<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1998
REGISTRATION NO. 333-47201
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
Amendment No. 2
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 84-1259577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
--------------------
<TABLE>
<S> <C>
1873 SOUTH BELLAIRE STREET, TERRY CONSIDINE
17TH FLOOR CHAIRMAN OF THE BOARD OF DIRECTORS
DENVER, COLORADO 80222 APARTMENT INVESTMENT
(303) 757-8101 AND MANAGEMENT COMPANY
(Address, including zip code, and 1873 SOUTH BELLAIRE STREET,
telephone number, including area 17TH FLOOR
code, of registrant's principal DENVER, COLORADO 80222
executive offices) (303)757-8101
(Name, address, including zip code,
and telephone number, including area
code, of Agent for Service)
</TABLE>
--------------------
JONATHAN L. FRIEDMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
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(c)
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF SHARES AMOUNT TO PROPOSED PROPOSED AMOUNT OF
TO BE REGISTERED BE MAXIMUM MAXIMUM REGISTRATION
REGISTERED OFFERING AGGREGATE FEE
PRICE PER OFFERING PRICE
UNIT (1) (1)
<S> <C> <C> <C> <C>
Class A Common Stock,
par value $.01 per
share . . . . . . . 2,954,388(2) $38.0625 $112,450,000 $33,172.75(3)
</TABLE>
(1) Calculated pursuant to Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended, based on the average of the high and low
prices on August 18, 1998.
(2) Plus such additional number of shares of Class A Common Stock as may be
issued pursuant to antidilution adjustment provisions in exchange for
Partnership Common Units of AIMCO Properties, L.P.
(3) $17,382.52 of this fee was paid prior to the initial filing
of this registration statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
2
<PAGE>
PROSPECTUS
2,954,388 SHARES
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CLASS A COMMON STOCK
This Prospectus relates to the offer and sale from time to time by
certain selling stockholders (collectively, the "Selling Stockholders") of up
to 2,954,388 shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), of Apartment Investment and Management Company, a
Maryland corporation ("AIMCO"), as described herein under "Selling
Stockholders." AIMCO will not receive any proceeds from the sale of such
shares of Class A Common Stock.
The Class A Common Stock is listed and traded on the New York Stock
Exchange (the "NYSE") under the symbol "AIV." On August 24, 1998, the last
reported sale price of the Class A Common Stock on the NYSE was $38.75 per
share.
The Selling Stockholders may sell the Class A Common Stock offered hereby
from time to time on the NYSE or such other national securities exchange or
automated interdealer quotation system on which shares of Class A Common Stock
are then listed, through negotiated transactions or otherwise at market prices
prevailing at the time of the sale or at negotiated prices. See "Plan of
Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE CLASS A COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August 25, 1998
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<PAGE>
AVAILABLE INFORMATION
AIMCO is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by AIMCO with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, 13th Floor, New York, New York 10048; and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained at prescribed rates from the
Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material can also be inspected at the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. The Commission
also maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
AIMCO has filed with the Commission a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Class A Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Such additional information is available for
inspection and copying at the offices of the Commission. Statements contained in
this Prospectus, in any Prospectus Supplement or in any document incorporated by
reference herein or therein as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to, or incorporated by reference in, the Registration Statement, each
such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by AIMCO with the Commission
pursuant to the Exchange Act (File No. 1-13232), are incorporated herein by
reference:
(i) Annual Report on Form 10-K/A for the year ended December 31, 1997;
(ii) Quarterly Report on Form 10-Q/A for the quarter ended March 31,
1998, and Quarterly Report on Form 10-Q for the quarter ended June 30, 1998;
(iii) 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 and 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, and Amendment No. 4 thereto filed
August 6, 1998); and
(iv) the description of the Class A Common Stock which is contained in a
Registration Statement on Form 8-A (File No. 1-13232) filed July 19, 1994,
including any amendment or reports filed for the purpose of updating such
description.
All documents filed by AIMCO pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement
4
<PAGE>
contained herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document that is or is deemed to be incorporated by reference
herein modifies or supersedes such previous statement. Any statement so modified
or superseded shall not be deemed to constitute a part of this Prospectus,
except as so modified or superseded.
Copies of all documents which are incorporated herein by reference (other
than the exhibits to such documents, unless such exhibits are specifically
incorporated by reference herein), will be provided without charge to any person
to whom this Prospectus has been delivered, upon request. Requests for such
copies should be directed to Apartment Investment and Management Company, 1873
South Bellaire Street, 17th Floor, Denver, Colorado 80222, Attention: Corporate
Secretary, telephone number (303) 757-8101.
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus or
any Prospectus Supplement and, if given or made, such information or
representation must not be relied upon as having been authorized by AIMCO or any
underwriter or agent. This Prospectus and any Prospectus Supplement do not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction where, or to any person to whom,
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus or any Prospectus Supplement nor any sale made hereunder or
thereunder shall, under any circumstances, create any implication that the
information herein or therein is correct as of any time subsequent to their
respective dates.
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . 4
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SELLING STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . 22
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
5
<PAGE>
THE COMPANY
GENERAL
Apartment Investment and Management Company ("AIMCO" and, together with
its majority-owned subsidiaries and controlled entities, the "Company") is
one of the largest owners and managers of multifamily apartment properties in
the United States, based on apartment unit data compiled by the National
Multi Housing Council as of January 1, 1998, with 200,911 apartment units
owned or under management as of June 30, 1998. As of June 30, 1998, the
Company owned or controlled a total of 58,345 units in 210 apartment
properties (the "Owned Properties"), had an equity interest in 74,318 units
in 478 apartment properties (the "Equity Properties"), and managed 68,248
units in 357 apartment properties (the "Managed Properties," and, together
with the Owned Properties and the Equity Properties, the "AIMCO Properties").
In addition to the Managed Properties, the Company manages all of the Owned
Properties and a majority of the Equity Properties. The AIMCO Properties are
located in 42 states, the District of Columbia and Puerto Rico. The Company
conducts its operations primarily through AIMCO Properties, L.P., a Delaware
limited partnership (the "Operating Partnership"), and its subsidiaries. As
of June 30, 1998, AIMCO held approximately an 89% interest in the Operating
Partnership. AIMCO has elected to be taxed as a real estate investment trust
("REIT") for federal income tax purposes.
BankBoston, N.A. serves as transfer agent and registrar of AIMCO's Class
A Common Stock, par value $.01 per share ("AIMCO Stock" or "Class A Common
Stock"). AIMCO's headquarters are located at 1873 South Bellaire Street, 17th
Floor, Denver, Colorado 80222, and its telephone number is (303) 757-8101.
INSIGNIA MERGER
AIMCO and the Operating Partnership have entered into an agreement
and plan of merger (as amended and restated as of May 26, 1998, the "Insignia
Merger Agreement") with Insignia Financial Group, Inc. ("Insignia") and
Insignia/ESG Holdings, Inc. ("Holdings") pursuant to which Insignia will be
merged into AIMCO (the "Insignia Merger"). Insignia is a fully integrated
real estate services organization specializing in the ownership and operation
of securitized real estate assets. Insignia is the largest manager of
multifamily residential properties in the United States according to the 1998
National Multi Housing Council 50 Report published in March 1998 and one of
the leading brokers and managers of commercial properties according to the
Commercial Property News dated January 1, 1998. Insignia performs property
management, asset management, investor services, partnership accounting, real
estate investment banking, and real estate brokerage services for various
types of property owners, including approximately 900 limited partnerships
having approximately 350,000 limited partners. Insignia provides property
management services for approximately 185,000 multifamily units, consisting
of 113,000 units which are controlled by Insignia and 72,000 units owned by
third parties. The Insignia Merger is subject to approval by Insignia's
stockholders and other customary conditions. It is expected that the Insignia
Merger, if approved, would be completed in early October 1998.
At the time of the Insignia Merger, Insignia will consist principally
of: (i) Insignia's interests in Insignia Properties Trust, a Maryland REIT,
which is a majority owned subsidiary of Insignia ("IPT"), and Insignia
Properties, L.P., IPT's operating partnership ("IPLP"); (ii) 100% of the
ownership of the Insignia entities that provide multifamily property
management and partnership administrative services; (iii) Insignia's interest
in multifamily coinvestments; (iv) Insignia's ownership of subsidiaries
that control multifamily properties not included in IPT; (v) Insignia's
limited partner interest in public and private syndicated real estate limited
partnerships; and (vi) assets incidental to the foregoing businesses
(collectively, the "Insignia Multifamily Business"). Prior to the Insignia
Merger, the remaining businesses of Insignia will be transferred to Holdings
and all of the capital stock of Holdings will be distributed to Insignia's
stockholders (the "Distribution").
If the Insignia Merger is approved by the stockholders of AIMCO, the
outstanding shares of Insignia's Common Stock will be converted into the
right to receive, in the aggregate, a number of shares of AIMCO's Class E
Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series
E Preferred Stock"), approximately equal to $303 million divided by the AIMCO
Index Price (as defined below) and, in certain cases, cash which AIMCO, in
its sole discretion, may elect to pay if the AIMCO Index Price is less than
$36.50 (the "Merger Consideration"). In addition to receiving the same
dividends as holders of shares of Class A Common Stock, holders of Series E
Preferred Stock on the record date for payment to be set by the AIMCO Board
of Directors will be entitled to receive a special dividend of $50 million in
the aggregate (the "Special Dividend"). When the Special Dividend is paid in
full, each share of Series E Preferred Stock will automatically convert into
one share of Class A Common Stock (subject to certain antidilution
adjustments). In addition, approximately $458 million in outstanding debt and
other liabilities of Insignia and its subsidiaries will become obligations of
AIMCO and its subsidiaries after the Insignia Merger. The "AIMCO Index Price"
is defined as the average market price of Class A Common Stock during a fixed
period prior to the Insignia Merger, subject to a maximum average price of
$38.00 per share. The AIMCO Index Price is not intended to and will not
necessarily represent the fair market value of Series E Preferred Stock and
Series F Preferred Stock (as defined below).
If the stockholders of AIMCO do not approve the Insignia Merger, the
Insignia Merger will nonetheless be consummated assuming all other conditions
thereto are satisfied or waived. In such event, AIMCO will issue to holders
of shares of Insignia Common Stock, in the aggregate, a number of shares of
Series E Preferred Stock approximately equal to $203 million divided by the
AIMCO Index Price and a number of shares of AIMCO's Class F Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Series F
Preferred Stock"), approximately equal to $100 million divided by the AIMCO
Index Price, in lieu of approximately $303 million of Series E Preferred
Stock. In either case, holders of Series E Preferred Stock will be entitled
to the Special Dividend. When the Special Dividend is paid in full, each
share of Series E Preferred Stock will automatically convert into one share
of Class A Common Stock (subject to certain antidilution adjustments). If and
when approved by stockholders of AIMCO, each share of Series F Preferred
Stock will convert into one share of Class A Common Stock (subject to certain
antidilution adjustments).
As of the filing of this Registration Statement, Insignia and
its subsidiaries own approximately 61% of the outstanding shares of
beneficial interest, par value $.01 per share, of IPT ("IPT Shares"). The
Insignia Merger Agreement requires AIMCO to propose to acquire (by merger)
all of the IPT Shares not owned by Insignia and its subsidiaries, and to use
its reasonable best efforts to consummate such merger within three months
following the completion of the Insignia Merger (the "Effective Time") at a
purchase price of not less than $13.25 per IPT Share, payable in cash.
Assuming a price of $13.25 per IPT Share, the remaining 39% of IPT, owned
principally by private investors and certain executives of Insignia, is
valued at approximately $100 million. In addition, IPT is party to a merger
agreement with Angeles Mortgage Investment Trust ("AMIT"), which, if
approved by AMIT's stockholders and consummated, will result in the issuance
of additional IPT Shares and, therefore, the payment by AIMCO in a merger
with IPT of an additional approximate $53.8 million at an assumed price of
$13.25 per IPT Share.
AMBASSADOR MERGER
On May 8, 1998, Ambassador Apartments, Inc. ("Ambassador") was merged
into AIMCO (the "Ambassador Merger"), and the outstanding shares of common
stock, par value $.01 per share, of Ambassador (the "Ambassador Common
Stock"), were converted into a total of 6,578,833 shares of Class A Common
Stock. Upon the consummation of the Ambassador Merger, Ambassador and its
subsidiaries had aggregate outstanding indebtedness of approximately $406.1
million, which by operation of law became indebtedness of AIMCO or its
subsidiaries upon consummation of the Ambassador Merger.
Ambassador was a self-managed REIT engaged in the owenership and
management of garden style apartment properties leased primarily to middle
income tenants. As of the consummation of the Ambassador Merger, Ambassador
owned 52 apartment communities with a total of 15,728 units located in
Arizona, Colorado, Florida, Georgia, Illinois, Tennessee and Texas. In
addition, Ambassador managed one property containing 252 units for an
unrelated third party.
6
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7
<PAGE>
RISK FACTORS
An investment in shares of Class A Common Stock involves various risks. In
addition to general investment risks and those factors set forth elsewhere, or
incorporated by reference, in this Prospectus, potential investors should
consider, among other things, the following factors:
RISKS ASSOCIATED WITH INTEGRATING AMBASSADOR, INSIGNIA AND OTHER ACQUIRED
BUSINESSES.
The Insignia Merger constitutes the largest acquisition ever undertaken
by AIMCO, involving a total transaction value in excess of $800 million. In
addition to the risks typically associated with acquisitions generally, the
integration of Insignia's and Ambassador's respective businesses with the
Company's business may place a significant burden on the Company's management
and its systems. See "-Risks of Acquisition and Development Activities". Such
integration is subject to risks commonly encountered in making such
acquisitions, including, among others, loss of key personnel of Insignia or
Ambassador, the difficulty associated with assimilating the personnel and
operations of Insignia and Ambassador, the disruption of the Company's
ongoing business and acquisition strategy, the difficulty in maintaining
uniform standards, controls, procedures and policies and the possible
impairment of the Company's reputation. No assurance can be given that the
anticipated benefits from the Insignia Merger, if consummated, or the
Ambassador Merger will be realized, that the Company will be able to
integrate such businesses successfully or that the Company will not be
required to make expenditures to enhance its systems. Failure of the Company
to integrate such businesses successfully could have a material adverse
effect on the Company's results of operations. Substantial growth in the
Company's portfolio as a result of recent and possible future acquisitions of
businesses may involved similar burdens and risks.
ADVERSE CONSEQUENCES OF AIMCO'S FAILURE TO ACQUIRE IPT
The Insignia Merger Agreement provides that following consummation of
the Insignia Merger, AIMCO is required to propose to acquire (by merger) all
IPT Shares not owned by Insignia and its subsidiaries. The Insignia Merger
Agreement also provides that AIMCO will use its reasonable best efforts, and
that Insignia will use its commercially reasonable efforts, to cause the
combination of the assets of IPLP and the Operating Partnership. If AIMCO is
unable to complete the acquisition of the IPT Shares or the combination of
the assets of IPLP and the Operating Partnership, AIMCO may need to
contribute the right to manage IPT properties to a taxable subsidiary
corporation to avoid the risk that income from such activities would be
considered to be derived from third-party property management services, which
income generally would not be treated as qualifying income for purposes of
the income-related REIT requirements. Such actions could adversely affect the
qualification of the Distribution and Insignia Merger as tax-free
transactions under the Internal Revenue Code of 1986, as amended (the
"Code"). If the Insignia Merger does not qualify as a tax-free
reorganization, Insignia would recognize a taxable gain in an amount equal to
the excess of the fair market value of its assets over the tax basis in its
assets. Such gain would result in AIMCO succeeding to a substantial corporate
income tax liability that could have a material adverse effect on the Company.
POSSIBLE CONFLICT OF INTERESTS; TRANSACTIONS WITH AFFILIATES
AIMCO and certain of its officers and/or directors have entered into,
and may in the future enter into, certain types of transactions that may
result in conflicts of interest between AIMCO and such officers and/or
directors. These types of transactions include: the acquisition by AIMCO of
property or assets from, or the sale by AIMCO of property or assets to, such
officers and/or directors; making loans to or borrowing from such officers
and/or directors, including in connection with the purchase of Class A Common
Stock or the purchase of interests in the Operating Partnership and other
unconsolidated subsidiaries of AIMCO; investments by AIMCO in partnerships or
other entities (such as the Operating Partnership and such other
unconsolidated subsidiaries) in which such officers and/or directors have a
controlling equity interest or other form of ownership interest; and the
purchase or sale of real estate or other assets by such officers and/or
directors, where the acquisition of such real estate or assets is also a
corporate opportunity for AIMCO. AIMCO has adopted certain policies designed
to minimize or eliminate conflicts of interest between AIMCO and its officers
and/or directors. Without the approval of a majority of the disinterested
directors, AIMCO will not acquire from or sell to any director, officer or
employee of AIMCO or any entity in which such director, officer or employee
owns more than a 1% interest, or acquire from or sell to any affiliate of any
of the foregoing persons, any assets or other property of AIMCO, make any
loan to or borrow from any of the forgoing persons, or engage in any material
transaction with the foregoing persons. In addition, AIMCO has entered into
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 AIMCO, 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 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. Furthermore, such policies are subject to
change without the approval of stockholders of AIMCO.
The Company presently manages the Managed Properties through Property
Asset Management Services, L.P., a Delaware limited partnership ("PAMS LP"),
Property Asset Management Services, Inc., a Delaware corporation ("PAMS
Inc.") and certain other subsidiaries (collectively with PAMS LP and PAMS
Inc., the "Management Subsidiaries"). In order to satisfy certain REIT
requirements, the ownership of certain Management Subsidiaries consists of
the Operating Partnership holding non-voting preferred stock that represents
a 95% economic interest, and certain officers and/or directors of the Company
holding, directly or indirectly, all of the voting common stock, representing
a 5% economic interest. In addition, the Management Subsidiaries provide
property management services with respect to certain Managed Properties in
which certain officers and/or directors of the Company have separate
ownership interests. The fees for these services have been negotiated on an
individual basis and typically range from 3% to 6% of gross receipts for the
particular property. Although these arrangements were not negotiated on an
arm's-length basis, the Company believes, based on comparisons to the fees
charged by other real estate companies and by the Management Subsidiaries
with respect to unaffiliated Managed Properties in comparable locations, that
the terms of such arrangements are fair to the Company.
8
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On January 31, 1998 AIMCO entered into a Contribution Agreement (the
"Contribution Agreement") with CK Services, Inc. ("CK") and the stockholders
of CK to cause certain assets of AIMCO to be contributed to CK. CK is a
corporation wholly-owned by Terry Considine, AIMCO's Chairman and Chief
Executive Officer, and Peter Kompaniez, AIMCO's President and Vice Chairman.
As a result, when the stock of CK is transferred to AIMCO, the stockholders
of CK will receive payment for the stock; the stock is to be priced at fair
market value and, if market value is difficult to ascertain, there can be no
assurance that the pricing will favor AIMCO. It is AIMCO's intent to use CK
as a vehicle for holding property and performing services that AIMCO is
limited or prohibited from holding or providing due to AIMCO's election to be
taxed as a REIT. AIMCO is finalizing which assets will be contributed to CK.
Any transfer of assets or services to CK will be at prices approved by the
independent members of the Board of Directors, and if market prices are
difficult to ascertain, there can be no assurance that the pricing will favor
AIMCO. It is anticipated that the assets to be contributed to CK will be
immaterial compared to total assets held by AIMCO. No prediction can be made
whether or when any spinoff of CK to AIMCO will occur.
DEBT FINANCING AND INTEREST RATE HEDGING RISKS
AIMCO and its subsidiaries, and partnerships in which a subsidiary of
AIMCO is a general partner, have significant amounts of debt outstanding and,
accordingly, are subject to the risks normally associated with debt
financing, including the risk that cash flow from operations will be
insufficient to make required payments of principal and interest, the risk
that existing indebtedness, including secured indebtedness, may not be
refinanced or that the terms of any refinancing will not be as favorable as
the terms of existing indebtedness. As of June 30, 1998, 94% of AIMCO's Owned
Properties and 43% of its total consolidated assets were encumbered by debt,
and AIMCO had total outstanding consolidated indebtedness of $1,314.5
million, $1,196.0 million of which was secured by Owned Properties and other
assets. The Company's unsecured $50 million revolving credit facility
agreement with Bank of America and Bank Boston, N.A. (the "BOA Credit
Facility") and the $50 million secured revolving credit facility agreement
between the Operating Partnership, the Company and certain single asset
wholly-owned subsidiaries of the Company, as guarantors, and Washington
Mortgage Financial Group, Ltd. (the "WMF Credit Facility") (collectively, the
"Credit Facilities"), restrict AIMCO's ability to effect certain mergers,
business consolidations and asset sales, imposes minimum net worth
requirements, and require AIMCO to maintain a ratio of debt to gross asset
value of no more than 0.55:1, an interest coverage ratio of at least 2.25:1
and a debt service coverage ratio of at least 2.00:1. The Credit Facilities
contain restrictive covenants which may limit the ability of the Company to
pay dividends or make other restricted payments. In particular, the BOA
Credit Facility provides that the Company may make distributions during any
12 month period in an amount, in the aggregate, which does not exceed the
greater of 80% of the Company's funds from operations ("FFO") for such period
or such amount as may be necessary to maintain REIT status, provided that no
event of default exists as a result of a breach of certain financial ratios
and tests that the Company is required to meet. Failure to perform or observe
covenants or conditions under an intracompany subordination agreement entered
into in connection with the BOA Credit Facility and events of default
resulting in acceleration under AIMCO's other financing arrangements, among
other events, are considered defaults under the BOA Credit Facility. General
Motors Acceptance Corporation has made loans (the "GMAC Loans"), with an
aggregate outstanding principal balance of $420.1 million at June 30, 1998,
to property owning partnerships in which a subsidiary of AIMCO is the general
partner, each of which is secured by the underlying Owned Property of such
partnership. Certain of the GMAC Loans, having an aggregate balance of $163.8
million outstanding as of June 30, 1998, are cross-collateralized with
certain other GMAC Loans, and certain loans currently held by the Federal
National Mortgage Association ("Fannie Mae"), having an aggregate balance of
$303.9 million outstanding as of June 30, 1998, are cross-collateralized and
cross-defaulted with certain other Fannie Mae loans. Other than certain GMAC
Loans and Fannie Mae loans and loans under the Credit Facilities, none of
AIMCO's debt is subject to cross-collateralization or cross-default
provisions. Cross-collateralization of indebtedness increases the risk of
default on each loan as a single under-performing property can draw on the
revenues of any cross-collateralized property. AIMCO's Articles of
Incorporation, as amended and supplemented from time to time (the "AIMCO
Charter"), do not limit the amount of indebtedness which may be incurred by
AIMCO and its subsidiaries.
As a result of the Insignia Merger and related transactions, the total
indebtedness of the Company will increase from approximately $1.1 billion
(after giving effect to certain completed transactions) to approximately $1.6
billion, in each case on a pro forma basis at March 31, 1998.
Concurrently with the closing of the Ambassador Merger, the Operating
Partnership executed a guaranty in favor of Fannie Mae (the "Global
Guaranty") pursuant to which the Operating Partnership guaranteed payment of
the obligations under certain of the Fannie Mae loans and the WMF Credit
Facility. The obligations of the Operating Partnership under the Global
Guaranty are limited to the amount of excess cash flow generated by the 74
properties securing the loans guaranteed pursuant to the Global Guaranty. The
Global Guaranty is secured by certain cash collection accounts and a letter
of credit.
As of June 30, 1998, approximately 86% of AIMCO's total consolidated
indebtedness was subject to fixed interest rates and approximately 14%
(approximately $184.0 million) was subject to variable interest rates.
Although, as described below, AIMCO has certain hedging arrangements in
place, increases in interest rates could increase AIMCO's interest expense
and adversely affect cash flow. AIMCO from time to time enters into
agreements to reduce the risks associated with increases in short term
interest rates. Although these agreements provide AIMCO with some protection
against rising interest rates, these agreements also reduce the benefits to
AIMCO when interest rates decline.
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From time to time, the Company enters into interest rate lock agreements
with major investment banking firms, in anticipation of refinancing debt.
Interest rate lock agreements related to planned refinancings of identified
variable rate indebtedness are accounted for as anticipatory hedges. Upon the
refinancing of such indebtedness, any gain or loss associated with the
termination of the interest rate lock agreement is deferred and recognized
over the life of the refinanced indebtedness. In order for the interest rate
lock to qualify as an anticipatory hedge, the following criteria must be met:
(a) the refinance being hedged exposes the Company to interest rate risk; (b)
the interest rate lock is designated as a hedge; (c) the significant
characteristics and expected terms of the refinance are identified; and (d)
it is probable that the refinance will occur. The Company believes that all
four of the above qualifications have been met. In the event that any of the
above qualifications are not met, the interest rate lock will not qualify as
an anticipatory hedge, and the gain or loss on the interest rate lock will be
recognized in the current period's earnings. In September 1997, AIMCO entered
into an interest rate lock agreement having a notional principal amount of
$75.0 million, in anticipation of refinancing certain floating rate
indebtedness. The interest rate lock agreement fixed the ten-year treasury
rate at 6.32%.
During 1998, the Company refinanced certain mortgage indebtedness
relating to ten real estate partnerships and realized losses of approximately
$3.9 million, which have been deferred and will be amortized over the life of
the refinanced debt. These losses, when amortized, will result in effective
interest rates of 7.7% over the life of the refinanced debt.
On May 8, 1998, in connection with the consummation of the Ambassador
Merger, the Company assumed six interest rate swap agreements, having
termination dates between October 3, 2003, and March 3, 2004, with several
major investment banking firms.
The swap agreements modify the interest characteristics of a portion of
the Company's outstanding debt. Each interest rate swap agreement is
designated with all or a portion of the principal balance and term of a
specific debt obligation. These agreements involve the exchange of amounts
based on a fixed interest rate for amounts based on variable interest rates
over the life of the agreement without an exchange of the notional amount
upon which the payments are based.
Pursuant to the terms of the swap and related credit support agreements,
the Company is required to post collateral to the swap providers for an
amount equal to their exposure, as defined, in each case to the extent that a
specified threshold is exceeded. The collateral posted by the Company may be
in the form of cash or governmental securities, as determined by the Company.
At June 30, 1998, the Company had posted approximately $6.6 million in cash
collateral under its swap agreements. The Company estimates that for every
0.25% decrease in the LIBOR interest rate yield, it will be required to post
approximately $2 million of additional collateral with the swap providers.
If interest rates rise, the Company estimates that for every 0.25% increase
in the LIBOR interest rate yield curve, recovery of the posted collateral of
a similar amount will be received up to the outstanding collateral balances.
On June 2, 1998, the Company settled one of the swap agreements. It is
the intent of the Company to terminate the remaining swap agreements in
December 1998. Based on the market value of the outstanding swap agreements
at June 30, 1998, the Company had an unrealized loss of $1.9 million.
Interest rate hedging arrangements may expose the Company to certain
risks. Interest rate movements during the term of interest rate hedging
arrangements may result in a gain or loss on the Company's investment in the
hedging arrangement. In addition, if a hedging arrangement is not indexed to
the same rate as the indebtedness that is hedged, the Company may be exposed
to losses to the extent that the rate governing the indebtedness and the rate
governing the hedging arrangement change independently of each other.
Finally, nonperformance by the other party to the hedging arrangement may
result in credit risks to the Company. In order to minimize counterparty
credit risk, the Company's policy is to enter into hedging arrangements only
with large financial institutions that maintain an investment grade credit
rating.
In December 1997, AIMCO refinanced certain secured long-term notes
payable in order to obtain more favorable interest rates. In anticipation of
the refinancing, AIMCO entered into a $100 million interest rate lock
agreement, which fixed the interest rate at 7.053%. Upon maturity of the
interest rate lock agreement, as a result of declining interest rates, AIMCO
realized a loss of approximately $10.9 million, which was deferred and will
be recognized over the life of the refinanced debt.
On March 18, 1998, Moody's Investors Services ("Moody's") announced that
it was reviewing for possible downgrade its "ba3" rating on AIMCO's Class C
Cumulative Preferred Stock and Class D Cumulative Preferred Stock. Moody's
expressed concern that the acquisition of the Insignia Multifamily Business
would increase AIMCO's leverage, which Moody's characterizes as "already high
compared to its peers." Moody's subsequently reconfirmed its rating of the
Class C Cumulative Preferred Stock and the Class D Cumulative Preferred
Stock. On March 19, 1998, Duff & Phelps Credit Rating Co. ("DCR") placed its
ratings of AIMCO on its "Rating Watch--Uncertain" in response to the
announcement that AIMCO will acquire the Insignia Multifamily Business. DCR
has since reviewed AIMCO's operating and financing plan for combining the
Ambassador and Insignia organizations and has removed AIMCO from its Rating
Watch.
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RISKS RELATED TO INVESTMENT IN AND MANAGEMENT OF REAL ESTATE
GENERAL. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend on
the amount of income generated and expenses incurred. The Company's income
from its Owned Properties and Equity Properties may be adversely affected by
the general economic climate, local conditions such as oversupply of
apartments or a reduction in demand for apartments in the area, the
attractiveness of the properties to tenants, competition from other available
apartments, the ability of the Company to provide adequate maintenance and
insurance, and increases in operating costs (including real estate taxes).
The Company's income from its Owned Properties and Equity Properties would
also be adversely affected if a significant number of tenants were unable to
meet their rent payment obligations when due or if apartments could not be
rented on favorable terms. Certain significant expenditures associated with
real property investments (such as debt service, real estate taxes and
maintenance costs) generally are not reduced when circumstances cause a
reduction in income from the investments. In addition, income from properties
and real estate values are also affected by such factors as applicable laws,
including tax laws, interest rate levels and the availability of financing.
If the Company's Owned Properties and Equity Properties do not generate
income sufficient to meet operating expenses, including debt service and
capital expenditures, the Company's income, and AIMCO's ability to pay
dividends to holders of Class A Common Stock , will be adversely affected.
Many of the factors that could adversely affect the Company's income from its
Owned Properties and Equity Properties could also adversely affect the
Company's income from its Managed Properties by reducing gross receipts for
such properties.
ILLIQUIDITY OF REAL ESTATE. Investments in real estate or partnerships
which own real estate may be illiquid. As a result, the Company may be unable
to vary its portfolio promptly in response to changes in economic or other
conditions.
OPERATING RISKS. The AIMCO Properties are subject to operating risks
common to apartment properties in general. These risks may adversely affect
the Company's cash flow from operations. For example, increases in
unemployment in the areas in which the AIMCO Properties are located may
adversely affect apartment occupancy or rental rates and it may not be
possible to offset increases in operating costs due to inflation and other
factors by increased rents. Local rental market characteristics also limit
the extent to which rents may be increased without decreasing occupancy
rates.
COMPETITION. There are numerous housing alternatives that compete with
the AIMCO Properties in attracting residents. Such properties compete
directly with other rental apartments and single family homes that are
available for rent in the markets in which such properties are located. Such
properties also compete for residents with new and existing homes and
condominiums. The ability of the Company to lease apartment units and the
level of rents charged is determined in large part by the number of
competitive properties in the local market. Numerous real estate companies
compete with the Company in each of its market areas in acquiring, developing
and managing apartment properties and seeking tenants to occupy their
properties and the Company's market share is small in each of its market
areas. In addition, numerous property management companies compete with the
Company in the markets where the Managed Properties are located. As the
multifamily residential market is fragmented, AIMCO does not have a majority
market share in any market nor does it benefit from any competitive advantage.
CHANGES IN LAWS. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the
restrictions on discharges or other conditions, as well as changes in laws
affecting development, construction and safety requirements, may result in
significant unanticipated expenditures which would adversely affect the
Company's cash flow from operating activities. In addition, future enactment
of rent control or rent stabilization laws or other laws regulating
multifamily housing may reduce, or limit the ability of the Company to
increase, rental revenue or increase operating costs in particular markets.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under Federal, state and local
environmental laws and regulations, a current or previous owner or operator
of real property may be required to investigate and clean up a
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release of hazardous substances at such property, and may, under such laws
and common law, be held liable for property damage and other costs incurred
by third parties in connection with such releases. The liability under
certain of these laws has been interpreted to be joint and several unless the
harm is divisible or there is a reasonable basis for allocation of
responsibility. The failure to remediate the property properly may also
adversely affect the owner's ability to sell or rent the property or to
borrow using the property as collateral. In connection with its ownership,
operation or management of the AIMCO Properties, the Company could be
potentially liable for environmental liabilities or costs associated with its
properties or properties it may in the future acquire or manage.
Certain Federal, state and local laws and regulations govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when those materials are in poor condition or in the event of
building remodeling, renovation or demolition, impose certain worker
protection and notification requirements and govern emissions of and exposure
to asbestos fibers in the air. These laws also impose liability for a release
of ACMs and may enable third parties to seek recovery from owners or
operators of real properties for personal injury associated with ACMs. In
connection with the ownership, operation or management of properties, the
Company could be potentially liable for those costs. There are ACMs at
certain of the Owned Properties, and there may be ACMs at certain of the
other AIMCO Properties. AIMCO has developed and implemented operations and
maintenance programs, as appropriate, that establish operating procedures
with respect to the ACMs at most of the Owned Properties, and intends to
develop and implement, as appropriate, such programs at AIMCO Properties that
do not have such programs.
Certain of the Owned Properties, and some of the other AIMCO
Properties, are located on or near properties that contain or have contained
underground storage tanks or on which activities have occurred which could
have released hazardous substances into the soil or groundwater. There can be
no assurances that such hazardous substances have not been released or have
not migrated, or in the future will not be released or will not migrate onto
the AIMCO Properties. Such hazardous substances have been released at certain
Owned Properties and, in at least one case, have migrated from an off-site
location onto the Company's property. In addition, the Company's Montecito
property in Austin, Texas, is located adjacent to, and may be partially on,
land that was used as a landfill. Low levels of methane and other landfill
gas have been detected at Montecito. The City of Austin, the former landfill
operator, has assumed responsibility for conducting all investigation and
remedial activities to date associated with the methane and other landfill
gas. The remediation of the landfill gas is now substantially complete, and
the Texas Natural Resources Conservation Commission (the "TNRCC") has
preliminarily approved the methane gas remediation efforts. Final approval of
the site and the remediation process is contingent upon the results of
continued methane gas monitors to confirm the effectiveness of the
remediation efforts. Should further actionable levels of methane gas be
detected, a proposed contingency plan of passive methane gas venting may be
implemented by the City of Austin. The City of Austin has also conducted
testing on the Company's Montecito property to determine whether, and to what
extent, groundwater has been impacted. Based on test reports received to date
by the Company, the groundwater does not appear to be contaminated at
actionable levels. The Company has not incurred, and does not expect to incur
liability for the landfill investigation and remediation. However, in
connection with the present raising of four of its buildings, the Company has
relocated some of its tenants and has installed a venting system according to
the TNRCC's specifications. The restabilization was substantially completed
as of January 1998, at a total cost of approximately $550,000. The City of
Austin will be responsible for monitoring the conditions of Montecito.
All of the Owned Properties were subject to Phase I or similar
environmental audits by independent environmental consultants prior to
acquisition. The audits did not reveal, nor is the Company aware of, any
environmental liability relating to such properties that the Company believes
would have a material adverse effect on the Company's business, assets or
results of operations. However, such audits involve a number of judgments and
it is possible that such audits did not reveal all environmental liabilities
or that there are material environmental liabilities of which the Company is
unaware. While the Company is not aware of any environmental liability that
it believes would have a material adverse effect on its business, financial
condition or results of operations relating to the Managed Properties or
other AIMCO properties (for which audits may not be available), there can be
no assurance that material environmental liabilities of which the Company is
unaware do not exist at such properties.
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In October 1997, NHP Incorporated, which was acquired by the Company
in December 1997 ("NHP"), received a letter (the "EPA Letter") from the U.S.
Department of Justice ("DOJ") which stated that the U.S. Environmental
Protection Agency ("EPA") had requested that DOJ file a lawsuit against NHP
alleging, among other things, that NHP violated the Clean Air Act, the
National Recycling and Emissions Reduction Programs and associated
regulations in connection with the employment of certain unlicensed
personnel, maintenance and disposal of certain refrigerants, and
record-keeping practices at two properties. A settlement in principle between
NHP and the EPA has been reached whereby NHP agreed to pay a fine of $99,000,
permit the EPA to audit the maintenance records and technical staffing at 40
NHP properties and continue to provide training to all maintenance workers
with respect to the disposal of refrigerants. A formal settlement agreement
is expected to be executed in 1998. It is possible that the future EPA audits
agreed to in the settlement could result in additional allegations by EPA of
violations at the properties audited. However, based on the terms of the
settlement in principle with the EPA, the Company anticipates that the fines,
if any, resulting from any such violations will be nominal.
RESTRICTIONS IMPOSED BY LAWS BENEFITTING DISABLED PERSONS. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain Federal requirements related to
access and use by disabled persons. These requirements became effective in
1992. A number of additional Federal, state and local laws exist which also
may require modifications to the Owned Properties, or restrict certain
further renovations thereof, with respect to access thereto by disabled
persons. For example, the Fair Housing Amendments Act of 1988 (the "FHAA")
requires apartment properties first occupied after March 13, 1990 to be
accessible to the handicapped. Noncompliance with the ADA or the FHAA could
result in the imposition of fines or an award of damages to private litigants
and also could result in an order to correct any non-complying feature, which
could result in substantial capital expenditures. Although management of
AIMCO believes that the Owned Properties are substantially in compliance with
present requirements, if the Owned Properties are not in compliance, the
Company is likely to incur additional costs to comply with the ADA and FHAA.
LOSS OF REVENUE DUE TO TERMINATION OR OTHER LOSS OF PROPERTY MANAGEMENT
AGREEMENTS. AIMCO and Insignia are dependent upon revenue received for
services performed under property management agreements relating to
properties owned by third parties. For the year ended December 31, 1997,
AIMCO and Insignia derived approximately 2% and 15%, respectively, of their
gross revenues from management of properties owned by third parties. Risks
associated with the management of properties owned by third parties include
risks that management contracts will be terminated by the property owner or
will be lost in connection with a sale of the property, contracts may not be
renewed upon expiration or may not be renewed on terms consistent with
current terms, and rental revenues upon which management fees are based will
decline as a result of general real estate market conditions or other factors
and result in decreases in management fees. If significant numbers of
contracts are terminated or are not renewed, net income from fee management
operations could be adversely affected. Contracts with unaffiliated third
parties are for terms ranging from 30 days to 5 years, with most contracts
being terminable within one year or less. In general, management contracts
may be terminated or otherwise lost as a result of a number of factors, many
of which are beyond the control of AIMCO and Insignia, including: (i)
disposition of the property by the owner in the ordinary course or as a
result of financial distress of the property owner; (ii) the property owner's
determination that AIMCO's or Insignia's management of the property is
unsatisfactory; (iii) willful misconduct, gross negligence or other conduct
by the manager that constitutes grounds for termination under such contracts;
or (iv) with respect to certain affordable properties, termination of such
contracts by HUD or state housing finance agencies, generally at their
discretion.
RISKS RELATING TO REGULATION OF AFFORDABLE HOUSING. As of June 30,
1998, the Managed Properties included 67,850 affordable units in 456
properties. In addition, the AIMCO owns interests in 66,066 affordable units.
A substantial portion of the affordable properties, and some conventional
properties in which AIMCO owns interests, were built or acquired by the
owners with the assistance of programs administered by the U.S. Department of
Housing and Urban Development ("HUD") that provide mortgage insurance,
favorable financing terms, or rental assistance payments to the owners. As a
condition to the receipt of assistance under these and other HUD programs,
the properties must comply with various HUD requirements, which typically
include limits on rents to amounts approved by HUD. HUD approval is required
before the Company may be appointed as manager of additional HUD-assisted
properties. There can be no assurance that HUD approval will be received with
respect to any particular action for which it is required. In addition to the
effects of HUD regulation on the Company as a manager of affordable
properties, the business of the Company may be indirectly affected by
regulations generally
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applicable to the entities owning affordable properties. In particular, HUD
limits the rents that may be charged on certain HUD-assisted properties to
approved amounts. If permitted rents on a property are insufficient to cover
costs, a sale of the property may become necessary, which would result in a loss
of management fee revenue. As of June 30, 1998, and in addition to the 437
HUD-assisted properties, the Company managed 19 properties that receive
assistance from agencies other than HUD or are subject to regulation by agencies
other than HUD.
Certain of the properties owned or managed by Insignia are subject to
agreements which require the consent of HUD prior to the transfer of the
right to manage such properties. Such agreements generally define a transfer
of management such that the Insignia Merger would require advanced approval
of HUD. The Insignia Merger requires AIMCO to file or cause to be filed with
HUD any documents required to be filed under any applicable law or the rules
and regulations of HUD (collectively, the "HUD Rules") with respect to the
Insignia Merger, to use all commercially reasonable efforts to make such
filings in a timely manner, and requires Insignia to make reasonable efforts
to assist AIMCO, upon request, in obtaining any necessary approvals of HUD.
If an approval of HUD necessary to transfer a property from Insignia to AIMCO
in the Insignia Merger ("HUD Approval") is not obtained on or prior to the
effective time of the Insignia Merger, Holdings will use its reasonable
efforts to cause the officers of IPT to continue to serve in such capacities
for purposes of supervising all entities having an ownership interest in
entities which own HUD-assisted or HUD-insured properties (the "HUD
Properties") and Insignia Residential Group, L.P. or its general partner with
respect to the management of all HUD Properties, until such approval is
obtained. All funds received from the HUD Properties shall be placed in
escrow until such time as either (i) HUD Approval is obtained, or (ii) AIMCO
directs the escrow agent to release the escrowed funds. The receipt of any
required HUD Approval is not a condition to the obligations of any party to
consummate the Insignia Merger, and the consideration payable by the Company
in the Insignia Merger will not be adjusted if such HUD Approval is not
obtained. There can be no assurance that all necessary HUD Approvals will be
obtained prior to the satisfaction of the conditions to the closing of the
Insignia Merger. While there can be no assurance, AIMCO believes that failure
to transfer such properties to AIMCO in the Insignia Merger will not result
in a material impact on AIMCO's results of operations or financial condition.
RISKS RELATED TO HUD ENFORCEMENT AND LIMITED DENIALS OF PARTICIPATION.
Under its regulations, HUD has the authority to suspend or deny property
owners and managers from participation in HUD programs with respect to
additional assistance within a geographic region through imposition of a
limited denial of participation ("LDP") by any HUD office or nationwide for
violations of HUD regulatory requirements. In March 1997, HUD announced its
intention to step up enforcement against property owners and managers who
violate their agreements with HUD, and in July 1997, HUD announced the
creation of a new department-wide enforcement division. In June 1997, the St.
Louis HUD field office issued an LDP to NHP as a result of a physical
inspection and mortgage default at one property owned and managed by
NHP-related companies. The LDP suspended NHP's ability to manage or acquire
additional HUD-assisted properties in eastern Missouri through June 24, 1998.
Although this LDP has expired by its terms, the Company has proposed a
settlement agreement with HUD which includes aggregate payments to HUD of
approximately $485,000 and withdrawal of the LDP as of its date of issuance.
The Company believes a settlement will be executed in the near future.
Because an LDP is prospective, existing HUD agreements are not affected, so
an LDP is not expected to result in the loss of management service revenue
from or to otherwise affect properties that the Company currently manages in
the subject regions. In addition, the Company has resolved concerns raised by
two other HUD field offices. If HUD were to disapprove AIMCO as property
manager for one or more affordable properties, AIMCO's and NHP's ability to
obtain property management revenues from new affordable properties (including
affordable properties managed by Insignia) may be impaired.
HUD monitors the performance of properties with HUD-insured mortgage
loans. HUD also monitors compliance with applicable regulations, and takes
performance and compliance into account in approving management of
HUD-assisted properties. In this regard, since July 1988, 29 HUD-assisted
properties owned or managed by the NHP Real Estate Companies or NHP have
defaulted on non-recourse HUD-insured mortgage loans. Eight of these 29
properties are also currently managed by NHP. An additional six properties
owned or managed by NHP have received unsatisfactory performance ratings. As
a result of the defaults and unsatisfactory ratings, a national HUD office
must review any application by AIMCO to act as property manager for
additional HUD-assisted property. The national HUD office has consistently
approved NHP's applications to manage new properties, and AIMCO has received
HUD clearance to acquire its interests in NHP and the NHP Real Estate
Companies. AIMCO believes that it enjoys a good working relationship with HUD
and that the national office will continue to apply the clearance process to
large management portfolios such as the Company's, including NHP's, with
discretion and flexibility. While there can be no assurance, AIMCO believes
that the unsatisfactory reviews and the mortgage defaults will not have a
material impact on its results of operations or financial condition.
In October 1997, NHP received a subpoena from the Inspector General of
HUD requesting documents relating to any arrangement whereby NHP or any of
its affiliates provides or has provided compensation to owners of HUD
multifamily projects in exchange for or in connection with management of a
HUD project. AIMCO believes that other owners and managers of HUD
projects have received similar subpoenas. Documents relating to certain of
NHP's acquisitions of property management rights for HUD projects,
may be responsive to the subpoena. AIMCO and NHP are in the process of
complying with the subpoena and have provided certain documents to the
Inspector General, without conceding that they are responsive to the subpoena.
AIMCO believes that its operations are in compliance, in all material
respects, with all laws, rules and regulations relating to HUD-assisted or
HUD-insured properties. Effective February 13, 1998, counsel for NHP
and the U.S. Attorney for the Northern District of California entered into a
Tolling Agreement related to certain civil claims the government may have
against AIMCO. Although no action has been initiated any
action against NHP or AIMCO or, to AIMCO's knowledge, any owner of a HUD
property managed by AIMCO, if any such action is taken in the future,
it could ultimately affect existing arrangements with respect to HUD projects
or otherwise have a material adverse effect on the results of operations of
AIMCO.
RISKS RELATING TO UNCERTAINTY REGARDING STATUS OF FEDERAL SUBSIDIES.
AIMCO owns and manages apartment units that are subsidized under Section 8
of the United
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States Housing Act of 1937, as amended ("Section 8"). These subsidies are
generally provided pursuant to project-based Housing Assistance Payment
Contracts ("HAP Contracts") between HUD and the owners of the properties or,
with respect to a limited number of units managed by the Company, pursuant to
vouchers received by tenants. On October 27, 1997, the President signed into
law the Multifamily Assisted Housing Reform and Affordability Act of 1997
(the "1997 Housing Act"). Under the 1997 Housing Act, the mortgage financing
and HAP Contracts of certain properties assisted under Section 8, with rents
above market levels and financed with HUD-insured mortgage loans, will be
restructured by reducing subsidized rents to market levels and financed with
HUD-insured mortgage loans, will be restructured by reducing subsidized rents
to market levels, thereby reducing rent subsidies, and lowering required debt
service payments as needed to ensure financial viability at the reduced rents
and subsidy levels. The 1997 Housing Act retains project-based subsidies for
most properties (properties in rental markets with limited supply, properties
serving the elderly and certain other properties). The 1997 Housing Act
phases out project-based subsidies on selected properties serving families
not located in rental markets with limited supply, converting such subsidies
to a tenant-based subsidy. Under a tenant-based system, rent vouchers would
be issued to qualified tenants who then could elect to reside at properties
of their choice, provided such tenants have the financial ability to pay the
difference between the selected properties' monthly rent and the value of the
vouchers, which would be established based on HUD's regulated fair market
rent for the relevant geographic areas. The 1997 Housing Act provides that
properties will begin the restructuring process in Federal fiscal year 1999
(beginning October 1, 1998), and that HUD will issue final regulations
implementing the 1997 Housing Act on or before October 27, 1998. Congress has
elected to renew HAP Contracts expiring before October 1, 1998 for one-year
terms, generally at existing rents, so long as the properties remain in
compliance with the HAP Contracts. While AIMCO does not expect the provisions
of the 1997 Housing Act to result in a significant number of tenants
relocating from properties managed by AIMCO, there can be no assurance that
the provisions would not significantly affect AIMCO's management portfolio.
Furthermore, there can be no assurance that other changes in Federal housing
subsidy policy will not occur. Any such changes could have a material adverse
effect on AIMCO's property management revenues.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company has engaged in, and intends to continue to engage in, the
selective acquisition, development and expansion of multi-family apartment
properties. In the ordinary course of business, the Company engages in
discussions and negotiations regarding the acquisition of apartment
properties or interests in entities that own apartment properties. The
Company frequently enters into contracts and nonbinding letters of intent
with respect to the purchase of properties. These contracts are typically
subject to certain conditions and permit the Company to terminate the
contract in its sole and absolute discretion if it is not satisfied with the
results of its due diligence investigation of the properties. The Company
believes that such contracts essentially result in the creation of an option
on the subject properties and give the Company greater flexibility in seeking
to acquire properties. As of August 16, 1998, the Company had under contract or
letter of intent an aggregate of 62 multi-family apartment properties with a
maximum aggregate purchase price of $826 million, including estimated capital
improvements, which, in some cases, may be paid in the form of assumption of
existing debt. All such contracts are subject to termination by the Company
as described above. In addition, the Company has entered into the Insignia
Merger Agreement. The Insignia Merger Agreement provides for AIMCO to pay
Insignia $50 million in liquidated damages if the Insignia Merger Agreement
is terminated under certain circumstances, including certain breaches of
AIMCO's representations, warranties and covenants, and the failure to satisfy
certain conditions to closing, under the agreement. No assurance can be given
that any of these possible acquisitions will be completed or, if completed,
that they will be accretive on a per share basis. If the Insignia Merger
Agreement is terminated due to a breach by AIMCO, certain Insignia securities
have the right to require AIMCO to purchase certain of their shares of
Insignia common stock. If all such securities exercised this right, AIMCO
would be required to purchase approximately 6% of the shares of common stock
of Insignia outstanding as of July 31, 1998.
In addition to general investment risks associated with any new
investment, acquisitions entail risks that such investments will fail to
perform in accordance with expectations, including projected occupancy and
rental rates, management fees and the costs of property improvements, along
with integration related risks. Risks associated with redevelopment and
expansion of properties include the risks that development opportunities may
be abandoned; that construction costs of a property may exceed original
estimates, possibly making the property uneconomical; that occupancy rates
and rents at a newly completed property may not be sufficient to make the
property profitable; that construction and permanent financing may not be
available on favorable terms; and that construction and lease-up may not be
completed on schedule, resulting in increased debt service expense and
construction costs. Development activities are also subject to risks relating
to any inability to obtain, or delays in obtaining, necessary zoning,
land-use, building, occupancy, and other governmental permits and
authorizations. See also "--Risks Associated with Integrating Ambassador,
Insignia and Other Acquired Businesses."
The Company also has engaged in, and intends to continue to engage in, the
selective acquisition of, or investment in, companies that own or manage
apartment properties or own general or limited partnership or other interests
therein, including tender offers for limited partnership interests. Risks
associated with the Company's past and future acquisitions of general
partnership interests, and tender offers for outstanding limited partnership
15
<PAGE>
interests, include the risks that the general partner will be subject to
allegations (including legal actions) of, or will be otherwise liable for,
breaches of fiduciary duty to the limited partners of such partnership and that
the assets of the general partner may be subject to claims by creditors of the
partnership if the partnership becomes insolvent. See "--Risks Relating to
Litigation."
RISKS RELATING TO LITIGATION
The Company is a party to various legal actions resulting from its
operating activities. In addition, in connection with the Company's
acquisition of interests in limited partnerships that own or manage
apartments properties, through tender offers or otherwise, from time to time,
the Company is subject to legal actions arising from such acquisitions,
including allegations that such activities may involve breaches of fiduciary
duties to the limited partners of such partnerships or may violate the
relevant partnership agreements. There can be no assurance that any such
litigation will not have a material adverse effect on the consolidated
financial conditions or results of operations of the Company.
YEAR 2000 COMPLIANCE
The Company's management has determined that it will be necessary to
modify or replace certain accounting and operational software and hardware to
enable its computer systems to operate properly subsequent to December 31,
1999. As a result, management has appointed a team of internal staff to
research and manage the conversion or replacement of existing systems to
comply with year 2000 requirements. The team's activities are designed to
ensure that there is no adverse effect on the Company's core business
operations, and that transactions with tenants, suppliers and financial
institutions are fully supported.
The Company utilizes numerous accounting and reporting software packages
and computer hardware to conduct its business, some of which already comply
with year 2000 requirements. Management estimates that the modification or
replacement of non-compliant accounting and reporting software and hardware
will total approximately $0.3 million.
The Company's management also believes that certain of the Owned
Properties possess operational systems (e.g. elevators, fire alarm and
extinguishment systems and security systems) which also must be modified or
replaced in order to function properly in the 21st century. Management is
currently engaged in the identification of all non-compliant operational
systems, and has not yet determined the estimated cost of replacing or
modifying such systems.
DEPENDENCE ON CERTAIN EXECUTIVE OFFICERS
Although each of Messrs. Terry Considine, Peter K. Kompaniez and Steven D.
Ira, officers and/or directors of the Company, has entered into an employment
agreement with the Company, the loss of any of their services could have an
adverse effect on the operations of the Company.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Qualification as a REIT involves the application of highly technical and
complex provisions of the Code, for which there are only limited judicial or
administrative interpretations, and the determination of various factual
16
<PAGE>
matters and circumstances not entirely within AIMCO's control. Although
AIMCO believes, and it has received an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP in August 1998, to the effect that it was organized, and
has operated since its initial taxable year ended December 31, 1994, until
the date of such opinion, in a manner so as to qualify as a REIT, no
assurance can be given that AIMCO has been or will remain so qualified. The
opinion of Skadden, Arps, Slate, Meagher & Flom LLP is based on, and
conditioned upon, certain representations and covenants made by AIMCO as to
factual matters including representations and covenants regarding the nature
of AIMCO's properties and the future conduct of its business in accordance
with the requirements for qualification as a REIT. For example, the Code
provides that if the value of any one issuer's securities held by AIMCO
exceeds 5% of the value of AIMCO's total assets on certain testing dates,
AIMCO would not qualify as a REIT for federal income tax purposes. AIMCO
believes that the values of its investments in the various Management
Subsidiaries do not exceed this 5% rule, and Skadden, Arps, Slate, Meagher &
Flom LLP has relied on AIMCO's representation of these values in rendering
its opinion. No independent appraisals have been obtained to support AIMCO's
determination as to the values of the Management Subsidiaries and these
values are subject to change in the future. The opinion of Skadden, Arps,
Slate, Meagher & Flom LLP is expressed as of its date, and Skadden, Arps,
Slate, Meagher & Flom LLP has no obligation to advise the Company of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in applicable law. Moreover, the Company's qualification
and taxation as a REIT depends upon the Company's ability to meet, through
actual annual operating results, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code, the
results of which have not and will not be reviewed by Skadden, Arps, Slate,
Meagher & Flom LLP. Accordingly, no assurance can be given that the actual
results of the Company's operation for any one taxable year has satisfied or
will satisfy such requirements. An opinion of counsel is not binding on the
Internal Revenue Service (the "IRS"), and no assurance can be given that the
IRS will not challenge the Company's eligibility for taxation as a REIT. In
addition, if the Insignia Merger is completed, AIMCO's qualification as a
REIT will depend, in part, upon the qualification of IPT as a REIT.
DISTRIBUTION OF ACQUIRED EARNINGS AND PROFITS. The Code provides that when a
REIT acquires a C corporation (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 by December 31,
1998. Insignia has retained independent certified public accountants to
determine Insignia's earnings and profits through the Effective Time 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 and 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.
If, in any taxable year, AIMCO fails to qualify as a REIT, AIMCO
would not be allowed a deduction for dividends paid to stockholders in
computing taxable income and would be subject to Federal income tax on its
taxable income at corporate rates and would not be required to make
distributions to its Stockholders under the Code. As a result of the
additional tax liability, the Company might need to borrow funds or liquidate
certain investments on terms that may be disadvantageous to the Company in
order to pay the applicable tax. Unless entitled to relief under certain
statutory provisions, AIMCO would also be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification
is lost. Although AIMCO currently intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause AIMCO to fail to qualify as a REIT or may
cause the Board of Directors of AIMCO to revoke the REIT election. If AIMCO
fails to qualify as a REIT, the agreement pursuant to which AIMCO issued its
Class B Cumulative Convertible Preferred Stock (the "Class B Preferred
Stock"), provides that the original purchaser may require AIMCO to repurchase
such investor's Class B Preferred Stock, in whole or in part, at a price of
$105 per share, plus accrued and unpaid dividends to the date of repurchase.
Such investor acquired and currently owns 750,000 shares of Class B Preferred
Stock and any such required repurchase could have a material adverse effect
on the Company. See "Certain Federal Income 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. 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 an investment in AIMCO will be changed.
OWNERSHIP LIMIT
In order for AIMCO to maintain its qualification as a REIT, not more
than 50% of the value of its outstanding capital stock may be owned, directly
or constructively, by five or fewer individuals or entities (as set forth in
the Code). The AIMCO Charter limits direct or constructive ownership of
shares of Class A Common Stock by any person such that the sum of (i) the
aggregate value of the Class A Common Stock, and (ii) the aggregate value of
all shares of any other equity stock of the Company owned by such person may
not exceed 8.7% (or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine) of the aggregate value of all
outstanding shares of the Company's equity stock. The constructive ownership
rules are complex and may cause shares of the Company's equity stock owned
directly or constructively by a group of related individuals or entities to
be
17
<PAGE>
constructively owned by one individual or entity. A transfer of shares to a
person who, as a result of the transfer, violates the limit on ownership
described above may be void under some circumstances or may be transferred to a
trust, for the benefit of one or more qualified charitable organizations
designated by AIMCO, with the intended transferee having only a right to share
(to the extent of the transferee's original purchase price for such shares) in
proceeds from the trust's sale of such shares.
SHARES AVAILABLE FOR FUTURE SALE
As of June 30, 1998, there were outstanding options and warrants to
purchase Class A Common Stock, and shares of Class B Preferred Stock and the
Company's Class B Common Stock, par value $.01 per share ("Class B Common
Stock") convertible into Class A Common Stock, that, if exercised or
converted, would result in the issuance of approximately 8.3 million shares
of Class A Common Stock. In addition, as of June 30, 1998, there were
outstanding approximately 6.0 million Partnership Common Units of the
Operating Partnership ("OP Units") which, upon tender for redemption by the
holders, may be acquired by AIMCO in exchange for an equal number of shares
of Class A Common Stock. In addition, in the Insignia Merger, AIMCO will
issue approximately $303 million in Series E Preferred Stock or $203 million
in Series E Preferred Stock and $100 million aggregate liquidation value of
Series F Preferred Stock. If $303 million in Series E Preferred Stock is
issued, $303 million will automatically convert into Class A Common Stock on
a one-for-one basis, subject to antidilution adjustments, if any, upon
payment of the Special Dividend. If $100 million aggregate liquidation value
of Series F Preferred Stock is issued, the Series F Preferred Stock will
convert into Class A Common Stock, upon approval by stockholders of AIMCO, on
a one-to-one basis, subject to antidilution adjustments, if any. The shares
of Class A Common Stock described above are available for sale in the public
markets from time to time pursuant to exemptions from registration or upon
registration. Sales of substantial amounts of shares of Class A Common Stock,
or the perception that such sales could occur, could adversely affect the
prevailing market price for shares of Class A Common Stock. No prediction can
be made, however, as to the effect, if any, of future sales of such shares,
or the availability of such shares for future sale, on the market price of
Class A Common Stock prevailing from time to time.
USE OF PROCEEDS
The Selling Stockholders will receive all of the net proceeds from the
sale of shares of Class A Common Stock offered hereby. The Company will not
receive any proceeds from the sale of such shares.
SELLING STOCKHOLDERS
This Prospectus relates to periodic offers and sales of up to 2,954,388
shares of Class A Common Stock by the selling stockholders named below and
their respective pledgees, donees and other successors in interest
(collectively, "the Selling Stockholders"). The shares of Class A Common
Stock that may be offered and sold by the Selling Stockholders include shares
that may be issued in exchange for OP Units, shares that may be issued upon
exercise of warrants, and shares that may be issued upon conversion of Class
B Common Stock.
The following table sets forth certain information with respect to
the Selling Stockholders and their beneficial ownership of shares of Class A
Common Stock as of the date hereof. Except as indicated below, none of the
Selling Stockholders holds any position, office or has had any other material
relationship with the Company, or any of its predecessors or affiliates,
during the past three years.
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<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OFFERED SHARES OWNED
SELLING STOCKHOLDER TO OFFERING(1) HEREBY(1) AFTER OFFERING(1)(14)
------------------- ------------------ -------------- ---------------------
<S> <C> <C> <C>
Terry Considine (2) 662,311(3) 186,857(4) 475,454(5)
Public Employees Retirement System of Ohio 747,297(6) 747,297(6) --
Leo E. Zickler 125,000(7) 125,000(7) --
Francis P. Lavin 125,000(7) 125,000(7) --
Robert B. Downing 73,865(7) 73,865(7) --
Mark E. Schifrin 73,865(7) 73,865(7) --
Marc B. Abrams 55,400(7) 55,400(7) --
Richard R. Singleton 46,870(7) 46,870(7) --
Saul Skoler 27,569 27,569 --
Edward T. Tokar 5,865 5,865 --
Joseph A. Goldblum 3,910 3,910 --
Goldblum Trust FBO Libby DelGuidice 3,910 3,910 --
Goldblum Trust FBO Georgeanne T. Goldblum 3,910 3,910 --
Teresa L. Barnes 76 76 --
Francis S. Godbold 1,495 1,495 --
John Davenport Mosby III 1,327 1,327 --
Todd W. Sheets and Joyce C. Sheets 5,608 5,608 --
David E. Thomas, Jr. 229 229 --
Steven D. Ira (8) 399,891(9) 1,431 398,460(9)
Charles H. Ballou 378 378 --
Jack C. Harmon 693 693 --
Sally E. Law Revocable Trust 693 693 --
Christopher A. Morson 630 630 --
Margaret C. Starner 378 378 --
Patrick L. Sullivan 756 756 --
Frederick G. Tripp Trust 3,465 3,465 --
Lottie Morton, as Trustee of the Lottie Morton
Revocable Trust Agreement, dated July 25, 1993 189,591 189,591 --
David Morton 58,781 58,781 --
David Morton, as the Personal Representative
of the Estate of Robert Morton 3,738 3,738 --
Peter Morton 25,825 25,825 --
Robert W. Newman 274,102 274,102 --
Janice Newman Rosenthal 274,102 274,102 --
Richard Morton (10) and Martha Helen Morton,
husband and wife 186,284(11) 182,734 3,550(11) --
Alan Morton 132,459 132,459 --
Monique Morton Berg 22,077 22,077 --
Richard Morton (10) and Alan Morton, as Trustees of the
Trust created under the Last Will and Testament of
James Morton, dated August 15, 1966, for the
benefit of James Andrew Morton 29,435 29,435 --
Laurie Morton-Jungroth 9,812 9,812 --
Robert Christopher Morton 27,000 27,000 --
Richard Morton (10), as Trustee of the Trust created
under the Last Will and Testament of Lawrence
Morton, for the benefit of Alan Morton 36,942 36,942 --
Richard Morton (10), as Trustee of the Trust created
under the Last Will and Testament of Lawrence
Morton, for the benefit of Cindy Beth Morton 10,455(12) 10,055 400(12)
Richard Morton (10), as Trustee of the Trust created
under the Last Will and Testament of Lawrence
Morton, for the benefit of James Andrew Morton 10,055 10,055 --
Richard Morton (10), as Trustee of the Trust created
under the Last Will and Testament of Lawrence
Morton, for the benefit of Alexandra Morton 10,455(12) 10,055 400(12)
Richard Morton (10), as Trustee of the Trust created
under the Last Will and Testament of Lawrence
Morton, for the benefit of Eden Morton Thibeault 10,255(13) 10,055 200(13)
Richard Morton (10), as Trustee of the Trust created
under the Last Will and Testament of Lawrence
Morton, for the benefit of Adam Morton 10,455(12) 10,055 400(12)
Robert L. Turchin 56,336 56,336 --
Appalachian State University Foundation, Inc. 27,778 27,778 --
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Ed-Allene Family Ltd Partnership 7,454(6) 7,454(6)
Ambrose H. Hardwick, Jr. 1,864(6) 1,864(6)
Paul F. Oreffice 7,454(6) 7,454(6)
Norman Rockoff 1,865(6) 1,864(6)
Arbor Station, Ltd 29,030 29,030
B & G Signs 9,258 9,258
</TABLE>
(1) Unless otherwise indicated, the number of shares shown reflects the
number of shares of Class A Common Stock (subject to adjustment pursuant to
antidilution adjustment provisions) that may be issued to the Selling
Stockholder from time to time by AIMCO in exchange for OP Units tendered for
redemption by such Selling Stockholder pursuant to the Limited Partnership
Agreement of the Operating Partnership.
(2) Mr. Considine is the Chairman of the Board of Directors and Chief
Executive Officer of AIMCO.
(3) Includes 104,594 shares of Class A Common Stock that are currently
outstanding and 93,428 shares of Class A Common Stock issuable upon
conversion of an equal number of shares of Class B Common Stock (the
"Considine Class B Shares").
(4) Includes 93,428 shares of Class A Common Stock issuable upon
conversion of the Considine Class B Shares and 93,429 shares of Class A
Common Stock, all of which Mr. Considine has pledged to U.S. Bank ("USB") as
collateral security for certain loans. Such Pledged Shares may be sold
hereunder by USB in the event of a default on such loans.
(5) Includes 11,165 shares of Class A Common Stock.
(6) Represents shares of Class A Common Stock.
(7) Reflects the maximum number of shares of Class A Common Stock
(subject to adjustment upon the occurrence of certain dilutive events) that
such Selling Stockholder may be entitled to purchase from AIMCO pursuant to a
warrant. The warrant has an exercise price of $41 per share.
(8) Mr. Ira is an Executive Vice President of AIMCO.
(9) Includes 240,897 shares of Class A Common Stock; 13,821 shares of
Class A Common Stock issuable upon conversion of an equal number of shares of
Class B Common Stock; and 48,800 shares of Class A Common Stock issuable upon
the exercise of options.
(10) Richard Morton is a member of one of the Company's acquisition
advisory committees.
(11) Includes 3,000 shares of Class A Common Stock held by Richard
Morton and 550 shares of Class A Common Stock held by Martha Helen Morton.
(12) Includes 400 shares of Class A Common Stock.
(13) Includes 200 shares of Class A Common Stock.
(14) Because the Selling Stockholders may sell some or all of the shares
of Class A Common Stock offered hereby, and because there are currently no
agreements, arrangements or understandings with respect to the sale of any of
such shares, no estimate can be given as to the number of shares of Class A
Common Stock that will be held by the Selling Stockholders upon termination
of any offering made hereby. If all of the shares offered hereby are sold,
the Selling Stockholders will own the shares of Class A Common Stock (or OP
Units) indicated in the table.
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<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time by the
Selling Stockholders of up to 2,954,388 shares of Class A Common Stock. The
Class A Common Stock may be sold from time to time by the Selling
Stockholders. Such sales may be made in underwritten offerings or in open
market or block transactions or otherwise on the NYSE, or such other national
securities exchange or automated interdealer quotation system on which shares
of Class A Common Stock are then listed, in the over-the-counter market, in
private transactions or otherwise at prices related to prevailing market
prices at the time of the sale or at negotiated prices. Some or all of the
shares of Class A Common Stock may be sold through brokers acting on behalf
of the Selling Stockholders or to dealers for resale by such dealers. In
connection with such sales, such brokers and dealers may receive compensation
in the form of discounts or commissions from the Selling Stockholders and may
receive commissions from the purchasers of such shares for whom they act as
broker or agent (which discounts and commissions are not
21
<PAGE>
anticipated to exceed those customary in the types of transactions involved).
The Selling Stockholders may offer to sell and may sell shares of the Class A
Common Stock in options transactions or deliver such shares to cover short sales
"against the box." If necessary, a supplemental or amended Prospectus will
describe the method of sale in greater detail. In effecting sales, brokers or
dealers engaged by the Selling Stockholders and/or purchasers of the Class A
Common Stock may arrange for other brokers or dealers to participate. In
addition, any of the Class A Common Stock covered by this prospectus which
qualifies for sale pursuant to Rule 144 under the Securities Act may be sold
under Rule 144 rather than pursuant to this Prospectus.
If shares of Class A Common Stock are sold in an underwritten offering, the
shares will be acquired by the underwriters for their own accounts and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or prices at the time of the sale
or at negotiated prices. Any initial public offering price and any discounts or
commissions allowed or reallowed or paid to dealers may be changed from time to
time. Underwriters may sell shares to or through brokers or dealers, and such
brokers and dealers may receive compensation in the form of discounts,
commissions or commissions from the underwriters and may receive commissions
from the purchasers of such shares for whom they act as broker or agent (which
discounts and commissions are not anticipated to exceed those customary in the
types of transactions involved).
The Company has agreed to pay all expenses in connection with the
registration of the Class A Common Stock being offered hereby. Selling
Stockholders are responsible for paying any other selling expenses, including
underwriting discounts and brokers' commissions, and expenses of Selling
Stockholders' counsel.
The Selling Stockholders and any underwriter, broker or dealer who acts in
connection with the sale of the Class A Common Stock hereunder may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any compensation received by them and any profit on any resale of the Class A
Common Stock as principals may be deemed to be underwriting discounts and
commissions under the Securities Act.
In order to comply with the securities laws of certain jurisdictions, the
securities offered hereby will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the securities offered hereby may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
Pursuant to registration rights agreements between AIMCO and the Selling
Stockholders, AIMCO has agreed to indemnify the Selling Stockholders, each of
their respective officers and directors and any person who controls such Selling
Stockholders, against certain liabilities and expenses arising out of or based
upon the information set forth or incorporated by reference in this Prospectus,
and the Registration Statement of which this Prospectus is a part, including
liabilities under the Securities Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences to the Company and a prospective holder of Class A Common Stock.
This discussion is based upon the Code, the regulations promulgated by the
U.S. Treasury Department thereunder (the "Treasury Regulations"), rulings
issued by the IRS, and judicial decisions, all in effect as of the date of
this Prospectus and which are subject to change, possibly retroactively. This
discussion is for general information only. This discussion 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 insurance
companies, financial institutions or broker-dealers, foreign investors and,
except to the extent discussed below, tax-exempt organizations). No advance
ruling has been or will be sought from the IRS regarding any matter discussed
herein.
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<PAGE>
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 CLASS A COMMON STOCK AND OF AIMCO'S
ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL
ESTATE INVESTMENT TRUST.
TAXATION OF AIMCO
GENERAL. The REIT provisions of the Code are highly technical and
complex. The following sets forth the material aspects of the provisions of
the Code that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable
Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject
to change, 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. AIMCO believes that it was organized in conformity with the
requirements for qualification as a REIT, and that its method of operation
since formation and proposed method of future operation will enable it to
meet the requirements for qualification and taxation as a REIT under the
Code. 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. Accordingly, no assurance can be given that the
actual results of AIMCO's operations for any one taxable year will satisfy
such requirements. See "--Failure to Qualify". No assurance can be given that
the IRS will not challenge AIMCO's eligibility for taxation as a REIT.
If AIMCO qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, 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, under Treasury Regulations not yet
promulgated, the subchapter C corporation would be required to recognize any
net built-in gain 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 if it recognizes gain on the
disposition of any such assets during the ten-year period beginning on the
day on which it acquires such assets 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 intends to acquire
a significant amount of assets with Built-in Gain and a taxable disposition
by AIMCO 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 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
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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. AIMCO's 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.
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 to disclose the actual owners of the shares (i.e., the persons
required to include in gross income dividends paid by AIMCO). 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, 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 the Company 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 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) may 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.
The Management Subsidiaries will receive management fees and other
income. A portion of such fees and other income will accrue to AIMCO through
the Operating Partnership's general partnership interest in PAMS LP. Such fee
and other income generally will not qualify under the 95% gross income test.
AIMCO also indirectly receives distributions from the Management Subsidiaries
that will be classified
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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 are generally available if AIMCO's failure to meet such
tests was due to reasonable 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), stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of AIMCO, 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 or the ownership of more than 5% of the REIT's total assets in
any one issuer's securities by a REIT is prohibited by the asset tests.
AIMCO believes that its indirect ownership interests in the Management
Subsidiaries qualify under these rules. However, no independent appraisals
have been obtained to support AIMCO's conclusions as to the value of the
Operating Partnership's total assets and the value of the 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 Operating Partnership's ownership interest
in the Management Subsidiaries disqualifies AIMCO from treatment as a REIT.
AIMCO's indirect interests in the 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 will not be 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.
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AIMCO may elect to retain, rather than distribute, its net long-term capital
gains and pay the 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 income for such 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 this annual distribution requirement.
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 Operating Partnership) and (ii) the inclusion of such income
arriving at taxable income of AIMCO. 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 based on the amount of any deduction taken for
deficiency dividends.
ABSENCE OF EARNINGS AND PROFITS. The Code provides that when a REIT
acquires a corporation that is currently a C corporation (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 by December 31, 1998. Insignia has retained independent certified
public accountants to determine Insignia's earnings and profits through the
Effective Time 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 and 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. Additionally, 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 (if
consummated), 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 entitled to relief under
specific statutory provisions, AIMCO will also be disqualified from taxation as
a REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances AIMCO would
be entitled to such statutory relief.
TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS
GENERAL. Most of AIMCO's investments are held indirectly through the
Operating Partnership. In general, partnerships are "pass-through" entities
that are not subject to federal income tax. Rather, partners are allocated
their proportionate shares of the items of income, gain, loss, deduction and
credit of a partnership, and are potentially subject to tax thereon, without
regard to whether the partners receive a distribution from the partnership.
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
Partnerships. See "--Taxation of AIMCO--Ownership of Partnership Interests."
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 Partnerships as a
partnership (as opposed to an association taxable as a corporation) for
Federal income tax purposes. If any of these entities were treated as an
association for federal income tax purposes, it would be taxable as a
corporation and therefore subject to an entity-level tax on its income. In
such a situation, the character of AIMCO's assets and items of gross income
would change and could preclude AIMCO from satisfying the asset tests and the
income tests (see "--Taxation of AIMCO--Asset Tests" and "--Taxation of
AIMCO--Income Tests"), and in turn could prevent AIMCO from qualifying as a
REIT. See "--Taxation of AIMCO--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. Pursuant to the Code and
the regulations thereunder, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss
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associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of contributed property at the time of
contribution, and the adjusted tax basis of such property at the time of
contribution (a "Book-Tax Difference"). Such allocations are solely for
federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. The Operating
Partnership was formed by way of contributions of appreciated property
(including certain of the Owned Properties). Consequently, allocations must
be made in a manner consistent with these requirements. Where a partner
contributes cash to a partnership that holds appreciated property, the
Treasury regulations provide for a similar allocation of such items to the
other partners. These rules apply to the contribution by AIMCO to the
Operating Partnership of the cash proceeds received in any offerings of its
stock.
In general, certain holders of OP Units will be allocated lower amounts
of depreciation deductions for tax purposes and increased taxable income and
gain on sale by the Operating Partnership or other Subsidiary Partnerships of
the contributed Owned Properties. This will tend to eliminate the Book-Tax
Difference over the life of these partnerships. However, the special
allocations do not always entirely rectify the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a
sale. Thus, the carryover basis of the contributed Owned Properties in the
hands of the Subsidiary Partnerships may cause AIMCO to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may
cause 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 "--Taxation of AIMCO--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
Operating Partnership or another 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--Income
Tests." Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a partnership's
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership and the 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 other apartment 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 Operating Partnership, distributions paid to the
Operating Partnership as the general partner of PAMS LP, and interest paid by
the Management Subsidiaries on certain notes held by the 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
GENERAL. As long as 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
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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.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a stockholder's shares, they will be included in income
as long-term capital gain (or short-term capital gain if the shares have been
held for one year or less) provided that the shares are a capital asset in
the hands of the stockholder. In 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 shall 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.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain U.S. Federal income and estate
tax consequences of the ownership and disposition of AIMCO Stock applicable
to Non-U.S. Holders of such stock. A "Non-U.S. Holder" is any person other
than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of
the United States or of any state thereof, (iii) an estate whose income is
includable in gross income for U.S. Federal income tax purposes regardless of
its source or, (iv) a trust if a United States court is able to exercise
primary supervision over the administration of such trust and one or more
United States fiduciaries have the authority to control all substantial
decisions of such trust. The discussion is based on current law and is for
general information only. The discussion addresses only certain and not all
aspects of U.S. federal income and estate taxation.
ORDINARY DIVIDENDS. The portion of dividends received by Non-U.S.
Holders payable out of 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. stockholders are taxed with respect to such dividends (and may also be
subject to the 30% branch profits tax in the case of a Non-U.S. Holder that
is a foreign corporation).
NON-DIVIDEND 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
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("USRPI Capital Gains"), will be considered effectively connected with a
U.S. trade or business of the Non-U.S. Holder and subject to U.S. income tax
at the rate applicable to U.S. individuals or corporations, without regard to
whether such distribution is designated as a capital gain dividend. In
addition, AIMCO will be required to withhold tax equal to 35% of the amount
of dividends to the extent such dividends constitute USRPI Capital Gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits
tax in the hands of a Non-U.S. Holder that is a corporation.
DISPOSITION OF STOCK OF AIMCO. 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 that the sale of AIMCO Stock should not be
subject to taxation under FIRPTA. Because AIMCO Stock is publicly traded,
however, no assurance can be given that AIMCO 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 New York Stock Exchange, on which AIMCO 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) and the purchaser of the stock could be required to
withhold 10% of the purchase price and remit such amount to the IRS.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in the 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 includable in
the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may
be subject to U.S. federal estate tax on the property includable in the
estate for U.S. federal estate tax purposes.
INFORMATION REPORTING 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 distribution to any
Non-U.S. Holders who fail to certify their non-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 should consult
their tax advisors regarding the application of the final Treasury
Regulations.
29
<PAGE>
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
are generally 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 Common Stock with debt, a portion of its
income from the Company 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 Code Section 501(c) are subject to different
UBTI rules, which will generally require them to characterize distributions
from the Company 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 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 than 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.
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. 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 an investment in AIMCO will be changed.
30
<PAGE>
STATE, LOCAL AND FOREIGN TAXES. The Operating Partnership and its
partners and AIMCO and its stockholders may be subject to state, local or
foreign taxation in various state or local jurisdictions and foreign
countries, including those in which they transact business or reside. The
state, local and foreign tax treatment of the Operating Partnership and its
partners and 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 and foreign tax laws on an investment in the Operating Partnership or
AIMCO.
LEGAL MATTERS
Certain legal matters will be passed upon for AIMCO by Skadden, Arps,
Slate, Meagher & Flom LLP, Los Angeles, California. The validity of the Class A
Common Stock offered hereby will be passed on for AIMCO by Piper & Marbury
L.L.P., Baltimore, Maryland.
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 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 (and Amendment No. 1 thereto filed 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 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. 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.
31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTIONS.
The estimated expenses, other than underwriting discounts and commissions,
in connection with the offering of the Securities, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Registration Fee - Securities and Exchange Commission ........... $ 33,172.75
Printing and Engraving Expenses ................................. 5,000
Legal Fees and Expenses ......................................... 25,000
Accounting Fees and Expenses .................................... 35,000
Miscellaneous ................................................... 5,000
-----------
Total ...................................................... $103,172.75
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 the Company 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 Maryland General Corporation Law 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 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.
The Company has entered into agreements with certain of its officers,
pursuant to which the Company has agreed to indemnify such officers to the
fullest extent permitted by applicable law.
II-1
<PAGE>
The Agreement of Limited Partnership (the "Operating Partnership
Agreement") of the Operating Partnership also provides for indemnification of
AIMCO, or any director or officer of AIMCO, in its capacity as the previous
general partner of the Operating Partnership, 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 Operating Partnership, as set forth in the
Operating Partnership Agreement.
Section 11.6 of the Apartment Investment and Management Company 1997 Stock
Award and Incentive Plan (the "1997 Plan"), Section 2.8 of the Amended and
Restated Apartment Investment and Management Company Non-Qualified Employee
Stock Option Plan (the "Non-Qualified Plan"), Section 2.8 of the Apartment
Investment and Management Company 1996 Stock Award and Incentive Plan (the "1996
Plan"), and Section 6.7 of the 1994 Stock Option Plan of Apartment Investment
and Management Company (the "1994 Plan") specifically provide that, to the
fullest extent permitted by law, each of the members of the Board of Directors
of AIMCO (the "Board"), the Compensation Committee of the Board and each of the
directors, officers and employees of AIMCO, any AIMCO subsidiary, the Operating
Partnership and any subsidiary of the Operating Partnership shall be held
harmless and indemnified by AIMCO for any liability, loss (including amounts
paid in settlement), damages or expenses (including reasonable attorneys' fees)
suffered by virtue of any determinations, acts or failures to act, or alleged
acts or failures to act, in connection with the administration of the 1997 Plan,
the Non-Qualified Plan, the 1996 Plan or the 1994 Plan, as the case may be, so
long as such person is not determined by a final adjudication to be guilty of
willful misconduct with respect to such determination, action or failure to act.
ITEM 16. EXHIBITS.
4.6 Specimen certificate for Class A Common Stock (incorporated by reference
from AIMCO's Registration Statement on Form 8-A filed on July 19, 1994).
5.1 Opinion of Piper & Marbury L.L.P. dated August 25, 1998 regarding the
validity of the Securities offered hereby.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP dated August 25,
1998 regarding tax matters.
23.1 Consent of Piper & Marbury L.L.P. dated August 25, 1998 (included in
their opinion filed as Exhibit 5.1).
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP dated August 25,
1998 (included in their opinion filed as Exhibit 8.1).
23.3 Consent of Ernst & Young LLP, Denver, Colorado, dated August 21, 1998.
23.4 Consent of Ernst & Young, LLP, Chicago, Illinois, dated August 21, 1998.
23.5 Consent of Ernst & Young, LLP, Greenville, South Carolina, dated
August 21, 1998.
24. Power of Attorney.*
* Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(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;
(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;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) shall not
apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report 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 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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 registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on this Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on the 25th day of
August, 1998.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ TERRY CONSIDINE
----------------------------
Terry Considine,
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ TERRY CONSIDINE
- ---------------------- Chairman of the Board and Chief
Terry Considine Executive Officer (Principal
Executive Officer) August 25, 1998
/s/ TROY D. BUTTS*
- ---------------------- Senior Vice President and Chief
Troy D. Butts Financial Officer (Principal
Financial Officer) August 25, 1998
/s/ PATRICIA K. HEATH*
- ---------------------- Vice President and Chief
Patricia K. Heath Accounting Officer (Principal August 25, 1998
Accounting Officer)
/s/ PETER K. KOMPANIEZ*
- ---------------------- Vice Chairman, President and
Peter K. Kompaniez Director August 25, 1998
/s/ RICHARD S. ELLWOOD*
- ---------------------- Director August 25, 1998
Richard S. Ellwood
/s/ J. LANDIS MARTIN*
- ---------------------- Director August 25, 1998
J. Landis Martin
/s/ THOMAS L. RHODES*
- ---------------------- Director August 25, 1998
Thomas L. Rhodes
/s/ JOHN D. SMITH*
- ---------------------- Director August 25, 1998
John D. Smith
* By: /s/ TERRY CONSIDINE
--------------------------
Terry Considine
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
4.6 Specimen certificate for Class A Common Stock (incorporated by reference
from AIMCO's Registration Statement on Form 8-A filed on July 19, 1994).
5.1 Opinion of Piper & Marbury L.L.P. dated August 25, 1998 regarding the
validity of the Securities offered hereby.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP dated August 25,
1998 regarding tax matters.
23.1 Consent of Piper & Marbury L.L.P. dated August 25, 1998 (included in
their opinion filed as Exhibit 5.1).
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP dated August 25,
1998 (included in their opinion filed as Exhibit 8.1).
23.3 Consent of Ernst & Young LLP, Denver, Colorado, dated August 21, 1998.
23.4 Consent of Ernst & Young, LLP, Chicago, Illinois, dated August 21, 1998.
23.5 Consent of Ernst & Young, LLP, Greenville, South Carolina, dated
August 21, 1998.
24. Power of Attorney.*
* Previously filed.
II-5
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF PIPER & MARBURY L.L.P.]
August 25, 1998
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
Ladies and Gentlemen:
We have acted as special Maryland counsel to Apartment Investment and
Management Company, a Maryland corporation (the "Company"), in connection
with the registration under the Securities Act of 1933, as amended (the
"Act"), of 2,954,388 shares (the "Shares") of Class A Common Stock, par value
$.01 per share, of the Company (the "Class A Common Stock") pursuant to a
Registration Statement of the Company on Form S-3 (Registration No.
333-47201), as amended by Amendment No. 1 and Amendment No. 2 thereof
(collectively, the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission"). This opinion is being provided at
your request in connection with the filing of the Registration Statement.
The Shares include 859,362 shares of Class A Common Stock that have
previously been issued by the Company (the "Outstanding Shares"), and up to
2,095,026 shares of Class A Common Stock that may be issued by the Company
from time to time as follows: (i) up to 500,000 shares (plus such additional
shares as may be issued pursuant to certain antidilution provisions) of Class
A Common Stock (the "Warrant Shares") that may be issued by the Company upon
exercise of certain Common Stock Purchase Warrants (the "Warrants") issued by
the Company to purchase such shares at $41.00 per share, (ii) up to 93,428
shares of Class A Common Stock (the "Conversion Shares") that may be issued
by the Company upon conversion of up to 93,428 outstanding shares of
Class B Common Stock, par value $.01 per share, of the Company (the "Class B
Common Stock") and (iii) up to 1,501,598 shares (plus such additional shares
as may be issued pursuant to certain antidilution provisions) of Class A
Common Stock (the "Exchange Shares") that may be
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
August 25, 1998
Page 2
issued by the Company in exchange for up to 1,501,598 Partnership Common Units
(the "OP Units") of AIMCO Properties, L.P., a Delaware limited partnership
(the "Operating Partnership") tendered for redemption.
In rendering the opinion expressed herein, we have examined the
Registration Statement, the Charter and By-Laws of the Company, the Warrants,
the Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, as amended to date (the "Partnership Agreement"),
the proceedings of the Board of Directors of the Company relating to the
reservation and issuance of the Shares, a Certificate of the Secretary
of the Company (the "Certificate"), and such other statutes, certificates,
instruments, and documents relating to the Company and matters of law as
we have deemed necessary to the issuance of this opinion.
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the legal
capacity of all individuals who have executed any of the aforesaid documents,
the authenticity of all documents submitted to us as originals, the
conformity with originals of all documents submitted to us as copies (and the
authenticity of the originals of such copies), and the accuracy and
completeness of all public records reviewed by us. In making our examination
of documents executed by parties other than the Company, we have assumed that
such parties had the power, corporate or other, to enter into and perform all
obligations thereunder, and we have also assumed the due authorization by all
requisite action, corporate or other, and the valid execution and delivery by
such parties of such documents and the validity, binding effect and
enforceability thereof with respect to such parties. As to any facts material
to this opinion which we did not independently establish or verify, we have
relied solely upon the Certificate. We have also assumed, without independent
investigation, that the Outstanding Shares were issued in accordance with the
terms of the resolutions authorizing their issuance.
Based upon the foregoing, having regard for such legal considerations as
we deem relevant, and limited in all respects to applicable Maryland law, we
are of the opinion and advise you that:
(1) The Outstanding Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(2) The Warrant Shares to be issued upon the exercise of the
Warrants have been duly authorized and, upon exercise of the Warrants in
accordance with their terms and issuance and delivery of stock
certificates
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
August 25, 1998
Page 3
representing the Warrant Shares, will be validly issued, fully paid, and
non-assessable.
(3) The Conversion Shares to be issued upon conversion of shares
of Class B Common Stock have been duly authorized and, upon satisfaction
of the conditions for conversion of such shares of Class B Common Stock
as set forth in the Charter of the Company and issuance and delivery of
stock certificates representing the Conversion Shares, will be validly
issued, fully paid, and non-assessable.
(4) The Exchange Shares to be issued in exchange for OP Units
tendered for redemption have been duly authorized and, upon exchange of
such OP Units in accordance with the terms of the Partnership Agreement
and issuance and delivery of stock certificates representing the
Exchange Shares, will be validly issued, fully paid, and nonassessable.
In addition to the qualifications set forth above, this opinion is
subject to the qualification that we express no opinion as to the laws of any
jurisdiction other than the State of Maryland. This opinion concerns only the
effect of the laws (exclusive of the securities or "blue sky" laws and the
principles of conflict of laws) of the State of Maryland as currently in
effect. We assume no obligation to supplement this opinion if any applicable
laws change after the date hereof or if any facts or circumstances come to
our attention after the date hereof that might change this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ PIPER & MARBURY L.L.P.
<PAGE>
Exhibit 8.1
August 25, 1998
Apartment Investment and
Management Company
1873 South Bellaire Street
Suite 1700
Denver, Colorado 80222
Re: Certain Federal Income Tax Considerations
-----------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain Federal income tax
considerations in connection with the offering (the "Offering") for sale,
from time to time, of shares of Class A Common Stock, par value $.01 per share
("Class A Common Stock"), of Apartment Investment and Management Company, a
Maryland corporation ("AIMCO"), by certain stockholders pursuant to a
Registration Statement on Form S-3 (No. 333-47201), as amended (the
"Registration Statement"). Unless otherwise specifically defined herein, all
capitalized terms have the meanings assigned to them in the Registration
Statement.
In connection with the Offering and with certain previous offerings
of Class A Common Stock by AIMCO we have acted as counsel to AIMCO, and we
have assisted in the preparation of the Registration Statement and certain
other documents. In formulating our opinion, we have reviewed the
Registration Statement and such other documentation and information provided
by you as is relevant to the Offering and necessary to prepare the
Registration Statement. In addition, you have provided us with certain
representations and covenants of officers of AIMCO relating to, among other
things, the actual and proposed operation of AIMCO. For purposes of our
opinion, we have not made an independent investigation of the facts
<PAGE>
Apartment Investment and
Management Company
August 25, 1998
Page 2
set forth in such representations, the partnership agreements and
organizational documents for each of the partnerships and limited liability
companies in which AIMCO holds a direct or indirect interest (the
"Subsidiaries"), the Registration Statement or any other document. We have,
consequently, relied on your representations that the information presented
in such documents or otherwise furnished to us accurately and completely
describes all material facts relevant to our opinion. No facts have come to
our attention, however, that would cause us to question the accuracy and
completeness of such facts or documents in a material way. We have also
relied upon the opinion of Piper & Marbury L.L.P. dated August 25, 1998 with
respect to certain matters of Maryland law, as well as the opinion of
Shumaker, Loop & Kendrick dated October 18, 1995 with respect to certain
matters of Florida law and the opinion of Altheimer & Gray dated May 8, 1998
with respect to the qualification as a REIT of Ambassador Apartments, Inc.,
a Maryland corporation for its taxable year ended December 31, 1994 and all
subsequent taxable years ending on or before May 8, 1998 (including the
short taxable year ending immediately prior to May 8, 1998).
In rendering our opinion, we have assumed that the transactions
contemplated by the foregoing documents have been or will be consummated in
accordance with the operative documents, and that such documents accurately
reflect the material facts of such transactions. In addition, our opinion is
based on the correctness of the following specific assumptions: (i) each of
AIMCO, Property Asset Management Services, Inc., AIMCO/NHP Holdings, Inc.,
AIMCO/NHP Properties, Inc., NHP Management Company, NHP A&R Services, Inc.,
and each "qualified REIT subsidiary" of AIMCO (within the meaning of section
856(i)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), has
been and will continue to be operated in accordance with the laws of the
jurisdiction in which it was formed and in the manner described in the
relevant organizational documents and in the Registration Statement; and (ii)
there have been no changes in the applicable laws of the State of Maryland or
any other state under the laws of which any of the Subsidiaries have been
formed. In rendering our opinion, we have also considered and relied upon the
Code, the regulations promulgated thereunder (the "Regulations"),
administrative rulings and the other interpretations of the Code and the
Regulations by the courts and the Internal Revenue Service, all as they exist
at the date of this letter. With respect to the latter assumption, it should
be noted that statutes, regulations, judicial decisions, and administrative
interpretations are subject
<PAGE>
Apartment Investment and
Management Company
August 25, 1998
Page 3
to change at any time and, in some circumstances, with retroactive effect. Any
material change which is made after the date hereof in any of the foregoing
bases for our opinion could affect our conclusions.
We express no opinion as to the laws of any jurisdiction other than the
Federal laws of the United States of America to the extent specifically
referred to herein.
Based on the foregoing, we are of the opinion that:
1. Commencing with AIMCO's initial taxable year ended December 31,
1994, AIMCO was organized in conformity with the requirements for
qualification as a real estate investment trust ("REIT") under the Code, and
AIMCO's proposed method of operation, and its actual method of operation
since its formation through the date of this letter, will enable it to meet
the requirements for qualification and taxation as a REIT. As noted in the
Registration Statement, qualification and taxation as a REIT depend upon
AIMCO's ability to meet, through actual annual operating results, certain
requirements, including requirements relating to distribution levels and
diversity of stock ownership, and the various qualification tests imposed
under the Code, the results of which will not be reviewed by us. Accordingly,
no assurance can be given that the actual results of AIMCO's operation for
any one taxable year will satisfy such requirements.
2. Although the discussion set forth in the Registration Statement
under the caption "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" does not purport
to discuss all possible United States Federal income tax consequences of the
purchase, ownership and disposition of the Class A Common Stock, such
discussion, although general in nature, constitutes, in all material
respects, a fair and accurate summary under current law of certain material
United States Federal income tax consequences of the purchase, ownership and
disposition of the Class A Common Stock by a holder who purchases such Class
A Common Stock, subject to the qualifications set forth therein. The United
States Federal income tax consequences of an investment in the Class A Common
Stock by an investor will depend upon that holder's particular situation, and
we express no opinion as to the completeness of the discussion set forth in
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES" as applied to any particular holder.
<PAGE>
Apartment Investment and
Management Company
August 25, 1998
Page 4
Other than as expressly stated above, we express no opinion on any issue
relating to AIMCO, or to any investment therein.
This opinion is intended for the exclusive use of the person to whom it
is addressed, except as set forth herein, and it may not be used, circulated,
quoted or relied upon for any other purpose without our prior written
consent. We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules or regulations of the Securities and Exchange
Commission thereunder. This opinion is expressed as of the date hereof, and
we disclaim any undertaking to advise you of any subsequent changes of the
matters stated, represented, covenanted, or assumed herein or any subsequent
changes in applicable law.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom, LLP
Skadden, Arps, Slate, Meagher & Flom, LLP
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 (No. 333-47201) and related Prospectus of
Apartment Investment and Management Company for the registration of 2,954,388
shares of Class A Common Stock and to the incorporation by reference therein
of our report 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, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
--------------------
ERNST & YOUNG LLP
Denver, Colorado
August 21, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3 No. 333-47201) and
related Prospectus of Apartment Investment and Management Company (AIMCO) for
the registration of 2,954,388 shares of AIMCO Class A Common Stock and to the
incorporation by reference therein of our report dated January 30, 1998,
(except for Note 19, as to which the date is March 5, 1998), with respect to
the consolidated financial statements and schedule of Ambassador Apartments,
Inc. (Ambassador) as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, included in Amendment No. 1
filed on April 3, 1998 to AIMCO's Current Report on Form 8-K dated March 17,
1998, and our report dated January 27, 1997, (except for Note 15, as to which
the date is March 13, 1997, and Note 2(J), as to which the date is March 31,
1997), with respect to the consolidated financial statements and schedule of
Ambassador 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) for the period from January 1, 1994
through August 30, 1994, included in Amendment No. 1 filed on February 6,
1998 to AIMCO's Current Report on Form 8-K dated December 23, 1997, filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
-----------------------------------
ERNST & YOUNG LLP
Chicago, Illinois
August 21, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3 No. 333-47201) and
related Prospectus of Apartment Investment and Management Company for the
registration of shares of its Class A Common Stock and to the incorporation
by reference therein of our report dated February 13, 1998, except for Note
20, as to which the date is March 19, 1998, with respect to 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 as exhibit 99.2 in Apartment Investment and Management
Company's Current Report on Form 8-K dated March 17, 1998 (and Amendment No.
1 thereto filed April 3, 1998), filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Greenville, South Carolina
August 21, 1998
