) of the REIT Partner's total gross income (but excluding the
amount of any REIT Payments) for the Fiscal Year that is described in
subsections (A) through (H) of Code Section 856(c)(2) over (b) the amount
of gross income (within the meaning of Code Section 856(c)(2)) derived by
the REIT Partner from sources other than those described in subsections (A)
through (H) of Code Section 856(c)(2) (but not including the amount of any
REIT Payments); or
(ii) an amount equal to the excess, if any, of (a) twenty-four percent
(24%) of the REIT Partner's total gross income (but excluding the amount of
any REIT Payments) for the Fiscal Year that is described in subsections (A)
through (I) of Code Section 856(c)(3) over (b) the amount of gross income
(within the meaning of Code Section 856(c)(3)) derived by the REIT Partner
from sources other than those described in subsections (A) through (I) of
Code Section 856(c)(3) (but not including the amount of any REIT Payments);
provided, however, that REIT Payments in excess of the amounts set forth in
clauses (i) and (ii) above may be made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that the receipt of such excess
amounts shall not adversely affect the REIT Partner's ability to qualify as a
REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a
consequence of the limitations set forth in this Section 15.11, such REIT
Payments shall carry over and shall be treated as arising in the following
Fiscal Year. The purpose of the limitations contained in this Section 15.11 is
to prevent any REIT Partner from failing to qualify as a REIT under the Code by
reason of such REIT Partner's share of items, including distributions,
reimbursements, fees, expenses or indemnities, receivable directly or indirectly
from the Partnership, and this Section 15.11 shall be interpreted and applied to
effectuate such purpose.
B-51
<PAGE> 435
Section 15.12 No Partition. No Partner nor any successor-in-interest to a
Partner shall have the right while this Agreement remains in effect to have any
property of the Partnership partitioned, or to file a complaint or institute any
proceeding at law or in equity to have such property of the Partnership
partitioned, and each Partner, on behalf of itself and its successors and
assigns hereby waives any such right. It is the intention of the Partners that
the rights of the parties hereto and their successors-in-interest to Partnership
property, as among themselves, shall be governed by the terms of this Agreement,
and that the rights of the Partners and their successors-in-interest shall be
subject to the limitations and restrictions as set forth in this Agreement.
Section 15.13 No Third-Party Rights Created Hereby. The provisions of this
Agreement are solely for the purpose of defining the interests of the Partners,
inter se; and no other person, firm or entity (i.e., a party who is not a
signatory hereto or a permitted successor to such signatory hereto) shall have
any right, power, title or interest by way of subrogation or otherwise, in and
to the rights, powers, title and provisions of this Agreement. No creditor or
other third party having dealings with the Partnership shall have the right to
enforce the right or obligation of any Partner to make Capital Contributions or
loans to the Partnership or to pursue any other right or remedy hereunder or at
law or in equity. None of the rights or obligations of the Partners herein set
forth to make Capital Contributions or loans to the Partnership shall be deemed
an asset of the Partnership for any purpose by any creditor or other third
party, nor may any such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or any of the Partners.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
PREVIOUS GENERAL PARTNER:
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
GENERAL PARTNER:
AIMCO-GP, INC.
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
SPECIAL LIMITED PARTNER:
AIMCO-LP, INC.
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
B-52
<PAGE> 436
LIMITED PARTNERS:
By: AIMCO-GP, INC.,
as attorney-in-fact
By: /s/ PETER KOMPANIEZ
----------------------------------
Name: Peter Kompaniez
Title: President
B-53
<PAGE> 437
LETTER OF TRANSMITTAL
TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST
IN
[ ]
LIMITED PARTNERSHIP
PURSUANT TO AN OFFER
DATED [ ] [ ], 1998
BY
AIMCO PROPERTIES, L.P.
---------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., DENVER TIME, ON [ ] [ ], 1998, UNLESS EXTENDED.
---------------------
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
</TABLE>
By Telephone:
Toll Free (818) 349-2005
or
(201) 896-1900
By Fax:
(201) 460-2881
On the Internet:
www.clc-online.com
To participate in the offer, you must send a duly executed copy of this
Letter of Transmittal and you must send such duly executed Letter of Transmittal
and any other documents required by this Letter of Transmittal so that such
documents are received by River Oaks Partnership Services, Inc., the Information
Agent, on or prior to [ ] [ ], 1999 (the "Expiration
Date"). THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK AND DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF THIS
LETTER OF TRANSMITTAL OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE VALID DELIVERY.
FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE
COMPLETION OF THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT
AT (888) 349-2005 (TOLL FREE) OR (201) 896-1900.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE> 438
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF UNITS TENDERED
- --------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE INDICATE CHANGES
OR NUMBER OF UNITS TENDERED
CORRECTIONS TO THE NAME, (ATTACH ADDITIONAL LIST, IF NECESSARY)
ADDRESS AND
TAX IDENTIFICATION NUMBER
PRINTED BELOW.)
- --------------------------------------------------------------------------------------------------------------------
2. NUMBER 3. NUMBER
OF UNITS OF UNITS 4. NUMBER 5. TOTAL
1. TOTAL TENDERED FOR TENDERED FOR OF UNITS NUMBER
NUMBER OF PREFERRED COMMON TENDERED FOR OF UNITS
UNITS OWNED OP UNITS OP UNITS CASH TENDERED
(#) (#) (#) (#) (#)
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 2, 4 AND 9)
To be completed ONLY if the consideration for the purchase price of Units
accepted for payment is to be issued in the name of someone other than the
undersigned.
[ ] Issue consideration to:
Name:
---------------------------------------------------------------------------
(Please type or Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
(See Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 2, 4 AND 9)
To be completed ONLY if the consideration for the purchase price of Units
accepted for payment is to be sent to someone other than the undersigned or to
the undersigned at an address other than that shown above.
[ ] Mail consideration to:
Name:
---------------------------------------------------------------------------
(Please type or Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 439
Ladies and Gentlemen:
The undersigned (the "Limited Partner") hereby acknowledges that he or she
has received and reviewed (i) the Apartment Investment and Management Company
and AIMCO Properties, L.P. Prospectus, dated [ ] [ ], 1998, as
supplemented or amended from time to time, (ii) the Prospectus Supplement of
AIMCO Properties, L.P. (the "Purchaser"), dated [ ] [ ], which
describes the exchange offer, as supplemented or amended from time to time,
[and] (iii) this Letter of Transmittal, including the Instructions hereto, as it
may be supplemented or amended from time to time (the "Letter of Transmittal")[,
and (iv) the Partnerships' Form 10-K[SB] for the year ended December 31, 1997
and Form 10-Q[SB] for the quarter ended September 30, 1998] (all constituting
the "Offer").
Upon the terms and subject to the conditions set forth in the Offer and
this Letter of Transmittal, the undersigned hereby tenders to the Purchaser the
units of limited partnership interest ("Units") in [ ], a
[ ] limited partnership (the "Partnership"), set forth in the box
above entitled "Description of Units Tendered" under the column entitled "Total
Number of Units Tendered." For each Unit that you tender, you may choose to
receive as consideration per Unit (the "Offer Price") any combination of
% Partnership Preferred Units, ("Preferred OP Units"),
Partnership Common Units ("Common OP Units") or $ in
cash, reduced in each case for the amount of distributions, if any, made by the
Partnership from the date the Offer commences (the "Offer Date") until the
Expiration Date. The number of Units you choose to tender for each type of
consideration will be set forth by you in the box above entitled "Description of
Units Tendered" under the columns entitled "Number of Units Tendered for
Preferred OP Units," "Number of Units Tendered for Common OP Units," and "Number
of Units Tendered for Cash." All holders of Units who do not specify which type
of consideration they wish to receive will be deemed to have elected to receive
Preferred OP Units.
Subject to and effective upon acceptance for payment of any of the Units
tendered hereby in accordance with the terms of the Offer, the undersigned
hereby irrevocably sells, assigns, transfers, conveys and delivers to, or upon
the order of, the Purchaser all right, title and interest in and to such Units
tendered hereby that are accepted for payment pursuant to the Offer, including,
without limitation, (i) all of the undersigned's interest in the capital of the
Partnership, and the undersigned's interest in all profits, losses and
distributions of any kind to which the undersigned shall at any time be entitled
in respect of the Units; (ii) all other payments, if any, due or to become due
to the undersigned in respect of the Units, under or arising out of the
Partnership Agreement, whether as contractual obligations, damages, insurance
proceeds, condemnation awards or otherwise; (iii) all of the undersigned's
claims, rights, powers, privileges, authority, options, security interests,
liens and remedies, if any, under or arising out of the Partnership Agreement or
the undersigned's ownership of the Units, including, without limitation, all
voting rights, rights of first offer, first refusal or similar rights, and
rights to be substituted as a limited partner of the Partnership; and (iv) all
present and future claims, if any, of the undersigned against the Partnership,
the other partners of the Partnership, or the general partner and its
affiliates, including the Purchaser, under or arising out of the Partnership
Agreement, the undersigned's status as a limited partner, or the terms or
conditions of the Offer.
The undersigned hereby irrevocably constitutes and appoints the Purchaser
and any designees of the Purchaser as the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Units, with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to vote or act in such manner as any such attorney
and proxy or substitute shall, in its sole discretion, deem proper with respect
to such Units, to do all such acts and things necessary or expedient to deliver
such Units and transfer ownership of such Units on the partnership books
maintained by the general partner of the Partnership, together with all
accompanying evidence of transfer and authenticity to, or upon the order of, the
Purchaser, to sign any and all documents necessary to authorize the transfer of
the Units to the Purchaser including, without limitation, the "Transferor's
(Seller's) Application for Transfer" created by the National Association of
Securities Dealers, Inc., if required, and upon receipt by the Information Agent
(as the undersigned's agent) of the offer price, to become a substitute limited
partner, to receive any and all distributions made by the Partnership from and
after the Expiration Date (regardless of the record date for any such
distribution), and to receive all benefits and otherwise exercise all rights of
beneficial ownership of such Units all in accordance with the terms of the
Offer. This appointment is effective upon the purchase of the Units by the
Purchaser as provided in the Offer. Upon the purchase of Units pursuant to the
Offer, all prior proxies and con sents given by the undersigned with respect to
such Units will be revoked and no subsequent proxies or consents may be given
(and if given will not be deemed effective).
In addition to and without limiting the generality of the foregoing, the
undersigned hereby irrevocably (i) requests and authorizes (subject to and
effective upon acceptance for payment of any Unit tendered
<PAGE> 440
hereby) the Partnership and general partner to take any and all actions as may
be required to effect the transfer of the undersigned's Units to the Purchaser
(or its designee) and to admit the Purchaser as a substitute limited partner in
the Partnership under the terms of the Partnership Agreement; (ii) empowers the
Purchaser and the Agent to execute and deliver to the general partner a change
of address form instructing the general partner to send any and all future
distributions to the address specified in the form, and to endorse any check
payable to or upon the order of such Limited Partner representing a distribution
to which the Purchaser is entitled to the terms of the offer, in each case in
the name and on behalf of the tendering Limited Partner; and (iii) agrees not to
exercise any rights pertaining to the Units without the prior consent of the
Purchaser.
NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT TO THE CONTRARY,
THE UNDERSIGNED HEREBY DIRECTS THE GENERAL PARTNER OF THE PARTNERSHIP TO MAKE
ALL DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO
THE PURCHASER OR ITS DESIGNEE. Upon request, the undersigned will execute and
deliver additional documents deemed by the Information Agent or the Purchaser to
be necessary or desirable to complete the assignment, transfer and purchase of
Units tendered hereby and will hold any distributions received from the
Partnership after the Expiration Date in trust for the benefit of the Purchaser
and, if necessary, will promptly forward to the Purchaser any such distributions
immediately upon receipt. The Purchaser reserves the right to transfer or
assign, in whole or in part, from time to time, to one or more of its
affiliates, the right to purchase Units tendered pursuant to the Offer, but any
such transfer or assignment will not relieve the Purchaser of its obligations
under the Offer or prejudice the rights of tendering limited partners to receive
payment for Units validly tendered and accepted for payment pursuant to the
Offer.
By executing this Letter of Transmittal, the undersigned represents that
either (i) the undersigned is not a plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed
to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any
such plan, or (ii) the tender and acceptance of Units pursuant to the Offer will
not result in a nonexempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code.
The undersigned understands that a tender of Units to the Purchaser will
constitute a binding agreement between the undersigned and the Purchaser upon
the terms and subject to the conditions of the Offer. The undersigned recognizes
that under certain circumstances set forth in the Offer, the Purchaser may not
be required to accept for payment any of the Units tendered hereby. In such
event, the undersigned understands that any Letter of Transmittal for Units not
accepted for payment may be destroyed by the Purchaser (or its agent). EXCEPT AS
STATED IN THE OFFER, THIS TENDER IS IRREVOCABLE, PROVIDED THAT UNITS TENDERED
PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE
AND, UNLESS ALREADY ACCEPTED FOR PAYMENT AS PROVIDED IN THE OFFER, MAY ALSO BE
WITHDRAWN AT ANY TIME AFTER [ ] [ ], 1998.
THE UNDERSIGNED HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF THE
GENERAL PARTNER OF THE PARTNERSHIP AND THE GENERAL PARTNER OF THE PARTNERSHIP
MAKES NO RECOMMENDATION TO THE UNDERSIGNED AS TO WHETHER TO TENDER OR TO REFRAIN
FROM TENDERING UNITS IN THE OFFER AND THE UNDERSIGNED HAS MADE HIS OR HER OWN
DECISION TO TENDER UNITS.
The undersigned hereby represents and warrants for the benefit of the
Partnership and the Purchaser that the undersigned owns the Units tendered
hereby and has full power and authority and has taken all necessary action to
validly tender, sell, assign, transfer, convey and deliver the Units tendered
hereby and that when the same are accepted for payment by the Purchaser, the
Purchaser will acquire good, marketable and unencumbered title thereto, free and
clear of all liens, restrictions, charges, encumbrances, conditional sales
agreements or other obligations relating to the sale or transfer thereof, and
such Units will not be subject to any adverse claims and that the transfer and
assignment contemplated herein are in compliance with all applicable laws and
regulations.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligations of the undersigned
shall be binding upon the heirs, personal representatives, trustees in
bankruptcy, legal representatives, and successors and assigns of the
undersigned.
<PAGE> 441
SIGNATURE BOX
(SEE INSTRUCTION 2)
Please sign exactly as your name is printed on the front of this Letter of
Transmittal. For joint owners, each joint owner must sign. (See Instruction 2).
TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS
OF A CORPORATION OR OTHER PERSONS ACTING IN A FIDUCIARY OR REPRESENTATIVE
CAPACITY, PLEASE COMPLETE THIS BOX AND SEE INSTRUCTION 2.
The signatory hereto hereby tenders the Units indicated in this Letter of
Transmittal to the Purchaser pursuant to the terms of the Offers, and certifies
under penalties of perjury that the statements in Box A, Box B and, if
applicable, Box C are true.
X
- --------------------------------------------------------------------------------
(SIGNATURE OF OWNER)
X
- --------------------------------------------------------------------------------
(SIGNATURE OF JOINT OWNER)
Name and Capacity (if other than individuals):
----------------------------------
Title:
--------------------------------------------------------------------------
Address (Fiduciaries only):
-----------------------------------------------------
- --------------------------------------------------------------------------------
(CITY) (STATE) (ZIP)
Area Code and Telephone No. (Day):
----------------------------------------------
(Evening):------------------------------------------
SIGNATURE GUARANTEE
(IF REQUIRED)
(SEE INSTRUCTION 2)
Name and Address of Eligible Institution:
---------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authorized Signature: X
--------------------------------------------------------
Name:
---------------------------------------------------------------------------
Title: Date:
------------------------------------------ -------------------------
<PAGE> 442
TAX CERTIFICATIONS
(SEE INSTRUCTION 4)
By signing the Letter of Transmittal in the Signature Box, the Limited
Partner certifies as true under penalty of perjury, the representations in Boxes
A, B and C below. Please refer to the attached Instructions for completing this
Letter of Transmittal and Boxes A, B and C below.
BOX A
SUBSTITUTE FORM W-9
(SEE INSTRUCTION 4 -- BOX A)
The Limited Partner hereby certifies the following to the Purchaser under
penalties of perjury:
(i) The Taxpayer Identification No. ("TIN") printed (or corrected) on the
front of this Letter of Transmittal is the correct TIN of the Limited Partner,
unless the Units are held in an Individual Retirement Account (IRA); or if this
box [ ] is checked, the Limited Partner has applied for a TIN. If the Limited
Partner has applied for a TIN, a TIN has not been issued to the Limited Partner,
and either (a) the Limited Partner has mailed or delivered an application to
receive a TIN to the appropriate IRS Center or Social Security Administration
Office, or (b) the Limited Partner intends to mail or deliver an application in
the near future (it being understood that if the Limited Partner does not
provide a TIN to the Purchaser, 31% of all reportable payments made to the
Limited Partner will be withheld); and
(ii) Unless this box [ ] is checked, the Limited Partner is not subject to
backup withholding either because the Limited Partner: (a) is exempt from backup
withholding; (b) has not been notified by the IRS that the Limited Partner is
subject to backup withholding as a result of a failure to report all interest or
dividends; or (c) has been notified by the IRS that such Limited Partner is no
longer subject to backup withholding.
Note: Place an "X" in the box in (ii) above, only if you are unable to certify
that the Limited Partner is not subject to backup withholding.
<PAGE> 443
BOX B
FIRPTA AFFIDAVIT
(SEE INSTRUCTION 4 -- BOX B)
Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg.
1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount
realized with respect to certain transfers of an interest in a partnership if
50% or more of the value of its gross assets consists of U.S. real property
interests and 90% or more of the value of its gross assets consists of U.S. real
property interests plus cash equivalents, and the holder of the partnership
interest is a foreign person. To inform the Purchaser that no withholding is
required with respect to the Limited Partner's Units in the Partnership, the
person signing this Letter of Transmittal hereby certifies the following under
penalties of perjury:
(i) Unless this box [ ] is checked, the Limited Partner, if an individual,
is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and
if other than an individual, is not a foreign corporation, foreign partnership,
foreign estate or foreign trust (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
(ii) The Limited Partner's U.S. social security number (for individuals) or
employer identification number (for non-individuals) is correct as furnished in
the blank provided for that purpose on the front of the Letter of Transmittal;
(iii) The Limited Partner's home address (for individuals), or office
address (for non-individuals), is correctly printed (or corrected) on the front
of this Letter of Transmittal.
The person signing this Letter of Transmittal understands that this
certification may be disclosed to the IRS by the Purchaser and that any false
statements contained herein could be punished by fine, imprisonment, or both.
(SEE BOX C ON REVERSE SIDE)
<PAGE> 444
BOX C
SUBSTITUTE FORM W-8
(SEE INSTRUCTION 4 -- BOX C)
By checking this box [ ], the person signing this Letter of Transmittal
hereby certifies under penalties of perjury that the Limited Partner is an
"exempt foreign person" for purposes of the Backup Withholding rules under the
U.S. Federal income tax laws, because the Limited Partner has the following
characteristics:
(i) Is a nonresident alien individual or a foreign corporation,
partnership, estate or trust;
(ii) If an individual, has not been and plans not to be present in the U.S.
for a total of 183 days or more during the calendar year; and
(iii) Neither engages, nor plans to engage, in a U.S. trade or business
that has effectively connected gains from transactions with a broker or barter
exchange.
<PAGE> 445
INSTRUCTIONS
FOR COMPLETING LETTER OF TRANSMITTAL
1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed Letter
of Transmittal (or facsimile thereof) and any other required documents must
be received by the Information Agent at one of its addresses (or its
facsimile number) set forth herein before 5:00 p.m., Denver Time, on
[ ] [ ], 1998, unless extended. To ensure receipt of the
Letter of Transmittal and any other required documents, it is suggested
that you use overnight courier delivery or, if the Letter of Transmittal
and any other required documents are to be delivered by United States mail,
that you use certified or registered mail, return receipt requested. WHERE
NO DEFINITIVE INDICATION IS MARKED IN THE BOX ENTITLED "DESCRIPTION OF
UNITS TENDERED" UNDER THE COLUMNS ENTITLED "NUMBER OF UNITS TENDERED FOR
PREFERRED OP UNITS," "NUMBER OF UNITS TENDERED FOR COMMON OP UNITS," AND
"NUMBER OF UNITS TENDERED FOR CASH," LETTERS OF TRANSMITTAL THAT HAVE BEEN
DULY EXECUTED SHALL BE DEEMED TO HAVE TENDERED ALL UNITS FOR PREFERRED OP
UNITS PURSUANT TO THE OFFER.
WHEN TENDERING BY FACSIMILE, PLEASE TRANSMIT ALL PAGES OF THE LETTER OF
TRANSMITTAL, INCLUDING TAX CERTIFICATIONS (BOXES A, B AND C).
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
2.SIGNATURE REQUIREMENTS.
INDIVIDUAL AND JOINT OWNERS -- After carefully reading and completing the
Letter of Transmittal, to tender Units, Limited Partners must sign at the
"X" in the Signature Box of the Letter of Transmittal. The signature(s) must
correspond exactly with the names printed (or corrected) on the front of the
Letter of Transmittal. If the Letter of Transmittal is signed by the Limited
Partner (or beneficial owner in the case of an IRA), no signature guarantee
on the Letter of Transmittal is required. If any tendered Units are
registered in the names of two or more joint owners, all such owners must
sign this Letter of Transmittal.
IRA'S/ELIGIBLE INSTITUTIONS -- For Units held in an IRA account, the
beneficial owner should sign in the Signature Box and no signature guarantee
is required. Similarly, if Units are tendered for the account of a member
firm of a registered national security exchange, a member firm of the
National Association of Securities Dealers, Inc. or a commercial bank,
savings bank, credit union, savings and loan association or trust company
having an office, branch or agency in the United States (each an "Eligible
Institution"), no signature guarantee is required.
TRUSTEES, CORPORATIONS, PARTNERSHIPS AND FIDUCIARIES -- Trustees, executors,
administrators, guardians, attorneys-in-fact, officers of a corporation,
authorized partners of a partnership or other persons acting in a fiduciary
or representative capacity must sign at the "X" in the Signature Box and
have their signatures guaranteed by an Eligible Institution by completing
the signature guarantee set forth in the Signature Box of the Letter of
Transmittal. If the Letter of Transmittal is signed by trustees,
administrators, guardians, attorneys-in-fact, officers of a corporation,
authorized partners of a partnership or others acting in a fiduciary or
representative capacity, such persons should, in addition to having their
signatures guaranteed, indicate their title in the Signature Box and must
submit proper evidence satisfactory to the Purchaser of their authority to
so act (see Instruction 3 below).
3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be
completed on the Letter of Transmittal, additional documentation may be
required by the Purchaser under certain circumstances including, but not
limited to, those listed below. Questions on documentation should be
directed to the Information Agent at its telephone number set forth herein.
DECEASED OWNER (JOINT TENANT) -- Copy of death certificate.
DECEASED OWNER (OTHERS) -- Copy of death certificate (see also
Executor/Administrator/Guardian below).
<PAGE> 446
EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for
executor or administrator; and (a) a copy of applicable provisions of the
will (title page, executor(s)' powers, asset distribution); or (b) estate
distribution documents.
ATTORNEY-IN-FACT -- Current power of attorney.
CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other evidence of
authority to act. Partnership should furnish copy of the partnership
agreement.
TRUST/PENSION PLANS -- Unless the trustee(s) are named in the registration,
a copy of the cover page of the trust or pension plan, along with a copy of
the section(s) setting forth names and powers of trustee(s) and any
amendments to such sections or appointment of successor trustee(s).
4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued
in the name of a person other than the person signing the Signature Box of
the Letter of Transmittal or if consideration is to be sent to someone
other than such signer or to an address other than that set forth on the
Letter of Transmittal in the box entitled "Description of Units Tendered,"
the appropriate boxes on the Letter of Transmittal should be completed.
5. TAX CERTIFICATIONS. The limited partner(s) tendering Units to the Purchaser
pursuant to the Offer must furnish the Purchaser with the limited partner's
taxpayer identification number ("TIN") and certify as true, under penalties
of perjury, the representations in Box A, Box B and, if applicable, Box C.
By signing the Signature Box, the Limited Partner(s) certifies that the TIN
as printed (or corrected) on this Letter of Transmittal in the box entitled
"Description of Units Tendered" and the representations made in Box A, Box
B and, if applicable, Box C, are correct. See attached Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
guidance in determining the proper TIN to give the Purchaser.
U.S. PERSONS. A limited partner that is a U.S. citizen or a resident alien
individual, a domestic corporation, a domestic partnership, a domestic
trust or a domestic estate (collectively, "U.S. Persons"), as those terms
are defined in the Code, should follow the instructions below with respect
to certifying Box A and Box B.
BOX A -- SUBSTITUTE FORM W-9.
Part (i), Taxpayer Identification Number -- Tendering limited partners must
certify to the Purchaser that the TIN as printed (or corrected) on this
Letter of Transmittal in the box entitled "Description of Units Tendered"
is correct. If a correct TIN is not provided, penalties may be imposed by
the Internal Revenue Service (the "IRS"), in addition to the limited
partner being subject to backup withholding.
Part (ii), Backup Withholding -- In order to avoid 31% Federal income tax
backup withholding, the tendering limited partner must certify, under
penalties of perjury, that such limited partner is not subject to backup
withholding. Certain limited partners (including, among others, all
corporations and certain exempt non-profit organizations) are not subject
to backup withholding. Backup withholding is not an additional tax. If
withholding results in an overpayment of taxes, a refund may be obtained
from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (II), UNLESS YOU HAVE
BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING.
When determining the TIN to be furnished, please refer to the following as
a guide:
Individual accounts -- should reflect owner's TIN.
Joint accounts -- should reflect the TIN of the owner whose name appears
first.
Trust accounts -- should reflect the TIN assigned to the trust.
IRA custodial accounts -- should reflect the TIN of the custodian (not
necessary to provide). Custodial accounts for the benefit of
minors -- should reflect the TIN of the minor. Corporations, partnership or
other business entities -- should reflect the TIN assigned to that entity.
By signing the Signature Box, the limited partner(s) certifies that the TIN
as printed (or corrected) on the front of the Letter of Transmittal is
correct.
BOX B -- FIRPTA AFFIDAVIT -- Section 1445 of the Code requires that each
limited partner transferring interests in a partnership with real estate
assets meeting certain criteria certify under penalty of perjury the
representations made in Box B, or be subject to withholding of tax equal to
10% of the purchase price
<PAGE> 447
\for interests purchased. Tax withheld under Section 1445 of the Code is
not an additional tax. If withholding results in an overpayment of tax, a
refund may be obtained from the IRS. PART (I) SHOULD BE CHECKED ONLY IF THE
TENDERING LIMITED PARTNER IS NOT A U.S. PERSON, AS DESCRIBED THEREIN.
BOX C -- FOREIGN PERSONS -- In order for a tendering limited partner who is
a Foreign Person (i.e., not a U.S. Person, as defined above) to qualify as
exempt from 31% backup withholding, such foreign Limited Partner must
certify, under penalties of perjury, the statement in Box C of this Letter
of Transmittal, attesting to that Foreign Person's status by checking the
box preceding such statement. UNLESS THE BOX IS CHECKED, SUCH LIMITED
PARTNER WILL BE SUBJECT TO 31% WITHHOLDING OF TAX.
6. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will
be accepted.
7. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of a Letter of
Transmittal and other required documents will be determined by the
Purchaser and such determination will be final and binding. The Purchaser's
interpretation of the terms and conditions of the Offer (including these
Instructions for this Letter of Transmittal) will be final and binding. The
Purchaser will have the right to waive any irregularities or conditions as
to the manner of tendering. Any irregularities in connection with tenders,
unless waived, must be cured within such time as the Purchaser shall
determine. This Letter of Transmittal will not be valid until any
irregularities have been cured or waived. Neither the Purchaser nor the
Information Agent are under any duty to give notification of defects in a
Letter of Transmittal and will incur no liability for failure to give such
notification.
8. ASSIGNEE STATUS. Assignees must provide documentation to the Information
Agent which demonstrates, to the satisfaction of the Purchaser, such
person's status as an assignee.
9. TRANSFER TAXES. The amount of any transfer taxes (whether imposed on the
registered holder or any person other than the person signing the Letter of
Transmittal) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the
payment of such taxes or exemption therefrom is submitted.
10. MINIMUM TENDERS. A limited partner may tender any or all of his, her or its
Units; provided, however, that because of restrictions in the Partnership's
Limited Partnership Agreement, a partial tender of Units must be for a
minimum of [five] Units (other than limited partners who hold Units in an
Individual Retirement Account or Keogh Plan). Tenders of fractional Units
will be permitted only by a limited partner who is tendering all Units
owned by that limited partner.]
<PAGE> 448
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
- ---------------------------------------------------------
---------------------------------------------------------
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: GIVE THE
TAXPAYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
TAXPAYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
<C> <S> <C>
1. An individual account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on
the account
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person(3)
7. a The usual revocable The grantor trustee(1)
savings trust account
(grantor is also trustee)
b So-called trust account The actual owner(1)
that is not a legal or
valid trust under state
law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a State or local government,
school district, or prison)
that receives agricultural
program payments
</TABLE>
- ---------------------------------------------------------
---------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's or incompetent person's name and furnish such person's
social security number or employer identification number.
(4) Show your individual name. You may also enter your business name. You may
use your social security number or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 449
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
- A futures commission merchant registered with the Commodity Futures Trading
Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
- Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852 of the Code).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments of mortgage interest to you.
- Payments made to an appropriate nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT
SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM
W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(A),
6045, and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a correct taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 450
The Information Agent for the offer is:
River Oaks Partnership Services, Inc.
By Mail:
P.O. Box 2065
S. Hackensack, N.J. 07606-2065
By Overnight Courier:
111 Commerce Road
Carlstadt, N.J. 07072
Attn.: Reorganization Dept.
By Hand:
111 Commerce Road
Carlstadt, N.J. 07072
Attn.: Reorganization Dept.
By Telephone:
Toll Free (818) 349-2005
or
(201) 896-1900
By Fax:
(201) 460-2881
On the Internet:
www.clc-online.com
<PAGE> 451
[LETTERHEAD OF AIMCO PROPERTIES, L.P.]
Dear Limited Partner:
We are offering to acquire your units of limited partnership interest in
. Our offer presents you with the following four options, which
you are free to accept or reject in any combination you like:
1. You may tender each of your units in exchange for of our
% Partnership Preferred Units. Generally, this exchange may be made
without recognizing any taxable gain on your units. After one year, you may
redeem your Preferred Units for cash or, at our option, Preferred Stock or
Class A Common Stock of Apartment Investment and Management Company,
("AIMCO"). AIMCO is a real estate investment trust. We are the partnership
through which AIMCO conducts substantially all of its operations. The Class
A Common Stock is listed, and the Preferred Stock is expected to be listed,
on the New York Stock Exchange.
2. You may tender each of your units in exchange for of our
Partnership Common Units. Generally, this exchange may also be made without
recognizing any taxable gain on your units. After one year, you may redeem
your Common Units for cash or, at our option, shares of Class A Common
Stock of AIMCO.
3. You may tender each of your units in exchange for $ in
cash, in which case you may recognize a gain or loss for federal income tax
purposes.
4. You may retain any or all of your units. If you choose to retain
any or all of your units, your rights as a holder of units will remain
unchanged. You will continue to participate in gains and losses of your
partnership, and you will receive distributions, if any, payable in respect
of your units.
We are offering to acquire no more than % of all outstanding units in
your partnership. You will not be required to pay any commissions or fees in
connection with any disposition of your units pursuant to our offer.
There are advantages and disadvantages to you of accepting or declining our
offer. The terms of the offer are more fully described in the enclosed
materials. These documents describe the material risks and opportunities
associated with the offer, including certain tax considerations. Please review
these documents carefully. The general partner of your partnership, which is an
affiliate of ours, has substantial conflicts of interest with respect to the
offer. Accordingly, the general partner of your partnership makes no
recommendation to you as to whether you should tender or refrain from tendering
your units in the offer. We have retained Robert A. Stanger & Co. to render an
opinion as to the fairness of the offer consideration from a financial point of
view. A copy of such opinion is enclosed as Appendix A to the enclosed
Prospectus Supplement.
If you desire to tender any of your units in response to our offer, you
should complete and sign the enclosed letter of transmittal in accordance with
the enclosed instructions and mail or deliver the signed letter of transmittal
and any other required documents to River Oaks Partnership Services, Inc., which
is acting as the Information Agent in connection with our offer, at the address
set forth on the back cover of the enclosed Prospectus Supplement. The offer
will expire at 5:00 p.m. Denver, Colorado time on 1998, unless
extended. If you have questions or require further information, please call the
Information Agent, toll free, at (888) 349-2005.
Very truly yours,
AIMCO PROPERTIES, L.P.
<PAGE> 452
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
AIMCO
AIMCO's Charter limits the liability of AIMCO's directors and officers to
AIMCO and its stockholders to the fullest extent permitted from time to time by
Maryland law. Maryland law presently permits the liability of directors and
officers to a corporation or its stockholders for money damages to be limited,
except (i) to the extent that it is proved that the director or officer actually
received an improper benefit or profit in money, property or services for the
amount of the benefit or profit in money, property or services actually
received, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of AIMCO or its stockholders to obtain other relief,
such as an injunction or rescission.
AIMCO's Charter and Bylaws require AIMCO to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The MGCL permits a corporation to indemnify its directors,
officers and certain other parties against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service to
or at the request of the corporation, unless it is established that (i) the act
or omission of the indemnified party was material to the matter giving rise to
the proceeding and (x) was committed in bad faith or (y) was the result of
active and deliberate dishonesty, (ii) the indemnified party actually received
an improper personal benefit in money, property or services or (iii) in the case
of any criminal proceeding, the indemnified party had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
AIMCO has entered into agreements with certain of its officers, pursuant to
which AIMCO has agreed to indemnify such officers to the fullest extent
permitted by applicable law.
THE AIMCO OPERATING PARTNERSHIP
The AIMCO Operating Partnership Agreement requires the AIMCO Operating
Partnership to indemnify its directors and officers (each an "Indemnitee") to
the fullest extent authorized by applicable law against any and all losses,
claims, damages, liabilities, joint or several, expenses (including, without
limitation, attorney's fees and other legal fees and expenses), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the AIMCO Operating Partnership. Such
indemnification continues after the Indemnitee ceases to be a director or
officer. The right to indemnification includes the right to be paid by the AIMCO
Operating Partnership the expenses incurred in defending any proceeding in
advance of its final disposition upon the delivery of an undertaking by or on
behalf of the Indemnitee to repay all amounts
II-1
<PAGE> 453
advanced if a final judicial decision is rendered that such Indemnitee did not
meet the standard of conduct permitting indemnification under the AIMCO
Operating Partnership Agreement or applicable law.
The Partnership maintains insurance, at its expense, to protect against any
liability or loss, regardless of whether any director or officer is entitled to
indemnification under the AIMCO Operating Partnership Agreement or applicable
law.
ITEM 21. EXHIBITS.
(a)
<TABLE>
<C> <S>
*4.1 Specimen certificate for Class A Common Stock.
*4.2 Specimen certificate for Common OP Unit.
**5.1 Opinion of Piper & Marbury L.L.P. regarding the validity of
the Class A Common Stock and Preferred Stock offered
hereby.
**5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the validity of the Common OP Units and the
Preferred OP Units offered hereby.
**8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.
****12.1 Calculation of ratio of earnings to fixed charges.
****12.2 Calculation of ratio of earnings to combined fixed charges
and preferred stock dividends.
****23.1 Consent of Ernst & Young LLP, Dallas, Texas.
*****23.2 Consent of Ernst & Young LLP, Chicago, Illinois.
*****23.3 Consent of Ernst & Young LLP, Greenville, South Carolina.
*****23.4 Consent of Ernst & Young LLP, Indianapolis, Indiana.
*****23.5 Consent of Arthur Andersen LLP.
**23.6 Consent of Piper & Marbury L.L.P. (included in opinion filed
as Exhibit 5.1).
**23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in opinion filed as Exhibit 5.2).
23.8 Consents of KPMG Peat Marwick LLP with respect to financial
statements of the following entities:
*****23.8.1 -- Baywood Partners, Ltd.
*****23.8.2 -- Burgundy Court Associates, L.P.
*****23.8.3 -- Catawba Club Associates, L.P.
*****23.8.4 -- Georgetown of Columbus Associates, L.P.
*****23.8.5 -- La Colina Partners, Ltd.
*****23.8.6 -- Lake Eden Associates, L.P.
*****23.8.7 -- Landmark Associates, Ltd.
*****23.8.8 -- Northbrook Apartments, Ltd.
*****23.8.9 -- Shaker Square, L.P.
*****23.8.10 -- Thurber Manor Associates, Limited Partnership.
*****23.8.11 -- Quail Run Associates, L.P.
*****23.8.12 -- Sycamore Creek Associates, L.P.
*****23.9 Consent of Portock, Bye & Co. (Brampton Associates
Partnership).
23.10 Consents of Ernst & Young LLP, Greenville, South Carolina
with respect to financial statements of the following
entities:
*****23.10.1 -- Rivercreek Apartments Limited Partnership.
*****23.10.2 -- Calmark Heritage Park II Ltd.
*****23.10.3 -- Yorktown Towers Associates.
****23.10.4 -- Shannon Manor Apartments, a Limited Partnership.
****23.10.5 -- Woodmere Associates, L.P.
*****23.10.6 -- Salem Arms of Augusta Limited Partnership.
</TABLE>
II-2
<PAGE> 454
<TABLE>
<C> <S>
*****23.10.7 -- Coastal Commons Limited Partnership.
*****23.10.8 -- Snowden Village Associates, L.P.
*****23.10.9 -- Sharon Woods, L.P.
*****23.10.10 -- Rivercrest Apartments, Limited.
*****23.10.11 -- Angeles Income Properties, Ltd. II.
*****23.10.12 -- Angeles Income Properties, Ltd. III.
*****23.10.13 -- Angeles Income Properties, Ltd. IV.
*****23.10.14 -- Angeles Income Properties, Ltd. 6.
*****23.10.15 -- Angeles Opportunity Properties, Ltd.
*****23.10.16 -- Angeles Partners VII.
*****23.10.17 -- Angeles Partners VIII.
*****23.10.18 -- Angeles Partners IX.
*****23.10.19 -- Angeles Partners X.
*****23.10.20 -- Angeles Partners XI.
*****23.10.21 -- Angeles Partners XII.
*****23.10.22 -- Angeles Partners XIV.
*****23.10.23 -- Consolidated Capital Institutional Properties/2.
*****23.10.24 -- Consolidated Capital Institutional Properties/3.
*****23.10.25 -- Consolidated Capital Properties III.
*****23.10.26 -- Consolidated Capital Properties IV.
*****23.10.27 -- Consolidated Capital Properties V.
*****23.10.28 -- Consolidated Capital Properties VI.
*****23.10.29 -- Davidson Diversified Real Estate I, L.P.
*****23.10.30 -- Davidson Diversified Real Estate II, L.P.
*****23.10.31 -- Davidson Diversified Real Estate III, L.P.
*****23.10.32 -- Davidson Growth Plus, L.P.
*****23.10.33 -- Davidson Income Real Estate, L.P.
*****23.10.34 -- Investors First-Staged Equity.
*****23.10.35 -- Johnstown/Consolidated Income Partners.
*****23.10.36 -- Multi-Benefit Realty Fund '87-1.
*****23.10.37 -- Shelter Properties III.
*****23.10.38 -- Shelter Properties VI.
*****23.10.39 -- Shelter Properties VII Limited Partnership.
*****23.10.40 -- U.S. Realty Partners Limited Partnership.
*****23.11 Consents of Deloitte & Touche (Cedar-Tree Investors Limited
Partnership and Wingfield Investors Limited Partnership).
*****23.11.1 -- HCW Pension Real Estate Fund Limited Partnership.
*****23.11.2 -- United Investors Growth Properties.
*****23.11.3 -- United Investors Growth Properties II.
*****23.11.4 -- United Investors Income Properties.
*****23.12 Consents of Reznick Fedder & Silverman (Burnsville
Apartments, LP (Minneapolis Associates II Limited
Partnership), Chestnut Hill Associates Limited
Partnership, DFW Apartment Investors Limited Partnership,
DFW Residential Investors Limited Partnership, Olde Mill
Investors Limited Partnership, Park Towne Place
Associates Limited Partnership and Texas Residential
Investors Limited Partnership, Winthrop Apartment
Investors Limited Partnership).
*****23.12.1 -- Riverside Park Associates L.P.
*****23.12.2 -- Springhill Lake Investors Limited Partnership.
*****23.13 Consent of Barry S. Fishman & Associates (Ravensworth
Associates Limited Partnership).
</TABLE>
II-3
<PAGE> 455
<TABLE>
<C> <S>
23.14 Consents of Imowitz Koenig LLP with respect to financial
statements of the following entities:
*****23.14.1 -- Winthrop Apartment Investors Limited Partnership.
*****23.14.2 -- Winrock -- Houston Limited Partnership.
*****23.14.3 -- Century Properties Fund XVI.
*****23.14.4 -- Century Properties Fund XVIII.
*****23.14.5 -- Century Properties Fund XIX.
*****23.14.6 -- Century Properties Growth Fund XXII.
23.14.7 -- [Reserved].
*****23.14.8 -- Fox Strategic Housing Income Partners.
*****23.14.9 -- National Property Investors 8.
*****23.14.10 -- Winthrop Growth Investors 1 Limited Partnership.
*****23.15.1 Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert
Real Estate Associates II).
****23.16 Consent of Beers & Cutler PLLC
*****24.1 Power of Attorney for Apartment Investment and Management
Company.
*****24.2 Power of Attorney for AIMCO Properties, L.P.
</TABLE>
- ---------------
* Incorporated by reference from AIMCO's Registration Statement on Form 8-A
filed on July 19, 1994.
** To be filed by amendment.
*** Incorporated by reference from AIMCO's Form 8-K filed on July 2, 1998.
**** Filed herewith.
***** Previously filed.
(b)Financial Statement Schedules
Not Applicable.
(c)Report, opinion or appraisal
To be included in Prospectus Supplement, as applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
II-4
<PAGE> 456
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrants' annual reports pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The undersigned registrants hereby undertake to not issue securities
under this registration statement in order to effect any "roll-up transaction"
(as such term in defined in paragraph (c) of Item 901 of Regulation S-K).
Furthermore, the undersigned registrants hereby undertake to supply by means of
a post-effective amendment all information concerning an offer to purchase
partnership interests in exchange for securities issued under this registration
statement, prior to commencing such an offer, if pursuant to the provisions of
subparagraph (iv), (vii) or (viii) of paragraph (c)(2) of Item 901 of Regulation
S-K, such offer fails to constitute a roll-up transaction.
II-5
<PAGE> 457
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Apartment
Investment and Management Company has duly caused this Amendment No. 4 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on the 20th day of November, 1998.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ TERRY CONSIDINE
----------------------------------
Terry Considine,
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement on Form S-4 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERRY CONSIDINE Chairman and Chief November 20, 1998
- ----------------------------------------------------- Executive Officer
Terry Considine
/s/ PETER K. KOMPANIEZ* Vice Chairman and President November 20, 1998
- -----------------------------------------------------
Peter K. Kompaniez
/s/ TROY D. BUTTS* Senior Vice President and November 20, 1998
- ----------------------------------------------------- Chief Financial Officer
Troy D. Butts
/s/ RICHARD S. ELLWOOD* Director November 20, 1998
- -----------------------------------------------------
Richard S. Ellwood
/s/ J. LANDIS MARTIN* Director November 20, 1998
- -----------------------------------------------------
J. Landis Martin
/s/ THOMAS L. RHODES* Director November 20, 1998
- -----------------------------------------------------
Thomas L. Rhodes
/s/ JOHN D. SMITH* Director November 20, 1998
- -----------------------------------------------------
John D. Smith
*By: /s/ TERRY CONSIDINE
------------------------------------------------
Terry Considine, as Attorney-in-Fact
for each of the persons indicated
</TABLE>
<PAGE> 458
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AIMCO
Properties, L.P. has duly caused this Amendment No. 4 to the Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on the 20th day of
November, 1998.
AIMCO PROPERTIES, L.P.
By: AIMCO-GP, INC.
its General Partner
By: /s/ TERRY CONSIDINE
----------------------------------
Terry Considine,
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement on Form S-4 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERRY CONSIDINE Chairman and Chief November 20, 1998
- ----------------------------------------------------- Executive Officer
Terry Considine
/s/ PETER K. KOMPANIEZ* Vice Chairman and President November 20, 1998
- -----------------------------------------------------
Peter K. Kompaniez
/s/ TROY D. BUTTS* Senior Vice President and November 20, 1998
- ----------------------------------------------------- Chief Financial Officer
Troy D. Butts
*By: /s/ TERRY CONSIDINE
------------------------------------------------
Terry Considine, as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE> 459
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*4.1 Specimen certificate for Class A Common Stock.
*4.2 Specimen certificate for Common OP Unit.
**5.1 Opinion of Piper & Marbury L.L.P. regarding the validity of
the Class A Common Stock and Preferred Stock offered
hereby.
**5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the validity of the Common OP Units and the
Preferred OP Units offered hereby.
**8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.
****12.1 Calculation of ratio of earnings to fixed charges.
****12.2 Calculation of ratio of earnings to combined fixed charges
and preferred stock dividends.
****23.1 Consent of Ernst & Young LLP, Dallas, Texas.
*****23.2 Consent of Ernst & Young LLP, Chicago, Illinois.
*****23.3 Consent of Ernst & Young LLP, Greenville, South Carolina.
*****23.4 Consent of Ernst & Young LLP, Indianapolis, Indiana.
*****23.5 Consent of Arthur Andersen LLP.
**23.6 Consent of Piper & Marbury L.L.P. (included in opinion filed
as Exhibit 5.1).
**23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in opinion filed as Exhibit 5.2).
23.8 Consents of KPMG Peat Marwick LLP with respect to financial
statements of the following entities:
*****23.8.1 -- Baywood Partners, Ltd.
*****23.8.2 -- Burgundy Court Associates, L.P.
*****23.8.3 -- Catawba Club Associates, L.P.
*****23.8.4 -- Georgetown of Columbus Associates, L.P.
*****23.8.5 -- La Colina Partners, Ltd.
*****23.8.6 -- Lake Eden Associates, L.P.
*****23.8.7 -- Landmark Associates, Ltd.
*****23.8.8 -- Northbrook Apartments, Ltd.
*****23.8.9 -- Shaker Square, L.P.
*****23.8.10 -- Thurber Manor Associates, Limited Partnership.
*****23.8.11 -- Quail Run Associates, L.P.
*****23.8.12 -- Sycamore Creek Associates, L.P.
*****23.9 Consent of Portock, Bye & Co. (Brampton Associates
Partnership).
23.10 Consents of Ernst & Young LLP, Greenville, South Carolina
with respect to financial statements of the following
entities:
*****23.10.1 -- Rivercreek Apartments Limited Partnership.
*****23.10.2 -- Calmark Heritage Park II Ltd.
*****23.10.3 -- Yorktown Towers Associates.
****23.10.4 -- Shannon Manor Apartments, a Limited Partnership.
****23.10.5 -- Woodmere Associates, L.P.
*****23.10.6 -- Salem Arms of Augusta Limited Partnership.
*****23.10.7 -- Coastal Commons Limited Partnership.
*****23.10.8 -- Snowden Village Associates, L.P.
*****23.10.9 -- Sharon Woods, L.P.
*****23.10.10 -- Rivercrest Apartments, Limited.
</TABLE>
<PAGE> 460
<TABLE>
<C> <S>
*****23.10.11 -- Angeles Income Properties, Ltd. II.
*****23.10.12 -- Angeles Income Properties, Ltd. III.
*****23.10.13 -- Angeles Income Properties, Ltd. IV.
*****23.10.14 -- Angeles Income Properties, Ltd. 6.
*****23.10.15 -- Angeles Opportunity Properties, Ltd.
*****23.10.16 -- Angeles Partners VII.
*****23.10.17 -- Angeles Partners VIII.
*****23.10.18 -- Angeles Partners IX.
*****23.10.19 -- Angeles Partners X.
*****23.10.20 -- Angeles Partners XI.
*****23.10.21 -- Angeles Partners XII.
*****23.10.22 -- Angeles Partners XIV.
*****23.10.23 -- Consolidated Capital Institutional Properties/2.
*****23.10.24 -- Consolidated Capital Institutional Properties/3.
*****23.10.25 -- Consolidated Capital Properties III.
*****23.10.26 -- Consolidated Capital Properties IV.
*****23.10.27 -- Consolidated Capital Properties V.
*****23.10.28 -- Consolidated Capital Properties VI.
*****23.10.29 -- Davidson Diversified Real Estate I, L.P.
*****23.10.30 -- Davidson Diversified Real Estate II, L.P.
*****23.10.31 -- Davidson Diversified Real Estate III, L.P.
*****23.10.32 -- Davidson Growth Plus, L.P.
*****23.10.33 -- Davidson Income Real Estate, L.P.
*****23.10.34 -- Investors First-Staged Equity.
*****23.10.35 -- Johnstown/Consolidated Income Partners.
*****23.10.36 -- Multi-Benefit Realty Fund '87-1.
*****23.10.37 -- Shelter Properties III.
*****23.10.38 -- Shelter Properties VI.
*****23.10.39 -- Shelter Properties VII Limited Partnership.
*****23.10.40 -- U.S. Realty Partners Limited Partnership.
*****23.11 Consents of Deloitte & Touche (Cedar-Tree Investors Limited
Partnership and Wingfield Investors Limited Partnership).
*****23.11.1 -- HCW Pension Real Estate Fund Limited Partnership.
*****23.11.2 -- United Investors Growth Properties.
*****23.11.3 -- United Investors Growth Properties II.
*****23.11.4 -- United Investors Income Properties.
*****23.12 Consents of Reznick Fedder & Silverman (Burnsville
Apartments, LP (Minneapolis Associates II Limited
Partnership), Chestnut Hill Associates Limited
Partnership, DFW Apartment Investors Limited Partnership,
DFW Residential Investors Limited Partnership, Olde Mill
Investors Limited Partnership, Park Towne Place
Associates Limited Partnership and Texas Residential
Investors Limited Partnership, Winthrop Apartment
Investors Limited Partnership).
*****23.12.1 -- Riverside Park Associates L.P.
*****23.12.2 -- Springhill Lake Investors Limited Partnership.
*****23.13 Consent of Barry S. Fishman & Associates (Ravensworth
Associates Limited Partnership).
23.14 Consents of Imowitz Koenig LLP with respect to financial
statements of the following entities:
*****23.14.1 -- Winthrop Apartment Investors Limited Partnership.
</TABLE>
<PAGE> 461
<TABLE>
<C> <S>
*****23.14.2 -- Winrock -- Houston Limited Partnership.
*****23.14.3 -- Century Properties Fund XVI.
*****23.14.4 -- Century Properties Fund XVIII.
*****23.14.5 -- Century Properties Fund XIX.
*****23.14.6 -- Century Properties Growth Fund XXII.
23.14.7 -- [Reserved].
*****23.14.8 -- Fox Strategic Housing Income Partners.
*****23.14.9 -- National Property Investors 8.
*****23.14.10 -- Winthrop Growth Investors 1 Limited Partnership.
*****23.15.1 Consent of Pannell Kerr Forster PC (Drexel Burnham Lambert Real Estate Associates II).
****23.16 Consent of Beers & Cutler PLLC.
*****24.1 Power of Attorney for Apartment Investment and Management Company.
*****24.2 Power of Attorney for AIMCO Properties, L.P.
</TABLE>
- ---------------
* Incorporated by reference from AIMCO's Registration Statement on Form 8-A
filed on July 19, 1994.
** To be filed by amendment.
*** Incorporated by reference from AIMCO's Form 8-K filed on July 2, 1998.
**** Filed herewith.
***** Previously filed.
(b)Financial Statement Schedules
Not Applicable.
(c)Report, opinion or appraisal
To be included in Prospectus Supplement, as applicable.
<PAGE> 1
EXHIBIT 12.1
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------------- ----------------------------
Nine Months
Ended January 10, Nine Months
September 30, Year Ended December 31, 1994 through Ended Year Ended
------------------ ---------------------------- December 31, September 30, December 31,
1998 1997 1997 1996 1995 1994 1998 1997
-------- ------- -------- ------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (1) $ 51,203 $20,649 $ 29,535 $15,740 $14,988 $7,702 $ 51,542 $111,720
Fixed charges:
Interest expense 56,756 33,359 51,385 24,802 13,322 1,576 90,080 96,400
Capitalized interest 2,074 751 1,300 821 113 29 2,074 1,300
-------- ------- -------- ------- ------- ------ -------- --------
Total fixed charges (A) 58,830 34,110 52,685 25,623 13,435 1,605 92,154 97,700
-------- ------- -------- ------- ------- ------ -------- --------
Earnings before fixed
charges (2)(B) $107,959 $54,008 $ 80,920 $40,542 $28,310 $9,278 $141,622 $208,120
======== ======= ======== ======= ======= ====== ======== ========
Ratio of earnings to fixed
charges (B divided by A) 1.8:1.0 1.6:1.0 1.5:1.0 1.6:1.0 2.1:1.0 5.8:1.0 1.5:1.0 2.1:1.0
======== ======= ======== ======= ======= ======= ======= ========
</TABLE>
AIMCO PREDECESSORS
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
January 1, Year ended
1994 through December 31,
July 28, 1994 1993
----------------------------
<S> <C> <C>
Historical:
Income (loss) before extraordinary item and income taxes $(1,463) $ 627
Fixed charges:
Interest expense 4,214 3,510
Capitalized interest -- --
------- ------
Total fixed charges (A) 4,214 3,510
------- ------
Earnings before fixed charges (1)(B) $ 2,751 $4,137
======= ======
Ratio of earnings to fixed charges (B divided by A) (3) 1.2:1.0
======= =======
</TABLE>
- ----------------
(1) Earnings represents pretax income before Minority Interest in Operating
Partnership and minority interest in other partnership. Equity in earnings
of unconsolidated subsidiaries and partnerships is included in earnings
only to the extent of dividends and distributions received.
(2) Earnings before fixed charges excludes capitalized interest.
(3) Earnings for the period January 1, 1994 through July 28, 1994 were
inadequate to cover fixed charges. The deficiency for the period was
$1,463.
<PAGE> 1
EXHIBIT 12.2
CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(DOLLARS IN THOUSANDS)
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------------------------------ -----------------------------
Nine Months
Ended January 10, Nine Months
September 30, Year Ended December 31, 1994 through Ended Year Ended
------------------ ---------------------------- December 31, September 30, December 31,
1998 1997 1997 1996 1995 1994 1998 1997
-------- ------- -------- ------- ------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (1) $ 51,203 $20,649 $ 29,535 $15,740 $14,988 $7,702 $ 51,542 $111,720
Fixed charges:
Interest expense 56,756 33,359 51,385 24,802 13,322 1,576 90,080 96,400
Capitalized interest 2,074 751 1,300 821 113 29 2,074 1,300
Preferred stock dividends 16,320 846 2,315 -- 5,169 3,114 30,914 41,174
-------- ------- -------- ------- ------- ------ -------- --------
Total fixed charges (A) 75,150 34,956 55,000 25,623 18,604 4,719 123,068 138,874
-------- ------- -------- ------- ------- ------ -------- --------
Earnings before fixed
charges (2)(B) $107,959 $54,008 $ 80,920 $40,542 $28,310 $9,278 $141,622 $208,120
======== ======= ======== ======= ======= ====== ======== ========
Ratio of earnings to fixed
charges (B divided by A) 1.4:1.0 1.5:1.0 1.5:1.0 1.6:1.0 1.5:1.0 2.0:1.0 1.2:1.0 1.5:1.0
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
AIMCO PREDECESSORS
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
January 1, Year ended
1994 through December 31,
July 28, 1994 1993
------------- ------------
<S> <C> <C>
Historical:
Income (loss) before extraordinary item and income taxes $(1,463) $ 627
Fixed charges:
Interest expense 4,214 3,510
Capitalized interest -- --
Preferred stock dividends (3) -- --
------- ------
Total fixed charges (A) 4,214 3,510
------- ------
Earnings before fixed charges (1)(B) $ 2,751 $4,137
======= ======
Ratio of earnings to fixed charges (B divided by A) (4) 1.2:1.0
======= =======
</TABLE>
- ----------------
(1) Earnings represents pretax income before Minority Interest in Operating
Partnership and minority interest in other partnership. Equity in earnings
of unconsolidated subsidiaries and partnerships is included in earnings
only to the extent of dividends and distributions received.
(2) Earnings before fixed charges excludes capitalized interest and preferred
stock dividends.
(3) The AIMCO Predecessors did not have any shares of Preferred Stock
outstanding during the period from January 1, 1992 through July 28, 1994.
(4) Earnings for the period January 1, 1994 through July 28, 1994 were
inadequate to cover fixed charges. The deficiency for the period was
$1,463.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 4 to the Registration Statement on Form S-4 and related Prospectus of
Apartment Investment and Management Company for the registration of Preferred
Stock and Class A Common Stock and of AIMCO Properties, L.P. for the
registration of Partnership Preferred Units and Partnership Common Units, and to
the incorporation by reference therein of our reports (i) dated March 6, 1998,
except for Note 25, as to which the date is March 17, 1998, with respect to the
consolidated financial statements and schedule of Apartment Investment and
Management Company included in its Annual Report (Form 10-K/A) for the year
ended December 31, 1997; (ii) dated March 6, 1998, except for Note 21, as to
which the date is June 5, 1998, with respect to the consolidated financial
statements and schedule of AIMCO Properties, L.P. included in its Registration
Statement on Form 10; and (iii) dated June 26, 1998, with respect to the audit
of the Combined Historical Summary of Gross Income and Direct Operating Expenses
of the Cirque Apartment Communities included as Exhibit 99.1 in Apartment
Investment and Management Company's Current Report on Form 8-K dated November 2,
1998, all filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
November 20, 1998
<PAGE> 1
EXHIBIT 23.10.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 10, 1998, February 10, 1997, and February
9, 1996, with respect to the financial statements of Shannon Manor Apartments, A
Limited Partnership for the years ended December 31, 1997, 1996 and 1995
included in the Prospectus Supplement of AIMCO Properties, L.P.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
October 5, 1998
<PAGE> 1
EXHIBIT 23.10.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 9, 1998, February 25, 1997, and March 6,
1996, with respect to the financial statements of Woodmere Associates Limited
Partnership for the years ended December 31, 1997, 1996 and 1995 included in
the Prospectus Supplement of AIMCO Properties, L.P.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
October 5, 1998
<PAGE> 1
EXHIBIT 23.16
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 4 to the Registration Statement on Form S-4 and related Prospectus of
Apartment Investment and Management Company for the registration of Preferred
Stock and Class A Common Stock and of AIMCO Properties, L.P. for the
registration of Partnership Preferred Units and Partnership Common Units, and to
the incorporation by reference therein of our reports (i) dated February 11,
1998, except for Note 1 as to which the date is October 16, 1998, with respect
to the audit of the Combined Historical Summary of Gross Income and Direct
Operating Expenses of Realty Investment Apartment Communities I included as
Exhibit 99.2 in Apartment Investment and Management Company's Current Report on
Form 8-K dated November 2, 1998; and (ii) dated January 28, 1998, except for
Note 1 as to which the date is July 24, 1998, with respect to the audit of the
Combined Historical Summary of Gross Income and Direct Operating Expenses of
Realty Investment Apartment Communities II included as Exhibit 99.3 in Apartment
Investment and Management Company's Current Report on Form 8-K dated November 2,
1998, all filed with the Securities and Exchange Commission.
BEERS & CUTLER PLLC
Washington, D.C.
November 20, 1998
