<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
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> <C>
MARYLAND 6798 84-1275621
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C> <C>
1873 SOUTH BELLAIRE STREET, 17TH FLOOR PETER K. KOMPANIEZ
DENVER, COLORADO 80222 VICE CHAIRMAN OF THE BOARD OF DIRECTORS
(303) 757-8101 1873 SOUTH BELLAIRE STREET, 17TH FLOOR
(Address, including zip code, and DENVER, COLORADO 80222
telephone number, including area code, (303) 757-8101
of registrant's principal (Name, address, including zip code, and
executive offices) telephone number, including area code,
of agent for service)
</TABLE>
------------------------
Copies to:
<TABLE>
<S> <C> <C>
MICHAEL V. GISSER ALLAN R. WILLIAMS
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP PROSKAUER ROSE LLP
300 SOUTH GRAND AVENUE 1585 BROADWAY
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10036
(213) 687-5000 (212) 969-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following consummation of the merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and if there is compliance
with General Instruction G, check the following box. [ ]
If the Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01 per
share..................................... 10,500,000(1) -- $286,144,398(2) $79,548(3)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum number of shares of AIMCO Class A Common Stock
issuable (including shares issuable on account of IPT restricted shares and
options) using the 52-week low trading price of shares of AIMCO Class A
Common Stock.
(2) Pursuant to Rules 457(f) and 457(c), represents (x) $12.125, the average of
the high and low prices, reported on the American Stock Exchange, on October
21, 1998, for common shares of beneficial interest of IPT multiplied by, (y)
23,599,538, the number of fully-diluted common shares of beneficial interest
of IPT outstanding on such date.
(3) The fee was wired to the SEC's lock-box account at Mellon Bank in two parts:
$69,681 on October 26, 1998 and $9,867 on October 27, 1998.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INSIGNIA PROPERTIES TRUST
55 BEATTIE PLACE
GREENVILLE, SOUTH CAROLINA 29602
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER , 1998
--------------------------------------------------------------------
WE ARE NOT ASKING FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY
--------------------------------------------------------------------
To the Shareholders of Insignia Properties Trust:
You are hereby notified that a special meeting of shareholders of Insignia
Properties Trust, a Maryland real estate investment trust, will be held on
December , 1998, beginning at 9:00 a.m., local time, at 55 Beattie Place,
Floor, Greenville, South Carolina 29602, for the following purpose:
- - To consider and vote upon a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of October 1, 1998, between IPT and Apartment
Investment and Management Company, a Maryland corporation, and the
transactions contemplated by that agreement.
Only holders of IPT common shares of beneficial interest reflected in IPT's
records at the close of business on December , 1998, the record date for the
special meeting, are entitled to notice of and to vote at the special meeting
and any adjournment or postponement of the special meeting.
The attached Information Statement/Prospectus discusses the merger agreement and
other important matters. A copy of the merger agreement is included as Annex A
to the Information Statement/Prospectus. You are encouraged to read the
Information Statement/Prospectus and the documents incorporated therein by
reference carefully and completely.
Our principal executive offices are located at 55 Beattie Place, Greenville,
South Carolina 29602. Our telephone number is (864) 239-1300.
By Order of the Chairman of the Board of
Trustees
Jeffrey P. Cohen
Secretary
Greenville, South Carolina
December , 1998
<PAGE> 3
INSIGNIA PROPERTIES TRUST INFORMATION STATEMENT
---------------------
APARTMENT INVESTMENT AND MANAGEMENT COMPANY PROSPECTUS
---------------------
PROPOSED MERGER OF INSIGNIA PROPERTIES TRUST WITH
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Insignia Properties Trust will hold a special meeting of shareholders on
December , 1998, beginning at 9:00 a.m., local time, at 55 Beattie Place,
Floor, Greenville, South Carolina 29602.
At the special meeting, shareholders of IPT will be asked to consider and
vote upon a proposal for the acquisition of all of the equity interests in IPT
by Apartment Investment and Management Company not already owned by AIMCO,
through a merger of IPT into AIMCO. If the merger is completed prior to March 1,
1999, each outstanding IPT common share of beneficial interest will be converted
into the right to receive, at AIMCO's election, shares of AIMCO Class A Common
Stock, cash or a combination of both. If the merger is completed on or after
March 1, 1999, each outstanding IPT common share will be converted into the
right to receive only shares of AIMCO Class A Common Stock. In addition, in each
case, you will receive a pro rata portion of the normal quarterly distribution
on IPT Common Shares for the period ending the day before completion of the
merger.
On October 1, 1998, AIMCO acquired Insignia Financial Group, Inc., the
former majority shareholder of IPT, through the merger of IFG into AIMCO. As a
result, AIMCO, directly or through its subsidiaries, became the owner of
12,033,556 IPT Common Shares, or approximately 51% of the IPT Common Shares that
may be voted at the special meeting.
The merger agreement and the transactions contemplated by the merger
agreement need to be approved and adopted by the holders of a majority of the
outstanding IPT Common Shares. AIMCO and its subsidiaries hold a majority of the
outstanding IPT Common Shares and their IPT Common Shares will be voted in favor
of the merger. Therefore, it is assured that the merger agreement will be
approved and adopted at the special meeting.
SEE "RISK FACTORS" BEGINNING ON PAGE 31 FOR A DISCUSSION OF MATERIAL RISK
FACTORS THAT SHOULD BE CONSIDERED BY SHAREHOLDERS OF IPT.
This Information Statement/Prospectus also constitutes a prospectus of
AIMCO, which is a part of the Registration Statement on Form S-4 filed by AIMCO
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, in order to register up to 10.5 million shares of Class A Common Stock,
par value $.01 per share, of AIMCO, which may be issued in the merger. The AIMCO
Common Stock is traded on the New York Stock Exchange under the symbol "AIV."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE MERGER, THE SECURITIES THAT MAY BE ISSUED IN THE
MERGER OR THE FAIRNESS OR MERITS OF THE MERGER. IN ADDITION, NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
DETERMINED IF THIS INFORMATION STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Information Statement/Prospectus is dated December , 1998 and is
first being mailed to IPT shareholders on or about December , 1998.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER............................ 1
SUMMARY............................. 6
The Companies..................... 6
Apartment Investment and
Management Company........... 6
Insignia Properties Trust...... 7
Background of the Merger....... 7
The Special Meeting............... 8
IPT Board of Trustees............. 9
Possible Conflicts of Interest of
IPT Executive Officers and
Trustees in the Merger......... 9
Fairness Opinion of Financial
Advisor........................ 11
Summary of the Merger Agreement... 11
What Holders of IPT Common
Shares Will Receive in the
Merger....................... 11
Effective Time of the Merger... 12
Ownership of AIMCO Following
the Merger................... 12
Conditions to the Merger....... 12
Termination of the Merger
Agreement.................... 12
Modification of the Form of the
Merger....................... 13
Accounting Treatment........... 13
Regulatory Matters............. 13
Federal Income Tax
Consequences................. 13
No Appraisal Rights............ 14
Stock Exchange Listing;
Exchange Act Registration.... 14
Summary Risk Factors.............. 14
Fluctuations in Market Price...... 14
Comparative Per Share Data........ 15
Distributions..................... 17
Forward-Looking Statements........ 18
Summary Historical Financial
Information of AIMCO........... 19
Summary Consolidated and Combined
Financial Data of IPT.......... 23
Summary Pro Forma Financial and
Operating Information of
AIMCO.......................... 25
IPT Summary Pro Forma Financial
Data of IPT.................... 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RISK FACTORS........................ 31
Risks Relating to the Merger
Regardless of Whether You
Receive AIMCO Common Stock in
the Merger..................... 31
Consequences to IPT and You if
the Merger is Not
Completed.................... 31
Possible Conflicts of Interest
of IPT's Executive Officers
and Trustees in the Merger... 31
Risks Relating to the Merger if
You Receive AIMCO Common Stock
in the Merger.................. 33
Risks Associated with AIMCO's
Integration of IPT........... 33
Market Fluctuations............ 33
Risks Relating to AIMCO's and
IPT's Businesses............... 33
Risks of Acquisition and
Development Activities....... 34
Litigation Associated with
Partnership Acquisitions..... 34
Risks Associated With Debt
Financing.................... 35
Moody's Revision of AIMCO's
Outlook of Ratings to
Negative..................... 35
Increases in Interest Rates May
Increase AIMCO's Interest
Expense...................... 35
Risks of Interest Rate Hedging
Arrangements................. 36
Covenant Restrictions May Limit
AIMCO's Ability to Make
Payments to Its Investors.... 36
AIMCO Depends on Distributions
and Other Payments from Its
Subsidiaries................. 36
Real Estate Investment Risks... 36
Possible Environmental
Liabilities.................. 37
Laws Benefitting Disabled
Persons May Result in
Unanticipated Expenses....... 37
Risks Relating to Regulation of
Affordable Housing........... 38
The Loss of Property Management
Contracts Would Reduce
AIMCO's Revenues............. 38
Dependence on Certain Executive
Officers..................... 39
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Conflicts of Interest;
Transactions with
Affiliates................... 39
Tax Risks......................... 40
Possible Adverse Consequences of
Limits on Ownership of
Shares......................... 41
AIMCO's Charter and Maryland Law
May Limit the Ability of a
Third Party to Acquire Control
of AIMCO....................... 42
INFORMATION CONCERNING THE SPECIAL
MEETING........................... 43
Purpose, Time and Place........... 43
Record Date; Quorum; Vote
Required....................... 43
Voting............................ 44
No Appraisal Rights............... 44
SPECIAL FACTORS..................... 45
Overview of the Merger............ 45
Background of the IFG Merger...... 46
Background of the Merger.......... 48
IPT's Reasons for the Merger;
Recommendation of the IPT
Board.......................... 50
AIMCO's Reasons for the Merger.... 53
Opinion of Financial Advisor to
the IPT Board.................. 53
Valuation of IPT.................. 56
Valuation of AIMCO................ 57
Certain Projected Financial
Information and Forward-Looking
Statements..................... 59
Interests of Trustees and
Management of IPT in the
Merger......................... 61
Certain Effects of the Merger;
Plans for IPT After the
Merger......................... 62
Federal Income Tax Consequences of
the Merger..................... 63
Accounting Treatment.............. 65
No Appraisal Rights............... 65
Regulatory Matters................ 65
Section 3-602 of the MGCL......... 65
Stock Exchange Listing............ 65
Transaction Costs................. 66
Restrictions on Resales by
Affiliates..................... 66
THE MERGER AGREEMENT AND TERMS OF
THE MERGER........................ 67
The Merger........................ 67
Closing Date; Effective Time...... 67
Charter, Bylaws and Directors and
Officers....................... 67
The Closing....................... 67
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Manner and Basis of Converting IPT
Common Shares.................. 67
Representations and Warranties.... 69
Certain Covenants................. 70
Conditions to Consummation of
Merger......................... 75
Termination of the Merger
Agreement...................... 75
"Unwind" in the Event of a
Termination of the Merger
Agreement...................... 76
Amendment and Waiver.............. 77
SELECTED HISTORICAL FINANCIAL
INFORMATION OF AIMCO.............. 79
SELECTED CONSOLIDATED AND COMBINED
FINANCIAL DATA OF IPT............. 83
PRO FORMA FINANCIAL INFORMATION OF
AIMCO............................. 85
Pro Forma Financial Information of
AIMCO (Pre-Merger)............. 87
Pro Forma Financial Information of
AIMCO (Merger)................. 115
CAPITALIZATION OF AIMCO............. 128
BUSINESS OF AIMCO................... 130
Recent Developments............... 130
Accounting Policies and
Definitions.................... 133
Year 2000 Compliance.............. 135
Executive Offices................. 135
BOARD OF DIRECTORS AND OFFICERS OF
AIMCO............................. 137
PRINCIPAL STOCKHOLDERS OF AIMCO..... 142
BUSINESS OF IPT..................... 144
General........................... 144
The IPT Partnerships.............. 145
Business Objectives............... 147
Acquisition Strategies............ 148
Operating Activities.............. 148
Investment Policies............... 149
Financing Policies................ 150
Conflict of Interest Policies..... 151
Policies with Respect to Other
Activities..................... 151
Properties........................ 152
Taxes/Depreciation................ 155
Mortgages......................... 156
Legal Proceedings................. 158
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IPT FORMATION TRANSACTIONS AND
CERTAIN RECENT DEVELOPMENTS....... 162
IPT Formation Transactions..... 162
Certain Recent Developments....... 165
THE PARTNERSHIP AGREEMENT OF IPLP... 171
Management........................ 171
Transferability of Interests...... 172
Capital Contributions............. 172
Redemption Rights................. 172
Operations........................ 173
Distributions and Allocations..... 174
Property Management and Contract
Loss Fee....................... 174
Put Rights........................ 175
Partnership Administration
Services....................... 176
Transfers of Controlling Interests
in IPT Entities................ 177
Term.............................. 177
Tax Matters Partner............... 177
ACQUISITION AND DISPOSITION SERVICES
AGREEMENT......................... 177
Acquisition and Disposition
Services....................... 178
Agreements Regarding Certain Real
Estate Opportunities........... 178
IPT LINE OF CREDIT.................. 179
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF IPT AND THE IPT
PARTNERSHIPS...................... 182
Insignia Properties Trust......... 182
IPT Partnerships.................. 185
PRINCIPAL SHAREHOLDERS OF IPT....... 190
DESCRIPTION OF COMMON STOCK......... 191
General........................... 191
Restrictions on Transfer.......... 191
AIMCO Common Stock................ 193
Class B Common Stock.............. 193
Business Combinations............. 194
Control Share Acquisitions........ 195
DESCRIPTION OF AIMCO PREFERRED
STOCK............................. 196
General........................... 196
Class B Preferred Stock........... 197
Class C Preferred Stock........... 199
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Class D Preferred Stock........... 200
Class E Preferred Stock........... 201
Class G Preferred Stock........... 203
Class H Preferred Stock........... 205
FEDERAL INCOME TAXATION OF AIMCO AND
AIMCO STOCKHOLDERS................ 207
General........................... 207
Requirements for Qualification.... 209
Ownership of Partnership
Interests...................... 209
Income Tests...................... 210
Asset Tests....................... 211
Annual Distribution
Requirements................... 212
Distribution of Acquired Earnings
and Profits.................... 212
Failure to Qualify................ 213
Tax Aspects of AIMCO's Investments
in Partnerships................ 213
General........................... 213
Entity Classification............. 214
Tax Allocations with Respect to
the Properties................. 214
Sale of the Properties............ 215
Taxation of Management
Subsidiaries...................... 215
Taxation of Taxable Domestic
Stockholders...................... 215
Distributions....................... 215
Disposition of AIMCO Common
Stock........................ 216
Taxation of Foreign Stockholders.... 216
Ordinary Dividends............. 217
Non-Dividend Distributions..... 217
Capital Gain Dividends......... 217
Dispositions of AIMCO Common
Stock........................ 217
Estate Tax..................... 218
Taxation of Tax-Exempt
Stockholders...................... 218
Information Reporting Requirements
and Backup Withholding............ 219
COMPARATIVE RIGHTS OF SHAREHOLDERS
OF AIMCO AND IPT.................. 220
Authorized Shares................. 220
Board of Trustees/Directors....... 220
Committees of the Board........... 221
Cumulative Voting................. 222
Newly Created Positions or
Vacancies...................... 222
Removal of Trustees or
Directors...................... 222
Special Meeting................... 222
</TABLE>
iii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shareholder Action by Written
Consent........................ 223
Restrictions on Share Transfers... 223
Preemptive Rights................. 223
Business Combinations............. 223
Control Share Acquisitions........ 224
Appraisal Rights.................. 225
Indemnification................... 225
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEGAL MATTERS....................... 227
EXPERTS............................. 227
WHERE YOU CAN FIND MORE
INFORMATION....................... 228
INDEX TO FINANCIAL STATEMENTS....... F-1
Agreement and Plan of Merger........ A-1
Opinion of Lehman Brothers.......... B-1
</TABLE>
iv
<PAGE> 8
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: WHAT IS THE MERGER?
A: The Merger will combine IPT's multifamily housing business with AIMCO's
multifamily housing business to create a more significant presence in that
industry. Following the Merger, IPT will not exist as a separate entity.
Q: WHY ARE WE PROPOSING THE MERGER?
A: AIMCO became the owner of Insignia Financial Group, Inc.'s ("IFG") majority
interest in IPT when IFG merged into AIMCO on October 1, 1998. The merger
agreement between IFG and AIMCO required AIMCO to offer to acquire the IPT
Common Shares not owned by IFG at a price of not less than $13.25 per IPT
Common Share in cash. AIMCO expects that acquiring the publicly held
minority interest in IPT will promote operational efficiency, eliminate
duplication of certain expenses and avoid possible future conflicts of
interest between AIMCO and IPT.
Q: DID THE IPT BOARD OF TRUSTEES APPROVE THE MERGER?
A: Yes. On October 1, 1998, after consideration of various factors, including
the opinion of Lehman Brothers referred to below, the IPT Board of Trustees
(which was then independent of AIMCO) (with one trustee not in attendance)
unanimously deemed the Merger advisable and in the best interests of IPT,
directed the Merger to be submitted to the IPT shareholders and recommended
the Merger to the IPT shareholders. The independent trustees, however, may
be deemed to have a number of conflicts of interest.
Q: DID THE IPT BOARD OF TRUSTEES RECEIVE A FAIRNESS OPINION FROM A FINANCIAL
ADVISOR IN CONNECTION WITH THE MERGER?
A: Yes. Lehman Brothers, IPT's financial advisor, delivered an opinion to the
IPT Board of Trustees that, from a financial point of view, the
consideration to be paid in the Merger is fair to IPT's shareholders (other
than AIMCO and its subsidiaries).
Q: WHAT IS AIMCO?
A: AIMCO is a self-administered and self-managed REIT engaged in the
ownership, acquisition, development, expansion and management of
multifamily apartment properties. As of October 1, 1998, AIMCO owned or
managed 396,090 apartment units in 2,303 properties located in 49 states,
the District of Columbia and Puerto Rico (including approximately 339
properties controlled by IPT). Based on apartment unit data compiled as of
January 1, 1998 by the National Multi Housing Council, AIMCO believes that,
upon its merger with IFG, it became the largest owner and manager of
multifamily apartment properties in the United States.
Q: HOW WILL THE MERGER AFFECT ME?
A: If the Merger is consummated, you will cease to be a shareholder of IPT,
and your IPT Common Shares will be converted into shares of AIMCO Common
Stock, cash or a combination of both, as described below. AIMCO's Common
Stock is listed on The New York Stock Exchange under the trading symbol
"AIV."
Q: HOW ARE THE IPT COMMON SHARES VALUED IN THE MERGER AGREEMENT?
1
<PAGE> 9
A: IPT Common Shares are valued at $13.25 per share if they are paid for in
cash and $13.28 per share if they are paid for in shares of AIMCO Common
Stock. These amounts will be adjusted upwards in the event that IPT fails
to make certain required distributions, and downwards if IPT makes
distributions in excess of certain amounts, and paid in the manner
described below.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: The form and per-share amount of consideration to be received by IPT
shareholders in the Merger will depend upon three factors:
-The first factor is the date on which the Merger is completed. If the
Merger is completed prior to March 1, 1999, AIMCO can choose to pay a
percentage of the consideration (from 0% to 100%) in cash. IPT will issue
a press release at least 10-trading days before the completion of the
Merger to announce the cash percentage, if any, of the consideration.
-The second factor is the AIMCO Exchange Value, which is determined based
on the date the Merger is completed. If the Merger is completed before
December 31, 1998, the AIMCO Exchange Value will be the average sales
price of AIMCO Common Stock on the NYSE over a 10-trading day period
ending on the trading day prior to the IPT special meeting. If the Merger
is completed after December 31, 1998, the AIMCO Exchange Value will be the
lower of that price or the average sales price of AIMCO Common Stock on
the NYSE over a 10-trading day period ending on December 31, 1998.
-The third factor is whether IPT makes cash distributions on its shares
through the day before the Merger is completed at least equal to certain
minimum amounts, but in no event at a rate less than its current rate of
$0.16 per share per quarter, and not in excess of certain maximum amounts.
Illustrative Example:
If the Merger had been completed on December , 1998, the AIMCO Exchange
Value would have been $ . Assuming all regular distributions on
IPT Common Shares had been paid and no special distributions were required
to be paid, you would have received for each IPT Common Share, the
following amount of cash and number of shares of AIMCO Common Stock set
forth opposite specified cash percentages which AIMCO could elect to pay.
<TABLE>
<CAPTION>
SHARES OF AIMCO
CASH PERCENTAGE CASH COMMON STOCK
--------------- -------- ---------------
<S> <C> <C>
0%.................................. none
25%................................. $ 3.3125
50%................................. $ 6.6250
75%................................. $ 9.9375
100%................................ $13.2500 none
</TABLE>
In addition, you would have received cash in an amount per IPT Common Share
equal to $0.16 pro rated for the period from October 1, 1998 (the day after
the record date for the last regular quarterly distribution declared by
IPT) through the day before completion of the Merger.
2
<PAGE> 10
Precise Method of Calculation:
The precise calculation of the form and amount of the merger consideration
is very complex. In general though, the consideration you will receive for
each IPT Common Share will be:
(1) shares of AIMCO Common Stock equal to $13.28 divided by the AIMCO
Exchange Value and multiplied by the difference between 100% and the cash
percentage, if any, chosen by AIMCO; and
(2) cash in the amount of $13.25 multiplied by the cash percentage, if any,
chosen by AIMCO; and
(3) cash in the amount of $0.16 or, if the Merger is completed after
February 28, 1999, the greater of $0.16 or an amount calculated with
reference to distributions on AIMCO Common Stock (to be adjusted upwards in
the event that IPT fails to make distributions on its shares at least equal
to certain minimum amounts or if the Merger is completed in January or
February 1999 and downwards if IPT makes distributions in excess of certain
amounts), in each case multiplied by the number of days since the day after
the record date for the last quarterly distribution declared by IPT through
the day before completion of the Merger, divided by 91.
The following table sets forth the number of shares of AIMCO Common Stock
(as described in (1) above) and the amount of cash (as described in (2)
above) that you would receive for each IPT Common Share at specified AIMCO
Exchange Values and cash percentages (remember that the cash percentage
automatically will be zero if the Merger is completed after February 28,
1999).
<TABLE>
<CAPTION>
CASH PERCENTAGE
-----------------------------------------------------------------------------------------------
0% 25% 50% 75% 100%
-------------- ----------------- ----------------- ----------------- ------------------
AIMCO SHARES SHARES SHARES SHARES SHARES
EXCHANGE OF OF OF OF OF
VALUE AIMCO CASH AIMCO CASH AIMCO CASH AIMCO CASH AIMCO CASH
-------- ------- ---- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$30.00............... $0 $3.3125 $6.6250 $9.9375 $13.2500
$31.00............... $0 $3.3125 $6.6250 $9.9375 $13.2500
$32.00............... $0 $3.3125 $6.6250 $9.9375 $13.2500
$33.00............... $0 $3.3125 $6.6250 $9.9375 $13.2500
$34.00............... $0 $3.3125 $6.6250 $9.9375 $13.2500
$35.00............... $0 $3.3125 $6.6250 $9.9375 $13.2500
</TABLE>
The closing prices for AIMCO Common Stock on the NYSE and IPT Common Shares
on the American Stock Exchange on December , 1998 were $ per share
and $ per share, respectively. If the Merger had been completed on
December , 1998, the AIMCO Exchange Value would have been $ .
In addition, you would be entitled to receive cash, (as described in (3)
above), with respect to each IPT Common Share calculated as follows:
(1) If the Merger is completed before January 1, 1999: (a) cash in the
amount of $0.16 multiplied by the number of days since October 1, 1998
through the day before completion of the Merger, divided by 91; and (b) a
currently indeterminable amount if IPT fails to make distributions on its
IPT Common Shares equal to certain minimum amounts.
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<PAGE> 11
(2) If the Merger is completed in January 1999: (a) the consideration
described in paragraph (1) above; and (b) an additional amount in cash
equal to the cash percentage multiplied by $0.0018 multiplied by the number
of days from January 1, 1999 through the day before completion of the
Merger.
(3) If the Merger is completed in February 1999: (a) the consideration
described in paragraph (1) above and (b) an additional amount in cash equal
to the cash percentage multiplied by $0.0036 multiplied by the number of
days from January 1, 1999 through the day before completion of the Merger.
(4) If the Merger is completed after February 28, 1999: the consideration
described in paragraph (1) above, except that the $0.16 amount referred to
paragraph (1) above, will instead be the greater of $0.16 or the then
current equivalent per share quarterly distribution amount paid on the
AIMCO Common Stock, determined as follows: $13.28 divided by the average
sales price of AIMCO Common Stock on the NYSE over the 10-trading day
period ending on December 31, 1998 and multiplied by the most current per
share quarterly distribution amount declared by AIMCO in respect of the
AIMCO Common Stock.
Q: HOW CAN YOU FIND OUT THE CURRENT AIMCO EXCHANGE VALUE?
A: You may call 1-800- - to obtain the then current AIMCO Exchange
Value, which is the average sales price of AIMCO Common Stock on the NYSE
over the most recent 10-day trading period (remember this is not the actual
10-day period which will be used to determine the AIMCO Exchange Value).
Q: ARE THERE ANY RISKS ASSOCIATED WITH THE MERGER?
A: You should consider carefully certain risks relating to the Merger. For
instance:
- AIMCO may not be able to integrate successfully the businesses of AIMCO
and IPT and may not realize the benefits anticipated from the Merger;
- AIMCO has significant amounts of debt outstanding, certain of which debt
bears interest at variable rates and imposes significant restrictions on
AIMCO;
- AIMCO and IPT are subject to various risks associated with investments in
and management of real estate; and
- if the Merger Agreement is terminated, AIMCO and IPT have agreed to
unwind certain transactions entered into between AIMCO and IPT (or entities
controlled by IPT) prior to the termination of the Merger Agreement.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We plan to complete the Merger on the day of the special meeting, assuming
the conditions to the Merger are met or waived. We currently anticipate
completing the Merger in December 1998.
Q: WHAT DO I NEED TO DO NOW?
A: Nothing. We are not asking for a proxy and you are requested not to send us
a proxy. IPT Common Shares held by AIMCO and its subsidiaries will be voted
in favor of the Merger. Accordingly, it is assured that the Merger will be
approved at the special meeting. However, you may attend the special
meeting and vote your IPT Common Shares, or grant a proxy with respect to
your IPT Common Shares, if you wish.
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<PAGE> 12
Q: IF MY IPT COMMON SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE THEM FOR ME?
A: No. If your IPT Common Shares are held in the name of a broker or other
nominee, and you wish either to attend the special meeting and vote your
IPT Common Shares or grant a proxy with respect to your IPT Common Shares,
you will need to obtain a letter from the broker or nominee confirming your
ownership of IPT Common Shares and bring it with you to the special meeting
or provide it with the proxy.
Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A: No. After the Merger is completed, AIMCO will send you written instructions
for sending in your share certificates and receiving payment for your IPT
Common Shares.
Q: WHAT REMEDY DO I HAVE IF I DO NOT VOTE FOR THE MERGER AND THE MERGER
PROCEEDS ANYWAY?
A: Under Maryland law, the holders of IPT Common Shares will not have
objecting shareholders' rights to fair value in connection with the Merger.
Q: WILL I RECOGNIZE TAXABLE GAIN OR LOSS ON THE MERGER?
A: If AIMCO elects to pay a percentage of the merger consideration in AIMCO
Common Stock, you will not recognize taxable gain or loss on the receipt of
AIMCO Common Stock in exchange for your IPT Common Shares. However, all
cash amounts paid by AIMCO will be taxable, but only to the extent the fair
market value of the shares of AIMCO Common Stock and the cash you receive
in the Merger exceeds your adjusted tax basis in your IPT Common Shares.
TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
DEPENDS ON THE FACTS OF YOUR INDIVIDUAL CIRCUMSTANCES. YOU ARE URGED TO
REVIEW THE DISCUSSION IN THIS DOCUMENT UNDER "SUMMARY -- SUMMARY OF THE
MERGER AGREEMENT" AND TO CONSULT YOUR TAX ADVISOR WITH REGARD TO SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO YOU.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: None. IPT's bylaws prohibit any other matters from being voted on at the
special meeting, other than adjournment or postponement of the special
meeting.
Q: WHAT WILL HAPPEN IF THE MERGER IS NOT COMPLETED?
A: Although AIMCO currently controls a majority of the IPT Board, if the
Merger is not completed, AIMCO will continue to control the majority of the
outstanding IPT Common Shares but would, under certain circumstances, lose
control of the IPT Board of Trustees for up to a two-year period.
Transactions involving AIMCO and IPT (or entities controlled by IPT) that
occurred prior to the termination of the Merger Agreement would be unwound.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the Merger, you should contact:
Insignia Properties Trust
55 Beattie Place
Greenville, South Carolina 29602
Attention: Leeann Morein
Telephone: (864) 239-1300
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<PAGE> 13
SUMMARY
This summary highlights selected information from this Information
Statement/ Prospectus and may not contain all of the information that is
important to you. To better understand the Merger, and for a more complete
description of the legal terms of the Merger, you should read carefully this
entire Information Statement/Prospectus and the documents to which we have
referred you. See "Where You Can Find More Information" on page . You should
not place undue reliance on forward looking statements in this document or the
documents to which we have referred you. See "Forward Looking Statements" at
page 18.
THE COMPANIES
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222-4348
(303) 757-8101
AIMCO, a Maryland corporation formed on January 10, 1994, is a
self-administered and self-managed REIT, engaged in the ownership, acquisition,
development, expansion and management of multifamily apartment properties. As of
October 1, 1998, AIMCO owned or managed 396,090 apartment units in 2,303
properties located in 49 states, the District of Columbia and Puerto Rico
(including approximately 339 properties controlled by IPT). Based on apartment
unit data compiled as of January 1, 1998 by the National Multi Housing Council,
AIMCO believes that, as of October 1, 1998, it became the largest owner and
manager of multifamily apartment properties in the United States. As of October
1, 1998, AIMCO:
- owned or controlled 58,495 units in 209 apartment properties;
- held an equity interest in 239,879 units in 1,335 apartment
properties; and
- managed 97,716 units in 759 apartment properties for third party
owners and affiliates.
AIMCO conducts substantially all of its operations through AIMCO
Properties, L.P., a Delaware limited partnership (the "AIMCO Operating
Partnership"). AIMCO's wholly owned subsidiary, AIMCO-GP, Inc., is the sole
general partner of the AIMCO Operating Partnership. Through AIMCO-GP and another
of AIMCO's wholly owned subsidiaries, as of October 1, 1998, AIMCO owned
approximately an 89% interest in the AIMCO Operating Partnership. AIMCO manages
apartment properties for third parties and affiliates through unconsolidated
subsidiaries that AIMCO refers to as the "management companies." On October 1,
1998, Insignia Financial Group, Inc. ("IFG") merged into AIMCO (the "IFG
Merger"). As a result, AIMCO, directly or indirectly, owns 12,033,556 IPT Common
Shares, or approximately 51% of the outstanding IPT Common Shares.
Generally, when we refer to AIMCO in this Information Statement/Prospectus,
we are referring to AIMCO, the AIMCO Operating Partnership, the management
companies and their respective subsidiaries.
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<PAGE> 14
INSIGNIA PROPERTIES TRUST
One Insignia Financial Plaza
Greenville, South Carolina 29602
(864) 239-1300
IPT is a Maryland real estate investment trust, which primarily acquires
and owns interests in multifamily residential properties. IPT was formed in May
1996 and has been organized and operates in a manner that qualifies it to be
taxed as a REIT.
Immediately prior to the execution of the Merger Agreement, IPT held equity
interests in and effectively controlled 121 real estate limited partnerships and
had ten wholly-owned real estate assets. IPT (or its subsidiary) owned a
controlling equity interest in each entity that comprises or controls the
managing general partner of each such controlled limited partnership and
Insignia Properties, L.P. ("IPLP"), the operating partnership of IPT, and its
subsidiaries owned the limited partner interests in such controlled limited
partnerships and IPT's ten existing wholly-owned real estate assets. As of
October 1, 1998, such controlled limited partnerships owned a total of
approximately 339 properties containing approximately 70,000 residential
apartment units and approximately 5.9 million square feet of commercial space.
Partnerships in which IPT owned a material interest (the "IPT Partnerships")
owned a total of approximately 197 properties containing approximately 48,000
residential apartment units and approximately 3.0 million square feet of
commercial space.
On September 17, 1998, IPT acquired (by merger) (the "AMIT Merger") Angeles
Mortgage Investment Trust ("AMIT"), which made various types of
intermediate-term real estate loans. AMIT's lending was concentrated principally
in secured, and to a lesser extent unsecured, real estate loans. At the date of
the AMIT Merger, AMIT had 19 loans outstanding, with an aggregate principal
balance of approximately $21.1 million. As a result of the AMIT Merger, IPT
Common Shares were listed on the American Stock Exchange.
Generally, when we refer to IPT in this Information Statement/Prospectus,
we are referring to IPT, IPLP and the IPT Partnerships.
BACKGROUND OF THE MERGER
On March 17, 1998, IFG and AIMCO announced that they had entered into a
merger agreement (the "IFG Merger Agreement") pursuant to which IFG would merge
with and into AIMCO in a transaction valued at approximately $811 million. Of
the $811 million, approximately $ was attributed to IFG's ownership
interest in IPT, which IFG valued at $13.25 per IPT Common Share. The IFG Merger
Agreement obligated AIMCO to propose to acquire IPT by merger at a purchase
price of not less than $13.25 in cash per IPT Common Share.
In order to facilitate the IFG Merger, on September 21, 1998 IFG
distributed all of the outstanding common stock of Insignia/ESG Holdings, Inc.
("Holdings") to stockholders of record of shares of Class A common stock of IFG
on September 15, 1998. Holdings specializes in international commercial real
estate services, single-family home brokerage and mortgage origination,
condominium and cooperative apartment management,
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<PAGE> 15
equity co-investment and other services which are the businesses that AIMCO did
not want to acquire and IFG did not want to sell.
During September 1998, IPT and AIMCO began negotiating a merger agreement
between the two parties and other ancillary documents, including amendments to
IPT's bylaws. On October 1, 1998, at a special meeting of the IPT Board attended
by all but one trustee (which Board was then independent of AIMCO), Lehman
Brothers delivered a presentation on the fairness of the Merger and rendered its
written opinion regarding the fairness, from a financial point of view, of the
consideration to be received by the IPT shareholders (other than AIMCO and its
subsidiaries) in the Merger as contemplated by a draft merger agreement. In
addition, at the IPT Board meeting, the trustees approved, among other things:
(1) the Merger Agreement, (2) the increase in the number of IPT trustees to
eleven, (3) amendments to IPT's bylaws that allocate certain powers to the five
continuing trustees of IPT (or their successors chosen by them) who approved the
Merger Agreement ("Continuing Trustees"), (4) the resignation of Ronald
Consiglio and Ronald Uretta as trustees of IPT and (5) the appointment of six
new trustees nominated by AIMCO (all of whom are directors and/or executive
officers of AIMCO).
On October 1, 1998, the IFG Merger was consummated. On October 2, 1998, the
Merger Agreement was executed and delivered.
In order to avoid adverse tax consequences to AIMCO, the IFG Merger
Agreement required that AIMCO and IFG use their best efforts to cause IPLP to
transfer substantially all of its assets to the AIMCO Operating Partnership, in
exchange for units of limited partner interest in the AIMCO Operating
Partnership ("OP Units"). As a result, following the IFG Merger and the
execution of the Merger Agreement, IPLP and the AIMCO Operating Partnership
entered into an Assignment and Assumption Agreement, dated as of October 1, 1998
(the "IPLP Asset Agreement"). Pursuant to the IPLP Asset Agreement, IPLP
transferred a substantial portion of its assets to the AIMCO Operating
Partnership in exchange for OP Units. In addition, AIMCO and IPT formed a
joint venture to acquire from a third party multifamily housing assets in which
IPT's 99% joint venture interest was funded by IPLP. See "Special
Factors -- Overview of the Merger."
THE SPECIAL MEETING
The special meeting of IPT shareholders will be held on December , 1998,
beginning at 9:00 a.m., local time, at the offices of IPT, 55 Beattie Place,
Floor, Greenville, South Carolina.
At the special meeting, you will be asked to approve and adopt the Merger
Agreement and the transactions contemplated by the Merger Agreement. No other
business will be transacted at the special meeting.
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<PAGE> 16
Record Date
If you owned IPT Common Shares as of the close of business on December ,
1998, the record date, you are entitled to vote on the Merger. On the record
date, there were IPT Common Shares outstanding of which approximately
54% were beneficially owned by AIMCO and trustees and executive officers of IPT
on that date. You will be entitled to one vote at the special meeting for each
IPT Common Share you owned on the record date.
Required Vote
In order for the Merger to be approved, the holders of a majority of the
outstanding IPT Common Shares must vote in its favor. All of the IPT Common
Shares owned by AIMCO and its subsidiaries will be voted in favor of the Merger.
THEREFORE, IT IS ASSURED THAT THE MERGER WILL BE APPROVED AND ADOPTED AT THE
SPECIAL MEETING.
IPT BOARD OF TRUSTEES
On October 1, 1998, at a special meeting of the IPT Board attended by all
but one trustee (which Board was then independent of AIMCO), the IPT Board
unanimously deemed the Merger advisable and in the best interests of IPT,
directed the Merger be submitted to the IPT shareholders and recommended the
Merger to the IPT shareholders.
POSSIBLE CONFLICTS OF INTEREST OF IPT EXECUTIVE OFFICERS AND TRUSTEES IN THE
MERGER (SEE PAGE )
In considering the recommendation of the IPT Board with respect to the
Merger, you should be aware that executive officers and trustees of IPT who
negotiated and approved the Merger Agreement may have interests that differ from
the interests of IPT shareholders generally. Messrs. James A. Aston, Andrew L.
Farkas, Frank M. Garrison and Ronald Uretta, former senior executive officers of
IFG, were members of the IPT Board at the time the Merger Agreement was
executed. Messrs. Aston, Farkas and Garrison are Continuing Trustees of IPT.
Messrs. Aston, Farkas, Garrison and Uretta also were senior executives of IFG at
the time the IFG Merger Agreement was executed.
In connection with the IFG Merger, IFG retired stock options and warrants,
whether vested or unvested, held by each of Messrs. Aston, Farkas, Garrison and
Uretta at a price equal to the difference between the exercise price of such
option or warrant and $25 per share. IFG paid an aggregate of $ to
these individuals to retire all options and warrants held by them.
Each of Messrs. Aston, Farkas, Garrison and Uretta have employment
agreements with Holdings which were executed in connection with the IFG Merger
and the distribution of Holdings common stock. Under these employment
agreements, as a result of the IFG Merger, they received an aggregate payment of
$ , which included lump sum payments and bonus payments equal to the
pro-rata portion of the 1997 bonus provided for in the employment agreements,
calculated from January 1, 1998 through October 1, 1998.
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<PAGE> 17
Upon completion of the IFG Merger, the existing employment agreements
between IFG and each of Messrs. Aston, Farkas, Garrison and Uretta were
converted into consulting and non-competition agreements, which were assumed by
AIMCO, with terms similar to the terms of the original agreements. The aggregate
present value of the payments under such consulting agreements was approximately
$4.9 million as of August 10, 1998 and was included as part of the debt and
other liabilities of IFG which became obligations of AIMCO upon completion of
the IFG Merger. Loans made by IFG to each of Messrs. Aston, Farkas, Garrison and
Uretta in the aggregate principal amount of $3 million with an interest rate of
6.5% per annum will be forgiven, over a five-year period beginning January 1,
1998, in consideration for covenants made by these individuals in their
consulting and non-competition agreements assumed by AIMCO.
In connection with Mr. Farkas' consulting agreement with AIMCO, AIMCO
agreed to make all payments under the lease for Mr. Farkas' office in New York,
New York through October 31, 1999. Mr. Farkas has exclusive use of the office
until such time.
In connection with the IFG Merger, Mr. Farkas, IFG, a trust for Mr. Farkas'
children and its trustees entered into an indemnification agreement. AIMCO (as
successor to IFG) has agreed to indemnify Mr. Farkas, the trust and the trustees
thereof for all losses that they may incur from third party claims or derivative
actions that may arise out of the execution, performance or failure to perform
certain agreements entered into by them in connection with the IFG Merger.
As part of the consideration received by IFG stockholders in the IFG
Merger, Messrs. Aston, Farkas, Garrison and Uretta received an aggregate of
shares of Class E Cumulative Convertible Preferred Stock of AIMCO.
Upon the execution of the Merger Agreement, an aggregate of 65,000
restricted IPT Common Shares granted to five current and former executive
officers of IPT became vested pursuant to retention agreements entered into with
such officer and IPT.
In connection with the execution of the Merger Agreement, IPT entered into
consulting agreements with each of Messrs. Aston, Farkas, Garrison and Uretta,
pursuant to which these individuals have become consultants to IPT for a fee of
$1,000 per month. These consulting agreements terminate on January 31, 2003.
Two former executive officers of IPT own options to purchase an aggregate
of 25,000 IPT Common Shares with an exercise price of $10.00 per share. Upon
consummation of the Merger, these options will be retired by IPT at a price
equal to the difference between the exercise price of such option and $13.25 per
share. IPT will pay an aggregate of $81,250 to retire such options.
As of December , 1998 Messrs. Aston, Farkas, Garrison and Uretta owned an
aggregate of IPT Common Shares. Messrs. Aston, Farkas and Garrison,
Continuing Trustees, and Mr. Uretta, a former IPT trustee, own an aggregate of
450,000 restricted IPT Common Shares. These restricted shares will convert into
that number of restricted shares of AIMCO Common Stock equal to $13.28 divided
by the AIMCO Exchange Value, regardless of whether AIMCO elects to pay all or a
portion of the merger consideration in cash. The terms and vesting of the
restricted shares will not be affected by the Merger.
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<PAGE> 18
FAIRNESS OPINION OF FINANCIAL ADVISOR (SEE PAGE )
Prior to approving the Merger Agreement and the Merger, the IPT Board
received an opinion from its financial advisor, Lehman Brothers on October 1,
1998, that, from a financial point of view, the consideration to be paid in the
Merger is fair to the IPT shareholders (other than AIMCO and its subsidiaries).
This opinion is included at the back of this Information Statement/Prospectus as
Annex B. We encourage you to read this opinion.
As compensation for its services in connection with the Merger and the
rendering of its fairness opinion, IPT paid Lehman Brothers a fee of $750,000
(plus expenses).
Lehman Brothers also rendered opinions to IFG and IPT on March 17, 1998 in
connection with the IFG Merger. As compensation for its services in connection
with the IFG Merger, IFG paid Lehman Brothers fees of approximately $4.6
million. IFG and IPT have agreed to indemnify Lehman Brothers and related
persons against certain liabilities in connection with its engagement, including
certain liabilities under Federal securities laws.
Lehman Brothers currently is a lender to IPT under a $50 million credit
facility, to AIMCO under a $300 million interim credit facility put in place in
connection with the IFG Merger, and to Holdings under a $ million credit
facility. Lehman Brothers also was a lender under a $300 million credit facility
with IFG, which was repaid at the time of the IFG Merger with the proceeds of
AIMCO's interim credit facility. At the times Lehman Brothers rendered its
opinions to IFG and IPT, Lehman Brothers and an officer of Lehman Brothers owned
an aggregate of 510,000 IPT Common Shares.
SUMMARY OF THE MERGER AGREEMENT
The Merger Agreement is included at the back of this Information Statement/
Prospectus as Annex A. We encourage you to read the Merger Agreement as it is
the legal document that governs the Merger. Pursuant to the Merger, IPT will be
merged with and into AIMCO. AIMCO will be the surviving corporation after the
Merger.
What Holders of IPT Common Shares Will Receive in the Merger
The precise calculation of the form and amount of merger consideration is
complex. If the Merger is completed prior to March 1, 1999, you will receive, at
AIMCO's election, shares of AIMCO Common Stock, cash or a combination of both,
plus a cash amount per IPT Common Share of $0.16 pro rated for the period from
the day after the record date for the last regular quarterly distribution
declared by IPT through the day before completion of the Merger. IPT will issue
a press release to announce the percentage of cash AIMCO will pay as part of the
merger consideration at least 10-trading days before completion of the Merger.
If the Merger is completed on or after March 1, 1999, you will receive shares of
AIMCO Common Stock plus a cash amount per IPT Common Share equal to a pro rata
portion of the greater of $0.16 or an amount determined by dividing $13.28 by
the average sales price of AIMCO Common Stock on the NYSE over a 10-day trading
period ending on December 31, 1998 and multiplying the result by the per share
amount of the corresponding quarterly distribution declared by AIMCO in respect
of shares of AIMCO Common Stock.
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<PAGE> 19
Based upon an assumed price per IPT Common Share of $13.25, using
23,446,538 fully diluted IPT Common Shares as of October 1, 1998, the aggregate
value of all outstanding IPT Common Shares implied by the Merger Agreement would
have been approximately $310,666,629.
Effective Time of the Merger
Under Maryland law, the Merger will be effective when the articles of
merger are accepted for record by the State Department of Assessments and
Taxation of the State of Maryland. We expect that the Merger will be completed
on the day of the special meeting, assuming all other conditions to the Merger
have been satisfied.
Ownership of AIMCO Following the Merger
The number of shares of AIMCO Common Stock to be issued in the Merger will
depend on the cash percentage AIMCO elects and the market price of AIMCO Common
Stock over a 10-day trading period. The formula is described in the Merger
Agreement and on page of this Information Statement/Prospectus. Assuming that
AIMCO chose not to pay any cash, and assuming the Merger had been completed on
November 30, 1998, IPT shareholders (other than AIMCO and its subsidiaries)
would own approximately % of the outstanding shares AIMCO Common Stock after
the Merger.
Conditions to the Merger
The Merger will be completed only if a number of conditions are met or
waived, including the following:
- the required approval of IPT shareholders has been obtained;
- no law, regulation, injunction or order restrains or prohibits completion
of the Merger;
- if any AIMCO Common Stock is to be issued in the Merger, the registration
statement filed in connection with the issuance of AIMCO Common Stock in
the Merger is effective at the time the Merger is completed;
- breaches of representations or warranties by IPT do not result in
aggregate losses, damages and expenses to AIMCO of more than $50 million;
- breaches of representations or warranties by AIMCO or material adverse
changes of AIMCO do not result in aggregate losses, damages and expenses
to IPT of more than $50 million; and
- delivery of certain legal opinions.
Termination of the Merger Agreement
The AIMCO Board of Directors and the Continuing Trustees, on behalf of IPT,
may agree in writing to terminate the Merger Agreement without completing the
Merger. The Merger Agreement may also be terminated in certain other
circumstances, including:
- by either AIMCO or a majority of the Continuing Trustees, on behalf of
IPT, if the Merger has not been completed by December 31, 2001; or
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<PAGE> 20
- by a majority of the Continuing Trustees, on behalf of IPT, if:
(1) they have determined in good faith, after negotiating with AIMCO for
at least five days, that another proposal to acquire a substantial
amount of assets of IPT or IPLP or outstanding IPT Common Shares or IPLP
partnership interests by acquisition, merger or consolidation would be
more favorable from a financial point of view to the IPT shareholders
and is likely to be consummated; or
(2) AIMCO has failed to cure an action that constitutes an anticipatory
repudiation of the Merger Agreement within ten days from receipt of
notice from a majority of the Continuing Trustees of the action.
If the Merger Agreement is terminated, AIMCO and IPT will unwind certain
transactions entered into between AIMCO and IPT (or entities controlled by IPT)
that occurred prior to the termination of the Merger Agreement, including the
acquisition by AIMCO of a substantial portion of the assets of IPLP (which has
already occurred).
Modification of the Form of the Merger
If (1) a law is adopted or regulation issued or a court of competent
jurisdiction in the United States issues an order, judgement or decree that is
final and nonappealable which restrains, enjoins or prohibits the Merger or (2)
if the Merger has not been completed by December 31, 2000, IPT, acting through a
majority of the Continuing Trustees, and AIMCO are required to use their best
efforts to restructure the form of the transaction to improve its chances of
completion without materially changing either the consideration to be received
by you or the tax or other economic consequences to AIMCO.
Accounting Treatment
The Merger will be accounted for by AIMCO and its subsidiaries under the
purchase method of accounting. Under this method of accounting, the purchase
price will be allocated to assets acquired and liabilities assumed based on
their estimated fair values.
Regulatory Matters
Although clearance by the U.S. Department of Housing and Urban Development
("HUD") is not a condition to completion of the Merger and may not be required
under HUD regulations, AIMCO has applied for approval from HUD to acquire IPT,
whose subsidiaries hold an ownership interest in certain apartment properties
assisted or insured by HUD. HUD has deferred action for up to 120 days pending
receipt of further information.
Federal Income Tax Consequences
If AIMCO elects to pay a percentage of the merger consideration in shares
of AIMCO Common Stock, you will not recognize taxable gain or loss on the
receipt of shares of AIMCO Common Stock in exchange for your IPT Common Shares.
However, all cash you receive in the Merger will be taxable, but only to the
extent the fair market value of the shares of AIMCO Common Stock and the cash
you receive in the Merger exceeds your adjusted tax basis in your IPT Common
Shares.
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No Appraisal Rights
Under Maryland law, holders of IPT Common Shares will not be entitled to
any objecting shareholders' rights to fair value in connection with the Merger.
Stock Exchange Listing; Exchange Act Registration
Application will be made to list any shares of AIMCO Common Stock which are
issued in the Merger on the NYSE. After completion of the Merger, the IPT Common
Shares will be delisted from the American Stock Exchange and deregistered for
purposes of the Securities Exchange Act of 1934.
SUMMARY RISK FACTORS
You should consider carefully certain risks relating to the Merger. For
instance:
- AIMCO may not be able to integrate successfully the businesses of AIMCO
and IPT and may not realize the benefits anticipated from the Merger,
- AIMCO has significant amounts of debt outstanding, certain of which debt
bears interest at variable rates and imposes significant restrictions on
AIMCO,
- AIMCO and IPT are subject to various risks associated with investments in
and management of real estate and
- if the Merger Agreement is terminated, AIMCO and IPT will unwind certain
transactions entered into between AIMCO and IPT (or entities controlled
by IPT) prior to the termination of the Merger Agreement. YOU SHOULD
CAREFULLY EVALUATE THE MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE 31.
FLUCTUATIONS IN MARKET PRICE
The number of shares of AIMCO Common Stock which may be received by you in
the Merger will depend upon the AIMCO Exchange Value, which is subject to
fluctuation because it is based on the daily average price of the AIMCO Common
Stock for a 10-day measuring period. You are urged to obtain current market
quotations for the AIMCO Common Stock. You may call 1-800- - to obtain
market quotations for the calculation of the average sales price of AIMCO Common
Stock determined for the 10-trading days ended on the preceding NYSE trading day
(remember this is not the actual 10-day period which will be used to determine
the AIMCO Exchange Value). In addition, after December 31, 1998, you may call
this number to obtain the average sales price of AIMCO Common Stock on the NYSE
for the 10-trading days ending on December 31, 1998.
14
<PAGE> 22
COMPARATIVE PER SHARE DATA (SEE PAGE )
The IPT Common Shares are traded on the American Stock Exchange under the
symbol "FFO" and the shares of AIMCO Common Stock are traded on the NYSE under
the symbol "AIV." On October 1, 1998, the last full trading day prior to the
public announcement of the execution of the Merger Agreement, the last reported
sales price of an IPT Common Share on the American Stock Exchange was $12.1875
and the last reported sales price of a share of AIMCO Common Stock on the NYSE
was $36.5625. On December , 1998, the last reported sales price of an IPT
Common Share on the American Stock Exchange was $ and the last reported
sales price of a share of AIMCO Common Stock on the NYSE was $ . You
are urged to obtain current quotations for IPT Common Shares and shares of AIMCO
Common Stock.
Set forth below are historical and pro forma earnings per common share,
cash dividends per common share and book value per common share data of AIMCO
and historical and equivalent pro forma earnings per IPT Common Share, cash
dividends per IPT Common Share and book value per IPT Common Share. The data set
forth below should be read in conjunction with the AIMCO and IPT audited
financial statements and unaudited interim financial statements, including the
notes thereto, which are either incorporated by reference or included in this
Information Statement/Prospectus. The data should also be read in conjunction
with the unaudited pro forma financial statements, including the notes thereto,
included elsewhere in this Information Statement/Prospectus. The pro forma data
are not necessarily indicative of the actual financial position that would have
occurred, or future operating results that will occur, upon consummation of the
Merger.
<TABLE>
<CAPTION>
AIMCO IPT
---------------------------------------- ----------------------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996 1998 1997 1996
---------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL:
Basic earnings per weighted
average common share
outstanding................ $ 0.62 $ 1.09 $ 1.05 $ 0.47 $ 0.40 $ --(a)
Diluted earnings per weighted
average common share
outstanding................ $ 0.61 $ 1.08 $ 1.04 $ 0.47 $ 0.40 $ --(a)
Cash dividends per common
share outstanding.......... $ 1.125 $ 1.85 $ 1.70 $ 0.30 $ 0.30 $ 0.20
Book value per common share
outstanding (at period
end)....................... $24.01 $22.51 $14.88 $ 7.90 $ 7.87 $ 6.33
</TABLE>
- -------------------------
(a) Earnings per share is not presented for IPT prior to 1997 because IPT
Common Shares were not issued until December 30, 1996.
15
<PAGE> 23
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
AIMCO PRO FORMA PER SHARE(1):
Basic earnings (loss) per common share outstanding....... $ 0.22 $(0.45)
Diluted earnings (loss) per common share outstanding..... $ 0.21 $(0.45)
Cash dividends per common share outstanding.............. $ 1.125 $ 1.85
Book value per common share outstanding.................. $26.05 $26.70
IPT PRO FORMA PER SHARE EQUIVALENTS(2):
Basic earnings (loss) per common share outstanding....... $ 0.09 $(0.19)
Diluted earnings (loss) per common share outstanding..... $ 0.09 $(0.19)
Cash dividends per common share outstanding.............. $ 0.47 $ 0.78
Book value per common share outstanding.................. $10.97 $11.24
</TABLE>
- -------------------------
(1) The pro forma combined per share data for AIMCO for the year ended December
31, 1997 have been prepared as if the Merger had occurred as of January 1,
1997, resulting in weighted average shares outstanding of 61,588,740 for the
six months ended June 30, 1998 and 60,442,669 for the year ended December
31, 1997.
(2) The equivalent pro forma per share amounts of IPT are calculated by
multiplying the AIMCO pro forma earnings per share, cash dividends per share
and book value per share by $13.25 and dividing by an assumed AIMCO Exchange
Value of $31.50. This estimate assumes the cash percentage is zero.
16
<PAGE> 24
The following table sets forth historical high and low sales prices
reported on (1) the American Stock Exchange for the IPT Common Shares and (2)
the NYSE for the AIMCO Common Stock. Prior to the AMIT Merger on September 17,
1998, there was no established trading market for the IPT Common Shares.
<TABLE>
<CAPTION>
IPT AIMCO
COMMON COMMON
SHARES STOCK
--------------------- ---------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 1996............................. $-- $-- $21 1/8 $19 3/8
Second Quarter 1996............................ -- -- 21 18 3/8
Third Quarter 1996............................. -- -- 21 7/8 18 3/8
Fourth Quarter 1996............................ -- -- 28 3/8 21 1/8
First Quarter 1997............................. -- -- 30 1/2 25 1/2
Second Quarter 1997............................ -- -- 29 3/4 26
Third Quarter 1997............................. -- -- 36 3/16 28 1/8
Fourth Quarter 1997............................ -- -- 37 7/8 32
First Quarter 1998............................. -- -- 38 5/8 34 1/4
Second Quarter 1998............................ -- -- 39 3/8 36 1/2
Third Quarter 1998............................. 12 3/4 11 1/2 40 11/16 30 15/16
Fourth Quarter 1998 (through December ,
1998)........................................
</TABLE>
DISTRIBUTIONS
Annual distribution rates over the past year have been $2.25 per share of
AIMCO Common Stock and $0.64 per IPT Common Share. IPT has agreed to declare and
pay future quarterly distributions with record dates and payment dates which are
the same as the record dates and payment dates in respect of the AIMCO Common
Stock. The next per-IPT Common Share distribution will be equal to $0.16
multiplied by the number of days that elapse from and including December 23,
1998 through and including the record date for such distribution, divided by 91.
Thereafter and until the Merger is completed, the regular quarterly per share
distribution rate on IPT Common Shares will be $0.16 until February 28, 1999 and
thereafter the regular quarterly distribution rate per IPT Common Share will be
the greater of (i) $0.16 and (ii) an amount determined by dividing $13.28 by the
average sales price of AIMCO Common Stock on the NYSE over the 10-trading day
period ending on December 31, 1998 and multiplying the result by the per share
amount of the corresponding distribution declared by AIMCO in respect of shares
of AIMCO Common Stock.
In addition, if the Merger is not completed before February 28, 1999 and
AIMCO declares a special distribution (not constituting a regular quarterly
distribution) on the AIMCO Common Stock, with a record date which is prior to
the date the Merger is completed, then IPT is required to declare and pay a
corresponding distribution equal to the result of (1) the amount of AIMCO's
special distribution, multiplied by (2) $13.28,
17
<PAGE> 25
divided by (3) the average sales price of AIMCO Common Stock on the NYSE over
the 10-trading day period ending on December 31, 1998.
Because each of AIMCO and IPT has elected to be taxed for Federal income
tax purposes as a REIT, each is required to distribute annually to its
stockholders at least 95% of its taxable income. Notwithstanding the contractual
distribution obligations of IPT described above, the future payment of
distributions by AIMCO and IPT will be at the discretion of the AIMCO Board of
Directors and the IPT Board and will depend on numerous factors, including
financial condition, capital requirements, the annual distribution requirements
under the provisions of the Federal tax code applicable to REITs and such other
factors as the AIMCO Board of Directors and the IPT Board deems relevant. Each
of AIMCO and IPT is subject to certain restrictions on the making of
distributions to their respective equityholders under the terms of the credit
facilities to which each of AIMCO and IPT are subject.
FORWARD-LOOKING STATEMENTS
Certain statements in "Questions and Answers about the Merger" and under
the captions "Summary," "Risk Factors," "AIMCO's Reasons for the Merger," "The
Merger," "Business of AIMCO" and "Business of IPT," in the Pro Forma Financial
Statements and elsewhere in this Information Statement/Prospectus and the
documents incorporated by reference herein contain or may contain information
that is forward looking, including without limitation: statements regarding the
effect of the Merger; other acquisitions; AIMCO's future financial performance;
and the effect of government regulations. Actual results may differ materially
from those described in the forward looking statements and will be affected by a
variety of risks and factors, including without limitation: national and local
economic conditions; the general level of interest rates; terms of governmental
regulations that affect AIMCO and IPT and interpretations of those regulations;
the competitive environment in which AIMCO and IPT operate; financing risks,
including the risk that AIMCO's cash flow from operations may be insufficient to
meet required payments of principal and interest; real estate risks, including
variations of real estate values and the general economic climate in local
markets and competition for tenants in such markets; acquisition and development
risks, including the failure of acquisitions to perform in accordance with
projections; and possible environmental liabilities, including costs which may
be incurred due to necessary remediation of contamination of properties owned,
acquired or previously owned by AIMCO or IPT. In addition, each of AIMCO's and
IPT's continued qualification as a REIT involves the application of highly
technical and complex provisions of the Code. Accordingly, readers should not
place undo reliance on such forward looking statements. Readers should carefully
review AIMCO's and IPT's financial statements and the notes thereto, as well as
the risk factors described herein and in the documents incorporated herein.
18
<PAGE> 26
SUMMARY HISTORICAL FINANCIAL INFORMATION OF AIMCO
The following table sets forth summary historical financial and operating
information for AIMCO. The summary historical financial information for the
years ended December 31, 1997, 1996 and 1995 is based on the audited financial
statements of AIMCO incorporated by reference herein. The summary historical
financial information for the period from January 10, 1994 (the date of AIMCO's
inception) through December 31, 1994 for AIMCO and for the period from January
1, 1994 through July 28, 1994 and for the year ended December 31, 1993 for the
AIMCO Predecessors (as defined below) is based on the audited financial
statements of AIMCO and the AIMCO Predecessors, respectively. The summary
historical financial information for AIMCO for the six months ended June 30,
1998 and 1997 is based on the unaudited financial statements of AIMCO
incorporated by reference herein. In the opinion of the management of AIMCO, the
operating data for the six months ended June 30, 1998 and 1997 include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The results for the six months
ended June 30, 1998 are not necessarily indicative of the results to be obtained
for the year ending December 31, 1998. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of AIMCO and
notes thereto incorporated by reference in this Information
Statement/Prospectus.
<TABLE>
<CAPTION>
AIMCO
--------------------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR ENDED JANUARY 10,
JUNE 30, DECEMBER 31, 1994 THROUGH
----------------------- ------------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- ------------- --------------
(RESTATED)(c) (Restated)(c)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Income from rental property
operations...................... $ 62,619 $ 30,779 $ 72,477 $ 39,814 $ 27,483 $ 9,126
Income from service company
business........................ 3,892 2,505 2,028 1,717 1,973 1,006
Income (loss) from operations..... 35,998 11,733 30,246 15,629 14,988 7,702
Net income (loss)................. 35,262 9,848 28,633 12,984 13,375 7,143
PER SHARE DATA:
Basic earnings per common share... $ 0.62 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42
Diluted earnings per common
share........................... $ 0.61 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42
Weighted average number of common
shares outstanding.............. 43,206 18,424 24,055 12,411 9,571 9,589
Weighted average number of common
shares and common share
equivalents outstanding......... 43,409 18,559 24,436 12,427 9,579 9,589
Dividends paid per common share... $ 1.125 $ 0.925 $ 1.85 $ 1.70 $ 1.66 $ 0.29
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation.................... $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $ 406,067
Real estate, net of accumulated
depreciation.................... 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Cash and cash equivalents......... 49,320 21,521 37,088 13,170 2,379 7,144
Total assets...................... 3,054,741 1,272,890 2,100,510 827,673 480,361 416,739
Total mortgages and notes
payable......................... 1,314,475 644,457 808,530 522,146 268,692 141,315
Mandatorily redeemable convertible
preferred stock................. -- -- -- -- -- 96,600
Minority interest in AIMCO
Properties, L.P................. 134,694 63,366 111,962 58,777 30,376 29,082
Stockholders' equity.............. 1,394,394 388,477 1,045,301 215,749 169,032 140,319
<CAPTION>
AIMCO Predecessors(a)
-----------------------------
FOR THE PERIOD
JANUARY 1, FOR THE
1994 THROUGH YEAR ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
-------------- ------------
<S> <C> <C>
OPERATING DATA:
Income from rental property
operations...................... $ 2,391 $ 3,154
Income from service company
business........................ 360 983
Income (loss) from operations..... (1,463) 627
Net income (loss)................. (1,499) 291
PER SHARE DATA:
Basic earnings per common share... -- --
Diluted earnings per common
share........................... -- --
Weighted average number of common
shares outstanding.............. -- --
Weighted average number of common
shares and common share
equivalents outstanding......... -- --
Dividends paid per common share... -- --
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation.................... $47,500 $ 46,819
Real estate, net of accumulated
depreciation.................... 33,270 33,701
Cash and cash equivalents......... 1,531 809
Total assets...................... 39,042 38,914
Total mortgages and notes
payable......................... 40,873 41,893
Mandatorily redeemable convertible
preferred stock................. -- --
Minority interest in AIMCO
Properties, L.P................. -- --
Stockholders' equity.............. (9,345) (7,556)
</TABLE>
19
<PAGE> 27
<TABLE>
<CAPTION>
AIMCO
--------------------------------------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR ENDED JANUARY 10,
JUNE 30, DECEMBER 31, 1994 THROUGH
----------------------- ------------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- ------------- --------------
(RESTATED)(c) (Restated)(c)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Cash provided by operating
activities...................... $ 5,838 $ 25,035 $ 73,032 $ 38,806 $ 25,911 $ 16,825
Cash used in investing
activities...................... (100,669) (108,134) (717,663) (88,144) (60,821) (186,481)
Cash provided by (used in)
financing activities............ 107,063 91,450 668,549 60,129 30,145 176,800
OTHER DATA:
Funds from operations(d).......... $ 83,657 $ 28,441 $ 81,155 $ 35,185 $ 25,285 $ 9,391
Weighted average number of common
shares, common share equivalents
and partnership common units
outstanding(e).................. 51,478 21,590 29,119 14,994 11,461 10,920
Ratio of earnings to fixed
charges(f)...................... 2.0:1 1.6:1 2.3:1 1.6:1 2.1:1 5.8:1
Ratio of earnings to combined
fixed charges and preferred
stock dividends(g)(h)........... 1.6:1 1.6:1 2.2:1 1.6:1 1.5:1 2.0:1
<CAPTION>
AIMCO Predecessors(a)
-----------------------------
FOR THE PERIOD
JANUARY 1, FOR THE
1994 THROUGH YEAR ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
-------------- ------------
<S> <C> <C>
CASH FLOW DATA:
Cash provided by operating
activities...................... $ 2,678 $ 2,203
Cash used in investing
activities...................... (924) (16,352)
Cash provided by (used in)
financing activities............ (1,032) 14,114
OTHER DATA:
Funds from operations(d).......... -- --
Weighted average number of common
shares, common share equivalents
and partnership common units
outstanding(e).................. N/A N/A
Ratio of earnings to fixed
charges(f)...................... N/A 1.2:1
Ratio of earnings to combined
fixed charges and preferred
stock dividends(g)(h)........... N/A 1.2:1
</TABLE>
- ---------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Common Stock and issued 966,000 shares of convertible
preferred stock and 513,514 unregistered shares of AIMCO Common Stock. On
such date, AIMCO and Property Asset Management, L.L.C. and its affiliated
companies and PDI Realty Enterprises, Inc. (collectively, the "AIMCO
Predecessors") engaged in a business combination and consummated a series of
related transactions which enabled AIMCO to continue and expand the property
management and related businesses of the AIMCO Predecessors. The 966,000
shares of convertible preferred stock and 513,514 shares of AIMCO Common
Stock were repurchased by AIMCO in 1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of the
completion of the business combination with AIMCO.
(c) In the second quarter of 1996, AIMCO effected an internal reorganization, as
a result of which the AIMCO Operating Partnership (i) owns all of the
non-voting preferred stock of the service company, Property Asset Management
Services, Inc. ("PAMS Inc."), representing a 95% economic interest, and (ii)
owns the 1% general partnership interest in Property Asset Management
Services, L.P. ("PAMS LP"). PAMS Inc. owns the 99% limited partnership
interest in PAMS LP. Substantially all the activity of PAMS Inc. is
conducted by PAMS LP. Because the AIMCO Operating Partnership owns 95% of
the economic value of PAMS Inc. and also controls the general partnership
interest in PAMS LP, thereby controlling the activity of the partnership,
the results of operations for the service company are consolidated. Prior to
the reorganization, AIMCO reported the service company business on the
equity method. The restatement had no impact on net income, but increased
third party and affiliate management and other income, management and other
expenses, amortization of management company goodwill and depreciation of
non-real estate assets. AIMCO restated its balance sheet as of December 31,
1995 and 1994, and the statements of income and statements of cash flows for
the year ended December 31, 1995 and the period from January 10, 1994
through December 31, 1994 to reflect the change.
(d) AIMCO's management believes that the presentation of funds from operations
("FFO"), when considered with the financial data determined in accordance
with
20
<PAGE> 28
generally accepted accounting principles ("GAAP"), provides a useful measure
of AIMCO's performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO, nor
should it be considered as an alternative to net income as an indicator of
operating performance. The Board of Governors of the National Association of
Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss),
computed in accordance with GAAP, excluding gains and losses from debt
restructuring and sales of property, plus real estate related depreciation
and amortization (excluding amortization of financing costs), and after
adjustments for unconsolidated partnerships and joint ventures. AIMCO
calculates FFO in a manner consistent with the NAREIT definition, which
includes adjustments for minority interest in the AIMCO Operating
Partnership plus amortization of management company goodwill, the non-cash
deferred portion of the income tax provision for unconsolidated subsidiaries
and less the payments of dividends on preferred stock. AIMCO's management
believes that presentation of FFO provides investors with industry-accepted
measurements which help facilitate an understanding of AIMCO's ability to
make required dividend payments, capital expenditures and principal payments
on its debt. There can be no assurance that AIMCO's basis of computing FFO
is comparable with that of other REITs.
The following is a reconciliation of Income before minority interest
in the AIMCO Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS FOR THE YEAR ENDED JANUARY 10,
ENDED JUNE 30, DECEMBER 31, 1994 THROUGH
----------------- --------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
------- ------- ------- ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income before minority interest in the
AIMCO Operating Partnership............. $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of property........... (2,526) -- (2,720) (44) -- --
Extraordinary item........................ -- 269 269 -- -- --
Real estate depreciation, net of minority
interests............................... 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill.................. 4,727 474 948 500 428 76
Equity in earnings of unconsolidated
subsidiaries:
Real estate depreciation................ -- 1,263 3,584 -- -- --
Amortization of management contracts.... 3,088 150 1,587 -- -- --
Deferred taxes.......................... 4,291 874 4,894 -- -- --
Equity in earnings of other partnerships:
Real estate depreciation................ 9,131 697 6,280 -- -- --
Preferred stock dividends................. (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations..................... $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
(e) Generally, after a one-year holding period, OP Units may be tendered for
redemption at the option of the holder and, upon tender, must be acquired by
AIMCO, at its election, for (x) shares of AIMCO Common Stock at an exchange
ratio of one share of AIMCO Common Stock for each OP Unit (subject to
adjustment) or (y) cash.
(f) The ratio of earnings to fixed charges for AIMCO was computed by dividing
earnings by fixed charges. For this purpose, "earnings" consists of income
before minority interest in the AIMCO Operating Partnership, minority
interest in other partnerships and earnings in unconsolidated subsidiaries
and partnerships, plus distributions received from unconsolidated
subsidiaries and partnerships, plus fixed charges (other than any
21
<PAGE> 29
interest which has been capitalized); and "fixed charges" consists of
interest expense (including amortization of loan costs) and interest which
has been capitalized. The ratio of earnings to fixed charges for the AIMCO
Predecessors was computed by dividing earnings by fixed charges. For this
purpose, "earnings" consists of income (loss) before extraordinary items and
income taxes plus fixed charges and "fixed charges" consists of interest
expense (including amortization of loan costs).
(g) The ratio of earnings to combined fixed charges and preferred stock
dividends for AIMCO was computed by dividing earnings by the total of fixed
charges and preferred stock dividends. For this purpose, "earnings" consists
of income before minority interest in the AIMCO Operating Partnership,
minority interest in other partnerships and earnings in unconsolidated
subsidiaries and partnerships, plus distributions received from
unconsolidated subsidiaries and partnerships plus fixed charges (other than
any interest which has been capitalized); "fixed charges" consists of
interest expense (including amortization of loan costs) and interest which
has been capitalized; and "preferred stock dividends" consists of the amount
of pre-tax earnings that would be required to cover preferred stock dividend
requirements.
(h) The AIMCO Predecessors did not have any shares of preferred stock
outstanding during the period from January 1, 1993 through July 28, 1994.
(i) The earnings of the AIMCO Predecessors for the period from January 1, 1994
to July 28, 1994 were inadequate to cover fixed charges by $1,463,000.
22
<PAGE> 30
SUMMARY CONSOLIDATED AND COMBINED FINANCIAL DATA OF IPT
The following is a summary of historical financial data of IPT and its
subsidiaries and predecessors. The summary financial data have been derived from
IPT's consolidated financial statements and the combined financial statements of
its predecessor and, in the opinion of management of IPT, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations for the
periods presented. The information set forth below is not necessarily indicative
of the results of future operations and should be read in conjunction with IPT's
financial statements and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of IPT and the IPT
Partnerships" included elsewhere in this Information Statement/ Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------------------------
1998 1997 1997 1996 1995 1994
------------ ----------- ----------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................... $ 12,977 $ 6,715 $ 16,826 $ 9,705 $ 2,459 $ 113
Income before extraordinary
item..................... $ 9,164 $ 1,248 $ 6,074 $ 3,557 $ 2,215 $ 113
Net income................. $ 8,907 $ 1,248 $ 6,004 $ 2,425 $ 2,215 $ 113
Income before extraordinary
item per share
(diluted)................ .48 .11 .41 n/a n/a n/a
Net income per share
(diluted)................ .47 .11 .40 n/a n/a n/a
Cash distributions to IPT
Common shareholders per
share.................... .30 -- .30 .20 n/a n/a
Weighted average IPT Common
Shares outstanding
(diluted)................ 18,880,523 11,539,240 14,694,327 n/a n/a n/a
BALANCE SHEET DATA (END OF
PERIOD)
Cash....................... $ 14,639 $ 35,520 $ 37,432 $ 4,928 $ 528 $ --
Investments in real estate
limited partnerships..... 192,832 124,951 159,469 118,741 54,037 38,346
Total assets............... 240,275 185,502 226,068 147,757 54,565 38,346
Long-term debt............. 21,951 19,300 19,300 19,730 -- --
Minority interest in
IPLP..................... 59,181 47,156 54,447 50,429 -- --
Minority interest in other
consolidated
subsidiaries............. -- -- -- -- 2,682 --
Shareholders' equity....... $ 153,516 $ 116,311 $ 146,212 $ 70,639 $ 51,874 $ 38,346
OTHER DATA
Cash provided by (used in)
operating activities..... $ 1,335 $ 1,447 $ 2,338 $ 1,420 $ (100) $ --
Cash provided by (used in)
provided by investing
activities............... (17,773) 8,592 (16,481) (70,834) (13,237) (38,233)
Cash provided by (used in)
financing activities..... (6,355) 20,553 46,647 73,814 13,865 38,233
Funds from operations(a)... $ 16,825 $ 8,666 $ 20,939 $ 12,563 $ 4,611 $ 113
Number of IPT
Partnerships(b).......... 42 26 29 26 13 4
Number of properties(b).... 197 136 150 136 86 32
Apartment units(b)......... 48,323 36,077 38,369 36,077 19,337 7,433
Commercial square
feet(b).................. 3,026,904 819,000 1,667,874 819,000 767,172 453,977
</TABLE>
- -------------------------
(a) In accordance with the resolution adopted by the Board of Governors of
NAREIT, FFO represents net income (loss)(computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring or sales of property,
plus depreciation of real property, and after
23
<PAGE> 31
adjustments for unconsolidated partnerships and joint ventures. FFO should not
be considered as an alternative to net income or other measurements under
generally accepted accounting principles as an indicator of operating
performance or to cash flows from operating, investing or financing activities
as a measure of liquidity. FFO does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on indebtedness. IPT
believes that FFO is helpful to investors as a measure of the performance of an
equity REIT, because along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an understanding
of the ability of IPT to incur and service debt and make capital distributions.
FFO computed by IPT may not be comparable to other similarly titled measures of
other REITs. FFO is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------
1998 1997 1997 1996 1995 1994
------- ------ ------- ------- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating income................. $ 8,756 $3,327 $ 9,470 $ 3,913 $2,346 $113
Depreciation and amortization.... 8,423 5,771 12,288 9,388 2,265 --
Minority interest in National
Properties Investors 4's funds
from operations................ (354) (432) (819) (738) -- --
------- ------ ------- ------- ------ ----
Funds from operations............ $16,825 $8,666 $20,939 $12,563 $4,611 $113
======= ====== ======= ======= ====== ====
</TABLE>
(b) Includes only the IPT Partnerships.
24
<PAGE> 32
SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO
The following table sets forth summary pro forma financial and operating
information of AIMCO for the six months ended June 30, 1998 and for the year
ended December 31, 1997. The pro forma financial and operating information gives
effect to the Merger, the IFG Merger (after giving effect to the spin-off of
Holdings), the payment of a one-time approximately $50 million dividend on the
shares of AIMCO's Class E Cumulative Convertible Preferred Stock issued in the
IFG Merger, the transfer of certain assets and liabilities of IFG to certain
unconsolidated subsidiaries of AIMCO, the acquisition of Ambassador Apartments,
Inc., the OP Reorganization (as defined herein) and a number of other
transactions completed by AIMCO prior to the Merger. The pro forma financial and
operating information set forth below should be read in conjunction with, and is
qualified in its entirety by, the historical and pro forma financial statements
and notes thereto of AIMCO, NHP Incorporated ("NHP"), the NHP Real Estate
Companies (as defined in Note 1 to such financial statements), NHP Southwest
Partners, L.P., the NHP New LP Entities (as defined in Note 1 of such financial
statements included in Amendment No. 1 to AIMCO's Current Report on Form 8-K,
dated June 3, 1997 (the "June 3, 1997 Form 8-K, Amendment No. 1")), the NHP
Borrower Entities (as defined in Note 1 of such financial statements included in
the June 3, 1997 Form 8-K, Amendment No. 1), The Bay Club at Aventura, the
Morton Towers Apartments, the Thirty-five Acquisition Properties (as defined in
AIMCO's Current Report on Form 8-K dated October 15, 1997), First Alexandria
Associates, The Oak Park Partnership, Country Lakes Associates Two, Point West
Limited Partners, Ambassador Apartments, Inc. and IFG which are incorporated by
reference in this Information Statement/Prospectus or included in prior filings
of AIMCO. See "Pro Forma Financial Information of AIMCO (Merger)."
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR
THE SIX MONTHS THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997
---------------- --------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Income from rental property operations........ $ 77,498 $ 135,378
Income (loss) from service company business... 3,859 (4,446)
Income before minority interest in AIMCO
Operating Partnership...................... 31,587 4,200
Net income attributable to preferred
stockholders............................... 17,004 34,174
Net income (loss) attributable to common
stockholders............................... 13,279 (27,177)
PER SHARE DATA:
Basic earnings (loss) per common share........ $ 0.22 $ (0.45)
Diluted earnings (loss) per common share...... $ 0.21 $ (0.45)
Weighted average number of common shares
outstanding................................ 61,589 60,443
Weighted average number of common shares and
common share equivalents outstanding....... 62,253 61,287
Dividends paid per common share............... $ 1.125 $ 1.85
</TABLE>
25
<PAGE> 33
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR
THE SIX MONTHS THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997
---------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOW DATA:
Cash provided by operating activities(a)...... $ 94,313 $ 149,005
Cash used by investing activities(b).......... (8,942) (17,884)
Cash used by financing activities(c).......... (98,317) (168,003)
OTHER DATA:
Funds from operations(d)...................... $111,245 $ 159,620
Weighted average number of common shares,
common share equivalents and OP Units
outstanding(e)............................. 70,763 69,972
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AS OF
JUNE 30,
1998
---------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Real estate, before accumulated depreciation.............. $2,669,776
Real estate, after accumulated depreciation............... 2,371,881
Cash and cash equivalents................................. 76,803
Total assets.............................................. 3,996,029
Total mortgages and notes payable......................... 1,490,801
Minority interest in AIMCO Operating Partnership.......... 134,694
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust....................... 149,500
Stockholders' equity...................................... 2,002,118
</TABLE>
- -------------------------
(a) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization,
less the non-cash portion of AIMCO's equity in earnings of unconsolidated
subsidiaries. The pro forma amounts do not include adjustments for changes
in working capital resulting from changes in current assets and current
liabilities as there is no historical data available as of both the
beginning and end of each period presented.
(b) On a pro forma basis, cash used in investing activities represents the
minimum annual provision for capital replacements of $300 per owned
apartment unit.
(c) Pro forma cash used in financing activities represents (i) estimated
dividends to be paid based on AIMCO's historical dividend rate of $1.125
per share for the six months ended June 30, 1998 and $1.85 per share for
the year ended December 31, 1997, on outstanding AIMCO Common Stock, (ii)
estimated dividends to be paid based on the rate of $3.5625 per share for
the six months ended June 30, 1998 and $7.125 per share for the year ended
December 31, 1997 on outstanding Class B Preferred Stock, (iii) estimated
dividends to be paid based on the rate of $1.125 per share for the six
months ended June 30, 1998 and $2.25 per share for the year ended December
31, 1997 on outstanding Class C Preferred Stock, (iv) estimated dividends
26
<PAGE> 34
to be paid based on the rate of $1.095 per share for the six months ended
June 30, 1998 and $2.19 per share for the year ended December 31, 1997 on
outstanding Class D Preferred Stock, (v) estimated dividends to be paid
based on the rate of $1.1718 per share for the six months ended June 30,
1998 and $2.34375 per share for the year ended December 31, 1997 on
outstanding Class G Preferred Stock, and (vi) estimated dividends to be
paid based on the rate of $1.1875 per share for the six months ended June
30, 1998 and $2.375 per share for the year ended December 31, 1997 on
outstanding Class H Preferred Stock.
(d) AIMCO's management believes that the presentation of FFO, when considered
with the financial data determined in accordance with GAAP, provides useful
measures of AIMCO's performance. However, FFO does not represent cash flow
and is not necessarily indicative of cash flow or liquidity available to
AIMCO, nor should it be considered as an alternative to net income as an
indicator of operating performance. The Board of Governors of NAREIT
defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO calculates FFO in a manner
consistent with the NAREIT definition, which includes adjustments for
minority interest in the AIMCO Operating Partnership, plus amortization of
management company goodwill, the non-cash deferred portion of the income
tax provision for unconsolidated subsidiaries and less the payments of
dividends on preferred stock. AIMCO's management believes that presentation
of FFO provides investors with an industry accepted measurement which helps
facilitate an understanding of AIMCO's ability to make required dividend
payments, capital expenditures and principal payments on its debt. There
can be no assurances that AIMCO's basis of computing FFO is comparable with
that of other REITs.
The following is a reconciliation of pro forma Income before minority
interest in the AIMCO Operating Partnership to pro forma FFO:
27
<PAGE> 35
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR
THE SIX MONTHS THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Income before minority interest in AIMCO
Operating Partnership.................. $ 31,587 $ 4,200
HUD release fee and legal reserve........ -- 10,202
Amortization of management contracts..... 5,773 11,546
Real estate depreciation, net of minority
interests.............................. 43,391 81,936
Amortization of management company
goodwill............................... 4,466 8,930
Equity in earnings of unconsolidated
subsidiaries:
Real estate depreciation............... -- 1,715
Amortization of management company
goodwill............................ 959 1,918
Amortization of management contracts... 15,345 29,951
Deferred taxes......................... 1,572 (397)
Equity in earnings of other partnerships:
Real estate depreciation............... 27,579 48,452
Interest on convertible debentures....... (5,012) (10,003)
Preferred stock dividends................ (14,415) (28,830)
-------- --------
Funds from operations.................... $111,245 $159,620
======== ========
</TABLE>
(e) Generally, after a one year holding period, OP Units may be tendered for
redemption at the option of the holder and, upon tender, must be acquired
by AIMCO, at AIMCO's election, for (x) shares of AIMCO Common Stock at an
exchange ratio of one share of AIMCO Common Stock for each OP Unit (subject
to adjustment) or (y) cash.
28
<PAGE> 36
SUMMARY PRO FORMA FINANCIAL DATA OF IPT
The following is a summary of certain pro forma financial data of IPT
giving effect to the AMIT Merger as if effected at June 30, 1998, in the case of
the pro forma balance sheet data, and at January 1, 1997, in the case of the pro
forma statement of operations data. The following summary pro forma financial
data have been derived from, and should be read in conjunction with, the
historical financial statements and notes thereto of IPT and AMIT included
elsewhere in this Information Statement/Prospectus, and are not necessarily
indicative of the financial position or operating results that would have
occurred had the foregoing transactions actually taken place on June 30, 1998 or
January 1, 1997.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues......................................... $ 15,956 $ 26,584
Net income before extraordinary item............. $ 11,808 $ 13,640
Net income before extraordinary item per IPT
Common Share................................... $ 0.51 $ 0.59
Weighted average IPT Common Shares outstanding... 23,073,958 23,046,558
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS ENDED
JUNE 30, 1998
----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA
Cash...................................................... $ 20,887
Investments in real estate limited partnerships........... $192,832
Total assets.............................................. $286,977
Long-term debt............................................ $ 26,476
Minority interest in IPLP................................. $ 59,181
Shareholders' equity...................................... $194,064
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
(IN THOUSANDS, EXCEPT PROPERTY
INFORMATION)
<S> <C> <C>
OTHER DATA
Cash provided by operating activities.................. $ 2,868 $ 5,262
Cash used in investing activities...................... $ (15,330) $ (22,552)
Cash provided by (used in) financing activities........ $ (8,030) $ 43,952
Funds from operations(b)............................... $ 19,469 $ 31,321
Number of IPT Partnerships............................. 42 29
Number of properties(a)................................ 197 150
Apartment units(a)..................................... 48,323 38,369
Commercial square feet(a).............................. 3,026,904 1,667,874
</TABLE>
29
<PAGE> 37
- -------------------------
(a) Includes only the IPT Partnerships.
(b) In accordance with the resolution adopted by the Board of Governors of
NAREIT, FFO represents net income (loss) (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring or sales of property,
plus depreciation of real property, and after adjustments for unconsolidated
partnerships and joint ventures. FFO should not be considered as an
alternative to net income or other measurements under GAAP as an indicator
of operating performance or to cash flows from operating, investing or
financing activities as a measure of liquidity. FFO does not reflect working
capital changes, cash expenditures for capital improvements or principal
payments on indebtedness. IPT believes that FFO is helpful to investors as a
measure of the performance of an equity REIT, because along with cash flows
from operating activities, investing activities and financing activities, it
provides investors with an understanding of the ability of IPT to incur and
service debt and make capital distributions. FFO computed by IPT may not be
comparable to other similarly titled measures of other REITs. FFO is
calculated as follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Income before minority interest and
extraordinary items................. $11,400 $17,338
Depreciation and amortization......... 8,423 14,802
Minority interest in National
Properties Investors 4's funds from
operations.......................... (354) (819)
------- -------
Funds from operations................. $19,469 $31,321
======= =======
</TABLE>
30
<PAGE> 38
RISK FACTORS
In considering the Merger, you should be aware that there are various
risks, including those described below. You should consider carefully these risk
factors together with all of the other information included in this Information
Statement/Prospectus and the documents to which we have referred you (see "Where
You Can Find More Information").
The risk factors noted in this section and other factors noted throughout
this Information Statement/Prospectus could cause the actual results of AIMCO or
IPT to differ materially from those contained in any forward-looking statement.
RISKS RELATING TO THE MERGER REGARDLESS OF WHETHER YOU RECEIVE AIMCO COMMON
STOCK IN THE MERGER:
Consequences to IPT and You if the Merger is Not Completed
AIMCO is the controlling shareholder of IPT through its ownership of
approximately 51% of the outstanding IPT Common Shares. In order to avoid
adverse tax consequences to AIMCO, the IFG Merger Agreement provided for the
exchange of a substantial portion of the assets of IPLP for OP Units which
exchange, was consummated promptly following the IFG Merger. In addition, AIMCO
and IPT formed a joint venture to acquire from a third party multifamily housing
assets in which IPT's 99% joint venture interest was funded through a payment of
approximately $15 million by IPLP. The Merger Agreement provides that if the
Merger Agreement is terminated, such transactions will be unwound in an effort
to put each of IPT and IPLP in the same position that it was immediately prior
to the transaction. In addition, any assets, equity interests or indebtedness of
an entity that (i) is controlled by IPT and (ii) that is acquired by AIMCO prior
to the termination of the Merger Agreement also are to be transferred to IPT or
IPLP under such unwind provisions. For example, if AIMCO successfully makes
tender offers for limited partnership interests in entities controlled by IPT or
IPLP and the Merger Agreement is subsequently terminated, the limited
partnership interests acquired by AIMCO would be transferred to IPLP. You should
consider, among other things, that if these provisions are triggered (1) the IPT
Board will not have managed IPT's business during the pendency of the Merger
Agreement, and (2) there is no assurance that the AIMCO Operating Partnership
will have maintained or grown the value of the exchanged IPT or IPLP assets or
that IPT will be able to reconstitute its former business. Additionally,
although pursuant to the unwind provisions AIMCO will lose control of the IPT
Board for up to two years, AIMCO would continue to hold a majority of the
outstanding IPT Common Shares and therefore be able to prevent or restrict
fundamental corporate transactions involving IPT and its business, thereby
depriving you of the opportunity to participate in potentially value-enhancing
transactions.
Possible Conflicts of Interest of IPT's Executive Officers and Trustees in the
Merger
In considering the recommendation of the IPT Board with respect to the
Merger, you should be aware that executive officers and trustees of IPT who
negotiated and approved the Merger Agreement may have interests that differ from
the interests of IPT shareholders generally. Messrs. James A. Aston, Andrew L.
Farkas, Frank M. Garrison and Ronald Uretta, former senior executive officers of
IFG, were members of the IPT Board at the time the Merger Agreement was
executed. Messrs. Aston, Farkas and
31
<PAGE> 39
Garrison are Continuing Trustees of IPT. Messrs. Aston, Farkas, Garrison and
Uretta also were senior executives of IFG at the time the IFG Merger Agreement
was executed.
In connection with the IFG Merger, IFG retired stock options and warrants,
whether vested or unvested, held by each of Messrs. Aston, Farkas, Garrison and
Uretta at a price equal to the difference between the exercise price of such
option or warrant and $25 per share. IFG paid an aggregate of $ to
these individuals to retire all options and warrants held by them.
Each of Messrs. Aston, Farkas, Garrison and Uretta have employment
agreements with Holdings which were executed in connection with the IFG Merger
and the distribution of Holdings common stock. Under these employment
agreements, as a result of the IFG Merger, they received an aggregate payment of
$ , which included lump sum payments and bonus payments equal to the
pro-rata portion of the 1997 bonus provided for in the employment agreements,
calculated from January 1, 1998 through October 1, 1998.
Upon completion of the IFG Merger, the existing employment agreements
between IFG and each of Messrs. Aston, Farkas, Garrison and Uretta were
converted into consulting and non-competition agreements, which were assumed by
AIMCO, with terms similar to the terms of the original agreements. The aggregate
present value of the payments under such consulting agreements was approximately
$4.9 million as of August 10, 1998 and was included as part of the debt and
other liabilities of IFG which became obligations of AIMCO upon completion of
the IFG Merger. Loans made by IFG to each of Messrs. Aston, Farkas, Garrison and
Uretta in the aggregate principal amount of $3 million with an interest rate of
6.5% per annum will be forgiven, over a five-year period beginning January 1,
1998, in consideration for covenants made by these individuals in their
consulting and non-competition agreements assumed by AIMCO.
In connection with Mr. Farkas' consulting agreement with AIMCO, AIMCO
agreed to make all payments under the lease for Mr. Farkas' office in New York,
New York through October 31, 1999. Mr. Farkas has exclusive use of the office
until such time.
In connection with the IFG Merger, Mr. Farkas, IFG, a trust for Mr. Farkas'
children and its trustees entered into an indemnification agreement. AIMCO (as
successor to IFG) has agreed to indemnify Mr. Farkas, the trust and the trustees
thereof for all losses that they may incur from third party claims or derivative
actions that may arise out of the execution, performance or failure to perform
certain agreements entered into by them in connection with the IFG Merger.
As part of the consideration received by IFG stockholders in the IFG
Merger, Messrs. Aston, Farkas, Garrison and Uretta received an aggregate of
shares of Class E Cumulative Convertible Preferred Stock of AIMCO.
As of December , 1998, Messrs. Aston, Farkas, Garrison and Uretta owned
an aggregate of IPT Common Shares. Messrs. Aston, Farkas and Garrison,
Continuing Trustees, and Mr. Uretta, a former IPT trustee, own an aggregate of
450,000 restricted IPT Common Shares. These restricted shares will convert into
that number of restricted shares of AIMCO Common Stock equal to $13.28 divided
by the AIMCO Exchange Value, regardless of whether AIMCO elects to pay all or a
portion of the merger consideration in cash. The terms and vesting of the
restrict stock will not be affected by the Merger.
32
<PAGE> 40
Upon the execution of the Merger Agreement, an aggregate of 65,000
restricted IPT Common Shares granted to five current and former executive
officers of IPT became vested pursuant to retention agreements entered into with
such officer and IPT.
In connection with the execution of the Merger Agreement, IPT entered into
consulting agreements with each of Messrs. Aston, Farkas, Garrison and Uretta,
pursuant to which these individuals have become consultants to IPT for a fee of
$1,000 per month. These consulting agreements terminate on January 31, 2003.
Two former executive officers of IPT own options to purchase an aggregate
of 25,000 IPT Common Shares with an exercise price of $10.00 per share. Upon
consummation of the Merger, these options will be retired by IPT at a price
equal to the difference between the exercise price of such option and $13.25 per
share. IPT will pay an aggregate of $81,250 to retire such options.
RISKS RELATING TO THE MERGER IF YOU RECEIVE AIMCO COMMON STOCK IN THE MERGER:
Risks Associated with AIMCO's Integration of IPT
AIMCO's acquisition of IPT following its recent acquisition of IFG involves
certain specific risks and uncertainties. The integration of IFG's and IPT's
businesses with AIMCO may place a significant burden on AIMCO's management. Such
risks include:
- loss of key personnel and clients;
- difficulty associated with assimilating IPT's and IFG's personnel,
operations and systems;
- disruption of AIMCO's ongoing business and acquisition strategy;
- difficulty in maintaining AIMCO's uniform standards, controls, procedures
and policies; and
- possible impairment of AIMCO's reputation.
No assurance can be given that the anticipated benefits from the Merger or
the IFG Merger will be realized or that AIMCO will be able to integrate the
businesses successfully. Failure of AIMCO to integrate the businesses
successfully could have a material adverse effect on AIMCO.
Market Fluctuations
The number of shares of AIMCO Common Stock which may be received by you in
the Merger will depend upon the market price of AIMCO Common Stock, which is
subject to fluctuation. You are urged to obtain current market quotations for
the AIMCO Common Stock.
RISKS RELATING TO AIMCO'S AND IPT'S BUSINESSES
If you receive AIMCO Common Stock in the Merger, you will be subject to
various risks associated with AIMCO's and IPT's businesses. In addition to
general investment risks and those factors set forth elsewhere in this
Information Statement/Prospectus, you should consider the following risk factors
related to an investment in AIMCO (which risks generally also apply to IPT's
business).
33
<PAGE> 41
Risks of Acquisition and Development Activities
Generally. The selective acquisition, development and expansion of
apartment properties is one component of AIMCO's growth strategy. However, AIMCO
can provide no assurance as to its ability to identify or complete transactions
in the future. Although AIMCO seeks to acquire, develop and expand properties
only when such activities are accretive on a per share basis, such transactions
may fail to perform in accordance with AIMCO's expectations. When AIMCO develops
or expands properties, it is subject to the risks that:
- costs may exceed original estimates;
- projected occupancy and rental rates at a property may not be realized;
- financing may not be available on favorable terms;
- construction and lease-up may not be completed on schedule; and
- it may experience difficulty or delays in obtaining necessary zoning,
land-use, building, occupancy, and other governmental permits and
authorizations.
AIMCO May Have Difficulty Managing its Rapid Growth. AIMCO has grown
rapidly. Since its initial public offering in July 1994, AIMCO has completed
numerous acquisition transactions, expanding its portfolio of owned or managed
properties from 132 apartment properties with 29,343 units to 2,303 apartment
properties with 396,090 units as of October 1, 1998. These acquisitions have
included purchases of properties and interests in entities that own or manage
properties, as well as corporate mergers. AIMCO's recent merger with IFG is its
largest acquisition so far. AIMCO's ability to integrate acquired businesses and
properties successfully depends on its ability to:
- attract and retain qualified personnel;
- integrate the personnel and operations of the acquired businesses;
- maintain uniform standards, controls, procedures and policies; and
- maintain adequate accounting and information systems.
AIMCO can provide no assurance that it will be able to accomplish these
goals and successfully integrate any acquired businesses or properties. If AIMCO
fails to successfully integrate such businesses, its results of operations could
be adversely affected in a material way.
Litigation Associated with Partnership Acquisitions
AIMCO has engaged in, and intends to continue to engage in, the selective
acquisition of interests in limited partnerships that own apartment properties,
which, may include one or more IPT Partnerships. In some cases, AIMCO has
acquired the general partner of a partnership and then made an offer to acquire
the limited partners' interests in the partnership. In these transactions, AIMCO
and certain of its affiliates are sometimes subject to litigation based on
claims that the general partner has breached its fiduciary duties to its limited
partners or that the transaction violates the relevant partnership agreement.
Although AIMCO intends to comply with its fiduciary obligations and relevant
partnership agreements, it may incur additional costs in connection with the
defense or settlement of such litigation. In some cases, such litigation may
adversely affect AIMCO's
34
<PAGE> 42
desire to proceed with, or its ability to complete, a particular transaction.
Such litigation could also have a material adverse effect on AIMCO.
Risks Associated With Debt Financing
AIMCO's strategy is generally to incur debt to increase the return on its
equity while maintaining interest coverage ratios that AIMCO believes are
acceptable. AIMCO seeks to maintain a ratio of free cash flow to combined
interest expense and preferred stock dividends of between 2:1 and 3:1. However,
AIMCO's Board of Directors could change this strategy at any time and increase
AIMCO's leverage. AIMCO's organizational documents do not limit the amount of
debt that it may incur, and it has significant amounts of debt outstanding.
Payments of principal and interest may leave AIMCO with insufficient cash
resources to operate its properties or pay distributions required to be paid in
order to maintain its qualification as a REIT. AIMCO is also subject to the risk
that its cash flow from operations will be insufficient to make required
payments of principal and interest, and the risk that existing indebtedness may
not be refinanced or that the terms of any refinancing will not be as favorable
as the terms of existing indebtedness. If AIMCO fails to make required payments
of principal and interest on any debt, its lenders could foreclose on the
properties securing such debt with a consequent loss of income and asset value
to AIMCO. As of June 30, 1998, 94% of the properties that AIMCO owned or
controlled and 43% of its assets were encumbered by debt. On a pro forma basis,
giving effect to the IFG Merger, as of June 30, 1998, AIMCO had $1,491 million
of indebtedness outstanding on a consolidated basis, of which $1,469 million was
secured.
Moody's Revision of AIMCO's Outlook of Ratings to Negative
On October 1, 1998, Moody's Investors Service revised its outlook for the
ratings of AIMCO from stable to negative to reflect its concerns surrounding
AIMCO's ability to implement its financial strategy successfully while
maintaining a prudent capital structure as a result of the more difficult
general capital market conditions. Moody's noted that AIMCO's access to the
public markets may prove challenging in light of the volatility in both the
equity and capital markets for REITs. Moody's assigned a "ba3" rating to the
Class I Preferred Stock proposed to be issued by AIMCO, and confirmed its
previous ratings related to AIMCO's preferred stock and debt in its shelf
registration statement. Moody's indicated that its rating action continues to
reflect AIMCO's increasingly leveraged profile, including high levels of secured
debt and preferred stock, limited financial flexibility and integration of risks
resulting from the IFG Merger. Moody's also noted AIMCO's high level of
encumbered properties and material investments in loans to highly leveraged
partnerships in which AIMCO owns a general partnership interest. At the same
time, Moody's, Standard & Poors Ratings Group, Inc., a Division of McGraw Hill
and Duff & Phelps Corporation confirmed its existing rating on AIMCO's existing
preferred stock and senior debt.
Increases in Interest Rates May Increase AIMCO's Interest Expense
On a pro forma basis, after giving effect to the IFG Merger, as of June 30,
1998, approximately $358 million of AIMCO's debt was subject to variable
interest rates. An increase in interest rates could increase AIMCO's interest
expense and adversely affect AIMCO's cash flow and ability to service its
indebtedness and make distributions.
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Risks of Interest Rate Hedging Arrangements
From time to time, in anticipation of refinancing debt, AIMCO 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. These agreements involve the following risks:
- interest rate movements during the term of the agreement may result in a
loss to AIMCO;
- AIMCO may be exposed to losses if the hedge is not indexed to the same
rate as the debt anticipated to be incurred; and
- AIMCO may incur a loss if the counterparty to the agreement fails to pay.
Covenant Restrictions May Limit AIMCO's Ability to Make Payments to Its
Investors
Some of AIMCO's debt and other securities contain covenants that restrict
AIMCO's ability to make distributions or other payments to its investors unless
certain financial tests or other criteria are satisfied. In some cases, AIMCO's
subsidiaries are subject to similar provisions, which may restrict their ability
to make distributions to AIMCO. AIMCO's primary credit facility provides that it
may make distributions to its investors during any 12-month period in an
aggregate amount that does not exceed the greater of 80% of its funds from
operations for such period or such amount as may be necessary to maintain its
REIT status. This credit facility prohibits all distributions if certain
financial ratios and tests are not satisfied. The preferred stock that AIMCO
issued in the IFG Merger prohibits the payment of dividends on AIMCO Common
Stock if AIMCO fails to make the payments required by the preferred stock.
AIMCO Depends on Distributions and Other Payments from Its Subsidiaries
All of AIMCO's properties are owned, and all of its operations are
conducted, by the AIMCO Operating Partnership and AIMCO's other subsidiaries. As
a result, AIMCO depends on distributions and other payments from subsidiaries in
order to satisfy its financial obligations and make payments to its investors.
The ability of AIMCO's subsidiaries to make such distributions and other
payments is dependent upon their earnings and may be subject to statutory or
contractual limitations. As an equity investor in AIMCO's subsidiaries, AIMCO's
right to receive assets upon their liquidation or reorganization will be
effectively subordinated to the claims of their creditors. To the extent that
AIMCO is recognized as a creditor of such subsidiaries, its claims would still
be subordinated to any security interest in or other lien on their assets and to
any of their debt or other obligations that are senior to it.
Real Estate Investment Risks
AIMCO's ability to make payments to its investors depends on its ability to
generate funds from operations in excess of required debt payments and capital
expenditure requirements. Funds from operations and the value of AIMCO's
properties may be
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adversely affected by events or conditions which are beyond its control. Such
events or conditions could include:
- the general economic climate;
- competition from other apartment communities and alternative housing;
- local conditions, such as an increase in unemployment or an oversupply of
apartments, that might adversely affect apartment occupancy or rental
rates;
- increases in operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily be offset by
increased rents;
- changes in governmental regulations and the related costs of compliance;
- changes in tax laws and housing laws, including the enactment of rent
control laws or other laws regulating multifamily housing;
- changes in interest rate levels and the availability of financing; and
- the relative illiquidity of real estate investments.
Possible Environmental Liabilities
Various Federal, state and local laws subject property owners or operators
to liability for the costs of removal or remediation of certain hazardous
substances released on a property. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of the hazardous substances. The presence of, or the failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and AIMCO's ability to sell or borrow against contaminated
properties. In addition to the costs associated with investigation and
remediation actions brought by governmental agencies, the presence of hazardous
wastes on a property could result in personal injury or similar claims by
private plaintiffs. Various laws also impose, on persons who arrange for the
disposal or treatment of hazardous or toxic substances, liability for the cost
of removal or remediation of hazardous substances at the disposal or treatment
facility. These laws often impose liability whether or not the person arranging
for the disposal ever owned or operated the disposal facility.
Laws Benefitting Disabled Persons May Result in Unanticipated Expenses
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places
of public accommodation are required to meet certain Federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. A number of additional Federal, state and local laws exist
which also may require modifications to AIMCO's properties, or restrict certain
further renovations of the properties, with respect to access to the properties
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 AIMCO believes that
its properties are substantially in compliance with present requirements, it may
incur unanticipated expenses to comply with the ADA and FHAA.
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Risks Relating to Regulation of Affordable Housing
As of October 1, 1998, AIMCO owned or controlled 2 properties, held an
equity interest in 783 properties and managed for third parties and affiliates
322 properties that benefit from governmental programs intended to provide
housing to low or moderate income households. These programs, which are usually
administered by HUD or state housing finance agencies, typically provide
mortgage insurance, favorable financing terms or rental assistance payments to
the property owners. As a condition to the receipt of assistance under these
programs, the properties must comply with various requirements, which typically
limit rents to pre-approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary, which
could result in a loss of management fee revenue. AIMCO is required to obtain
the approval of HUD in order to manage or acquire a significant interest in a
HUD-assisted or HUD-insured property ("2530 Approval"). AIMCO can provide no
assurance that it will always receive such approval.
On September 29, 1998, HUD's Previous Participation Review Committee
reviewed AIMCO's request for 2530 Approval. The Committee deferred action for up
to 120 days, pending receipt of further information regarding the HUD Inspector
General's discussion with AIMCO regarding past practices of NHP Incorporated
("NHP").
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 property management of a HUD
project. AIMCO believes that other owners and managers of HUD projects have
received similar subpoenas. 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
NHP's 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 NHP. Although no action has
been initiated against NHP or AIMCO or, to AIMCO's knowledge, any owner of a HUD
property managed by NHP or 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.
The Loss of Property Management Contracts Would Reduce AIMCO's Revenues
AIMCO manages some properties owned by third parties. For the year ended
December 31, 1997, AIMCO derived approximately 2% of its gross revenue from
management of properties owned by third parties. During the same period, IFG,
which merged with AIMCO on October 1, 1998, derived approximately 15% of its
gross revenue from management of properties owned by third parties. AIMCO may
suffer a loss of revenue if it loses its right to manage these properties or if
the rental revenues upon which its management fees are based decline. In
general, management contracts may be terminated or otherwise lost as a result
of:
- a disposition of the property by the owner in the ordinary course or as a
result of financial distress of the property owner;
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- the property owner's determination that AIMCO's management of the
property is unsatisfactory;
- willful misconduct, gross negligence or other conduct that constitutes
grounds for termination; or
- with respect to certain affordable properties, termination of such
contracts by HUD or state housing finance agencies, generally at their
discretion.
Dependence on Certain Executive Officers
Although AIMCO has entered into employment agreements with its Chairman and
Chief Executive Officer, Terry Considine, its Vice Chairman and President, Peter
K. Kompaniez, and its Executive Vice President, Steven D. Ira, the loss of any
of their services could have a material adverse effect on AIMCO.
Conflicts of Interest; 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 AIMCO Common Stock or the purchase
of interests in the AIMCO Operating Partnership and other unconsolidated
subsidiaries of AIMCO; investments by AIMCO in partnerships or other entities
(such as the AIMCO 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 presently manages its Managed Properties through PAMS Inc, PAMS LP
and certain former subsidiaries of The National Housing Partnership (the
"Management Subsidiaries"). In order to satisfy certain REIT requirements, the
ownership of PAMS Inc. and certain other Management Subsidiaries consists of the
AIMCO Operating Partnership holding non-voting preferred stock that represents a
95% economic interest, and certain officers and/or directors of AIMCO holding,
directly or indirectly, all of the voting common stock, representing a 5%
economic interest. In addition, PAMS LP provides property management services
with respect to certain Managed Properties in which certain officers and/or
directors of AIMCO have separate ownership interests. The fees for these
services have been negotiated on an individual basis and typically range from 3%
to 6% of gross receipts for the particular property. Although these arrangements
were not negotiated on an arm's-length basis, AIMCO believes, based on
comparisons to the fees charged by other real estate companies and by PAMS LP
with respect to unaffiliated Managed Properties in comparable locations, that
the terms of such arrangements are fair to AIMCO.
AIMCO has entered into a Contribution Agreement with CK Services, Inc.
("CK") and the stockholders of CK to cause certain assets of AIMCO to be
contributed to CK and to distribute all outstanding stock of CK to the
stockholders of AIMCO. CK is a corporation wholly-owned by Terry Considine,
AIMCO's Chairman and Chief Executive
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Officer, and Peter Kompaniez, AIMCO's President and Vice Chairman. As a result,
when the stock of CK is transferred to AIMCO, such stockholders will receive
payment for the stock; the stock will be priced at fair market value and if
market value is difficult to ascertain, 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. Any transfer of assets or services to CK
will be at market rates and approved by the independent members of the AIMCO
Board of Directors, and if market rates are difficult to ascertain, the pricing
will favor AIMCO. No prediction can be made as to whether or when any spinoff to
AIMCO stockholders will occur. See "Business of AIMCO -- Recent Contracts."
Tax Risks
Adverse Consequences of Failure to Qualify as a REIT. Although AIMCO
believes that it operates in a manner that enables it to meet the requirements
for qualification as a REIT for Federal income tax purposes, it does not plan to
request a ruling from the Internal Revenue Service ("IRS") that it qualifies as
a REIT. AIMCO has, however, received an opinion from the law firm of Skadden,
Arps, Slate, Meagher & Flom LLP to the effect that, beginning with its initial
taxable year ended December 31, 1994, it was organized in conformity with the
requirements for qualification as a REIT under the Internal Revenue Code of
1986, as amended (the "Code").
You should be aware that opinions of counsel are not binding on the IRS or
any court. AIMCO's opinion of counsel is based upon certain representations and
covenants made by AIMCO regarding the past, present and future conduct of its
business operations. In addition, AIMCO's opinion of counsel assumes the
qualification of IPT as a REIT and relies upon the opinion of Akin, Gump,
Strauss, Hauer & Feld L.L.P., counsel to IPT in this regard. IPT's failure to
qualify as a REIT would adversely affect AIMCO's qualification as a REIT.
Finally, AIMCO's opinion of counsel is conditioned on, and AIMCO's continued
qualification as a REIT will depend on, its ability to meet, through actual
annual operating results, the various REIT qualification tests. Such
requirements are discussed in more detail under the heading "Federal Income
Taxation of AIMCO and AIMCO Stockholders -- Requirements for Qualification."
If AIMCO fails to qualify as a REIT, it would not be allowed a deduction
for dividends to stockholders in computing its taxable income and it would be
subject to Federal income tax at regular corporate rates. AIMCO also could be
subject to the Federal alternative minimum tax. Unless AIMCO is entitled to
relief under the tax law, it could not elect to be taxed as a REIT for four
years following the year during which it were disqualified. Therefore, if AIMCO
loses its REIT status, the funds available for payment to its investors and net
income would be reduced substantially for each of the years involved. See
"Federal Income Taxation of AIMCO and AIMCO Stockholders -- Taxation of AIMCO."
Also, if AIMCO fails to qualify as a REIT, (i) it would be obligated to
repurchase 750,000 shares of its preferred stock at a price of $105 per share,
plus accrued and unpaid dividends to the date of repurchase, and (ii) it would
be in default under its primary credit facilities and certain other loan
documents. See "Federal Income Taxation of AIMCO and AIMCO
Stockholders -- Taxation of AIMCO."
If AIMCO acquires a corporation that is not a REIT (such as IFG or if IPT
failed to qualify as a REIT, IPT), AIMCO will qualify as a REIT only if it
distributes all of the acquired corporation's "earnings and profits" by the end
of the year. In connection with
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the IFG Merger, AIMCO retained independent certified public accountants to
review the determination of IFG's earnings and profits for purposes of this
requirement. The determination of earnings and profits, however, is difficult
and requires the resolution of technical tax issues. In addition, the IRS can
consider all taxable years as open for review for purposes of determining the
amount of earnings and profits. AIMCO's failure to distribute an amount equal to
IFG's (or IPT's, if IPT failed to qualify as a REIT) earnings and profits on or
before December 31, 1998, would result in AIMCO's failure to qualify as a REIT.
Effect of Distribution Requirements. As a REIT, AIMCO is subject to annual
distribution requirements that limit the amount of cash it has available for
other business purposes, including amounts to fund its growth. See "Federal
Income Taxation of AIMCO and AIMCO Stockholders -- Annual Distribution
Requirements."
Possible Legislative or Other Actions Affecting REITs. The rules dealing
with Federal income taxation are constantly under review by persons involved in
the legislative process and by the IRS and the U.S. Treasury Department. Changes
to the tax law could adversely affect AIMCO and its investors. It cannot be
predicted whether, when, in what forms, or with what effective dates, the tax
laws applicable to AIMCO or its investors will be changed.
Other Tax Liabilities. Even if AIMCO qualifies as a REIT, AIMCO and its
subsidiaries may be subject to certain Federal, state and local taxes on their
income and property that could reduce operating cash flow.
Possible Adverse Consequences of Limits on Ownership of Shares
AIMCO's charter limits ownership of AIMCO common stock by any single
shareholder to 8.7% of the outstanding shares (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine). The charter
also prohibits anyone from buying shares if the purchase would result in AIMCO
losing its REIT status. This could happen if a share transaction results in
fewer than 100 persons owning all of AIMCO's shares or in five or fewer persons,
applying certain attribution rules of the Code, owning 50% or more of AIMCO's
common stock. If any person acquires shares in excess of the ownership limit or
in violation of the ownership requirements of the Code for REITs:
- the transfer will be considered null and void;
- AIMCO will not reflect the transaction on its books;
- AIMCO may institute legal action to enjoin the transaction;
- AIMCO may demand repayment of any dividends received by the affected
person on those shares;
- AIMCO may redeem the shares at their then current market price;
- the affected person will not have any voting rights for those shares; and
- the shares (and all voting and dividend rights of the shares) will be
held in trust for the benefit of one or more charitable organizations
designated by AIMCO.
AIMCO may purchase the shares held in trust at a price equal to the lesser
of the price paid by the transferee of the shares or the then current market
price. If the trust transfers any of the shares, the affected person will
receive the lesser of the price he or she
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paid for the shares or the then current market price. An individual who acquires
shares that violate the above rules bears the risk that:
- he or she may lose control over the power to dispose of the shares;
- he or she may not recognize profit from the sale of such shares if the
market price of the shares increases; and
- he or she may be required to recognize a loss from the sale of such
shares if the market price decreases.
AIMCO's Charter and Maryland Law May Limit the Ability of a Third Party to
Acquire Control of AIMCO
Ownership Limit. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of AIMCO by a third party without
the consent of AIMCO's Board of Directors.
Preferred Stock. AIMCO's charter authorizes its Board of Directors to issue
up to 510,750,000 shares of capital stock. As of October 1, 1998, 486,027,500
shares were classified as AIMCO Common Stock, 262,500 shares were classified as
Class B Common Stock and 24,460,000 were classified as preferred stock. Under
the charter, AIMCO's Board of Directors has the authority to classify and
reclassify any of AIMCO's unissued shares of capital stock into shares of
preferred stock with such preferences, rights, powers and restrictions as the
AIMCO Board of Directors may determine. The authorization and issuance of
preferred stock could have the effect of delaying or preventing someone from
taking control of AIMCO, even if a change in control were in AIMCO's
stockholders' best interests.
Maryland Business Combination and Control Share Acquisition Statutes. As a
Maryland corporation, AIMCO is subject to various Maryland laws which may have
the effect of discouraging offers to acquire AIMCO and of increasing the
difficulty of consummating any such offers, even if the acquisition of AIMCO
would be in its stockholders' best interests. The Maryland General Corporation
Law (the "MGCL") restricts mergers and other business combination transactions
between AIMCO and any person who acquires beneficial ownership of shares of its
stock representing 10% or more of the voting power without the prior approval of
AIMCO's Board of Directors. Any such business combination transaction could not
be completed until five years after the person acquired such voting power, and
only with the approval of stockholders representing 80% of all votes entitled to
be cast, and 66 2/3% of the votes entitled to be cast excluding the interested
stockholder, unless, among other conditions, the stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the interested
stockholder for its shares of stock. Maryland law also provides that a person
who acquires shares of AIMCO stock that represent 20% or more of the voting
power in electing directors will have no voting rights unless approved by a vote
of two-thirds of the shares eligible to vote or unless approved or exempted
prior to the acquisition pursuant to the terms of the statute.
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INFORMATION CONCERNING THE SPECIAL MEETING
PURPOSE, TIME AND PLACE
IPT is furnishing this Information Statement/Prospectus to its shareholders
in connection with a special meeting to be held on December , 1998, beginning
at 9:00 a.m., local time, at 55 Beattie Place, Floor, Greenville, South
Carolina 29602, and any adjournments or postponements thereof. The purpose of
the special meeting is to consider and vote upon a proposal to approve and adopt
the Merger Agreement and the transactions contemplated by the Merger Agreement.
RECORD DATE; QUORUM; VOTE REQUIRED
The IPT Board has selected December , 1998 as the record date for the
special meeting. Only holders of record of IPT Common Shares at the close of
business on the record date are entitled to notice of, and to vote at, the
special meeting.
On the record date, IPT Common Shares were issued and
outstanding, held by approximately holders of record. Each IPT
Common Share entitles the holder thereof to one vote on each matter submitted
for shareholder approval.
The presence, in person or by proxy, of at least a majority of the issued
and outstanding IPT Common Shares entitled to vote is necessary to constitute a
quorum at the special meeting. If you vote your IPT Common Shares to abstain at
the special meeting, your shares will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
special meeting and have the effect of a vote against the Merger. If you hold
your IPT Common Shares in "street name," then a broker or nominee is the
registered owner. If you fail to instruct your broker or nominee how to vote at
the special meeting, then your shares will not be counted as present for
purposes of determining a quorum at the special meeting and will have the effect
of a vote against the Merger.
The approval of the Merger Agreement and the transactions contemplated by
the Merger Agreement requires the affirmative vote of the holders of a majority
of the outstanding IPT Common Shares. The IPT Board did not impose any
conditions on the voting at the special meeting, for example, a requirement that
the Merger be approved by a majority of the IPT Common Shares not owned by AIMCO
and its subsidiaries, inasmuch as such requirement is not required by Maryland
law. As a result of the IFG Merger, AIMCO owns the IPT Common Shares formerly
owned by IFG and as a result, on October 1, 1998, control of IPT was changed
from IFG to AIMCO. On the record date, AIMCO owned 12,033,556 IPT Common Shares,
or approximately 51% of the outstanding IPT Common Shares. As required by the
Merger Agreement, AIMCO provided an irrevocable proxy to Messrs. Aston, Farkas
and Garrison, acting individually, to vote the IPT Common Shares owned by AIMCO
and its subsidiaries FOR the Merger at the special meeting. Messrs. Farkas,
Aston and Garrison agreed to vote such shares for the Merger and intend to so
vote the IPT Common Shares owned by AIMCO at the special meeting. ACCORDINGLY,
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
BY THE MERGER AGREEMENT AT THE SPECIAL MEETING ARE ASSURED. As of the record
date, the trustees of IPT who approved the Merger Agreement held approximately
IPT Common Shares, or approximately % of the outstanding IPT
Common Shares. As of the record date, the Continuing Trustees of IPT
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held approximately IPT Common Shares, or approximately % of the
outstanding IPT Common Shares. Such trustees have informed IPT that they intend
to cause their shares to be voted for the Merger at the special meeting. As of
the record date, the executive officers of IPT held approximately
IPT Common Shares, or approximately % of the outstanding IPT
Common Shares. Such executive officers have informed IPT that they intend to
cause their shares to be voted for the Merger at the special meeting.
VOTING
Although approval and adoption of the Merger are assured, if you desire to
have your IPT Common Shares voted at the special meeting, your shares must be
represented at the special meeting in person or by proxy. WE ARE NOT ASKING FOR
A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. If your IPT Common Shares
are held in street name and you wish to attend the special meeting and vote your
IPT Common Shares, or if you wish to grant a proxy with respect to your shares,
you will need to obtain a letter from the broker or nominee holding your shares
confirming your ownership of such IPT Common Shares and bring it with you to the
special meeting or provide it with your proxy.
NO APPRAISAL RIGHTS
Under Maryland law, IPT shareholders will not have objecting shareholders'
rights to fair value in connection with the Merger.
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SPECIAL FACTORS
OVERVIEW OF THE MERGER
IPT was formed by IFG in May 1996 primarily for the purpose of acquiring
and owning interests in multifamily residential properties, principally through
ownership of limited and general partner interests in real estate limited
partnerships.
IPLP, IPT's operating subsidiary, has three partners: IPT, which is the
sole general partner and owns approximately 70% of IPLP's outstanding units of
common partnership interests ("IPLP OP Units"); AIMCO (following the IFG
Merger), which is designated as the special limited partner and owns
approximately 27% of the outstanding IPLP OP Units; and Insignia Capital
Corporation (now a wholly-owned subsidiary of AIMCO), which is a limited partner
and owns approximately 3% of the outstanding IPLP OP Units. On July 17, 1997,
the IPT Board approved the AMIT Merger, which was completed on September 17,
1998. Before the completion of the AMIT Merger, IFG and its affiliates owned
approximately 68% of the outstanding IPT Common Shares. Following the AMIT
Merger, IFG and its subsidiaries owned approximately 51% of the outstanding IPT
Common Shares. As a result of the IFG Merger, AIMCO and its subsidiaries now own
approximately 51% of the outstanding IPT Common Shares.
As a result of the IFG Merger, AIMCO became the special limited partner of
IPLP and, as such, possesses special rights with respect to certain matters
concerning IPLP. Substantially all of IPT's assets are held through IPLP.
Pursuant to the IPLP Asset Agreement entered into after the election of the
trustees nominated by AIMCO to the IPT Board, (1) IPLP transferred a substantial
portion of its assets to the AIMCO Operating Partnership in exchange for
OP Units and (2) AIMCO and IPT formed a joint venture to acquire from a third
party multifamily housing assets in which IPT's 99% joint venture interest was
funded through a payment of approximately $15 million by IPLP. As required by
the IPT Bylaws, the AIMCO-nominated Trustees of the IPT Board, approved the
transfer and the joint venture as in the best interests of the partners of IPLP
(and in the best interests of the shareholders of IPT) because the transfer
assisted AIMCO in avoiding adverse tax consequences. Immediately following such
transfer and joint venture formation, the sole assets owned by IPLP consisted of
(i) a 100% ownership interest in Cooper River Properties, LLC (which in turn
owns limited partner units in a number of publicly-traded limited partnerships),
(ii) cash in the amount of $ , (iii) IPLP's rights under that certain
Credit Agreement among IPLP, Lehman Syndicated Loan Funding Trust, as
syndication agent, First Union National Bank, as administrative agent, and the
lenders from time to time parties thereto, (iv) OP Units, and (v) a
99% economic interest in a joint venture with AIMCO.
IPT is required by the partnership agreement of IPLP to cause AIMCO (as
successor to IFG) to be retained to provide (1) property management services
with respect to virtually all properties controlled (directly or indirectly) by
IPT and (2) partnership administration services to certain of the partnerships
controlled by IPT. IPT also has engaged AIMCO to provide certain real estate and
real estate securities acquisition and disposition services to IPT and IPLP.
IPT entered into the Merger Agreement because the IPT Board (prior to the
election of AIMCO-nominated trustees), at a meeting attended by all but one
trustee, unanimously deemed the Merger advisable and in the best interests of
IPT, and the IPT Board directed
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the Merger to be submitted to IPT shareholders and recommended the Merger to IPT
shareholders. For a discussion of the various factors considered by the IPT
Board in reaching their conclusions, see " -- IPT's Reasons for the Merger;
Recommendation of the Board."
The purpose for AIMCO to proceed with the Merger is for AIMCO to acquire
all of the outstanding equity interests in IPT not already owned by it. AIMCO
was required to use its best efforts to consummate a merger with IPT under the
terms of the IFG Merger Agreement. See " -- Information Concerning the Special
Meeting."
In order to provide a prompt and orderly transfer of ownership of IPT to AIMCO,
in light of relevant financial, legal, tax and other considerations, the
acquisition has been structured as a merger pursuant to which, if the conditions
to the completion of the Merger are satisfied or waived, IPT will be merged with
and into AIMCO and all of the outstanding IPT Common Shares (other than IPT
Common Shares held directly or indirectly by AIMCO, all of which will be
canceled with no payment made with respect thereto, and restricted IPT Common
Shares, all of which will be converted into restricted shares of AIMCO Common
Stock).
BACKGROUND OF THE IFG MERGER
Issues relating to the long-term strategy of IFG were discussed regularly
by IFG's senior management and Board of Directors. Senior management of IFG was
of the view that, in recent years, the business of managing and owning
multifamily apartment properties in the United States has been characterized by
consolidation, driven in large measure by the economies of scale available to
larger entities in the industry. Senior management of IFG likewise believed that
greater size permits efficiencies and lower costs in capital raising, lower
costs for goods and services resulting from larger centralized buying power,
amortization of ongoing general and administrative costs over a broader
portfolio base and other potential advantages that increase value for
stockholders. In addition, IFG's senior management and Board of Directors
believed that the emergence of large apartment REITs, with their appetites for
acquisition of additional apartment communities, generally increased the prices
at which these properties were offered and sold. In order to take advantage of
these trends, IFG's senior management and Board of Directors remained receptive
to opportunities to acquire other businesses or to be acquired by another
entity. During the two years preceding October 1, 1998, [neither] IFG nor IPT
[did not] received any third party indications of interest in acquiring IPT.
On September 11, 1997, Mr. Terry Considine, AIMCO's Chairman and Chief
Executive Officer, met Mr. Andrew L. Farkas, IFG's Chairman, President and Chief
Executive Officer, at IFG's New York City office to discuss the general
philosophy of each company, the consolidation occurring in the multifamily
apartment industry and its future and the competitive advantages that each of
IFG and AIMCO offered.
On September 18, 1997, Messrs. Farkas and Considine flew from Denver to Los
Angeles, without any specific discussions regarding a transaction between IFG
and AIMCO.
On September 23, 1997, Messrs. Farkas and Considine met for dinner in New
York City to discuss the feasibility of a transaction between the two companies,
excluding IFG's commercial real estate business, and the synergies which could
result from the combined companies.
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On September 24, 1997, Mr. Farkas asked Lehman Brothers, IFG's financial
advisor for previous transactions, to prepare a confidentiality agreement for
execution by IFG and AIMCO.
Throughout late September and early October 1997, Lehman Brothers, with the
assistance of Mr. James A. Aston, IFG's Chief Financial Officer, prepared
confidential informational material setting forth certain historical financial
information of IFG and a description of, and historical and projected financial
information with respect to, IFG's multifamily housing business.
In the first two weeks of October 1997, Lehman Brothers negotiated a
confidentiality agreement with AIMCO. On October 14, 1997, IFG and AIMCO
executed a confidentiality agreement in order to discuss in more detail the
possibility of a transaction involving IFG, excluding the commercial real estate
business, and AIMCO. After the execution of the confidentiality agreement,
Lehman Brothers delivered the confidential informational material to AIMCO.
During the course of the next eight weeks, the parties continued telephone
discussions about a possible transaction and during such time AIMCO requested
additional due diligence information regarding IFG, which IFG provided. Although
none of these discussions was conclusive, they did allow each party to become
better informed about the other and to permit each party to discuss in detail
the advantages of a transaction.
In the first quarter of 1998, IFG's Board of Directors held its regularly
scheduled board meeting. IFG's Board of Directors was advised that IFG's senior
management had held discussions with representatives of AIMCO and Lehman
Brothers concerning a possible transaction between IFG and AIMCO. Senior
management of IFG further discussed the potential for combinations with other
owners and managers of multifamily apartment properties and whether IFG intended
to pursue the commercial property business or the multifamily apartment property
business, or both. IFG's Board of Directors determined that IFG should either
search for a company with a similar philosophy with which to merge or continue
to pursue acquisitions of interests in multifamily properties and companies that
provide multifamily property management through IPT. IFG's senior management
then discussed the potential synergies which could result from the combination
with AIMCO. IFG's Board of Directors authorized senior management to continue to
investigate a possible merger with AIMCO.
On February 5, 1998, Mr. Aston flew to Denver to meet with Mr. Thomas
Toomey, AIMCO's Executive Vice President - Finance and Administration, and Mr.
Harry Alcock, AIMCO's Senior Vice President - Acquisitions, to discuss IFG's
confidential informational material provided to AIMCO.
On February 11, 1998, representatives of IFG and AIMCO met at IFG's offices
in New York City to begin discussions regarding the terms of a transaction,
including price, structure and protection of the shareholders of IPT other than
IFG.
On February 12, 1998, representatives of IFG and AIMCO met at IFG's offices
in New York City to discuss the proposed acquisition of IFG's multifamily
business and at such time the parties discussed the price at which the proposed
transaction might occur. The general terms, timing and proposed accounting
treatment of the proposed merger were also discussed. On February 12 and 13,
1998, IFG met with its legal and financial advisors to discuss a possible
structure of the transaction and instructed their legal advisors to work
expeditiously to negotiate a definitive agreement. On February 18, 1998, IFG's
legal and
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financial advisors met with AIMCO's legal advisors to discuss drafts of the
documentation for the proposed transaction. From February 19 through March 17,
1998, senior management of IFG and AIMCO, their respective legal and tax
advisors and Lehman Brothers met to discuss and negotiate (1) revised drafts of
the documentation for the proposed transaction, (2) revised structures for the
transaction, (3) various forms of merger consideration and (4) various other
issues that arose during such negotiations. Also during that time, senior
management of IFG, assisted by their legal and financial advisors, conducted a
due diligence review of AIMCO. In the course of discussions from the end of
February through the beginning of March, it was decided that the proposed
transaction could best be structured as a merger, with IFG first spinning off
its commercial real estate and other businesses to its stockholders. During the
course of the negotiation, both parties were unsure whether a mutually
acceptable agreement could be reached, as many material terms of the transaction
were not and could not be agreed upon, including tax structure and the valuation
of IFG's multifamily housing business.
On March 13, 1998, IFG's Board of Directors executed an engagement letter
with Lehman Brothers, pursuant to which Lehman Brothers was formally retained as
IFG's financial advisor to evaluate the proposed merger with AIMCO and the
allocation of the consideration to be offered by AIMCO between holders of IFG's
common stock and IPT Common Shares.
Also, on March 13, 1998, IFG's Board of Directors held a special meeting to
consider the proposed merger with AIMCO. At the meeting, IFG's counsel discussed
the draft IFG Merger Agreement in detail and representatives of Lehman Brothers
made a presentation which included delivery of Lehman Brothers' oral opinion
(subsequently confirmed in writing on March 17, 1998) that the aggregate
consideration to be received by the holders of IFG common stock in the spin-off
of Holdings, which included IFG's commercial real estate and certain other
businesses, and in the IFG Merger was fair, from a financial point of view, to
the holders of IFG common stock, and that the allocations of the consideration
to be received by holders of IFG common stock in the IFG Merger and the
consideration required to be offered to holders of IPT Common Shares (other than
IFG) was reasonable. Following discussion, IFG's Board unanimously approved the
IFG Merger and the draft IFG Merger Agreement and the transactions contemplated
thereby, giving senior management the authority to make changes in the
transaction and documentation that they believed appropriate. The IFG Merger
Agreement was amended and restated as of May 26, 1998, but not in any way that
would affect AIMCO's obligations relating to IPT. Prior to the IFG Merger, AIMCO
did not own any equity investment in IFG or IPT.
On October 1, 1998, IFG was merged with and into AIMCO, with AIMCO
continuing as the surviving corporation in the IFG Merger. As a result of the
IFG Merger, AIMCO became the owner of an aggregate of 12,033,556 IPT Common
Shares or approximately 51% of the then outstanding IPT Common Shares.
BACKGROUND OF THE MERGER
After the IFG Merger Agreement was announced, AMIT's Board of Trustees
determined that it could not recommend approval of the AMIT Merger to AMIT
shareholders without receiving a covenant from Holdings that Holdings would
enforce AIMCO's obligation to propose to acquire IPT by merger pursuant to the
terms of the IFG Merger Agreement, but it could make such recommendation if AMIT
received such a covenant. Subsequent negotiation among IPT, AMIT and Holdings
resulted in Holdings
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covenanting to AMIT and IPT that it would use its reasonable best efforts to
compel AIMCO to propose to acquire IPT by merger in the event that AIMCO were to
breach its obligation under the IFG Merger Agreement.
Beginning September , 1998, extensive negotiations took place among
AIMCO, IFG, IPT and their respective advisors and representatives concerning the
terms and conditions of a definitive merger agreement for the acquisition of IPT
and related arrangements. In the course of these discussions, AIMCO indicated
that, while it remained committed to acquiring the publicly held IPT Common
Shares, in light of uncertainties in the market for debt and equity securities
and in light of a reduction in the amount of commercial mortgage financing
available it would prefer to be in a position to consummate the transaction with
AIMCO Common Stock at its option. In the course of negotiations, AIMCO offered
benefits to holders of IPT Common Shares beyond its obligations pursuant to the
IFG Merger Agreement, including (1) the increased certainty of closing a merger
that has fewer conditions to closing than the typical acquisition transaction,
(2) a price of $13.28 per IPT Common Share (rather than $13.25) for the portion
of the merger consideration that AIMCO would pay in AIMCO Common Stock, and (3)
the expectation that the receipt of shares of AIMCO Common Stock would be
substantially tax free to holders of IPT Common Shares. See "Tax Consequences of
the Merger." AIMCO also expressed its view that the prompt integration of the
operations of AIMCO and IPT was best for both companies from a business
perspective, subject to the unwind provisions of the Merger Agreement, including
the ceding of the right to elect a majority of the IPT Board for up to two years
after termination of the Merger Agreement under certain circumstances (even
though AIMCO would own a majority of the outstanding IPT Common Shares), which
is intended to benefit the holders of IPT Common Shares in the unlikely event
that the Merger fails to close under specified circumstances. The Merger
Agreement also provides that it may be amended only upon affirmative action by a
majority of the Continuing Trustees. See "The Merger Agreement and Terms of the
Merger -- Amendment and Waiver."
Because the contemplated merger consideration had changed from all cash to
potentially include (at AIMCO's election) shares of AIMCO Common Stock, the IPT
Board determined that a further opinion of Lehman Brothers on the merger
consideration would be desirable. On September 30, 1998, the IPT Board formally
engaged Lehman Brothers to render an opinion to the IPT Board as to the
fairness, from a financial point of view, of the consideration to be paid
pursuant to the Merger Agreement. By the morning of October 1, 1998, executive
officers of IPT and AIMCO informally concurred that they had reached agreement
on all material terms of the Merger Agreement and the IPT Board (prior to the
election of AIMCO-nominated trustees) held a special meeting on October 1, 1998
attended by all trustees but Warren M. Eckstein to consider the terms of the
Merger Agreement, including the merger consideration, in detail. At the request
of the IPT Board, representatives of Lehman Brothers made a presentation
concerning the analysis underlying their conclusions, and delivered their
written opinion that the consideration to be paid in the Merger was fair from a
financial point of view to the holders of IPT Common Shares, other than AIMCO
and its subsidiaries. See "-- Opinion of Financial Advisor to the IPT Board"
Following such discussions and based in part on the advice of Lehman Brothers,
the IPT Board, (prior to the election of AIMCO-nominated trustees) with Mr.
Eckstein not in attendance, unanimously (1) deemed the Merger advisable and in
the best interests of IPT, (2) directed the Merger to be submitted
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to the IPT shareholders, (3) recommended the Merger to the IPT shareholders, and
(4) approved the Merger Agreement and the transactions contemplated by the
Merger Agreement, giving senior management of IPT the authority to make changes
in the transaction and documentation that they believed appropriate. The AIMCO
Board of Directors had previously approved the Merger Agreement. The IFG Merger
was closed later on October 1, 1998. The Merger Agreement was finalized and
executed on October 2, 1998.
As contemplated by the Merger Agreement, effective simultaneously with the
execution and delivery of the Merger Agreement, (1) Messrs. Ronald Uretta and
Ronald J. Consiglio resigned as trustees of IPT; (2) the size of the IPT Board
was increased by four to eleven members; and (3) Messrs. Terry Considine, Peter
K. Kompaniez, Patrick J. Foye, Steven D. Ira, Thomas W. Toomey and Harry G.
Alcock, each of whom is an officer of AIMCO, were appointed to fill the
vacancies on the IPT Board.
IPT's bylaws were also amended in the manner contemplated by the Merger
Agreement. One of the bylaw amendments had the effect of exempting AIMCO's
acquisition (through the IFG Merger) of IPT Common Shares from Maryland's
control share acquisition statutes. Maryland's control share acquisition statute
generally provides that persons acquiring more than 20% of the outstanding
shares of a Maryland real estate investment trust will have no voting rights
unless the acquisition is approved by (1) the affirmative vote of 66 2/3% of all
the votes entitled to be cast on the matter, excluding all interested shares or
(2) by a bylaw provision, as was the case in AIMCO's acquisition of the shares
formerly held by IFG through the IFG Merger. The Maryland business combination
statute prohibits certain business combinations between a Maryland real estate
investment trust and a 10% shareholder and certain other persons. Inasmuch as
AIMCO was exempted from the provisions of the business combination statute by
the IPT Board prior to AIMCO's acquisition of the IPT Common Shares formerly
beneficially owned by IFG, the Merger is not restricted by Maryland's business
combination statute.
IPT'S REASONS FOR THE MERGER; RECOMMENDATION OF THE IPT BOARD
At its meeting on October 1, 1998, the IPT Board (prior to the election of
AIMCO-nominated trustees) received and considered the presentations of the
management of IPT, its legal advisors and its financial advisors regarding the
Merger and deemed the Merger advisable and in the best interests of IPT.
Accordingly, the IPT Board (with Mr. Eckstein not in attendance) unanimously
directed the Merger to be submitted to the IPT shareholders and recommended the
Merger to the IPT shareholders. The IPT Board did not find it necessary to
establish a special committee because each then trustee and executive officer of
IPT was unaffiliated with AIMCO and the trustees believed there was no
significant risk of conflicts of interest with AIMCO which would impair the IPT
Board's or IPT's officers' ability to negotiate an arm's-length merger agreement
with AIMCO.
In reaching its determination to approve the Merger, the IPT Board, (prior
to the election of AIMCO-nominated trustees) with Mr. Eckstein not in attendance
considered a number of factors, including the following:
- Control of IPT by AIMCO. The IPT Board noted that AIMCO controlled a
majority of the outstanding IPT Shares. Such ownership position would
have allowed AIMCO to elect a majority of the members of the IPT Board,
exercise
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substantial influence with respect to the business of IPLP and otherwise
control IPT's and its subsidiaries' affairs. The IPT Board was unable to
predict whether AIMCO would exercise such powers as well, worse or better
than IFG had exercised such powers. Rather than subject the non-AIMCO
affiliated IPT shareholders to the risk of being minority shareholders to
a new control shareholder, the IPT Board, decided to enter into the
Merger Agreement so that IPT shareholders would receive, at a minimum,
the same value (i.e., $13.25 per share) as IFG received for its IPT
Common Shares while also providing the possibility that the IPT
shareholders might defer recognition of taxable income to the extent that
AIMCO elected to issue AIMCO Common Stock in the Merger.
- Consideration. The IPT Board noted that the Merger Agreement provides
AIMCO with the option of paying the merger consideration in cash, shares
of AIMCO Common Stock or a combination of both. The IPT Board believed
that the ability of minority shareholders to dispose of their IPT Common
Shares at a valuation determined by arm's-length negotiation between IFG
and AIMCO and upon the terms established by arm's-length negotiation
between IPT and AIMCO was superior to the prospect of remaining minority
shareholders whose exit value and distribution rate would be controlled
by AIMCO, and whose ability to manage IPT's assets was unknown.
- Value of Stock Consideration. Although the IFG Board noted that AIMCO had
originally agreed to offer $13.25 in cash per IPT Common Share, the
increase of the offered consideration to $13.28, to the extent payable in
AIMCO Common Stock, was a positive factor inasmuch as the stock component
will provide IPT's shareholders, to the extent AIMCO elects to exchange
AIMCO Common Stock for IPT Common Shares in the Merger, with the
opportunity to participate in a company which, subsequent to the IFG
Merger, is one of the largest owners and managers of multifamily
apartment properties in the United States, and the anticipated growth of
IPT's businesses, as well as the other businesses comprising AIMCO.
Moreover, for those IPT shareholders who would prefer to receive cash
instead of AIMCO Common Stock, the increased consideration (3 cents) per
IPT Common Share should be sufficient to offset most (if not all)
transaction costs incurred in selling AIMCO Common Stock received in the
Merger.
- Other Terms of the Merger Agreement. The IPT Board viewed favorably the
terms and conditions of the Merger Agreement. The IPT Board noted that
the conditions to AIMCO's obligation to close the Merger and IPT's
representations and warranties in the Merger Agreement are more favorable
to IPT than those typically negotiated by public merger targets. The IPT
Board also viewed favorably the likelihood of the consummation of the
Merger and the likely avoidance of a failed transaction and the related
potential deterioration of IPT's business and loss of personnel.
- Lehman Brothers Opinion. The IPT Board considered the opinion delivered
by Lehman Brothers at the IPT Board meeting on October 1, 1998, to the
effect that, as of the date of such opinion, the consideration to be paid
in the Merger is fair to IPT's shareholders (other than AIMCO and its
subsidiaries) from a financial point of view.
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IPT shareholders should also be aware of the following factors which the
IPT Board (prior to the election of AIMCO-nominated trustees) at a special
meeting at which Mr. Eckstein was not in attendance considered in approving the
Merger:
- IPLP Restructuring and Unwind. The IPT Board was aware that AIMCO
intended to cause IPLP to contribute a substantial portion of its assets
to the AIMCO Operating Partnership in exchange for OP Units. Therefore,
in order to address the IPT Board's concern about the effects of a
failure to consummate the Merger, the Merger Agreement provides that,
unless the Merger Agreement is terminated by reason of a higher-value
offer, in the event the Merger does not occur, such transfers will be
unwound. In addition, all other acquisitions of equity interests in or
debt securities of entities controlled by IPT as well as certain asset
acquisitions will also be unwound if the Merger does not occur. IPT
shareholders should note that, as of the date of this Information
Statement/Prospectus, a substantial portion of IPLP's assets have been
transferred to the AIMCO Operating Partnership and IPT is effectively no
longer an operating entity pending the Merger.
- Control of IPT by AIMCO Prior to Consummation of the Merger. The IPT
Board recognized that after the IFG Merger, AIMCO would be the
controlling shareholder of IPT and would have the ability to eventually
gain control of the IPT Board. As part of the Merger Agreement and in
recognition of this fact, to seek a compromise, IPT agreed to cede
control of the IPT Board to AIMCO so long as (i) the Continuing Trustees
would be granted rights to protect IPT's interest until the Merger was
completed and (ii) the Merger Agreement included an unwind provision. The
Continuing Trustees include: James A. Aston, Andrew L. Farkas, Warren M.
Eckstein, Frank M. Garrison and Bryan L. Herrmann. Therefore, as part of
the negotiation of the Merger Agreement, the IPT Bylaws were amended to
provide, among other things, that the Continuing Trustees must approve
the following actions on behalf of IPT: (1) amendments to the Merger
Agreement, (2) termination of the Merger Agreement by IPT, (3) employment
matters for all employees of IPT on October 1, 1998, (4) amendments to
the limited partnership agreement of IPLP, (5) amendments to the IPT
Declaration of Trust, as amended (the "IPT Declaration") or IPT Bylaws,
(6) loans or cash advances from IPT to AIMCO and (7) declaring
distributions on IPT Common Shares. The IPT Bylaws also state that a
vacancy created by a Continuing Trustee for any reason must be filled
only with an individual nominated by a majority of the Continuing
Trustees. In the Merger Agreement, AIMCO agreed to vote its IPT Common
Shares for a Continuing Trustee (or his successor) at any election of
trustees prior to the consummation of the Merger and for two years after
the termination of the Merger Agreement. To ensure that IPT could regain
control of the IPT Board upon a termination of the Merger Agreement other
than by reason of a higher-value offer, each AIMCO-nominated Trustee
executed and delivered to IPT an undated resignation so that he can be
removed without requiring action on the part of the IPT Board. Based upon
the safeguards described above, the IPT Board believed that the Merger
Agreement and the IPT Bylaws provided adequate protection for IPT and its
shareholders until the Merger is consummated or if the Merger Agreement
is terminated.
- Integration of Businesses. There can be no assurance that AIMCO can
successfully integrate the IPT or IFG businesses with its own business.
Failure to do so may
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have a material adverse effect on AIMCO's results of operations and the
market value of its securities. However, AIMCO has integrated other
acquired businesses in a manner which appears to have benefitted AIMCO
and its stockholders.
- Interests of Trustees and Officers. Four former executive officers of IPT
have received or will receive cash payments and certain other benefits
from IPT in connection with the Merger, and certain trustees will be
parties to consulting agreements with AIMCO and receive special treatment
of restricted IPT Common Shares held by them in the Merger. See "Special
Factors -- Interests of Trustees and Management of IPT in the Merger."
Notwithstanding these interests, the IPT Board determined that the Merger
was in the best interests of IPT.
The foregoing discussion of the factors considered by the IPT Board (prior
to the election of AIMCO-nominated trustees) is not intended to be exhaustive,
but includes all material factors considered by the IPT Board. In light of the
variety of factors considered in connection with its evaluation of the Merger,
the IPT Board did not find it practicable to, and therefore did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination and did not try to reach a consensus as to the appropriate
analysis of each factor. In addition, different members of the IPT Board may
have given different weights to different factors and have analyzed each factor
differently.
AIMCO'S REASONS FOR THE MERGER
AIMCO believes the terms of the Merger are fair to the IPT shareholders not
affiliated with AIMCO or its affiliates (the "Minority Holders") for the reasons
stated by the IPT Board (prior to the election of AIMCO-nominated trustees).
AIMCO believes that the terms of the Merger are procedurally fair because they
were negotiated on an arm's length basis with (1) IFG, as to the initial $13.25
per IPT Common Share price and (2) the IPT Board (which was then unaffiliated
with AIMCO) as to the final terms of the Merger Agreement. AIMCO also believes
that the terms of the Merger are substantially fair because of the reasons set
forth in the description of the Lehman Opinion which AIMCO adopts, as set forth
above. AIMCO structured its acquisition of IPT as a merger under Maryland law
because (x) the Merger was the structure provided for in the IFG Merger
Agreement and (y) the Merger provides certainty in eliminating Minority Holders
who could attempt to hold-out in a tender offer or other voluntary exchange.
The shares of AIMCO Common Stock which may be issued as consideration in
the Merger will be newly issued and not treasury shares. AIMCO has not yet
determined the extent to which it will pay cash as consideration in the Merger,
except as required by the Merger Agreement. The decision as to the exercise of
AIMCO's option will be made based upon financial market conditions preceding the
special meeting; however, AIMCO anticipates that any cash paid as consideration
in the Merger will be borrowed from existing credit facilities with financial
institution lenders. A press release will be issued by IPT announcing the
portion of cash AIMCO determines to pay as part of the merger consideration at
least 10-trading days prior to completion of the Merger.
OPINION OF FINANCIAL ADVISOR TO THE IPT BOARD
Lehman Brothers has acted as financial adviser to the IPT Board in
connection with the Merger.
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As part of its role as financial adviser to IPT, on October 1, 1998, Lehman
Brothers delivered an oral opinion (confirmed in writing in an opinion dated the
same date) (the "Lehman Opinion") to the IPT Board to the effect that, as of
such date, from a financial point of view, the consideration to be received by
the holders of IPT Common Shares in the Merger (other than AIMCO and its
subsidiaries) is fair to such holders.
A copy of the Lehman Opinion is included at the back of this Information
Statement/Prospectus as Annex B. IPT Shareholders may read the Lehman Opinion in
its entirety for a discussion of the assumptions made, matters considered,
potential conflicts of interest and limitations on the review undertaken by
Lehman Brothers in rendering its opinion. The summary of the Lehman Opinion set
forth in this Information Statement/Prospectus is qualified in its entirety by
reference to the full text of the Lehman Opinion.
No limitations were imposed by IPT on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
the Lehman Opinion, except that IPT did not authorize Lehman Brothers to
solicit, and Lehman Brothers did not solicit, proposals from third parties with
respect to the purchase of all or a part of IPT's business. Lehman Brothers was
not requested to and did not make any recommendation to the IPT Board as to the
form or amount of the consideration to be offered to the holders of IPT Common
Shares in the Merger, which was determined through arm's-length negotiations
between IFG and AIMCO and between IPT (which was then unaffiliated with AIMCO)
and AIMCO. In arriving at its opinion, Lehman Brothers did not ascribe a
specific range of value to IPT, but rather made its determination as to the
fairness, from a financial point of view, of the consideration to be offered to
the holders of IPT Common Shares by AIMCO (the "IPT Consideration") on the basis
of the financial and comparative analysis described below. The Lehman Opinion is
for the use and benefit of the IPT Board and was rendered to the IPT Board in
connection with its consideration of the Merger. The Lehman Opinion is not
intended to be and does not constitute a recommendation of the merger
consideration to any shareholder of IPT. Lehman Brothers was not requested to
opine as to, and its opinion does not address, (1) IPT's underlying business
decision to proceed with or effect the Merger or (2) the fairness of the
allocation of the consideration between the consideration received by the
holders of IFG common stock in the spin-off of all the common stock of Holdings
and the IFG Merger (the "IFG Consideration") and the IPT Consideration to be
received by the holders of IPT Common Shares. Pursuant to Lehman Brothers'
opinion dated March 17, 1998, it has opined to the reasonableness of the
allocation between the IFG Consideration received by the holders of IFG common
stock and the IPT Consideration to be received by the holders of IPT Common
Shares.
In arriving at its October 1, 1998 opinion, Lehman Brothers reviewed and
analyzed: (1) a draft dated September 29, 1998 of the Merger Agreement and the
proposed terms of the Merger, (2) publicly available information concerning IPT
and AIMCO that Lehman Brothers believed to be relevant to its analysis,
including, without limitation, the Joint Proxy Statement/Prospectus relating to
the IFG Merger, (3) financial and operating information with respect to the
business, operations and prospects of IPT and AIMCO furnished to it by IPT and
AIMCO, respectively, (4) a trading history of the shares of AIMCO Common Stock
from January 1, 1996 to the date of the Lehman Opinion and a comparison of that
trading history with those of other companies that it deemed relevant,
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(5) a comparison of the historical financial results and present financial
condition of IPT with those of other companies that Lehman Brothers deemed
relevant, (6) a comparison of the historical financial results and present
financial condition of AIMCO with those of other companies that Lehman Brothers
deemed relevant, (7) a comparison of the financial terms of the Merger with the
financial terms of certain other recent transactions that Lehman Brothers deemed
relevant and (8) liquidation values of IPT's properties furnished to Lehman
Brothers by IPT. In addition, Lehman Brothers had discussions with the
management of each of IPT and AIMCO concerning their respective businesses,
operations, assets, financial conditions and prospects and undertook such other
studies, analyses and investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of managements of IPT and
AIMCO that they were not aware of any facts or circumstances that would make
such information inaccurate or misleading, in any material respect. With respect
to the financial projections of IPT and AIMCO, upon advice of IPT and AIMCO,
Lehman Brothers assumed that such projections were reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
managements of IPT and AIMCO, as the case may be, as to the future financial
performance of IPT and AIMCO, and that IPT and AIMCO will perform substantially
in accordance with such projections. In arriving at its opinion, Lehman Brothers
did not conduct a physical inspection of the properties and facilities of IPT or
AIMCO and did not make or obtain any evaluations or appraisals of the assets or
liabilities of IPT or AIMCO. In addition, IPT did not authorize Lehman Brothers
to solicit, and Lehman Brothers did not solicit, any indications of interest
from any third party with respect to the purchase of all or a part of IPT's
business. The Lehman Opinion necessarily is based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
the opinion.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial and comparative analysis
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its opinion, Lehman Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion of its analyses and
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the process underlying its opinion. In its analyses,
Lehman Brothers made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of IPT. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
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VALUATION OF IPT
Comparable Public Company Analysis
Lehman Brothers compared certain publicly available financial and operating
data and projected financial performance (based upon published research
analysts' estimates) of selected publicly traded REITs with similar financial
and operating data and projected financial performance to those of IPT (as
estimated by the management of IPT). The selected REITs reviewed in this
analysis (collectively, the "IPT Comparable Group") were AIMCO, Archstone
Communities, Avalon Bay Communities, Camden Property Trust, Equity Residential
Properties Trust ("Equity Residential"), Merry Land and Investment and United
Dominion Realty Trust. Lehman Brothers analyzed, among other things, the ratios
of equity market value per share to FFO per share. Lehman Brothers then compared
the results of its analyses for the IPT Comparable Group to the corresponding
results for IPT. Lehman Brothers calculations resulted in a range of equity
market values per share to projected 1999 FFO per share for the IPT Comparable
Group of 8.1x to 10.4x, with a mean of 9.5x, as compared to IPT at 11.6x (based
upon an assumed IPT value of $13.25 per IPT Common Share).
Because of the inherent differences between the businesses, operations and
prospects of IPT and the businesses, operations and prospects of the companies
included in the IPT Comparable Group, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly also made qualitative judgments concerning
differences between the financial and operating characteristics of IPT and the
companies in the IPT Comparable Group that would affect the public trading
values of IPT and such comparable companies.
Comparable Transaction Analysis
Lehman Brothers reviewed certain information regarding nine selected
pending or completed business combinations involving REITs owning primarily
apartment properties since 1994. Lehman Brothers reviewed the prices paid in
these transactions in terms of the equity value per share as a multiple of
projected 1999 FFO per share (based upon published research analysts' estimates)
and compared the multiples to the multiples of the financial results for IPT
implied by the IPT Consideration (assumed to be $13.25 per IPT Common Share)
payable pursuant to the Merger Agreement. The nine completed business
combinations reviewed in this analysis (collectively, the "IPT Transaction
Comparables") were: the acquisition of Security Capital Atlantic by Security
Capital Pacific; the acquisition of Evans Withycombe by Equity Residential; the
acquisition of Wellsford Residential by Equity Residential; the acquisition of
Columbus Realty Trust by Post Properties; the acquisition of Paragon Group by
Camden Property Trust; the acquisition of South West Property Trust by United
Dominion Realty Trust; the acquisition of REIT of California by BRE Properties;
the acquisition of Holly Residential by Wellsford Residential; and the pending
acquisition of Merry Land and Investment by Equity Residential. Lehman Brothers
analyzed multiples of projected 1999 FFO, derived from Lehman Brothers' analysis
of multiples of equity value per share to FFO per share for the IPT Transaction
Comparables, and applied such multiples to the projected 1999 FFO of IPT (as
projected by management of IPT). Lehman Brothers calculations resulted in a
range of equity market values per share to projected 1999 FFO per share of 9.6x
to 14.0x, with a mean of 11.9x, which implies a range of equity values of IPT of
$10.94 to $15.96 per IPT Common Share.
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Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of IPT
and the acquired businesses analyzed, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly, also made qualitative judgments concerning
differences between the characteristics of these transactions and the Merger
that would affect the acquisition values of IPT and such acquired companies.
Net Asset Value Analysis
Lehman Brothers calculated the net asset value of IPT's proportionate
interest in the real estate assets owned by IPT, adjusted for total debt
outstanding, to arrive at a range of equity values per IPT Common Share. The
analysis of IPT utilized projections provided by management of IPT. Lehman
Brothers calculated values of IPT's assets based on a range of capitalization
rates of 9.45% to 10.45% applied to projected 1998 net operating income for
IPT's real estate assets, plus an adjustment for the estimated value of
non-income producing property. This analysis indicated a range of imputed equity
values (defined as aggregate value minus debt) of IPT of $12.09 to $13.74 per
IPT Common Share.
VALUATION OF AIMCO
Comparable Public Company Analysis
Lehman Brothers compared certain publicly available financial and operating
data and projected financial performance (reflecting research analysts'
estimates) of selected publicly traded REITs with similar financial and
operating data and projected financial performance to those of AIMCO (as
estimated by the management of AIMCO). The selected REITs reviewed in this
analysis (collectively, the "AIMCO Comparable Group") were Archstone
Communities, Avalon Bay Communities, Camden Property Trust, Equity Residential,
Merry Land and Investment, and United Dominion Realty Trust. Lehman Brothers
analyzed, among other things, the ratios of equity market value per share to FFO
per share, as well as operating and financial performance data and the capital
structures of the AIMCO Comparable Group. Lehman Brothers then compared the
results of its analyses for the AIMCO Comparable Group to the corresponding
results for AIMCO. Lehman Brothers calculations resulted in the following
relevant ranges for the AIMCO Comparable Group and for AIMCO as of September 29,
1998: a range of equity market value per share to projected 1999 FFO per share
of 8.1x to 10.4x, with a mean of 9.1x (as compared to AIMCO at 9.4x); a range of
dividend yield of 5.4% to 8.7%, with a mean of 7.1% (as compared to AIMCO at
6.3%); a range of annualized dividends per share as a percentage of 1998
projected FFO per share of 60.0% to 69.6%, with a mean of 65.3% (as compared to
AIMCO at 56.8%); and a range of total debt as a percentage of total market
capitalization of 36.1% to 53.4%, with a mean of 42.7% (as compared to AIMCO at
40.8%).
Because of the inherent differences between the businesses, operations and
prospects of AIMCO and the businesses, operations and prospects of the companies
included in the AIMCO Comparable Group, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly also made qualitative judgments concerning
differences between the financial and operating
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characteristics of AIMCO and the companies in the AIMCO Comparable Group that
would affect the public trading values of AIMCO and such comparable companies.
Discounted Cash Flow Analysis
Lehman Brothers performed a discounted cash flow analysis of AIMCO to
arrive at a discounted cash flow valuation of AIMCO. Lehman Brothers utilized
estimates of projected financial performance prepared by AIMCO's management for
the year 1998 through the year 2002 based on assumptions provided by AIMCO's
management. Utilizing these projections, Lehman Brothers calculated a range of
values based upon (a) the sum of the discounted net present value of the
projected stream of cash flow for AIMCO to the year 2002, and (b) the projected
terminal value of AIMCO at that year based upon a range of multiples of
projected FFO. Lehman Brothers used a range of discount rates, selected in its
subjective judgment, of 15% to 17% and terminal multiples of FFO ranging from
9.0x to 11.0x. Using this methodology, the range of equity values of AIMCO was
calculated to be $33.09 to $39.97 per share of AIMCO Common Stock on a fully
diluted basis.
Net Asset Value Analysis
Lehman Brothers calculated the net asset value of the real estate assets
owned by AIMCO, as well as the value of the non-real estate franchise and
management businesses owned by AIMCO, and adjusted for total debt outstanding
and other liabilities to arrive at a range of equity values per share of AIMCO
Common Stock. The analysis of AIMCO utilized projections provided by management
of AIMCO Common Stock. Lehman Brothers calculated values of AIMCO's assets based
on a range of capitalization rates of 8.75% to 9.25% applied to projected
one-year-forward operating income for AIMCO's real estate assets, a range of
multiples of EBITDA of 8.0x to 12.0x applied to 1998 projected EBITDA for
AIMCO's management businesses, plus an adjustment for the estimated value of
non-income producing property. This analysis indicated a range of imputed equity
values (defined as aggregate value minus debt) of AIMCO of $30.67 to $34.92 per
share of AIMCO Common Stock on a fully-diluted basis.
Stock Trading Analysis
Lehman Brothers considered various historical data concerning the trading
prices for AIMCO Common Stock for the period from September 25, 1997 to
September 25, 1998. At September 25, 1998, the closing price of a share of AIMCO
Common Stock was $37.25. Lehman Brothers calculated the average closing share
price of shares of AIMCO Common Stock for following time periods leading up to
and ending with September 25, 1998: one week ($36.50), one month ($35.19), three
months ($37.51), six months ($37.79), and one year ($36.96).
Fees and Potential Conflicts
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The IPT Board selected Lehman
Brothers because of its expertise, reputation and familiarity with IPT in
particular
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and the real estate industry in general, and because its investment banking
professionals have substantial experience in transactions similar to the Merger.
As compensation for its services in connection with the Merger, IPT has
paid Lehman Brothers a fee of $750,000. IPT has also agreed to reimburse Lehman
Brothers for up to $25,000 of its reasonable expenses (including, without
limitation, professional and legal fees and disbursements) incurred in
connection with its engagement, and to indemnify Lehman Brothers and certain
related persons against certain liabilities in connection with its engagement,
including certain liabilities under Federal securities laws.
Lehman Brothers is currently a lender under IPT's credit facility,
Holdings' credit facility and AIMCO's interim credit facility. Lehman Brothers
also was a lender under a $300 million credit facility with IFG, which was
repaid at the time of the IFG Merger with the proceeds of AIMCO's interim credit
facility. At March 17, 1998 and October 1, 1998, the dates of opinions rendered
by Lehman Brothers to IFG and IPT, Lehman Brothers and an officer thereof own an
aggregate of 510,000 IPT Common Shares. Lehman Brothers has also performed
various investment banking services for IPT, IFG, Holdings and AIMCO in the
past, for which it has received customary fees. In the ordinary course of its
business, Lehman Brothers actively trades in the debt and equity securities of
IPT, Holdings, and AIMCO for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
these securities.
Copies of the Lehman Opinion are available for inspection and copying at
the principal executive office of IPT during its regular business hours by any
interested IPT shareholder or such holder's representative who has been
designated in writing.
CERTAIN PROJECTED FINANCIAL INFORMATION AND FORWARD-LOOKING STATEMENTS
IPT and AIMCO do not, as a matter of course, make public forecasts or
projections as to future revenues, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, in
connection with IFG's and AIMCO's review of a possible transaction between them,
IPT furnished AIMCO with certain projections (the "Projections") prepared by its
management and, therefore, the Projections are included herein.
The Projections were not prepared with a view toward public disclosure or
compliance with published guidelines of the Securities and Exchange Commission
(the "SEC") or the American Institute of Certified Public Accountants regarding
forward-looking information or GAAP. Neither IPT's independent auditors nor any
other independent accountants, have compiled, examined, or performed any
procedures with respect to the prospective financial information contained
herein, nor have they expressed any opinion or given any form of assurance on
such information or its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial information.
Furthermore, the Projections necessarily make numerous assumptions, some (but
not all) of which are set forth below and many of which are beyond the control
of IPT, and may prove not to have been, or may no longer be, accurate.
Additionally, this information, except as otherwise indicated, does not reflect
revised prospects for IPT's businesses, changes in general business and economic
conditions, or any other transaction or event that has occurred or that may
occur and that was not anticipated at the time such information was prepared.
Accordingly, such information is not necessarily indicative of current values or
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future performance, which may be significantly more favorable or less favorable
than as set forth below, and should not be regarded as a representation that
they will be achieved.
IPT shareholders should understand that the following important factors, in
addition to those discussed elsewhere herein and in the documents which are
incorporated by reference into this Information Statement/Prospectus, could
affect the future results of IPT and could cause results to differ materially
from those expressed in such forward-looking statements and the Projections: (i)
the effect of economic conditions; (ii) IPT's outstanding indebtedness and
leverage; (iii) restrictions imposed by the terms of IPT's indebtedness; (iv)
changes in rental revenue which are caused by changes in national and local
economic conditions, the demographic characteristics of IPT's markets and other
factors outside IPT's control; (v) the terms and results of tender offers made
by IPT; (vi) future capital requirements; (vii) the impact of competition in
each of IPT's markets; (viii) the loss of key employees; (ix) the impact of
litigation; and (x) other factors that may be described from time to time in
filings of IPT with the SEC.
The Projections included herein have been prepared by IPT based upon estimates
of the market for multifamily housing units and IPT's own performance through
2002, which IPT believed to be reasonable at the time they were made. The
Projections do not, and were not intended to, include the benefits of any
strategic transaction. The estimates which follow for 1998 were based upon
actual results through August 31, 1998 and management forecasts for the
remainder of the year. In the Projections IPT assumed that (1) rental revenues
would increase at an estimated average rate of 3% per year; (2) operating
expenses would increase at an estimated average rate of 3% per year; (3)
estimated monthly capital expenditures ("CapEx") would be equal to the average
between budgeted CapEx and actual CapEx incurred through August 31, 1998; (4)
estimated cash balances would earn interest at an estimated rate of 4%; (5)
estimated bank borrowings would bear interest at an estimated rate of 8.2%; (6)
the results of tender offers for limited partner interests in the IPT
Partnerships would add an estimated $5.3 million to FFO; (7) AMIT would add an
estimated $2.3 million to FFO; (8) general and administrative expenses would be
consistent with 1998 levels; and (9) the estimated aggregate cost of tender
offers made through 1999 would aggregate approximately $27.4 million. Based upon
the material assumptions set forth above and other matters, IPT projected 1999
FFO to be $1.14 per IPT Common Share.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND SHAREHOLDER VALUE OF IPT
MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY OF THE
FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND IPT'S ABILITY TO
CONTROL OR PREDICT. SHAREHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THE PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED
OR THAT IPT'S FUTURE FINANCIAL RESULTS WILL NOT MATERIALLY ADVERSELY VARY FROM
THE PROJECTIONS. IPT DOES NOT INTEND TO UPDATE OR REVISE THE PROJECTIONS.
The Projections set forth on page summarize certain of the information that
was prepared by IPT in September, 1998 and provided to Lehman Brothers in
connection with the Merger.
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INTERESTS OF TRUSTEES AND MANAGEMENT OF IPT IN THE MERGER
Certain current and former members of the IPT Board and executive officers
of IPT have interests in the transactions contemplated under the Merger
Agreement that may present them with potential conflicts of interest. The IPT
Board was aware of these potential conflicts at the time of its consideration of
the Merger. A summary of these potential conflicts of interest is provided
below.
In considering the recommendation of the IPT Board with respect to the
Merger, you should be aware that executive officers and trustees of IPT who
negotiated and approved the Merger Agreement may have interests that differ from
the interests of IPT shareholders generally. Messrs. James A. Aston, Andrew L.
Farkas, Frank M. Garrison and Ronald Uretta, former senior executive officers of
IFG, were members of the IPT Board at the time the Merger Agreement was
executed. Messrs. Aston, Farkas and Garrison are Continuing Trustees of IPT.
Messrs. Aston, Farkas, Garrison and Uretta also were senior executives of IFG at
the time the IFG Merger Agreement was executed.
Each of Messrs. Aston, Farkas, Garrison and Uretta have employment
agreements with Holdings which were executed in connection with the IFG Merger
and the distribution of Holdings common stock. Under these employment
agreements, as a result of the IFG Merger, they received an aggregate payment of
$ , which included lump sum payments and bonus payments equal to the
pro-rata portion of the 1997 bonus provided for in the employment agreements,
calculated from January 1, 1998 through October 1, 1998.
Upon completion of the IFG Merger, the existing employment agreements
between IFG and each of Messrs. Aston, Farkas, Garrison and Uretta were
converted into consulting and non-competition agreements, which were assumed by
AIMCO, with terms similar to the terms of the original agreements. The aggregate
present value of the payments under such consulting agreements was approximately
$4.9 million as of August 10, 1998 and was included as part of the debt and
other liabilities of IFG which became obligations of AIMCO upon completion of
the IFG Merger. Loans made by IFG to each of Messrs. Aston, Farkas, Garrison and
Uretta in the aggregate principal amount of $3 million with an interest rate of
6.5% per annum will be forgiven, over a five-year period beginning January 1,
1998, in consideration for covenants made by these individuals in their
consulting and non-competition agreements assumed by AIMCO.
In connection with Mr. Farkas' consulting agreement with AIMCO, AIMCO
agreed to make all payments under the lease for Mr. Farkas' office in New York,
New York through October 31, 1999. Mr. Farkas has exclusive use of the office
until such time.
In connection with the IFG Merger, Mr. Farkas, IFG, a trust for Mr. Farkas'
children and its trustees entered into an indemnification agreement. AIMCO (as
successor to IFG) has agreed to indemnify Mr. Farkas, the trust and the trustees
thereof for all losses that they may incur from third party claims or derivative
actions that may arise out of the execution, performance or failure to perform
certain agreements entered into by them in connection with the IFG Merger.
Since the IFG Merger on October 1, 1998, six of AIMCO's executive officers
have become members of the IPT Board and executive officers of IPT. While such
individuals owe fiduciary duties to IPT and its shareholders, they also owe the
same fiduciary duties to AIMCO and its stockholders. Thus, conflicts of
interests could develop.
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In connection with the execution of the Merger Agreement, IPT entered into
consulting agreements with each of Messrs. Aston, Farkas, Garrison and Uretta
pursuant to which each of these individuals agreed to become consultants to IPT
for a fee of $1,000 per month. These consulting agreements terminate on January
31, 2003.
Upon the execution of the Merger Agreement, an aggregate of 65,000
restricted IPT Common Shares granted to five current and former executive
officers of IPT became vested pursuant to retention agreements entered into with
such officer and IPT.
As part of the consideration received by IFG stockholders in the IFG
Merger, Messrs, Aston, Farkas, Garrison & Uretta received an aggregate of
shares of Class E Cumulative Convertible Preferred Stock of AIMCO.
As of December , 1998 Messrs. Aston, Farkas, Garrison and Uretta owned an
aggregate of IPT Common Shares.
Two former executive officers of IPT own options to purchase an aggregate
of 25,000 IPT Common Shares with an exercise price of $10.00 per share. Upon
consummation of the Merger, these options will be retired by IPT at a price
equal to the difference between the exercise price of such option and $13.25 per
share. IPT will pay an aggregate of $81,250 to retire such options.
Messrs. Aston, Farkas and Garrison, Continuing Trustees, and Mr. Uretta, a
former IPT trustee, own an aggregate of 450,000 restricted IPT Common Shares.
These restricted shares will convert into that number of restricted shares of
AIMCO Common Stock equal to $13.28 divided by the AIMCO Exchange Value,
regardless of whether AIMCO elects to pay all or a portion of the merger
consideration in cash. The terms and vesting of the restrict stock will not be
affected by the Merger.
CERTAIN EFFECTS OF THE MERGER; PLANS FOR IPT AFTER THE MERGER
Following the completion of the Merger, AIMCO will be the sole beneficiary
of any future earnings and growth of IPT's business and will have the ability to
benefit from any divestiture of IPT's business in the future. At the time of the
Merger, IPT's shareholders will cease to have any ownership interests in, or
rights as shareholders of, IPT. Following the Merger, assuming AIMCO consummates
the Merger using shares of AIMCO Common Stock as all or a portion of the merger
consideration, former IPT shareholders will, through their holding of shares of
AIMCO Common Stock, benefit from any increase in the value of AIMCO or any
payment of dividends on the AIMCO Common Stock and will bear the risk of any
decrease in the value of AIMCO.
As a result of the Merger, IPT will cease to exist and there will be no public
market for the IPT Common Shares. At the time of the Merger, IPT Common Shares
will cease to be quoted on the American Stock Exchange and price quotations with
respect to sales of IPT Common Shares in the public market will no longer be
available. In addition, registration of the IPT Common Shares under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will be
terminated. This termination will make certain provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section 16(b) and the
requirement under the proxy rules of Regulation 14A of furnishing a proxy or
information statement in connection with shareholders meetings, no longer
applicable to IPT. After the Merger, IPT will no longer be required to file
periodic reports with the SEC.
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The directors of AIMCO at the time of the Merger will be the directors of AIMCO
after the Merger and will hold office from the completion of the Merger until
the next annual meeting of the stockholders of AIMCO and until their successors
are elected or appointed and are duly qualified.
The officers of AIMCO at the time of the Merger shall be the officers of AIMCO
following the Merger and will hold office from the completion of the Merger
until their respective successors are duly elected or appointed and qualified in
the manner provided in the AIMCO charter and by-laws or as otherwise provided by
law.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material Federal income tax consequences of
the Merger to holders of IPT Common Shares. This summary is based on the Code,
regulations promulgated by the U.S. Treasury Department (the "Regulations"),
administrative rulings and pronouncements, and judicial decisions all as of the
date hereof and all of which are subject to change (possibly with retroactive
effect). This summary assumes that IPT shareholders hold their IPT Common Shares
as capital assets within the meaning of Section 1221 of the Code (generally,
property held for investment). This summary does not address all aspects of
Federal taxation that may be relevant to particular holders of IPT Common Shares
in light of their personal investment circumstances or to holders of IPT Common
Shares subject to special treatment under the Code (including financial
institutions, tax-exempt organizations, insurance companies, broker-dealers,
regulated investment companies, holders who received IPT Common Shares through
the exercise of employee stock options or otherwise as compensation, foreign
corporations, persons who are not citizens or residents of the United States and
persons holding IPT Common Shares as part of a "straddle," "hedge," "conversion
transaction," "synthetic security" or other integrated investment) who may be
subject to tax rules that differ significantly from those described below. This
summary also does not discuss any foreign, state or local tax consequences of
the Merger. HOLDERS OF IPT COMMON SHARES ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THEIR PARTICULAR TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND OF CHANGES IN
APPLICABLE TAX LAWS.
IPT will receive, prior to completion of the Merger, an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to AIMCO, to the effect that, for
Federal income tax purposes, the Merger will constitute a "reorganization"
within the meaning of section 368(a) of the Code and that each of AIMCO and IPT
will be a "party to the reorganization" within the meaning of section 368(b) of
the Code. The opinion of Skadden, Arps, Slate, Meagher & Flom LLP is based upon
certain assumptions and conditioned upon representations and covenants made by
AIMCO and IPT (which representations and covenants will be reconfirmed prior to
the consummation of the Merger). An opinion of counsel is not binding on the IRS
or the courts, and no assurance can be given that the IRS will not challenge the
tax treatment of the Merger.
Stock Consideration Received in the Merger
Provided the Merger qualifies as a reorganization within the meaning of
section 368(a) of the Code: (i) no gain or loss will be recognized by IPT
shareholders on the receipt of shares of AIMCO Common Stock in the Merger; (ii)
the holding period of the AIMCO Common Stock received by IPT shareholders in the
Merger will include the
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holding period of the IPT Common Shares surrendered in exchange therefor,
provided such IPT Common Shares were held as a capital asset at the consummation
of the Merger; and (iii) the tax basis of the shares of AIMCO Common Stock
received by IPT shareholders in the Merger will be the same as the tax basis of
the IPT Common Shares exchanged therefor, increased by any gain recognized and
reduced by any cash received in the Merger.
Cash Consideration Received in the Merger.
If AIMCO elects to pay cash consideration in the Merger, each IPT shareholder
must recognize, for Federal income tax purposes, its gain realized on the
Merger, but only to the extent of the cash received. The amount of gain, if any,
realized by an IPT shareholder in the Merger would be the difference between the
IPT shareholder's tax basis in the IPT Common Shares exchanged and the cash and
fair market value of the AIMCO Common Stock received in the Merger. The receipt
of cash will not, however, permit an IPT shareholder to recognize any loss that
may be realized on the Merger.
Cash Received for Fractional Shares.
Cash received by an IPT shareholder in lieu of a fractional share of AIMCO
Common Stock will be treated, for Federal income tax purposes, as if such
fractional share was actually received and then redeemed for cash and, in
general, gain or loss will be recognized measured by the difference between the
amount of cash received for such fractional share and the basis of the IPT
Common Shares allocable to such fractional share. In general, such gain or loss
will constitute capital gain or loss if the IPT Common Shares were held as
capital assets at the consummation of the Merger.
IPT Dividends.
IPT dividend distributions made prior to the consummation of the Merger will be
subject to tax as ordinary income to the extent of IPT's earnings and profits
(unless and to the extent designated by IPT as capital gain income) and will not
be eligible for the dividends received deduction ordinarily available to
corporations. To the extent such distributions are in excess of IPT's earnings
and profits, they will not be taxable to a holder of IPT Common Shares, but
rather will reduce such holder's adjusted tax basis in his or her shares. To the
extent such distributions exceed the adjusted tax basis in a holder's shares,
they will be included in such holder's taxable income as long-term capital gain
(or short term capital gain if the shares have been held for one year or less).
IPT may pay extraordinary dividend distributions prior to the consummation of
the Merger to the extent necessary for IPT to qualify as a REIT.
Maximum Tax Rates.
The maximum individual Federal income tax rate (which applies to ordinary income
and gains from the sale or exchange of capital assets held for one year or less)
is 39.6%. The maximum individual Federal income tax rate on gains from the sale
of capital assets held for more than one year is 20%. The maximum corporate
Federal income tax rate (which applies to ordinary income and capital gains) is
35%.
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ACCOUNTING TREATMENT
The Merger will be accounted for by AIMCO under the "purchase" method of
accounting, in accordance with GAAP. After the Merger, the results of operations
of IPT will be included in the consolidated financial statements of AIMCO. The
purchase price will be allocated based on the fair values, at the Effective
Time, of the assets acquired and liabilities assumed. Such allocations will be
made based upon valuations and other studies that have not yet been finalized.
Inasmuch as IPT will be merged into AIMCO, it is not practicable to state the
effect of the Merger on IPT's net book value and net earnings.
NO APPRAISAL RIGHTS
Under Maryland law, objecting shareholders of a Maryland REIT that is party to a
merger cannot demand fair value if their shares are bound by the terms of the
merger, and if the shares are listed on a national securities exchange on the
record date for determining shareholders entitled to vote on the merger. Because
the IPT Common Shares are listed on the American Stock Exchange, the holders of
IPT Common Shares will not have objecting shareholders' rights to fair value in
connection with the Merger. [The Maryland Statutes Annotated] [Maryland Law]
does not provide IPT shareholders with additional rights [in lieu of appraisal
rights] [other than remedies for breaches of fiduciary duties.]
REGULATORY MATTERS
Pursuant to the 2530 Procedure of HUD, an entity seeking to become a direct or
indirect 10% or greater stockholder in the owner of a apartment property
assisted or insured by HUD must receive clearance to do so from HUD (a "2530
Approval"). AIMCO's acquisition of a 10 percent or greater interest in IPT may
be subject to the 2530 Approval process.
SECTION 3-602 OF THE MGCL
Section 3-602 of the MGCL prohibits business combination transactions involving
a Maryland corporation (which is defined to include a Maryland REIT such as IPT)
and an "interested stockholder" (defined generally as any person, or affiliate
thereof, that directly or indirectly beneficially owns 10% or more of the
outstanding voting stock of the subject corporation) for five years following
the date such person became an interested stockholder, unless special
requirements are met or certain exceptions apply. An exception applies if the
business combination is exempted from the requirements of Section 3-602 of the
MGCL by a resolution adopted by such corporation's board of directors prior to
the date on which the interested stockholder became such. The IPT Board passed
such a resolution on October 1, 1998, before the execution of the IFG Merger
Agreement, to exempt any subsequent business combination between IPT and AIMCO.
Thus, the Merger is not prohibited by Section 3-602 of the MGCL.
STOCK EXCHANGE LISTING
Application will be made to have the shares of AIMCO Common Stock which may be
issued to IPT shareholders in connection with the Merger approved for listing on
the NYSE.
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TRANSACTION COSTS
The following table sets forth an estimate of the expected out of pocket costs
of incurred in connection with the Merger. Each of IPT and AIMCO will pay their
respective costs out of available cash on hand.
<TABLE>
<CAPTION>
IPT AIMCO
---------- ----------
<S> <C> <C>
Investment banking fees and expenses............ $ 750,000 $ --
Legal fees and expenses......................... 400,000 750,000
Accounting fees and expenses.................... 100,000 150,000
Printing........................................ 500,000 500,000
SEC and NYSE filing fees........................ -- 100,000
Miscellaneous................................... 50,000 50,000
---------- ----------
$1,700,000 $1,550,000
========== ==========
</TABLE>
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of AIMCO Common Stock issuable in the Merger will be freely
transferable, except that shares issued to any person who was a shareholder of
IPT who may be deemed to be an "affiliate" (as defined under the Securities Act,
of 1933, as amended (the "Securities Act"), and which generally includes,
without limitation, directors, certain executive officers and beneficial owners
of 10% or more of a class of capital stock) of IPT for purposes of Rule 145
under the Securities Act may be resold by them only in transactions permitted by
the resale provisions of Rule 145 or as otherwise permitted under the Securities
Act.
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THE MERGER AGREEMENT AND TERMS OF THE MERGER
The following is a brief summary of certain provisions of the Merger
Agreement. A copy of the Merger Agreement is included at the back of this
Information Statement/ Prospectus as Annex A. This summary does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement. We urge all shareholders to read the Merger Agreement in its entirety
for a complete description of the terms of the Merger.
THE MERGER
The Merger Agreement provides for the merger of IPT into AIMCO in
accordance with the laws of the State of Maryland following the approval of the
Merger by the shareholders of IPT ("IPT Shareholders") and the satisfaction or
waiver of the other conditions to the Merger. AIMCO will be the surviving entity
in the Merger and will continue its existence under the laws of the State of
Maryland.
CLOSING DATE; EFFECTIVE TIME
On the date on which the Merger is completed (the "Closing Date"), AIMCO
and IPT will execute articles of merger and file them with the State Department
of Assessments and Taxation of the State of Maryland pursuant to the MGCL and
the Annotated Code of Maryland ("MCAA"). The Merger will become effective upon
the acceptance of the articles of merger by the State Department of Assessments
and Taxation of the State of Maryland (the "Effective Time").
CHARTER, BYLAWS AND DIRECTORS AND OFFICERS
At the Effective Time: (i) the charter of AIMCO (the "AIMCO Charter"), as
in effect immediately prior to the Effective Time, will be the charter of the
surviving entity until thereafter amended as provided by law and the AIMCO
Charter; (ii) the bylaws of AIMCO, as in effect immediately prior to the
Effective Time, will be the bylaws of the surviving entity until thereafter
amended as provided by law, the AIMCO Charter and such bylaws; and (iii) the
directors and officers of AIMCO immediately prior to the Effective Time will be
the directors and officers of the surviving entity until their respective
successors are duly elected and qualified. The additional effects of the Merger
will be as provided in the applicable provisions of the MGCL and the MCAA.
THE CLOSING
The completion of the Merger (the "Closing") will take place on the
business day on which all of the conditions set forth in the Merger Agreement
are either fulfilled or waived (expected to be the date of the special meeting),
provided that all such conditions continue to be so satisfied or waived on such
day. If the conditions are not satisfied or waived on such day, the Closing will
be automatically extended until the first day on which all such conditions are
again so satisfied or waived, subject, however, to the provisions relating to
termination of the Merger Agreement described below. The Closing may take place
at such other time, date and place as AIMCO and IPT mutually agree.
MANNER AND BASIS OF CONVERTING IPT COMMON SHARES
As of the Effective Time, by virtue of the Merger and without any action on
the part of any IPT Shareholder, all issued and outstanding IPT Common Shares,
other than
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unvested restricted IPT Common Shares and IPT Common Shares owned directly or
indirectly by AIMCO, will be converted into and become the right to receive
AIMCO Common Stock or cash or a combination of both. The amount and composition
of such consideration will depend upon when the Effective Time occurs, the
election made by AIMCO of the percentage of the consideration for each IPT
Common Share to be paid in cash (the "Cash Percentage"), the AIMCO Exchange
Value and the amount and timing of the cash distributions IPT makes on the IPT
Common Shares. If the Effective Time occurs on or after March 1, 1999, the Cash
Percentage will be zero.
(1) Regardless of when the Effective Time occurs, each IPT Common Share
will be converted into and become the right to receive cash equal to $13.25
multiplied by the Cash Percentage and the number of shares of AIMCO Common Stock
equal to the Conversion Ratio (as defined below) multiplied by the Stock
Percentage. The Conversion Ratio is equal to $13.28 divided by the AIMCO
Exchange Value (a NYSE trading price driven average). The Stock Percentage is
100% minus the Cash Percentage.
(2) In addition, regardless of when the Effective Time occurs, each IPT
Common Share will be converted into and become the right to receive an amount in
cash equal to the IPT Distribution Amount (as defined below), multiplied by the
number of days that have elapsed from and including the day immediately
following the record date for the last regular quarterly distribution declared
by IPT through and including the date immediately preceding the Closing Date,
and divided by 91. "IPT Distribution Amount" means, as of any date of
determination, (a) $0.16 during the period from the date of the Merger Agreement
through and including February 28, 1999, and (b) thereafter, the greater of (i)
$0.16 and (ii) the amount determined by dividing $13.28 by the AIMCO Collar
Price (as defined below) and multiplying the result by the per share amount of
the corresponding distribution declared by AIMCO in respect of AIMCO Common
Stock. The "AIMCO Collar Price" means the average price of a share of AIMCO
Common Stock during the 10-NYSE trading day period ending on (and including)
December 31, 1998.
(3) In addition to the stock and cash determined in (1) and (2) above, each
IPT Common Share will be converted into and become the right to receive one of
the following amounts of additional cash, depending on the date of the Effective
Time:
(a) If the Effective Time occurs on or prior to December 31, 1998, an
amount equal to the Cash Percentage multiplied by the difference between
(x) the Distribution Shortfall Amount (as defined below), minus (y) the
Excess Distribution Amount (as defined below). "Distribution Shortfall
Amount" means the aggregate per-IPT Common Share amount of the
distributions required to be paid by IPT pursuant to the Merger Agreement
but which IPT fails to make, plus a return on the amount of each such
unpaid distribution at an annual rate of the lesser of 20% or the maximum
rate permitted by law. "Excess Distribution Amount" means the per-IPT
Common Share aggregate amount of any special distribution necessary to
cover any insufficiencies in the ordinary distributions paid by IPT
pursuant to the Merger Agreement.
(b) If the Effective Time occurs between January 1, 1999 and January 31,
1999, an amount equal to the Cash Percentage multiplied by the sum of (x)
$0.0018, multiplied by the number of days that has elapsed from and
including January 1, 1999 through and including the day immediately
preceding the Closing Date, plus (y) the Distribution Shortfall Amount,
minus (z) the Excess Distribution Amount.
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(iii) If the Effective Time occurs between February 1, 1999 and February
28, 1999, an amount equal to the Cash Percentage multiplied by the sum of
(x) $0.0036 multiplied by the number of days that has elapsed from and
including January 1, 1999 through and including the day immediately
preceding the Closing Date, plus (y) the Distribution Shortfall Amount,
minus (z) the Excess Distribution Amount.
(iv) If the Effective Time occurs on or after March 1, 1999, zero.
No fractional shares of AIMCO Common Stock will be issued in connection with
the Merger. Any IPT Shareholder who would otherwise be entitled to any
fractional shares of AIMCO Common Stock will instead be entitled to receive a
cash payment equal to such shareholder's proportionate interest in a share of
AIMCO Common Stock multiplied by the AIMCO Reference Price as of the Effective
Time. "AIMCO Reference Price" means the average price of a share of AIMCO Common
Stock during the 10-NYSE trading day period commencing on and including the
tenth NYSE trading day preceding the date of the special meeting and ending on
and including the NYSE trading day immediately preceding the date of the special
meeting.
All IPT Common Shares, when converted, will automatically be canceled. Each
holder of a certificate that, immediately prior to the Effective Time,
represented any such IPT Common Share, when such IPT Common Share is converted,
will cease to have any rights with respect thereto, except the right to receive,
upon the surrender of such certificate, (i) a certificate or certificates
representing the number of whole shares of AIMCO Common Stock, if any, to which
such holder is entitled pursuant to the Merger Agreement, (ii) cash to which
such holder is entitled pursuant to the Merger Agreement, (iii) any cash in lieu
of fractional shares to be issued or paid in consideration therefor, and (iv)
any dividends or distributions to which such holder is entitled.
At the Effective Time, each unvested restricted IPT Common Share will be
assumed by AIMCO and converted into that number of restricted shares of AIMCO
Common Stock equal to $13.28 divided by the AIMCO Exchange Value and will
continue to be subject to substantially the same terms and conditions in effect
immediately prior to the Effective Time. AIMCO will cause such shares of AIMCO
Common Stock to be covered by an effective registration statement, and will use
its reasonable best efforts to maintain the effectiveness of such registration
statement (and maintain the current status of the prospectus contained in the
registration statement) for so long as the restricted shares remain outstanding.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties by both of the parties. Each of AIMCO and IPT has made certain
representations and warranties to the other regarding, among other things, (a)
organization and qualifications; (b) capitalization; (c) authority to enter into
the Merger Agreement and to consummate the transactions contemplated by the
Merger Agreement; (d) compliance of the transactions contemplated by the Merger
Agreement with its charter and bylaws; (e) tax matters; (f) brokers fees; and
(g) absence of inducement in entering into the Merger Agreement by any
representations, warranties or statements not set forth or referred to in the
Merger Agreement.
The Merger Agreement also contains representations by each party,
individually. AIMCO has made certain representations and warranties as to: (a)
required filings and
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approvals; (b) the accuracy and completeness of its filings with the SEC, as
required under the Exchange Act; (c) absence of conflicts with agreements, laws
and constituent documents caused by the Merger Agreement or the transactions
contemplated by the Merger Agreement; (d) the absence of certain material
adverse changes or events; and (e) the information provided for inclusion in
this Information Statement/Prospectus and the registration statement of which it
is a part. IPT has made certain representations and warranties regarding: (a)
IPLP; (b) its earnings and profits; (c) the shareholder vote required; (d) the
AMIT Merger; and (e) its receipt of the Lehman Opinion.
CERTAIN COVENANTS
IPT and IPLP Distributions
IPT agreed that it will, and will cause IPLP to, continue to make regular
quarterly distributions to IPT shareholders, as follows: after October 15, 1998
(the last payment date for IPT's regular quarterly distribution), IPT is
required to declare and pay quarterly distributions with record dates and
payment dates which are the same as the record dates and payment dates for
regular quarterly distributions paid by AIMCO in respect of the AIMCO Common
Stock, in each case at the then current IPT Distribution Amount (as defined
above in "Manner and Basis of Converting IPT Common Shares") determined as of
the applicable record date. However, with respect to the next distribution
required to be declared and paid by IPT, the per-IPT Common Share amount of such
distribution will be an amount equal to the otherwise applicable IPT
Distribution Amount multiplied by the number of days that have elapsed from and
including December 23, 1998 through and including the record date for such
distribution, divided by 91.
IPT also agreed that if the Effective Time has not occurred on or before
February 28, 1999 and if at any time thereafter AIMCO declares any distribution
on the AIMCO Common Stock other than a regular quarterly distribution, with a
record date for such distribution prior to the date of the Effective Time (a
"Special AIMCO Distribution"), IPT will promptly declare and pay a corresponding
distribution in an amount equal to the amount of such Special AIMCO
Distribution, multiplied by $13.28, divided by the AIMCO Collar Price.
IPT also agreed that to the extent that IPT reasonably determines that the
distributions paid by IPT pursuant to the Merger Agreement are not sufficient
for IPT to meet the distribution requirements applicable to REITs for its
taxable year ended on the Closing Date, IPT will, prior to the Effective Time,
pay one or more special distributions in respect of the IPT Common Shares in an
aggregate amount equal to the amount of such shortfall.
Finally, AIMCO agreed that it will use its best efforts to cause IPT to
timely declare and pay the distributions IPT is required to make pursuant to the
Merger Agreement.
Registration Statement, Information Statement/Prospectus and Schedule 13E-3
AIMCO and IPT agreed to prepare and file with the SEC a combined
information statement and prospectus to be distributed in connection with the
Merger and the transactions contemplated by the Merger Agreement and a
transaction statement on Schedule 13E-3. AIMCO also agreed to prepare and file
with the SEC a registration statement in connection with the issuance of AIMCO
Common Stock pursuant to the Merger, in which the information
statement/prospectus will be included as a prospectus.
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Each party will also take action to cause the shares of AIMCO Common Stock
covered by the registration statement to be approved for listing on the NYSE as
of the Effective Time. Each party will also take action to cause the shares of
AIMCO Common Stock issuable in connection with the Merger to be registered or to
obtain an exemption from registration under applicable state "blue sky" or
securities laws.
Shareholder Approval
The Merger Agreement required IPT to take all steps necessary to duly call
and hold a meeting of the IPT shareholders for the purpose of voting on the
Merger as soon as practicable after the execution of the Merger Agreement. IPT
further agreed that the IPT Board, acting upon the recommendation of a majority
of the Continuing Trustees, unless otherwise required by its fiduciary duties to
IPT Shareholders, will recommend to such shareholders the approval of the
Merger, the Merger Agreement and the transactions contemplated by the Merger
Agreement, and will cooperate and consult with AIMCO with respect to each of the
foregoing matters. IPT and the Continuing Trustees may nonetheless take and
disclose to IPT shareholders a position contemplated by Rule 14e-2 promulgated
under the Exchange Act if required to do so by the Exchange Act, comply with
Rule 14d-9, also promulgated under the Exchange Act, and make all other
disclosures required by applicable law.
Vote of IPT Common Shares Owned by AIMCO
AIMCO agreed to vote all IPT Common Shares owned of record by it and its
subsidiaries, for approval of the Merger Agreement and the transactions
contemplated thereby. AIMCO has executed a proxy in favor of Messrs. Aston,
Farkas and Garrison (the "Proxyholders") to vote all such IPT Common Shares in
favor of the Merger. AIMCO further agreed that, with some exceptions, through
the Effective Time it will not (i) sell, transfer or otherwise dispose of any
IPT Common Shares owned by it or any of its subsidiaries, (ii) cause or permit
IPT to issue additional IPT Common Shares to any other person or take any other
action which could have the effect of reducing the proportion of IPT Common
Shares owned by AIMCO and its subsidiaries that are entitled to vote on the
Merger Agreement and the transactions contemplated thereby, or (iii) grant any
proxies with respect to such shares.
Public Announcements
AIMCO and IPT agreed in the Merger Agreement that, subject to their
respective disclosure obligations, each will cooperate with the other in the
development and distribution of all public announcements with respect to the
Merger Agreement or any of the transactions contemplated thereby and will not
issue any such public announcement or statement without the consent of the other
party. AIMCO and IPT each agreed not to unreasonably withhold such consent.
Expenses
Each party to the Merger agreed that all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses.
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Opinion of Counsel
AIMCO agreed to retain legal counsel within 30 days from the date of the
Merger Agreement to provide the form of opinion required by the Merger
Agreement.
Transfer Taxes
Both parties to the Merger Agreement agreed to cooperate in the
preparation, execution and filing of all documents regarding the real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees or similar taxes
which become payable in connection with the transactions contemplated by the
Merger Agreement that are required to be filed on or before the Closing Date.
IPT Trustees and Officers
IPT agreed that it would cause two members of the IPT Board to resign their
trusteeships and would increase the size of the IPT Board to eleven persons and
cause each of the trustee candidates designated by AIMCO (together with their
successors, the "AIMCO-nominated Trustees") to be elected as a trustee of IPT.
IPT also agreed to cause the officer candidates designated by AIMCO to be
appointed to their respective positions. IPT agreed to establish a committee of
the IPT Board, consisting solely of certain AIMCO-nominated Trustees, authorized
and empowered to act to the extent set forth in the bylaws of IPT, and to
recognize that the Continuing Trustees of the IPT Board are authorized and
empowered to act to the extent set forth in the IPT Bylaws. In addition, IPT
established an executive committee of the IPT Board, consisting solely of four
AIMCO-nominated Trustees to act to the extent set forth in the IPT Bylaws. The
committees referred to in the preceding sentences will not be dissolved prior to
the earlier of the Effective Time or the termination of the Merger Agreement.
The powers of the Continuing Trustees may not be modified prior to the earlier
of the Effective Time or the termination of the Merger Agreement without the
consent of a majority of the Continuing Trustees.
If, after the date of the Merger Agreement and prior to the Effective Time,
any IPT Shareholder vote is taken for the election of a trustee to any position
on the IPT Board currently occupied by any of the Continuing Trustees or by
their successors duly elected under the Merger Agreement, AIMCO is required to
vote its IPT Common Shares for the reelection of each such Continuing Trustee or
for the election of such Continuing Trustee's successor designated by a majority
of the Continuing Trustees. If, after the date of the Merger Agreement and prior
to the Effective Time, any vacancy on the IPT Board arises with respect to a
trustee position occupied by a Continuing Trustee, AIMCO is required to cause
the AIMCO-nominated Trustees to vote to fill such vacancy by electing a person
nominated by a majority of the Continuing Trustees. Without the approval of a
majority of the Continuing Trustees, AIMCO will not, and will not permit any
AIMCO-nominated Trustee to, remove a Continuing Trustee as a trustee of the IPT
Board or amend IPT's IPT Declaration unless such amendment shall have been
approved by a majority of the Continuing Trustees.
After the date of the Merger Agreement and prior to the earlier of the
Effective Time or the termination of the Merger Agreement, without the prior
written consent of a majority of the Continuing Trustees, IPT may not terminate
(x) its independent auditors,
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(y) Lehman Brothers from serving as its financial advisor with respect to the
Merger, or (z) Proskauer Rose LLP, Miles & Stockbridge P.C., Rogers & Wells LLP
or Akin, Gump, Strauss, Hauer & Feld LLP from serving as its legal counsel with
respect to the Merger.
The parties agreed that Jeffrey P. Cohen will remain as Secretary of IPT,
and in such capacity will be invited and entitled to attend all meetings of the
IPT Board and each committee of the IPT Board. If Mr. Cohen ceases to serve as
Secretary of IPT for any reason, another individual nominated by a majority of
the Continuing Trustees will be appointed to such position and be invited and
entitled to attend such meetings.
Modification of Form of Transaction
The Merger Agreement provides that, upon the earlier to occur of (i)
December 31, 2000 or (ii) such time (if ever) as any law is adopted or issued
after the date of the Merger Agreement which has the effect of prohibiting the
Merger, or any court of competent jurisdiction in the United States shall have
prohibited the Merger, IPT, acting through the Continuing Trustees, and AIMCO
will use their best efforts to restructure the form of the transaction to one
which has an improved chance of completion and can be accomplished without
materially changing either the consideration to be received by IPT Shareholders
or the tax or other economic consequences of the transaction to AIMCO and its
subsidiaries. Pending a definitive agreement between IPT and AIMCO providing for
such a restructured transaction, AIMCO and IPT will continue to be obligated to
pursue the consummation of the Merger on the terms contemplated by the Merger
Agreement until such time, if ever, as the Merger Agreement is terminated
pursuant to the provisions of the Merger Agreement.
Indemnification
AIMCO agreed to indemnify each person who is a trustee or officer of IPT,
any person succeeding to their position prior to the Closing Date, and their
respective successors and heirs (each, an "Indemnitee") against all losses and
expenses that result from the fact that he is, was or is to be a trustee,
officer or employee of IPT. However, no Indemnitee will be entitled to be
indemnified with respect to any loss found to have been incurred by reason of
such Indemnitee's wilful misconduct or with respect to attorney's fees and
expenses which are not reasonable. In the event of such a finding, any funds
advanced to such Indemnitee pursuant to the Merger Agreement and which are not
found to be within the provision of the previous sentence shall be returned by
such Indemnitee promptly to AIMCO. The indemnification provisions will survive
the consummation of the Merger and termination of the Merger Agreement.
Insurance
AIMCO and IPT agreed that after the date of the Merger Agreement, and until
the Effective Time, IPT will maintain, and AIMCO will use its best efforts to
cause IPT to maintain, directors', trustees' and officers' liability insurance
covering the existing and Continuing Trustees, directors and officers of IPT and
its subsidiaries which is no less favorable than the insurance coverage which is
in effect and covering such trustees, directors and officers on the date of the
Merger Agreement. AIMCO further agreed that
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following the Effective Time, the surviving entity will maintain such insurance
covering such persons.
Conduct of IPT's Business Pending the Effective Time
IPT and AIMCO agreed that from the date of the Merger Agreement until the
Effective Time: (i) IPT will use its best efforts to maintain its listing on the
American Stock Exchange; (ii) none of any entity controlled by IPT, other than
IPLP or any wholly-owned subsidiary of IPT or IPLP (a "Controlled IPT Entity"),
IPT or IPLP will loan money to AIMCO or any entity controlled by AIMCO (a
"Controlled AIMCO Entity"); (iii) neither IPT nor IPLP will reclassify any of
their respective equity securities or other interests or issue or authorize or
propose the issuance of any other securities or interests in respect of, in lieu
or, or in substitution for, their respective equity securities or other
interests; (iv) neither IPT nor AIMCO will cause the IPLP Limited Partnership
Agreement to be amended, except with the prior consent of a majority of the
Continuing Trustees, provided that IPLP may admit Additional Limited Partners
(as defined in the IPLP Limited Partnership Agreement) other than AIMCO or its
affiliates to IPLP without such consent; (v) during such time as AIMCO controls
(as such term is defined in the rules and regulations promulgated under Rule
12b-2 of the Exchange Act) IPT, neither IPT nor AIMCO will cause IPT to make
payments to AIMCO or any of its subsidiaries under certain sections of the IPLP
Limited Partnership Agreement arising from the termination of certain duties of
AIMCO; (vi) IPT will duly and timely file all reports and other documents
required to be filed pursuant to the Securities Act, the Exchange Act and the
rules and regulations set forth under those laws; (vii) IPT will follow the same
general policy as AIMCO in releasing and drafting its future press releases and
such releases will include the AIMCO Collar Price (if determinable) and, if
applicable, the future date through which AIMCO may elect to pay cash; (viii)
AIMCO will not, nor will AIMCO permit any of its subsidiaries to, willfully take
any action that would make the Merger impossible to be consummated or would
result in a material breach of any provision of the Merger Agreement or in any
of its material representations and warranties set forth in the Merger Agreement
being untrue on and as of the Closing Date, provided, however, that AIMCO and
its subsidiaries (other than IPT) may issue securities, acquire securities or
assets and otherwise act in the ordinary course of their business; (ix) all
transactions between IPT, IPLP or any Controlled IPT Entity, on the one hand,
and AIMCO or any Controlled AIMCO Entity, on the other hand, will be on arms'
length terms; (x) IPT will not increase its annual general and administrative
expenses in excess of an annual increase based on the Consumer Price Index; and
(xi) neither AIMCO nor any of its affiliates (as defined in Rule 12b-2 of the
Exchange Act), directly or indirectly, will bid for, purchase or attempt to
induce any person to bid for or purchase AIMCO Common Stock except in compliance
with Regulation M and, treating the purchasing entity as the "issuer," Rule
10b-18 under the Exchange Act (a) from the fifth business day prior to the first
day of the period in which the AIMCO Collar Price is determined until the last
day of the period in which the AIMCO Collar Price is determined or (b) from the
fifth business day prior to the first day of the period in which the AIMCO
Reference Price (as defined below) is determined until the last day of the
period on which the AIMCO Reference Price is determined. AIMCO will report the
volume, dates and prices of such purchases to the Secretary of IPT weekly.
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Messrs. Aston, Farkas, Garrison and Uretta have also agreed not to sell
AIMCO Common Stock from the fifth business day before the period in which the
AIMCO Collar Price is determined through the last day of the period, or from the
fifth business day before the AIMCO Reference Period through the last day of
that period.
CONDITIONS TO CONSUMMATION OF MERGER
The obligations of AIMCO and IPT to consummate the Merger are subject to
the following conditions (the "Bi-Lateral Conditions"): (i) the requisite
approval of the Merger by the IPT shareholders shall be obtained prior to the
Closing Date; (ii) no temporary restraining order or preliminary or permanent
injunction or other order by any federal or state court preventing consummation
of the Merger shall be in effect, (iii) the Merger and the other transactions
contemplated by the Merger shall not be prohibited under any applicable federal
or state law or regulation; (iv) if AIMCO Common Stock is to be issued in the
Merger, (a) the registration statement shall be effective under the Securities
Act at the Effective Time, and no stop order suspending such effectiveness shall
be in effect; and (b) all applicable time periods required under the Exchange
Act following the mailing of the information statement/prospectus to IPT
Shareholders shall have elapsed.
In addition to the Bi-Lateral Conditions, the obligation of IPT to
consummate the Merger is subject to the following additional conditions, unless
waived by IPT: (i) as of the Closing Date, the Lehman Opinion shall not have
been withdrawn; (ii) the representations and warranties of AIMCO contained in
the Merger Agreement shall be true and correct (a) on and as of the date thereof
and (b) at and as of the Effective Time with the same effect as though such
representations and warranties had been made at and as of the Effective Time
(except for representations and warranties that expressly speak only as of a
specific date or time which need only be true and correct as of such date or
time), provided that this condition shall be satisfied if the aggregate losses,
costs, damages and expenses to IPT due to breaches of such representations and
warranties when aggregated with failures to comply with covenants by AIMCO and
any material adverse affects on the business assets, condition, results of
operations, or prospects suffered by AIMCO, does not exceed $50.0 million; (iii)
each of AIMCO and its subsidiaries shall have performed, in all respects, all
relevant obligations; (iv) if AIMCO elects to issue AIMCO Common Stock in the
Merger, IPT shall have received a certificate signed by the President of AIMCO,
dated as of the Closing Date, evidencing compliance with certain matters; and
(v) the receipt of certain legal opinions from AIMCO's counsel.
In addition to the Bi-Lateral Conditions, the obligation of AIMCO to
consummate the Merger is subject to the following additional conditions, unless
waived by AIMCO: (i) the representations and warranties of IPT contained in the
Merger Agreement shall be true and correct on and as of the date thereof,
provided that this condition will be satisfied if the aggregate loss, cost,
damage or expense to AIMCO due to breaches of such representations and
warranties does not exceed $50.0 million; and (ii) non-withdrawal of certain
legal opinions of counsel to IPT.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after receipt of the IPT Shareholders' Approval: (i) by
mutual written
75
<PAGE> 83
consent of a majority of the Continuing Trustees and the AIMCO Board of
Directors; or (ii) by AIMCO, by written notice to each of the Continuing
Trustees, if the Effective Time has not occurred by December 31, 2001; or (iii)
by IPT, by written notice to AIMCO, if (a) the Effective Time has not occurred
by December 31, 2001; (b) a majority of the Continuing Trustees determines in
good faith that any proposal by or offer from any person relating to any (1)
acquisition of a substantial amount of assets of IPT or IPLP or any of the
outstanding IPT Shares or IPLP OP Units, (2) offer to purchase outstanding IPT
Common Shares or IPLP OP Units or (3) merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation or
similar transaction involving IPT or IPLP (an "Alternative Proposal"),
constitutes a proposal that is reasonably likely to be consummated and would, if
consummated, result in a transaction which is more favorable to IPT
shareholders, subject to certain limitations and conditions in the Merger
Agreement; or (iv) AIMCO takes any action that constitutes an anticipatory
repudiation of the Merger Agreement and fails to cure such breach within 10 days
from receipt of notice from a majority of the Continuing Trustees.
In the event of termination of the Merger Agreement, except under certain
circumstances as provided under the Merger Agreement, there shall be no
liability on the part of either IPT or AIMCO or their respective officers,
trustees or directors after a termination, except that this limitation on
liability does not apply with respect to any party whose breach of any
representation, warranty, covenant or agreement is reason for such termination.
In addition, in all events, certain provisions shall survive the termination of
the Merger Agreement.
"UNWIND" IN THE EVENT OF A TERMINATION OF THE MERGER AGREEMENT
AIMCO and IPT agreed that if the Merger Agreement is terminated, except by
reason of an Alternative Proposal, they will attempt to undo the effect of
acquisitions by AIMCO of all assets and securities of IPT, IPLP or any
wholly-owned subsidiary of IPT or IPLP. They also agreed to transfer to IPLP the
benefit of any AIMCO purchases (from anyone other than IPT or IPLP or their
wholly-owned subsidiaries) of securities of Controlled IPT Entities.
To accomplish this "unwind," AIMCO and IPT have agreed that as soon as
practicable after a termination of the Merger Agreement, AIMCO will transfer to
IPT all of the Covered IPT Assets and Covered Third-Party Assets (defined
below). In exchange, IPT will deliver to AIMCO the IPT Unwind Consideration and
the Third-Party Unwind Consideration (as such terms are defined below).
The "Covered IPT Assets" that AIMCO is required to deliver to IPT are all
securities and assets acquired by any Controlled AIMCO Entity from any of IPT,
IPLP or any wholly-owned subsidiary of IPT or IPLP at any time prior to the date
of the termination.
The "Covered Third-Party Assets" that AIMCO is required to deliver to IPT
are all securities of any Controlled IPT Entity acquired by any Controlled AIMCO
Entity from any person other than IPT, IPLP or a wholly-owned subsidiary of IPT
or IPLP at any time prior to the date of the termination.
"Covered IPT Assets" and "Covered Third-Party Assets" also include cash and
non-cash distributions received by any Controlled AIMCO Entity in respect of the
Covered IPT Asset or Covered Third-Party Asset. If a Controlled AIMCO Entity has
disposed of
76
<PAGE> 84
any of the Covered IPT Assets or Covered Third Party Assets, then any
consideration received by such Controlled AIMCO Entity will be substituted for
that Covered IPT Asset or Covered Third-Party Asset. In addition, "Covered IPT
Assets" and "Covered Third-Party Assets" includes a return on cash distributions
and cash consideration at an annual rate of 10%.
In exchange for the Covered IPT Assets, IPT will deliver to AIMCO the IPT
Unwind Consideration. "IPT Unwind Consideration" means any consideration
delivered to IPT in exchange for the Covered IPT Assets, together with cash and
non-cash distributions received in respect of the foregoing. If any item which
would have otherwise constituted IPT Unwind Consideration has been disposed of,
the consideration received will be substituted for that item as IPT Unwind
Consideration. In addition, the IPT Unwind Consideration includes a return on
cash distributions and cash consideration at a compounded rate of 10%.
In exchange for the Covered Third-Party Assets, IPT is required to deliver
to AIMCO the Third Party Unwind Consideration, payable either in IPT Common
Shares or IPLP OP Units, at AIMCO's option. The number of such securities are
calculated by dividing the Third-Party Unwind Consideration by the IPT
Termination Share Value (each as defined). "Third-Party Unwind Consideration"
means the aggregate fair value of the consideration originally paid by the
applicable Controlled AIMCO Entity in exchange for the Covered Third-Party
Assets, plus interest at a compounded annual rate of 10%, minus the aggregate
fair value of all cash and non-cash distributions received in respect of the
Covered Third-Party Assets, and minus interest on the amount of cash
distributions at a compounded annual rate of 10%. If any such consideration has
been disposed of, the consideration received in exchange, together with 10%
annual interest on any cash portion thereof on the same basis, will be
substituted for the consideration that was sold.
The IPT Termination Share Value will be equal to $13.28, if the termination
occurs before December 31, 1998. If the termination occurs after December 31,
1998, the IPT Termination Share Value will be $13.28 if the 10-trading day
average price of AIMCO Common Stock on the NYSE stayed the same or decreased
between December 31, 1998 and the date of the termination of the Merger
Agreement. However, if the 10-trading day average price of a AIMCO Common Stock
on the NYSE increased between December 31, 1998 and the date of the termination
of the Merger Agreement, the IPT Termination Share Value will increase by
multiplying $13.28 by the ratio of the AIMCO Common Stock price at the
termination date to its price on December 31, 1998 (in each case using the
average sales price for the 10-trading days preceding the date of the
determination).
AMENDMENT AND WAIVER
Pursuant to the Merger Agreement, the Merger Agreement may be amended, at any
time before or after the IPT shareholders' approval of the Merger at a special
meeting has been obtained and prior to the Effective Time, only by a written
agreement signed by AIMCO and a majority of the Continuing Trustees, on behalf
of IPT. However, after the IPT shareholders' approval of the Merger at a special
meeting has been obtained, no amendment may, without approval of the IPT
shareholders, (a) alter or change the amount or type of the merger consideration
or any proceedings relating to the treatment of IPT Common Shares under the
Merger Agreement or (b) alter or change any of the other
77
<PAGE> 85
terms and conditions of the Merger Agreement if such alterations or changes,
individually or in the aggregate, would adversely affect the rights of IPT
shareholders.
Under the terms of the Merger Agreement, at any time prior to the Effective
Time, AIMCO or IPT may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement and (c)
waive compliance with any of the agreements or conditions of the other party
contained in the Merger Agreement, to the extent permitted by applicable law.
78
<PAGE> 86
SELECTED HISTORICAL FINANCIAL INFORMATION OF AIMCO
The following table sets forth selected historical financial and operating
information for AIMCO. The selected historical financial information for the six
months ended June 30, 1998 and 1997 is based on unaudited financial statements
of AIMCO as included in AIMCO's Quarterly Report on Form 10-Q for the six months
ended June 30, 1998, incorporated by reference in this Information Statement/
Prospectus. Results for the quarter ended June 30, 1998 are not necessarily
indicative of the results to be expected for a full year. The selected
historical financial information for the years ended December 31, 1997, 1996 and
1995 is based on the audited financial statements of AIMCO incorporated by
reference in this Information Statement/Prospectus. The selected historical
financial information for the period January 10, 1994 (the date of AIMCO's
inception) through December 31, 1994 for AIMCO and for the period from January
1, 1994 through July 28, 1994 and for the year ended December 31, 1993 for the
AIMCO Predecessors is based on the audited financial statements of AIMCO and the
AIMCO Predecessors, respectively. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of AIMCO and
notes thereto included or incorporated by reference in this Information
Statement/Prospectus.
<TABLE>
<CAPTION>
AIMCO
---------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JANUARY 10, 1994
JUNE 30, FOR THE YEAR ENDED DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ----------------
(RESTATED)(c)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income...................... $ 161,264 $ 79,719 $ 193,006 $100,516 $ 74,947 $ 24,894
Property operating expenses.................. (59,643) (31,160) (76,168) (38,400) (30,150) (10,330)
Owned property management expenses........... (4,713) (2,734) (6,620) (2,746) (2,276) (711)
Depreciation and amortization................ (34,289) (15,046) (37,741) (19,556) (15,038) (4,727)
---------- ---------- ---------- -------- -------- --------
62,619 30,779 72,477 39,814 27,483 9,126
---------- ---------- ---------- -------- -------- --------
SERVICE COMPANY BUSINESS:
Management fees and other income............. 9,562 5,605 13,937 8,367 8,132 3,217
Management and other expenses................ (5,470) (2,643) (9,910) (5,352) (4,953) (2,047)
Corporate overhead allocation................ (196) (294) (588) (590) (581) --
Owner and seller bonuses..................... -- -- -- -- -- --
Depreciation and amortization................ (3) (161) (1,401) (718) (596) (150)
---------- ---------- ---------- -------- -------- --------
Income from service company business......... 3,892 2,505 2,038 1,707 2,002 1,020
Minority interests in service company
business.................................... (1) (2) (10) 10 (29) (14)
---------- ---------- ---------- -------- -------- --------
Company's shares of income from service
company business............................ 3,892 2,505 2,028 1,717 1,973 1,006
---------- ---------- ---------- -------- -------- --------
General and administrative expenses.......... (4,103) (784) (5,396) (1,512) (1,804) (977)
Interest income.............................. 11,350 1,341 8,676 523 658 123
Interest expense............................. (34,778) (20,604) (51,385) (24,802) (13,322) (1,576)
Minority interest in other partnerships...... (516) (565) 1,008 (111) -- --
Equity in losses of other partnerships(d).... (4,681) (379) (1,798) -- -- --
Equity in earnings (losses) of Unconsolidated
Subsidiaries(e)............................. 5,609 (86) 4,636 -- -- --
Amortization of goodwill..................... (3,394) (474) -- -- -- --
---------- ---------- ---------- -------- -------- --------
<CAPTION>
AIMCO PREDECESSOR(A)
-----------------------------
FOR THE PERIOD
JANUARY 1,
1994 FOR THE
THROUGH YEAR ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
-------------- ------------
(RESTATED)(c)
<S> <C> <C>
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income...................... $ 5,805 $ 8,056
Property operating expenses.................. (2,263) (3,200)
Owned property management expenses........... -- --
Depreciation and amortization................ (1,151) (1,702)
------- -------
2,391 3,154
------- -------
SERVICE COMPANY BUSINESS:
Management fees and other income............. 6,533 8,069
Management and other expenses................ (5,823) (6,414)
Corporate overhead allocation................ -- --
Owner and seller bonuses..................... (204) (468)
Depreciation and amortization................ (146) (204)
------- -------
Income from service company business......... 360 983
Minority interests in service company
business.................................... -- --
------- -------
Company's shares of income from service
company business............................ 360 983
------- -------
General and administrative expenses.......... -- --
Interest income.............................. -- --
Interest expense............................. (4,214) (3,510)
Minority interest in other partnerships...... -- --
Equity in losses of other partnerships(d).... -- --
Equity in earnings (losses) of Unconsolidated
Subsidiaries(e)............................. -- --
Amortization of goodwill..................... -- --
------- -------
</TABLE>
79
<PAGE> 87
<TABLE>
<CAPTION>
AIMCO
---------------------------------------------------
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JANUARY 10, 1994
JUNE 30, FOR THE YEAR ENDED DECEMBER 31, THROUGH
----------------------- -------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- ----------------
(RESTATED)(c)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before gain on disposition of
property, extraordinary item, income taxes
and minority interest in AIMCO Operating
Partnership................................. 35,998 11,733 30,246 15,629 14,988 7,702
Gain on disposition of property.............. 2,526 -- 2,720 44 -- --
Extraordinary (loss) gain - early
extinguishment of debt...................... -- (269) (269) -- -- --
Provisions for income taxes.................. -- -- -- -- -- --
---------- ---------- ---------- -------- -------- --------
Income (loss) before minority interest in
AIMCO Operating Partnership................. 38,524 11,464 32,697 15,673 14,988 7,702
Minority interest in AIMCO Operating
Partnership................................. (3,262) (1,616) (4,064) (2,689) (1,613) (559)
---------- ---------- ---------- -------- -------- --------
Net income (loss)............................ $ 35,262 $ 9,848 $ 28,633 $ 12,984 $ 13,375 $ 7,143
========== ========== ========== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation................................ $2,585,204 $1,102,073 $1,657,207 $865,222 $477,162 $406,067
Real estate, net of accumulated
depreciation................................ 2,287,309 945,969 1,503,922 745,145 448,425 392,368
Total assets................................. 3,054,741 1,272,890 2,100,510 827,673 480,361 416,739
Total mortgages and notes payable............ 1,314,475 644,457 808,530 522,146 268,692 141,315
Mandatorily redeemable 1994 Cumulative
Convertible Senior Preferred Stock.......... -- -- -- -- -- 96,600
Stockholders' equity......................... 1,394,394 388,477 1,045,301 215,749 169,032 140,319
OTHER DATA:
Total owned properties (end of period)....... 210 107 147 94 56 48
Total owned apartment units (end of
period)..................................... 58,345 27,056 40,039 23,764 14,453 12,513
Equity Owned Units........................... 74,318 88,690 83,431 -- -- --
Units under management (end of period)....... 68,248 70,213 69,587 19,045 19,594 20,758
Funds from operations(f)..................... $ 83,657 $ 28,441 $ 81,155 $ 35,185 $ 25,285 $ 9,391
Weighted average number of common shares and
OP Units outstanding(g)..................... 51,478 21,590 29,119 14,994 11,461 10,920
<CAPTION>
AIMCO PREDECESSOR(A)
-----------------------------
FOR THE PERIOD
JANUARY 1,
1994 FOR THE
THROUGH YEAR ENDED
JULY 28, DECEMBER 31,
1994(b) 1993
-------------- ------------
(RESTATED)(c)
<S> <C> <C>
Income (loss) before gain on disposition of
property, extraordinary item, income taxes
and minority interest in AIMCO Operating
Partnership................................. (1,463) 627
Gain on disposition of property.............. -- --
Extraordinary (loss) gain - early
extinguishment of debt...................... -- --
Provisions for income taxes.................. (36) (336)
------- -------
Income (loss) before minority interest in
AIMCO Operating Partnership................. (1,499) 291
Minority interest in AIMCO Operating
Partnership................................. -- --
------- -------
Net income (loss)............................ $(1,499) $ 291
======= =======
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation................................ $47,500 $46,819
Real estate, net of accumulated
depreciation................................ 33,270 33,701
Total assets................................. 39,042 38,914
Total mortgages and notes payable............ 40,873 41,893
Mandatorily redeemable 1994 Cumulative
Convertible Senior Preferred Stock.......... -- --
Stockholders' equity......................... (9,345) (7,556)
OTHER DATA:
Total owned properties (end of period)....... 4 4
Total owned apartment units (end of
period)..................................... 1,711 1,711
Equity Owned Units........................... -- --
Units under management (end of period)....... 29,343 28,422
Funds from operations(f)..................... N/A N/A
Weighted average number of common shares and
OP Units outstanding(g)..................... N/A N/A
</TABLE>
- -------------------------
(a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of AIMCO Common Stock and issued 966,000 shares of convertible
preferred stock and 513,514 unregistered shares of AIMCO Common Stock. On
such date, AIMCO and the AIMCO Predecessors engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO to continue and expand the property management and related businesses
of the AIMCO Predecessors. The 966,000 shares of convertible preferred
stock and 513,514 shares of AIMCO Common Stock were repurchased by AIMCO in
1995.
(b) Represents the period January 1, 1994 through July 28, 1994, the date of
the completion of the business combination with AIMCO.
(c) In the second quarter of 1996, AIMCO effected an internal reorganization,
as a result of which the AIMCO Operating Partnership (i) owns all of the
non-voting preferred stock of the service company, PAMS Inc., representing
a 95% economic interest, and (ii) owns the 1% general partnership interest
in PAMS LP. PAMS Inc. owns the 99% limited partnership interest in PAMS LP.
Substantially all the activity of PAMS Inc. is conducted by PAMS LP.
Because the AIMCO Operating Partnership owns 95% of the economic value of
PAMS Inc. and also controls the general partnership interest in PAMS LP,
thereby controlling the activity of the partnership, the results of
operations for the service company are consolidated. Prior to the
reorganization, AIMCO reported the service company business on the equity
method. The
80
<PAGE> 88
restatement had no impact on net income, but increased third party and
affiliate management and other income, management and other expenses,
amortization of management company goodwill and depreciation of non-real
estate assets. AIMCO restated the balance sheet as of December 31, 1995 and
1994, and the statements of income and statements of cash flows for the
year ended December 31, 1995 and the period from January 10, 1994 through
December 31, 1994 to reflect the change.
(d) Represents AIMCO's share of earnings from 83,431 units in which AIMCO
purchased an equity interest from the NHP Real Estate Companies.
(e) Represents AIMCO's equity earnings in the Unconsolidated Subsidiaries.
(f) AIMCO's management believes that the presentation of FFO, when considered
with the financial data determined in accordance with GAAP, provides a
useful measure of AIMCO's performance. However, FFO does not represent cash
flow and is not necessarily indicative of cash flow or liquidity available
to AIMCO, nor should it be considered as an alternative to net income as an
indicator of operating performance. The Board of Governors of NAREIT
defines FFO as net income (loss), computed in accordance with GAAP,
excluding gains and losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. AIMCO calculates FFO consistent with the
NAREIT definition, adjusted for minority interest in the AIMCO Operating
Partnership, plus amortization of management company goodwill, the non-cash
deferred portion of the income tax provision for unconsolidated
subsidiaries and less the payments of dividends on preferred stock. AIMCO's
management believes that presentation of FFO provides investors with
industry-accepted measurements which help facilitate an understanding of
AIMCO's ability to make required dividend payments, capital expenditures
and principal payments on its debt. There can be no assurance that AIMCO's
basis of computing FFO is comparable with that of other REITs.
81
<PAGE> 89
The following is a reconciliation of Income before minority interest in the
AIMCO Operating Partnership to FFO:
<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 10,
FOR THE SIX MONTHS 1994,
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, THROUGH
------------------- --------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994
-------- -------- --------- --------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income before minority interest
in the AIMCO Operating
Partnership.................... $38,524 $11,464 $32,697 $15,673 $14,988 $ 7,702
Gain on disposition of
property....................... (2,526) -- (2,720) (44) -- --
Extraordinary item............... -- 269 269 -- -- --
Real estate depreciation, net of
minority interests............. 32,423 13,250 33,751 19,056 15,038 4,727
Amortization of goodwill......... 4,727 474 948 500 428 76
Equity in earnings of
Unconsolidated Subsidiaries:
Real estate depreciation....... -- 1,263 3,584 -- -- --
Amortization of management
contracts.................... 3,088 150 1,587 -- -- --
Deferred taxes................. 4,291 874 4,894 -- -- --
Equity in earnings of other
partnerships:
Real estate depreciation....... 9,131 697 6,280 -- -- --
Preferred stock dividends...... (6,001) -- (135) -- (5,169) (3,114)
------- ------- ------- ------- ------- -------
Funds from operations............ $83,657 $28,441 $81,155 $35,185 $25,285 $ 9,391
======= ======= ======= ======= ======= =======
</TABLE>
(g) Generally, after a one-year holding period, OP Units may be tendered for
redemption at the option of the holder and, upon tender, may be acquired by
AIMCO, at its election, for (x) shares of AIMCO Common Stock at an exchange
ratio of one share of AIMCO Common Stock for each OP Unit (subject to
adjustment) or (y) cash.
82
<PAGE> 90
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA OF IPT
The following is a summary of certain selected historical financial data of IPT
and its subsidiaries and predecessors. The selected financial data have been
derived from IPT's consolidated financial statements and the combined financial
statements of its predecessor and, in the opinion of management of IPT, include
all adjustments (consisting of only normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations for the
periods presented. The information set forth below is not necessarily indicative
of the results of future operations and should be read in conjunction with IPT's
financial statements and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of IPT and the IPT
Partnerships" included elsewhere in this Information Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------------------------
1998 1997 1997 1996 1995 1994
------------ ----------- ----------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................... $ 12,977 $ 6,715 $ 16,826 $ 9,705 $ 2,459 $ 113
Income before extraordinary
item..................... $ 9,164 $ 1,248 $ 6,074 $ 3,557 $ 2,215 $ 113
Net income................. $ 8,907 $ 1,248 $ 6,004 $ 2,425 $ 2,215 $ 113
Income before extraordinary
item per share
(diluted)................ .48 .11 .41 n/a n/a n/a
Net income per share
(diluted)................ .47 .11 .40 n/a n/a n/a
Cash distributions to IPT
Shareholders per share... .30 -- .30 .20 n/a n/a
Weighted average IPT Common
Shares outstanding
(diluted)................ 18,880,523 11,539,240 14,694,327 n/a n/a n/a
BALANCE SHEET DATA (END OF
PERIOD)
Cash....................... $ 14,639 $ 35,520 $ 37,432 $ 4,928 $ 528 $ --
Investments in real estate
limited partnerships..... 192,832 124,951 159,469 118,741 54,037 38,346
Total assets............... 240,275 185,502 226,068 147,757 54,565 38,346
Long-term debt............. 21,951 19,300 19,300 19,730 -- --
Minority interest in
IPLP..................... 59,181 47,156 54,447 50,429 -- --
Minority interest in other
consolidated
subsidiaries............. -- -- -- -- 2,682 --
Shareholders' equity....... $ 153,516 $ 116,311 $ 146,212 $ 70,639 $ 51,874 $ 38,346
</TABLE>
83
<PAGE> 91
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------------------------
1998 1997 1997 1996 1995 1994
------------ ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA
Cash provided by (used in)
operating activities..... $ 1,335 $ 1,447 $ 2,338 $ 1,420 $ (100) $ --
Cash provided by (used in)
provided by investing
activities............... (17,773) 8,592 (16,481) (70,834) (13,237) (38,233)
Cash provided by (used in)
financing activities..... (6,355) 20,553 46,647 73,814 13,865 38,233
Funds from operations(a)... $ 16,825 $ 8,666 $ 20,939 $ 12,563 $ 4,611 $ 113
Number of IPT
Partnerships............. 42 26 29 26 13 4
Number of properties(b).... 197 136 150 136 86 32
Apartment units(b)......... 48,323 36,077 38,369 36,077 19,337 7,433
Commercial square
feet(b).................. 3,026,904 819,000 1,667,874 819,000 767,172 453,977
</TABLE>
- -------------------------
(a) In accordance with the resolution adopted by the Board of Governors of
NAREIT, FFO represents net income (loss)(computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring or sales of property,
plus depreciation of real property, and after adjustments for
unconsolidated partnerships and joint ventures. FFO should not be
considered as an alternative to net income or other measurements under GAAP
as an indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. FFO does not
reflect working capital changes, cash expenditures for capital improvements
or principal payments on indebtedness. IPT believes that FFO is helpful to
investors as a measure of the performance of an equity REIT, because along
with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the
ability of IPT to incur and service debt and make capital distributions.
FFO computed by IPT may not be comparable to other similarly titled
measures of other REITs. FFO is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------
1998 1997 1997 1996 1995 1994
------- ------ ------- ------- ------ ----
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Operating income................. $ 8,756 $3,327 $ 9,470 $ 3,913 $2,346 $113
Depreciation and amortization.... 8,423 5,771 12,288 9,388 2,265 --
Minority interest in National
Properties Investors 4's funds
from operations................ (354) (432) (819) (738) -- --
------- ------ ------- ------- ------ ----
Funds from operations............ $16,825 $8,666 $20,939 $12,563 $4,611 $113
======= ====== ======= ======= ====== ====
</TABLE>
(b) Includes only the IPT Partnerships.
84
<PAGE> 92
PRO FORMA FINANCIAL INFORMATION OF AIMCO
AS OF JUNE 30, 1998 AND FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE
SIX MONTHS ENDED JUNE 30, 1998
INTRODUCTION
On October 1, 1998, AIMCO completed the IFG Merger. In the IFG Merger, IFG's
common stock was converted into 8,945,921 shares of Class E Cumulative
Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue
date market value approximately equaled $310 million. In addition to receiving
the same dividends as holders of AIMCO Common Stock, holders of Class E
Preferred Stock will be entitled to a special dividend of approximately $50
million in the aggregate. When that special dividend is paid in full, the Class
E Preferred Stock will automatically convert into AIMCO Common Stock on a
one-for-one basis, subject to antidilution adjustments, if any. In addition,
AIMCO assumed approximately $325 million in indebtedness and other liabilities
of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately
$149.5 million of convertible securities for a total transaction value of
approximately $835 million. In connection with the IFG Merger, AIMCO assumed
property management of approximately 192,000 multifamily units which consist of
general and limited partnership investments in 115,000 units and third party
management of 77,000 units. IPT, which prior to the IFG Merger was a subsidiary
of IFG, owns a 32% weighted average general and limited partnership interest in
approximately 51,000 units.
In May and September of 1997, AIMCO directly or indirectly through a subsidiary,
acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common
stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the
remaining shares of NHP Common Stock in a merger transaction accounted for as a
purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued
6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5
million in cash. The total cost of the purchase of NHP was $349.5 million.
In June 1997, AIMCO purchased a group of companies (the "NHP Real Estate
Companies") affiliated with NHP that hold general and limited partnership
interests in partnerships (the "NHP Partnerships") that own 534 conventional and
affordable multifamily apartment properties (the "NHP Properties") containing
87,659 units, a captive insurance subsidiary and certain related assets (the
"NHP Real Estate Acquisition"). AIMCO paid aggregate consideration of $54.8
million in cash and warrants that entitle the holders to purchase 399,999 shares
of AIMCO Common Stock at an exercise price of $36.00 per share. AIMCO engaged in
a reorganization (the "NHP Real Estate Reorganization") of its interests in the
NHP Real Estate Companies, which resulted in certain of the assets of the NHP
Real Estate Companies being owned by a limited partnership (the "Unconsolidated
Partnership") in which the AIMCO Operating Partnership holds 99% limited partner
interest and certain directors and officers of AIMCO directly or indirectly,
hold a 1% general partner interest.
Immediately following the NHP Merger, in order to satisfy certain requirements
of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a
reorganization (the "NHP Reorganization") of the assets and operations of NHP
that resulted in the Master Property Management Agreement being terminated and
NHP's operations being conducted through corporations (the "Unconsolidated
Subsidiaries") in which the AIMCO Operating Partnership holds non-voting
preferred stock that represents a 95% economic interest, and
85
<PAGE> 93
certain officers and/or directors of AIMCO hold, directly or indirectly, all of
the voting common stock, representing a 5% economic interest. As a result of the
controlling ownership interest in the Unconsolidated Subsidiaries held by
others, AIMCO accounts for its interest in the Unconsolidated Subsidiaries on
the equity method.
On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc.
("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the
"Ambassador Merger"). Each outstanding share of stock ("Ambassador Common
Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were
converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any
outstanding options to purchase Ambassador Common Stock were converted, at the
election of the option holder, into cash or options to purchase AIMCO Common
Stock at such options' then current exercise price divided by the Conversion
Ratio. In accordance with the Agreement and Plan of Merger, dated December 23,
1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador
Merger Agreement"), the outstanding shares of Class A Senior Cumulative
Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock")
were redeemed and converted into Ambassador Common Stock prior to the Ambassador
Merger. Following the consummation of the Ambassador Merger, a subsidiary of the
AIMCO Operating Partnership was merged with and into the Ambassador Operating
Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited
partnership interest in the Ambassador Operating Partnership was converted into
the right to receive 0.553 OP Units, and as a result, the Ambassador Operating
Partnership became a 99.9% owned subsidiary partnership of the AIMCO Operating
Partnership.
Also during 1997, AIMCO (i) (a) acquired 44 properties for aggregate purchase
consideration of $467.4 million, of which $56 million was paid in the form of
1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued
at $7.3 million in connection with the acquisition of partnership interests
through tender offers in certain partnerships ((a) and (b) together are the
"1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600
shares of Ambassador Common Stock (together with the 1997 Property Acquisitions,
the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO
Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of
AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75
million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock
for net proceeds of $58.1 million (collectively, the "1997 Stock Offerings");
and (iii) sold five real estate properties (the "1997 Dispositions").
Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative
Preferred Stock for net proceeds of $101.5 million (the "1998 Stock Offering");
(b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net
proceeds of $98.0 million (the "Class G Preferred Stock Offering"); and (c) sold
2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of
$48.1 million (the "Class H Preferred Stock Offering" and, together with the
1998 Stock Offering and the Class G Preferred Stock Offering, the "1998 Stock
Offerings"); (ii) purchased 15 properties for aggregate purchase consideration
of $138 million, of which $27.3 million was paid in the form of OP Units (the
"1998 Acquisitions"); (iii) sold one real estate property (the "1998
Disposition"); (iv) completed the Ambassador Merger; and (v) completed the IFG
Merger.
86
<PAGE> 94
PRO FORMA FINANCIAL INFORMATION OF AIMCO (PRE-MERGER)
The following Pro Forma Consolidated Balance Sheet (Pre-Merger) of AIMCO as of
June 30, 1998 has been prepared as if each of the following transactions had
occurred as of June 30, 1998: (i) the purchase of three properties for an
aggregate purchase price of $32.6 million; (ii) the Class G Preferred Stock
Offering; (iii) the Class H Preferred Stock Offering; (iv) the IFG Merger; (v)
the AMIT Merger; and (vi) the transfer of certain assets and liabilities of IFG
to be unconsolidated subsidiaries following the IFG Merger (the "IFG
Reorganization").
The following Pro Forma Consolidated Statement of Operations (Pre-Merger) of
AIMCO for the year ended December 31, 1997 has been prepared as if each of the
following transactions had occurred as of January 1, 1997: (i) the 1997
Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv)
the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi)
the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization;
(ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the 1998
Disposition; (xii) the Ambassador Merger; (xiii) the IFG Merger; (xiv) the AMIT
Merger; and (xv) the IFG Reorganization.
The following Pro Forma Consolidated Statement of Operations (Pre-Merger) of
AIMCO for the six months ended June 30, 1998 has been prepared as if each of the
following transactions had occurred as of January 1, 1997: (i) the 1998 Stock
Offerings; (ii) the 1998 Acquisitions; (iii) the 1998 Disposition; (iv) the
Ambassador Merger; (v) the IFG Merger; (vi) the AMIT Merger; and (vii) the IFG
Reorganization.
The following Pro Forma Financial Information (Pre-Merger) is based, in part, on
the following historical financial statements, which have been previously filed
by AIMCO: (i) the audited Consolidated Financial Statements of AIMCO for the
year ended December 31, 1997; (ii) the unaudited Consolidated Financial
Statements of AIMCO for the six months ended June 30, 1998; (iii) the audited
Consolidated Financial Statements of Ambassador for the year ended December 31,
1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the
four months ended April 30, 1998; (v) the audited Consolidated Financial
Statements of IFG for the year ended December 31, 1997; (vi) the audited
Consolidated Financial Statements of AMIT for the year ended December 31, 1997;
(vii) the unaudited Consolidated Financial Statements of IFG for the six months
ended June 30, 1998; (viii) the unaudited Consolidated Financial Statements of
AMIT for the six months ended June 30, 1998; (ix) the unaudited Consolidated
Financial Statements of NHP for the nine months ended September 30, 1997; (x)
the unaudited Combined Financial Statements of the NHP Real Estate Companies for
the three months ended March 31, 1997; (xi) the unaudited Financial Statements
of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii)
the unaudited Combined Financial Statements of the NHP New LP Entities for the
three months ended March 31, 1997; (xiii) the unaudited Combined Financial
Statements of the NHP Borrower Entities for the three months ended March 31,
1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain
Expenses of The Bay Club at Aventura for the three months ended March 31, 1997;
(xv) the unaudited Historical Summary of Gross Income and Direct Operating
Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the
unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five
Acquisition Properties for the six months ended June 30, 1997; (xvii) the
unaudited Statement of Revenues and Certain Expenses of First
87
<PAGE> 95
Alexandria Associates, a Limited Partnership for the nine months ended September
30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of
Country Lakes Associates Two, a Limited Partnership for the nine months ended
September 30, 1997; (xix) the unaudited Statement of Revenues and Certain
Expenses of Point West Limited Partnership, A Limited Partnership for the nine
months ended September 30, 1997; and (xx) the unaudited Statement of Revenues
and Certain Expenses for The Oak Park Partnership for the nine months ended
September 30, 1997. The following Pro Forma Financial Information (Pre-Merger)
should be read in conjunction with such financial statements and the notes
thereto incorporated by reference herein.
The unaudited Pro Forma Financial Information (Pre-Merger) has been prepared
using the purchase method of accounting whereby the assets and liabilities of
NHP, the NHP Real Estate Companies, Ambassador, IFG, the 1997 Acquisitions, and
the 1998 Acquisitions are adjusted to estimated fair market value, based upon
preliminary estimates, which are subject to change as additional information is
obtained. The allocations of purchase costs are subject to final determination
based upon estimates and other evaluations of fair market value. Therefore, the
allocations reflected in the following unaudited Pro Forma Financial Information
(Pre-Merger) may differ from the amounts ultimately determined.
The following unaudited Pro Forma Financial Information (Pre-Merger) is
presented for informational purposes only and is not necessarily indicative of
the financial position or results of operations of AIMCO that would have
occurred if such transactions had been completed on the dates indicated, nor
does it purport to be indicative of future financial positions or results of
operations. In the opinion of AIMCO's management, all material adjustments
necessary to reflect the effects of these transactions have been made.
88
<PAGE> 96
AIMCO
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-MERGER)
AS OF JUNE 30, 1998
IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
IFG IFG AIMCO BEFORE
COMPLETED AS MERGER IFG
HISTORICAL(A) TRANSACTIONS(B) ADJUSTED(C) ADJUSTMENTS(D) REORGANIZATION(E)
------------- --------------- ----------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Real estate......................... $2,287,309 $ 32,624 $ 30,600 $ 21,348(G) $2,371,881
Property held for sale.............. 35,695 -- -- -- 35,695
Investments in securities........... 5,767 -- -- 310,048(G)
(310,048)(H) 5,767
Investments in and notes receivable
from unconsolidated
subsidiaries...................... 108,105 -- -- -- 108,105
Investments in and notes receivable
from unconsolidated real estate
partnerships...................... 243,799 -- 242,457 395,948(G) 882,204
Mortgage notes receivable........... -- -- 35,316 -- 35,316
Cash and cash equivalents........... 49,320 -- 42,585 -- 91,905
Restricted cash..................... 75,123 -- -- -- 75,123
Accounts receivable................. 26,201 -- 24,385 -- 50,586
Deferred financing costs............ 22,629 -- 7,158 -- 29,787
Goodwill............................ 122,068 -- 19,836 (19,836)(G) 122,068
Property management contracts....... -- -- 89,838 22,211(G) 112,049
Other assets........................ 78,725 -- 22,780 (632)(G) 100,873
---------- --------- -------- --------- ----------
Total Assets................ $3,054,741 $ 32,624 $514,955 $ 419,039 $4,021,359
========== ========= ======== ========= ==========
Secured notes payable............... $ 751,337 $ 23,031 $ 26,476 $ -- $ 800,844
Secured tax-exempt bond financing... 394,662 -- -- -- 394,662
Secured short-term financing........ 50,000 (38,532) 233,310 (297,000)(G)
50,000(G)
325,381(G) 323,159
Unsecured short-term financing...... 118,476 (97,987) 1,647 -- 22,136
Accounts payable, accrued and other
liabilities....................... 155,129 -- 32,669 20,000(G) 207,798
Deferred tax liability.............. -- -- 18,802 (18,802)(G)
12,849(G) 12,849
Security deposits and prepaid
rents............................. 12,882 -- 2,898 -- 15,780
---------- --------- -------- --------- ----------
1,482,486 (113,488) 315,802 92,428 1,777,228
Minority interest in other
partnerships...................... 43,167 -- 66,216 -- 109,383
Minority interest in Operating
Partnership....................... 134,694 -- -- -- 134,694
Company-obligated mandatorily
redeemable convertible securities
of a subsidiary trust............. -- -- 144,210 5,290(G) 149,500
Class A common stock, $.01 par
value............................. 481 -- 358 (358)(G)
89(H) 570
Class B common stock, $.01 par
value............................. 2 -- -- -- 2
Non-voting preferred stock, $.01 par
value............................. -- -- -- -- --
Class B Cumulative Convertible
Preferred Stock, $.01 par value... 75,000 -- -- -- 75,000
Class C Cumulative Preferred Stock
$.01 par value.................... 60,000 -- -- -- 60,000
Class D Cumulative Preferred Stock
$.01 par value.................... 105,000 -- -- -- 105,000
Class G Cumulative Preferred Stock
$.01 par value.................... -- 101,250 -- -- 101,250
Class H Cumulative Preferred Stock
$.01 par value.................... 50,000 -- -- 50,000
Additional paid in capital.......... 1,247,839 (5,138) (37,595) 37,595(G)
309,959(H) 1,552,660
Notes receivable on common stock
purchases......................... (45,508) -- -- -- (45,508)
Distributions in excess of
earnings.......................... (48,203) -- 25,964 (25,964)(G) (48,203)
Unrealized gain on investments...... (217) -- -- -- (217)
---------- --------- -------- --------- ----------
1,394,394 146,112 (11,273) 321,321 1,850,554
---------- --------- -------- --------- ----------
Total Liabilities and
Equity.................... $3,054,741 $ 32,624 $514,955 $ 419,039 $4,021,359
========== ========= ======== ========= ==========
<CAPTION>
IFG PRE-MERGER
REORGANIZATION PRO
ADJUSTMENTS(F) FORMA
-------------- ----------
<S> <C> <C>
Real estate......................... $ -- $2,371,881
Property held for sale.............. -- 35,695
Investments in securities...........
-- 5,767
Investments in and notes receivable
from unconsolidated
subsidiaries...................... 14,561(I) 122,666(K)
Investments in and notes receivable
from unconsolidated real estate
partnerships...................... -- 882,204
Mortgage notes receivable........... 35,316
Cash and cash equivalents........... (15,102)(J) 76,803
Restricted cash..................... -- 75,123
Accounts receivable................. (23,773)(J) 26,813
Deferred financing costs............ -- 29,787
Goodwill............................ -- 122,068
Property management contracts....... (77,410)(I) 34,639
Other assets........................ (8,954)(J) 91,919
--------- ----------
Total Assets................ $(110,678) $3,910,681
========= ==========
Secured notes payable............... $ -- $ 800,844
Secured tax-exempt bond financing... -- 394,662
Secured short-term financing........
(50,000)(I) 273,159
Unsecured short-term financing...... -- 22,136
Accounts payable, accrued and other
liabilities....................... (44,931)(J) 162,867
Deferred tax liability..............
(12,849)(I) --
Security deposits and prepaid
rents............................. (2,898)(J) 12,882
--------- ----------
(110,678) 1,666,550
Minority interest in other
partnerships...................... -- 109,383
Minority interest in Operating
Partnership....................... -- 134,694
Company-obligated mandatorily
redeemable convertible securities
of a subsidiary trust............. -- 149,500
Class A common stock, $.01 par
value.............................
-- 570
Class B common stock, $.01 par
value............................. -- 2
Non-voting preferred stock, $.01 par
value............................. -- --
Class B Cumulative Convertible
Preferred Stock, $.01 par value... -- 75,000
Class C Cumulative Preferred Stock
$.01 par value.................... -- 60,000
Class D Cumulative Preferred Stock
$.01 par value.................... -- 105,000
Class G Cumulative Preferred Stock
$.01 par value.................... -- 101,250
Class H Cumulative Preferred Stock
$.01 par value.................... -- 50,000
Additional paid in capital..........
-- 1,552,660
Notes receivable on common stock
purchases......................... -- (45,508)
Distributions in excess of
earnings.......................... -- (48,203)
Unrealized gain on investments...... -- (217)
--------- ----------
-- 1,850,554
--------- ----------
Total Liabilities and
Equity.................... $(110,678) $3,910,681
========= ==========
</TABLE>
89
<PAGE> 97
- -------------------------
(A) Represents the unaudited historical consolidated financial position of
AIMCO as of June 30, 1998, as reported in AIMCO's Quarterly Report on Form
10-Q.
(B) Represents adjustments to reflect the purchase of three properties for an
aggregate purchase price of $32.6 million; the sale of 4,050,000 shares of
AIMCO Class G Preferred Stock for net proceeds of $98.0 million; and the
sale of 2,000,000 shares of AIMCO Class H Preferred Stock for net proceeds
of $48.1 million.
(C) Represents adjustments to reflect the IFG Merger, including the AMIT
Merger, and the spin-off of the common stock of Holdings to holders of IFG
common stock, as if these transactions had occurred on June 30, 1998. These
adjustments are detailed, as follows:
<TABLE>
<CAPTION>
IFG AMIT HOLDINGS IFG AS
HISTORICAL(i) MERGER(ii) SPIN-OFF (iii) ADJUSTED
------------- ---------- ----------------- --------
<S> <C> <C> <C> <C>
ASSETS
Real estate...................................... $ 25,808 $ 4,792 $ -- $ 30,600
Investments in and notes receivable from
unconsolidated partnerships.................... 282,599 -- (40,142) 242,457
Mortgage notes receivable........................ -- 35,316 -- 35,316
Cash and cash equivalents........................ 57,807 6,248 (21,470) 42,585
Accounts receivable.............................. 147,569 604 (123,788) 24,385
Deferred financing costs......................... 7,158 -- -- 7,158
Goodwill......................................... 245,391 -- (225,555) 19,836
Property management contracts.................... 134,344 -- (44,506) 89,838
Other assets..................................... 53,513 (258) (30,475) 22,780
-------- ------- --------- --------
$954,189 $46,702 $(485,936) $514,955
======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured notes payable............................ $ 21,951 $ 4,525 $ -- $ 26,476
Secured short-term financing..................... 265,737 -- (32,427) 233,310
Unsecured short-term financing................... 1,647 -- -- 1,647
Accounts payable, accrued and other
liabilities.................................... 147,116 1,629 (116,076) 32,669
Deferred tax liability........................... 24,865 -- (6,063) 18,802
Security deposits and deferred income............ 4,349 -- (1,451) 2,898
-------- ------- --------- --------
465,665 6,154 (156,017) 315,802
Minority interest in other partnerships.......... 66,484 -- (268) 66,216
Company-obligated mandatorily redeemable
convertible securities of a subsidiary trust... 144,210 -- -- 144,210
Class A common stock, $.01 par value............. 318 40 -- 358
Additional paid in capital....................... 234,819 40,508 (312,922) (37,595)
Distributions in excess of earnings.............. 42,693 -- (16,729) 25,964
-------- ------- --------- --------
277,830 40,548 (329,651) (11,273)
-------- ------- --------- --------
$954,189 $46,702 $(485,936) $514,955
======== ======= ========= ========
</TABLE>
------------------------------
(i) Represents the unaudited consolidated financial position of IFG as of
June 30, 1998, as reported in IFG's Quarterly Report on Form 10-Q.
Certain reclassifications have been made to IFG's historical balance
sheet to conform to AIMCO's balance sheet presentation.
(ii) Represents the historical balance sheet of AMIT, as well as pro forma
adjustments related to the AMIT Merger. The AMIT Merger closed prior
to the IFG Merger.
(iii) Represents the distribution of two shares of Holdings common stock
for each three shares of IFG common stock to holders of IFG common
stock.
90
<PAGE> 98
(D) Represents the following adjustments occurring as a result of the IFG
Merger: (i) the issuance of 8,945,921 shares of AIMCO Common Stock, based
on consideration to holders of IFG common stock outstanding as of the date
of the IFG Merger; (ii) the payment of a special dividend of $50,000; (iii)
the assumption of $149,500 of the convertible debentures of IFG; and (iv)
the allocation of the combined purchase price of IFG based on the
preliminary estimates of relative fair market value of the assets and
liabilities of IFG.
(E) Represents the effects of AIMCO's acquisition of IFG immediately after the
IFG Merger. These amounts do not give effect to the IFG Reorganization,
which includes the transfers of certain assets and liabilities of IFG to
the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred
immediately after the IFG Merger so that AIMCO could maintain its
qualification as a REIT. This column is included as an intermediate step to
assist the reader in understanding the entire nature of the IFG Merger and
related transactions.
(F) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, AIMCO contributed to the combined Unconsolidated
Subsidiaries certain assets and liabilities of IFG, primarily management
contracts and related working capital assets and liabilities related to
IFG's third party property management operations. The adjustments reflect
the transfer of assets valued at AIMCO's new basis resulting from the
allocation of the purchase price of IFG. AIMCO received non-voting
preferred stock as consideration in exchange for the net assets
contributed. The net deferred tax liability is assumed by the
Unconsolidated Subsidiaries as it resulted from the assets and liabilities
transferred to the Unconsolidated Subsidiaries.
(G) In connection with the IFG Merger, AIMCO became obligated to issue
8,945,921 shares of AIMCO Common Stock
The total purchase price of IFG is $933,994, as follows:
<TABLE>
<S> <C>
Issuance of 8,945,921 shares of AIMCO Common Stock in the
IFG Merger, at $34.658 per share.......................... $310,048
Assumption of Convertible Debentures........................ 149,500
Assumption of IFG liabilities as indicated in the IFG Merger
Agreement................................................. 325,381
Transaction costs........................................... 20,000
Generation of deferred tax liability........................ 12,849
Special dividend............................................ 50,000
Assumption of minority interest in IPT...................... 66,216
--------
Total............................................. $933,994
========
</TABLE>
The purchase price was allocated to the various assets of IFG acquired in
the IFG Merger, as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $ 933,994
Historical basis of IFG's assets acquired, adjusted for the
AMIT Merger and the spin-off of Holdings.................. (514,955)
---------
Step-up to record the fair value of IFG's assets acquired... $ 419,039
=========
</TABLE>
91
<PAGE> 99
This step-up was applied to IFG's assets as follows:
<TABLE>
<S> <C>
Real estate................................................. $ 21,348
Investment in real estate partnerships...................... 395,948
Management contracts........................................ 22,211
Reduction in goodwill....................................... (19,836)
Reduction in value of other assets.......................... (632)
--------
Total............................................. $419,039
========
</TABLE>
The fair value of IFG's assets, primarily the real estate and management
contracts, was calculated based on estimated future cash flows of the
underlying assets.
As of June 30, 1998, IFG's stockholder's deficit, as adjusted for the AMIT
Merger and the spin-off of Holdings, was $(11,273), which is detailed as
follows:
<TABLE>
<S> <C>
Common stock................................................ $ 358
Additional paid-in capital.................................. (37,595)
Retained earnings........................................... 25,964
--------
Total............................................. $(11,273)
========
</TABLE>
Upon completion of the IFG Merger, the entire amount of the stockholder's
deficit was eliminated.
The increase of $5,290 in convertible debentures of IFG relates to the
elimination of unamortized issuance discount.
(H) Represents the issuance of 8,945,921 shares of AIMCO Common Stock to IFG
stockholders, in exchange for all the shares of IFG common stock.
In accordance with the IFG Merger Agreement, AIMCO became obligated to
issue 8,945,921 shares of Class E Preferred Stock, approximately equal to
$310 million. Each share of Class E Preferred Stock will automatically
convert to one share of AIMCO Common Stock upon the payment of the special
dividend thereon. As such, for the purpose of preparing the pro forma
financial statements, AIMCO's management believes that the Class E
Preferred Stock is substantially the same as AIMCO Common Stock, and that
the fair value of the Class E Preferred Stock approximates the fair value
of the AIMCO Common Stock. Upon the payment of the special dividend on the
Class E Preferred Stock and the conversion of the Class E Preferred Stock
to AIMCO Common Stock, the former IFG stockholders will own approximately
15.7% of the AIMCO Common Stock. The special dividend on the Class E
Preferred Stock is intended to represent a distribution in an amount at
least equal to the earnings and profits of IFG at the time of the IFG
Merger, to which AIMCO succeeds.
(I) Represents the increase in AIMCO's investment in Unconsolidated
Subsidiaries to reflect the contribution of property management contracts,
including the related deferred tax liability, and notes payable to the
Unconsolidated Subsidiaries. These assets and liabilities are valued at
AIMCO's new basis resulting from the allocation of the purchase price of
IFG.
(J) Represents certain assets and liabilities of IFG, primarily related to the
management operations of IFG, contributed by AIMCO to the Unconsolidated
Subsidiaries,
92
<PAGE> 100
valued at AIMCO's new basis resulting from the allocation of the purchase price
of IFG.
(K) Represents notes receivable from the Unconsolidated Subsidiaries of
$50,000, advances to the Unconsolidated Subsidiaries of $18,933, and equity
in the Unconsolidated Subsidiaries of $53,733. The combined pro forma
balance sheet of the Unconsolidated Subsidiaries as of June 30, 1998 is
presented below, which reflects the effects of the IFG Merger and the IFG
Reorganization as if such transactions had occurred as of June 30, 1998.
93
<PAGE> 101
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
IFG PRE-MERGER
HISTORICAL REORGANIZATION(I) PRO FORMA
---------- ----------------- ----------
<S> <C> <C> <C>
ASSETS
Real estate............................... $ 21,727 $ -- $ 21,727
Cash and cash equivalents................. 5,627 15,102(ii) 20,729
Restricted cash........................... 5,010 -- 5,010
Management contracts...................... 50,320 77,410(iii) 127,730
Accounts receivable....................... -- 23,773(ii) 23,773
Deferred financing costs.................. 3,217 -- 3,217
Goodwill.................................. 44,252 -- 44,252
Other assets.............................. 21,020 8,954(ii) 29,974
-------- -------- --------
$151,173 $125,239 $276,412
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable..................... $ 72,037 $ -- $ 72,037
Secured short-term financing.............. -- 50,000(iii) 50,000
Accounts payable, accrued and other
liabilities............................. 41,761 44,931(ii) 86,692
Security deposits and deferred income..... 316 2,898(ii) 3,214
Deferred tax liability.................... -- 12,849(iii) 12,849
-------- -------- --------
114,114 110,678 224,792
Common stock.............................. 2,319 766(iv) 3,085
Preferred stock........................... 39,172 14,561(iii) 53,733
Retained earnings......................... (4,174) -- (4,174)
Notes receivable on common stock
purchases............................... (258) (766)(iv) (1,024)
-------- -------- --------
37,059 14,561 51,620
-------- -------- --------
$151,173 $125,239 $276,412
======== ======== ========
</TABLE>
- -------------------------
(i) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, AIMCO contributed to the combined Unconsolidated
Subsidiaries certain assets and liabilities of IFG, primarily related to
the management operations owned by IFG. The adjustments reflect the
transfer of assets valued at AIMCO's new basis resulting from the
allocation of the purchase price of IFG. AIMCO received non-voting
preferred stock as consideration in exchange for the net assets
contributed. The net deferred tax liability is assumed by the
Unconsolidated Subsidiaries as it resulted from the assets and liabilities
transferred to the Unconsolidated Subsidiaries.
(ii) Represents certain assets and liabilities of IFG, primarily related to the
management operations of IFG, contributed by AIMCO to the Unconsolidated
Subsidiaries, valued at AIMCO's new basis resulting from the allocation of
the purchase price of IFG.
(iii)Represents the transfer of management contracts, and the establishment of
the related estimated net deferred Federal and state tax liabilities at a
combined rate of 40% for the estimated difference between the book and tax
basis of the net assets of the Unconsolidated Subsidiaries. The primary
component of the deferred tax liability is the difference between the new
basis of the property management contracts, as a result of the allocation
of the purchase price of IFG, and the historical tax basis.
(iv) Represents the issuance of common stock to the common stockholders of the
Unconsolidated Subsidiaries in exchange for notes receivable, in order for
the common stockholders to maintain their respective ownership interest in
the Unconsolidated Subsidiaries.
94
<PAGE> 102
AIMCO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED NHP AMBASSADOR PURCHASE PRICE
HISTORICAL(A) TRANSACTIONS(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E)
------------- --------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues........................... $193,006 $102,295(I) $ 6,660 $ 93,329 $ --
Property operating expenses......... (76,168) (50,662)(I) (2,941) (36,088) --
Owned property management expense... (6,620) (3,510)(I) (282) -- --
Depreciation........................ (37,741) (20,828)(I) (1,414) (18,979) (5,997)(M)
-------- -------- ------- -------- -------
Income from property operations..... 72,477 27,295 2,023 38,262 (5,997)
-------- -------- ------- -------- -------
Management fees and other income.... 13,937 -- 7,813 -- --
Management and other expenses....... (9,910) -- (5,394) -- --
Corporate overhead allocation....... (588) -- -- -- --
Amortization........................ (1,401) -- (5,800) -- --
-------- -------- ------- -------- -------
Income from service company
business........................... 2,038 -- (3,381) -- --
Minority interest in service company
business........................... (10) -- -- -- --
-------- -------- ------- -------- -------
AIMCO's share of income from service
company business................... 2,028 -- (3,381) -- --
-------- -------- ------- -------- -------
General and administrative
expenses........................... (5,396) -- (1,025) (7,392) 7,392(N)
Interest expense.................... (51,385) (1,626)(J) (5,462) (26,987) (221)(O)
Interest income..................... 8,676 -- 1,900 -- --
Minority interest in other
partnerships....................... 1,008 779(K) 16 (851) 705(P)
Equity in losses of unconsolidated
partnerships....................... (1,798) (122)(L) (8,542) 405 --
Equity in earnings of unconsolidated
subsidiaries....................... 4,636 -- 5,790 -- --
-------- -------- ------- -------- -------
Income (loss) from operations....... 30,246 26,326 (8,681) 3,437 1,879
Income tax provision................ -- -- -- -- --
Gain on dispositions of property.... 2,720 (2,720) -- -- --
-------- -------- ------- -------- -------
Income (loss) before extraordinary
item and minority interest in AIMCO
Operating Partnership.............. 32,966 23,606 (8,681) 3,437 1,879
Extraordinary item -- early
extinguishment of debt............. (269) 269 -- -- --
-------- -------- ------- -------- -------
Income before minority interest in
AIMCO Operating Partnership........ 32,697 23,875 (8,681) 3,437 1,879
Minority interest in AIMCO Operating
Partnership........................ (4,064) 542(AA) 1,703(AA) (386)(AA) (33)(AA)
-------- -------- ------- -------- -------
Net income.......................... 28,633 24,417 (6,978) 3,051 1,846
Income attributable to preferred
stockholders....................... 2,315 31,859 -- 2,296 (2,296)(Q)
-------- -------- ------- -------- -------
Income attributable to common
stockholders....................... $ 26,318 $ (7,442) $(6,978) $ 755 $ 4,142
======== ======== ======= ======== =======
Basic earnings per share............ $ 1.09
========
Diluted earnings per share.......... $ 1.08
========
Weighted average shares
outstanding........................ 24,055
========
Weighted average shares and
equivalents outstanding............ 24,436
========
<CAPTION>
IFG IFG
IFG AS MERGER REORGANIZATION PRE-MERGER
ADJUSTED(F) ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA
----------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
Rental and other property
revenues........................... $ 6,912 $ -- $ -- $ 402,202
Property operating expenses......... (3,307) -- -- (169,166)
Owned property management expense... -- -- -- (10,412)
Depreciation........................ (966) (1,321)(R) -- (87,246)
-------- -------- -------- ---------
Income from property operations..... 2,639 (1,321) -- 135,378
-------- -------- -------- ---------
Management fees and other income.... 94,330 -- (74,404)(X) 41,676
Management and other expenses....... (57,615) -- 49,236(X) (23,683)
Corporate overhead allocation....... -- -- -- (588)
Amortization........................ (16,768) (23,967)(S) 28,922(Y) (19,014)
-------- -------- -------- ---------
Income from service company
business........................... 19,947 (23,967) 3,754 (1,609)
Minority interest in service company
business........................... -- -- -- (10)
-------- -------- -------- ---------
AIMCO's share of income from service
company business................... 19,947 (23,967) 3,754 (1,619)
-------- -------- -------- ---------
General and administrative
expenses........................... (21,199) -- 6,392(X) (21,228)
Interest expense.................... (9,035) (5,839)(T) 3,725(X) (96,830)(BB)
Interest income..................... 10,967 -- -- 21,543
Minority interest in other
partnerships....................... (12,871) (7,349)(U) -- (18,563)
Equity in losses of unconsolidated
partnerships....................... 12,515 (23,917)(V) -- (21,459)
Equity in earnings of unconsolidated
subsidiaries....................... -- -- (8,082)(Z) 2,344(DD)
-------- -------- -------- ---------
Income (loss) from operations....... 2,963 (62,393) 5,789 (434)
Income tax provision................ 1,701 (1,701)(W) -- --
Gain on dispositions of property.... 80 (80) -- --
-------- -------- -------- ---------
Income (loss) before extraordinary
item and minority interest in AIMCO
Operating Partnership.............. 4,744 (64,174) 5,789 (434)
Extraordinary item -- early
extinguishment of debt............. -- -- -- --
-------- -------- -------- ---------
Income before minority interest in
AIMCO Operating Partnership........ 4,744 (64,174) 5,789 (434)
Minority interest in AIMCO Operating
Partnership........................ -- 5,719(AA) -- 3,481(BB)
-------- -------- -------- ---------
Net income.......................... 4,744 (58,455) 5,789 3,047
Income attributable to preferred
stockholders....................... -- -- -- 34,174(CC)
-------- -------- -------- ---------
Income attributable to common
stockholders....................... $ 4,744 $(58,455) $ 5,789 $ (31,127)(BB)
======== ======== ======== =========
Basic earnings per share............ $ (0.56)(BB)
=========
Diluted earnings per share.......... $ (0.56)(BB)
=========
Weighted average shares
outstanding........................ 55,631
=========
Weighted average shares and
equivalents outstanding............ 56,475
=========
</TABLE>
95
<PAGE> 103
- -------------------------
(A) Represents AIMCO's audited consolidated results of operations for the
year ended December 31, 1997.
(B) Represents adjustments to reflect the following as if they had occurred
on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock
Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings;
(v) the 1998 Acquisitions; and (vi) the 1998 Disposition.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed, as follows:
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other
property revenues..... $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660
Property operating
expenses.............. (2,941)(v) (8,411) -- 8,411 (xvii (2,941)
Owned property
management expense.... (282)(v) (862) -- 862 (xvii (282)
Depreciation........... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414)
------- -------- ------- -------- -------
Income from property
operations............ 2,023 5,042 (693) (4,349) 2,023
------- -------- ------- -------- -------
Management fees and
other income.......... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813
Management and other
expenses.............. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394)
Amortization........... -- (9,111) (4,432)(xii) 7,743 (xix (5,800)
------- -------- ------- -------- -------
Income from service
company business...... (858) 27,798 (4,432) (25,889) (3,381)
------- -------- ------- -------- -------
General and
administrative
expenses.............. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025)
Interest expense....... (5,082)(ix) (10,685) -- 10,305(xx) (5,462)
Interest income........ 540(v) 1,963 -- (603)(xxi) 1,900
Minority interest in
other partnerships.... 16(v) -- -- -- 16
Equity in losses of
unconsolidated
partnerships.......... (3,905)(x) -- (4,631)(xiv) (6) (8,542)
Equity in earnings of
unconsolidated
subsidiaries.......... -- -- (4,636)(xv) 10,426 (xxii 5,790
------- -------- ------- -------- -------
Income (loss) from
operations............ (7,266) 7,852 (5,724) (3,543) (8,681)
Income tax provision... -- (3,502) 3,502 (xvi -- --
------- -------- ------- -------- -------
Income (loss) before
minority interest in
Operating
Partnership........... (7,266) 4,350 (2,222) (3,543) (8,681)
Minority interest in
Operating
Partnership........... 1,296 -- -- 407 1,703
------- -------- ------- -------- -------
Net income (loss)...... (5,970) 4,350 (2,222) (3,136) (6,978)
======= ======== ======= ======== =======
</TABLE>
96
<PAGE> 104
- -------------------------
(i) Represents the adjustment to record activity from January 1, 1997
to the date of acquisition, as if the acquisition of the NHP Real
Estate Companies had occurred on January 1, 1997. The historical
financial statements of the NHP Real Estate Companies consolidate
certain real estate partnerships in which they have an interest
that will be presented on the equity method by AIMCO as a result
of the NHP Real Estate Reorganization. In addition, represents
adjustments to record additional depreciation and amortization
related to the increased basis in the assets of the NHP Real
Estate Companies as a result of the allocation of the purchase
price of the NHP Real Estate Companies and additional interest
expense incurred in connection with borrowings incurred by AIMCO
to consummate the NHP Real Estate Acquisition.
(ii) Represents the unaudited consolidated results of operations of
NHP for the period from January 1, 1997 through December 8, 1997
(date of the NHP Merger).
(iii) Represents the following adjustments occurring as a result of the
NHP Merger: (i) the reduction in personnel costs, primarily
severance costs, pursuant to a restructuring plan; (ii) the
incremental depreciation of the purchase price adjustment related
to real estate; (iii) the incremental amortization of the
purchase price adjustment related to the management contracts,
furniture, fixtures and equipment, and goodwill; (iv) the
reversal of equity in earnings of NHP during the pre-merger
period when AIMCO held a 47.62% interest in NHP; and (v) the
amortization of the increased basis in investments in real estate
partnerships based on the purchase price adjustment related to
real estate and an estimated average life of 20 years.
(iv) Represents adjustments related to the NHP Reorganization, whereby
AIMCO contributed or sold to the Unconsolidated Subsidiaries and
the Unconsolidated Partnership: (i) certain assets and liabilities
of NHP, primarily related to the management operations and other
businesses owned by NHP and (ii) 12 real estate properties
containing 2,905 apartment units. The adjustments represent (i)
the related revenues and expenses primarily related to the
management operations and other businesses owned by NHP and (ii)
the historical results of operations of such real estate
partnerships contributed, with additional depreciation and
amortization recorded related to AIMCO's new basis resulting from
the allocation of the combined purchase price of NHP and the NHP
Real Estate Companies.
(v) Represents adjustments to reflect the acquisition of the NHP Real
Estate Companies and the corresponding historical results of
operations as if they had occurred on January 1, 1997.
(vi) Represents incremental depreciation related to the consolidated
real estate assets purchased from the NHP Real Estate Companies.
Buildings and improvements are depreciated on the straight-line
method over a period of 30 years, and furniture and fixtures are
depreciated on the straight-line method over a period of 5 years.
97
<PAGE> 105
(vii) Represents the adjustment to record the revenues from ancillary
businesses purchased from the NHP Real Estate Companies as if the
acquisition had occurred on January 1, 1997.
(viii) Represents $4,878 related to the adjustment to record the
expenses from ancillary businesses purchased from the NHP Real
Estate Companies as if the acquisition had occurred on January 1,
1997, less $2,615 related to a reduction in personnel costs
pursuant to a restructuring plan, approved by AIMCO senior
management, assuming that the acquisition of the NHP Real Estate
Companies had occurred on January 1, 1997 and that the
restructuring plan was completed on January 1, 1997. The
restructuring plan specifically identifies all significant
actions to be taken to complete the restructuring plan, including
the reduction of personnel, job functions, location and the date
of completion.
(ix) Represents adjustments in the amount of $3,391 to reflect the
acquisition of the NHP Real Estate Companies and the corresponding
historical results of operations as if they had occurred on
January 1, 1997, as well as the increase in interest expense in
the amount of $1,691 related to borrowings on AIMCO's credit
facilities of $55,807 to finance the NHP Real Estate Acquisition.
(x) Represents adjustments in the amount of $2,432 to reflect the
acquisition of the NHP Real Estate Companies and the corresponding
historical results of operations as if they had occurred on
January 1, 1997, as well as amortization of $1,473 related to the
increased basis in investment in real estate partnerships, as a
result of the allocation of the purchase price of the NHP Real
Estate Companies, based on an estimated average life of 20 years.
(xi) Represents incremental depreciation related to the real estate
assets purchased from NHP. Buildings and improvements are
depreciated on the straight-line method over a period of 20 years,
and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(xii) Represents incremental depreciation and amortization of the
tangible and intangible assets related to the property management
and other business operated by the Unconsolidated Subsidiaries,
based on AIMCO's new basis as adjusted by the allocation of the
combined purchase price of NHP including amortization of
management contracts of $3,782, depreciation of furniture,
fixtures and equipment of $2,018 and amortization of goodwill of
$7,743, less NHP's historical depreciation and amortization of
$9,111. Management contracts are amortized using the straight-line
method over the weighted average life of the contracts estimated
to be approximately 15 years. Furniture, fixtures and equipment
are depreciated using the straight-line method over the estimated
life of 3 years. Goodwill is amortized using the straight-line
method over 20 years.
(xiii) Represents a reduction in personnel costs, primarily severance
costs, pursuant to a restructuring plan, approved by AIMCO senior
management, specifically identifying all significant actions to
be taken to complete the restructuring plan, assuming that the
NHP Merger had occurred on
98
<PAGE> 106
January 1, 1997 and that the restructuring plan was completed on
January 1, 1997.
(xiv) Represents adjustment for amortization of the increased basis in
investments in real estate partnerships, as a result of the
allocation of the combined purchase price of NHP and the NHP Real
Estate Companies, based on an estimated average life of 20 years.
(xv) Represents the reversal of equity in earnings in NHP during the
pre-merger period when AIMCO held a 47.62% interest in NHP, as a
result of AIMCO's acquisition of 100% of the NHP Common Stock.
(xvi) Represents the reversal of NHP's income tax provision due to the
restructuring of the management business to the Unconsolidated
Subsidiaries.
(xvii) Represents the contribution of NHP's 12 real estate properties
containing 2,905 apartment units to the Unconsolidated
Partnership pursuant to the NHP Reorganization.
(xviii) Represents the historical income and expenses associated with
certain assets and liabilities of NHP that were contributed or
sold to the Unconsolidated Subsidiaries, primarily related to the
management operations and other businesses owned by NHP.
(xix) Represents the amortization and depreciation of certain management
contracts and other assets of NHP, based on AIMCO's new basis
resulting from the allocation of the purchase price of NHP, that
will be contributed or sold to the Unconsolidated Subsidiaries,
primarily related to the management operations and other
businesses owned by NHP.
(xx) Represents interest expense of $6,020 related to the contribution
of NHP's 12 real estate properties containing 2,905 apartment
units to the Unconsolidated Partnership and interest expense of
$4,285 related to the certain assets and liabilities that will be
contributed or sold to the Unconsolidated Subsidiaries pursuant to
the NHP Reorganization.
(xxi) Represents the interest income of $5,000 earned on notes payable
of $50,000 to AIMCO issued as consideration for certain assets and
liabilities sold to the Unconsolidated Subsidiaries by AIMCO, net
of the elimination of AIMCO's share of the related interest
expense of $4,750 reflected in the equity in earnings of the
Unconsolidated Subsidiaries operating results, offset by $853 in
interest income primarily related to the management operations and
other businesses owned by NHP contributed or sold to the
Unconsolidated Subsidiaries pursuant to the NHP Reorganization.
(xxii) Represents AIMCO's equity in earnings of the Unconsolidated
Subsidiaries.
(D) Represents the audited historical statement of operations of Ambassador
for the year ended December 31, 1997. Certain reclassifications have been
made to Ambassador's historical statement of operations to conform to
AIMCO's Statement of Operations presentation. The Ambassador historical
statement of operations excludes extraordinary loss of $1,384 and a loss
on sale of an interest rate cap of $509.
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<PAGE> 107
(E) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(F) Represents adjustments to reflect the IFG Merger, the AMIT Merger and the
spin-off of Holdings as if these transactions had occurred on January 1,
1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
IFG AMIT HOLDINGS IFG
HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Rental and other property
revenues.................... $ 6,646 $ 266 $ -- $ 6,912
Property operating expenses... (3,251) (56) -- (3,307)
Depreciation.................. (966) -- -- (966)
--------- ------- --------- --------
Income from property
operations.................. 2,429 210 -- 2,639
--------- ------- --------- --------
Management fees and other
income...................... 389,626 -- (295,296) 94,330
Management and other
expenses.................... (315,653) -- 258,038 (57,615)
Amortization.................. (31,709) (303) 15,244 (16,768)
--------- ------- --------- --------
Income from service company
business.................... 42,264 (303) (22,014) 19,947
--------- ------- --------- --------
General and administrative
expenses.................... (20,435) (1,351) 587 (21,199)
Interest expense.............. (9,353) -- 318 (9,035)
Interest income............... 4,571 6,853 (457) 10,967
Minority interest in other
partnerships................ (12,448) (382) (41) (12,871)
Equity in income (losses) of
unconsolidated
partnership................. 10,027 2,639 (151) 12,515
--------- ------- --------- --------
Income (loss) from
operations.................. 17,055 7,666 (21,758) 2,963
Income tax provision.......... (6,822) (180) 8,703 1,701
Gain on sale of property...... -- 80 -- 80
--------- ------- --------- --------
Net income (loss)............. 10,233 7,566 (13,055) 4,744
========= ======= ========= ========
</TABLE>
- -------------------------
(i) Represents the audited consolidated results of operations of IFG for
the year ended December 31, 1997, as reported in IFG's Annual Report
on Form 10-K. Certain reclassifications have been made to IFG's
historical statement of operations to conform to AIMCO's statement
of operations presentation.
(ii) Represents the historical statement of operations of AMIT, as well
as pro forma adjustments related to the AMIT Merger. The AMIT
Merger closed prior to the IFG Merger.
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<PAGE> 108
(iii) Represents the distribution of two shares of Holdings common stock
for each three shares of IFG common stock to holders of IFG common
stock.
(G) Represents the following adjustments occurring as a result of the IFG
Merger: (i) the incremental depreciation of the purchase price adjustment
related to consolidated real estate and investments in real estate
partnerships; (ii) the amortization of goodwill and property management
contracts resulting from the IFG Merger; (iii) the increase in interest
expense resulting from the net increase in debt; and (iv) the elimination
of the income tax provision.
(H) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, AIMCO will contribute to the Unconsolidated
Subsidiaries certain assets and liabilities of IFG, primarily management
contracts and related working capital assets and liabilities related to
IFG's third party management operations. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by IFG, with additional amortization recorded related to
AIMCO's new basis resulting from the allocation of the purchase price of
IFG.
(I) Represents adjustments to reflect the 1997 Property Acquisitions and the
1998 Acquisitions, less the 1997 Dispositions and the 1998 Disposition as
if they had occurred on January 1, 1997. These pro forma operating
results are based on historical results of the properties, except for
depreciation, which is based on AIMCO's investment in the properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1997 PROPERTY 1997 1998 1998
ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITION TOTAL
------------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues............... $ 88,589 $(4,081) $19,892 $(2,105) $102,295
Property operating
expense................ (44,109) 1,944 (9,280) 783 (50,662)
Owned property management
expense................ (3,233) 133 (485) 75 (3,510)
Depreciation............. (16,839) 452 (4,795) 354 (20,828)
</TABLE>
101
<PAGE> 109
(J) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on AIMCO's credit facilities and other loans and
mortgages assumed in connection with the 1997 Property
Acquisitions.............................................. $(29,427)
Repayments on AIMCO's credit facilities and other
indebtedness with proceeds from the 1997 Dispositions and
the 1997 Stock Offerings.................................. 19,505
Repayments on AIMCO's credit facilities with proceeds from a
dividend received from one of the Unconsolidated
Subsidiaries.............................................. 1,889
Borrowings on AIMCO's credit facilities and other loans and
mortgages assumed in connection with the 1998
Acquisitions.............................................. (8,270)
Repayments on AIMCO's credit facilities and other
indebtedness with proceeds from the 1998 Disposition and
the 1998 Stock Offerings.................................. 14,677
--------
$ (1,626)
========
</TABLE>
(K) Represents income related to limited partners in consolidated
partnerships acquired in connection with the 1997 Property Acquisitions.
(L) Represents the reduction in AIMCO's earnings in unconsolidated
partnerships as a result of the consolidation of additional partnerships
resulting from additional ownership acquired through tender offers.
(M) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(N) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 724
Reduction in salaries and benefits.......................... 4,197
Merger related costs........................................ 524
Other....................................................... 1,947
------
$7,392
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring
plan, approved by AIMCO senior management, assuming that the Ambassador
Merger had occurred on January 1, 1997 and that the restructuring plan
was completed on January 1, 1997. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job functions,
location and date of completion.
(O) Represents the decrease in interest expense of $3,612 related to the
repayment of the Ambassador revolving lines of credit upon consummation
of the Ambassador Merger, offset by an increase in interest expense of
$3,833 related to borrowings under AIMCO's credit facilities.
102
<PAGE> 110
(P) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(Q) Represents the elimination of the preferred stock dividends of Ambassador
upon the conversion of the Ambassador Preferred Stock to AIMCO Common
Stock.
(R) Represents incremental depreciation related to the consolidated real
estate assets purchased in connection with the IFG Merger, based on
AIMCO's new basis resulting from the allocation of the purchase price of
IFG. Buildings and improvements are depreciated on the straight-line
method over a period of 20 years, and furniture and fixtures are
depreciated on the straight-line method over a period of 5 years.
(S) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of IFG,
based on AIMCO's new basis resulting from the allocation of the purchase
price of IFG, including amortization of property management contracts of
$37,313 and depreciation of furniture, fixtures, and equipment of $3,119,
less IFG's historical depreciation and amortization of $16,465. Property
management contracts are amortized using the straight-line method over a
period of three years. Furniture, fixtures, and equipment are depreciated
using the straight-line method over a period of three years.
(T) Represents the increase in interest expense of $3,725 related to
borrowings to pay a special dividend of approximately $50 million to
holders of the Class E Preferred Stock; and $2,114 related to borrowings
of $28,381 for the additional liabilities of IFG assumed by AIMCO. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
(U) In connection with the Merger, IPLP was issued approximately [ ]
million OP Units in exchange for a substantial portion of the assets and
liabilities of IPLP. Distributions of $8,901 for these OP Units related
to the minority holders. This adjustment represents these distributions,
offset by the elimination of the historical minority interest in IPT of
$1,552.
(V) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IFG, based on an estimated average life of 20 years, and based
on AIMCO's new basis resulting from the allocation of the purchase price
of IFG.
(W) Represents the reversal of IFG's income tax provision.
(X) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that will be contributed to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG.
(Y) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of IFG, based on AIMCO's new basis resulting from the
allocation of the purchase price of IFG.
(Z) Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(AA) Represents adjustments to Minority Interest in AIMCO Operating
Partnership assuming the Completed Transactions, the NHP Transactions,
the Ambassador Merger, and the IFG Merger had occurred as of January 1,
1997. On a pro forma
103
<PAGE> 111
basis, without giving effect to the NHP Transactions, the Ambassador Merger and
the IFG Merger as of December 31, 1997, the minority interest percentage is
approximately 15.7%. On a pro forma basis, without giving effect to the
Ambassador Merger and the IFG Merger, as of December 31, 1997, the minority
interest percentage is approximately 13.3%. On a pro forma basis, without giving
effect to the IFG Merger, as of December 31, 1997, the minority interest
percentage is approximately 11.8%. On a pro forma basis, giving effect to the
Completed Transactions, the NHP Transactions, the Ambassador Merger and the IFG
Merger, as of December 31, 1997, the minority interest percentage is
approximately 10.1%.
(BB) The following table presents the net impact to pro forma net loss
applicable to holders of shares of AIMCO Common Stock and net loss per
share of AIMCO Common Stock assuming the interest rate per annum
increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense................................ $ 894
========
Loss before minority interest in AIMCO Operating
Partnership............................................... $ (1,328)
Minority interest in AIMCO Operating Partnership............ 3,571
--------
Net income.................................................. $ 2,243
========
Net loss attributable to common stockholders................ $(31,931)
========
Basic loss per share........................................ $ (0.57)
========
Diluted loss per share...................................... $ (0.57)
========
</TABLE>
(CC) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock the AIMCO Class G Preferred Stock and the AIMCO Class H
Preferred Stock as if these stock offerings had occurred as of January 1,
1997.
(DD) Represents AIMCO's equity in earnings in the Unconsolidated Subsidiaries
of $(2,406), plus the elimination of intercompany interest expense of
$4,750. The combined Pro Forma Statement of Operations (Pre-Merger) of
the Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the Ambassador Merger,
the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG
Reorganization as if these transactions had occurred as of January 1,
1997.
104
<PAGE> 112
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZATION IFG PRE MERGER
HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA
------------- --------------- ------------------- ----------
<S> <C> <C> <C> <C>
Rental and other property
revenues............... $ 6,194 $ 6,371(iv) $ -- $ 12,565
Property operating
expenses............... (3,355) (3,531)(iv) -- (6,886)
Owned property management
expense................ (147) (478)(iv) -- (625)
Depreciation expense..... (1,038) (767)(iv) -- (1,805)
-------- -------- -------- --------
Income from property
operations............. 1,654 1,595 -- 3,249
-------- -------- -------- --------
Management fees and other
income................. 23,776 41,992(v) 74,404(x) 140,172
Management and other
expenses............... (11,733) (20,403)(v) (49,236)(x) (81,372)
Amortization............. (3,726) (4,017)(v) (28,922)(xi) (36,665)
-------- -------- -------- --------
Income from service
company................ 8,317 17,572 (3,754) 22,135
General and
administrative
expense................ -- (6,573)(v) (6,392)(x) (12,965)
Interest expense......... (6,058) (5,849)(vi) (3,725)(x) (15,632)
Interest income.......... 1,001 (148)(v) -- 853
Minority interest in
other partnerships..... (2,819) 2,198 (viii -- (621)
Equity in losses of
unconsolidated
partnerships........... (1,028) 1,028(iv) -- --
Equity in earnings of
Unconsolidated
Subsidiaries........... 2,943 (2,943)(vii) -- --
-------- -------- -------- --------
Income (loss) from
operations............. 4,010 6,880 (13,871) (2,981)
Income tax provision..... (1,902) (3,013)(ix) 5,364 (xii 449
-------- -------- -------- --------
Net income (loss)........ $ 2,108 $ 3,867 $ (8,507) $ (2,532)
======== ======== ======== ========
Income attributable to
preferred
stockholders........... $ 2,003 $ 3,673 $ (8,082) $ (2,406)
======== ======== ======== ========
Income (loss)
attributable to common
stockholders........... $ 105 $ 194 $ (425) $ (126)
======== ======== ======== ========
</TABLE>
105
<PAGE> 113
- -------------------------
(i) Represents the historical results of operations of the Unconsolidated
Subsidiaries for the year ended December 31, 1997.
(ii) Represents adjustments related to the NHP Reorganization, which includes
the sale or contribution of 14 properties containing 2,725 apartment
units from the unconsolidated partnerships to the Unconsolidated
Subsidiaries, as well as the sale or contribution of 12 properties
containing 2,905 apartment units from the Unconsolidated Subsidiaries to
the Unconsolidated Partnership.
(iii) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, AIMCO will contribute to the Unconsolidated
Subsidiaries certain assets and liabilities of IFG, primarily related to
the management operations owned by IFG. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by IFG, with additional amortization recorded related to
AIMCO's new basis resulting from the allocation of the purchase price of
IFG.
(iv) Represents adjustments for the historical results of operations of the 14
real estate properties contributed or sold to the Unconsolidated
Subsidiaries, offset by the historical results of operations of the 12
real estate properties contributed or sold to the Unconsolidated
Partnership, with additional depreciation recorded related to AIMCO's new
basis resulting from the allocation of purchase price of NHP and the NHP
Real Estate Companies.
(v) Represents adjustments to reflect income and expenses associated with
certain assets and liabilities of NHP contributed or sold to the
Unconsolidated Subsidiaries.
(vi) Represents adjustments of $6,058 to reverse the historical interest
expense of the Unconsolidated Subsidiaries, which resulted from its
original purchase of NHP Common Stock, offset by $2,622 related to the
contribution or sale of the 14 real estate properties, $4,285 related to
assets and liabilities transferred from AIMCO to the Unconsolidated
Subsidiaries and $5,000 related to a note payable to AIMCO.
(vii) Represents the reversal of the historical equity in earnings of NHP for
the period in which NHP was not consolidated by the Unconsolidated
Subsidiaries.
(viii) Represents the minority interest in the operations of the 14 real estate
properties.
(ix) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill which is not deductible
for tax purposes.
(x) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed to the Unconsolidated
Subsidiaries, primarily related to the management operations of IFG.
(xi) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of IFG, based on AIMCO's new basis resulting from the
allocation of the purchase price of IFG.
(xii) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
106
<PAGE> 114
AIMCO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMBASSADOR IFG
COMPLETED AMBASSADOR PURCHASE PRICE IFG AS MERGER
HISTORICAL(A) TRANSACTIONS(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F)
------------- --------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Rental and other property
revenues................ $161,264 $ 6,199(H) $ 35,480 $ -- $ 3,988 $ --
Property operating
expenses................ (59,643) (2,534)(H) (14,912) -- (1,736) --
Owned property management
expense................. (4,713) (167)(H) -- -- -- --
Depreciation.............. (34,289) (1,489)(H) (7,270) (1,420)(J) (600) (660)(N)
-------- ------- -------- ------- -------- --------
Income from property
operations.............. 62,619 2,009 13,298 (1,420) 1,652 (660)
-------- ------- -------- ------- -------- --------
Management fees and other
income.................. 9,562 -- -- -- 47,635 --
Management and other
expenses................ (5,470) -- -- -- (27,585) --
Corporate overhead
allocation.............. (196) -- -- -- -- --
Amortization.............. (3) -- -- -- (8,928) (11,339)(O)
-------- ------- -------- ------- -------- --------
Income from service
company business........ 3,893 -- -- -- 11,122 (11,339)
Minority interest in
service company
business................ (1) -- -- -- -- --
-------- ------- -------- ------- -------- --------
Company's share of income
from service company
business................ 3,892 -- -- -- 11,122 (11,339)
-------- ------- -------- ------- -------- --------
General and administrative
expenses................ (4,103) -- (5,278) 5,278(K) (10,272) 4,937(P)
Interest expense.......... (34,778) 2,982(I) (10,079) 145(L) (9,614) (2,896)(Q)
Interest income........... 11,350 -- -- -- 4,431 --
Minority interest in other
partnerships............ (516) -- (252) 252(M) (8,643) (2,357)(R)
Equity in losses of
unconsolidated
partnerships............ (4,681) -- (71) -- 14,482 (8,575)(S)
Equity in earnings of
unconsolidated
subsidiaries............ 5,609 -- -- -- -- --
Amortization of
goodwill................ (3,394) -- -- -- -- --
-------- ------- -------- ------- -------- --------
Income (loss) from
operations.............. 35,998 4,991 (2,382) 4,255 3,158 (20,890)
Income tax provision...... -- -- -- -- (231) 231(T)
Gain on dispositions of
property................ 2,526 (2,526) -- -- -- --
-------- ------- -------- ------- -------- --------
Income before minority
interest in AIMCO
Operating Partnership... 38,524 2,465 (2,382) 4,255 2,927 (20,659)
Minority interest in AIMCO
Operating Partnership... (3,262) 196(X) -- 164(X) -- 1,814(X)
-------- ------- -------- ------- -------- --------
Net income (loss)......... 35,262 2,661 (2,382) 4,419 2,927 (18,845)
Income attributable to
preferred
stockholders............ 8,650 8,354 -- -- -- --
-------- ------- -------- ------- -------- --------
Income (loss) attributable
to common
stockholders............ $ 26,612 $(5,693) $ (2,382) $ 4,419 $ 2,927 $(18,845)
======== ======= ======== ======= ======== ========
Basic earnings per
share................... $ 0.62
========
Diluted earnings per
share................... $ 0.61
========
Weighted average shares
outstanding............. 43,206
========
Weighted average shares
and equivalents
outstanding............. 43,409
========
<CAPTION>
IFG
REORGANIZATION AIMCO
ADJUSTMENTS(G) PRO FORMA
-------------- ---------
<S> <C> <C>
Rental and other property
revenues................ $ -- $206,931
Property operating
expenses................ -- (78,825)
Owned property management
expense................. -- (4,880)
Depreciation.............. -- (45,728)
-------- --------
Income from property
operations.............. -- 77,498
-------- --------
Management fees and other
income.................. (37,672)(U) 19,525
Management and other
expenses................ 23,395(U) (9,660)
Corporate overhead
allocation.............. -- (196)
Amortization.............. 14,461(V) (5,809)
-------- --------
Income from service
company business........ 184 3,860
Minority interest in
service company
business................ -- (1)
-------- --------
Company's share of income
from service company
business................ 184 3,859
-------- --------
General and administrative
expenses................ 4,760(U) (4,678)
Interest expense.......... 1,847(U) (52,393)(Y)
Interest income........... -- 15,781
Minority interest in other
partnerships............ -- (11,516)
Equity in losses of
unconsolidated
partnerships............ -- 1,155
Equity in earnings of
unconsolidated
subsidiaries............ (3,613)(W) 1,996(AA)
Amortization of
goodwill................ -- (3,394)
-------- --------
Income (loss) from
operations.............. 3,178 28,308
Income tax provision...... -- --
Gain on dispositions of
property................ -- --
-------- --------
Income before minority
interest in AIMCO
Operating Partnership... 3,178 28,308
Minority interest in AIMCO
Operating Partnership... -- (1,088)(X)
-------- --------
Net income (loss)......... 3,178 27,220(Y)
Income attributable to
preferred
stockholders............ -- 17,004(Z)
-------- --------
Income (loss) attributable
to common
stockholders............ $ 3,178 $ 10,216(Y)
======== ========
Basic earnings per
share................... $ 0.18(Y)
========
Diluted earnings per
share................... $ 0.18(Y)
========
Weighted average shares
outstanding............. 56,777
========
Weighted average shares
and equivalents
outstanding............. 57,442
========
</TABLE>
107
<PAGE> 115
- -------------------------
(A) Represents AIMCO's unaudited consolidated results of operations for the
six months ended June 30, 1998.
(B) Represents adjustments to reflect the following as if they had occurred
on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998
Acquisitions; and (iii) the 1998 Disposition.
(C) Represents the unaudited historical statement of operations of Ambassador
for the four months ended April 30, 1998. Certain reclassifications have
been made to Ambassador's historical Statement of Operations to conform
to AIMCO's Statement of Operations presentation.
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt;
and (iv) the elimination of the minority interest associated with
Jupiter-I, L.P.
(E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, and
the spin-off of the common stock of Holdings as if these transactions had
occurred on January 1, 1998. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
IFG AMIT HOLDINGS IFG
HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Rental and other property
revenues....................... $ 3,627 $ 361 $ -- $ 3,988
Property operating expenses...... (1,736) -- -- (1,736)
Depreciation..................... (600) -- -- (600)
--------- ------ --------- --------
Income from property
operations..................... 1,291 361 -- 1,652
--------- ------ --------- --------
Management fees and other
income......................... 274,749 (227,114) 47,635
Management and other expenses.... (228,454) 200,869 (27,585)
Amortization..................... (20,021) (33) 11,126 (8,928)
--------- ------ --------- --------
Income from service company
business....................... 26,274 (33) (15,119) 11,122
--------- ------ --------- --------
General and administrative
expenses....................... (13,116) (302) 3,146 (10,272)
Interest expense................. (10,320) -- 706 (9,614)
Interest income.................. 2,878 2,618 (1,065) 4,431
Minority interest in other
partnerships................... (8,497) -- (146) (8,643)
Equity in losses of
unconsolidated partnerships.... 13,624 858 14,482
--------- ------ --------- --------
Income (loss) from operations.... 12,134 2,644 (11,620) 3,158
Income tax provision............. (5,460) -- 5,229 (231)
--------- ------ --------- --------
Net income (loss)................ $ 6,674 $2,644 $ (6,391) $ 2,927
========= ====== ========= ========
</TABLE>
- ---------------
(i) Represents the unaudited consolidated results of operations of IFG
for the six months ended June 30, 1998, as reported in IFG's
Quarterly Report on
108
<PAGE> 116
Form 10-Q. Certain reclassifications have been made to IFG's
historical statement of operations to conform to AIMCO's statement
of operations presentation.
(ii) Represents the historical statement of operations of AMIT, as well
as pro forma adjustments related to the AMIT Merger. The AMIT
Merger closed prior to the IFG Merger.
(iii) Represents the distribution of two shares of Holdings common stock
for each three shares of IFG common stock to holders of IFG common
stock.
(F) Represents the following adjustments occurring as a result of the IFG
Merger: (i) the incremental depreciation of the purchase price adjustment
related to consolidated real estate and investments in real estate
partnerships; (ii) the amortization of goodwill and property management
contracts resulting from the IFG Merger; (iii) the increase in interest
expense resulting from the net increase in debt; and (iv) the elimination
of the income tax provision.
(G) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, AIMCO contributed to the combined
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily management contracts and related working capital assets and
liabilities related to IFG's third party management operations. The
adjustments reflect the related revenues and expenses primarily related
to the management operations owned by IFG, with additional amortization
recorded related to AIMCO's new basis resulting from the allocation of
the purchase price of IFG.
(H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998
Disposition as if they had occurred on January 1, 1998. These pro forma
operating results are based on historical results of the properties,
except for depreciation, which is based on AIMCO's investment in the
properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1998 1998
ACQUISITIONS DISPOSITION TOTAL
------------ ----------- -------
<S> <C> <C> <C>
Rental and other property revenues...... $ 6,297 $(98) $ 6,199
Property operating expense.............. (2,625) 91 (2,534)
Owned property management expense....... (173) 6 (167)
Depreciation............................ (1,507) 18 (1,489)
</TABLE>
(I) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on AIMCO's credit facilities and other loans and
mortgages assumed in connection with the 1998
Acquisitions.............................................. $(2,760)
Repayments on AIMCO's credit facilities and other
indebtedness with proceeds from the 1998 Disposition and
the 1998 Stock Offerings.................................. 5,742
-------
$ 2,982
=======
</TABLE>
(J) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are
109
<PAGE> 117
depreciated on the straight-line method over a period of 30 years, and furniture
and fixtures are depreciated on the straight-line method over a period of 5
years.
(K) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 355
Reduction in salaries and benefits.......................... 2,482
Merger related costs........................................ 1,212
Other....................................................... 1,229
------
$5,278
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring
plan, approved by AIMCO senior management, assuming that the Ambassador
Merger had occurred on January 1, 1998 and that the restructuring plan
was completed on January 1, 1998. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job functions,
location and date of completion.
(L) Represents the decrease in interest expense of $1,480 related to the
repayment of the Ambassador revolving lines of credit upon consummation
of the Ambassador Merger, offset by an increase in interest expense of
$1,335 related to borrowings under the AIMCO line of credit.
(M) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(N) Represents incremental depreciation related to the consolidated real
estate assets purchased in connection with the IFG Merger, based on
AIMCO's new basis resulting from the allocation of the purchase price of
IFG. Buildings and improvements are depreciated on the straight-line
method over a period of 20 years, and furniture and fixtures are
depreciated on the straight-line method over a period of 5 years.
(O) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of IFG,
based on AIMCO's new basis resulting from the allocation of the purchase
price of IFG, including amortization of property management contracts of
$18,675, and depreciation of furniture, fixtures, and equipment of
$1,559, less IFG's historical depreciation and amortization of $8,895.
Property management contracts are amortized using the straight-line
method over a period of three years. Furniture, fixtures, and equipment
are depreciated using the straight-line method over a period of three
years.
(P) Represents the elimination of merger related expenses recorded by IFG
during the six months ended June 30, 1998. In connection with the IFG
Merger, certain IFG executives will receive one-time lump-sum payments in
connection with the termination of their employment and option
agreements. The total of these lump sum payments is estimated to be
approximately $50,000.
(Q) Represents the increase in interest expense of $1,847 related to
borrowings to pay a special dividend to holders of the Class E Preferred
Stock and $1,049 related to
110
<PAGE> 118
borrowings of $28,381 for the additional liabilities of IFG assumed by AIMCO.
The interest rate used in the calculation of interest expense was LIBOR plus
1.75%.
(R) In connection with the Merger, IPLP was issued approximately [ ]
million OP Units in exchange for a substantial portion of the assets and
liabilities of IPLP. Distributions of $5,413 for these OP Units related
to the minority holders. This adjustment represents these distributions,
offset by the elimination of the historical minority interest in IPT of
$3,056.
(S) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IFG, based on an estimated average life of 20 years, and based
on AIMCO's new basis resulting from the allocation of the purchase price
of IFG.
(T) Represents the reversal of IFG's income tax provision.
(U) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed to the Unconsolidated
Subsidiaries, primarily related to the management operations of IFG.
(V) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of IFG, based on AIMCO's new basis resulting from the
allocation of the purchase price of IFG.
(W) Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(X) Represents adjustments to Minority Interest in the AIMCO Operating
Partnership assuming the Completed Transactions, the Ambassador Merger,
and the IFG Merger had occurred as of January 1, 1997. On a pro forma
basis, without giving effect to the Ambassador Merger and the IFG Merger,
as of June 30, 1998, the minority interest percentage is approximately
12.8%. On a pro forma basis, without giving effect to the IFG Merger, as
of June 30, 1998, the minority interest percentage is approximately
11.2%. On a pro forma basis, giving effect to the Completed Transactions,
the Ambassador Merger and the IFG Merger, as of June 30, 1998, the
minority interest percentage is approximately 9.6%.
(Y) The following table presents the net impact to pro forma net income
applicable to holders of shares of AIMCO Common Stock and net income per
share of AIMCO Common Stock assuming the interest rate per annum
increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest........................................ $ 444
========
Income before minority interest in AIMCO Operating
Partnership............................................... $ 27,864
--------
Minority interest in AIMCO Operating Partnership............ (1,045)
========
Net income.................................................. $ 26,819
========
Net income attributable to common stockholders.............. $ 9,815
========
Basic income per share...................................... $ 0.17
========
Diluted income per share.................................... $ 0.17
========
</TABLE>
(Z) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock
111
<PAGE> 119
the AIMCO Class G Preferred Stock and the AIMCO Class H Preferred Stock as if
these stock offerings had occurred as of January 1, 1997.
(AA) Represents AIMCO's equity in losses in the Unconsolidated Subsidiaries of
$3,613. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the six months ended June 30, 1998 is
presented below, which represents the effects of the Ambassador Merger,
the IFG Merger, the Merger and the IFG Reorganization as if these
transactions had occurred as of January 1, 1997.
112
<PAGE> 120
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
IFG PRE-MERGER
HISTORICAL(i) REORGANIZATION(ii) PRO FORMA
------------- ------------------ ----------
<S> <C> <C> <C>
Rental and other property revenues.... $ 6,550 $ -- $ 6,550
Property operating expense............ (3,390) -- (3,390)
Owned property management expense..... (230) -- (230)
Depreciation expense.................. (650) -- (650)
-------- -------- --------
Income from property operations....... 2,280 -- 2,280
-------- -------- --------
Management fees and other income...... 37,585 37,672 (iii 75,257
Management and other expenses......... (23,673) (23,395)(iii) (47,068)
Amortization.......................... (1,390) (14,461)(iv) (15,851)
-------- -------- --------
Income from service company........... 12,522 (184) 12,338
General and administrative expense.... -- (4,760) (4,760)
Interest expense...................... (3,878) (1,847)(iii) (5,725)
Interest income....................... 425 -- 425
Minority interest in other
partnerships........................ (250) -- (250)
-------- -------- --------
Income (loss) from operations......... 11,099 (6,791) 4,308
Income tax provision.................. (5,195) 2,988 (2,207)
-------- -------- --------
Net income (loss)..................... $ 5,904 $ (3,803) $ 2,101
======== ======== ========
Income (loss) attributable to
preferred stockholders.............. $ 5,609 $ (3,613) $ 1,996
======== ======== ========
Income (loss) attributable to common
stockholders........................ $ 295 $ (190) $ 105
======== ======== ========
</TABLE>
- -------------------------
(i) Represents the Unconsolidated Subsidiaries historical consolidated
results of operations.
(ii) Represents adjustments related to the IFG Reorganization, whereby,
following the IFG Merger, AIMCO contributed to the combined
Unconsolidated Subsidiaries certain assets and liabilities of IFG,
primarily related to the management operations owned by IFG. The
adjustments reflect the related revenues and expenses primarily related
to the management operations owned by IFG, with additional amortization
recorded related to AIMCO's new basis resulting from the allocation of
the purchase price of IFG.
(iii) Represents the historical income and expenses associated with certain
assets and liabilities of IFG that were contributed to the Unconsolidated
Subsidiaries, primarily related to the management operations of IFG.
113
<PAGE> 121
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment contributed to the
Unconsolidated Subsidiaries, primarily related to the management
operations of IFG, based on AIMCO's new basis resulting from the
allocation of the purchase price of IFG.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
114
<PAGE> 122
PRO FORMA FINANCIAL INFORMATION OF AIMCO
(MERGER)
Introduction
On October 2, 1998, AIMCO and IPT signed the Merger Agreement whereby AIMCO will
acquire IPT for $13.25 in cash per IPT Common Share, $13.28 per IPT Common
Share, or any combination thereof, at AIMCO's option. AIMCO currently owns 51%
of the outstanding IPT Common Shares.
The following Pro Forma Consolidated Balance Sheet (Merger) of AIMCO as of June
30, 1998 has been prepared as if each of the following transactions had occurred
as of June 30, 1998: (i) all of the transactions discussed in the Pro Forma
Financial Statements (Pre-Merger), appearing elsewhere herein; and (ii) the
Merger.
The following Pro Forma Consolidated Statement of Operations (Merger) of AIMCO
for the year ended December 31, 1997 has been prepared as if each of the
following transactions had occurred as of January 1, 1997: (i) all of the
transactions discussed in the Pro Forma Financial Statements (Pre-Merger),
appearing elsewhere herein; and (ii) the Merger.
The following Pro Forma Consolidated Statement of Operations (Merger) of AIMCO
for the six months ended June 30, 1998 has been prepared as if each of the
following transactions had occurred as of January 1, 1998: (i) all of the
transactions discussed in the Pro Forma Financial Statements (Pre-Merger),
appearing elsewhere herein; and (ii) the Merger.
The following Pro Forma Financial Information of AIMCO (Merger) is based, in
part, on: (i) the audited Consolidated Financial Statements of IFG for the year
ended December 31, 1997 and (ii) the unaudited Consolidated Financial Statements
of IFG for the six months ended June 30, 1998. The following Pro Forma Financial
Information of AIMCO (Merger) is also based, in part, on the Pro Forma Financial
Information of AIMCO (Pre-Merger), included elsewhere herein. Such pro forma
information is based in part upon: (i) the audited Consolidated Financial
Statements of Ambassador for the year ended December 31, 1997; (ii) the audited
Consolidated Financial Statements of AIMCO for the year ended December 31, 1997;
(iii) the audited Consolidated Financial Statements of IFG for the year ended
December 31, 1997; (iv) the audited Consolidated Financial Statements of AMIT
for the year ended December 31, 1997; (v) the unaudited Consolidated Financial
Statements of Ambassador for the four months ended April 30, 1998; (vi) the
unaudited Consolidated Financial Statements of AIMCO for the six months ended
June 30, 1998; (vii) the unaudited Consolidated Financial Statements of IFG for
the six months ended June 30, 1998; (viii) the unaudited Consolidated Financial
Statements of AMIT for the six months ended June 30, 1998; and (ix) the
historical financial statements for certain properties and companies acquired by
AIMCO filed in AIMCO Current Reports on Form 8-K, dated April 16, 1997, May 5,
1997, June 3, 1997, September 19, 1997, October 15, 1997 and December 1, 1997.
The following Pro Forma Financial Information (Merger) should be read in
conjunction with such financial statements and notes thereto.
115
<PAGE> 123
The unaudited Pro Forma Financial Information of AIMCO (Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of IPT are adjusted to estimated fair market value, based upon
preliminary estimates, which are subject to change as additional information is
obtained. The allocations of purchase costs are subject to final determination
based upon estimates and other evaluations of fair market value. Therefore, the
allocations reflected in the following unaudited Pro Forma Financial Information
of AIMCO (Merger) may differ from the amounts ultimately determined.
The unaudited Pro Forma Financial Information of AIMCO (Merger) has been
prepared under the assumption that AIMCO will issue stock as consideration for
the shares of IPT stock purchased.
The following unaudited Pro Forma Financial Information of AIMCO (Merger) is
presented for informational purposes only and is not necessarily indicative of
the financial position or results of operations of AIMCO that would have
occurred if such transactions had been completed on the dates indicated, nor
does it purport to be indicative of future financial positions or results of
operations. In the opinion of AIMCO's management, all material adjustments
necessary to reflect the effects of these transactions have been made.
116
<PAGE> 124
AIMCO
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRE-MERGER IPT MERGER AIMCO
PRO FORMA(A) ADJUSTMENTS(B) PRO FORMA
------------ -------------- ----------
<S> <C> <C> <C>
Real estate......................................... $2,371,881 $ -- $2,371,881
Property held for sale.............................. 35,695 -- 35,695
Investments in securities........................... 5,767 -- 5,767
Investments in and notes receivable from
unconsolidated subsidiaries....................... 122,666 -- 122,666(D)
Investments in and notes receivable from
unconsolidated partnerships....................... 882,204 28,808(C) 911,012
Notes receivable.................................... 35,316 -- 35,316
Cash and cash equivalents........................... 76,803 -- 76,803
Restricted cash..................................... 75,123 -- 75,123
Accounts receivable................................. 26,813 -- 26,813
Deferred financing costs............................ 29,787 -- 29,787
Goodwill............................................ 122,068 56,540(C) 178,608
Property management contracts....................... 34,639 -- 34,639
Other assets........................................ 91,919 -- 91,919
---------- -------- ----------
Total Assets............................... $3,910,681 $ 85,348 $3,996,029
========== ======== ==========
Secured notes payable............................... $ 800,844 $ -- $ 800,844
Secured tax-exempt bond financing................... 394,662 -- 394,662
Secured short-term financing........................ 273,159 -- 273,159
Unsecured short-term financing...................... 22,136 -- 22,136
Accounts payable, accrued and other liabilities..... 162,867 -- 162,867
Security deposits and deferred income............... 12,882 -- 12,882
---------- -------- ----------
1,666,550 -- 1,666,550
Minority interest in other partnerships............. 109,383 (66,216)(C) 43,167
Minority interest in AIMCO Operating Partnership.... 134,694 -- 134,694
Company-obligated manditorily redeemable convertible
securities of a subsidiary trust.................. 149,500 -- 149,500
Class A common stock, $.01 par value................ 570 48(C) 618
Class B common stock, $.01 par value................ 2 -- 2
Class B Cumulative Convertible Preferred Stock, $.01
par value......................................... 75,000 -- 75,000
Class C Cumulative Preferred Stock, $.01 par
value............................................. 60,000 -- 60,000
Class D Cumulative Preferred Stock, $.01 par
value............................................. 105,000 -- 105,000
Class G Cumulative Preferred Stock, $.01 par
value............................................. 101,250 -- 101,250
Class H Cumulative Preferred Stock, $.01 par
value............................................. 50,000 -- 50,000
Additional paid in capital.......................... 1,552,660 151,516(C) 1,704,176
Notes receivable on common stock purchases.......... (45,508) -- (45,508)
Distributions in excess of earnings................. (48,203) -- (48,203)
Unrealized gain on investments...................... (217) -- (217)
---------- -------- ----------
1,850,554 151,564 2,002,118
---------- -------- ----------
Total Liabilities and Equity............... $3,910,681 $ 85,348 $3,996,029
========== ======== ==========
</TABLE>
117
<PAGE> 125
(A) Represents AIMCO's pro forma consolidated financial position as of June 30,
1998, which gives effect to (i) the purchase of three properties for an
aggregate purchase price of $32.6 million; (ii) the Class G Preferred Stock
Offering; (iii) the Class H Preferred Stock Offering; (iv) the IFG Merger;
(vi) the AMIT Merger; and (vii) the IFG Reorganization. See "Pro Forma
Financial Information of AIMCO (Pre-Merger)."
(B) Represents the following adjustments occurring as a result of the Merger:
(i) the issuance of 4,811,568 shares of AIMCO Common Stock, based on an
AIMCO Exchange Value of $31.50 as consideration for all the IPT Common
shares not owned by AIMCO as of the date of the Merger; and (ii) the
allocation of the purchase price of IPT based on the preliminary estimates
of relative fair value of the assets and liabilities of IPT.
(C) In connection with the Merger, AIMCO will issue 4,811,568 shares of AIMCO
Common Stock based on an AIMCO Exchange Value of $31.50 as consideration of
all, the IPT Common Shares not owned by AIMCO. The total purchase price of
IPT is $151,564.
The purchase price was allocated to the various assets of IPT acquired in
the Merger, as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $151,564
Historical basis of IPT assets.............................. (66,216)
--------
Step-up to record the fair value of IPT's assets acquired... $ 85,348
========
</TABLE>
This step-up was applied to IPT's assets as follows:
<TABLE>
<S> <C>
Investment in real estate partnerships...................... $28,808
Goodwill.................................................... 56,540
-------
Total............................................. $85,348
=======
</TABLE>
The fair value of IPT's assets, primarily real estate, was calculated based
on estimated future cash flows of the underlying assets.
Upon completion of the Merger, the minority interest in other partnerships
of $66,216 will be eliminated.
(D) Amount represents notes receivable from the Unconsolidated Subsidiaries of
$50,000, advances to the Unconsolidated Subsidiaries of $18,933, and equity
in the Unconsolidated Subsidiaries of $53,733. There were no pro forma
adjustments to the balance sheet of the Unconsolidated Subsidiaries
(presented below) as a result of the Merger.
118
<PAGE> 126
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
AIMCO
PRO FORMA
---------
<S> <C>
Real estate................................................. $ 21,727
Cash and cash equivalents................................... 20,729
Restricted cash............................................. 5,010
Management contracts........................................ 127,730
Accounts receivable......................................... 23,773
Deferred financing costs.................................... 3,217
Goodwill.................................................... 44,252
Other assets................................................ 29,974
--------
$276,412
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable....................................... $ 72,037
Secured short-term financing................................ 50,000
Accounts payable, accrued and other liabilities............. 86,692
Security deposits and deferred income....................... 3,214
Deferred tax liability...................................... 12,849
--------
224,792
Common stock................................................ 3,085
Preferred stock............................................. 53,733
Retained earnings........................................... (4,174)
Notes receivable on common stock purchases.................. (1,024)
--------
51,620
--------
$276,412
========
</TABLE>
119
<PAGE> 127
AIMCO
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IPT AIMCO
PRE-MERGER MERGER PRO
PRO FORMA(A) ADJUSTMENTS(B) FORMA
------------ -------------- --------
<S> <C> <C> <C>
Rental and other property revenues.................... $ 402,202 $ -- $402,202
Property operating expenses........................... (169,166) -- (169,166)
Owned property management expense..................... (10,412) -- (10,412)
Depreciation.......................................... (87,246) -- (87,246)
--------- ------- --------
Income from property operations....................... 135,378 -- 135,378
--------- ------- --------
Management fees and other income...................... 41,676 -- 41,676
Management and other expenses......................... (23,683) -- (23,683)
Corporate overhead allocation......................... (588) -- (588)
Amortization.......................................... (19,014) (2,827)(C) (21,841)
--------- ------- --------
Income from service company business.................. (1,609) (2,827) (4,436)
Minority interest in service company business......... (10) -- (10)
--------- ------- --------
Company's share of income from service company
business............................................ (1,619) (2,827) (4,446)
--------- ------- --------
General and administrative expenses................... (21,228) -- (21,228)
Interest expense...................................... (96,830) -- (96,830)(G)
Interest income....................................... 21,543 -- 21,543
Minority interest in other partnerships............... (18,563) 8,901(D) (9,662)
Equity in income (losses) of unconsolidated
partnerships........................................ (21,459) (1,440)(E) (22,899)
Equity in earnings of unconsolidated subsidiaries..... 2,344 -- 2,344(I)
--------- ------- --------
Income (loss) before minority interest in AIMCO
Operating Partnership............................... (434) 4,634 4,200
Minority interest in AIMCO Operating Partnership...... 3,481 (684)(F) 2,797(F)
--------- ------- --------
Net Income (Loss)..................................... 3,047 3,950 6,997
Income (loss) allocable to preferred stockholders..... 34,174 -- 34,174(H)
--------- ------- --------
Income (loss) allocable to common stockholders........ $ (31,127) $ 3,950 $(27,177)(G)
========= ======= ========
Basic earnings (loss) per common share................ $ (0.56) $ (0.45)(G)
========= ========
Diluted earnings per common share..................... $ (0.56) $ (0.45)(G)
========= ========
Weighted average shares outstanding................... 55,631 60,443
========= ========
Weighted average shares and equivalents outstanding... 56,475 61,287
========= ========
</TABLE>
120
<PAGE> 128
(A) Represents AIMCO's pro forma consolidated results of operations for the
year ended December 31, 1997, which gives effect to: (i) the 1997 Stock
Offerings; (ii) the 1997 Dispositions; (iii) the 1997 Acquisitions; (iv)
the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the 1998
Disposition; (vii) the NHP Real Estate Companies Purchase; (viii) the NHP
Merger; (ix) the NHP Reorganization; (x) the Ambassador Merger; (xi) the
IFG Merger; (xii) the AMIT Merger; and (xiii) the IFG Reorganization. See
"Pro Forma Financial Information of AIMCO (Pre-Merger)."
(B) Represents the following adjustments occurring as a result of the Merger:
(i) the incremental depreciation of the purchase price adjustment related
to investments in real estate partnerships; (ii) the amortization of
goodwill resulting from the Merger; and (iii) the elimination of the
minority interest associated with IPT.
(C) Represents amortization of goodwill using the straight-line method over 20
years. The allocation of the purchase price of IPT is preliminary;
therefore the amount and life of goodwill are subject to change as
additional information is obtained and the purchase price allocation is
finalized.
(D) Represents the elimination of the minority interest in IPT resulting from
the Merger.
(E) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IPT, based on an estimated average life of 20 years, and based on
AIMCO's new basis resulting from the allocation of the purchase price of
IPT.
(F) Represents adjustments to Minority Interest in Operating Partnership
assuming the Merger had occurred as of January 1, 1997. On a pro forma
basis, without giving effect to the Merger, as of December 31, 1997, the
minority interest percentage is approximately 10.1%. On a pro forma basis,
giving effect to the Merger, as of December 31, 1997, the minority interest
percentage is approximately 9.3%.
(G) Pursuant to the Merger Agreement, AIMCO may elect to issue stock or pay
cash (or do a combination of the two) as consideration in the Merger. Set
forth below is a summary of the pro forma net loss applicable to holders of
AIMCO Common Stock and net loss per share (i) assuming that AIMCO elects to
issue shares of AIMCO Common Stock as consideration for the IPT Common
Shares; (ii) assuming that AIMCO elects to issue 50% shares of AIMCO Common
Stock and pay 50% in cash as consideration in the Merger;
121
<PAGE> 129
and (iii) assuming that AIMCO pays all cash as consideration in the Merger. The
table below assumes an interest rate of LIBOR plus 1.75% on all additional
borrowings.
<TABLE>
<CAPTION>
STOCK STOCK AND CASH CASH
CONSIDERATION CONSIDERATION CONSIDERATION
------------- -------------- -------------
<S> <C> <C> <C>
Increase in interest expense............ $ -- $ 5,633 $ 11,266
======== ======== ========
Income (loss) before minority interest
in AIMCO Operating Partnership........ 4,200 (1,433) (7,066)
Minority interest in AIMCO Operating
Partnership........................... 2,797 3,448 4,148
-------- -------- --------
Net income (loss)....................... 6,997 2,015 2,918
Net loss attributable to common
stockholders.......................... $(27,177) $(32,159) $(37,092)
======== ======== ========
Basic net loss per share................ $ (0.45) $ (0.55) $ (0.67)
======== ======== ========
Diluted net loss per share.............. $ (0.45) $ (0.55) $ (0.67)
======== ======== ========
</TABLE>
Additionally, the following table presents the net impact to pro forma net
loss applicable to holders of AIMCO Common Stock and net loss per common
share assuming the interest rate increases by 0.25%
<TABLE>
<CAPTION>
STOCK STOCK AND CASH CASH
CONSIDERATION CONSIDERATION CONSIDERATION
------------- -------------- -------------
<S> <C> <C> <C>
Increase in interest expense............ $ 894 $ 6,717 $ 12,539
======== ======== ========
Income (loss) before minority interest
in AIMCO Operating Partnership........ 3,306 (2,516) (8,338)
Minority interest in AIMCO Operating
Partnership........................... 2,881 3,552 4,276
-------- -------- --------
Net income (loss)....................... 6,187 1,036 (4,062)
Net loss attributable to common
stockholders.......................... $(27,987) $(33,138) $(38,236)
======== ======== ========
Basic net loss per share................ $ (0.46) $ (0.57) $ (0.69)
======== ======== ========
Diluted net loss per share.............. $ (0.46) $ (0.57) $ (0.69)
======== ======== ========
</TABLE>
(H) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock, the AIMCO Class G Preferred Stock, and the AIMCO Class H
Preferred Stock as if these stock offerings had occurred on January 1,
1997.
(I) Represents AIMCO's equity in losses of unconsolidated subsidiaries of
$(2,406) offset by the elimination of intercompany interest expense of
$4,750. There were no pro forma adjustments to the income statement of the
Unconsolidated Subsidiaries (presented below) as a result of the Merger.
122
<PAGE> 130
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AIMCO
PRO FORMA
---------
<S> <C>
Rental and other property revenues.......................... $ 12,565
Property operating expenses................................. (6,886)
Owned property management expense........................... (625)
Depreciation................................................ (1,805)
--------
Income from property operations............................. 3,249
--------
Management fees and other income............................ 140,172
Management and other expenses............................... (81,372)
Amortization................................................ (36,665)
--------
Income from service company business........................ 22,135
General and administrative expenses......................... (12,965)
Interest expense............................................ (15,632)
Interest income............................................. 853
Minority interest in other partnerships..................... (621)
--------
Income from operations...................................... (2,981)
Income tax provision........................................ 449
--------
Net income.................................................. $ (2,532)
========
Income allocable to preferred stockholders.................. $ (2,406)
========
Income allocable to common stockholders..................... $ (126)
========
</TABLE>
123
<PAGE> 131
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-MERGER IPT MERGER AIMCO
PRO FORMA(A) ADJUSTMENTS(B) PRO FORMA
------------ -------------- ---------
<S> <C> <C> <C>
Rental and other property revenues................. $206,931 $ -- $206,931
Property operating expenses........................ (78,825) -- (78,825)
Owned property management expense.................. (4,880) -- (4,880)
Depreciation....................................... (45,728) -- (45,728)
-------- ------- --------
Income from property operations.................... 77,498 -- 77,498
-------- ------- --------
Management fees and other income................... 19,525 -- 19,525
Management and other expenses...................... (9,660) -- (9,660)
Corporate overhead allocation...................... (196) -- (196)
Amortization....................................... (5,809) -- (5,809)
-------- ------- --------
Income from service company business............... 3,860 -- 3,860
Minority interest in service company business...... (1) -- (1)
-------- ------- --------
Company's share of income from service company
business......................................... 3,859 -- 3,859
-------- ------- --------
General and administrative expenses................ (4,678) -- (4,678)
Interest expense................................... (52,393) -- (52,393)(G)
Interest income.................................... 15,781 -- 15,781
Minority interest in other partnerships............ (11,516) 5,413(C) (6,103)
Equity in losses of unconsolidated partnerships.... 1,155 (720)(D) 435
Equity in earnings of unconsolidated
subsidiaries..................................... 1,996 -- 1,996
Amortization of goodwill........................... (3,394) (1,414)(E) (4,808)(I)
-------- ------- --------
Income before minority interest in AIMCO Operating
Partnership...................................... 28,308 3,279 31,587
Minority interest in AIMCO Operating Partnership... (1,088) (216)(F) (1,304)(F)
-------- ------- --------
Net income......................................... 27,220 3,063 30,283
Income attributable to preferred stockholders...... 17,004 -- 17,004(H)
-------- ------- --------
Income attributable to common stockholders......... $ 10,216 $ 3,063 $ 13,279(G)
======== ======= ========
Basic earnings per share........................... $ 0.18 $ 0.22(G)
======== ========
Diluted earnings per share......................... $ 0.18 $ 0.21(G)
======== ========
Weighted average shares outstanding................ 56,777 61,589
======== ========
Weighted average shares and equivalents
outstanding...................................... 57,442 62,253
======== ========
</TABLE>
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(A) Represents AIMCO's pro forma consolidated results of operations for the six
months ended June 30, 1998, which gives effect to (i) the 1998 Stock
Offerings; (ii) the 1998 Acquisitions; (iii) the 1998 Disposition; (iv) the
Ambassador Merger; (v) the IFG Merger; (vi) the AMIT Merger; and (vii) the
IFG Reorganization. See "Pro Forma Financial Information of AIMCO
(Pre-Merger)."
(B) Represents the following adjustments occurring as a result of the Merger:
(i) the incremental depreciation of the purchase price adjustment related
to investments in real estate partnerships; (ii) the amortization of
goodwill resulting from the Merger; and (iii) the elimination of the
minority interest associated with IPT.
(C) Represents the elimination of the minority interest in IPT resulting from
the Merger.
(D) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of IPT, based on an estimated average life of 20 years, and based on
AIMCO's new basis resulting from the allocation of the purchase price of
IPT.
(E) Represents amortization of goodwill using the straight-line method over 20
years. The allocation of the purchase price of IPT is preliminary;
therefore the amount and life of goodwill are subject to change as
additional information is obtained and the purchase price allocation is
finalized.
(F) Represents adjustments to Minority Interest in the AIMCO Operating
Partnership assuming the Merger had occurred as of January 1, 1998. On a
pro forma basis, without giving effect to the Merger, as of June 30, 1998,
the minority interest percentage is approximately 9.6%. On a pro forma
basis, giving effect to the Merger, as of June 30, 1998, the minority
interest percentage is approximately 8.9%.
(G) Pursuant to the Merger Agreement, AIMCO may elect to issue stock or pay
cash as consideration in the Merger. Set forth below is a summary of the
pro forma net income applicable to holders of AIMCO Common Stock and net
income per share (i) assuming that AIMCO elects to issue shares of AIMCO
Common Stock as consideration for the IPT Common Shares; (ii) assuming that
AIMCO elects to issue 50% shares of AIMCO Common Stock and pay 50% in cash
as consideration in the Merger; and (iii) assuming that AIMCO pays all cash
as consideration in the Merger. The table below assumes an interest rate of
LIBOR plus 1.75% on all additional borrowings.
<TABLE>
<CAPTION>
STOCK STOCK AND CASH CASH
CONSIDERATION CONSIDERATION CONSIDERATION
------------- -------------- -------------
<S> <C> <C> <C>
Increase in interest expense............. $ -- $ 2,793 $ 5,587
======= ======= =======
Income before minority interest in AIMCO
Operating Partnership.................. 31,587 28,794 26,000
Minority interest in AIMCO Operating
Partnership............................ (1,304) (1,093) (866)
------- ------- -------
Net income............................... 30,283 27,701 25,134
Net income attributable to common
stockholders........................... $13,279 $10,697 $ 8,130
======= ======= =======
Basic net income per share............... $ 0.22 $ 0.18 $ 0.14
======= ======= =======
Diluted net income per share............. $ 0.21 $ 0.18 $ 0.14
======= ======= =======
</TABLE>
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Additionally, the following table presents the net impact to pro forma net
income applicable to holders of AIMCO Common Stock and net income per
common share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
STOCK STOCK AND CASH CASH
CONSIDERATION CONSIDERATION CONSIDERATION
------------- -------------- -------------
<S> <C> <C> <C>
Increase in interest expense............. $ 444 $ 3,359 $ 6,269
======= ======= =======
Income before minority interest in AIMCO
Operating Partnership.................. 31,143 28,228 25,318
Minority interest in AIMCO Operating
Partnership............................ (1,264) (1,040) (800)
------- ------- -------
Net income............................... 29,879 27,188 24,518
Net income attributable to common
stockholders........................... $12,875 $10,814 $ 7,514
======= ======= =======
Basic net income per share............... $ 0.21 $ 0.17 $ 0.13
======= ======= =======
Diluted net income per share............. $ 0.21 $ 0.17 $ 0.13
======= ======= =======
</TABLE>
(H) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock, the AIMCO Class G Preferred Stock, and the AIMCO Class H
Preferred Stock as if these stock offerings had occurred on January 1,
1997.
(I) Represents AIMCO's equity in losses of unconsolidated subsidiaries of
$3,613. There were no pro forma adjustments to the income statement of the
Unconsolidated Subsidiaries (presented below) as a result of the Merger.
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<PAGE> 134
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
INSIGNIA
PRO FORMA
---------
<S> <C>
Rental and other property revenues.......................... $ 6,550
Property operating expenses................................. (3,390)
Owned property management exp. ............................. (230)
Depreciation expense........................................ (650)
--------
Income from property operations............................. 2,280
--------
Management fees and other income............................ 75,257
Management and other expenses............................... (47,068)
Amortization................................................ (15,851)
--------
Income from service company................................. 12,338
General and administrative expense.......................... (4,760)
Interest expense............................................ (5,725)
Interest income............................................. 425
Minority interest in other partnerships..................... (250)
--------
Income from operations...................................... 4,308
Income tax provision........................................ (2,207)
--------
Net income.................................................. $ 2,101
========
Income attributable to preferred stockholders............... $ 1,996
========
Income attributable to common stockholders.................. $ 105
========
</TABLE>
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<PAGE> 135
CAPITALIZATION OF AIMCO
The following table sets forth the capitalization of AIMCO at June 30, 1998: (i)
on a historical basis; and (ii) on a pro forma basis to reflect the Merger,
applying the assumptions described above with respect to the Pro Forma Financial
Information of AIMCO (Merger). The information set forth in the following table
should be read in connection with the financial statements and notes thereto
incorporated by reference and the pro forma financial information and notes
thereto included herein. See "Pro Forma Financial Information of AIMCO
(Merger)."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unsecured credit facility................................... $ 168,476 $ 155,000
Secured short-term financing................................ -- 118,159
Long-term debt:
Secured tax-exempt bond financing......................... 394,662 394,662
Secured notes payable..................................... 751,337 800,844
Unsecured notes payable................................... -- 22,136
Minority interests in other partnerships.................... 43,167 43,167
Minority interests in AIMCO Operating Partnership........... 134,694 134,694
Company-obligated mandatorily redeemable convertible
securities of a subsidiary trust.......................... -- 149,500
Class A Common Stock, $.01 par value, 502,377,500
authorized, 48,078,733 issued and outstanding on a
historical basis, and 61,841,419 issued and outstanding on
a pro forma basis(3)...................................... 481 618
Class B Common Stock, $.01 par value, 262,500 authorized,
162,500 issued and outstanding(4)......................... 2 2
Class B Cumulative Convertible Preferred Stock, $.01 par
value, 750,000 authorized, issued and outstanding(2)...... 75,000 75,000
Class C Cumulative Preferred Stock, $.01 par value,
2,760,000 authorized, 2,400,000 issued and outstanding.... 60,000 60,000
Class D Cumulative Preferred Stock, $.01 par value,
4,600,000 authorized, 4,200,000 issued and outstanding.... 105,000 105,000
Class G Cumulative Preferred Stock, $.01 par value,
4,050,000 authorized, none issued on a historical basis,
4,050,000 issued and outstanding on a pro forma basis..... -- 101,250
Class H Cumulative Preferred Stock, $.01 par value,
2,300,000 authorized, none issued on a historical basis,
and 2,000,000 issued and outstanding on a pro forma
basis..................................................... -- 50,000
Additional paid-in capital.................................. 1,247,839 1,704,176
Notes due on common stock purchases......................... (45,508) (45,508)
Distributions in excess of earnings......................... (48,203) (48,203)
Accumulated other comprehensive losses...................... (217) (217)
---------- ----------
Total stockholders' equity.................................. 1,394,394 2,002,118
---------- ----------
Total Capitalization............................... $2,886,730 $3,820,280
========== ==========
</TABLE>
- -------------------------
(1) The pro forma capitalization information is presented as if the transactions
detailed above occurred on June 30, 1998.
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(2) Convertible into 3.28407 shares of AIMCO Common Stock per share, or a total
of 2,463,053 shares at the option of the holder on or after August 4, 1998,
subject to certain antidilution adjustments.
(3) Excludes (i) 5,362,879 shares of AIMCO Common Stock which may be issued in
exchange for 5,362,879 OP Units which may be tendered for redemption; (ii)
162,500 shares of AIMCO Common Stock issuable upon conversion of shares of
AIMCO Class B Common Stock; (iii) 1,684,080 shares of AIMCO Common Stock
issuable upon exercise of outstanding options and warrants; and (iv)
2,463,053 shares of AIMCO Common Stock which may be issued upon conversion
of 750,000 shares of AIMCO Class B Preferred Stock.
(4) Convertible into 162,500 shares of AIMCO Common Stock if certain performance
standards are achieved, including 8.5% annual increases in both AIMCO's FFO
per share and the market price of AIMCO Common Stock. See "Description of
AIMCO Common Stock -- AIMCO Class B Common Stock."
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<PAGE> 137
BUSINESS OF AIMCO
AIMCO is engaged in the ownership, acquisition, development, expansion and
management of multi-family apartment properties. As of October 1, 1998, after
giving effect to the merger of IFG with and into AIMCO, AIMCO owned or managed
396,090 apartment units in 2,303 properties located in 49 states, the District
of Columbia and Puerto Rico. Based on apartment unit data compiled as of January
1, 1998 by the National Multi Housing Council, AIMCO believes that, as of
October 1, 1998, it was the largest owner and manager of multifamily apartment
properties in the United States. The "AIMCO Properties" include:
- - "Owned Properties" -- properties that AIMCO owns or controls;
- - "Equity Properties" -- properties in which AIMCO owns a non-controlling
(usually less than 30%) interest; and
- - "Managed Properties" -- properties that AIMCO manages for third parties and
affiliates.
As of October 1, 1998, AIMCO had 209 Owned Properties with 58,495 units, 1,335
Equity Properties with 239,789 units and 759 Managed Properties with 97,716
units. AIMCO manages all of the Owned Properties, a majority of the Equity
Properties and all of the Managed Properties.
AIMCO's principal executive offices are located at 1873 South Bellaire Street,
17th Floor, Denver, Colorado 80222, and AIMCO's telephone number is (303)
757-8108.
RECENT DEVELOPMENTS
The following summary of recent developments of AIMCO's business should be read
in conjunction with the annual, quarterly and special reports, information
statements, and other information that AIMCO files with the SEC and which have
been incorporated by reference in this Information Statement/Prospectus. See
"Where You Can Find More Information."
Class G Preferred Stock Offering
In July 1998, AIMCO sold an aggregate of 4,050,000 shares of its Class G
Preferred Stock, in an underwritten public offering, for net proceeds of
approximately $98.0 million. AIMCO used $83.0 million of net proceeds to repay
indebtedness outstanding under AIMCO's unsecured $50.0 million revolving credit
facility with Bank of America and Bank Boston, N.A., which was amended in May
1998 to increase the borrowing capacity to $155.0 million for a six-month period
after which the maximum borrowing capacity returns to its original $50.0 million
(the "BOA Credit Facility"). AIMCO used the remaining $15.0 million of net
proceeds to fund acquisitions and for other general business purposes.
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<PAGE> 138
Class H Preferred Stock Offering
In August 1998, AIMCO sold an aggregate of 2,000,000 shares of its Class H
Preferred Stock, in an underwritten public offering, for net proceeds of
approximately $48.1 million all of which were used to repay indebtedness
outstanding under the BOA Credit Facility.
Sale of Rillito Village Apartments
In September 1998, AIMCO sold the Rillito Village Apartments, an apartment
community containing 272 apartments units located in Tucson, Arizona, for $6.8
million. AIMCO recognized a gain on the sale of approximately $75,000 and used
the cash proceeds to pay down a portion of the outstanding balance on its bank
credit facilities and to pay closing costs.
Moody's Revision of AIMCO's Outlook of Ratings to Negative
On October 1 1998, Moody's Investors Service revised its outlook for the ratings
of AIMCO from stable to negative to reflect its concerns surrounding AIMCO's
ability to successfully implement its financial strategy while maintaining a
prudent capital structure as a result of the more difficult general capital
market conditions. Moody's noted that AIMCO's access to the public markets may
prove challenging in light of the volatility in both the equity and capital
markets for REITs. Moody's assigned a "ba3" rating to the Class I Preferred
Stock proposed to be issued by AIMCO, and confirmed its previous ratings related
to AIMCO's preferred stock and debt in its shelf registration statement. Moody's
indicated that its rating action continues to reflect AIMCO's increasing
leveraged profile, including high levels of secured debt and preferred stock,
limited financial flexibility and integration of risks resulting from the merger
with IFG. Moody's also noted AIMCO's level of encumbered properties and material
investments in loans to highly leveraged partnerships in which AIMCO owns a
general partnership interest. At the same time, Moody's confirmed its existing
rating on AIMCO's existing preferred stock and senior debt.
Increased Interests in Partnerships
For properties where AIMCO owns a general partnership interest in the
property-owning partnership, AIMCO may seek to acquire, subject to its fiduciary
duties, the outstanding limited partnership interests for cash or, in some
cases, in exchange for common units in its operating partnership. The AIMCO
Operating Partnership intends to offer to purchase limited partnership interests
in syndicated real estate limited partnerships in which AIMCO holds partnership
interests. The AIMCO Operating Partnership, subject to applicable law, plans to
offer to purchase certain of such limited partnership interests in exchange for
(i) equity securities of the AIMCO Operating Partnership, (ii) cash or (iii) a
combination of such equity securities and cash. Such offers are expected to
include terms that allow limited partners to continue to hold their limited
partnership interests.
Redevelopment of AIMCO Properties
Recently, AIMCO acquired and redeveloped Sun Katcher, a 360-unit property in
Jacksonville, Florida, at a cost of $8.9 million, including $4.9 million in
redevelopment
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costs. AIMCO also recently commenced the renovation and upgrading of Bay West, a
376-unit property in Tampa, Florida, for a projected cost of $4.8 million, to
reposition the property in the marketplace. In addition, AIMCO is undertaking a
major renovation of the Morton Towers apartments, a 1,277 unit property located
in Miami Beach, Florida, at an estimated cost of $35.0 million. AIMCO generally
finances redevelopment initially with borrowings under its credit facilities and
subsequently arranges permanent financing.
Expansion of AIMCO Properties
Recently AIMCO constructed 92 additional units at Fairways, in Phoenix, Arizona,
at a cost of $6.5 million. AIMCO is planning the construction of 42 additional
units at Township, in Littleton, Colorado, for a projected cost of more than
$3.0 million. AIMCO generally finances expansions initially with borrowings from
credit facilities and subsequently arranges permanent financing.
Class I High Performance Units
On January 21, 1998, the AIMCO Operating Partnership sold an aggregate of 15,000
OP units designated as Class I High Performance Units (the "High Performance
Units") to a joint venture formed by fourteen of AIMCO's officers, and to three
of AIMCO's non-employee directors for an aggregate purchase price of $2,070,000,
of which $1,980,300 was paid by the joint venture and an aggregate of $89,700
was paid by three non-employee directors. The purchase price of the High
Performance Units was determined by the AIMCO Board of Directors, based upon the
advice of an independent valuation expert, and represented the fair market value
of the High Performance Units. The sale of the High Performance Units was
ratified by AIMCO's stockholders on May 8, 1998.
Holders of High Performance Units have no rights to receive distributions or
allocations of income or loss, or to redeem their High Performance Units prior
to the date (the "Valuation Date") that is the earlier of (i) January 1, 2001,
or (ii) the date on which a change of control occurs. If, on the Valuation Date,
the cumulative Total Return of the AIMCO Common Stock from January 1, 1998 to
the Valuation Date (the "Measurement Period") exceeds 115% of the cumulative
Total Return (as defined below) of a peer group index over the same period, and
is at least the equivalent of a 30% cumulative Total Return over three years
(the "Minimum Return"), then, on and after the Valuation Date, holders of the
High Performance Units will be entitled to receive distributions and allocations
of income and loss from the AIMCO Operating Partnership in the same amounts and
at the same times (subject to certain exceptions upon liquidation of the AIMCO
Operating Partnership) as would holders of a number of OP Units equal to the
quotient obtained by dividing (i) the product of (A) 15% of the amount by which
the cumulative Total Return of the AIMCO Common Stock over the Measurement
Period exceeds the greater of 115% of the peer group index or the Minimum
Return, multiplied by (B) the weighted average market value of AIMCO's equity
capitalization (including AIMCO Common Stock and OP Units) by (ii) the market
value of one share of AIMCO Common Stock on the Valuation Date. If, on the
Valuation Date, the cumulative Total Return of the AIMCO Common Stock does not
satisfy these criteria, then, on and after the Valuation Date, holders of the
High Performance Units will be entitled to receive distributions and allocations
of income and loss from the AIMCO Operating Partnership in the same amounts and
at the same times (subject to certain exceptions upon a liquidation
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<PAGE> 140
of the AIMCO Operating Partnership) as would holders of 150 OP Units. For
purposes of determining the market value of AIMCO Common Stock or OP Units as of
any date, the average closing price of the AIMCO Common Stock for the 20 trading
days immediately preceding such date is used. It is expected that the Morgan
Stanley REIT Index, a capitalization-weighted index with dividends reinvested of
the most actively traded real estate investment trusts, will be used as the peer
group index for purposes of the High Performance Units.
"Total Return" means, for any security and for any period, the cumulative total
return for such security over such period, as measured by (i) the sum of (a) the
cumulative amount of dividends paid in respect of such security for such period
(assuming that all cash dividends are reinvested in such security as of the
payment date for such dividend based on the security price on the dividend
payment date), and (b) an amount equal to (x) the security price at the end of
such period, minus (y) the security price at the beginning of such period,
divided by (ii) the security price at the beginning of the measurement period;
provided, however, that if the foregoing calculation results in a negative
number, the "Total Return" shall be equal to zero.
Upon the occurrence of a change of control, any holder of High Performance Units
may, subject to certain restrictions, require the AIMCO Operating Partnership to
redeem all or a portion of the High Performance Units held by such party in
exchange for a cash payment per unit equal to the market value of a share of
AIMCO Common Stock at the time of redemption. However, in the event that any
High Performance Units are tendered for redemption, the AIMCO Operating
Partnership's obligation to pay the redemption price is subject to the prior
right of AIMCO to acquire such High Performance Units in exchange for an equal
number of shares of AIMCO Common Stock (subject to certain adjustments).
ACCOUNTING POLICIES AND DEFINITIONS
You are urged to consider the following accounting policies and definitions used
by AIMCO when reviewing AIMCO's financial data in this Information/Statement
Prospectus and the documents incorporated herein by reference:
Funds from Operations
The Board of Governors of NAREIT defines FFO as net income (loss), computed in
accordance with generally accepted accounting principles, excluding gains and
losses from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of financing costs), and
after adjustments for unconsolidated partnerships and joint ventures. AIMCO
calculates FFO in a manner consistent with the NAREIT definition, which includes
adjustments for minority interest in the AIMCO Operating Partnership, plus
amortization of management company goodwill, the non-cash deferred portion of
the income tax provision for unconsolidated subsidiaries and less the payment of
dividends on perpetual preferred stock. AIMCO's management believes that
presentation of FFO provides investors with industry accepted measurements which
help facilitate understanding of AIMCO's ability to meet required dividend
payments, capital expenditures, and principal payments on its debt. There can be
no assurance that AIMCO's basis of computing FFO is comparable with that of
other REITs.
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<PAGE> 141
Capital Replacements
AIMCO capitalizes spending for items which generally cost more than $250 and
have a useful life of more than one year, such as carpet replacement, new
appliances, new roofs or parking lot repaving. Capitalized spending which
maintains a property is termed a "Capital Replacement." In the experience of
AIMCO's management, this spending is better considered a recurring cost of
preserving an asset rather than an additional investment.
Consolidation
For financial reporting purposes, AIMCO consolidates the results of those
corporations in which it owns a majority of the outstanding voting stock, and
those limited partnerships and limited liability companies in which it owns both
a general partnership or managing member interest and controls investment
decisions with respect to the underlying assets. AIMCO generally has a 30% to
51% economic interest in such entities. Entities in which AIMCO has less than a
30% economic interest or limited control are accounted for on the equity method.
AIMCO policy is generally to hold Class C properties and affordable properties
(substantially all of which are Class C properties) in unconsolidated
partnerships. AIMCO accounts for these properties on the equity method in
accordance with GAAP.
RECENT CONTRACTS
On January 31, 1998 AIMCO entered into the Contribution Agreement with CK and
the stockholders of CK to cause certain assets of AIMCO to be contributed to CK
and to distribute all outstanding stock of CK to the stockholders of AIMCO. CK
is a corporation wholly-owned by Terry Considine, AIMCO's Chairman and Chief
Executive Officer, and by Peter Kompaniez, AIMCO's President and Vice Chairman.
As a result, when the stock of CK is transferred to AIMCO, such stockholders
will receive payment for the stock: the stock will be priced at fair market
value and if market value is difficult to ascertain, 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 market
rates and approved by the independent members of the AIMCO Board, and if market
rates are difficult to ascertain, the pricing will favor AIMCO.
Pursuant to the Contribution Agreement, AIMCO will contribute certain assets to
CK and, in return, the stock of CK will be contributed to AIMCO or a subsidiary
of AIMCO. Following the contribution of CK stock, AIMCO will agree to contribute
additional assets to CK with the intent of creating a stand-alone entity meeting
the requirements for listing on the NYSE or NASDAQ National Market, and if AIMCO
is successful in listing the CK stock on the NYSE or NASDAQ National Market, the
stock of CK will be distributed to the stockholders of AIMCO. If AIMCO is unable
to list the CK stock on the NYSE or NASDAQ National Market, CK will remain a
direct or indirect subsidiary of AIMCO and AIMCO will pay to the former
stockholders of CK an amount necessary to compensate the former CK stockholders
for the value of such stock on January 31, 1998. No prediction can be made as to
whether or when any spinoff to AIMCO
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stockholders will occur. Consummation of the transaction is subject to the
approval of AIMCO's independent members of the AIMCO Board.
YEAR 2000 COMPLIANCE
AIMCO'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 AIMCO's core business operations, and that transactions with
tenants, suppliers and financial institutions are fully supported.
AIMCO 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.
AIMCO'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. A more
detailed description of AIMCO's year 2000 compliance program is contained in the
documents incorporated herein by reference.
EXECUTIVE OFFICES
AIMCO's principal executive offices are located at 1873 South Bellaire Street,
17th Floor, Denver, Colorado 80222, and its telephone number is (303) 757-8101.
CONFLICT OF INTEREST POLICIES
AIMCO has adopted certain policies designed to minimize or eliminate conflicts
of interests between AIMCO and its executive officers and directors. Without the
approval of a majority of the disinterested directors, AIMCO will not (i)
acquire from or sell to any director, officer or employee of AIMCO or any entity
in which a director, officer or employee of AIMCO owns more than a 1% interest,
or acquire from or sell to any affiliate of any of the foregoing, any assets or
other property of AIMCO, (ii) make any loan to or borrow from any of the
foregoing persons, or (iii) engage in any material transaction with the
foregoing. In addition, AIMCO has entered into employment agreements with
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 always will be successful in eliminating the influence of such
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conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of AIMCO's stockholders as a whole.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
AIMCO has authority to offer shares of its capital stock or other securities and
to repurchase or otherwise reacquire its shares or any other securities, has
done so, and may engage in such activities in the future. From its inception,
AIMCO has made loans aggregating $5.1 million to certain entities owning
properties subsequently acquired by AIMCO. No balances remain outstanding on
such loans. In the same period, AIMCO has made loans aggregating $73.6 million
to its officers for the purchase of AIMCO Common Stock and $5.1 million to its
officers and other entities to acquire interests in subsidiaries of AIMCO. The
outstanding balances on such loans as of September 30, 1998 were $ million
and $ million, respectively. Messrs. Considine and Kompaniez have repaid
in part, using $2.0 million in proceeds distributed to them from the sale of NHP
common stock by AIMCO/NHP Holdings, Inc. ("ANHI") to AIMCO, outstanding
promissory notes payable by them to ANHI in an aggregate amount of $3.2 million,
which loan was made to them by ANHI to acquire their interest in ANHI. See
"-- Recent Financings." In addition, AIMCO from time to time advances amounts
for relocation and other expenses. AIMCO has not engaged in underwriting
securities of other issuers. AIMCO intends to make investments in such a way
that it will not be treated as an investment company under the Investment
Company Act of 1940, as amended.
AIMCO may invest in the securities of other issuers engaged in the ownership,
acquisition or management of multifamily apartment properties for the purpose of
exercising control.
At all times, AIMCO intends to make investments in such a manner as to be
consistent with the requirements of the Code for AIMCO to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in Treasury
Regulations), the AIMCO Board determines that it is no longer in the best
interest of AIMCO to qualify as a REIT.
AIMCO, as a REIT, is required to distribute annually to holders of AIMCO Common
Stock at least 95% of its "real estate investment trust taxable income," which,
as defined by the Code and the Treasury regulations, is generally equivalent to
net taxable ordinary income. AIMCO measures its economic profitability and
intends to pay regular dividends to its stockholders based on earnings during
the relevant period. However, the future payment of dividends by AIMCO will be
at the discretion of the AIMCO Board and will depend on numerous factors,
including AIMCO's financial condition, its capital requirements, the annual
distribution requirements under the provisions of the Code applicable to REITs
and such other factors as the AIMCO Board deems relevant.
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<PAGE> 144
BOARD OF DIRECTORS AND OFFICERS OF AIMCO
<TABLE>
<CAPTION>
NAME AGE FIRST ELECTED POSITION
---- --- ------------- --------
<S> <C> <C> <C>
Terry Considine............. 50 July 1994 Chairman of the Board of
Directors and Chief
Executive Officer
Peter K. Kompaniez.......... 53 July 1994 Vice Chairman, President and
Director
Joel F. Bonder.............. 49 December 1997 Executive Vice President,
General Counsel and
Secretary
Patrick J. Foye............. 41 May 1998 Executive Vice President
Robert Ty Howard............ 40 February 1998 Executive Vice President --
Ancillary Services
Steven D. Ira............... 47 July 1994 Executive Vice President and
Co-Founder
Thomas W. Toomey............ 37 January 1996 Executive Vice President --
Finance and Administration
David L. Williams........... 52 January 1997 Executive Vice President --
Property Operations
Harry G. Alcock............. 34 July 1996 Senior Vice President --
Acquisitions
Troy D. Butts............... 33 November 1997 Senior Vice President and
Chief Financial Officer
Richard S. Ellwood.......... 65 July 1994 Director, Chairman, Audit
Committee
J. Landis Martin............ 52 July 1994 Director, Chairman,
Compensation Committee
Thomas I. Rhodes............ 58 July 1994 Director
John D. Smith............... 69 November 1994 Director
</TABLE>
The following is a biographical summary of the experience of the current
directors and executive officers of AIMCO for the past five years or more.
Terry Considine. Mr. Considine has been Chairman of the Board of Directors and
Chief Executive Officer of AIMCO since July 1994, and was President until July
1997. He was appointed as a trustee, Chairman of the IPT Board and Chief
Executive Officer of IPT on October 1, 1998. Mr. Considine is the sole owner of
Considine Investment Co. and prior to July 1994 was owner of approximately 75%
of Property Asset Management, L.L.C., a Colorado limited liability company, and
its related entities (collectively, "PAM"), one of the AIMCO Predecessors. On
October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset
Investors Corp. and Commercial Asset Investors, Inc., two other public real
estate investment trusts, and appointed as a director of Financial Assets
Management, LLC, a real estate investment trust manager. Mr. Considine has been
involved as a principal in a variety of real estate activities, including the
acquisition, renovation, development and disposition of properties. Mr.
Considine has also controlled entities engaged in other businesses such as
television broadcasting, gasoline distribution
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<PAGE> 145
and environmental laboratories. Mr. Considine received a B.A. from Harvard
College, a J.D. from Harvard Law School and is admitted as a member of the
Massachusetts Bar.
Mr. Considine has had substantial multifamily real estate experience. From 1975
through July 1994, partnerships or other entities in which Mr. Considine had
controlling interests invested in approximately 35 multifamily apartment
properties and commercial real estate properties. Six of these real estate
assets (four of which were multifamily apartment properties and two of which
were office properties) did not generate sufficient cash flow to service their
related indebtedness and were foreclosed upon by their lenders, causing pre-tax
losses of approximately $11.9 million to investors and losses of approximately
$2.7 million to Mr. Considine.
Peter K. Kompaniez. Mr. Kompaniez has been Vice Chairman and a director of AIMCO
since July 1994 [and was appointed President in July 1997]. He was appointed as
a trustee and President of IPT on October 1, 1998. Since September 1993, Mr.
Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation
("PDI"), one of AIMCO's predecessors, and serves as its President and Chief
Executive Officer. From 1986 to 1993, he served as President and Chief Executive
Officer of Heron Financial Corporation ("HFC"), a United States holding company
for Heron International, N.V.'s real estate and related assets. While at HFC,
Mr. Kompaniez administered the acquisition, development and disposition of
approximately 8,150 apartment units (including 6,217 units that have been
acquired by AIMCO) and 3.1 million square feet of commercial real estate. Prior
to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and
Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez
received a B.A. from Yale College and a J.D. from the University of California
(Boalt Hall).
The downturn in the real estate markets in the late 1980s and early 1990s
adversely affected the United States real estate operations of Heron
international N.V. and its subsidiaries and affiliates (the "Heron Group").
During this period from 1986 to 1993, Mr. Kompaniez served as President and
Chief Executive Officer of HFC and as a director or officer of certain other
Heron Group entities. In 1993, HFC, its parent Heron International, and certain
other members of the Heron Group voluntarily entered into restructuring
agreements with separate groups of their United States and international
creditors. The restructuring agreement for the United States members of the
Heron Group generally provided for the joint assumption of certain liabilities
and the pledge of unencumbered assets in support of such liabilities for the
benefit of their United States creditors. As a result of the restructuring, the
operations and assets of the United States members of the Heron Group were
generally separated from those of Heron International and its non-United States
subsidiaries. At the conclusion of the restructuring, Mr. Kompaniez commenced
the operations of PDI, which was engaged to act as asset and corporate manager
of the continuing United States operations of HFC and the other United States
Heron Group members for the benefit of the United States creditors. In
connection with certain transactions effected at the time of the initial public
offering of AIMCO Common Stock, Mr. Kompaniez was appointed Vice Chairman of
AIMCO and substantially all of the property management assets of PDI were
transferred or assigned to AIMCO.
Joel F. Bonder. Mr. Bonder was appointed Executive Vice President and General
Counsel of AIMCO effective December 8, 1997. He was appointed as Executive Vice
President,
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<PAGE> 146
General Counsel and Secretary of IPT on October 1, 1998. Prior to joining AIMCO,
Mr. Bonder served as Senior Vice President and General Counsel of NHP from April
1994 until December 1997. Mr. Bonder served as Vice President and Deputy General
Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of
NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder practiced with the
Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder
practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an
A.B. from the University of Rochester and a J.D. from Washington University
School of Law.
Patrick J. Foye. Mr. Foye has served as Executive Vice President of AIMCO since
May 1998. On October 1, 1998, Mr. Foye was appointed as a trustee of IPT. Prior
to joining AIMCO, he was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's
Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also
Deputy Chairman of the Long Island Power Authority, and serves as a member of
the New York State Privatization Council. He received a B.A. from Fordham
College and a J.D. from Fordham University Law School.
Robert Ty Howard. Mr. Howard was appointed Executive Vice President -- Ancillary
Services in February 1998. Prior to joining AIMCO, Mr. Howard served as an
officer and/or director of four affiliated companies, Hecco Ventures, Craig
Corporation, Reading Company and Decurion Corporation. Mr. Howard was
responsible for financing, mergers and acquisitions activities, investments in
commercial real estate, both nationally and internationally, cinema development
and interest rate risk management. From 1983 to 1988, he was employed by Spieker
Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard
Law School and an M.B.A. from Stanford University Graduate School of Business.
Steven D. Ira. Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice
President of AIMCO since July 1994. Mr. Ira was appointed as a trustee and
Executive Vice President of IPT on October 1, 1998. From 1987 until July 1994,
he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr.
Ira acquired extensive experience in property management. Between 1977 and 1981,
he supervised the property management of over 3,000 apartment and mobile home
units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined
with others to form the property management firm of McDermott, Stein and Ira.
Mr. Ira served for several years on the National Apartment Manager Accreditation
Board and is a former president of both the National Apartment Association and
the Colorado Apartment Association. Mr. Ira is the sixth individual elected to
the Hall of Fame of the National Apartment Association in its 54-year history.
He holds a Certified Apartment Property Supervisor (CAPS) and a Certified
Apartment Manager designation from the National Apartment Association and a
Certified Property Manager (CPM) designation from the National Institute of Real
Estate Management (IREM) and he is a member of the Boards of Directors of the
National Multi-Housing Council, the National Apartment Association and the
Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan
State College in 1975.
Thomas W. Toomey. Mr. Toomey has served as Senior Vice President -- Finance and
Administration of AIMCO since January 1996 and was promoted to Executive Vice
President -- Finance and Administration in March 1997. On October 1, 1998, Mr.
Toomey was appointed as a trustee and Executive Vice President -- Finance and
Administration of
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<PAGE> 147
IPT. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln
Property Company ("LPC") as Vice President/Senior Controller and Director of
Administrative Services of Lincoln Property Services where he was responsible
for LPC's computer systems, accounting, tax, treasury services and benefits
administration. From 1984 to 1990, he was an audit manager with Arthur Andersen
& Co. where he served real estate and banking clients. From 1981 to 1983, Mr.
Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey
received a B.S. in Business Administration/ Finance from Oregon State University
and is a Certified Public Accountant.
David L. Williams. Mr. Williams has been Executive Vice President -- Operations
of AIMCO since January 1997. On October 1, 1998, Mr. Williams was appointed
Executive Vice President -- Property Operations of IPT. Prior to joining AIMCO,
he was Senior Vice President of Operations at Evans Withycombe Residential, Inc.
from January 1996 to January 1997. Previously, he was Executive Vice President
at Equity Residential Properties Trust from October 1989 to December 1995. He
has served on National Multi-Housing Council Boards and NAREIT committees. Mr.
Williams also served as Senior Vice President of Operations and Acquisitions of
US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the
property management, development and acquisition of real estate properties since
1973. Mr. Williams received his B.A. in education and administration from the
University of Washington in 1967.
Harry G. Alcock. Mr. Alcock has served as a Vice President of AIMCO since July
1996, and was promoted to Senior Vice President -- Acquisitions in October 1997,
with responsibility for acquisition and financing activities since July 1994. He
was appointed as a trustee and Senior Vice President -- Acquisition of IPT on
October 1, 1998. From June 1992 until July 1994, Mr. Alcock served as Senior
Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for
Larwin Development Corp., a Los Angeles based real estate developer, with
responsibility for raising debt and joint venture equity to fund land
acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford
Aerospace Corp. He received his B.S. from San Jose State University.
Troy D. Butts. Mr. Butts has served as Senior Vice President and Chief Financial
Officer of AIMCO since November 1997. On October 1, 1998, Mr. Butts was
appointed Senior Vice President and Chief Financial Officer of IPT. Prior to
joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the
Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts
was employed by Arthur Andersen LLP for ten years, and his clients were
primarily publicly-held real estate companies, including office and multi-family
real estate investment trusts. Mr. Butts holds a Bachelor of Business
Administration degree in Accounting from Angelo State University and is a
Certified Public Accountant.
Richard S. Ellwood. Mr. Ellwood was appointed a director of AIMCO in July 1994
and is currently Chairman of the Audit Committee. Mr. Ellwood is the founder and
President of R.S. Ellwood & Co., Incorporated, a real estate investment banking
firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had
31 years experience as an investment banker, serving as: Managing Director and
senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing
Director at Warburg Paribas Becker from 1978 to 1984; general partner and then
Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and
in various capacities at J.P. Morgan & Co. from 1955
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<PAGE> 148
to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc.
and Florida East Coast Industries, Inc.
J. Landis Martin. Mr. Martin was appointed a director of AIMCO in July 1994 and
became Chairman of the Compensation Committee in March 1998. Mr. Martin has
served as President and Chief Executive Officer and a director of NL Industries,
Inc. ("NL"), a manufacturer of titanium dioxide, since 1987. Mr. Martin has
served as Chairman of Tremont Corporation ("Tremont"), a holding company
operating through its affiliates Titanium Metals Corporation ("TIMET") and NL,
since 1990 and as Chief Executive Officer and a director of Tremont since 1988.
Mr. Martin has served as Chairman of TIMET, an integrated producer of titanium,
since 1987 and Chief Executive Officer since January 1995. From 1990 until its
acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served
as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an
oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a
director of Dresser, which is engaged in the petroleum services, hydrocarbon and
engineering industries.
Thomas L. Rhodes. Mr. Rhodes was appointed a director of AIMCO in July 1994. Mr.
Rhodes has served as the President and a Director of National Review since
November 30, 1992 where he has also served as a Director since 1988. From 1976
to 1992, he held various positions at Goldman, Sachs & Co. and was elected a
General Partner in 1986 and served as a General Partner from 1987 until November
27, 1992. He is currently Co-Chairman of the Board, Co-Chief Executive Officer
and a Director of Commercial Assets Inc. and Asset Investors Corporation. He
also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries,
Delphi International Ltd., Oracle Reinsurance Company, and The Lynde and Harry
Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy
Research, a Founder and Trustee of Change NY, a Trustee of the Heritage
Foundation, and a Trustee of The Manhattan Institute.
John D. Smith. Mr. Smith was appointed a director of AIMCO in November 1994. Mr.
Smith is Principal and President of John D. Smith Developments. Mr. Smith has
been a shopping center developer, owner and consultant for over 8.6 million
square feet of shopping center projects including Lenox Square in Atlanta,
Georgia. Mr. Smith is a Trustee and former President of the International
Council of Shopping Centers and was selected to be a member of the American
Society of Real Estate Counselors. Mr. Smith served as a director for
Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly
known as Continental Illinois Properties. He also serves as a director of
American Fidelity Assurance Companies and is retained as an advisor by Shop
System Study Society, Tokyo, Japan.
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<PAGE> 149
PRINCIPAL STOCKHOLDERS OF AIMCO
The following table sets forth certain information available to AIMCO, as of
October 1, 1998, with respect to shares of AIMCO Common Stock and OP Units held
by (i) each director and the five most highly compensated executive officers who
were serving as of December 31, 1997, (ii) all directors and executive officers
of AIMCO as a group and (iii) those persons known to AIMCO to be the beneficial
owners (as determined under the rules of the SEC) of five percent or more of
such shares. The business address of each of the following is 1873 South
Bellaire Street, Suite 1700, Denver, Colorado 80222-4348, unless otherwise
specified.
<TABLE>
<CAPTION>
NUMBER OF PRO FORMA
SHARES OF PERCENTAGE PERCENTAGE PERCENTAGE
AIMCO OF COMMON OWNERSHIP OWNERSHIP
NAME AND ADDRESS COMMON STOCK NUMBER OF OF OF
OF BENEFICIAL OWNER STOCK OUTSTANDING OP UNITS(1) AIMCO(2) AIMCO(2)(3)
- ------------------- --------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers
Terry Considine.............. 1,619,845(4)(5) 3.4% 784,967(6) 4.4% --
Peter K. Kompaniez........... 599,766(4)(12) 1.3 23,625 1.2 --
Steven D. Ira................ 241,697(4)(7) 0.5 96,605 0.6 --
Thomas W. Toomey............. 239,632 0.5 -- 0.4 --
Harry G. Alcock.............. 20,126(8) * -- * *
Richard S. Ellwood........... 16,200(9) * -- * *
J. Landis Martin............. 24,700 * -- * *
Thomas L. Rhodes............. 43,600 * -- * *
John D. Smith................ 16,700(10) * -- * *
All Directors and Executive
Officers as a group (15
persons)..................... 3,084,922(11) 6.4 905,197 7.3 --
Five Percent or Greater
Holders:
Cohen & Steers Realty Shares,
Inc. ...................... 4,432,000 9.2 -- 8.2 --
757 Third Avenue
New York, NY 10017
ABKB/LaSalle Securities
Limited Partnership........ 3,462,000(13) 7.2 -- 6.4 --
100 East Pratt Street
Baltimore, Maryland 21202
Fidelity Management &
Research................... 2,740,000 5.7 -- 5.1 --
</TABLE>
- -------------------------
* Less than 0.1%
(1) Through wholly owned subsidiaries, AIMCO acts as general partner of, and,
as of October 1, 1998, holds [ ]% of the interests in, the AIMCO Operating
Partnership. After a one-year holding period, OP Units may be tendered for
redemption and, upon tender, may be acquired by AIMCO for shares of AIMCO
Common Stock at an exchange ratio of one share of AIMCO Common Stock for
each OP Unit (subject to adjustment) or for cash, at AIMCO's option. If all
OP Units were acquired by AIMCO for AIMCO Common Stock (without regard to
the ownership limit) these shares of AIMCO Common Stock would constitute
approximately
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<PAGE> 150
11% of the then outstanding shares of AIMCO Common Stock. OP Units are
subject to certain restrictions on transfer.
(2) On a fully diluted basis, assuming all 6,156,415 OP Units outstanding as of
September 30, 1998 are acquired by AIMCO for shares of AIMCO Common Stock
at the exchange ratio of one OP Unit for each share of AIMCO Common Stock
without regard to the ownership limit.
(3) AIMCO closed the IFG Merger on October 1, 1998, and the shares of AIMCO's
Class E Preferred Stock issued in the IFG Merger, are assumed converted
into AIMCO Common Stock.
(4) Excludes 93,428, 41,438 and 13,821 shares of AIMCO Class B Common Stock
held by Messrs. Considine, Kompaniez and Ira, respectively, representing
57.5%, 25.5% and 8.5%, respectively, of the total number of shares of AIMCO
Class B Common Stock outstanding. AIMCO Class B Common Stock is convertible
into an equal number of shares of AIMCO Common Stock over a period ending
December 31, 1998 if certain performance standards are achieved.
(5) Includes 1,481,824 shares held by entities in which Mr. Considine holds
sole voting and investment power, 74,743 shares held by Mr. Considine's
spouse, Elizabeth Considine, for which Mr. Considine disclaims beneficial
ownership, and 63,278 shares held by a non-profit corporation in which Mr.
Considine has shared voting and investment power with his spouse. Mr.
Considine disclaims beneficial ownership of 1,220,078 shares held by
Considine family partnership's in which Mr. Considine holds a 10% general
partnership interest with the remaining 90% held by trusts for members of
Mr. Considine's family.
(6) Includes 162,980 OP Units held by entities in which Mr. Considine has sole
voting and investment power, 2,300 OP Units held by the Considine family
partnerships, for 99% of which Mr. Considine disclaims beneficial
ownership, and 157,698 OP Units held by Mr. Considine's spouse, Elizabeth
Considine, for which Mr. Considine disclaims beneficial ownership.
(7) Includes 49,600 shares subject to options that are exercisable within 60
days.
(8) Includes 5,525 shares subject to options that are exercisable within 60
days.
(9) Includes 4,500 shares subject to options that are exercisable within 60
days.
(10) Includes 12,000 shares subject to options that are exercisable within 60
days.
(11) Includes 99,654 shares subject to options that are exercisable within 60
days.
(12) Includes 800 shares subject to options that are exercisable within 60 days.
(13) Includes 937,508 shares beneficially owned by LaSalle Advisors Capital
Management, Inc.
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<PAGE> 151
BUSINESS OF IPT
The following description reflects the business of IPT as it existed
immediately after completion of the IFG Merger in which AIMCO succeeded to IFG's
interest in IPT and IPLP. Promptly following the execution of the Merger
Agreement, AIMCO caused IPLP to contribute a substantial portion of its assets
to the AIMCO Operating Partnership for OP Units. As a result of these transfers,
IPT has effectively ceased to operate as an independent company pending the
completion of the Merger. Accordingly, the following description of the business
of IPT is, for the most part, historical only. In the event the Merger is not
completed by December 31, 2001, the sale will be reversed in the manner provided
for in the Merger Agreement.
GENERAL
IPT is a Maryland real estate investment trust formed by IFG in May 1996
primarily for the purpose of acquiring and owning interests in multifamily
residential properties, principally through ownership of limited and general
partner interests in real estate limited partnerships. IPT has been organized
and operates in a manner that qualifies it to be taxed as a REIT under the Code.
Substantially all of IPT's assets are held through its operating partnership,
IPLP. On September 17, 1998, AMIT was merged in to IPT. AMIT was in the business
of making various types of intermediate term real estate loans. At the date of
the AMIT Merger, AMIT had 19 loans outstanding, with an aggregate principal
balance of approximately $21.1 million, and AMIT owned, as a result of
foreclosures or receipt of deed in lieu of foreclosure on certain assets
securing certain AMIT loans, approximately $14.4 million of real property. As of
September 17, 1998, AMIT had 10 loans outstanding to the Controlled Partnerships
(as defined below) with an aggregate principal balance of $ . IPT acquired
these assets as a part of the AMIT Merger, as well as approximately $12.3
million of cash held by AMIT at the date of the AMIT Merger.
Immediately prior to the execution of the Merger Agreement, IPT held equity
interests in and effectively controlled 121 real estate limited partnerships
(the "Controlled Partnerships") and had ten wholly-owned real estate assets. IPT
(or its subsidiary) owned a controlling equity interest in each entity that
comprises or controls the managing general partner of each Controlled
Partnership, and IPLP (and its subsidiaries) owned the limited partner interests
in the Controlled Partnerships and IPT's ten existing wholly-owned real estate
assets. The Controlled Partnerships in which IPT owns a material interest are
referred to herein as the "IPT Partnerships." The IPT Partnerships are listed
beginning on the following page. As of October 1, 1998, the Controlled
Partnerships owned a total of approximately 339 properties containing
approximately 70,000 residential apartment units and approximately 5.9 million
square feet of commercial space, and the IPT Partnerships owned a total of
approximately 197 properties containing approximately 48,000 residential
apartment units and approximately 3.0 million square feet of commercial space.
See "IPT Formation Transactions and Certain Recent Developments."
As of October 1, 1998, there were 23,446,538 IPT Common Shares issued and
outstanding, 12,033,556 (or approximately 51%) of which were owned by AIMCO, as
the successor to IFG, and its subsidiaries. IPLP had three partners -- IPT,
which is the sole general partner and owns 23,446,538 (or approximately 70%) of
outstanding IPLP OP Units; AIMCO, as the successor to IFG, is the special
limited partner and owns
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<PAGE> 152
8,919,480 (or approximately 27%) of the outstanding IPLP OP Units; and Insignia
Capital Corporation, now a wholly-owned subsidiary of AIMCO, which is a limited
partner and owns 1,014,495 (or approximately 3%) of the outstanding IPLP OP
Units. The affairs of IPLP and the relations among its partners are governed by
the Partnership Agreement. Under the IPLP Partnership Agreement, AIMCO, as the
successor to IFG, is designated as the special limited partner of IPLP and, as
such, possesses special rights with respect to certain matters concerning IPLP.
Limited partners of IPLP have the right, under certain circumstances, to require
IPLP to redeem their IPLP OP Units for cash, subject, however, to certain first
rights of IPT to acquire such IPLP OP Units for IPT Common Shares. See "The
Partnership Agreement of IPLP."
Under the IPLP Partnership Agreement, IPT is required to cause AIMCO, as the
successor to IFG, to be retained to provide (i) property management services
with respect to virtually all properties currently or hereafter controlled
(directly or indirectly) by IPT and (ii) partnership administration services to
certain of the partnerships controlled by IPT, IPT, IPLP and IFG also are
parties to an Acquisition and Disposition Services Agreement, pursuant to which
IPT has engaged AIMCO, as the successor to IFG, to provide certain real estate
and real estate securities acquisition and disposition services to IPT and IPLP.
See "The Partnership Agreement of IPLP" and "Acquisition and Disposition
Services Agreement."
THE IPT PARTNERSHIPS
The table below sets forth the following information with respect to each of the
IPT Partnerships, in each case as of September 30, 1998: (i) its name; (ii)
IPT's aggregate (direct and indirect) stated ownership interest therein (taking
into account both limited and general partner interests); (iii) the number of
properties owned; (iv) the number of residential apartment units contained in
the properties; and (v) the number of square feet of commercial space contained
in the properties.
<TABLE>
<CAPTION>
IPT'S STATED
OWNERSHIP NUMBER OF RESIDENTIAL COMMERCIAL
INTEREST PROPERTIES UNITS SQUARE FEET
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Consolidated Capital Growth Fund(b)(c).......... 44.48% 4 1,647 --
Consolidated Capital Institutional
Properties(c)................................. 40.54% 14 3,572 224,624
Consolidated Capital Institutional
Properties/2(c)............................... 21.40% 11 856 955,700
Consolidated Capital Institutional
Properties/3(c)............................... 24.71% 10 1,661 276,793
Consolidated Capital Properties III(a)(b)....... 24.34% 4 468 137,184
Consolidated Capital Properties IV(a)(b)........ 27.10% 17 4,258 --
Consolidated Capital Properties V(a)(b)......... 25.19% 3 454 85,727
Consolidated Capital Properties VI(a)(b)........ 22.35% 1 261 --
Johnstown/Consolidated Income Partners(b)....... 20.95% 3 158 143,436
Multi-Benefit Realty Fund 87-1(b)............... 22.69% 3 778 --
Shelter Properties I Limited Partnership(a)..... 46.96% 4 806 --
Shelter Properties II Limited Partnership(a).... 40.51% 3 853 --
Shelter Properties III Limited Partnership(a)... 34.03% 4 831 --
Shelter Properties IV Limited Partnership(a).... 39.64% 3 1,620 --
Shelter Properties V Limited Partnership(a)..... 43.69% 7 1,944 --
Shelter Properties VI Limited Partnership(a).... 35.59% 6 1,456 --
</TABLE>
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<PAGE> 153
<TABLE>
<CAPTION>
IPT'S STATED
OWNERSHIP NUMBER OF RESIDENTIAL COMMERCIAL
INTEREST PROPERTIES UNITS SQUARE FEET
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Shelter Properties VII Limited Partnership(a)... 23.07% 2 566 --
National Property Investors III(b)(c)........... 45.39% 3 1,092 --
National Property Investors 4(b)(c)............. 61.94% 1 722 --
National Property Investors 5(b)(c)............. 46.66% 3 895 --
National Property Investors 6(b)(c)............. 44.40% 6 1,691 --
National Property Investors 7(b)(c)............. 42.55% 5 1,122 --
National Property Investors 8(b)(c)............. 38.62% 2 672 --
Century Properties Fund XIV(a)(b)............... 45.82% 3 850 --
Century Properties Fund XV(a)(b)................ 44.45% 2 962 --
Century Properties Fund XVI(a)(b)............... 36.90% 2 472 --
Century Properties Fund XVII(a)(b).............. 38.35% 5 1,993 --
Century Properties Fund XVIII(a)(b)............. 35.69% 2 724 --
Century Properties Fund XIX(a)(b)............... 33.03% 8 2,278 --
Century Properties Growth Fund XXII(a)(b)....... 27.02% 9 2,895 --
Fox Strategic Housing Income Partners........... 15.67% 2 344 --
Davidson Growth Plus, L.P....................... 11.57% 3 688 --
Davidson Diversified Real Estate II, L.P........ 4.72% 5 1,342 160,000
Davidson Income Real Estate, L.P................ 4.77% 4 580 --
HCW Pension Real Estate Fund.................... 2.45% 2 269 104,312
Angeles Income Properties, Ltd. II.............. 13.26% 5 780 169,168
Angeles Income Properties, Ltd. IV.............. 8.01% 2 -- 345,287
Angeles Income Properties, Ltd. 6............... 5.09% 6 907 251,200
Angeles Opportunity Properties, Ltd............. 4.23% 2 352 --
Angeles Partners IX............................. 18.22% 5 1,441 --
Angeles Partners XII............................ 22.24% 10 2,855 173,473
Woodhaven Associates, L.P....................... 36.36% 1 208 --
</TABLE>
- -------------------------
(a) Indicates that (i) the stated interest of the general partner with respect
to distributions of net sales and refinancings proceeds are subordinated to
priority returns of and on limited partner investments, or (ii) the general
partner is required to restore distributions received on account of their
stated interests in the event the limited partners fail to receive
distributions in an aggregate amount equal to their aggregate original
investment. IPT believes, based on current real estate values, that these
limited partner priorities would not be achieved and thus IPT has valued the
stated general partner interest in such partnership at zero.
(b) Indicates that the general partner has an additional interest in the
partnership (e.g., "incentive fees") which effectively entitles it to
participate in the results of operations in fixed percentages beyond the
stated interest of the general partner. With respect to each National
Property Investors partnership, there is a maximum annual amount the general
partner may receive in respect of such additional fixed-percentage interest.
(c) Indicates that the interest of the general partner in distributions of net
proceeds from property sales and refinancings is generally greater than its
stated interest in the partnership, assuming the limited partners have
recovered their investments and stated returns thereon. In addition, certain
partnerships allocate a portion of the sales
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<PAGE> 154
proceeds to the general partner as a non-subordinated disposition fee. Based
on the terms of the applicable partnership agreements and estimated current
property values, IPT believes that the general partner would be allocated a
greater portion of net sales or refinancing proceeds than their stated
interest would indicate.
BUSINESS OBJECTIVES
IPT's primary business objective is to acquire interests in multifamily
residential properties located in the United States, including through (i)
direct ownership of such properties; (ii) indirect ownership of properties
through investments in limited partnerships, joint ventures or other entities
owning such properties; and (iii) indebtedness secured by such properties. IPT
seeks to engage in transactions that will enhance the value of such interests
and that IPT's management believes ultimately will provide superior returns to
the shareholders of IPT and the limited partners of IPLP. Accordingly, IPT will
seek to acquire multifamily residential property interests at prices that it
considers favorable in light of its assessment of the value of the underlying
properties in which it will invest. Once such interests are acquired, IPT will
take such action as it deems appropriate to enhance the potential return on its
investment in such interests. In connection with these objectives, IPT intends
to utilize the significant experience of AIMCO, as successor to IFG, in managing
and, during the term of the Acquisition and Disposition Services Agreement, in
acquiring the multifamily residential properties or interests in multifamily
residential properties described above.
IPT believes that there continues to be attractive opportunities to acquire
interests in multifamily residential properties. IPT anticipates that it will
seek to acquire additional interests in certain IPT Partnerships to the extent
such interests become available at prices that IPT considers favorable in light
of its assessment of the value of the underlying properties. IPT also intends to
pursue opportunities to acquire multifamily real estate assets or interests in
such real estate assets from other sources, either through the acquisition of
general and limited partner interests in partnerships that hold such assets,
direct or indirect investments in fee interests, or investments in debt secured
by such real estate assets.
IPT will seek to enhance the value of its real estate portfolio in a variety of
ways, which could include: (i) arranging for the underlying properties in which
it holds an interest to be managed by AIMCO, as successor to IFG, and/or its
property management affiliates with a view to achieving material increases in
funds from operations and distributable cash flow, and (ii) realizing economies
of scale through mergers or consolidations of partnerships (and other entities)
in which IPT has invested, or combinations of such partnerships (and other
entities) with other issuers.
In addition to its interests in multifamily residential property, IPT, as a
result of the AMIT Merger, acquired AMIT's assets which primarily consist of
loans secured by mortgages and other real estate related interests. IPT intends
to manage the loan portfolio of AMIT substantially in accordance with the past
practices of AMIT and has retained Anna Merguerian, one of the executive
officers of AMIT at the time of the AMIT Merger, to work for IPT primarily on
the loan portfolio. Although IPT has no present intentions to originate any new
loans, it may do so in the future depending upon the capital resources of IPT
and the relative anticipated returns on such investments.
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<PAGE> 155
Also, although it has no current plans to do so, IPT may seek to develop real
estate and engage in transactions with respect to such development that are
consistent with IPT's investment policies and that IPT believes will enhance the
value of such properties.
ACQUISITION STRATEGIES
IPT's primary strategies with respect to its acquisition of interests in
multifamily residential properties will be to:
- - acquire additional general partner interests in other limited partnerships
(and controlling interests in other types of entities) that own as a material
portion of their holdings multifamily residential properties;
- - purchase other direct and indirect interests in multifamily residential
properties, including direct and indirect fee interests;
- - invest in debt secured by mortgages and other real estate-related interests.
In this regard IPT intends to manage the portfolio of AMIT mortgages in
accordance with the past practices of AMIT. Although IPT has no current plans
to invest in other debt secured by mortgages or real estate-related interests,
it may do so depending on the capital resources of IPT and the relative
anticipated returns on such investments; and
- - possibly acquire additional limited partner interests in the Controlled
Partnerships, including the IPT Partnerships.
In making decisions whether to acquire interests in particular real properties,
IPT will consider the real estate and capital market conditions existing from
time to time. In addition, IPT expects to consider such factors as: (i) the
recent sales prices (if any) of such interests in relation to IPT's estimate of
the value of the underlying real estate assets; (ii) the geographic area, type
of property and demographic profile of the underlying properties; (iii) the
location, construction quality, condition and design of such properties; (iv)
the current and anticipated cash flow of such properties and its adequacy to
meet operational needs; (v) the potential for capital appreciation, if any; (vi)
the growth, tax and regulatory environments of the communities in which such
properties are located; and (vii) the impact of such investment on IPT's ability
to maintain its REIT status. Finally, with respect to potential investments in
interests of any limited partnership, in deciding whether to acquire such
limited partner interests, IPT expects to consider whether it has acquired, or
can reasonably expect in the future to acquire, ownership or control of the
general partner of such limited partnership.
Additionally, under the terms of the Acquisition and Disposition Services
Agreement, IPT is required to inform AIMCO, as successor to IFG, of certain
opportunities to invest in commercial properties and may not invest in such
properties without the prior consent of AIMCO, as successor to IFG. See
"Acquisition and Disposition Services Agreement -- Agreement Regarding Certain
Real Estate Opportunities."
OPERATING ACTIVITIES
Once interests in multifamily residential properties have been acquired
(including those in the Controlled Partnerships previously acquired), IPT has
broad powers to take such actions as the IPT Board deems necessary to enhance
returns on its investments in such interests.
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<PAGE> 156
As required by the Partnership Agreement, IPT intends to retain AIMCO, as
successor to IFG, to manage all of the real properties controlled by IPT.
Historically, upon the acquisition of limited partner interests in a real estate
limited partnership in which IFG or Metropolitan Asset Enhancement, L.P., a
Delaware limited partnership affiliated with IFG ("MAE"), controlled the general
partner, IFG continued its strategy of working to increase the value of, and
cash flow generated by, such partnership's assets. IPT believes that IFG's
property management capabilities (which AIMCO acquired) contribute significantly
to the potential benefit of owning interests in real estate limited
partnerships. IPT believes that IFG had been able to manage such partnerships at
a net cost to the partnerships that is lower than that charged by predecessor
managers, and has traditionally achieved improvements in property operations
compared to the predecessor managers.
IPT expects that the general partners of each of the Controlled Partnerships,
and of any other real estate limited partnerships in which IPT may acquire
interests, will seek and review opportunities to engage in transactions which
may enhance returns to the partnership's limited partners. In that regard, IPT
expects that the general partners will carefully consider any suggestions or
proposals that IPT may make. IPT believes that possible future transactions
which may be proposed to the general partner of a limited partnership include
(i) payment of distributions, (ii) refinancing, reducing or increasing existing
indebtedness of the limited partnership, (iii) sales of assets, individually or
as part of a complete liquidation of the limited partnership and (iv) mergers or
other consolidation transactions involving the limited partnership. Any such
merger or consolidation transaction could involve other limited partnerships in
which IPT, AIMCO, as successor to IFG, or their respective affiliates serve as
general partner, or a combination of the partnership with one or more existing,
publicly traded entities (including, possibly, affiliates of IPT or AIMCO, as
successor to IFG). In any such merger or consolidation, limited partners might
receive cash, IPT Common Shares, IPLP OP Units or other securities or
consideration. There can be no assurance, however, as to when or whether any of
the transactions referred to above might occur. A merger or other consolidation
transaction and certain kinds of other extraordinary transactions would require
a vote of the limited partners in the subject limited partnership, and by
holding a substantial number of units of limited partner interests in the
partnership, IPT, as general partner of IPLP, will be able to influence (and in
some instances may be able to control) the outcome of such a vote.
INVESTMENT POLICIES
IPT expects to invest primarily in multifamily residential real estate located
in the United States. Such investments will be made not only through the
acquisition of general and limited partner interests in limited partnerships,
but also through acquisitions of direct and indirect fee interests. Although it
has no current plans to do so, IPT may also invest in debt secured by mortgages
and other real estate-related interests. IPT has no present intention to invest
in commercial real estate except to the extent the Controlled Partnerships
currently own commercial property and any commercial properties that may be
acquired incidentally to the acquisition of multifamily residential portfolios.
In addition, although it has no current intention to do so, IPT has the
authority to invest in real estate interests outside of the United States.
Subject to the percentage ownership limitations and gross income and asset tests
which must be satisfied to qualify as a REIT (See "Special Factors -- Federal
Income Tax
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<PAGE> 157
Consequences of the Merger"), IPT may in the future acquire all or substantially
all of the securities or assets of other REITs, management companies or similar
entities where such investments would be consistent with IPT's investment
policies.
Subject to the REIT qualification requirements, there is no limitation on the
percentage of IPT's total assets that may be invested in any one investment. The
IPT Board may establish such limitations as it deems appropriate from time to
time without a vote of the shareholders. No limits have been set on the number
of limited partnerships in which IPT will seek to invest, or on the
concentration of investment in any one limited partnership or in any geographic
area.
IPT may invest its cash in certain short-term investment grade instruments. Such
investments may be in interest-bearing bank accounts, certificates of deposit,
money-market securities, United States government securities, mortgage-backed
securities guaranteed by the Government National Mortgage Association, mortgages
insured by the Federal Housing Administration or guaranteed by the Veterans
Administration, mortgage loans, mortgage loan participations and certain other
similar investments. IPT's ability to make certain of these investments may be
limited by tax considerations.
IPT may, but does not presently intend to, make investments other than as
previously described. IPT has the authority to offer IPT Common Shares or other
senior securities in exchange for property and to repurchase or otherwise
reacquire IPT Common Shares or any other securities, and may engage in such
activities in the future. In addition, IPT may cause IPLP to offer IPLP OP Units
in exchange for property. IPT has not made any loans to other entities or
persons, including trustees and officers of IPT, although it may do so in the
future, including investments in debt instruments as described above. In
addition, IPT may make loans secured by real estate, including without
limitation loans to the Controlled Partnerships. At all times, IPT intends to
make investments in such a manner as to be consistent with the requirements of
the Code to qualify as a REIT unless, in light of changed circumstances, the IPT
Board determines that it is no longer in the best interests of IPT and its
shareholders to qualify as a REIT.
FINANCING POLICIES
In the second and third quarters of 1997, IPT raised approximately $62 million
in the Private Offerings. Additionally, IPLP has a line of credit in the
principal amount of $50 million. See "IPT Line of Credit."
In the future, IPT may raise capital through public offerings or private
placements of its equity and debt securities. IPT may determine to finance
acquisitions through the issuance of its own securities or through the issuance
of IPLP OP Units to the selling entities, if such transactions otherwise satisfy
IPT's investment criteria. IPT also has the authority to repurchase or otherwise
reacquire IPT Common Shares or any other securities and may determine to do so
in the future.
IPT may incur indebtedness when, in the opinion of the IPT Board, it is
advisable to do so. IPT may, from time to time, negotiate additional lines of
credit or arrange for other short-term borrowings from banks or elsewhere. IPT
may also arrange for long-term borrowings from banks or other institutional
investors, or through a public offering of debt securities. Such borrowings may
be for general corporate purposes, to improve or expand
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<PAGE> 158
existing investments, to make additional investments or to fund any shortfall of
cash necessary to meet its REIT cash distribution requirements that could arise
if its taxable income exceeds its cash available for distribution. IPT's
Declaration of Trust and other corporate governance documents impose no limit on
the amount of indebtedness that IPT may incur.
Although IPT has no present intention to issue senior equity securities, its
Declaration of Trust authorizes the IPT Board to issue up to 100,000,000
Preferred Shares in series having such preferences, voting powers and other
rights as the IPT Board may determine, and IPT may in the future issue senior
securities to fund property acquisitions or in connection with a merger or other
business acquisition or for any other corporate purposes.
CONFLICT OF INTEREST POLICIES
IPT has adopted certain policies designed to minimize potential conflicts of
interest. The IPT Board is subject to certain provisions of Maryland law
described below, which are designed to eliminate or minimize certain potential
conflicts of interest. However, there can be no assurance that these policies
always will be successful in eliminating the influence of such conflicts, and if
they are not successful, decisions could be made that might fail to reflect
fully the interests of all shareholders of IPT.
The IPT Declaration authorizes IPT to enter into transactions, agreements or
other arrangements with any person or business entity even though one or more
trustees or officers of IPT may be a party to such agreement or an officer,
director, shareholder, partner, member, trustee or affiliate of such other
party, and no such agreement or transaction is void or voidable solely by reason
of the existence of any such relationship, if either (i) the existence of such
relationship is disclosed or known by (A) the IPT Board and the agreement or
transaction is approved by a majority of the disinterested members of the IPT
Board, or (B) the shareholders of IPT, and the agreement or transaction is
approved by a majority of the shareholders entitled to vote other than the
interested trustee or other party, or (ii) the agreement or transaction is fair
to IPT.
Additionally, under the IPT Declaration, each trustee of IPT is required to
discharge his duties in good faith, with the care an ordinarily prudent person
in a like position would exercise under similar circumstances and in a manner he
reasonably believes to be in the best interest of IPT.
Under IPT's Bylaws, as amended in connection with the Merger Agreement, a
committee of the IPT Board consisting of the AIMCO nominated trustees is
authorized to act on behalf of the IPT Board with respect to (i) all
transactions between IPT and AIMCO (other than matters relating to the Merger
Agreement and consulting agreements) and (ii) any offer by AIMCO to purchase
limited partnership interests in Controlled Partnerships or limited partnerships
controlled by Winthrop Financial Associates.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
IPT has authority to offer its shares of beneficial interest or other equity or
debt securities in exchange for property and to repurchase or otherwise
reacquire its shares of beneficial interest or any other securities and may
engage in such activities in the future. Similarly, IPT may cause IPLP to offer
IPLP OP Units in exchange for cash or other property. IPT
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<PAGE> 159
also may make loans to IPLP. As described under "The Partnership Agreement of
IPLP -- Redemption Rights," IPT may (but is not obligated to) issue IPT Common
Shares to holders of IPLP OP Units upon exercise of their redemption rights,
subject to certain restrictions and limitations. IPT has not engaged in
underwriting or agency distribution of the securities of other issuers and does
not intend to do so. IPT makes and intends to continue to make investments in
such a way that it will not be treated as an investment company under the
Investment Company Act.
IPT intends to make investments in a manner consistent with the requirements of
the Code for IPT to qualify as a REIT unless, because of changing circumstances
or changes in the Code (or in treasury regulations promulgated thereunder), the
IPT Board determines that it is no longer in the best interests of IPT to
qualify as a REIT.
IPT's policies with respect to such activities may be reviewed and modified from
time to time by the IPT Board without the vote of the shareholders of IPT.
PROPERTIES
The following table sets forth the number of properties, the primary use and
units, the average annual rental rate and average occupancy for each IPT
Partnership as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF RENTAL ANNUAL AVERAGE
NAME OF PARTNERSHIP PROPERTIES PRIMARY USE/UNITS RATES/PER UNIT 1997 OCCUPANCY
- ------------------- ---------- ----------------- ------------------- ---------
<S> <C> <C> <C> <C>
Consolidated Capital Growth
Fund....................... 4 Apartment/1,647 units $7,124/unit 92.3%
Consolidated Capital
Institutional
Properties(a).............. 15(b) 12.5 Apartment/3,572 units $7,466/unit 91.7%
2.5 Commercial/320,764 sq. ft. $13.87/sq. ft. 80.3%
Consolidated Capital
Institutional
Properties/2(c)............ 11 4 Apartment/856 units $7,736/unit 93.2%
7 Commercial/955,700 sq. ft. $14.58 sq. ft. 92.8%
Consolidated Capital
Institutional
Properties/3............... 10 8 Apartment/1,661 units $7,851/unit 94.9%
2 Commercial/276,793 sq. ft. $6.26 sq. ft. 92.9%
Consolidated Capital
Properties III............. 4 3 Apartment/468 units $6,160/unit 94.0%
1 Commercial/197,184 sq. ft. $10.81/sq. ft. 93.6%
Consolidated Capital
Properties IV.............. 17(d) 3 Apartment/4,258 units $6,816/unit 94.0%
Consolidated Capital
Properties V............... 3 2 Apartment/454 units $7,211/unit 94.6%
1 Commercial/85,727 sq. ft. $14.74/sq. ft. 95.0%
Consolidated Capital
Properties VI.............. 1 Apartment/261 units $6,517/unit 88.0%
Shelter Properties I Limited
Partnership................ 4 Apartment/806 units $6,357/unit 94.3%
Shelter Properties II Limited
Partnership................ 3 Apartment/853 units $6,650/unit 94.6%
</TABLE>
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<TABLE>
<CAPTION>
NUMBER AVERAGE
OF RENTAL ANNUAL AVERAGE
NAME OF PARTNERSHIP PROPERTIES PRIMARY USE/UNITS RATES/PER UNIT 1997 OCCUPANCY
- ------------------- ---------- ----------------- ------------------- ---------
<S> <C> <C> <C> <C>
Shelter Properties III
Limited Partnership........ 4 Apartment/831 units $6,754/unit 92.6%
Shelter Properties IV Limited
Partnership................ 3 Apartment/1,620 units $7,014/unit 94.6%
Shelter Properties V Limited
Partnership................ 7 Apartment/1,944 units $7,083/unit 93.1%
Shelter Properties VI Limited
Partnership................ 6 Apartment/1,456 units $7,093/unit 93.9%
Shelter Properties VII
Limited Partnership........ 2 Apartment/566 units $6,922/unit 91.7%
National Property Investors
III........................ 3 Apartment/1,092 units(e) $7,852/unit 96.2%
National Property Investors
4.......................... 1 Apartment/722 units $9,136/unit 95.2%
National Property Investors
5.......................... 3.24(f) Apartment/1,033 units $5,485/unit 91.7%
National Property Investors
6.......................... 6.76(g) Apartment/2,129 units $6,316/unit 90.8%
National Property Investors
7.......................... 5 Apartment/1,122 units $6,746/unit 93.1%
National Property Investors
8.......................... 2 Apartment/672 units $7,123/unit 91.9%
Century Properties Fund
XIV........................ 3 3 Apartment/850 units $6,970/unit 93.3%
Century Properties Fund XV... 2 2 Apartment/962 units $7,898/unit 94.5%
Century Properties Fund
XVI........................ 2 Apartment/472 units $6,232/unit 95.2%
Century Properties Fund
XVII....................... 5 Apartment/1,993 units $6,548/unit 95.2%
Century Properties Fund
XVIII...................... 2 Apartment/724 units $6,349/unit 94.7%
Century Properties Fund
XIX........................ 8 Apartment/2,278 units $7,297/unit 91.9%
Century Properties Growth
Fund XXII.................. 9 Apartment/2,895 units $7,438/unit 93.2%
Johnstown/Consolidated Income
Partners................... 3(h) 1 Apartment/158 units $5,858/unit 97.0%
2 Commercial/143,436 sq. ft. $9.38/sq. ft. 81.0%
Davidson Growth Plus, L.P.... 3 Apartment/688 units(i) $7,794/unit 93.1%
Multi-Benefit Realty Fund
'87-1...................... 3 Apartment/778 units $6,571/unit 92.7%
Fox Strategic Housing Income
Partners................... 2 Apartment/344 units $9,154/unit 93.0%
Davidson Diversified Real
Estate II, L.L.P........... 5 4 Apartments/1,342 units $6,025/unit 90.2%
1 Commercial/160,000 sq. ft... $8.93/sq. ft. 71.0%
Angeles Income Properties,
Ltd. II.................... 4(j) 3 Apartments/780 units $8,162/unit 96.6%
1 Commercial/169,168 sq. ft. $4.46/sq. ft. 91.0%
Angeles Income Properties
Ltd. IV 2 2 Commercial/345,289 sq. ft. $9.48/sq. ft. 90.5%
Angeles Income Properties
Ltd. 6..................... 7 5 Residential/1,209 units $4,872/unit 91.9%
2 Commercial/251,200 sq. ft. $6.19/sq. ft. 84.4%
Angeles Opportunity
Properties, Ltd............ 2 2 Apartments/352 units $6,563/unit 97.7%
Angeles Partners IX.......... 5 5 Apartments/1,441 units $5,482/unit 91.7%
</TABLE>
153
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<TABLE>
<CAPTION>
NUMBER AVERAGE
OF RENTAL ANNUAL AVERAGE
NAME OF PARTNERSHIP PROPERTIES PRIMARY USE/UNITS RATES/PER UNIT 1997 OCCUPANCY
- ------------------- ---------- ----------------- ------------------- ---------
<S> <C> <C> <C> <C>
Angeles Partners XII......... 10(k) 9 Apartments/2,855 units $7,383 unit 89.2%
1 Commercial/173,473 sq. ft. $11.40/sq. ft. 53.0%
Davidson Income Real Estate,
Ltd........................ 4 4 Apartments/900 units(i) $8,500/unit 92.4%
HCW Pension Real Estate Fund
L.P........................ 2 1 Apartment/269 units $7,751/unit 84.0%
1 Commercial/104,312 sq. ft. $13.80/sq. ft. 74.0%
Woodhaven Associates, L.P.... 1 Apartment/208 units $6,082/unit 94.4%
</TABLE>
- -------------------------
(a) Includes properties owned by Consolidated Capital Equity Properties, L.P.
("CCEP") in which Consolidated Capital Institutional Properties has a
beneficial ownership interest as a result of its ownership of a significant
amount of CCEP's debt securities.
(b) One property includes both commercial and residential space.
(c) Includes properties owned by Consolidated Capital Equity Properties/Two,
L.P. ("CCEP2") in which Consolidated Capital Institutional Properties/2 has
a beneficial ownership interest as a result of its ownership of a
significant amount of CCEP2's debt securities.
(d) The partnership originally acquired 48 properties, of which 11 were sold,
ten were conveyed to lenders in lieu of foreclosure, and nine were
foreclosed upon by the lenders in the fiscal years prior to 1996. In
February of 1996, the partnership lost an additional property through
foreclosure. As of December 31, 1997, the partnership owned 17 apartment
complexes and held one note receivable on a sold property.
(e) In January 1997, the partnership acquired co-tenant's 10% interest in 304 of
the 1,092 units for $50,000.
(f) The partnership is a tenant in common with National Property Investors 6 on
a property consisting of 576 units; 138 units represents the partnership's
pro rata share.
(g) The partnership is a tenant in common with National Property Investors 5 on
a property consisting of 576 units; 438 units represent the partnership's
pro-rata share; the partnership owns 75.972% subject to a first mortgage.
(h) The partnership originally acquired four properties and funded five loans.
At December 31, 1997, the partnership owned three properties.
(i) One apartment property (320 units) is held through a joint venture 82.5%
owned by Davidson Growth Plus, L.P. and 17.5% owned by Davidson Income Real
Estate, Ltd.
(j) Does not include a 14.4% interest in a golf course held by the partnership.
(k) Does not include a 44.5% interest in a golf course held by the partnership.
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TAXES/DEPRECIATION
The following table sets forth the aggregate gross carrying value, the aggregate
accumulated depreciation, the range and method of depreciation, and the
aggregate federal tax basis of the properties owned by the IPT Partnerships as
of December 31, 1997 (all in thousands) and the aggregate 1997 taxes and tax
rate paid by the IPT Partnerships.
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
GROSS AGGREGATE FEDERAL AGGREGATE 1997
CARRYING ACCUMULATED RANGE OF TAX 1997 TAX
PARTNERSHIP VALUE DEPRECIATION DEPRECIATION METHOD BASIS TAXES RATE
- ----------- --------- ------------ ------------ ------ --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Capital Growth
Fund........................ $ 42,258 $22,630 5-19 yrs. S/L $23,838 $ 587 1.20%
5-22 yrs.
Consolidated Capital
Institutional Properties.... 143,150 80,760 3-18 yrs. S/L 67,337 1,663 2.67%
5-25 yrs.
Consolidated Capital
Institutional
Properties/2................ 99,369 59,501 1-20 yrs. S/L 51,694 1,196 2.37%
3-20 yrs.
Consolidated Capital
Institutional
Properties/3................ 63,326 15,474 3-20 yrs. S/L 56,544 860 1.37%
5-25 yrs.
Consolidated Capital
Properties III.............. 14,209 9,624 3-15 yrs. S/L 8,259 215 1.72%
5-19 yrs.
Consolidated Capital
Properties IV............... 130,653 98,490 5-15 yrs. S/L 36,698 1,900 1.81%
5-40 yrs.
Consolidated Capital
Properties V................ 20,993 14,057 5-19 yrs. S/L 9,074 460 5.08%
Consolidated Capital
Properties IV............... 9,866 3,641 5-30 yrs. S/L 5,558 113 4.42%
Shelter Properties I Limited
Partnership................. 19,927 13,590 5-30 yrs. S/L 7,574 238 2.27%
5-37 yrs.
Shelter Properties II Limited
Partnership................. 24,806 15,996 5-35 yrs. S/L 5,263 400 2.49%
5-38 yrs.
Shelter Properties III Limited
Partnership................. 25,880 14,229 5-36 yrs. S/L 3,842 346 8.56%
5-32 yrs.
Shelter Properties IV Limited
Partnership................. 59,996 32,269 5-30 yrs. S/L 7,981 777 1.86%
5-36 yrs.
Shelter Properties V Limited
Partnership................. 75,253 40,464 5-27 yrs. S/L 13,006 806 2.02%
5-34 yrs.
Shelter Properties VI Limited
Partnership................. 52,209 24,751 5-27 yrs. S/L 16,536 912 2.37%
5-35 yrs.
Shelter Properties VII Limited
Partnership................. 21,447 9,906 5-29 yrs. S/L 9,974 181 4.24%
5-39 yrs.
National Property Investors
III......................... 35,484 23,509 5-27.5 yrs. S/L 11,916 684 4.02%
National Property Investors
4........................... 26,047 17,946 5-27.5 yrs. S/L 3,809 467 4.32%
National Property Investors
5........................... 29,093 20,711 5-27.5 yrs. S/L 4,161 233 2.13%
National Property Investors
6........................... 64,370 41,579 5-27.5 yrs. S/L 15,384 454 3.35%
National Property Investors
7........................... 45,426 24,079 5-27.5 yrs. S/L 12,938 380 1.64%
National Property Investors
8........................... 30,036 15,084 5-27 yrs. S/L 12,921 451 4.07%
5-29 yrs.
</TABLE>
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<PAGE> 163
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
GROSS AGGREGATE FEDERAL AGGREGATE 1997
CARRYING ACCUMULATED RANGE OF TAX 1997 TAX
PARTNERSHIP VALUE DEPRECIATION DEPRECIATION METHOD BASIS TAXES RATE
- ----------- --------- ------------ ------------ ------ --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Century Properties Fund XIV... 26,659 14,074 5-30 yrs. S/L 7,524 306 2.06%
Century Properties Fund XV.... 39,884 18,559 5-30 yrs. S/L 19,480 735 2.70%
Century Properties XVI........ 14,947 7,303 5-30 yrs. S/L 2,452 246 2.76%
Century Properties XVII....... 66,141 30,323 5-30 yrs. S/L 14,022 761 3.45%
Century Properties XVIII...... 26,859 9,777 5-30 yrs. S/L 8,581 473 2.09%
Century Properties XIX........ 95,841 40,016 5-30 yrs. S/L 26,644 1,136 1.95%
Century Properties Growth Fund
XXII........................ 130,980 52,090 5-30 yrs. S/L 48,019 1,647 2.20%
Johnstown/Consolidated Income
Partners.................... 13,092 6,193 5-19 yrs. S/L 7,629 162 2.17%
5-28 yrs.
Davidson Growth Plus, L.P..... 23,756 9,160 5-25 yrs. S/L 21,165 448 2.69%
Multi-Benefit Realty Fund
'87-1....................... 23,943 10,913 5-30 yrs. S/L 16,121 343 3.51%
Fox Strategic Housing
Income...................... 21,364 6,416 5-30 yrs. S/L 14,633 271 4.29%
Davidson Diversified Real
Estate II, L.P. ............ 44,544 21,263 5-25 yrs. S/L 17,260 741 3.36%
Angeles Income Partners, Ltd.
II.......................... 35,800 24,462 5-20 yrs. S/L 8,026 560 2.40%
Angeles Income Properties,
Ltd. IV..................... 23,368 12,569 5-20 yrs. S/L 14,515 190 1.39%
Angeles Income Properties,
Ltd. 6...................... 36,223 8,650 5-40 yrs. S/L 35,166 821 3.69%
Angeles Opportunity Partners,
Ltd......................... 8,294 1,914 5-40 yrs. S/L 7,134 224 2.84%
Angeles Partners IX........... 36,860 22,719 5-19 yrs. S/L 16,797 409 3.56%
5-25 yrs.
Angeles Partners XII.......... 100,619 60,629 5-40 yrs. S/L 38,099 2,156 3.10%
Davidson Income Real Estate,
L.P......................... 24,287 10,149 5-25 yrs. S/L 17,796 424 2.63%
HCW Pension Real Estate Fund.. 15,391 4,892 5-25 yrs. S/L 11,832 397 9.61%
5-40 yrs.
Woodhaven Associates, L.P. ... 5,288 3,162 5-30 yrs. S/L 552 81 1.36%
</TABLE>
MORTGAGES
The following table sets forth the aggregate principal balance outstanding on
the mortgages of each IPT Partnership, the range of interest on and maturities
of such mortgages and the aggregate balance due at maturity as of December 31,
1997.
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AGGREGATE BALANCE
PARTNERSHIP OUTSTANDING RANGE OF INTEREST MATURITIES DUE AT MATURITY
----------- ------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Consolidated Capital Growth
Fund.......................... $30,690 6.95-7.33% 11/03; 12/05 $30,690
Consolidated Capital
Institutional Properties...... 27,581 6.95% 12/05 24,200
Consolidated Capital
Institutional Properties/2.... 32,905 7.33-9.88% 06/00; 11/03 31,528
Consolidated Capital
Institutional Properties/3.... 30,525 6.95-7.33% 11/93; 12/05 30,525
Consolidated Capital Properties
III........................... 4,200 7.33% 11/03 4,200
Consolidated Capital Properties
IV............................ 71,191 6.95-10.50% 12/98; 12/05 69,071
</TABLE>
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<PAGE> 164
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AGGREGATE BALANCE
PARTNERSHIP OUTSTANDING RANGE OF INTEREST MATURITIES DUE AT MATURITY
----------- ------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Consolidated Capital Properties
V............................. 11,145 7.33-9.125% 10/03; 06/04 10,018
Consolidated Capital Properties
VI............................ 4,407 9.50% 05/01 4,512
Shelter Properties I Limited
Partnership................... 11,470 7.33-7.60% 11/02; 11/03 10,888
Shelter Properties II Limited
Partnership................... 8,549 7.60% 11/02 7,370
Shelter Properties III Limited
Partnership................... 8,276 7.60-7.83% 11/02; 10/03 7,228
Shelter Properties IV Limited
Partnership................... 24,067 7.60% 11/02 20,669
Shelter Properties V Limited
Partnership................... 31,513 7.33-10.375% 02/99; 12/16 23,787
Shelter Properties VI Limited
Partnership................... 26,790 7.60% 11/02 23,008
Shelter Properties VII Limited
Partnership................... 11,116 7.50-7.83% 03/01; 10/03 10,287
National Property Investors
III........................... 24,414 7.13-9.87% 07/01; 01/08(a) 23,602
National Property Investors 4... 19,300 7.33% 11/01/03 19,300
National Property Investors 5... 11,704 8.50%-9.00% 02/01; 07/03 10,658
National Property Investors 6... 26,135 7.33% 11/03 26,135
National Property Investors 7... 20,284 7.33%-8.56% 02/01; 11/03 20,157
National Property Investors 8... 10,924 7.33%-9.85% 02/02; 11/03 10,611
Century Properties Fund XIV..... 16,067 9.88% 07/01 15,551
Century Properties Fund XV...... 19,023 7.33-9.6% 07/01; 11/03 18,529
Century Properties Fund XVI..... 7,422 7.88% 01/06 6,618
Century Properties Fund XVII.... 37,334 7.875-8.630% (b) 07/99; 07/05 39,574
Century Properties Fund XVIII... 18,550 7.36%-8.25% 01/99; 10/04 17,605
Century Properties Fund XIX..... 60,900 7.33-8.33% 01/03; 01/06 56,462
Century Properties Growth Fund
XXII.......................... 72,603 7.33-7.93% (c) 12/99; 02/06 66,036
Johnstown/Consolidated Income
Partners...................... 2,325 7.33% 11/03 2,325
Davidson Growth Plus, L.P. ..... 12,270 7.60-7.83% 11/02; 10/03 10,750
Multi-Benefit Realty Fund
87-1.......................... 12,285 7.33-8.30% 10/00; 11/03 12,075
Fox Strategic Housing Income
Partners...................... 7,836 10.9% 08/98 8,713
Davidson Diversified Real Estate
II, L.P. ..................... 26,807 (d) 1/00; 12/09 22,185
Angeles Income Properties, Ltd.
II............................ 18,197 7.33-7.83% 11/03 16,812
Angeles Income Properties, Ltd.
IV............................ 15.221 9.75% 10/06 12,955
Angeles Income Properties, Ltd.
6............................. 23,374 7.33-10.07% 9/99; 7/19 17,826
Angeles Opportunity Properties,
Ltd. ......................... 5,432 7.33-7.83% 10/03; 11/03 5,293
Angeles Partners IX............. 19,768 7.33-10.13% 8/02; 11/03 18,258
Angeles Partners XII............ 72,105 7.83-10.5% 01/02; 05/05 63,822 \
</TABLE>
157
<PAGE> 165
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AGGREGATE BALANCE
PARTNERSHIP OUTSTANDING RANGE OF INTEREST MATURITIES DUE AT MATURITY
----------- ------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Davidson Diversified Real
Estate, L.P. ................. 12,011 7.33-7.83 11/02; 10/03 11,278
HCW Pension Real Estate Fund.... -- -- -- --
Woodhaven Associates, L.P. ..... 3,787 10.5% 4/1/24 --
</TABLE>
- -------------------------
(a) One property (304 units) has a mortgage that matured on September 1, 1996,
and an extension was obtained through December 31, 1997. The partnership
continues to pay debt service to the lender while alternate financing is
arranged.
(b) One property has zero coupon note; discounted at an effective interest rate
of 10.247%.
(c) One property with a principal balance of $2,840,000 bears interest at LIBOR
plus 3.75%; the other properties range in interest from 7.33% to 7.93%.
(d) Adjusted rate based on 75% of interest rate on new-issue long-term A-rate
utility bonds as determined on first day of each calendar year. The rate at
December 31, 1997 was 5.385%. Rates on the other properties ranged from
7.50% to 10.125%.
LEGAL PROCEEDINGS
In connection with tender offers commenced on August 28, 1997 (the "Initial
Tender Offers"), IPT, IPLP, IFG and IPLP Acquisition I LLC ("IPLP Acquisition")
were named as defendants in several lawsuits regarding the terms of and
circumstances surrounding these tender offers. IPT and its affiliates believe
that the allegations contained in each of the complaints are without merit and
intend to vigorously contest each action.
1. On September 8, 1997, persons claiming to own units of limited partner
interest in the partnerships (the "Initial Tender Offer Partnerships") with
respect to which IPLP Acquisition commenced the Initial Tender Offers filed a
complaint (the "San Mateo Complaint") with respect to a purported class action
and derivative suit in the Superior Court for the State of California for the
County of San Mateo seeking, among other things, an order requiring corrections
to the disclosures in the tender offer documents and enjoining the Initial
Tender Offers, an order requiring the defendants to disclose their fiduciary
duties to the limited partners of the Initial Tender Offer Partnerships by
seeking other transactions that would maximize value for the limited partners of
the Initial Tender Offer Partnerships and compensatory damages.
The San Mateo Complaint applies to each of the Initial Tender Offers. The San
Mateo Complaint names as defendants IPLP Acquisition, IFG, IPLP, IPT, the
corporate general partner of each Initial Tender Offer Partnership, which in
each case is wholly-owned by IPT, and one individual who is an officer and
director of IFG. The San Mateo Complaint contains allegations that, among other
things, the defendants have intentionally mismanaged the Initial Tender Offer
Partnerships and acted contrary to the limited partners' best interests, through
use of non-public material information gained as a result of the relationship
between IPLP Acquisition and the Initial Tender Offer Partnerships and thus
continue the revenue derived by Insignia from the Initial Tender Offer
Partnerships, while at the same time reducing the demand for the Initial Tender
Offer Partnerships' units in the limited resale market for the units by
artificially depressing the trading prices for the units in order to create a
favorable environment for the Initial Tender Offers. In the San
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<PAGE> 166
Mateo Complaint, the plaintiffs also allege that, as a result of the Initial
Tender Offers, IPLP Acquisition will acquire effective voting control over the
Initial Tender Offer Partnerships at highly inadequate prices, and that the
offers to purchase and related tender offer documents contain numerous false and
misleading statements and omissions of material facts. The alleged misstatements
and omissions concern, among things, the advantages to limited partners of
tendering units pursuant to the Initial Tender Offers; the description of the
estimated liquidation value in the offers to purchase and the estimated expenses
that were taken into account in computing that value; the true financial
condition of the Initial Tender Offer Partnerships and the ability to sell or
refinance any of the Initial Tender Offer Partnerships' properties; the factors
affecting the likelihood that properties owned by the Initial Tender Offer
Partnerships will be sold or liquidated in the near future; the liquidity and
value of the units; the limited secondary market for units; and the true nature
of the market for the underlying assets.
On September 24, 1997, the plaintiffs in this action made an ex parte
application to the court seeking a temporary restraining order prohibiting IPLP
Acquisition from purchasing units tendered pursuant to the Initial Tender
Offers. The court denied the application on the same afternoon. In January 1998,
the plaintiffs agreed to discontinue this action, and on March 3, 1998 formal
discontinuance documents were filed with the court.
2. On September 8, 1997, persons claiming to own units in the Initial Tender
Offer Partnerships filed a complaint (the "Delaware Complaint") with respect to
a purported class action and derivative suit in the Court of Chancery in the
State of Delaware in and for New Castle County seeking, among other things,
compensatory damages, a declaration that the defendants have breached their
fiduciary duties to the limited partners of the Initial Tender Offer
Partnerships, an order directing the defendants to carry out their fiduciary
duties and an order enjoining the Initial Tender Offers.
The Delaware Complaint applies to each of the Initial Tender Offers. The
Delaware Complaint names as defendants IPLP Acquisition, IFG and IPLP. The
Delaware Complaint contains allegations that, among other things, the defendants
have intentionally mismanaged the Initial Tender Offer Partnerships and acted
contrary to the limited partners' best interests, by manipulating the limited
partners into selling their units pursuant to the Initial Tender Offers for
substantially lower prices than the units are worth. In the Delaware Complaint,
the plaintiffs also allege that, as a result of the Initial Tender Offers and in
light of the acknowledged conflict of interest between IPLP Acquisition and the
corporate general partners of the Initial Tender Offer Partnerships, Insignia
breached its duty to provide an independent analysis of the fair market value of
the units in the offers to purchase and the related tender offer materials
(including the Schedule 14D-9 filed with the SEC on August 28, 1997 by the
corporate general partner of each Initial Tender Offer Partnership). The
Delaware Complaint contains further allegations that, among other things, the
defendants failed to appoint a disinterested committee to review the Initial
Tender Offers, and therefore, did not adequately consider other alternatives
available to the limited partners (such as a liquidation or auction of the
Initial Tender Offer Partnerships or their assets), resulting in an offer that
may not be in the best interests of the Initial Tender Offer Partnerships and
the limited partners thereof.
In January 1998, the plaintiffs agreed to discontinue this action, and on
February 27, 1998 this action was dismissed.
3. On September 10, 1997, persons claiming to own units of limited partner
interest in the Initial Tender Offer Partnerships filed a complaint with respect
to a purported class action
159
<PAGE> 167
and derivative suit in the Superior Court for the State of California for the
County of Alameda (the "Heller Complaint") seeking, among other things, an order
enjoining the Initial Tender Offers, an order requiring the defendants to
discharge their fiduciary duties to the limited partners of the Initial Tender
Offer Partnerships by, among other things, engaging independent persons to act
in the best interest of the limited partners and by seeking other transactions
that would maximize value for the limited partners, an order requiring the
defendants to explore other alternatives to the Initial Tender Offers and
compensatory damages.
The Heller Complaint applies to each of the Initial Tender Offers. The Heller
Complaint names as defendants IPLP Acquisition, IFG, IPLP, IPT and the corporate
general partner of each Initial Tender Offer Partnership. The Heller Complaint
contains allegations that, among other things, the defendants have intentionally
mismanaged the Initial Tender Offer Partnerships and acted contrary to the
limited partners' best interests, through use of non-public material information
gained as a result of the relationship between IPLP Acquisition and the
corporate general partners of the Initial Tender Offer Partnerships, and failed
to adequately consider other alternatives available to the Initial Tender Offer
Partnerships, such as a sale or liquidation of the Initial Tender Offer
Partnerships' properties, or to hire an independent person to advise the
corporate general partners as to such alternatives. In the Heller Complaint, the
plaintiffs also allege that, as a result of the Initial Tender Offers, IPLP
Acquisition will acquire effective voting control over the Initial Tender Offer
Partnerships at highly inadequate prices, and that the offers to purchase and
related tender offer documents contain numerous false and misleading statements
and omissions of material facts. The alleged misstatements and omissions
concern, among other things, the advantages to limited partners of tendering
units pursuant to the offers; the true financial condition of the Initial Tender
Offer Partnerships and their ability sell or refinance any of the Initial Tender
Offer Partnerships' properties; the factors affecting the likelihood that
properties owned by the Initial Tender Offer Partnerships will be sold or
liquidated in the near future; the liquidity and value of the units of limited
partner interest in the Initial Tender Offer Partnerships; the limited secondary
market for units of limited partner interest in the Initial Tender Offer
Partnerships; the true nature of the market for the underlying assets; and the
true intentions of IPT and its affiliates with respect to the units of limited
partner interest in the Initial Tender Offer Partnerships.
In January, 1998 the plaintiffs agreed to discontinue this action, and on
February 11, 1998 this action was formally dismissed with prejudice.
4. On March 24, 1998, an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. was filed in the Superior Court of the State of
California for the County of San Mateo, in which the plaintiffs named as
defendants, among others, IPT, IPLP and IFG. The complaint purports to assert
claims on behalf of the limited partners of 55 of the Controlled Partnerships
and derivatively on behalf of the Controlled Partnerships named in the
complaint, which are also named as nominal defendants. The complaint challenges
(i) the acquisition of interests in the general partners of the named Controlled
Partnerships by IFG and its affiliates, (ii) various past tender offers
commenced by affiliates of IFG and IPT to acquire units of limited partner
interest in the Controlled Partnerships named in the complaint, (iii) the
management of the named Controlled Partnerships by IFG and its affiliates and
(iv) the IFG Merger.
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<PAGE> 168
The complaint seeks monetary damages and equitable relief, including the
dissolution of the Controlled Partnerships named in the complaint. IPT and AIMCO
believe that the allegations contained in the complaint are without merit and
intend to vigorously contest this action.
5. On July 30, 1998, an action entitled Everest Properties, LLC, et al. v.
Insignia Financial Group, Inc., et al., was filed in the Superior Court of the
State of California, County of Los Angeles. Plaintiffs are Everest Properties,
LLC, Everest Properties II, LLC, KM Investments, LLC, KH Financial, Inc. and
Millennium Investors, LLC. The complaint asserts eleven causes of action,
including breach of contract and fiduciary duty, tortious interference with
prospective economic advantage, interference with contract, unfair business
practices, violations of California's Cartwright Act, and the respective Limited
Partnership Acts of California, Delaware, South Carolina, Massachusetts and
Missouri, under which the relevant limited partnerships are organized. The
complaint names, among others, IFG, IPT, IPLP, three wholly-owned subsidiaries
of IPT (Angeles Realty Corporation, Angeles Realty Corporation II and ConCap
Equities, Inc.) and 12 other entities alleged to be managing partners of the
defendant limited partnerships.
The action involves 44 of the Controlled Partnerships (each named as a
defendant) in which the plaintiffs own interests and which IFG and, its
successor AIMCO, or its affiliates allegedly manage or control (the "Subject
Partnerships"). The plaintiffs allege that they have requested from, but have
been denied by, each of the Subject Partnerships their respective lists of
limited partners for the purpose of making tender offers to purchase up to 4.9%
of the units of limited partner interest of each of the Subject Partnerships.
The complaint also alleges that subsequent to denying plaintiffs' requests,
certain of the defendants made tender offers to purchase units of limited
partner interest in many of the Subject Partnerships, with the result that
plaintiffs have been deprived of the benefits they would have realized from
ownership of the additional units. Plaintiffs estimate compensatory damages to
exceed $15 million. Additionally, plaintiffs are seeking punitive and treble
damages based on their assertion that the defendants have willfully refused to
turn over the limited partner lists. IPT and IFG intend to vigorously contest
this action.
6. An action was filed against AMIT, Katten Muchin Zavis and David M. Bass in
Superior Court of the State of California by Jules P. Kirsch on December 26,
1996 alleging that the named defendants had maliciously prosecuted Mr. Kirsch in
certain earlier litigation commenced by AMIT in 1995, which alleged the purchase
by Jules P. Kirsch and several other individuals and corporations of AMIT Class
A Shares through the use of "inside information" and for violations of Sections
13(d) and 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
In June 1996, AMIT settled the prior claims with all defendants, except for
Jules P. Kirsch and voluntarily dismissed the claims against Jules P. Kirsch.
The now pending action commenced by Jules P. Kirsch seeks unspecified amounts
for compensatory and punitive damages.
On January 5, 1998, summary judgment was entered in favor of AMIT and against
Mr. Kirsch on all claims in the malicious prosecution action. On January 30,
1998 Mr. Kirsch filed an appeal of the summary judgment ruling.
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<PAGE> 169
IPT FORMATION TRANSACTIONS AND CERTAIN RECENT DEVELOPMENTS
IPT Formation Transactions
Predecessors of IPT and IPLP
In January 1996, IFG organized Insignia Properties Corporation ("IPC"), a
Delaware corporation, and Insignia NPI, L.L.C., a Delaware limited liability
company ("Insignia-NPI"), for the purpose of completing the NPI Transaction (as
defined below). IPC was a wholly-owned subsidiary of IFG, and Insignia-NPI was
owned 99% by IPC and 1% by another wholly-owned subsidiary of IFG. IPT is the
successor by merger to IPC, and IPLP is the successor by merger to Insignia-NPI.
The NPI Transaction
In January 1996, IPC and Insignia-NPI (and certain other affiliates of IFG)
completed a series of related transactions (collectively, the "NPI Transaction")
with National Properties Investors, Inc. ("NPI") and certain of its affiliates,
pursuant to which:
(1) IFGP Corporation, a wholly-owned subsidiary of IFG ("IFGP"), acquired
(i) all of the outstanding stock of NPI, which in turn owned controlling
equity interests in various entities that controlled the sole or managing
general partners of the following IPT Partnerships: National Property
Investors II, National Property Investors III, National Property Investors
4, National Property Investors 5, National Property Investors 6, National
Property Investors 7, National Property Investors 8, Century Properties
Fund XIV, Century Properties Fund XV, Century Properties Fund XVI, Century
Properties Fund XVII, Century Properties Fund XVIII, Century Properties
Fund XIX, Century Properties Fund XX, Century Properties Growth Fund XXII,
Century Pension Income Fund XXIII, Century Pension Income Fund XXIV and Fox
Strategic Housing Income Partners (collectively, the "NPI Partnerships");
and (ii) general partner interests in 83 private real estate limited
partnerships and ten other public real estate partnerships which are in the
process of dissolving.
(2) Insignia-NPI acquired limited partner interests in certain of the NPI
Partnerships.
(3) Other affiliates of IFG acquired all of the outstanding equity
interests in NPI-AP Management, L.P., a property management company which
provides property management services to most of the NPI Partnerships as
well as other public and private real estate partnerships.
(4) IFG, IPC and Insignia-NPI entered into an agreement (the "NPI
Indemnification Agreement") with the sellers of certain of the entities
acquired by IFG and its affiliates in the NPI Transaction, pursuant to
which (i) such sellers agreed to indemnify IFG, IPC, Insignia-NPI and their
affiliates for certain losses they suffer which occurred during or are
attributable to the period prior to the NPI Transaction, and (ii) IFG, IPC
and Insignia-NPI agreed to reimburse those sellers for certain losses they
suffer which occurred or are attributable to the period after the NPI
Transaction.
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<PAGE> 170
(5) IFG and Insignia-NPI entered into an agreement (the "Fox
Indemnification Agreement") with the limited partners (the "Fox
Principals") of an entity which is the non-managing general partner of an
entity that controls the managing general partners of certain of the NPI
Partnerships. Pursuant to the Fox Indemnification Agreement, IFG and
Insignia-NPI agreed to indemnify the Fox Principals for 25% of some (but
not all) amounts that the Fox Principals may be required to contribute
(directly or indirectly) to the capital of such NPI Partnerships in the
future as a result of capital account deficit restoration obligations of
the general partners of such NPI Partnerships which arose or relate to a
time prior to the NPI Transaction.
(6) Insignia-NPI entered into an agreement (the "Fox Reimbursement
Agreement") with the Fox Principals pursuant to which Insignia-NPI agreed
to reimburse the Fox Principals for any amounts received by Insignia-NPI in
respect of the limited partner interests in certain of the NPI
Partnerships, which amounts result from future capital contributions made
by or on behalf of the Fox Principals to those NPI Partnerships.
(7) IFG assumed certain commitments (the "NPI Loan Commitments")
established prior to the NPI Transaction, pursuant to which IFG agreed to
lend, under certain conditions, up to $500,000 to certain of the NPI
Partnerships (not to exceed $2,600,000 in the aggregate) and $150,000 to
certain other NPI Partnerships (not to exceed $6,000,000 in the aggregate)
at interest rates not to exceed the prime rate plus 2%.
(8) In June 1996, IPC acquired all of the outstanding capital stock of Fox
Capital Management Corporation, which is a co-general partner of the
entities that control the general partner of the NPI Partnerships.
To finance its portion of the NPI Transaction, Insignia-NPI borrowed
$72,837,798 from IFG (the "NPI Loan"). IFG subsequently assigned all of its
rights under the NPI Loan to its wholly-owned financing subsidiary,
Insignia Capital Corporation ("ICC").
Formation of IPT and IPLP
IFG organized IPT and IPLP in May 1996, and in December 1996 the following
formation transactions were effected:
(1) IPC was merged with IPT, with IPT being the surviving entity. As a
result of that merger, IPT succeeded by operation of law to all of the
assets and liabilities of IPC (including IPC's rights and obligations under
the NPI Indemnification Agreement).
(2) Insignia-NPI was merged with IPLP, with IPLP being the surviving
entity. As a result of that merger, IPLP succeeded by operation of law to
all of the assets and liabilities of Insignia-NPI (including the limited
partner interests in the NPI Partnerships acquired in the NPI Transaction,
the NPI Loan and Insignia-NPI's rights and obligations under the NPI
Indemnification Agreement, the Fox Indemnification Agreement and the Fox
Reimbursement Agreement).
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<PAGE> 171
(3) IPT assumed IPLP's obligations under the NPI Loan, in exchange for
which IPLP issued 7,283,780 IPLP OP Units to IPT. IPT in turn issued
7,283,780 IPT Common Shares to ICC in full satisfaction of the NPI Loan.
(4) IPT assumed IFG's obligations under the NPI Indemnification Agreement
and under the NPI Loan Commitments. As of the date of this Information
Statement/ Prospectus, (i) there are no amounts outstanding related to the
NPI Loan Commitments, and (ii) no indemnification claims have been made
under the Indemnification Agreement (and IPT does not believe that any
circumstances are likely to arise which would result in such a claim).
(5) IPT issued 3,271,547 IPT Common Shares to IFG in respect of IFG's 100%
ownership interest in IPT at the time.
(6) IFG caused NPI to assign to IPT all of NPI's equity interests in the
entities that controlled the sole or managing general partners of the NPI
Partnerships, valued (in the aggregate) at $1,002,870, in exchange for
which IPT issued 100,287 IPT Common Shares to NPI.
(7) IFG caused IFGP to assign to IPT all of IFGP's equity interests in the
entities that comprised the general partners of Shelter Properties I
Limited Partnership, Shelter Properties II Limited Partnership, Shelter
Properties III Limited Partnership, Shelter Properties IV Limited
Partnership, Shelter Properties V Limited Partnership, Shelter Properties
VI Limited Partnership and Shelter Properties VII Limited Partnership
(collectively the "Shelter Properties Partnerships"), valued (in the
aggregate) at $455,100, in exchange for which IPT issued 45,510 IPT Common
Shares to IFGP.
(8) MAE assigned to IPT all of the equity interests in the entities that
comprised the general partners of the Consolidated Capital Properties III,
IV, V and VI, Consolidated Capital Growth Fund, Consolidated Capital
Institutional Properties, Consolidated Capital Institutional Properties/2,
Consolidated Capital Institutional Properties/3 (collectively the
"Consolidated Capital Partnerships") and Davidson Growth Plus, L.P., valued
(in the aggregate) at $4,668,070, in exchange for which IPT issued 466,807
IPT Common Shares to MAE.
(9) IFG and certain of its affiliates contributed to IPLP limited partner
interests in certain of the Controlled Partnerships and equity interests in
entities that owned limited partner interests in certain of the Controlled
Partnerships, valued (in the aggregate) at $83,994,990, in exchange for
which IPLP issued 8,399,499 IPLP OP Units to IFG.
(10) IFG purchased 6,405 IPT Common Shares for $64,050 in cash. At the
direction of IFG, those IPT Common Shares were issued to and in the name of
certain employees and affiliates of IFG as bonus compensation. These shares
were purchased and issued, in part, in order to satisfy the 100
shareholders requirement of the Federal REIT tax rules.
(11) Six executive officers and directors purchased an aggregate of 4,700
IPT Common Shares for $47,000 in cash. At the direction of those executive
officers and directors, certain of those shares were issued to and in the
name of members of their
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respective immediate families. These shares were purchased and issued, in part,
in order to satisfy the 100 shareholders requirement of the Federal REIT tax
rules.
(12) IPLP entered into an option agreement (the "Shelter IV Option
Agreement") with certain affiliates of IFG pursuant to which those
affiliates of IFG granted IPLP an option (the "Shelter IV Option") to
acquire on or before December 31, 1997, 11,259 units of limited partner
interest in Shelter Properties IV Limited Partnership in exchange for the
issuance of 714,815 IPLP OP Units to IFG.
(13) IPT, IPLP and IFG entered into an advisory agreement (the "Advisory
Agreement") pursuant to which IFG agreed to provide a broad range of
services to IPT, including executive advisory, investment advisory,
acquisition, administrative, financial and accounting services, for, among
other things, the payment of an annual advisory fee.
CERTAIN RECENT DEVELOPMENTS
Termination of Advisory Structure
From its formation in December 1996 until February 17, 1998, IPT operated as an
externally advised REIT and IFG served as the advisor to IPT pursuant to an
Advisory Agreement. The Advisory Agreement was terminated in its entirety on
February 17, 1998 (retroactive to January 1, 1998), without penalty to IPT, IPLP
or IFG, and certain provisions until then contained in the Advisory Agreement
regarding the property management of the properties now or hereafter controlled
by IPT and the provision of partnership administration services to the
Controlled Partnerships and certain other business entities controlled by IPT in
the future were incorporated into the IPLP Partnership Agreement effective as of
the same date. See "The Partnership Agreement of IPLP -- Property Management and
Contract Loss Fee" and "The Partnership Agreement of IPLP -- Partnership
Administration Services." Also effective upon the termination of the Advisory
Agreement, IPT, IPLP and IFG entered into the Acquisition and Disposition
Services Agreement, which also incorporates some of the provisions regarding
real estate and real estate securities acquisition and disposition services
previously contained in the Advisory Agreement. See "Acquisition and Disposition
Services Agreement." Upon the termination of the Advisory Agreement, the twelve
employees of IFG who prior to that time had worked almost exclusively on matters
concerning IPT became employees of IPT. Also effective on that date, certain key
employees of IFG received an aggregate of 510,000 restricted IPT Common Shares,
which were to vest ratably over a five-year period.
MAE GP Merger
Effective as of February 25, 1998, MAE GP Corporation ("MAE GP"), which until
then was a wholly-owned subsidiary of Metropolitan Asset Enhancement, L.P., an
affiliate of IFG ("MAE"), was merged with and into IPT, with IPT surviving the
merger (the "MAE GP Merger"). As consideration for the MAE GP Merger, IPT issued
344,609 IPT Common Shares to MAE valued for purposes of the MAE GP Merger at
$10.53 per share. MAE GP owned or controlled equity interests in entities which
comprised or controlled the general partners of 29 public and 61 private real
estate limited partnerships (collectively, the "MAE Partnerships"), nine of
which are included in the IPT Partnerships. As of , 1998 the MAE
Partnerships owned, in the aggregate, 167
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properties containing approximately 31,000 residential apartment units and
approximately 2.2 million square feet of commercial space. In connection with
the MAE GP Merger, all of the Class B common shares of beneficial interest, par
value $.01 per share, of AMIT, which were until then owned by MAE GP, were
transferred by dividend to MAE prior to the MAE GP Merger.
Transfers of Assets to IPLP
In connection with the MAE GP Merger, on February 17, 1998, IPLP purchased
certain assets from MAE for approximately $596,000 in cash. The assets purchased
from MAE consisted of (i) a 99% limited partner interest in Insignia Jacques
Miller, L.P. ("IJM"), which in turn owned non-controlling equity interests in
entities that comprise or control the general partners of 30 of the MAE
Partnerships and various notes receivable (the 1% general partner interest in
IJM was acquired by IPT from MAE GP in the MAE GP Merger), and (ii) a 6.557%
limited partner interest in Buccaneer Trace Limited Partnership, which owns a
208-unit residential apartment complex located in Savannah, Georgia.
Also in connection with the MAE GP Merger, on February 17, 1998, IFG contributed
all of the limited partner interests it owned in the MAE Partnerships to IPLP in
exchange for IPLP OP Units. The value of the interests contributed was
approximately $5,460,000, for which IFG received 518,528 IPLP OP Units (based on
a value of $10.53 per unit).
Winthrop Option
On October 27, 1997, IFG consummated a transaction with Winthrop Financial
Associates, A Limited Partnership ("WFA") and certain affiliates of WFA whereby
IFG acquired, among other things, units of limited partner interest, or the
right to acquire units of limited partner interests, (the "Winthrop Units") in
two public and 11 private real estate limited partnerships (the "Winthrop
Partnerships"), which own, in the aggregate, 29 properties containing
approximately 12,100 residential apartment units, and the right to receive
certain asset management, investor services and partnership management fees from
ten of the Winthrop Partnerships which totaled $987,602 in 1996 (the base upon
which the purchase price paid by IFG was calculated) (the "Winthrop Fees," and
together with the Winthrop Units, the "Winthrop Interests").
The Winthrop Partnerships are controlled by WFA. In connection with the
foregoing transaction, IPT I LLC, a Delaware limited liability company which is
owned 90.1% by IFG and 9.9% by IPT, acquired an associate general partner
interest in WFA, as a result of which IPT I LLC has the power to effectively
control all property management decisions relating to the properties owned by
six of the Winthrop Partnerships. IFG also acquired all of the newly-issued
shares of Class B common stock of First Winthrop Corporation ("FWC"), which
immediately prior thereto was a wholly-owned subsidiary of WFA, as a result of
which IFG has the right to appoint the two directors of FWC, who in turn have
the power to effectively control all property management decisions relating to
the properties owned by the other seven Winthrop Partnerships. In addition, IPT
I LLC and IFG caused the respective general partners of the Winthrop
Partnerships to subcontract with IFGP, to perform the asset management and other
services in respect of which the
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Winthrop Fees are payable on behalf of such general partners, in exchange for
which IFGP was assigned the rights to receive the Winthrop Fees.
On February 17, 1998, IFG granted IPLP an option (the "Winthrop Option") to
acquire all but not less than all of the Winthrop Interests at any time on or
before December 31, 1998. The Winthrop Option is exercisable by IPLP for an
aggregate cash amount of approximately $46 million, plus varying amounts of
interest on approximately $40 million of such amount at a rate equal to IFG's
cost of funds (based on the interest rate in effect from time to time under
IFG's revolving credit facility) and a ratable portion of the transaction costs
incurred by IFG in connection with the acquisition.
Upon exercise of the Winthrop Option, the Operating Agreement of IPT LLC I will
be amended to make IPT the sole managing member of IPT I LLC, with the sole
authority to manage the business and affairs of IPT I LLC, and IFG will cause
the persons designated by IPLP from time to time to be appointed as directors of
FWC.
Property Acquisition
On January 28, 1998, IPT acquired a 168-unit apartment complex located in
Pensacola, Florida known as the Raintree Apartments, which is one of the real
properties currently wholly-owned by IPT. The aggregate purchase price paid for
the Raintree Apartments was approximately $3.7 million, approximately $2,660,000
of which was debt financed on a non-recourse basis.
Tender Offers
On August 28, 1997, IPLP Acquisition commenced tender offers to purchase units
of limited partner interest in the following IPT Partnerships: Consolidated
Capital Properties IV, Century Properties Fund XVII, Century Properties Fund
XIX, Century Properties Growth Fund XXII, Fox Strategic Housing Income Partners
and National Property Investors 4. These tender offers expired on October 6,
1997, and IPLP Acquisition accepted for purchase all units validly tendered and
not withdrawn. Pursuant to these tender offers, IPLP Acquisition acquired
29,617.5 (or approximately 8.64%) of the limited partner units in Consolidated
Capital Properties IV, 3,369.5 (or approximately 4.49%) of the limited partner
units in Century Properties Fund XVII, 4,892 (or approximately 5.48%) of the
limited partner units in Century Properties Fund XIX, 5,459 (or approximately
6.59%) of the limited partner units in Century Properties Fund XXII, 3,919 (or
approximately 15.01%) of the limited partner units in Fox Strategic Housing
Income Partners and 4,452 (or approximately 7.42%) of the limited partner units
in National Property Investors 4, for a total cost (excluding expenses) of
approximately $9 million.
On October 30, 1997, Reedy River Properties, L.L.C., a Delaware limited
liability company and a wholly-owned subsidiary of IPLP ("Reedy River"),
commenced tender offers to purchase units of limited partner interest in
Consolidated Capital Institutional Properties and Consolidated Capital
Institutional Properties/2. These tender offers expired on December 15, 1997 and
Reedy River accepted for purchase all units validly tendered and not withdrawn.
Pursuant to these tender offers, Reedy River acquired 28,900.5 (or approximately
14.52%) of the limited partner units in Consolidated Capital Institutional
Properties and 169,105.3 (or approximately 18.60%) of the limited partner units
in
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Consolidated Capital Institutional Properties/2, for a total cost (excluding
expenses) of approximately $18 million.
On various dates in December 1997, Madison River Properties, L.L.C., a Delaware
limited liability company and a wholly-owned subsidiary of IPLP ("Madison
River"), commenced tender offers to purchase units of limited partner interests
in Multi-Benefit Realty Fund 87-1, Century Properties Fund XIV, Century
Properties Fund XV, Century Properties Fund XVIII, Consolidated Capital Growth
Fund, Consolidated Capital Institutional Properties/3, Consolidated Capital
Properties V, Johnstown/Consolidated Income Partners and Shelter Properties VII
Limited Partnership. These tender offers expired on various dates in January and
February of 1998 and Madison River accepted for purchase all units validly
tendered and not withdrawn. Pursuant to these tender offers, Madison River
acquired 21,457 (or approximately 22.29%) of the Class A limited partner units
in Multi-Benefit Realty Fund 87-1, 13,822 (or approximately 18.39%) of the Class
B limited partner units in Multi-Benefit Realty Fund 87-1, 2,925.57 (or
approximately 4.52%) of the limited partner units in Century Properties Fund
XIV, 4,222 (or approximately 4.69%) of the limited partner units in Century
Properties Fund XV, 5,259.5 (or approximately 7.01%) of the limited partner
units in Century Properties Fund XVIII, 2,690 (or approximately 5.47%) of the
limited partner units in Consolidated Capital Growth Fund, 46,775.4 (or
approximately 12.21%) of the limited partner units in Consolidated Capital
Institutional Properties/3, 43,795.8 (or approximately 24.39%) of the limited
partner units in Consolidated Capital Properties V, 14,061.5 (or approximately
10.92%) of the limited partner units in Johnstown/Consolidated Income Partners,
and 2,180 (or approximately 12.57%) of the limited partner units in Shelter
Properties VII Limited Partnership, for a total cost (excluding expenses) of
approximately $10 million.
On various dates in April 1998, Broad River Properties, L.L.C., a Delaware
limited liability company and a wholly-owned subsidiary of IPLP ("Broad River"),
commenced tender offers to purchase units of limited partner interest in Angeles
Partners IX, Angeles Partners XII, and Angeles Income Properties, Ltd. II. These
tender offers expired on various dates in May and June of 1998, and Broad River
accepted for purchase all units validly tendered and not withdrawn. Pursuant to
these tender offers, Broad River acquired 2,529 (or approximately 12.66%) of the
limited partner units in Angeles Partners IX, 8,002 (or approximately 17.89%) of
the limited partner units in Angeles Partners XII, and 8,908 (or approximately
8.93%) of the limited partner units in Angeles Income Properties, Ltd. II, for a
total cost (excluding expenses) of approximately $6 million.
On July 21, 1998, Cooper River Properties, L.L.C., a Delaware limited liability
company and a wholly-owned subsidiary of IPLP ("Cooper River"), commenced tender
offers to purchase units of limited partner interest in Shelter Properties I
Limited Partnership, Shelter Properties II Limited Partnership, Shelter
Properties IV Limited Partnership, Shelter Properties V Limited Partnership,
Shelter Properties VI Limited Partnership and Shelter Properties VII Limited
Partnership. These tender offers expired on August 17, 1998, and Cooper River
accepted for purchase all units validly tendered and not withdrawn. Pursuant to
these tender offers, Cooper River acquired 1,145 (or approximately 17.6%) of the
limited partner units of Shelter Properties I Limited Partnership, 1,958.50 (or
approximately 7.1%) of the limited partner units of Shelter Properties II
Limited Partnership, 3,685 (or approximately 7.4%) of the limited partner units
of Shelter Properties IV Limited Partnership, 2,725 (or approximately 5.2%) of
the limited partner
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units of Shelter Properties V Limited Partnership, 3,364 (or approximately 7.9%)
of the limited partner units of Shelter Properties VI Limited Partnership and
1,450 (or approximately 8.4%) of the limited partner units of Shelter Properties
VII Limited Partnership, for a total cost (excluding expenses) of approximately
$7.1 million.
On July 30, 1998, Cooper River commenced tender offers to purchase up to 50,000
units of limited partner interest in Consolidated Capital Institutional
Properties for a purchase price of $415 per unit in cash, 300,000 units of
limited partner interest in Consolidated Capital Institutional Properties/2 for
a purchase price of $50 per unit in cash, 125,000 units of limited partner
interest in Consolidated Capital Institutional Properties/3 for a purchase price
of $100 per unit in cash, 75,000 units of limited partner interest in
Consolidated Capital Properties III for a purchase price of $60 per unit in cash
and 40,000 units of limited partner interest in Consolidated Capital Properties
V for a purchase price of $33 per unit in cash. Each of these tender offers is
scheduled to expire on November 16, 1998.
On August 12 and 13, 1998, Cooper River commenced tender offers to purchase up
to 30,000 units of limited partner interest in Angeles Income Properties, Ltd.
II for a purchase price of $175 per unit in cash, 30,000 units of limited
partner interest in Angeles Income Properties, Ltd. III for a purchase price of
$75 per unit in cash, 50,000 units of limited partner interest in Angeles Income
Properties, Ltd. IV for a purchase price of $75 per unit in cash, 20,000 units
of limited partner interest in Angeles Income Properties, Ltd. 6 for a purchase
price of $225 per unit in cash, 5,000 units of limited partner interest in
Angeles Partners IX for a purchase price of $330 per unit in cash, 8,000 units
of limited partner interest in Angeles Partners X for a purchase price of $150
per unit in cash, 18,000 units of limited partner interest in Angeles Partners
XI for a purchase price of $150 per unit in cash, 12,000 units of limited
partner interest in Angeles Partners XII for a purchase price of $600 per unit
in cash, and 5,000 units of limited partner interest in Angeles Opportunity
Properties, Ltd. for a purchase price of $325 per unit in cash. Each of these
tender offers is scheduled to expire on November 16, 1998.
On August 27, 1998, Cooper River commenced tender offers to purchase up to 140
units of limited partner interest in Davidson Diversified Real Estate I, LP for
a purchase price of $4,000 per unit in cash, 400 units of limited partner
interest in Davidson Diversified Real Estate II, LP for a purchase price of
$6,000 per unit in cash, 300 units of limited partner interest in Davidson
Diversified Real Estate III, LP for a purchase price of $3,000 per unit in cash,
9,000 units of limited partner interest in Davidson Income Real Estate, LP for a
purchase price of $375 per unit in cash, and 10,000 units of limited partner
interest in Davidson Growth Plus, LP for a purchase price of $400 per unit in
cash. Each of these tender offers is scheduled to expire on November 16, 1998.
On September 23, 1998, Cooper River commenced tender offers to purchase up to
7,500 units of Class A limited partner interest in Multi-Benefit Realty Fund
87-1 for a purchase price of $55 per unit in cash, 11,000 units of Class B
limited partner interest in Multi-Benefit Realty Fund 87-1 for a purchase price
of $38 per unit in cash, and 4,000 units of limited partner interest in IICW
Pension Real Estate Fund Limited Partnership for a purchase price of $475 per
unit in cash. Each of these tender offers is scheduled to expire on November 16,
1998.
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On September 29, 1998, Cooper River commenced tender offers to purchase up to
33,000 units of limited partner interest in Century Pension Income Fund XXIV for
a purchase price of $85 per unit in cash, 11,500 units of limited partner
interest in VMS Investors First-Staged Equity LP II for a purchase price of $55
per unit in cash, and 20,000 units of limited partner interest in Drexel Burnham
Lambert Real Estate Associates III for a purchase price of $75 per unit in cash.
Each of these tender offers is scheduled to expire on November 16, 1998.
Shelter IV Option
In June 1997 the Shelter IV Option Agreement was amended to make the 4,263 units
of limited partner interest in Shelter Properties IV Limited Partnership
acquired by IFG in the High River transaction described above also subject to
the Shelter IV Option. In December 1997, the Shelter IV Option Agreement was
amended again to make 488 units of limited partner interest acquired by IFG in
various transactions between June and December 1997 subject to the Shelter IV
Option. IPLP exercised the Shelter IV Option effective as of midnight on
December 31, 1997. As a result of that exercise, IPLP acquired a total of 16,010
units of limited partner interest in Shelter Properties IV Limited Partnership
in exchange for a total of 1,016,448 IPLP OP Units issued to IFG.
Private Offerings
Commencing in May 1997 and ending in August 1997, IPT offered and sold an
aggregate of 5,231,000 IPT Common Shares, at a purchase price of $10.00 per
share, to 44 investors (12 of whom are executive officers of IPT and/or IFG)
pursuant to a private offering, and in an unrelated transaction in October 1997
IPT sold 1,000,000 IPT Common Shares, also at a purchase price of $10.00 per
share, to a single private investor (collectively, the "Private Offerings"). The
Private Offerings were each made in reliance upon exemptions from the
registration requirements of the Securities Act. IPT contributed the gross
proceeds of the Private Offerings to IPLP in exchange for 6,231,000 IPLP OP
Units (all of the expenses of the Private Offerings were borne by IPLP). The net
proceeds of the Private Offerings of approximately $62 million have been and
will be used by IPLP for general purposes, principally acquisitions of direct
and indirect interests in multifamily residential real estate.
High River Transactions
In June 1997, IFG entered into an agreement with High River Limited Partnership
("High River") pursuant to which IFG acquired an aggregate of 23,581 units of
limited partner interest in the Shelter Properties Partnerships for an aggregate
purchase price $15,500,000. As a result of those purchases, various buy/sell
agreements between IFG and High River relating to the transferred interests and
the general partner interests in those partnerships were terminated. IFG then
assigned all of those units (other than 4,263 units in Shelter Properties IV
Limited Partnership) to IPT, in exchange for which IPT issued 1,109,259 IPT
Common Shares to IFG. IPT in turn assigned those units to IPLP, in exchange for
which IPLP issued 1,109,259 IPLP OP Units to IPT.
Also in June 1997, IFG entered into a separate agreement with High River
pursuant to which IFG (i) directly acquired 25 units of limited partner interest
in Davidson Growth
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Plus, L.P. from an affiliate of High River and (ii) indirectly acquired 1,244
units of limited partner interest in Davidson Growth Plus, L.P. through the
acquisition from High River of a 50% equity interest in DGP Acquisition, L.L.C.
(a limited liability company formed by IFG and High River in 1995 for the
purpose of acquiring units of limited partner interests in Davidson Growth Plus,
L.P. pursuant to a tender offer), for an aggregate purchase price of $525,287.
As a result of those purchases, various buy/sell agreements between IFG and High
River relating to the transferred interests and the managing general partner
interest in Davidson Growth Plus, L.P. were terminated. IFG then assigned all of
those units and the 50% interest in DGP Acquisition, L.L.C. to IPT, in exchange
for which IPT issued 53,192 IPT Common Shares to IFG. IPT in turn assigned those
units and the 50% interest to IPLP, in exchange for which IPLP issued 53,192
IPLP OP Units to IPT.
THE PARTNERSHIP AGREEMENT OF IPLP
The following summary of the IPLP Partnership Agreement, and the descriptions of
certain provisions thereof set forth elsewhere herein, are qualified in their
entirety by reference to the IPLP Partnership Agreement, a copy of which has
been filed as an exhibit to the Registration Statement of which this Information
Statement/Prospectus forms a part.
MANAGEMENT
IPLP was formed as a Delaware limited partnership in May 1996. IPT is the sole
general partner of IPLP, and AIMCO (as successor to IFG) and Insignia Capital
Corporation are currently the only limited partners of IPLP. In addition, AIMCO
is designated in the Partnership Agreement as the special limited partner and,
as such, possesses certain rights described below not shared by others who may
become limited partners of IPLP.
IPT, as the sole general partner of IPLP (in such capacity, together with any
substitute general partner that may be appointed in accordance with the terms of
the IPLP Partnership Agreement, the "General Partner"), has full and exclusive
responsibility and discretion in the management and control of IPLP. The limited
partners in their capacity as such generally will have no authority to transact
business for, or participate in the management activities or decisions of, IPLP.
The General Partner may, with the consent of the special limited partner but
without the consent of any other limited partner, amend or modify the
Partnership Agreement in any respect, provided, however, that any amendment
which would (i) impose on any limited partner any obligation to make additional
capital contributions or (ii) materially adversely affect the economic rights of
such limited partner requires the consent of such limited partner.
The General Partner is not permitted to take certain actions without the prior
written consent of the special limited partner. Specifically, without the prior
written consent of the special limited partner, the General Partner may not (i)
enter into or amend, modify or terminate any conflict avoidance arrangement
contemplated by the IPLP Partnership Agreement, (ii) sell all or substantially
all of IPLP's assets or cause IPLP to merge or consolidate with or into any
other entity, or (iii) issue any additional IPLP OP Units or other interests in
IPLP if as a result of such issuance the relative economic interest of the
special limited partner in IPLP would be materially diluted.
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TRANSFERABILITY OF INTERESTS
The General Partner generally may not voluntarily withdraw from IPLP or transfer
or assign its interest in IPLP. Limited partners may transfer their IPLP OP
units, in whole or in part, except in the following circumstances: (i) in the
opinion of legal counsel for IPLP, such proposed transfer would require
registration of IPLP OP units under the Securities Act or would otherwise
violate any federal or state securities law; (ii) in the opinion of legal
counsel, such proposed transfer would (a) adversely affect IPLP's status as a
qualified REIT subsidiary within the meaning of the Code or (b) adversely affect
IPT's ability to qualify as a REIT or subject IPT to additional taxes; (iii)
such proposed transfer would be effected through an "established securities
market" or "secondary market" within the meaning of the Code; or (iv) such
proposed transfer would be made to a lender whose loan would constitute a
nonrecourse liability, in which instance the proposed transfer would require the
consent of the General Partner.
CAPITAL CONTRIBUTIONS
The IPLP Partnership Agreement provides that if IPLP requires additional funds
at any time, or from time to time, in excess of funds available to IPLP from
borrowing or capital contributions, IPT may borrow such funds from a financial
institution or other lender and lend such funds to IPLP on the same terms and
conditions as are applicable to IPT's borrowing of such funds. Under the IPLP
Partnership Agreement, IPT generally is obligated to contribute the net proceeds
received in connection with any offering of IPT Common Shares or IPT preferred
shares as additional capital to IPLP. Moreover, IPT is authorized, as the
General Partner, to cause IPLP to issue IPLP OP units for less than fair market
value if IPT has concluded in good faith that such issuance is in the best
interests of IPT and IPLP.
If IPT contributes additional capital to IPLP (which can only happen upon the
issuance of shares of beneficial interest of IPT and the subsequent contribution
or deemed contribution by IPT to IPLP of the net proceeds of such issuance),
then IPT will receive additional IPLP OP units, and its percentage interests in
IPLP will be increased on a proportionate basis based upon the amount of such
additional capital contributions and the value of IPLP at the time of such
contributions. Conversely, the percentage interests of the limited partners will
be decreased on a proportionate basis in the event of additional capital
contributions by IPT.
REDEMPTION RIGHTS
Under the IPLP Partnership Agreement, the limited partners of IPLP have
redemption rights ("Redemption Rights") which enable them to cause IPLP to
redeem each IPLP OP Unit for cash equal to the value of an IPT Common Share
(subject, however, to a first right of IPT to purchase each IPLP OP Unit offered
for redemption for one IPT Common Share, subject to adjustment upon the
occurrence of share splits, mergers, consolidations or similar pro rata share
transactions which would have the effect of diluting the ownership interests of
the limited partners or the shareholders of IPT). If the limited partner
electing to redeem its IPLP OP Units is IFG or MAE, the election as to whether
IPT will exercise its first right to acquire such IPLP OP Units for IPT Common
Shares will be made by a committee of the IPT Board consisting solely of members
who are not officers, directors or
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employees of AIMCO. The Redemption Rights may not be exercised, however, if and
to the extent that (i) the acquisition of IPLP OP Units by IPT in exchange for
IPT Common Shares (regardless of whether IPT would in fact exercise its rights
to acquire such IPLP OP Units for IPT Common Shares) would (a) result in any
person owning, directly or indirectly, IPT Common Shares in excess of the
limitations set forth in the "excess share" provisions contained in IPT's
Declaration of Trust, (b) result in IPT Common Shares being owned by fewer than
100 persons (determined without reference to any rules of attribution), (c)
result in IPT being "closely held" within the meaning of section 856(h) of the
Code (for this purpose taking into account the applicable attribution rules
imposed by the Code), (d) cause IPT to own, directly or constructively, 10% or
more of the ownership interests in a tenant in a real property directly or
indirectly owned by IPT within the meaning of section 856(d)(2)(b) of the Code,
or (e) cause the issuance of IPT Common Shares to such redeeming limited partner
to be "integrated" with any other distribution of IPT Common Shares for purposes
of complying with the Securities Act; or (ii) on the date of redemption, IPT
does not have a class of securities registered under the Exchange Act and does
not qualify for an exemption from registration with respect to the IPT Common
Shares to be issued.
Only IPLP OP Units outstanding for at least one-year may be redeemed. Not more
than two redemptions by any limited partner may occur during each calendar
quarter, and no limited partner may exercise Redemption Rights for less than
1,000 IPLP OP Units or, if such limited partner holds less than 1,000 IPLP OP
Units, for less than all of the IPLP OP Units held by such limited partner.
Prior to the expiration of the one year holding period, IPT, as General Partner,
may permit a lender to whom IPLP OP Units have been pledged with IPT's consent
to exercise the Redemption Right (but only for cash) in the event of a
foreclosure. In the future, it may become necessary to place additional
restrictions on the exercise of Redemption Rights in order to assure that IPLP
does not become a "publicly traded partnership" under the Code and thereby
taxable as a corporation for federal income tax purposes. As of October 1, 1998,
the aggregate number of IPLP OP Units outstanding held by AIMCO (the special
limited partner of IPLP) and its subsidiaries is 9,934,475, of which 8,399,499
were eligible for redemption upon exercise of the Redemption Rights.
OPERATIONS
The IPLP Partnership Agreement requires that IPLP be operated in a manner that
will enable IPT to qualify as a REIT (unless the Board determines that it is no
longer in the best interests of IPT to conduct business as a REIT), to avoid any
federal income or excise tax liability imposed under the Code and to ensure that
IPLP will not be classified as a "publicly traded partnership" for purposes of
section 7704 of the Code.
In addition to the administrative and operating costs and expenses incurred by
IPLP, IPLP will reimburse IPT (as General Partner) for all administrative costs
and expenses it incurs, and such expenses will be treated as expenses of IPLP.
Such expenses generally include (i) all expenses relating to the formation and
continuity of existence of IPT and subsidiaries thereof, (ii) all expenses
relating to any offering or registration of securities by IPT, (iii) all
expenses incurred in connection with the issuance, repurchase or redemption of
securities by IPT or IPLP, (iv) all expenses associated with the preparation and
filing of any periodic reports by IPT under federal, state or local laws or
regulations, (v) all
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expenses associated with compliance by IPT with laws, rules and regulations
promulgated by any regulatory body, (vi) all expenses associated with any 401(k)
plan, incentive plan, bonus plan or other plan providing for compensation for
trustees, officers or directors, and (vii) all other operating or administrative
costs of IPT (as General Partner) incurred in the ordinary course of its
business on behalf of IPLP.
DISTRIBUTIONS AND ALLOCATIONS
The IPLP Partnership Agreement generally provides that IPLP will distribute cash
from operations (including net sale and refinancing proceeds, but excluding net
proceeds from the sale of IPLP's property in connection with the liquidation of
IPLP) at such time and in such amounts as determined by the General Partner in
its sole discretion (but in any event no less frequently than annually) to the
partners in accordance with their respective percentage interests in IPLP.
However, the General Partner is required to use its reasonable efforts to cause
IPLP to distribute amounts sufficient to enable IPT to meet the REIT
distribution requirements. Upon liquidation of IPLP, after payment of, or
adequate provision for, its debts and obligations, including any loans from
partners, any remaining assets of IPLP will be distributed to all partners with
positive capital accounts in accordance with their respective capital account
balances. If the General Partner has a negative balance in its capital account
following a liquidation of IPLP, it will be obligated to contribute cash to IPLP
equal to the negative balance in its capital account.
Profit and loss of IPLP for each fiscal year will generally be allocated among
the partners in accordance with their respective percentage interests in IPLP.
Taxable income and loss will be allocated in the same manner, subject to
compliance with the provisions of sections 704(b) and 704(c) of the Code and
Treasury Regulations promulgated thereunder. The General Partner has the right
to alter the method of allocation in any way that is not adverse to the
interests of the limited partners.
PROPERTY MANAGEMENT AND CONTRACT LOSS FEE
The IPLP Partnership Agreement requires IPT and IPLP to cause AIMCO (as
successor to IFG) to be retained as property manager for all properties now and
hereafter controlled by IPT pursuant to separate property management agreements.
The property management services to be provided by AIMCO include (i) performing
all accounting functions incidental to the properties, such as rent processing
and collection, accounts payable (e.g., mortgages, taxes and insurance), payroll
and financial reporting, (ii) acting as a rental agent for the properties, and
(iii) seeing the routine maintenance responsibilities relating to the
properties. The property management agreements generally provide for the payment
of fees to AIMCO based on a percentage of the rent collections from the managed
properties. The percentage charged varies inversely with the rental rates and
the size of the property, although the actual percentage is based on a variety
of factors, including prevailing market rates and, in the case of the Controlled
Partnerships, the terms of the underlying partnership agreements, and is not
determined or fixed by any formula. In general, though, AIMCO is compensated:
(i) on the same terms that existed prior to the formation of IPT, with respect
to properties controlled by IPT at the time of its formation; (ii) on the same
terms that existed immediately prior to acquisition of control, with respect to
properties of which IPT acquired control subsequent to its formation and which
were managed by AIMCO (as successor to IFG) immediately prior to such
acquisition;
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and (iii) on terms comparable to those employed by other major, full service
real estate management companies in light of the nature and geographic location
of the properties, with respect to properties of which IPT acquired control
subsequent to its formation but which were not managed by AIMCO immediately
prior to such acquisition.
The IPLP Partnership Agreement also provides that if, after taking into account
certain equitable adjustments specified in the IPLP Partnership Agreement, (x)
the total amount of property management fees paid to AIMCO in respect of all
properties controlled by IPT during any rolling twelve-month period ending at
the end of a calendar quarter is less than (y) 90% of the total annualized
amount of property management fees paid to IFG for the year preceding IPT's
acquisition of control of the Designated Properties (as hereinafter defined) (a
"Triggering Event"), then IPLP is required to pay AIMCO a fee (the "Contract
Loss Fee") equal to the greater of (i) the decrease in the market value of IFG
resulting or reasonably expected to result by virtue of the Triggering Event and
(ii) the increase in market value of IPT resulting or reasonably expected to
result from such Triggering Event; provided, however, that a Contract Loss Fee
shall not duplicate the payment of any previous Contract Loss Fee resulting from
a prior Triggering Event. The calculation of a Contract Loss Fee shall be made,
at the expense of IPLP, within 30 days following the end of the calendar quarter
in which a Triggering Event occurs by one of the 15 largest investment banks in
the United States (determined based on the aggregate dollar amount of equity
offerings by each investment bank during the past year), and IPLP is required to
pay AIMCO the Contract Loss Fee in cash no later than 45 days following the end
of the calendar quarter in which the Triggering Event occurs. For this purpose,
a "Designated Property" is any multifamily residential property (i) with respect
to which IFG was providing property management services immediately prior to the
acquisition of control thereof by IPT, (ii) the controlling interest in which
was acquired by IPT from IFG, MAE or an affiliate of either of them or (iii)
with respect to which IFG paid some form of consideration to any entity or
person (other than another affiliate of IFG) for the purpose of acquiring, or
otherwise in respect of, the property management rights relating thereto.
Pursuant to the Merger Agreement, the foregoing provision does not apply so long
as AIMCO controls IPT.
IPT's obligation to cause AIMCO, as successor to IFG, to be retained as property
manager for all the properties controlled by IPT terminates, on a property by
property basis, upon the earliest to occur of (i) the termination of the
Partnership Agreement, (ii) the termination by IFG of the applicable property
management agreement, (iii) the termination of the applicable property
management agreement by the applicable property-owning entity for cause (but not
for any other reason, notwithstanding that such termination may have been
expressly permitted by the terms of such property management agreement), or (iv)
such time as IPT no longer controls such property.
PUT RIGHTS
Upon the occurrence of or during the continuation of any material breach by IPT
or IPLP of its obligations under the Partnership Agreement (including without
limitation the failure to pay any Contract Loss Fee due), IFG, MAE and their
affiliates (other than IPT and IPLP) (the "Put Holders") have the right to (i)
demand an appraisal of (a) all IPLP OP Units (and any other interests in IPLP)
held by the Put Holders (collectively, the "Put Right Units") and (b) the IPT
Common Shares (and any other securities of IPT)
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held by the Put Holders, and (ii) to require (a) IPT to purchase all or any
portion of such IPT Common Shares (and other IPT securities) and (b) IPLP to
purchase all or any portion of such Put Right Units. The appraisals of the IPT
Common Shares (and other IPT securities) and the Put Right Units will be
performed by one of the 15 largest national investment banks in the United
States (as measured by the aggregate dollar amount of equity offerings
underwritten during the preceding year and selected in accordance with the
procedures set forth in the Partnership Agreement) based on the greatest of (i)
their value based on an independent going concern/continuing operations
analysis, (ii) sale of the entire entity analysis and (iii) liquidation
analysis, in each case determined as of the date of the written demand for
appraisal and redemption. IPLP is required to bear the cost of the investment
bank's services. Pursuant to the Merger Agreement, the foregoing provision
(insofar as it relates to AIMCO) does not apply so long as AIMCO controls IPT.
PARTNERSHIP ADMINISTRATION SERVICES
AIMCO (as the successor to IFG) currently provides partnership administration
services to each Controlled Partnership which was such at the time IPT was
formed (the "Formation Partnerships"). Such services, for which AIMCO is
typically paid on a reimbursement basis only, generally include accounting
functions, investor relations and the preparation and filing of required reports
under the Exchange Act. Under the terms of the IPLP Partnership Agreement, IPT
(i) is obligated to cause each Formation Partnership to continue to engage AIMCO
to provide partnership administration services on substantially the same terms,
including compensation and reimbursement, as were in effect on January 1, 1997,
and (ii) may, but is not obligated to, cause AIMCO to be retained to provide
such services to any business entity which subsequently becomes controlled by
IPT, provided that once AIMCO has been engaged to provide such services, IPT is
obligated to cause such entity to continue to engage AIMCO (such additional
entities, together with the Formation Partnerships, the "Administration
Entities").
In the event that IPT breaches its obligation to cause an Administration Entity
to continue to engage AIMCO to provide partnership administration services
(including as a result of the dissolution or ceasing to exist of such
Administration Entity in connection with or as a result of a merger or other
business combination transaction or the sale of all or substantially all of its
assets in a single transaction or series of related transactions), then IPLP is
required to pay AIMCO the aggregate allocated costs of AIMCO relating to such
Administration Entity, including the costs of fixed assets, long-term
obligations, insurance, utilities, employees (including severance and other
termination payments) and other items related to the provision of administrative
services to such Administration Entity.
IPT's obligation to cause each Administration Entity to engage AIMCO to provide
partnership administration services shall terminate, on an entity by entity
basis, upon the earliest to occur of (i) the termination of the Partnership
Agreement, (ii) the termination by AIMCO of the provision of such services to
such Administration Entity, (iii) the termination of the engagement of AIMCO by
such Administration Entity for cause (but not for any other reason), or (iv)
such time as such Administration Entity is dissolved and its affairs wound up in
connection with an orderly liquidation thereof.
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TRANSFERS OF CONTROLLING INTERESTS IN IPT ENTITIES
IPT has agreed not to assign, or to permit or cause any of IPT, IPLP, and each
business entity which owns a controlling interest in (i) any real property owned
or otherwise controlled by a Controlled Partnership (as of January 1, 1997) as
of January 1, 1997, or (ii) any real property in which IPT or IPLP, or either of
them, acquires direct or indirect ownership of (a) such real property or (b) a
controlling interest in a business entity that owns such real property (each, an
"IPT Entity") to assign, any controlling interest in any IPT Entity except in
accordance with the terms of the Partnership Agreement, which provides that IPT
is required to deliver a written notice ("Sale Notice") to AIMCO, as successor
to IFG, at least 60 days prior to any transfer of any controlling interest in an
IPT Entity. The Sale Notice must set forth in reasonable detail the identity of
the prospective transferee(s) and the terms and conditions of any proposed
transfer. Within 30 days after receipt of the Sale Notice by AIMCO, IFG may,
upon written notice to IPT, elect to purchase not less than all of the
controlling interests in the IPT Entity described in the Sale Notice upon the
same terms and conditions set forth in such notice. If IPT elects not to
purchase the controlling interest in the IPT Entity described in the Sale
Notice, the interest may be transferred by IPT at a price and on terms no more
favorable to the transferee than those set forth in the Sale Notice. Upon the
sale of any controlling interest in an IPT Entity other than to AIMCO (and
assuming that AIMCO is not retained as the property manager for the properties
controlled by such IPT Entity), any amount of the sale price which exceeds the
fair market value of the assets attributable to such controlling interest (i.e.,
any management control premium) is required to be paid to AIMCO. A decision by
AIMCO not to exercise its right to purchase the interests in an IPT Entity
described in a Sale Notice does not affect any obligation of IPLP to pay to
AIMCO any applicable Contract Loss Fee.
TERM
IPLP will continue in existence until December 31, 2097, unless sooner dissolved
upon the first to occur of (i) an election to dissolve the Partnership by the
General Partner with the consent of the Special Limited Partner, (ii) the
passage of 90 days after the sale or other disposition of all or substantially
all of the assets of IPLP, (iii) the redemption of all IPLP OP Units held by
limited partners of IPLP or (iv) the entry of a decree of judicial dissolution
of IPLP pursuant to the provisions of the Delaware Revised Limited Partnership
Act.
TAX MATTERS PARTNER
Pursuant to the Partnership Agreement, the General Partner is the tax matters
partner of IPLP and, as such, has the authority to handle tax audits and to make
tax elections under the Code on behalf of IPLP.
ACQUISITION AND DISPOSITION SERVICES AGREEMENT
The following summary of the Acquisition and Disposition Services Agreement, and
the descriptions of certain provisions thereof set forth elsewhere herein, are
qualified in their entirety by reference to the Acquisition and Disposition
Services Agreement, a copy of which has been filed as an exhibit to IPT's
reports under the Exchange Act.
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ACQUISITION AND DISPOSITION SERVICES
In connection with the termination of the Advisory Agreement, IPT, IPLP and IFG
entered into the Acquisition and Disposition Services Agreement, which provides
that IPT has the right, but not the obligation, to engage AIMCO, as successor to
IFG, to provide services, on a transaction by transaction basis, in connection
with acquisitions and disposition of whole real estate and real estate-related
assets ("Real Estate Transactions") and acquisitions of equity or debt
securities of, or other ownership interests in, entities which own real estate
or real estate-related assets ("Securities Transactions") through December 31,
2000. Such services would include (i) consulting advice and financial analysis;
(ii) due diligence review and analysis of documentation and operations; (iii)
negotiation, drafting and review of transaction documents; (iv) brokerage and
other disposition services; and (v) other services reasonably related or
incidental to the foregoing.
As compensation for such services, IPLP will pay to AIMCO the following fees:
(i) for each Securities Transaction, an amount equal to 1.5% of the aggregate
net asset value of the securities or other ownership interests acquired; and
(ii) for each Real Estate Transaction involving an acquisition (but not a
disposition), an amount equal to 0.75% of the aggregate purchase price (or IPT's
pro rata portion thereof in the case of an acquisition with one or more
partners) of the real estate or real estate-related assets acquired by IPT
(including any debt incurred or assumed in connection therewith). IPLP is also
obligated to reimburse AIMCO for (i) all out-of-pocket third-party costs and
expenses incurred in connection with its provision of such services and (ii) for
all employee costs (including commissions) incurred by AIMCO in connection with
Real Estate Transactions involving dispositions of real properties, not to
exceed 1.0% of the gross sales price.
AGREEMENTS REGARDING CERTAIN REAL ESTATE OPPORTUNITIES
The Acquisition and Disposition Services Agreement contains certain provisions
[(each of which AIMCO has caused IPT to waive subsequent to the execution of the
Merger Agreement)] which provide that AIMCO, as successor to IFG, may not
acquire or enter into a definitive agreement to acquire an IPT Opportunity (as
defined below) unless AIMCO has provided notice of such IPT Opportunity to IPT
and IPT has elected not to invest in such IPT Opportunity, although AIMCO is
permitted to enter into a definitive agreement which provides AIMCO the
contractual right to acquire an IPT Opportunity if such agreement expressly
provides that the right to acquire such IPT Opportunity may be assigned by AIMCO
to IPT. However, AIMCO is required to notify IPT of an IPT Opportunity only if
AIMCO plans to invest in the IPT Opportunity for its own account. Thus, AIMCO is
not obligated to notify IPT of all IPT Opportunities of which it becomes aware.
An "IPT Opportunity" means an opportunity to invest in or acquire (i) any
investment in multifamily residential property or properties located in the
United States, (ii) indebtedness secured by multifamily residential property or
properties located in the United States, and (iii) equity or debt securities of,
or other ownership interests in, a business entity which primarily owns or
invests in multifamily residential properties in the United States, but
specifically excluding opportunities to invest in or acquire multifamily
residential property in the United States, or an equity or other ownership
interest in a business entity which invests primarily in multifamily residential
housing in the United States but is not controlled by IPT, if AIMCO owned any
equity, debt or other ownership
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interest in such multifamily residential property or business entity on January
1, 1998 or acquired an equity, debt or ownership interest in such multifamily
residential property or business entity in accordance with the Acquisition and
Disposition Services Agreement.
The Acquisition and Disposition Services Agreement reciprocally prohibits IPT
from acquiring an AIMCO Opportunity (as defined below) without the prior written
consent of AIMCO. An "AIMCO Opportunity" means any opportunity to invest in or
acquire equity or debt securities of or other ownership interests in a business
entity that (i) invests primarily in real property other than multifamily
residential property in the United States, (ii) invests primarily in multifamily
residential property in the United States if (x) such business entity is
controlled by AIMCO or MAE or (y) AIMCO or its affiliates serve as property
manager of the properties owned by such business entity, or (iii) performs
property management services (regardless of the type of property with respect to
which such services are performed), but specifically excluding opportunities to
invest in or acquire equity or debt securities of, or other ownership interests
in, a business entity that invests primarily in multifamily residential property
located in the United States if IPT owned an equity, debt or other ownership
interest in such business entity as of January 1, 1998 or acquired an equity,
debt or other ownership interest in such business entity pursuant to the
Acquisition and Disposition Services Agreement.
AIMCO's obligations under the Acquisition and Disposition Services Agreement
with respect to IPT Opportunities will terminate upon the earliest to occur of
(i) the termination of the Acquisition and Disposition Services Agreement or a
material breach thereof by IPT, (ii) the incurrence by IPLP of an obligation to
pay a Contract Loss Fee pursuant to the Partnership Agreement, or (iii) the
failure of IPT to cause AIMCO to be retained to provide property management
services to the properties controlled by IPT as required by the Partnership
Agreement. The obligations of IPT with respect to AIMCO Opportunities will
terminate only upon the termination of the Acquisition and Disposition Services
Agreement.
IPT LINE OF CREDIT
The following summary of the IPT Line of Credit and the descriptions of certain
provisions thereof set forth elsewhere herein are qualified in their entirety by
reference to the Credit Agreement (as defined below), a copy of which has been
filed as an exhibit to IPT's reports under the Exchange Act.
IPLP has entered into a Credit Agreement (the "Credit Agreement") with Lehman
Commercial Paper, Inc., as syndication agent, First Union National Bank, as
administrative agent (in such capacity, the "Administrative Agent") and the
lenders from time to time parties thereto (the "Lenders"). Pursuant to the
Credit Agreement, the Lenders have made available to IPLP a revolving credit
facility of up to $50 million at any one time outstanding. Loans under the IPT
Line of Credit (the "Loans") may be utilized to finance certain permitted
investments and refinance certain investments made prior to the date of the
Credit Agreement. The IPT Line of Credit matures in a single installment on
December 30, 2000.
Loans may be borrowed by IPLP under the IPT Line of Credit at a rate based upon
the adjusted LIBOR Rate (as defined in the Credit Agreement) (the "LIBOR Loans")
or the
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Base Rate (as defined in the Credit Agreement) (the "Base Rate Loans"). As of
October 1, 1998, IPT had $30 million of outstanding indebtedness under the IPT
Line of Credit.
IPT is obligated to pay a commitment fee at a rate of 0.25% per annum on the
undrawn portion of the IPT Line of Credit. Such commitment fee is payable
quarterly in arrears and calculated based on the actual number of days elapsed
over a 365-day year.
The Loans are subject to mandatory prepayment only to the extent that the
aggregate outstanding principal amount of the Loans on any day exceeds the
amount of the IPT Line of Credit then in effect. Voluntary prepayments of the
Loans and voluntary reductions of the IPT Line of Credit are permitted in whole
or in part at the option of IPLP, in minimum principal amounts, without premium
or penalty, subject to reimbursement of certain of the Lenders costs under
certain conditions.
IPLP's obligations under the IPT Line of Credit have been guaranteed by IPT and
such guaranty is secured by a first priority pledge of and security interest in
the capital stock or other equity interests held by IPT in each of the
subsidiaries of IPT which directly or indirectly, owns or controls the general
partner interest in any Real Estate Entity (as defined below) in which IPLP,
directly or indirectly owns a limited partner interest. In addition, the IPT
Line of Credit is secured by a first priority pledge of and security interest in
all limited partnership interests from time to time owned by IPLP and the equity
interests from time to time held by IPLP in any subsidiary of IPLP which itself
owns limited partnership interests. The Credit Agreement defines a "Real Estate
Entity" as any limited partnership, limited liability company, corporation or
other entity which has as its principal business the ownership of real property
or debt secured by real property. Thus, all of the Controlled Partnerships
constitute Real Estate Entities for purposes of the Credit Agreement.
The IPT Line of Credit contains customary covenants and restrictions on IPLP's
ability to, among other things, incur debt or contingent obligations, grant
liens, sell assets, make distributions or make investments. In addition, the
Credit Agreement contains certain financial covenants which require that (a) the
ratio of adjusted portfolio equity of IPLP to funded debt not be less than 5.00
to 1.00 at the end of any fiscal quarter, (b) the ratio of Adjusted DCFO (as
defined below) for the period of four fiscal quarters then ended to the sum of
interest expense and certain dividend accruals not be less than 1.10 to 1.00 at
the end of any fiscal quarter and (c) the ratio of Adjusted DCFO for the period
of four fiscal quarters then ended to interest expense for such period not be
less than 6.00 to 1.00. For purposes of the Credit Agreement, the term "DCFO"
means, for any period, the aggregate net operating income for such period of
each Real Estate Entity in which IPLP owns an equity interest less with respect
to each Real Estate Entity for such period the sum of (i) cash interest expense,
(ii) all principal payments (other than in connection with refinancings) on the
debt of such Real Estate Entity, (iii) an amount equal to the greater of (x) the
capital expenditures (exclusive of capital expenditures to restore newly
acquired properties to their original condition in accordance with a budget
provided by IPLP within 90 days after acquisition) less funded capital
expenditures or (y) an amount equal to $500 for each apartment unit and $0.20
per square foot for each commercial property owned by such Real Estate Entity;
and the term "Adjusted DCFO" means, as of any date, an amount equal to the
aggregate of IPLP's pro rata portion of the DCFO of each Real Estate Entity in
which IPLP owns an equity interest (after giving effect to any acquisition
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by IPLP of an equity interest in such Real Estate Entity during the quarterly
period ending on the determination date) plus all fee and other income received
by IPLP during such period (excluding extraordinary items) less all unreimbursed
fees and expenses paid by IPLP or IPT during such period.
Events of default under the IPT Line of Credit include (i) nonpayment of
principal with no period of grace and nonpayment of interest, fees or other
amounts due under the IPT Line of Credit within five days after the same become
due; (ii) material breach of any representation or warranty; (iii) failure to
observe any term, covenant or agreement contained in the IPT Line of Credit
beyond (in certain cases) an applicable period of grace; (iv) the failure by
IPLP to pay amounts due on account of the termination of any interest hedge
agreement within ten days of the date when due; (v) default by IPLP in the
payment when due, or in the performance or observance, of any material
obligation involving monetary liability in excess of $5,000,000 to the extent
that such liability is not being contested by IPLP in good faith with adequate
reserves having been established on its books in accordance with generally
accepted accounting principles; (vi) certain events of bankruptcy or insolvency
with respect to IPLP or material subsidiaries; (vii) the occurrence of certain
events under the Employee Retirement Income Security Act of 1974, as amended;
(viii) the failure of any material provision of the Credit Agreement or any
agreement delivered pursuant thereto to continue to be a valid and binding
obligation of IPLP or IPLP; (ix) the failure of the relevant security documents
to continue to be a valid first priority lien on any material portion of the
collateral security pledged pursuant thereto; and (x) judgments against IPLP of
$5,000,000 or greater that remain unsatisfied, unvacated or unstayed pending
appeal for a period of 30 days after entry.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF IPT AND THE IPT PARTNERSHIPS
This Information Statement/Prospectus contains forward-looking statements that
involve risks and uncertainties. IPT's actual results could differ materially
from the results discussed in the forward-looking statements.
INSIGNIA PROPERTIES TRUST
The following is based on (i) the historical results of IPT for the six months
ended June 30, 1998 and the year ended December 31, 1997, and (ii) the
historical results of IPT's predecessor entities for the years ended December
31, 1996 and 1995. IPT's predecessor entities began operations in 1994 with the
acquisition of partnership interests in December 1994. IPT's most significant
assets are its investments in real estate limited partnerships, which are
principally comprised of general and limited partner interests in the IPT
Partnerships. See Note 3 to the Combined Financial Statements of IPT for a
summary of investments made for each year. This information should be read in
conjunction with the accompanying combined financial statements and the related
notes thereto.
Financial Condition
At June 30, 1998, IPT held assets of $240.3 million, an increase of 6% from
December 31, 1997. IPT's assets increased from the prior year end 53% to $226.1
million at December 31, 1997 and 171% to $147.8 million at December 31, 1996 for
the years then ended, respectively. The asset growth was principally in cash and
cash equivalents, investments in real estate limited partnerships, apartment
properties and other assets, principally due to the NPI Transaction, the Private
Offerings and the acquisition of units of limited partner interests in certain
of the IPT Partnerships in both the transactions with High River and various
tender offers.
Cash and cash equivalents decreased 61% to $14.6 million at June 30, 1998
compared to December 31, 1997 primarily as a result of the acquisition of units
of limited partner interests in certain of the IPT Partnerships during the
period. Cash and cash equivalents increased from the prior year end 660% to
$37.4 million at December 31, 1997 and 833% to $4.9 million at December 31, 1996
for the years then ended, respectively. The primary sources of the cash
increases were the Private Offerings, for the year ended December 31, 1997, and
the consolidation of NPI 4 (as a result of the NPI Transaction) for the year
ended December 31, 1996.
Investments in real estate limited partnerships (consisting primarily of
investments in the IPT Partnerships) increased 21% to $192.8 million at June 30,
1998 compared to December 31, 1997. Investments in real estate limited
partnerships increased from the prior year end 34% to $159.5 million at December
31, 1997 and 120% to $118.7 million at December 31, 1996 for the years then
ended, respectively. The increases for the six months ended June 30, 1998 and
year ended December 31, 1997 resulted primarily from the acquisitions of units
of limited partner interests in the Shelter Properties Partnerships and
acquisitions of units of limited partner interests in other IPT Partnerships in
various tender
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offers. The increase for the year ended December 31, 1996 was primarily due to
the acquisition of units of limited partner interests in the NPI Partnerships.
The apartment properties balances of $25.8 million, $22.4 million and $22.1
million at June 30, 1998, December 31, 1997 and December 31, 1996, respectively,
are due to the consolidation of NPI 4 for the years ended December 31, 1997 and
1996, and the consolidation of NPI 4 and Raintree Pensacola, L.P. for the six
months ended June 30, 1998. The other assets balances of $6.8 million and $1.9
million at December 31, 1997 and 1996, respectively, are due to the
consolidation of NPI 4 and the capitalization of organizational costs incurred
in connection with the formation of IPT.
Liquidity and Capital Resources
The initial capitalization of IPT and IPLP was primarily funded by IFG. IFG also
initially provided IPLP a line of credit of $2.5 million for additional
investments. The outstanding balance on that line of credit was paid and the
line of credit canceled during July 1997.
During the year ended December 31, 1997, IPT raised additional capital of $52.3
million in one of the Private Offerings and an additional $10.0 million through
a private sale of IPT Common Shares to a single investor. At June 30, 1998, IPT
had cash of approximately $14.6 million. During the six months ended June 30,
1998, IPLP obtained the IPT Line of Credit, in the aggregate amount of $50
million. The IPT Line of Credit is secured by a pledge and security interest in
all of the limited partner interests owned by IPLP in the Controlled
Partnerships and any other partnerships in which IPT owns or controls the
general partner and IPLP owns a limited partner interest. Additionally, IPT has
guaranteed IPLP's obligations under the IPT Line of Credit. At June 30, 1990,
IPT had no outstanding indebtedness under the IPT Line of Credit. Subsequent to
June 30, IPT borrowed $30 million of the available credit facility.
Two apartment properties and two non-recourse mortgage notes, which are
consolidated in IPT's financial statements, constitute the principal assets and
liabilities of NPI 4 (in which a wholly-owned subsidiary of IPT is the sole
general partner and IPLP owns a majority of the limited partner interests) and
Raintree Pensacola, L.P. (of which a wholly-owned subsidiary of IPT is the sole
general partner and IPLP is the sole limited partner). In addition, $2.8 million
of consolidated cash was held by NPI 4 and Raintree Pensacola, L.P. combined at
June 30, 1998.
Cash distributions of approximately $5.7 million ($.15 per share) were paid
during the first six months of 1998. Additionally, cash distributions paid to
IPT shareholders of approximately $8.7 million and approximately $2.2 million
were paid in 1997 and 1996 respectively. IPT declared a distribution of
approximately $2.9 million to IPT shareholders of record on June 23, 1998, and
paid such distribution in July 1998. Cash distributions paid to IFG by IPLP of
approximately $5.4 million, approximately $6.8 million and approximately $10.2
million were paid in 1997, 1996 and 1995 respectively. A cash distribution of
approximately $2.7 million was paid to IFG by IPLP during the first six months
of 1998. The 1996 distribution was paid from the proceeds of a distribution from
IPLP, which simultaneously paid a distribution of approximately $4.1 million to
IFG (as the sole limited partner of IPLP). Future distributions will depend on
the levels of net cash generated from operations, capital expenditure
requirements, property sales, refinancings by the Controlled Partnerships and
distributions thereof to IPT.
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Results of Operations
Because IPT's primary assets consist of general and limited partner interests in
the IPT Partnerships, a substantial majority of IPT's funds from operations
results from the pass through of IPT's share of funds from operations generated
by the IPT Partnerships (including IPT's share of the funds from operations
generated by NPI 4 and Raintree Pensacola, L.P., which are consolidated in IPT's
combined financial statements). See Note 6 to IPT's Combined Financial
Statements.
Acquisitions of partnership interests began in December 1994 and have since then
continued. Substantial operating results began in 1995, which produced net
income of $2.2 million and $4.6 million of funds from operations. Net income of
$2.4 million in 1996 was up slightly from the $2.2 million in 1995, primarily
due to increased equity earnings resulting from acquisitions of interests in
partnerships during 1996. Net income for the year ended December 31, 1997 was
approximately $6.0 million, which was an increase of 148% from net income for
the year ended December 31, 1996. Net income for the six months ended June 30,
1998 was approximately $8.9 million compared to approximately $1.2 million for
the same period in 1997. These increases were primarily due to increased equity
earnings resulting from improved operations of the IPT Partnerships and from the
acquisition of units of limited partner interest in various IPT Partnerships.
IFG's minority interest resulted from IFG and its affiliates transferring to
IPLP their limited partner interests in the IPT Partnerships in exchange for
IPLP OP Units in 1996 and 1997. Income before minority interest and
extraordinary items increased from approximately $3.9 million for the year ended
December 31, 1996 to approximately $10.5 million for the year ended December 31,
1997, and increased 339.0% to $14.5 million for the six months ended June 30,
1998, compared to the same period in 1997. This increase was primarily
attributable to an increase in equity earnings due to improved operations of the
IPT Partnerships, to the acquisition of units of limited partner interests in
various IPT Partnerships, and to an increase in other income resulting from
increased distributions received from the Controlled Partnerships in which IPT
has a nominal investment.
For the six months ended June 30, 1998, funds from operations increased 93.1% to
$16.8 million compared to $8.7 million for the six months ended June 30, 1997.
Funds from operations increased 67% to $20.9 million for the year ended December
31, 1997 compared to $12.6 million for the year ended December 31, 1996. Funds
from operations increased 172% to $12.6 million for the year ended December 31,
1996 from $4.6 million for the year ended December 31, 1995. These increases
were primarily the result of additional partnership interest acquisitions, and
to a lesser extent from an increase in funds from operations from the IPT
Partnerships. Funds from operations is defined as income or loss from real
estate operations, which is net income in accordance with GAAP excluding gains
or losses for debt restructurings, sales of property and minority interests,
plus depreciation and provision for impairment. See "Selected Consolidated and
Combined Financial Data of IPT" for a reconciliation of net income to funds from
operations.
Year 2000 Compliance
IPT is dependent upon IFG (now AIMCO) for management and administrative
services. Prior to the IFG Merger, IFG completed an assessment and has
determined that it will have to modify or replace portions of its software so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. The project is
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estimated to be completed not later than December 31, 1998, which is prior to
any anticipated impact on its operating systems. AIMCO believes that with
modifications to existing software and conversions to new software, the year
2000 issue will not pose significant operational problems for its computer
systems. IPT does not expect the conversion to have a material impact on its
financial position or results of operations. However, if such modifications and
conversions are not made, or are not completed in a timely fashion, the year
2000 issue could have a material impact on the operations of IPT.
Funds from Operations (FFO)
IPT believes that FFO is a significant indicator of the strength of its results.
FFO represents net income (loss) (computed in accordance with GAAP), excluding
gains (or losses) from debt restructuring or sales of property, plus
depreciation of real property, and after adjustments for unconsolidated
partnerships and joint ventures. FFO should not be considered as an alternative
to net income or other measurements under GAAP as an indicator of operation
performance or to cash flows from operating, investing or financing activities
as a measure of liquidity. FFO does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on indebtedness.
Inflation
Substantially all of the leases at the properties of the IPT Partnerships are
for a term of one year or less, which may enable IPT to seek increased rent upon
renewal of existing leases and upon the commencement of new leases. The
short-term nature of the leases generally serves to reduce the risk to IPT of
the adverse effects of inflation.
SOP 98-5
In 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"), which
is effective for financial statements for fiscal years beginning after December
15, 1998. SOP 98-5 requires costs of start-up activities and organization costs
to be expensed as incurred. Initial application should be reported as the
cumulative effect of a change in accounting principle and expensed in the first
quarter in the year of adoption. At June 30, 1998, IPT had approximately $1.0
million (net of accumulated amortization) capitalized as organizational costs
that would be affected by the requirements of SOP 98-5.
EITF 97-11
IPT has not capitalized any internal costs in connection with identifying and
acquiring operating properties. Therefore, EITF 97-11 will have no effect on
IPT's financial statements.
IPT PARTNERSHIPS
The following discussion pertains to the combined financial condition and
results of operations of those partnerships that constituted IPT Partnerships
during the applicable periods (i.e., those Controlled Partnerships in which IPT
had a material interest). While this discussion is directed to the IPT
Partnerships in the aggregate, it is important to note
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that each IPT Partnership is limited to its own resources and must accordingly
manage its capital resources.
Financial Condition
Each of the IPT Partnerships is governed by its specific partnership agreement,
and pursuant to each of those partnership agreements the general partner of the
applicable partnership has substantial authority over the operations and
financial position of the particular partnership. Further, the partnership
agreements generally render the issuance of additional equity interests
impractical and in many instances limit the amount and nature of permitted
mortgages or other indebtedness. Finally, certain changes of control of the
general partners of the IPT Partnerships that occurred during the last three
years have resulted in different philosophies with respect to operations, rent
changes and debt structure.
IPT believes that each IPT Partnership has sufficient capital to meet its
operating and capital needs. At December 31, 1997, the IPT Partnerships held
approximately $106.0 million in cash and other liquid investments, which
included approximately $10.0 million held for distribution to partners,
including IPT and affiliates, in the first quarter 1998. At June 30, 1998, the
IPT Partnerships held approximately $140.9 million in cash and other liquid
investments.
A majority of the mortgage loan financings of the IPT Partnerships was obtained
with the assistance of IFG over the last five years. Each mortgage loan is
single asset, non-recourse, non-cross-collateralized, fixed rate debt. The
aggregate outstanding balance of all such financings at June 30, 1998 and
December 31, 1997 was approximately $915.4 million and $680.2 million,
respectively.
The mortgage loan financings completed by the IPT Partnerships can be
substantially grouped into three principal categories:
- - A series of whole loan financings specific to properties controlled by IFG
completed in November 1992 with Lehman Capital. Each of the property loans
bears interest at an annual rate of 7.6%, provides for monthly debt service
based on a twenty-three year amortization and matures with a balloon payment
due in November 2002. These loans comprised approximately 11% and 12% of the
combined IPT Partnerships' outstanding debt at June 30, 1998 and December 31,
1997, respectively.
- - A series of whole loan financings with Lehman Capital and Freddie Mac in
December 1995 pursuant to which each loan bears interest at an annual rate of
6.95%. Payments are substantially interest only and the loans mature in
December 2005. These loans comprised approximately 12% and 16% of the combined
IPT Partnerships' outstanding debt at June 30, 1998 and December 31, 1997,
respectively.
- - A series of whole loan financings with Lehman Capital and Freddie Mac in
September 1996 pursuant to which each loan bears interest at an annual rate of
7.33%. Payments are interest only and the loans mature in September 2003.
These loans comprised approximately 23% and 24% of the combined IPT
Partnerships' outstanding debt at June 30, 1998 and December 31, 1997,
respectively.
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The IPT Partnerships require sufficient operating cash flows and capital
resources to maintain their properties and service their debt. Excess cash flows
are generally available for distribution to partners. Capital expenditures have
been substantial with respect to the assets owned by the IPT Partnerships.
Upon gaining control of the general partners, IFG undertook to implement
property improvement programs intended to result in improving both the physical
condition and the appearance of the properties. This has been the case
particularly with respect to the properties owned by the Consolidated Capital
Partnerships, which IFG commenced managing in 1995, and with respect to the
properties owned by the National Properties Partnerships and Century Properties
Partnerships, which IFG commenced managing in 1996. Aggregate capital
expenditures of the IPT Partnerships were approximately $44.0 million in 1996,
and approximately $32.6 million in 1997. IPT believes that the IPT Partnerships
will expend approximately $34.2 million on capital expenditures in 1998. As of
June 30, 1998, the IPT Partnerships have expended approximately $19.1 million on
capital expenditures.
Certain properties owned by IPT Partnerships are encumbered by mortgages in
amounts that constitute substantially all of the value of the properties.
Furthermore, one IPT Partnership, Century Properties Fund XVI, does not
currently generate cash flow after payment of debt services and required capital
expenditures. However, IPT does not believe that any of these investments will
be lost. Additionally, if these properties were lost, the combined loss of these
investments would not have a material adverse effect on the combined IPT
Partnerships or IPT.
Results of Operations
Each IPT Partnership is essentially a closed end investment vehicle.
Accordingly, the primary factors affecting operating results are changes in
rental income, changes in property operating expenses, changes in debt financing
and dispositions of asset investments during the period. The following
discussion summarizes certain operating statement data included in the Combined
Financial Statements of IPT. The same data is also discussed for only those
properties that were included in operating results for the full year in each
period ("Comparable" property results).
Six Months Ended June 30, 1998 Compared to Six Months ended June 30, 1997
Property revenues for the six months ended June 30, 1998 increased 45.1% from
the six months ended June 30, 1997. The property revenue growth was primarily
due to increased ownership in a greater number of properties during the period
as a result of tender offers extended during 1997 and 1998, and the transfer of
limited partnership interests in various limited partnerships from IFG in
connection with the MAE GP Merger. This growth was partially offset by the
effects of three properties sold during the second half of 1997. Comparable
property revenues increased 5.0% for the six months ended June 30, 1998. The
comparable property revenue growth is a function of the favorable market for
rental rate increases, increases in average occupancy, and the improved
conditions and appearance of the subject properties. Property operating expenses
increased 28.8% for the six months ended June 30, 1998 primarily as a result of
the 1997 and 1998 tender offers and limited partnership units acquired in
connection with the MAE GP Merger, offset by
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1997 property sales. Comparable property operating expenses decreased nearly 12%
for the six months ended June 30, 1998 compared to the six months ended June 30,
1997. The reduction in expenses was primarily the result of above normal levels
of maintenance incurred in 1997 as management implemented plans to improve the
overall appearance of the properties. Recurring operating expenses remained
relatively flat. Results from comparable partnerships resulting from the
comparable revenue and expense changes accounted for FFO growth of 57% and 31%
for the three and six months ending June 30, 1998, respectively. The remaining
FFO growth is attributable to acquisitions.
Fiscal Year 1997 Compared to Fiscal Year 1996
Property revenues for the year ended December 31, 1997 increased 14.4% from the
year ended December 31, 1996. The property revenue growth was primarily due to
increased ownership in a greater number of properties during the period as a
result of tender offers extended during 1997. This growth was partially offset
by the effects of one property foreclosed upon during 1996 and three properties
sold during the last half of 1997. Comparable property revenues increased
slightly by 1.6%. The property revenue growth is a function of the favorable
market for rental rate increases and the improved conditions and appearance of
the subject properties. Property operating expenses increased 9.3% for the year
ended December 31, 1997 as a result of the 1997 tender offers, offset by 1997
property sales and the 1996 property foreclosure. Comparable property operating
expenses decreased 2.9% for the year ended December 31, 1997 compared to the
year ended December 31, 1996.
Interest expense of the IPT Partnerships increased 8.4% for the year ended
December 31, 1997 primarily as a result of owning an interest in a greater
number of properties for the period as discussed above. Conversely, with respect
to properties owned throughout both periods, interest expense decreased 1.6%.
The decrease resulted primarily due to the aggregate mortgage balances
decreasing as a result of the refinancings that occurred in the second half of
1996 and a reduction in the interest rates for the related mortgages.
Administrative expenses decreased 11.3% for the year ended December 31, 1997 as
compared to the same period in 1996 after adjusting for properties owned
throughout both periods. The decrease in administrative expenses primarily
resulted from IFG's economies of scale being applied to all of the IPT
Partnerships by the second half of 1996. Depreciation expense increased 13.2%
for the year ended December 31, 1997 compared to the year ended December 31,
1996 due to owning an interest in more properties during the period as a result
of the 1997 tender offers, slightly offset by property sales.
As a result of the foregoing factors, funds from operations improved by 34.2%
and the income from operations increased by $10.0 million for the year ended
December 31, 1997 as compared to the same period in 1996. With respect to
properties owned throughout both periods, funds from operations increased 19.6%
and income from operations increased $10 million.
Fiscal Year 1996 Compared to Fiscal Year 1995
Property revenues for the year ended December 31, 1996 increased by 3.6% from
the year ended December 31, 1995. This increase was a result of a 5.6% growth in
comparable
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property revenues offset by the effects of three properties sold during 1996 and
four properties sold during 1995.
Average occupancy was approximately 94% in each period. The property revenue
growth was a function of the favorable market for rental rate increases and the
improved condition and appearance of the subject properties.
Property operating expenses increased by 4.9% due to a 7.4% increase for the
properties owned throughout the two periods reduced by the effect of the
property dispositions during 1995 and 1996. Approximately $4.0 million (or 3.0%)
of the increased expenses was directly attributable to the general improvement
program for the properties and related to periodic major maintenance expenses,
such as exterior painting and general landscaping changes. The remaining 4.4%
increase in comparable property operating expenses is primarily attributable to
increased costs of operations.
Interest expense of the IPT Partnerships declined by 5.6%, with a decline of
3.4% attributable solely to properties owned at the end of 1996. This decline
resulted primarily from the December 1995 refinancing which reduced the related
interest rates to 6.95%, and to a lesser extent from the September 1996
refinancing which reduced related interest rates to 7.33%. These rates permitted
a reduction in total interest expense notwithstanding that the aggregate
mortgage balances increased by approximately $50.0 million in those refinancing
transactions. The increase in administrative expenses from 1995 to 1994 was
reversed and administrative expenses decreased further as a result of IFG's
economies of scale being applied to all of the IPT Partnerships by the second
half of 1996.
Depreciation of the IPT Partnerships declined modestly because the effect of
property sales was greater than the increase caused by capital expenditures, and
the writedown of assets in 1995 resulting from IFG's analysis of property
carrying values was not present in 1996.
As a result of the foregoing factors, funds from operations improved by 19.0%
and the net loss declined from $17.1 million to approximately $0.7 million. With
respect to properties owned throughout both periods, funds from operations
improved 20.0% and loss from operations improved $15.6 million.
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PRINCIPAL SHAREHOLDERS OF IPT
The following table sets forth certain information regarding the beneficial
ownership of IPT Common Shares by (i) each person who is known to be a
beneficial owner of more than 5% of the outstanding IPT Common Shares, (ii) each
current and former trustee of IPT, and (iii) the trustees and executive officers
of IPT as a group, in each case as of October 1, 1998. Unless otherwise
indicated in the footnotes, all of such IPT Common Shares are owned directly,
and the indicated person has sole voting and investment power with respect
thereto.
As of October 1, 1998, there were 23,446,538 IPT Common Shares outstanding and
9,934,475 IPLP OP Units outstanding not held by IPT.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY % OF CLASS
NAME OF OWNER OR IDENTITY OF GROUP OWNED OUTSTANDING
- ---------------------------------- ------------ -----------
<S> <C> <C>
AIMCO(1)(2)............................................ 21,968,031 65.8%
Andrew L. Farkas(3).................................... 982,662 4.2%
James A. Aston(4)(5)................................... 108,000 0.5%
Frank M. Garrison(4)(5)................................ 105,400 0.5%
Ronald Uretta(4)(5)(6)................................. 105,300 0.5%
Warren Eckstein........................................ -- *
Ronald J. Consiglio(6)................................. 22,361 0.1%
Bryan L. Herrmann...................................... 6,898 *
Terry Considine........................................ -- *
Peter K. Kompaniez..................................... -- *
Patrick J. Foye........................................ -- *
Steven D. Ira.......................................... -- *
Thomas W. Toomey....................................... -- *
Harry G. Alcock........................................ -- *
All trustees and executive officers as a group (17
individuals)......................................... 1,356,865 5.8%
</TABLE>
- -------------------------
* Indicates less than 0.1%.
(1) Assumes that all IPLP OP Units held by AIMCO, including 1,014,995 IPLP OP
Units held through its wholly-owned subsidiary, ICC, are acquired by IPT in
exchange for IPT Common Shares.
(2) Includes IPT Common Shares held through subsidiaries of AIMCO.
(3) Includes 130,000 restricted IPT Common Shares owned by such person as well
as 807,202 IPT Common Shares owned by a partnership controlled by such
person.
(4) Includes certain IPT Common Shares owned by such individual's immediate
family.
(5) Includes 86,664 restricted IPT Common Shares owned by such person.
(6) Resigned as of October 1, 1998.
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DESCRIPTION OF COMMON STOCK
GENERAL
AIMCO's charter authorizes the issuance of up to 510,750,000 shares of
capital stock with a par value of $.01 per share, of which, as of October 1,
1998, 486,027,500 shares were classified as AIMCO Common Stock and 262,500
shares were classified as Class B Common Stock (together with the AIMCO Common
Stock, the "Common Stock"). As of October 1, 1998, there were 47,982,057 shares
of AIMCO Common Stock and 162,500 shares of Class B Common Stock issued and
outstanding. See "-- Class B Common Stock." In addition, up to 150,000 shares of
AIMCO Common Stock have been reserved for issuance under AIMCO's 1994 Stock
Option Plan, up to 500,000 shares of AIMCO Common Stock have been reserved for
issuance under AIMCO's 1996 Stock Award and Incentive Plan, and up to 500,000
shares of AIMCO Common Stock have been reserved for issuance under AIMCO's
Non-Qualified Stock Option Plan. Under AIMCO's 1997 Stock Award and Incentive
Plan, AIMCO may issue up to 10% of the shares of AIMCO Common Stock outstanding
as of the first day of the fiscal year during which any award is made, but in no
event more than 20,000,000 shares of AIMCO Common Stock. The AIMCO Common Stock
is traded on the NYSE under the symbol "AIV." BankBoston, N.A. serves as
transfer agent and registrar of the AIMCO Common Stock. As of October 1, 1998,
AIMCO's charter authorized 750,000 shares of Class B Preferred Stock, all of
which were issued and outstanding; 2,760,000 shares of Class C Preferred Stock,
of which 2,400,000 shares were issued and outstanding; 4,600,000 shares of Class
D Preferred Stock, of which 4,200,000 shares were issued and outstanding;
10,000,000 shares of Class E Preferred Stock, of which up to 8,945,921 shares
are issuable as consideration in the IFG Merger; 4,050,000 shares of Class G
Preferred Stock, all of which shares were issued and outstanding; and 2,300,000
shares of Class H Preferred Stock, of which 2,000,000 shares were issued and
outstanding.
RESTRICTIONS ON TRANSFER
For AIMCO to qualify as a REIT under the Code, not more than 50% in value
of its outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year and the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year.
Because the AIMCO Board of Directors believes that it is essential for AIMCO to
continue to qualify as a REIT and to provide additional protection for AIMCO's
stockholders in the event of certain transactions, the AIMCO Board of Directors
has adopted, and the stockholders have approved, provisions of AIMCO's charter
restricting the acquisition of shares of Common Stock.
Subject to certain exceptions specified in AIMCO's charter, no holder may
own, or be deemed to own by virtue of various attribution and constructive
ownership provisions of the Code and Rule 13d-3 under the Exchange Act, more
than 8.7% (or 15% in the case of certain pension trusts described in the Code,
investment companies registered under the Investment Company Act of 1940 and Mr.
Considine) of the outstanding shares of Common Stock ("Ownership Limit"). For
purposes of calculating the amount of stock owned by a given individual, the
individual's Common Stock and OP Units are aggregated.
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The AIMCO Board of Directors may waive the Ownership Limit if evidence
satisfactory to the AIMCO Board of Directors and AIMCO's tax counsel is
presented that such ownership will not then or in the future jeopardize AIMCO's
status as a REIT. However, in no event may such holder's, direct or indirect,
ownership of Common Stock exceed 9.8% of the total outstanding shares of Common
Stock. As a condition of such waiver, the AIMCO Board of Directors may require
opinions of counsel satisfactory to it and/or an undertaking from the applicant
with respect to preserving the REIT status of AIMCO. The foregoing restrictions
on transferability and ownership will not apply if the AIMCO Board of Directors
determines that it is no longer in the best interests of AIMCO to attempt to
qualify, or to continue to quality as a REIT and a resolution terminating
AIMCO's status as a REIT and amending AIMCO's charter to remove the foregoing
restrictions is duly adopted by the AIMCO Board of Directors and a majority of
AIMCO's stockholders. If shares of Common Stock in excess of the Ownership
Limit, or shares of Common Stock which would cause the REIT to be beneficially
owned by fewer than 100 persons, or which would result in AIMCO being "closely
held," within the meaning of Section 856(h) of the Code, or which would
otherwise result in AIMCO failing to qualify as a REIT, are issued or
transferred to any person, such issuance or transfer shall be null and void to
the intended transferee, and the intended transferee would acquire no rights to
the stock. Shares of Common Stock transferred in excess of the Ownership Limit
or other applicable limitations will automatically be transferred to a trust for
the exclusive benefit of one or more qualifying charitable organizations to be
designated by AIMCO. Shares transferred to such trust will remain outstanding,
and the trustee of the trust will have all voting and dividend rights pertaining
to such shares. The trustee of such trust may transfer such shares to a person
whose ownership of such shares does not violate the Ownership Limit or other
applicable limitation. Upon a sale of such shares by the trustee, the interest
of the charitable beneficiary will terminate, and the sales proceeds would be
paid, first, to the original intended transferee, to the extent of the lesser of
(a) such transferee's original purchase price (or the original market value of
such shares if purportedly acquired by gift or devise) and (b) the price
received by the trustee, and, second, any remainder to the charitable
beneficiary. In addition, shares of stock held in such trust are purchasable by
AIMCO for a 90-day period at a price equal to the lesser of the price paid for
the stock by the original intended transferee (or the original market value of
such shares if purportedly acquired by gift or devise) and the market price for
the stock on the date that AIMCO determines to purchase the stock. The 90-day
period commences on the date of the violative transfer or the date that the
AIMCO Board of Directors determines in good faith that a violative transfer has
occurred, whichever is later. All certificates representing shares of Common
Stock, including the shares offered hereby, bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code and Rule 13d-3 under the Exchange Act, more than a specified percentage
of the outstanding shares of Common Stock must file a written statement or an
affidavit with AIMCO containing the information specified in AIMCO's charter
within 30 days after January 1 of each year. In addition, each stockholder shall
upon demand be required to disclose to AIMCO in writing such information with
respect to the direct, indirect and constructive ownership of shares as the
AIMCO Board of Directors deems necessary to comply with the provisions of the
Code applicable to a REIT or to comply with the requirements of any taxing
authority or governmental agency.
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The ownership limitations may have the effect of precluding acquisition of
control of AIMCO by a third party unless the AIMCO Board of Directors determines
that maintenance of REIT status is no longer in the best interests of AIMCO.
AIMCO COMMON STOCK
Holders of the AIMCO Common Stock are entitled to receive dividends, when
and as declared by the AIMCO Board of Directors, out of funds legally available
therefor. The holders of shares of AIMCO Common Stock, upon any liquidation,
dissolution or winding-up of AIMCO, are entitled to receive ratably any assets
remaining after payment in full of all liabilities of AIMCO and the liquidation
preferences of preferred stock. The shares of AIMCO Common Stock possess
ordinary voting rights for the election of directors and in respect of other
corporate matters, each share entitling the holder thereof to one vote. Holders
of shares of AIMCO Common Stock do not have cumulative voting rights in the
election of directors, which means that holders of more than 50% of the shares
of AIMCO Common Stock voting for the election of directors can elect all of the
directors if they choose to do so and the holders of the remaining shares cannot
elect any directors. Holders of shares of AIMCO Common Stock do not have
preemptive rights, which means they have no right to acquire any additional
shares of AIMCO Common Stock that may be issued by AIMCO at a subsequent date.
CLASS B COMMON STOCK
In connection with the initial formation of AIMCO, Terry Considine, Peter
Kompaniez, Steven Ira and Robert P. Lacy (a former officer of AIMCO) acquired an
aggregate of 650,000 shares of Class B Common Stock. AIMCO's charter, which
initially authorized 750,000 shares of Class B Common Stock, was amended in June
1998 to authorize 262,500 shares of Class B Common Stock, of which 162,500
shares are issued and outstanding. The Class B Common Stock does not have voting
or dividend rights and, unless converted into shares of AIMCO Common Stock, as
described below, is subject to repurchase by AIMCO as described below. As of
December 31 of each of the years 1994 through 1998 (each, a "Year-End Testing
Date"), a number of the shares of Class B Common Stock outstanding as of such
date (the "Eligible Class B Shares") become eligible for automatic conversion
(subject to the Ownership Limit) into an equal number of shares of AIMCO Common
Stock (subject to adjustment upon the occurrence of certain events in respect of
the AIMCO Common Stock, including stock dividends, subdivisions, combinations
and reclassifications). Once Class B Common Stock has been converted into shares
of AIMCO Common Stock, holders of such shares of converted AIMCO Common Stock
will have voting and dividend rights of shares of AIMCO Common Stock generally.
Once converted or forfeited, the Class B Common Stock may not be reissued by
AIMCO.
The Eligible Class B Shares convert to shares of AIMCO Common Stock if (i)
AIMCO's Funds from Operations Per Share (as defined below) reaches certain
annual and cumulative growth targets and (ii) the average market price for a
share of AIMCO Common Stock for a 90 calendar day period beginning on any day on
or after the October 1 immediately preceding the relevant Year-End Testing Date
equals or exceeds a specified target price. "Funds from Operations Per Share" or
"FFO Per Share" means, for any period, (i) net income (loss), computed in
accordance with generally accepted
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accounting principles, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures, less any preferred stock
dividend payments, divided by (ii) the sum of (a) the number of shares of AIMCO
Common Stock outstanding on the last day of such period (excluding any shares of
AIMCO Common Stock into which shares of the Class B Common Stock shall have been
converted as a result of the conversion of shares of the Class B Common Stock on
the last day of such period) and (b) the number of shares of AIMCO Common Stock
issuable to acquire units of limited partnership that (x) may be tendered for
redemption in any limited partnership in which AIMCO serves as general partner
and (y) are outstanding on the last day of such period.
Set forth below for each of the remaining Year-End Testing Dates is (i) the
number of shares of Class B Common Stock that become Eligible Class B Shares as
of such date, (ii) the annual FFO Per Share growth target (as a percentage
increase in FFO Per Share from the prior year), (iii) the cumulative FFO Per
Share growth target (in FFO Per Share) and (iv) the average market price target:
<TABLE>
<CAPTION>
ANNUAL FFO
ELIGIBLE PER SHARE CUMULATIVE
CLASS B GROWTH SHARE PER AVERAGE MARKET
YEAR-END TESTING DATE SHARES(1) TARGET GROWTH TARGET PRICE TARGET
--------------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
December 31, 1998........... 162,500 8.5% $2.760 $26.373
</TABLE>
- -------------------------
(1) Assumes that only the shares of Class B Common Stock outstanding as of
December 31, 1997 remain outstanding until converted into shares of AIMCO
Common Stock.
Any Class B Common Stock that has not been converted into shares of AIMCO
Common Stock following December 31, 1998 will be subject to repurchase by AIMCO
at a price of $0.10 per share. Class B Common Stock is also subject to automatic
conversion upon the occurrence of certain events, including a change of control
(as defined in AIMCO's charter). The AIMCO Board of Directors may increase the
number of shares which are eligible for conversion as of any Year-End Testing
Date and may, under certain circumstances, accelerate the conversion of
outstanding Class B Common Stock at such time and in such amount as it may
determine appropriate.
All of the 65,000 shares of Class B Common Stock eligible for conversion as
of the December 31, 1994 Year-End Testing Date, all of the 130,000 shares of
Class B Common Stock eligible for conversion as of the December 31, 1995
Year-End Testing Date, all of the 130,000 shares of Class B Common Stock
eligible for conversion as of December 31, 1996 and all of the 162,500 shares of
Class B Common Stock eligible for conversion as of December 31, 1997, have been
converted into shares of AIMCO Common Stock. As of December 31, 1997, the
outstanding Class B Common Stock was held as follows: 93,428 shares by Mr.
Considine, 41,438 shares by Mr. Kompaniez, 13,821 shares by Mr. Ira and 13,813
shares by Mr. Lacy.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or
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reclassification of equity securities) between a Maryland corporation and any
person who beneficially owns 10% or more of the voting power of the
corporation's shares or an affiliate or associate (as defined in the MGCL) of
the corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder became an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding voting shares
of the corporation, voting together as a single voting group, and (b) two-thirds
of the votes entitled to be cast by holders of outstanding voting shares of the
corporation other than shares held by the Interested Stockholder or an affiliate
or associate of the Interested Stockholder with whom the business combination is
to be effected, unless, among other conditions, the corporation's stockholders
receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for its shares. For purposes of determining whether a
person is an Interested Stockholder, ownership of OP Units will be treated as
beneficial ownership of the shares of Common Stock for which the OP Units may be
redeemed. The business combination statute could have the effect of discouraging
offers to acquire AIMCO and of increasing the difficulty of consummating any
such offer. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person, or in respect of which that person is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval.
A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions. A person who has made or proposes to make a
control share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the corporation's board of directors to
call a special meeting of stockholders, to be held within 50 days of demand, to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders meeting.
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If voting rights are not approved at the meeting or if the acquiring person
does not deliver an "acquiring person statement" as required by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights, as of the date of the last control share acquisition
or of any meeting of stockholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the appraisal
rights may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the corporation's
articles of incorporation or bylaws prior to the control share acquisition. No
such exemption appears in AIMCO's charter or in AIMCO's bylaws. The control
share acquisition statute could have the effect of discouraging offers to
acquire AIMCO and of increasing the difficulty of consummating any such offer.
DESCRIPTION OF AIMCO PREFERRED STOCK
GENERAL
AIMCO may issue, from time to time, shares of one or more series or classes
of preferred stock. The following summary of certain provisions of the preferred
stock does not purport to be complete and is subject to, and is qualified in its
entirety by express reference to, the provisions of AIMCO's charter relating to
a specific series of the preferred stock.
AIMCO's charter authorizes the issuance of up to 510,750,000 shares of its
capital stock. As of October 1, 1998, in addition to 486,777,500 shares of
Common Stock, 750,000 shares were classified as Class B Convertible Preferred
Stock, 2,760,000 shares were classified as Class C Preferred Stock, 4,600,000
shares were classified as Class D Preferred Stock, 10,000,000 shares were
classified as Class E Preferred Stock, 4,050,000 shares were classified as Class
G Preferred Stock, and 2,300,000 shares were classified as Class H preferred
stock. Under AIMCO's charter, the AIMCO Board of Directors has the authority to
classify and reclassify any of its unissued capital stock into shares of
preferred stock by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of capital stock including, but not limited to, ownership
restrictions consistent with the Ownership Limit with respect to each series or
class of capital stock, and the number of shares constituting each series or
class, and to increase or decrease the number of shares of any such series or
class, to the extent permitted by the MGCL.
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The AIMCO Board of Directors is authorized to determine for each series of
preferred stock: (1) the designation of such shares and the number of shares
that constitute such series, (2) the dividend rate (or the method of calculation
thereof), if any, on the shares of such series and the priority as to payment of
dividends with respect to other classes or series of capital stock of AIMCO, (3)
the dividend periods (or the method of calculation thereof), (4) the voting
rights of the shares, (5) the liquidation preference and the priority as to
payment of such liquidation preference with respect to other classes or series
of capital stock of AIMCO and any other rights of the shares of such series upon
any liquidation or winding-up of AIMCO, (6) whether or not and on what terms the
shares of such series will be subject to redemption or repurchase at the option
of AIMCO, (7) whether and on what terms the shares of such series will be
convertible into or exchangeable for other debt or equity securities of AIMCO,
(8) whether the shares of such series of preferred stock will be listed on a
securities exchange, (9) any special Federal income tax considerations
applicable to such series, and (10) the other rights and privileges and any
qualifications, limitations or restrictions of such rights or privileges of such
series not inconsistent with AIMCO's charter and the MGCL.
CLASS B PREFERRED STOCK
On August 4, 1997, AIMCO issued 750,000 shares of its Class B Preferred
Stock to an institutional investor (the "Preferred Share Investor") in a private
transaction. The Class B Preferred Stock (1) ranks prior to the Common Stock and
the Class E Preferred Stock with respect to dividends, liquidation, dissolution
and winding-up, and has an aggregate liquidation value of $75 million and (2)
ranks on parity with the Class C Preferred Stock, the Class D Preferred Stock,
the Class G Preferred Stock and the Class H Preferred Stock. Holders of the
Class B Preferred Stock are entitled to receive, when, as and if declared by the
AIMCO Board of Directors, quarterly cash dividends per share equal to the
greater of (a) $1.78125 (the "Base Rate") and (b) the cash dividends declared on
the number of shares of AIMCO Common Stock into which one share of Class B
Preferred Stock is convertible. Each share of Class B Preferred Stock may be
converted, at the option of the holder, into 3.28407 shares of AIMCO Common
Stock, subject to certain anti-dilution adjustments. AIMCO may redeem any or all
of the Class B Preferred Stock on or after August 4, 2002, at a redemption price
of $100 per share, plus unpaid dividends accrued on the shares redeemed.
Holders of Class B Preferred Stock, voting as a class with the holders of
all AIMCO capital stock that ranks on a parity with the Class B Preferred Stock
with respect to the payment of dividends or upon liquidation, dissolution,
winding-up or otherwise ("Class B Parity Stock"), will be entitled to elect (1)
two directors of AIMCO if six quarterly dividends (regardless of whether
consecutive) on the Class B Preferred Stock or any Class B Parity Stock are in
arrears, and (2) one director of AIMCO if for two consecutive quarterly dividend
periods AIMCO fails to pay at least $0.4625 in dividends on the AIMCO Common
Stock. The affirmative vote of the holders of two-thirds of the outstanding
shares of Class B Preferred Stock will be required to amend AIMCO's charter in
any manner that would adversely affect the rights of the holders of Class B
Preferred Stock and to approve the issuance of any capital stock that ranks
senior to the Class B Preferred Stock with respect to payment of dividends or
upon liquidation, dissolution, winding-up or otherwise. If the IRS were to make
a final determination that AIMCO does not qualify as a REIT in accordance with
Sections 856 through 860 of the Code, the Base
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Rate for the quarterly cash dividends on the Class B Preferred Stock would
increase to $3.03125 per share.
The agreement pursuant to which AIMCO issued the Class B Preferred Stock
(the "Preferred Share Purchase Agreement") provides that each preferred share
investor may require AIMCO to repurchase such investor's Class B Preferred Stock
in whole or in part at a price of 105% of the liquidation preference thereof,
plus accrued and unpaid dividends on the purchased shares, if (1) AIMCO shall
fail to continue to be taxed as a REIT pursuant to Sections 856 through 860 of
the Code, or (2) upon the occurrence of a change of control (as defined in the
Preferred Share Purchase Agreement). The Preferred Share Purchase Agreement also
provides that, so long as the preferred share investor owns Class B Preferred
Stock with an aggregate liquidation preference of at least $18.75 million,
neither AIMCO, the AIMCO Operating Partnership nor any subsidiary of AIMCO may
issue preferred securities or incur indebtedness for borrowed money if
immediately following such issuance and after giving effect thereto and the
application of the net proceeds therefrom, AIMCO's ratio of aggregate
consolidated earnings before interest, taxes, depreciation and amortization to
aggregate consolidated fixed charges for the four fiscal quarters immediately
preceding such issuance would be less than 1.5 to 1.
Subject to certain exceptions specified in the provisions of AIMCO's
charter establishing the terms of the Class B Preferred Stock, no holder may
own, or be deemed to own by virtue of various attribution and constructive
ownership provisions of the Code and Rule 13d-3 under the Exchange Act, shares
of Class B Preferred Stock with a value in excess of the amount by which (1)
8.7% (or 15% in the case of certain pension trusts described in the Code,
investment companies registered under the Investment Company Act of 1940 and Mr.
Considine) of the aggregate value of all shares of capital stock of AIMCO
exceeds (2) the aggregate value of all shares of capital stock of AIMCO, other
than Class B Preferred Stock, that are owned by such holder (the "Class B
Preferred Ownership Limit"). The AIMCO Board of Directors may waive such
ownership limit if evidence satisfactory to the AIMCO Board of Directors and
AIMCO's tax counsel is presented that such ownership will not then or in the
future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the
AIMCO Board of Directors may require opinions of counsel satisfactory to it
and/or an undertaking from the applicant with respect to preserving the REIT
status of AIMCO. If shares of Class B Preferred Stock in excess of the Class B
Preferred Ownership Limit, or shares of Class B Preferred Stock which would
result in AIMCO being "closely held," within the meaning of Section 856(h) of
the Code, or which would otherwise result in AIMCO failing to qualify as a REIT,
are issued or transferred to any person, such issuance or transfer will be null
and void to the intended transferee, and the intended transferee would acquire
no rights to the stock. Shares of Class B Preferred Stock transferred in excess
of the Class B Preferred Ownership Limit or other applicable limitations will
automatically be transferred to a trust for the exclusive benefit of one or more
qualifying charitable organizations to be designated by AIMCO. Shares
transferred to such trust will remain outstanding, and the trustee of the trust
will have all voting and dividend rights pertaining to such shares. The trustee
of such trust may transfer such shares to a person whose ownership of such
shares does not violate the Class B Preferred Ownership Limit or other
applicable limitation. Upon a sale of such shares by the trustee, the interest
of the charitable beneficiary will terminate, and the sales proceeds would be
paid, first, to the original intended transferee, to the extent of the lesser of
(1) such transferee's original purchase price (or the original market value of
such
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shares if purportedly acquired by gift or devise) and (2) the price received by
the trustee, and, second, any remainder to the charitable beneficiary. In
addition, shares of stock held in such trust are purchasable by AIMCO for a
90-day period at a price equal to the lesser of the price paid for the stock by
the original intended transferee (or the original market value of such shares if
purportedly acquired by gift or devise) and the market price for the stock on
the date that AIMCO determines to purchase the stock. The 90-day period
commences on the date of the violative transfer or the date that the AIMCO Board
of Directors determines in good faith that a violative transfer has occurred,
whichever is later. All certificates representing shares of Class B Preferred
Stock bear a legend referring to the restrictions described above.
CLASS C PREFERRED STOCK
On December 23, 1997, AIMCO issued 2,400,000 shares of its 9% Class C
Preferred Stock in an underwritten public offering for net proceeds of
approximately $57.9 million. The Class C Preferred Stock (a) ranks prior to the
Common Stock, the Class E Preferred Stock and any other class or series of
capital stock of AIMCO if the holders of the Class C Preferred Stock are
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution, and winding-up in preference or priority to the
holders of shares of such class or series ("Class C Junior Stock"), (b) ranks on
parity with the Class B Preferred Stock, the Class D Preferred Stock, the Class
G Preferred Stock and the Class H Preferred Stock, and with any other class or
series of capital stock of AIMCO if the holders of such class of stock or series
and the Class C Preferred Stock shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class C Parity Stock") and (c) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series shall be entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class C Preferred
Stock ("Class C Senior Stock").
Holders of Class C Preferred Stock are entitled to receive cash dividends
at the rate of 9% per annum of the $25 liquidation preference (equivalent to
$2.25 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year. Upon any liquidation, dissolution or
winding-up of AIMCO, before payment or distribution by AIMCO shall be made to or
set apart for the holders of any shares of Class C Junior Stock, the holders of
Class C Preferred Stock shall be entitled to receive a liquidation preference of
$25 per share (the "Class C Liquidation Preference"), plus an amount equal to
all accumulated, accrued and unpaid dividends to the date of final distribution
to such holders; but such holders shall not be entitled to any further payment.
If proceeds available for distribution shall be insufficient to pay the
preference described above and any liquidating payments on any other shares of
any class or series of Class C Parity Stock, then such proceeds shall be
distributed among the holders of Class C Preferred Stock and any such other
Class C Parity Stock ratably in the same proportion as the respective amounts
that would be payable on such Class C Preferred Stock and any such other Class C
Parity Stock if all amounts payable thereon were paid in full.
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On and after December 23, 2002, AIMCO may redeem shares of Class C
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class C Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class C Preferred Stock has no stated
maturity and will not be subject to any sinking find or mandatory redemption
provisions.
Holders of shares of Class C Preferred Stock have no voting rights, except
that if distributions on Class C Preferred Stock or any series or class of Class
C Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board of Directors shall be increased by two
and the holders of Class C Preferred Stock (voting together as a single class
with all other shares of Class C Parity Stock which are entitled to similar
voting rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class C Preferred Stock called for such purpose. The
affirmative vote of the holders of two thirds of the outstanding shares of Class
C Preferred Stock will be required to amend AIMCO's charter in any manner that
would adversely affect the rights of the holders of Class C Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class C
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding-up or otherwise.
There are ownership restrictions applicable to the Class C Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS D PREFERRED STOCK
On February 19, 1998, AIMCO issued 4,200,000 shares of its 8 3/4% Class D
Preferred Stock, in an underwritten public offering, for net proceeds of
approximately $101.5 million. The Class D Preferred Stock (1) ranks prior to the
Common Stock, the Class E Preferred Stock, and any other class or series of
capital stock of AIMCO if the holders of the Class D Preferred Stock are to be
entitled to the receipt of dividends of or amounts distributable upon
liquidation, dissolution, and winding-up in preference or priority to the
holders of shares of such class or series ("Class D Junior Stock"), (2) ranks on
parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class
G Preferred Stock and the Class H Preferred Stock, and with any other class or
series of capital stock of AIMCO if the holders of such class of stock or series
and the Class D Preferred Stock shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding-up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Class D Parity Stock") and (3) ranks junior to any class or series of capital
stock of AIMCO if the holders of such class or series shall be entitled to the
receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class D Preferred
Stock ("Class D Senior Stock").
Holders of Class D Preferred Stock are entitled to receive cash dividends
at the rate of 8 3/4% per annum of the $25 liquidation preference (equivalent to
$2.1875 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year. Upon any liquidation, dissolution or
winding-up of AIMCO, before payment or distribution by AIMCO shall be made to or
set apart for the holders of any shares of Class D Junior Stock, the holders of
Class D Preferred Stock shall be entitled to receive a liquidation
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preference of $25 per share (the "Class D Liquidation Preference"), plus an
amount equal to all accumulated, accrued and unpaid dividends to the date of
final distribution to such holders; but such holders shall not be entitled to
any further payment. If proceeds available for distribution shall be
insufficient to pay the preference described above and any liquidating payments
on any other shares of any class or series of Class D Parity Stock, then such
proceeds shall be distributed among the holders of Class D Preferred Stock and
any such other Class D Parity Stock ratably in the same proportion as the
respective amounts that would be payable on such Class D Preferred Stock and any
such other Class D Parity Stock if all amounts payable thereon were paid in
full.
On and after February 19, 2003, AIMCO may redeem shares of Class D
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class D Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class D Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class D Preferred Stock have no voting rights, except
that if distributions on Class D Preferred Stock or any series or class of Class
D Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board of Directors shall be increased by two
and the holders of Class D Preferred Stock (voting together as a single class
with all other shares of Class D Parity Stock which are entitled to similar
voting rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class D Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
D Preferred Stock will be required to amend AIMCO's charter in any manner that
would adversely affect the rights of the holders of Class D Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class D
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding-up or otherwise.
There are ownership restrictions applicable to the Class D Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS E PREFERRED STOCK
On October 1, 1998, IFG was merged into AIMCO. As merger consideration,
AIMCO became obligated to issue to former IFG stockholders [ ] shares
of Class E Preferred Stock. The Class E Preferred Stock (1) ranks prior to
Common Stock, and any other class or series of capital stock of AIMCO if holders
of the Class E Preferred Stock are to be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution, and winding-up in
preference or priority to the holders of shares of such class or series ("Class
E Junior Stock"), (2) ranks on a parity with any class or series of capital
stock of AIMCO if the holders of such class or series of stock and the Class E
Preferred Stock shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding-up in proportion to their
respective amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Class E Parity
Stock") and (3) ranks junior to the Class B Preferred Stock, the Class C
Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the
Class H Preferred Stock and any other class or series of capital stock of AIMCO
if the holders of such class or series shall be entitled to the
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receipt of dividends or amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of the Class E Preferred
Stock ("Class E Senior Stock").
On any date (each, a "Dividend Payment Date") on which cash dividends are
paid on the Class A Common Stock prior to the Class E Conversion Date (as
defined below), holders of Class E Preferred Stock are entitled to receive cash
dividends payable in an amount per share of Class E Preferred Stock equal to the
per share dividend payable on the shares of AIMCO Common Stock on such Dividend
Payment Date. Such dividends shall be cumulative from the date of original
issue, and shall be payable quarterly in arrears on the Dividend Payment Dates,
commencing on the first Dividend Payment Date after the date of original issue.
Upon any liquidation, dissolution or winding-up of AIMCO, before payment or
distribution by AIMCO shall be made to or set apart for the holders of any
shares of Class E Junior Stock, the holders of Class E Preferred Stock shall be
entitled to receive a liquidation preference of $1 per share plus the one time
dividend of $50 million, in cash (the "Special Dividend") if such dividend is
unpaid on the date of the final distribution to such holders (collectively, the
"Class E Liquidation Preference"), and thereafter each share of Class E
Preferred Stock shall have the same rights with respect to assets of AIMCO as
one share of AIMCO Common Stock.
On or after the twentieth anniversary of the Effective Time, AIMCO may
redeem shares of Class E Preferred Stock, in whole or in part, at a cash
redemption price equal to the sum of (1) the greater of (a) the Current Market
Price (as defined below) of the shares of AIMCO Common Stock on the date
specified for redemption by AIMCO in a notice sent to holders of Class E
Preferred Stock (the "Class E Call Date") or (b) the AIMCO Index Price, but
determined without giving effect to the limitation of $38.00 per share, plus (2)
all accrued and unpaid dividends to the Call Date. The Class E Preferred Stock
has no stated maturity and will not be subject to any sinking fund or mandatory
redemption provisions.
"Current Market Price" per share of AIMCO Common Stock on any date means
the average of the daily market prices of a share of AIMCO Common Stock for the
five consecutive trading days preceding such date. The market price for each
such day shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the AIMCO Common Stock is not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the AIMCO Common Stock is listed or admitted to
trading or, if the AIMCO Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted price, or if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the AIMCO Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
AIMCO Common Stock selected by the AIMCO Board of Directors.
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Holders of shares of Class E Preferred Stock are entitled to one-half of
one vote with respect to all matters in which holders of shares of AIMCO Common
Stock are entitled to vote thereon. In addition, if any portion of the Special
Dividend has yet to be declared and paid to the holders of Class E Preferred
Stock on January 15, 1999, or if distributions on Class E Preferred Stock or any
series or class of Parity Stock shall be in arrears for six or more quarterly
periods, the number of directors constituting the AIMCO Board of Directors shall
be increased by two and the holders of Class E Preferred Stock (voting together
as a single class with all other shares of Class E Parity Stock which are
entitled to similar voting rights) will be entitled to vote for the election of
such additional directors. Such right shall continue until full cumulative
dividends for all past dividend periods on all shares of Preferred Stock,
including any shares of Class E Preferred Stock, have been paid or declared and
set apart for payment.
On any date which the Special Dividend, or any portion thereof, is paid
(which may be declared by the AIMCO Board of Directors in its sole discretion),
the holders of Class E Preferred Stock shall be entitled to receive an amount
per share of Class E Preferred Stock equal to the Special Dividend divided by
the Series E Conversion Ratio (as defined in the Insignia Merger Agreement).
After January 15, 1999, if any portion of the Special Dividend or any other
dividend has yet to be declared and paid to the holders of Class E Preferred
Stock, no dividends may be declared or paid or set apart for payment by AIMCO on
the Common Stock.
On the close of business on the day on which the Special Dividend (or any
remaining unpaid portion thereof) is paid to the holders of the Class E
Preferred Stock, each share of Class E Preferred Stock will be automatically
converted into one share of AIMCO Common Stock without any action on the part of
AIMCO or the holder of such share (the "Class E Conversion Date"). If AIMCO at
any time following the Effective Time pays a dividend or makes a distribution,
subdivides, combines, reclassifies, issues rights, options or warrants or makes
any other distribution in securities in relation to the then outstanding shares
of AIMCO Common Stock, then AIMCO will contemporaneously do the same with
respect to the Class E Preferred Stock.
CLASS G PREFERRED STOCK
On July 15, 1998, AIMCO issued 4,050,000 shares of its Class G Preferred
Stock, in an underwritten public offering for net proceeds of approximately $98
million. The Class G Preferred Stock (1) ranks prior to the Common Stock, the
Class E Preferred Stock and any other class or series of capital stock of AIMCO,
if the holders of the Class G Preferred Stock are to be entitled to the receipt
of dividends or of amounts distributable upon liquidation, dissolution, and
winding-up in preference or priority to the holders of shares of such class or
series ("Class G Junior Stock"), (2) ranks on parity with the Class B Preferred
Stock, the Class C Preferred Stock, the Class D Preferred Stock and the Class H
Preferred Stock and with any other class or series of capital stock of AIMCO, if
the holders of such class of stock or series and the Class G Preferred Stock
shall be entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding-up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other ("Class G Parity Stock") and (3) ranks
junior to any class or series of capital stock of AIMCO if the holders of such
class or series shall be entitled to the receipt of
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dividends or amounts distributable upon liquidation, dissolution or winding-up
in preference or priority to the holders of the Class G Preferred Stock ("Class
G Senior Stock").
Holders of Class G Preferred Stock are entitled to receive cash dividends
at the rate of 9 3/8% per annum of the $25 liquidation preference (equivalent to
$2.34375 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing October 15, 1998. Upon any
liquidation, dissolution or winding-up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class G
Junior Stock, the holders of Class G Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class G Liquidation
Preference"), plus an amount equal to all accumulated, accrued and unpaid
dividends to the date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If proceeds available for
distribution shall be insufficient to pay the preference described above and any
liquidating payments on any other shares of any class or series of Class G
Parity Stock, then such proceeds shall be distributed among the holders of Class
G Preferred Stock and any such other Class G Parity Stock ratably in the same
proportion as the respective amount that would be payable on such Class G
Preferred Stock and any such other Class G Parity Stock if all amounts payable
thereon were paid in full.
On and after July 15, 2008, AIMCO may redeem shares of Class G Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class G Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class G Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class G Preferred Stock have no voting rights, except
that if distributions on Class G Preferred Stock or any series or class of Class
G Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board of Directors shall be increased by two
and the holders of Class G Preferred Stock (voting together as a single class
with all other shares of Class G Parity Stock, which are entitled to similar
voting rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class G Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
G Preferred Stock will be required to amend AIMCO's charter in any manner that
would adversely affect the rights of the holders of Class G Preferred Stock, and
to approve the issuance of any capital stock that ranks senior to the Class G
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding-up or otherwise.
There are ownership restrictions applicable to the Class G Preferred Stock
that are similar to those for the Class B Preferred Stock.
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CLASS H PREFERRED STOCK
On August 11, 1998, AIMCO issued 2,000,000 shares of Class H Preferred
Stock, in an underwritten public offering for net proceeds of approximately
$48.1 million. The Class H Preferred Stock (1) ranks prior to the Common Stock,
the Class E Preferred Stock and any other class or series of capital stock of
AIMCO if the holders of the Class H Preferred Stock are to be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
and winding-up in preference or priority to the holders of shares of such class
or series ("Class H Junior Stock"), (2) ranks on parity with the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock and
the Class G Preferred Stock, and with any other class or series of capital stock
of AIMCO, if the holders of such class of Stock or series and the Class G
Preferred Stock shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding-up in proportion to their
respective amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Class H Parity
Stock") and (3) ranks junior to any class or series of capital stock of AIMCO if
the holders of such class or series shall be entitled to the receipt of
dividends or amounts distributable upon liquidation, dissolution or winding-up
in preference or priority to the holders of the Class H Preferred Stock ("Class
H Senior Stock").
Holders of Class H Preferred Stock are entitled to receive cash dividends
at the rate of 9 1/2% per annum of the $25 liquidation preference (equivalent to
$2.375 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing October 15, 1998. Upon any
liquidation, dissolution or winding-up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class H
Junior Stock, the holders of Class H Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class H Liquidation
Preference"), plus an amount equal to all accumulated, accrued and unpaid
dividends to the date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If proceeds available for
distribution shall be insufficient to pay the preference described above and any
liquidating payments on any other shares of any class or series of Class H
Parity Stock, then such proceeds shall be distributed among the holders of Class
H Preferred Stock and any such other Class H Parity Stock ratably in the same
proportion as the respective amount that would be payable on such Class H
Preferred Stock and any such other Class H Parity Stock if all amounts payable
thereon were paid in full.
On and after August 14, 2003, AIMCO may redeem shares of Class H Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class H Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class H Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class H Preferred Stock have no voting rights, except
that if distributions on Class H Preferred Stock or any series or class of Class
H Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board of Directors shall be increased by two
and the holders of Class H Preferred Stock (voting together as a single class
with all other shares of Class H Parity Stock, which are entitled to similar
voting rights) will be entitled to vote for the election
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of the two additional directors of AIMCO at any annual meeting of stockholders
or at a special meeting of the holders of the Class H Preferred Stock called for
the purpose. The affirmative vote of the holders of two-thirds of the
outstanding shares of Class H Preferred Stock will be required to amend AIMCO's
charter in any manner that would adversely affect the rights of the holders of
Class H Preferred Stock, and to approve the issuance of any capital stock that
ranks senior to the Class H Preferred Stock with respect to payment of dividends
or upon liquidation, dissolution, winding-up or otherwise.
There are ownership restrictions applicable to the Class H Preferred Stock
that are similar to those for the Class B Preferred Stock.
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FEDERAL INCOME TAXATION OF AIMCO AND
AIMCO STOCKHOLDERS
The following is a summary of the material federal income tax consequences
resulting from the acquisition of, holding, exchanging, and otherwise disposing
of shares of AIMCO Common Stock. This summary is based upon the Code, the
Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in
effect as of the date of this Information Statement/Prospectus and all of which
are subject to change, possibly retroactively. This summary is also based on the
assumptions that the operation of AIMCO, the AIMCO Operating Partnership and the
limited liability companies and limited partnerships in which they own
controlling interests (collectively, the "Subsidiary Partnerships") will be in
accordance with their respective organizational documents and agreements. This
summary is for general information only and does not discuss all aspects of
Federal income taxation which may be important to a particular investor in light
of its investment or tax circumstances, or to certain types of investors subject
to special tax rules (including financial institutions, broker-dealers,
insurance companies, and, except to the extent discussed below, tax-exempt
organizations and foreign investors, as determined for United States Federal
income tax purposes). This summary assumes that investors will hold their shares
of AIMCO Common Stock as "capital assets" (generally, property held for
investment). No advance ruling has been or will be sought from the IRS regarding
any matter discussed in this Information Statement/Prospectus.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF SHARES OF AIMCO COMMON STOCK
DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF
COMPLEX PROVISIONS OF FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR
AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD
CONSULT ITS TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF ACQUIRING, HOLDING, EXCHANGING, OR OTHERWISE DISPOSING OF THE
SHARES OF AIMCO COMMON STOCK AND OF AIMCO'S ELECTION TO BE SUBJECT TO TAX, FOR
FEDERAL INCOME TAX PURPOSES, AS A REIT.
GENERAL
The REIT provisions of the Code are highly technical and complex. The
following summary sets forth certain aspects of the provisions of the Code that
govern the Federal income tax treatment of a REIT and its stockholders. This
summary is qualified in its entirety by the applicable Code provisions, Treasury
Regulations, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly retroactively.
AIMCO has elected to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1994, and AIMCO intends to continue such
election. Although AIMCO believes, and it has received an opinion of Skadden,
Arps, Slate, Meagher and Flom LLP ("Counsel") to the effect that, commencing
with the AIMCO's initial taxable year ended December 31, 1994, AIMCO was
organized in conformity with the requirements for qualification as a REIT under
the Code, and its actual method of operation has enabled, and its proposed
method of operation will enable, AIMCO to meet the requirements for
qualification and taxation as a REIT under the Code, no assurance can be given
that AIMCO has been or will remain so qualified. It must be emphasized
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that Counsel's opinion is based and conditioned upon certain assumptions,
representations and covenants made by AIMCO as to factual matters (including
representations of AIMCO concerning its business and properties as set forth in
this Information Statement/ Prospectus). In addition, Counsel's opinion assumes
the qualification of IPT as a REIT and relies upon the opinion of Akin, Gump,
Straus, Hauer & Feld L.L.P. in this regard. IPT's failure to qualify as a REIT
would adversely affect AIMCO's qualification as a REIT. Counsel's opinion is
expressed as of its date and Counsel has no obligation to advise AIMCO of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in the applicable law. Moreover, AIMCO's qualification and
taxation as a REIT depends upon its ability to meet, through actual annual
operating results, distribution levels and diversity of stock ownership, the
various qualification tests imposed under the Code as discussed below, the
results of which will not be reviewed by Counsel. Accordingly, no assurance can
be given that the actual results of AIMCO's operation for any one taxable year
will satisfy the requirements for qualification and taxation as a REIT under the
Code. See "-- Failure to Qualify." An opinion of counsel is not binding on the
IRS, and no assurance can be given that the IRS will not challenge AIMCO's
qualification as a REIT.
Provided AIMCO qualifies for taxation as a REIT, it will generally not be
subject to Federal corporate income tax on its net income that is currently
distributed to its stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, notwithstanding AIMCO's
qualification as a REIT, AIMCO will be subject to Federal income tax as follows:
First, AIMCO will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, AIMCO may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if AIMCO has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fourth, if AIMCO should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (1) the gross income
attributable to the greater of the amount by which AIMCO fails the 75% or 95%
test multiplied by (2) a fraction intended to reflect AIMCO's profitability.
Fifth, if AIMCO should fail to distribute during each calendar year at least the
sum of (1) 85% of its REIT ordinary income for such year, (2) 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 (3) 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 corporation that is
not a REIT 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 such corporation (such as the assets acquired from IFG in
the IFG Merger), under Treasury Regulations not yet promulgated, such
corporation would be required to recognize any net Built-In Gain (as defined
below) that would have been realized if the corporation had liquidated on the
day before the date of the transfer. Pursuant to IRS Notice 88-19, AIMCO may
elect, in lieu of the treatment described above, to be subject to tax at the
highest regular corporate tax rate to the extent of the excess, if any, of the
fair market
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value over the adjusted basis of such assets ("Built-in Gain") during the
ten-year period following the acquisition. AIMCO intends to make such an
election and, therefore, will be taxed at the highest regular corporate rate on
such Built-in Gain if, and to the extent, such assets are sold within the
specified ten-year period. It should be noted that AIMCO has acquired a
significant amount of assets with Built-in Gain and a taxable disposition by
AIMCO of any of these assets within ten years of their acquisitions would
subject AIMCO to tax under the foregoing rule. Seventh, AIMCO could be subject
to foreign taxes on its investments and activities in foreign jurisdictions. In
addition, AIMCO could also be subject to tax in certain situations and on
certain transactions not presently contemplated.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for the special Code provisions applicable to REITs; (4) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code; (5) the beneficial ownership of which is held by 100 or more persons;
(6) in which, during the last half of each taxable year, not more than 50% in
value of the outstanding stock is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and (7)
which meets certain other tests described below (including with respect to the
nature of its income and assets). The Code provides that conditions (1) through
(4) must be met during the entire taxable year, and that condition (5) must be
met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. AIMCO charter
provides certain restrictions regarding transfers of its shares, which
provisions are intended to assist AIMCO in satisfying the share ownership
requirements described in conditions (5) and (6) above.
To monitor AIMCO's compliance with the share ownership requirements, AIMCO
is required to maintain records regarding the actual ownership of its shares. To
do so, AIMCO must demand written statements each year from the record holders of
certain percentages of its stock in which the record holders are to disclose the
actual owners of the shares (i.e., the persons required to include in gross
income AIMCO dividends). A list of persons failing or refusing to comply with
this demand must be maintained as part of AIMCO's records. Failure by AIMCO to
comply with the foregoing record keeping requirements could subject it to
monetary penalties, but would not, effective with respect to AIMCO's 1998 tax
year and thereafter, affect its qualification as a REIT. A stockholder who fails
or refuses to comply with the demand must submit a statement with its tax return
disclosing the actual ownership of the shares and certain other information.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. AIMCO satisfies this requirement.
Ownership of Partnership Interests
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the partnership's assets and to
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earn its proportionate share of the partnership's income. In addition, the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of the gross income and asset tests applicable to
REITs as described below. Thus, AIMCO's proportionate share of the assets,
liabilities and items of income of the partnerships and limited liability
companies in which it has ownership interests (the "Subsidiary Partnerships")
will be treated as assets, liabilities and items of income of AIMCO for purposes
of applying the REIT requirements described herein. A summary of certain rules
governing the Federal income taxation of partnerships and their partners is
provided below in "-- Tax Aspects of AIMCO's Investments in Partnerships."
Income Tests
In order to maintain qualification as a REIT, AIMCO annually must satisfy
two gross income requirements. First, at least 75% of AIMCO's gross income
(excluding gross income from "prohibited transactions," i.e., certain sales of
property held primarily for sale to customers in the ordinary course of
business) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of AIMCO's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, and from dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing).
Rents received by AIMCO through the Subsidiary Partnerships will qualify as
"rents from real property" in satisfying the gross income requirements described
above, only if several conditions are met, including the following. If rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Moreover, for rents received to qualify as "rents
from real property," the REIT generally must not operate or manage the property
or furnish or render services to the tenants of such property, other than
through an "independent contractor" from which the REIT derives no revenue.
However, AIMCO (or its affiliates) is permitted to directly perform services
that are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered rendered to the
occupant of the property. In addition, AIMCO (or its affiliates) may provide
non-customary services to tenants of its properties without disqualifying all of
the rent from the property if the payment for such services does not exceed 1%
of the total gross income from the property. For purposes of this test, the
income received from such non-customary services is deemed to be at least 150%
of the direct cost of providing the services.
Certain subsidiaries of AIMCO that manage the Managed Properties
(collectively, the "Management Subsidiaries") receive management fees and other
income. A portion of such fees and other income accrue to AIMCO through
distributions from the Management Subsidiaries that will be classified as
dividend income to the extent of the earnings and profits of the Management
Subsidiaries. Such distributions will generally qualify under the 95% gross
income test but not under the 75% gross income test.
If AIMCO fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief
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under certain provisions of the Code. These relief provisions will be generally
available if AIMCO's failure to meet such tests was due to reasonable 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 satisfy three
tests relating to the nature of its assets. First, at least 75% of the value of
AIMCO's total assets must be represented by real estate assets (including its
allocable share of real estate assets held by the Subsidiary Partnerships),
certain stock or debt instruments purchased by AIMCO with the proceeds of a
stock offering or long-term (at least 5 years) public 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 by a REIT or the investment of more than 5% of the REIT's total assets in
any one issuer's securities is prohibited by the asset tests. AIMCO believes
that its indirect ownership interests in the Management Subsidiaries qualify
under the asset tests set forth above. However, no independent appraisals have
been obtained to support AIMCO's conclusions as to the value of the AIMCO
Operating Partnership's total assets and the value of the AIMCO Operating
Partnership's interest in the Management Subsidiaries and these values are
subject to change in the future. Accordingly, there can be no assurance that the
IRS will not contend that the AIMCO Operating Partnership's ownership interests
in the Management Subsidiaries disqualifies AIMCO from treatment as a REIT.
AIMCO's indirect interests in the AIMCO Operating Partnership and other
Subsidiary Partnerships are held through wholly owned corporate subsidiaries of
AIMCO organized and operated as "qualified REIT subsidiaries" within the meaning
of the Code. Qualified REIT subsidiaries are not treated as separate entities
from their parent REIT for Federal income tax purposes. Instead, all assets,
liabilities and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets, liabilities and items of AIMCO. Each qualified
REIT subsidiary therefore is not subject to Federal corporate income taxation,
although it may be subject to state or local taxation. In addition, AIMCO's
ownership of the voting stock of each qualified REIT subsidiary does not violate
the general restriction against ownership of more than 10% of the voting
securities of any issuer.
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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 (1) 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
(2) the sum of certain items of noncash income. Such distributions must be paid
in the taxable year to which they relate, or in the following taxable year if
declared before AIMCO timely files its tax return for such year and if paid with
or before the first regular dividend payment after such declaration. To the
extent that AIMCO distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at ordinary
corporate tax rates. AIMCO may elect to retain, rather than distribute, its net
long-term capital gains and pay tax on such gains. In such a case, AIMCO could
elect to have its stockholders 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 (1) 85% of its REIT ordinary income for such year and
(2) 95% of its REIT capital gain net income for such year (excluding retained
long-term capital gains), and (3) any undistributed taxable income from prior
periods, AIMCO would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. AIMCO believes that
it has made, and intends to make, timely distributions sufficient to satisfy
these annual distribution requirements.
It is possible that AIMCO, from time to time, may not have sufficient cash
to meet the 95% distribution requirement due to timing differences between (x)
the actual receipt of cash (including receipt of distributions from the AIMCO
Operating Partnership) and (y) the inclusion of certain items in income by AIMCO
for Federal income tax purposes. In the event that such timing differences
occur, in order to meet the 95% distribution requirement, AIMCO may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable distributions of property.
Under certain circumstances, AIMCO may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in AIMCO's deduction for
dividends paid for the earlier year. Thus, AIMCO may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, AIMCO will be
required to pay interest and a penalty based on the amount of any deduction
taken for deficiency dividends.
Distribution of Acquired Earnings and Profits
The Code provides that when a REIT acquires a corporation that is not a
REIT (such as IFG or IPT, if IPT failed to qualify as a REIT), 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 acquired corporation. In the
IFG Merger, AIMCO succeeded to the earnings and profits of IFG and, therefore,
AIMCO must distribute such earnings and profits effective on or before December
31, 1998. AIMCO retained independent certified public accountants to review the
determination of IFG's earnings and profits for
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purposes of this requirement. The determination of the independent certified
public accountants will be based upon tax returns as filed with the IRS and
other assumptions and qualifications set forth in the reports issued by such
accountants. Any adjustments to IFG's income for taxable years ending on or
before the closing of the IFG Merger, including as a result of an examination of
its returns by the IRS or the receipt of certain indemnity or other payments,
could affect the calculation of IFG'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 IFG 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 IFG as open for review for purposes of
determining the amount of such earnings and profits. AIMCO's failure to
distribute an amount equal to such earnings and profits effective on or before
December 31, 1998, would result in AIMCO's failure to qualify as a REIT.
FAILURE TO QUALIFY
If AIMCO fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, AIMCO will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which AIMCO fails to qualify
will not be deductible by AIMCO nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless AIMCO is entitled to relief under
specific statutory provisions, AIMCO would also be disqualified from taxation as
a REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances AIMCO would
be entitled to such statutory relief.
TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS
General
Substantially all of AIMCO's investments are held indirectly through the
AIMCO Operating Partnership. In general, partnerships are "pass-through"
entities that are not subject to Federal income tax. Rather, partners are
allocated their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. AIMCO will include in its income its proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of its REIT taxable income. Moreover, for purposes of the REIT
asset tests, AIMCO will include its proportionate share of assets held by the
Subsidiary Partnerships. See "Federal Income Taxation of AIMCO and AIMCO
Stockholders-General."
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Entity Classification
AIMCO's direct and indirect investment in partnerships involves special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of the Subsidiary Partnerships as a partnership (as opposed to an
association taxable as a corporation) for Federal income tax purposes. If any of
these entities were treated as an association for Federal income tax purposes,
it would be subject to an entity-level tax on its income. In such a situation,
the character of AIMCO's assets and items of gross income would change and could
preclude AIMCO from satisfying the asset tests and the income tests (see
"-- Asset Tests" and "-- Income Tests"), and in turn could prevent AIMCO from
qualifying as a REIT. See "-- Failure to Qualify" above for a discussion of the
effect of AIMCO's failure to meet such tests for a taxable year. In addition,
any change in the status of any of the Subsidiary Partnerships for tax purposes
might be treated as a taxable event, in which case AIMCO might incur a tax
liability without any related cash distributions.
Tax Allocations with Respect to the Properties
Under the Code and the Treasury Regulations, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution, and the
adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The AIMCO Operating Partnership was formed by way of
contributions of appreciated property (including certain of the Owned
Properties). Consequently, allocations must be made in a manner consistent with
these requirements. Where a partner contributes cash to a partnership that holds
appreciated property, the Treasury Regulations provide for a similar allocation
of such items to the other partners. These rules apply to the contribution by
AIMCO to the AIMCO Operating Partnership of the cash proceeds received in any
offerings of its stock.
In general, certain OP unitholders in the AIMCO Operating Partnership will
be allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on the sale by the AIMCO Operating Partnership
or other Subsidiary Partnerships of the contributed properties. This will tend
to eliminate the Book-Tax Difference over the life of these partnerships.
However, the special allocations do not always entirely rectify the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed properties in the
hands of the AIMCO Operating Partnership or other Subsidiary Partnerships may
cause AIMCO to be allocated lower depreciation and other deductions, and
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
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might adversely affect AIMCO's ability to comply with the REIT distribution
requirements. See "-- 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 cost and the special allocation provisions described above will not
apply.
Sale of the Properties
AIMCO's share of any gain realized by the AIMCO Operating Partnership or
any other Subsidiary Partnership on the sale of any property held as inventory
or primarily for sale to customers in the ordinary course of business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "-- Income Tests." Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
partnership's trade or business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. The AIMCO
Operating Partnership and the other Subsidiary Partnerships intend to hold the
Owned Properties for investment with a view to long-term appreciation, to engage
in the business of acquiring, developing, owning and operating the Owned
Properties and to make such occasional sales of the Owned Properties, including
peripheral land, as are consistent with AIMCO's investment objectives.
TAXATION OF MANAGEMENT SUBSIDIARIES
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from distributions made by the Management Subsidiaries to
the AIMCO Operating Partnership, and interest paid by the Management
Subsidiaries on certain notes held by the AIMCO Operating Partnership. In
general, the Management Subsidiaries pay federal, state and local income taxes
on their taxable income at regular corporate rates. Any Federal, state or local
income taxes that the Management Subsidiaries are required to pay will reduce
AIMCO's cash flow from operating activities and its ability to make payments to
holders of its securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
Distributions
Provided AIMCO qualifies as a REIT, distributions made to AIMCO's taxable
domestic stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions (and retained long-term capital gains) that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed AIMCO's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. In addition, net capital
gains attributable to the sale of depreciable real property held for more than
12 months are subject to a 25% maximum Federal income tax rate to the extent of
previously claimed real property depreciation.
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Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares in respect of which the distributions
were made, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares in respect of which the distributions were made, they will be included in
income as long-term capital gain (or short-term capital gain if the shares have
been held for one year or less) provided that the shares are a capital asset in
the hands of the stockholder. In addition, any dividend declared by AIMCO in
October, November or December of any year and payable to a stockholder of record
on a specified date in any such month will be treated as both paid by AIMCO and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by AIMCO during January of the following calendar
year. Stockholders may not include in their individual income tax returns any
net operating losses or capital losses of AIMCO. In general, any loss upon a
sale or exchange of shares by a stockholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent of distributions from AIMCO required to
be treated by such stockholder as long-term capital gain.
Dispositions of AIMCO Common Stock
In general, under the recently enacted Internal Revenue Service
Restructuring and Reform Act of 1988, capital gains recognized by individuals
and other non-corporate taxpayers upon the sale or disposition of shares of
AIMCO Common Stock will be subject to a maximum Federal income tax rate of 20%
if the shares of AIMCO Common Stock are held for more than 12 months and will be
taxed at ordinary income rates if the AIMCO Common Stock is held for 12 months
or less. Capital losses recognized by a stockholder upon the disposition of
shares of AIMCO Common Stock held for more than one year at the time of
disposition will be a long-term capital loss. In addition, any loss upon a sale
or exchange of shares of AIMCO Common Stock by a stockholder who has held such
shares for six months or less (after applying certain holding period rules) will
be treated as a long-term capital loss to the extent of distributions from AIMCO
required to be treated by such stockholder as long-term capital gain.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated federal income and
estate tax consequences of the ownership and disposition of shares of AIMCO
Common Stock applicable to Non-U.S. Holders of shares of AIMCO Common Stock. A
"Non-U.S. Holder" is any person other than (1) a citizen or resident of the
United States, (2) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state thereof or
the District of Columbia, (3) an estate whose income is includable in gross
income for U.S. Federal income tax purposes regardless of its source or (4) a
trust if a United States court is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust. This discussion is
based on current law and is for general information only. The discussion
addresses only certain and not all aspects of U.S. Federal income and estate
taxation.
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Ordinary Dividends
The portion of dividends received by Non-U.S. Holders payable out of
AIMCO's earnings and profits which are not attributable to capital gains of
AIMCO and which are not effectively connected with a U.S. trade or business of
the Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by treaty). In general, Non-U.S. Holders will not be considered
engaged in a U.S. trade or business solely as a result of their ownership of
shares of AIMCO Common Stock. In cases where the dividend income from a Non-U.S.
Holder's investment in shares of AIMCO Common Stock is (or is treated as)
effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or
business, the Non-U.S. Holder generally will be subject to U.S. tax at graduated
rates, in the same manner as U.S. Holders are taxed with respect to such
dividends (and may also be subject to the 30% branch profits tax in the case of
a Non-U.S. Holder that is a corporation).
Non-Dividend Distributions
Unless shares of AIMCO Common Stock constitute 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. Federal
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 shares of AIMCO Common Stock constitute 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 shares of AIMCO Common Stock.
Capital Gain Dividends
Under FIRPTA, a distribution made by AIMCO to a Non-U.S. Holder, to the
extent attributable to gains from dispositions of USRPIs such as the properties
beneficially owned by AIMCO ("USRPI Capital Gains"), will be considered
effectively connected with a U.S. trade or business of the Non-U.S. Holder and
subject to U.S. income tax at the rates applicable to U.S. individuals or
corporations, without regard to whether such distribution is designated as a
capital gain dividend. In addition, AIMCO will be required to withhold tax equal
to 35% of the amount of dividends to the extent such dividends constitute USRPI
Capital Gains. Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of a Non-U.S. Holder that is a corporation.
Dispositions of AIMCO Common Stock
Unless shares of AIMCO Common Stock constitute a USRPI, a sale of such
stock by a Non-U.S. Holder generally will not be subject to U.S. Federal
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
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specified testing period, less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Holders. AIMCO believes that it is, and it expects to
continue to be, a domestically controlled REIT and, therefore, the sale of
shares of AIMCO Common Stock should not be subject to taxation under FIRPTA.
Because most shares of AIMCO Common Stock are publicly traded, however, no
assurance can be given that AIMCO is or will continue to be a domestically
controlled REIT.
If AIMCO does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of stock generally will still not be subject to tax under FIRPTA
as a sale of a USRPI provided that (1) the stock is "regularly traded" (as
defined by applicable Treasury Regulations) on an established securities market
(e.g., the NYSE, on which the AIMCO Common Stock is listed) and (2) 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.
Gain from the sale of shares of AIMCO Common Stock that would not otherwise
be subject to FIRPTA will nonetheless be taxable in the United States to a
Non-U.S. Holder in two cases: (1) if the Non-U.S. Holder's investment in the
shares of AIMCO Common 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 (2) 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
Shares of AIMCO Common 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.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While certain
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
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constitute UBTI. However, if an Exempt Organization finances its acquisition of
the AIMCO Stock with debt, a portion of its income from AIMCO will constitute
UBTI pursuant to the "debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17) and (20), respectively, of section 501(c) of the
Code are subject to different UBTI rules, which generally will require them to
characterize distributions from AIMCO as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of AIMCO's stock is
required to treat a percentage of the dividends from AIMCO as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by AIMCO from an
unrelated trade or business (determined as if AIMCO were a pension trust)
divided by the gross income of AIMCO for the year in which the dividends are
paid. The UBTI rule applies to a pension trust holding more than 10% of AIMCO's
stock only if (1) the UBTI Percentage is at least 5%, (2) 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 (3) either (A)
one pension trust owns more than 25% of the value of shares of AIMCO Common
Stock or (B) a group of pension trusts each individually holding more than 10%
of the value of shares of AIMCO Common Stock collectively owns more that 50% of
the value of shares of AIMCO Common Stock. The restrictions on ownership and
transfer of shares of AIMCO Common Stock should prevent an Exempt Organization
from owning more than 10% of the value of AIMCO's Common Stock.
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 (1) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (2) 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 such holder's correct
taxpayer identification number also may be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, AIMCO may be required to
withhold a portion of capital gain distributions to any Non-U.S. Holders who
fail to certify their foreign status to AIMCO. The IRS has issued final Treasury
Regulations regarding the backup withholding rules as applied to Non-U.S.
Holders. Those final Treasury Regulations alter the current system of backup
withholding compliance and will be effective for payments made after December
31, 1999. IPT Shareholders should consult their tax advisors regarding the
application of these Treasury Regulations.
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COMPARATIVE RIGHTS OF SHAREHOLDERS OF AIMCO AND IPT
Upon consummation of the merger, IPT Shareholders will become stockholders of
AIMCO. Accordingly, the rights of IPT Shareholders following the Merger will be
governed by the MGCL, the AIMCO Charter and the AIMCO Bylaws instead of the real
estate investment trust provisions of the MCAA, certain provisions of the MGCL,
the IPT Declaration and the IPT Bylaws.
The following is a summary of material differences between the rights and
privileges of IPT Shareholders and those of holders of AIMCO Common Stock. This
summary is not meant to be relied upon as an exhaustive description of such
differences and is qualified in its entirety by reference to the AIMCO Charter,
the AIMCO Bylaws, the IPT Declaration, the IPT Bylaws, the MCAA and the MGCL.
AUTHORIZED SHARES
IPT. The authorized shares of IPT consist of 400,000,000 IPT Common Shares and
100,000,000 preferred shares of beneficial interest, par value $.01 per share.
AIMCO. The authorized stock of AIMCO consists of 486,290,000 shares of common
stock and 14,460,700 shares of preferred stock, par value $.01 per share. A
description of the authorized stock of AIMCO is set forth under "Description of
AIMCO Common Stock" and "Description of AIMCO Preferred Stock."
BOARD OF TRUSTEES/DIRECTORS
IPT. Pursuant to the IPT Bylaws, there are 11 trustees of IPT. The IPT
Declaration of Trust divides the trustees of the IPT Board into 3 staggered
classes. The trustees hold office for a term of 3 years. With respect to the
election or removal of trustees, holders of IPT Common Shares are entitled to
one vote per share. No other classes or series of shares of beneficial interest
are outstanding which are entitled to vote on the election or removal of
trustees.
The IPT Bylaws provide for two designations of IPT Trustees, a "Continuing
Trustee" and an "AIMCO-nominated Trustee." An AIMCO-nominated Trustee is a
trustee who was elected as a trustee on October 1, 1998 at the direction of
AIMCO pursuant to the Merger Agreement or whose election is approved by a
majority of the remaining AIMCO-nominated Trustees. The IPT Bylaws provide that
a majority of the Continuing Trustees must approve the following IPT actions:
(1) any amendments to the Merger Agreement;
(2) terminating the Merger Agreement due to a offer that the Continuing Trustees
: determine is superior under the terms of the Merger Agreement.
(3) the enforcement of any employment, consulting, retention or restricted share
agreements with employes of or consultants to IPT that are in effect on October
1, 1998;
(4) any amendments to the IPLP Partnership Agreement;
(5) any amendments to the IPT Declaration or IPT Bylaws (other than in
connection with additional exemptions from the Maryland control share
acquisition statute);
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(6) making loans or advances of money by IPT or its subsidiaries to AIMCO or its
subsidiaries; and
(7) declaration of dividends in respect of IPT Common Shares.
Subject to the approval of the Compensation Committee of IPT, the Continuing
Trustees may grant up to 10,000 restricted shares under IPT's 1997 Incentive
Share Plan or direct the payment of up to $132,500 in compensation. The
Continuing Trustees may also retain their own legal, financial and other
advisors as they deem appropriate at IPT's expense. All rights granted to the
Continuing Trustees under the IPT Bylaws terminate upon the earlier of January
1, 2002 and the date the Merger Agreement is terminated by IPT due to an
anticipatory breach by AIMCO.
AIMCO. The AIMCO Charter and the AIMCO Bylaws provide that AIMCO shall have at
least 3 and not more than 9 directors, with the precise number to be fixed by,
or in accordance with, the AIMCO Bylaws. Directors of the AIMCO Board are not
classified into classes and hold office for a term of one year. With respect to
the election or removal of directors, holders of AIMCO Class A common stock are
entitled to one vote per share of AIMCO Class A common stock, and holders of
Class E Preferred are entitled to one-half of one vote per share of Class E
Preferred. No holders of other classes or series of AIMCO capital stock are
entitled to vote on the election or removal of directors, subject to certain
limited exceptions.
COMMITTEES OF THE BOARD
IPT. Pursuant to the IPT Declaration and IPT Bylaws, the IPT Board may designate
committees of the IPT Board. Such designation must be made by resolution passed
by a majority of the trustees. The IPT Bylaws require that two standing
committees, the Executive Committee and the AIMCO Committee, be maintained until
January 1, 2002. The Executive Committee consists of four of the AIMCO-nominated
Trustees and any vacancies on such committee may be filled only with the
approval of a majority of the AIMCO-nominated Trustees. The current members of
the Executive Committee are Terry Considine, Patrick Foye, Peter Kompaniez and
Thomas Toomey. Subject to the IPT Declaration provision that no committee shall
have the power (i) to authorize dividends, (ii) to issue shares except pursuant
to a general authorization of the entire board on any stock option or similar
plan adopted by the IPT Board, (iii) recommend any action to the IPT
shareholders or (iv) amend the IPT Bylaws, the Executive Committee is authorized
to act on all matters regarding the management of IPT, unless certain matters
are reserved to other committees or Trustees.
The AIMCO Committee consists of two AIMCO-nominated Trustees and any vacancies
on such committee may be filled only with the approval of a majority of the
AIMCO-nominated Trustees. The current members of the AIMCO Committee are Patrick
Foye and Peter Kompaniez. The AIMCO Committee is authorized and required to act
on all matters regarding IPT relating to (i) all transactions between IPT or its
subsidiaries and AIMCO and its subsidiaries other than those actions that may
only be taken with the approval of the Continuing Trustees, (ii) any offer by
AIMCO or its affiliates to purchase limited partner interests in limited
partnerships controlled or affiliated with IPT or
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Winthrop Financial Associates, A Limited Partnership and (iii) any public
announcement or filing with a governmental authority.
In addition, the IPT Board currently has an audit committee and a compensation
committee.
AIMCO. Pursuant to the AIMCO Bylaws, the AIMCO Board may appoint from among its
members committees of the AIMCO Board. The AIMCO Board currently has an audit
committee and a compensation committee.
CUMULATIVE VOTING
Neither IPT nor AIMCO uses cumulative voting in the election of trustees or
directors.
NEWLY CREATED POSITIONS OR VACANCIES
IPT. The IPT Declaration provides that any vacancy on the Board of Trustees,
whether resulting from resignation, removal, termination or death or as a result
of an increase in the number of trustees, may be filled by a majority of the
trustees of the same class as the vacant trustee then in office, by the sole
remaining trustee of the same class or, if there are not remaining trustees of
that class, by the vote of a majority of the remaining trustees.
AIMCO. The AIMCO Charter provides that a majority of the remaining directors,
even if less than a quorum or, if applicable, a sole remaining director, may
appoint a director to fill a vacancy which results from any cause except an
increase in the number of directors, and a majority of the entire board may fill
a vacancy which results from an increase in the number of directors. Any
director elected to fill a vacancy may serve until the next annual meeting of
stockholders, upon which a successor director may be elected to serve the
remaining term, if any.
REMOVAL OF TRUSTEES OR DIRECTORS
IPT. The IPT Declaration provides that a trustee may be removed only for cause
by the vote of the holders of not less than two-thirds of the shares entitled to
vote in the election of trustees.
AIMCO. The AIMCO Charter provides that a director may be removed only for cause,
and by the vote of two-thirds of all the votes entitled to be cast in the
election of directors.
SPECIAL MEETING
IPT. Special meetings of shareholders may be called by a majority of the IPT
Board or by the Chairman of the Board or the President of IPT and may be called
upon the written request of shareholders holding in the aggregate not less than
25% of the outstanding IPT Shares entitled to vote.
AIMCO. Special meetings of stockholders may be called by a majority of the AIMCO
Board, by Chairman or Vice Chairman of the AIMCO Board, or by the President of
AIMCO and may be called upon the written request of stockholders entitled to
cast at least 25% of all the votes entitled to be cast at the meeting.
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SHAREHOLDER ACTION BY WRITTEN CONSENT
IPT. The IPT Declaration does not include a provision that any action required
or permitted to be taken by shareholders may be effected by written consent of
the shareholders.
AIMCO. Pursuant to the MGCL and the AIMCO Charter, any action upon which a vote
of stockholders is required or permitted may be taken without a meeting or vote
of stockholders by the unanimous written consent of the stockholders.
RESTRICTIONS ON SHARE TRANSFERS
IPT. Subject to certain exceptions and conditions specified in the IPT
Declaration, no holder may own, or be deemed to own by virtue of various
attribution and constructive ownership provisions of the Code, more than 9.8%
(other than in the case of certain holders described in the IPT Charter) of the
outstanding shares of beneficial interest of IPT.
AIMCO. Subject to certain exceptions and conditions specified in the AIMCO
Charter, no holder may own, or be deemed to own by virtue of various attribution
and constructive ownership provisions of the Code and Rule 13d-3 under the
Exchange Act, more than 8.7% (or 15% in the case of certain pension trusts
described in the Code, investment companies registered under the '40 Act, and
Mr. Considine) of the outstanding shares of AIMCO common stock.
PREEMPTIVE RIGHTS
Neither IPT shareholders nor AIMCO stockholders have preemptive rights with
respect to issuances of shares of beneficial interest or capital stock.
BUSINESS COMBINATIONS
Subtitle 6 of Title 3 of the MGCL prohibits any business combination (defined to
include a variety of transactions, including mergers, consolidations, share
exchanges, sales or dispositions of assets and issuances of stock) between a
Maryland corporation (defined to include a Maryland real estate investment
trust) and any interested stockholder (defined generally as any person who,
directly or indirectly, beneficially owns 10% or more of the voting power of the
outstanding voting stock of the corporation or certain affiliates of the
corporation) for a period of five years after the most recent date such
stockholder became an interested stockholder. After such five-year period, a
business combination between a Maryland corporation and such interested
stockholder is prohibited unless either certain "fair-price" provisions are
complied with or the business combination is approved by certain supermajority
stockholder votes. The MGCL restrictions do not apply to a business combination
with an interested stockholder if such business combination is approved or
exempted from the MGCL by a resolution of the board of directors adopted prior
to the date on which the interested stockholder became an interested
stockholder.
A Maryland corporation also may adopt an amendment to its charter electing not
to be subject to the business combination provisions of the MGCL in whole or in
part. Any such amendment generally must be approved by the affirmative vote of
at least 80% of the votes
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<PAGE> 231
entitled to be cast by all holders of outstanding shares of voting stock and
two-thirds of the votes entitled to be cast by holders of outstanding shares of
voting stock who are not interested stockholders, may not be effective until 18
months after the vote of stockholders and may not apply to an interested
stockholder who became such on or before the date of the vote.
IPT. The IPT Declaration contains provisions exempting IFG, any successor to IFG
(including AIMCO), any affiliate of IFG or successor thereto, Andrew L. Farkas
and any affiliate of Mr. Farkas from the provisions of the business combination
statute. In addition, in connection with the IFG Merger and the Merger, the IPT
Board adopted a resolution exempting AIMCO from the provisions of the business
combination statute.
AIMCO. The AIMCO Board has not adopted a resolution to exempt any AIMCO
stockholder from the MGCL's business combination restrictions, and AIMCO has not
amended its charter electing not to be subject to the business combination
provisions of the MGCL.
CONTROL SHARE ACQUISITIONS
Subtitle 7 of Title 3 of the MGCL provides that "control shares" of a Maryland
corporation (defined to include a Maryland real estate investment trust)
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquirer or by officers or directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other shares of stock previously acquired by the
acquirer or in respect of which the acquirer is able to exercise or direct the
exercise of voting power in electing directors, fall within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control shares do not include shares that the acquirer is then entitled
to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions. A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses), may compel the board of directors of the corporation to call a
special meeting of stockholders, to be held within 50 days of demand, to
consider voting rights for the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquirer does not
deliver an acquiring person statement as required by the statute, then, subject
to certain conditions and limitations, the corporation may redeem any or all of
the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquirer or of any meeting of stockholders at which the
voting rights of such shares were considered and not approved. If voting rights
for control shares are approved at a stockholders' meeting and the acquirer
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be
224
<PAGE> 232
less than the highest price per share paid by the acquirer in the control share
acquisition, and certain limitations and restrictions otherwise applicable to
the exercise of appraisal rights do not apply in the context of a control share
acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation prior to the control share acquisition.
IPT. The IPT Declaration contains provisions exempting IFG, any successor to
IFG, any affiliate of IFG or successor thereto, Mr. Farkas and any affiliate of
Mr. Farkas from the provisions of the control share acquisition statute. The IPT
Bylaws contain a provision exempting from the control share acquisition statute
the acquisition by AIMCO of IPT Common Shares pursuant to the IFG Merger.
AIMCO. The AIMCO Charter and Bylaws do not contain any exemption from the
control share acquisition statute, which could have the effect of discouraging
offers to acquire AIMCO and of increasing the difficulty of consummating any
such offer.
APPRAISAL RIGHTS
Under the MGCL, except as otherwise provided by the MGCL, stockholders of a
Maryland corporation generally have the right to demand and receive payment of
the "fair value" of their stock in the event of (i) a merger or consolidation of
the corporation, (ii) a share exchange including their shares, (iii) a transfer
of all or substantially all assets of the corporation not in the ordinary course
of business, (iv) an amendment to the charter of the corporation which alters
the contract rights, as expressly set forth in the charter, of any outstanding
stock and which substantially adversely affects the stockholder's rights, unless
the right to do so is preserved by the charter, (v) certain business
combinations of the corporation with interested stockholders or (vi) unless the
charter or bylaws of the corporation otherwise provide, after an approval by the
stockholders of voting rights for control shares which constitute a majority of
the voting power of the corporation. Under the MCAA, shareholders of a Maryland
real estate investment trust objecting to a merger of the real estate investment
trust have the same appraisal rights as an objecting stockholder of a Maryland
corporation. However, except as otherwise provided by the provisions of the MGCL
regarding business combinations with interested stockholders, stockholders do
not have appraisal rights if, among other things, that stock is listed on a
national securities exchange on the record date for determining stockholders
entitled to vote on the transaction.
As the IPT Common Shares are listed on a national securities exchange, holders
of IPT Common Shares are not entitled to appraisal rights in connection with the
Merger. Because AIMCO will survive the Merger and the contract rights of holders
of AIMCO Common Stock set forth in the AIMCO Charter will not be altered,
holders of AIMCO Common Stock are not entitled to appraisal rights in connection
with the Merger.
INDEMNIFICATION
Under the MGCL, a Maryland corporation may indemnify any director or officer
made a party to any proceeding by reason of his or her service in that capacity
unless it is
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<PAGE> 233
established that (i) the director's or officer's act or omission was material to
the matter giving rise to the proceeding and was committed in bad faith or
resulted from and active and deliberate dishonesty, (ii) the director or officer
actually received an improper benefit in money, property or services, or (iii)
in the case of criminal proceedings, the director or officer had reasonable
cause to believe the act or omission was unlawful.
The MGCL provides that a determination must be made that a director or officer
has met the standard of conduct set forth above before the director or officer
may be indemnified. The determination may be made by a majority vote of
disinterested directors, by special legal counsel (generally selected by the
disinterested directors) or by the stockholders.
The MGCL also establishes several mandatory rules for indemnification. In a
stockholder derivative suit, a corporation may not indemnify a director or
officer if he or she is adjudged to be liable to the corporation, except for
expenses as ordered by a court. A corporation may not indemnify a director or
officer in respect of any proceeding charging improper benefit to the director
or officer, whether or not involving action in his or her official capacity, in
which the director or officer is adjudged to be liable on the basis that
personal benefit was improperly received, except for expenses as ordered by a
court. Unless limited by the charter, a director or officer who is successful,
on the merits or otherwise, in the defense of any proceeding for which
indemnification is permitted, must be indemnified by the corporation against
reasonable expenses in connection with the proceeding (including attorneys'
fees).
The MGCL permits a corporation to advance reasonable expenses to directors and
officers upon the director's or officer's written affirmation of his or her good
faith belief that he or she has met the required standard of conduct and after
his or her written undertaking to repay the corporation if it is determined that
the standard has not been met.
The MGCL permits a corporation, unless limited by its charter, to indemnify and
advance expenses to an officer, employee or agent of the corporation to the same
extent it may indemnify directors.
The MCAA permits a Maryland real estate investment trust to indemnify and
advance expenses to trustees, officers, employees or agents of the trust to the
same extent as is permitted to a Maryland corporation under the MGCL.
IPT. The IPT Declaration and IPT Bylaws require IPT to indemnify all trustees,
officers, employees or agents of IPT to the fullest extent permitted by Maryland
law. The IPT Declaration and IPT Bylaws further provide that IPT is required to
advance to any person who is eligible for indemnification reasonable expenses
incurred by such person who is a party to a proceeding prior to the final
disposition of the proceeding upon receipt by IPT of a notice in writing from
such person stating (i) that in such person's good faith belief the standard of
conduct necessary for indemnification has been met and (ii) that such person
will repay the amount advanced if it is ultimately determined that such standard
of conduct has not been met.
AIMCO. The AIMCO Charter provides that the corporation will indemnify its
directors and its officers (and other individuals) to the fullest extent
permitted by law. The AIMCO Charter further provides that AIMCO may indemnify
any other persons permitted to be indemnified by the MGCL, including employees
and agents, to the extent such indemnification is authorized and determined to
be appropriate by the AIMCO Board, the
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<PAGE> 234
majority of stockholders entitled to vote on the matter or special legal counsel
appointed by the AIMCO Board.
LEGAL MATTERS
Ballard, Spahr, Andrews and Ingersoll LLP, Baltimore, Maryland will pass upon
the validity of the shares of AIMCO Common Stock offered hereby. Skadden, Arps,
Slate, Meagher & Flom LLP, Los Angeles, California, has issued an opinion as to
certain Federal income tax matters in connection with this Information
Statement/Prospectus.
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 (as amended on April 3,
1998) and the consolidated financial statements of Ambassador Apartments, Inc.
as of December 31, 1996 and 1995, and for each of the two years in the period
ended December 31, 1996 and the period from August 31, 1994 through December 31,
1994, and the combined financial statements of Prime Properties (Predecessor to
Ambassador Apartments, Inc.) for the period from January 1, 1994 through August
30, 1994, included in Amendment No. 1 to AIMCO's Current Report on Form 8-K
dated December 23, 1997, filed on February 6, 1998, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. The consolidated financial
statements of Insignia Financial Group, Inc. as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997 included
in AIMCO's Current Report on Form 8-K dated March 17, 1998 (and Amendment No. 1
thereto filed April 3, 1998), have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The consolidated and combined financial
statements of IPT and the IPT Predecessor Entities as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997 and
the related financial statement schedule appearing in this Information
Statement/Prospectus and the related registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
and included elsewhere herein. The combined financial statements of Shelter
Properties Partnerships as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996 and the related financial
statement schedule appearing in this Information Statement/Prospectus and the
related registration statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon and included
elsewhere herein. Such consolidated and combined financial statements are
incorporated herein by reference or are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of National Property Investors and Century
Properties Partnerships as of December 31, 1996 and 1995, and for each of the
three years in the
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<PAGE> 235
period ended December 31, 1996 and the related financial statement schedule
appearing in this Information Statement/Prospectus and the related registration
statement, have been audited by Imowitz Koenig & Co. LLP ("Imowitz Koenig")
independent auditors, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
As of December 8, 1997, Imowitz Koenig the independent accountant previously
engaged as the principal accountant to audit the financial statements of NPI was
dismissed. As of the same date, the firm of Ernst & Young, LLP was engaged to
provide that service for NPI 4. The audit reports of Imowitz Koenig on the
financial statements of NPI 4 as of and for the years ended December 31, 1996
and 1995, did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change accountants was approved by the board of
directors of the managing general partner of NPI 4 on December 8, 1997. During
NPI 4's two most recent fiscal years and any subsequent interim period preceding
the change, there were no disagreements with the former accountant an any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreements in connection with its report.
The financial statements of Angeles Mortgage Investment Trust at December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 and the related financial statement schedules, appearing in this
Information Statement/Prospectus and the related registration statement have
been audited by BDO Seidman, LLP, independent Certified Public Accountants, as
set forth in their reports appearing elsewhere herein, are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
AIMCO filed a Rule 13E-3 Transaction Statement (including any amendments
thereto, the "Schedule 13E-3") under the Exchange Act concurrently with the
filing by AIMCO of a Registration Statement on Form S-4 (including any
amendments thereto, the "Registration Statement") under the Securities Act. This
Information Statement/ Prospectus forms a part of the Registration Statement and
does not contain all of the information set forth in the Registration Statement,
the Schedule 13E-3 or the exhibits to either of such documents.
AIMCO and IPT file annual, quarterly and special reports, information statements
and other information with the SEC. You may read and copy any such reports,
statements or other information (including the Registration Statement and the
Schedule 13E-3) filed by AIMCO or IPT at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. AIMCO
and IPT's SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
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The SEC allows AIMCO to "incorporate by reference" information into this
Information Statement/Prospectus which means that AIMCO can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of
this Information Statement/ Prospectus, and later information filed with SEC
will update and supersede the information in this Information
Statement/Prospectus.
AIMCO incorporates by reference each document it files pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Information Statement/Prospectus and prior to the date of the Special Meeting.
AIMCO incorporates by reference herein the following documents filed by it with
the SEC (File No. 1-13232) pursuant to the Exchange Act:
- - Apartment Investment and Management Company's Annual Report on Form 10-K/A for
the year ended December 31, 1997;
- - Apartment Investment and Management Company's Quarterly Reports on Form 10-Q/A
and Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998,
respectively;
- - Apartment Investment and Management Company's Current Reports on Form 8-K,
dated December 23, 1997 (and Amendment No. 1 thereto filed February 6, 1998
and Amendment No. 2 thereto filed May 22, 1998), January 31, 1998, March 17,
1998 (and Amendment No. 1 thereto filed April 3, 1998, Amendment No. 2 thereto
filed June 22, 1998, Amendment No. 3 thereto filed July 2, 1998, Amendment No.
4 thereto filed August 6, 1998, Amendment No. 5 thereto filed September 4,
1998 and Amendment No. 6 thereto filed September 25, 1998), September 2, 1998,
October 1, 1998 and October , 1998; and
- - the description of Apartment Investment and Management Company's capital stock
contained in its Registration Statement on Form 8-A (File No. 1-13232), filed
July 19, 1994, including any amendment or reports filed for the purpose of
updating such description.
IPT has supplied all information contained in this Information
Statement/Prospectus relating to IPT, and AIMCO has supplied all information
contained, or incorporated by reference, in this Information
Statement/Prospectus relating to AIMCO.
Documents incorporated by reference are available from AIMCO without charge,
excluding all exhibits, unless AIMCO has specifically incorporated by reference
an exhibit in this Information Statement/Prospectus. You may obtain documents
incorporated by reference in this Information Statement/Prospectus by requesting
them in writing or by telephone as follows:
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
Telephone: (303) 757-8101
Attn: Corporate Secretary
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<PAGE> 237
If you would like to request documents from us, please do so by December ,
1998 in order to ensure timely receipt before the special meeting.
You should rely only on the information contained or incorporated by reference
in this Information Statement/Prospectus with respect to the Merger. We have not
authorized anyone to provide you with information that is different from what is
contained, or incorporated by reference, in this Information
Statement/Prospectus. You should not assume that the information contained in
this Information Statement/Prospectus is accurate as of any date other than the
date hereof, and the mailing of this Information Statement/Prospectus to IPT
Shareholders does not create any implication to the contrary.
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<PAGE> 238
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INSIGNIA PROPERTIES TRUST:
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997.................................. F-2
Condensed Consolidated Statements of Income for the Three
Months Ended June 30, 1998 and 1997 and the Six Months
Ended June 30, 1998 and 1997........................... F-3
Condensed Consolidated Statements of Shareholders'
Equity................................................. F-4
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1998 and 1997.................... F-5
Notes to Condensed Consolidated Financial Statements...... F-6
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES:
Report of Ernst & Young LLP, Independent Auditors......... F-13
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-14
Consolidated and Combined Statements of Income for the
years ended December 31, 1997, 1996 and 1995........... F-15
Consolidated and Combined Statements of Shareholders'
Equity and Insignia Equity in Predecessors............. F-16
Consolidated and Combined Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995........... F-17
Notes to Consolidated and Combined Financial Statements... F-18
Real Estate and Accumulated Depreciation Schedule......... F-32
SHELTER PROPERTIES PARTNERSHIPS:
Report of Ernst & Young LLP, Independent Auditors......... F-34
Combined Balance Sheets as of December 31, 1996 and
1995................................................... F-35
Combined Statements of Operations for the years ended
December 31, 1996, 1995 and 1994....................... F-36
Combined Statements of Changes in Partners' Capital....... F-37
Combined Statements of Cash Flows for years ended December
31, 1996, 1995 and 1994................................ F-38
Notes to Combined Financial Statements.................... F-39
Real Estate and Accumulated Depreciation Schedule......... F-45
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES
PARTNERSHIPS:
Report of Imowitz Koenig & Co. LLP, Independent
Auditors............................................... F-48
Combined Balance Sheets as of December 31, 1996 and
1995................................................... F-49
Combined Statements of Operations for the years ended
December 31, 1996, 1995 and 1994....................... F-50
Combined Statements of Changes in Partners' Capital....... F-51
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-52
Notes to Combined Financial Statements.................... F-54
Real Estate and Accumulated Depreciation Schedule......... F-62
ANGELES MORTGAGE INVESTMENT TRUST:
Balance Sheets as of June 30, 1998 and December 31,
1997................................................... F-67
Statements of Operations for the three months ended June
30, 1998 and 1997 and the six months ended June 30,
1998 and 1997.......................................... F-68
Statements of Changes in Shareholders' Equity for the six
months ended June 30, 1998 and 1995.................... F-69
Statements of Cash Flows for the six months ended June 30,
1998 and 1997.......................................... F-70
Notes to Financial Statements............................. F-71
Report of BDO Seidman, LLP, Independent Certified Public
Accountants............................................ F-72
Balance Sheets as of December 31, 1997 and 1996........... F-73
Statements of Operations for the years ended December 31,
1997, 1996 and 1995.................................... F-74
Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995........... F-75
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................... F-76
Notes to Financial Statements............................. F-77
Real Estate and Accumulated Depreciation Schedule......... F-90
Mortgage Loans on Real Estate Schedule.................... F-91
</TABLE>
F-1
<PAGE> 239
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
Cash and cash equivalents................................... $ 14,639 $ 37,432
Investments in real estate limited partnerships............. 192,832 159,469
Apartment property, net of depreciation..................... 25,808 22,357
Other assets................................................ 6,996 6,810
-------- --------
Total assets...................................... $240,275 $226,068
======== ========
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable -- Due to Insignia....................... $ 122 $ 841
Distribution payable -- Insignia.......................... 1,490 1,260
Distributions payable..................................... 2,914 2,786
Accrued expenses.......................................... 1,101 1,222
Non-recourse mortgage notes payable....................... 21,951 19,300
-------- --------
Total liabilities................................. 27,578 25,409
Minority interest in Operating Partnership.................. 59,181 54,447
Shareholders' Equity:
Common shares, par value $.01 per share -- authorized
400,000,000 shares, 19,427,760 issued and outstanding
(1998) and 18,573,151 issued and outstanding (1997).... 194 186
Additional paid-in capital................................ 154,984 145,594
Unearned compensation..................................... (5,173) --
Accumulated earnings in excess of distributions........... 3,511 432
-------- --------
Total shareholders' equity........................ 153,516 146,212
-------- --------
Total liabilities, minority interest and
shareholders' equity............................ $240,275 $226,068
======== ========
</TABLE>
NOTE: The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE> 240
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Apartment rentals................... $ 1,856 $ 1,646 $ 3,627 $ 3,229
Equity earnings -- limited partner
interest......................... 4,736 789 8,097 2,993
Other............................... 628 152 1,253 493
----------- ----------- ----------- -----------
7,220 2,587 12,977 6,715
----------- ----------- ----------- -----------
Costs and expenses
Apartment property operating
expenses......................... 846 785 1,736 1,517
Apartment property interest......... 422 372 828 744
Apartment property depreciation..... 329 241 600 480
Administrative...................... 223 282 575 553
Amortization........................ 112 32 276 52
Other interest...................... 119 35 206 42
----------- ----------- ----------- -----------
2,051 1,747 4,221 3,388
----------- ----------- ----------- -----------
Operating income...................... 5,169 840 8,756 3,327
Equity earnings -- gain on sale of
properties.......................... 5,772 -- 5,772 --
----------- ----------- ----------- -----------
Income before minority interest and
extraordinary item.................. 10,941 840 14,528 3,327
Minority interest in consolidated
Subsidiaries and the Operating
Partnership......................... (3,831) (252) (5,364) (2,079)
----------- ----------- ----------- -----------
Income before extraordinary item...... 7,110 588 9,164 1,248
Equity earnings -- extraordinary loss
from property refinancings (net of
minority interest).................. (283) -- (257) --
----------- ----------- ----------- -----------
Net income............................ $ 6,827 $ 588 $ 8,907 $ 1,248
=========== =========== =========== ===========
Net income per share -- basic and
diluted:
Income before extraordinary item.... $ .37 $ .05 $ .48 $ .11
Extraordinary item.................. (.01) -- (.01) --
----------- ----------- ----------- -----------
Net income.......................... $ .36 $ . 05 $ .47 $ .11
=========== =========== =========== ===========
Distributions declared per Common
Share............................ $ .15 $ -- $ .30 $ --
Weighted average Common Shares
outstanding -- basic............. 18,917,760 11,891,528 18,822,564 11,539,240
=========== =========== =========== ===========
Weighted average Common Shares
outstanding -- diluted........... 18,975,719 11,891,528 18,880,523 11,539,240
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statement.
F-3
<PAGE> 241
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN UNEARNED IN EXCESS OF SHAREHOLDERS'
SHARES CAPITAL COMPENSATION DISTRIBUTIONS EQUITY
------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997......... $186 $145,594 $ -- $ 432 $146,212
Issuance of 344,609 Common
Shares.......................... 3 3,625 3,628
Issuance of 548,000 restricted
Common Shares................... 5 5,765 (5,173) -- 597
Distributions declared and paid.... -- -- -- (2,914) (2,914)
Distributions declared............. -- -- -- (2,914) (2,914)
Net income for 1998................ -- -- -- 8,907 8,907
---- -------- ------- ------- --------
Balance at June 30, 1998............. $194 $154,984 $(5,173) $ 3,511 $153,516
==== ======== ======= ======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE> 242
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1998 1997
-------- -------
<S> <C> <C>
Operating Activities
Net income................................................ $ 8,907 $ 1,248
Adjustments to reconcile net income to net cash provided
by operations:
Amortization of organization and formation costs....... 276 52
Amortization of loan costs............................. 175 --
Apartment property depreciation........................ 600 480
Equity earnings -- partnership investments............. (8,097) (2,993)
Equity earnings -- gain on sale of properties.......... (5,772) --
Equity earnings -- extraordinary loss from property
refinancings.......................................... 257 --
Non-cash compensation.................................. 597 --
Minority interests in the Operating Partnership and
consolidated Subsidiaries............................. 5,364 2,079
Changes in operating assets and liabilities:
Other assets......................................... (84) (301)
Accounts payable and accrued expenses................ (888) 882
-------- -------
Net cash provided by operating activities......... 1,335 1,447
-------- -------
Investing Activities
Additions to apartment property........................... (287) (114)
Organizational and formation costs........................ (5) (120)
Purchase of real estate limited partnership interests..... (20,369) (1,852)
Investment in apartment property, net of acquired cash.... (3,804) --
Distributions from partnerships........................... 7,100 11,382
Merger costs.............................................. (408) (704)
-------- -------
Net cash (used in) provided by investing
activities....................................... (17,773) 8,592
-------- -------
Financing Activities
Proceeds from issuance of Common Shares................... -- 31,710
Repayments of non-recourse mortgage notes................. (9) --
Payments on note payable.................................. -- (430)
Proceeds from note payable................................ -- 650
Proceeds from refinancing of non-recourse mortgage note... 2,660 --
Distributions made to minority investors of NPI 4......... (494) (1,420)
Loan costs paid........................................... (62) --
Distributions paid to Insignia by operating partnership... (2,750) (4,077)
Distributions paid to common shareholders................. (5,700) (5,880)
-------- -------
Net cash (used in) provided by financing
activities....................................... (6,355) 20,553
-------- -------
(Decrease) increase in cash and cash equivalents............ (22,793) 30,592
Cash and cash equivalents at beginning of period............ 37,432 4,928
-------- -------
Cash and cash equivalents at end of period.................. $ 14,639 $35,520
======== =======
Supplemental disclosure of non-cash financing and investing
activities
Issuance of Common Shares and operating partnership units
in exchange for limited partner interests.............. $ 6,656 $12,747
======== =======
</TABLE>
Note: For the six months ending June 30, 1997, other assets and accounts payable
and accrued expenses were adjusted by $236,000 for non-cash amounts in
connection with organizational costs.
See Notes Condensed Consolidated Financial Statements.
F-5
<PAGE> 243
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Insignia Properties Trust ("IPT" or the "Company") is a Maryland real
estate investment trust formed in 1996 by Insignia Financial Group, Inc.
("Insignia") for the purpose of acquiring and owning interests in multifamily
residential properties, including limited and general partner interests in
partnerships which hold such real estate properties. IPT has been organized and
is operated in a manner that allows it to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended. IPT is the
sole general partner of Insignia Properties, L.P., a Delaware limited
partnership ("IPLP"), which is IPT's operating partnership. Insignia is the sole
limited partner of IPLP.
Substantially all of IPT's assets consist of (i) interests in entities
which comprise or control the managing general partners of real estate limited
partnerships (the "IPT Partnerships"), which interests are held by IPT directly
or through wholly-owned subsidiaries, and (ii) limited partner interests in the
IPT Partnerships, which interests are held through IPLP. The IPT Partnerships
own, in the aggregate, 349 properties containing approximately 73,000
residential apartment units and approximately 5.8 million square feet of
commercial space.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three- and six-month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. For further information,
refer to the consolidated financial statements and notes thereto included in
this Information Statement/Prospectus.
Certain amounts from 1997 have been reclassified to conform with the 1998
presentation.
2. EARNINGS PER SHARE
In 1997, the Financial Accounting Standard Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.
F-6
<PAGE> 244
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Earnings per share is computed based on the weighted average number of
Common Shares outstanding. An IPLP partnership interest is not considered
dilutive because the allocation of earnings to an IPLP partnership interest is
equivalent to an IPT Common Share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator -- basic and diluted
Income before extraordinary item.... $ 7,110 $ 588 $ 9,164 $ 1,248
Extraordinary loss.................. (283) -- (257) --
----------- ----------- ----------- -----------
Net income.......................... $ 6,827 $ 588 $ 8,907 $ 1,248
=========== =========== =========== ===========
Denominator
Denominator for basic earnings per
share -- weighted average Common
Shares........................... 18,917,760 11,891,528 18,822,564 11,539,240
Effect of dilutive
securities -- Restricted shares
and options...................... 57,959 -- 57,959 --
----------- ----------- ----------- -----------
Denominator for diluted earnings per
share -- Adjusted weighted
average Common Shares and assumed
conversions...................... 18,975,719 11,891,528 18,880,523 11,539,240
=========== =========== =========== ===========
Earnings per Common Share -- basic and
diluted
Income before extraordinary item.... $ .37 $ .05 $ .48 $ .11
Extraordinary loss.................. (.01) -- (.01) --
----------- ----------- ----------- -----------
Net income.......................... $ .36 $ .05 $ .47 $ .11
=========== =========== =========== ===========
</TABLE>
3. 1998 ACQUISITIONS
Tender Offers
In December 1997, a wholly-owned subsidiary of IPLP commenced tender offers
to purchase units of limited partner interest in the following IPT Partnerships:
Multi-Benefit Realty Fund '87-1, Century Properties Fund XIV, Century Properties
Fund XV, Century Properties Fund XVIII, Consolidated Capital Growth Fund,
Consolidated Capital Institutional Properties/3, Consolidated Capital Properties
V, Johnstown/Consolidated Income Partners and Shelter Properties VII Limited
Partnership. These tender offers expired in January and February 1998, with IPLP
acquiring additional units of limited partner interest in these partnerships for
a total cost of approximately $11.4 million (inclusive of acquisition costs of
approximately $1.0 million).
In April 1998, a wholly-owned subsidiary of IPLP commenced tender offers to
purchase units of limited partner interest in the following IPT Partnership:
Angeles Income Properties, Ltd. II, Angeles Partners IX and Angeles Partners
XII. These tender offers expired in May 1998, with IPLP acquiring units of
limited partner interest in these partnerships for a total cost of approximately
$6.6 million (inclusive of acquisitions costs of approximately $0.3 million).
As a result of the above tender offers, IPLP increased its stated ownership
interest in these partnerships by a range of 4.52% to 24.39% with total stated
ownership interest in these partnerships ranging from 13.26% to 45.85% at June
30, 1998. IPLP accounts for these partnership interest under the equity method.
F-7
<PAGE> 245
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
During the third quarter of 1998, a wholly-owned subsidiary of IPLP
commenced tender offers to purchase units of limited partner interest in the
following IPT Partnerships: Shelter Properties I Limited Partnership, Shelter
Properties II Limited Partnership, Shelter Properties IV Limited Partnership,
Shelter Properties V Limited Partnership, Shelter Properties VI Limited
Partnership, Shelter Properties VII Limited Partnership, Consolidated Capital
Institutional Properties, Consolidated Capital Institutional Properties/2,
Consolidated Capital Institutional Properties/3, Consolidated Capital Properties
III, Consolidated Capital Properties V, Angeles Income Properties, Ltd II,
Angeles Income Properties, Ltd. III, Angeles Income Properties, Ltd. IV, Angeles
Income Properties, Ltd. 6, Angeles Partners IX, Angeles Partners X, Angeles
Partner XI, Angeles Partners XII, Angeles Opportunity Properties, Ltd., Davidson
Diversified Real Estate I, LP, Davidson Diversified Real Estate II, LP, Davidson
Diversified Real Estate III, LP, Davidson Income Real Estate, LP and Davidson
Growth Plus, LP. The tender offers for the Shelter Properties partnerships
expired in August 1998, with IPLP acquiring additional units of limited partner
interest in these partnerships for a total cost of approximately $7.5 million
(inclusive of acquisition costs of approximately $0.4 million). As a result,
IPLP increased its stated ownership interest in these partnerships by a range of
5.19% to 8.36%, with total stated ownership interest in these partnerships
ranging from 23.16% to 47.03% as of August 31, 1998. The remainder of these
tender offers are scheduled to expire at various times during the fourth quarter
of 1998.
Property Acquisition
On January 28, 1998, a wholly-owned subsidiary of IPT acquired a 168-unit
apartment complex located in Pensacola, Florida known as Raintree Apartments,
which is the only whole asset currently owned by IPLP. The aggregate purchase
price paid for the Raintree Apartments was approximately $3.8 million,
approximately $2.6 million of which was debt financed on a non-recourse basis.
MAE GP Corporation Merger
Effective February 25, 1998, MAE GP Corporation, which until then was a
wholly-owned subsidiary of Metropolitan Asset Enhancement, L.P. ("MAE"), was
merged with and into IPT (the "MAE GP Merger"). MAE is an affiliate of IPT and
Insignia. As consideration for the MAE GP Merger, IPT issued 344,609 IPT Common
Shares to MAE, valued for purposes of the MAE GP Merger at $10.53 per share. MAE
GP Corporation owned or controlled equity interests in entities which comprised
or controlled the general partners of 29 public and 61 private real estate
limited partnerships (collectively, the "MAE Partnerships"). At that time, the
MAE Partnerships owned, in the aggregate, 167 properties containing
approximately 31,000 residential apartment units and approximately 2.2 million
square feet of commercial space.
MAE Sale to IPLP
In connection with the MAE GP Merger, on February 17, 1998, IPLP purchased
the following assets from MAE for approximately $596,000 in cash: (i) a 99%
limited partner interest in Insignia Jacques Miller, L.P. ("IJM"), which in turn
owned non-controlling equity interests in entities that comprise or control the
general partners of 30 of the MAE Partnerships and various notes receivable (the
1% general partner interest in IJM was acquired by IPT from MAE GP in the MAE GP
Merger); and (ii) a 6.557% limited partner interest in Buccaneer Trace Limited
Partnership, which owns a 208-unit residential apartment complex located in
Savannah, Georgia.
Insignia Contribution to IPLP
Also in connection with the MAE GP Merger, on February 17, 1998, Insignia
contributed to IPLP all of the limited partner interests in the MAE Partnerships
owned by Insignia and its wholly-owned subsidiaries in exchange for additional
limited partner interests in IPLP. The interests contributed were valued at
approximately $5,460,000, in exchange for which IPLP issued to Insignia 518,528
additional units of limited
F-8
<PAGE> 246
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
partner interest in IPLP (based on a value of $10.53 per interest). The
interests in the MAE Partnerships were recorded at the historical cost of
Insignia.
4. EQUITY EARNINGS -- GAIN ON SALE OF PROPERTIES
On April 16, 1998, Consolidated Capital Institutional Partners, LP
("CCIP"), which is one of the IPT Partnerships, sold Northlake Quadrangle (one
of the properties controlled by CCIP) to an unrelated third party for $2.3
million. CCIP's net proceeds from this sale were $2.1 million. IPT owns
approximately 41% of the equity interests in CCIP, and its share of the gain
(included in IPT's equity earnings) was approximately $291,000.
On June 30, 1998, National Property Investors 5 ("NPI 5") and National
Property Investors 6 ("NPI 6"), each an IPT Partnership, sold the Village (an
apartment property jointly owned by NPI 5 and NPI 6) to an unrelated third party
for approximately $30.1 million. Aggregate net sales proceeds to NPI 5 and NPI 6
from this sale were approximately $18.1 million, after repayment of the mortgage
note and closing expenses. IPT owned approximately 48% and 44% of the equity
interests in NPI 5 and NPI 6, respectively, at the time of this sale, and its
share of the gain (included in IPT's equity earnings) was approximately $5.5
million.
5. COMMITMENTS AND CONTINGENCIES
General Partners
Qualified REIT subsidiaries of IPT either control or serve as managing
general partner of the IPT Partnerships, and these subsidiaries may be liable
for recourse obligations of the IPT Partnerships in the event that they are
unable to satisfy those obligations. IPT believes that each IPT Partnership has
more than adequate resources to discharge all recourse obligations and maintains
adequate insurance.
Loan Commitments
IPT is obligated to loan up to $500,000 each to certain IPT Partnerships
($2,600,000 in aggregate) and $150,000 each to certain other IPT Partnerships
($6,000,000 in aggregate) at interest rates not to exceed the prime rate plus
2%. There were no amounts outstanding under these commitments at June 30, 1998.
Obligations to Former General Partners
Certain corporate general partners owned by IPT were acquired by Insignia
from unaffiliated prior owners. The acquisition agreements provided that
Insignia (now IPT) would be indemnified from claims attributable to events or
actions prior to Insignia's (now IPT's) ownership, and that Insignia (now IPT)
would indemnify the prior owners from claims or causes of action arising after
the change in ownership. In addition, certain former owners of the general
partners of seven IPT Partnerships retained 100% (and in some instances 75%) of
the obligation to make capital contributions that may be required by the general
partners upon windup of the applicable partnerships.
Environmental Liabilities
Under various federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances or petroleum
product releases at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with contamination. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The owner or operator of a site may be liable under common law to third parties
for damages and injuries resulting from environmental
F-9
<PAGE> 247
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
contamination emanating from the site. There can be no assurance that IPT, any
of its affiliates or any assets owned or controlled by IPT or any of its
affiliates currently are in compliance with all of such laws and regulations, or
that IPT or its affiliates will not become subject to liabilities that arise in
whole or in part out of any such laws, rules or regulations. Management is not
currently aware of any environmental liabilities that are expected to have a
material adverse effect on the Company's operations or financial condition.
Litigation
In January and February 1998, a limited partner in several of the IPT
Partnerships commenced arbitration proceedings and litigation against those
partnerships and their general partners. The claims in both the arbitration and
in complaints filed in the circuit Court of Jackson County, Missouri assert that
the general partners controlled by IPT breached certain contractual and
fiduciary duties allegedly owed to the claimant. IPT believes the claims
asserted in these proceedings are without merit.
On March 24, 1998, certain persons claiming to own limited partner
interests in certain of the IPT Partnerships filed a purported class and
derivative action in California Superior Court in the County of San Mateo
against IPT, Insignia, the general partners of the partnerships, certain persons
and entities who purportedly formerly controlled the general partners, and
additional entities affiliated with and individuals who are officers, directors
and/or principals of several of the defendants. The complaint contains
allegations that, among other things, (i) the defendants breached their
fiduciary duties to the plaintiffs by selling or agreeing to sell their
"fiduciary positions" as stockholders, officers and directors of the general
partners for a profit and retaining said profit rather than distributing it to
the plaintiffs; (ii) the defendants breached their fiduciary duties by
mismanaging the partnerships and misappropriating the assets of the partnerships
by (a) manipulating the operations of the partnerships to depress the trading
price of units of limited partner interest in the partnerships, (b) coercing and
fraudulently inducing unitholders to sell units to certain of the defendants at
depressed prices and (c) using the voting control obtained by purchasing units
at depressed prices to entrench certain of the defendants' positions of control
over the partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by selling assets (such as mailing lists of unitholders) of
the partnerships and causing the general partners to enter into exclusive
arrangements with their affiliates to sell goods and services to the general
partners, the unitholders and tenants of partnership properties. The complaint
also alleges that the foregoing allegations constitute violations of various
California securities, corporate and partnership statutes, as well as conversion
and common law fraud. The San Mateo Complaint seeks unspecified compensatory and
punitive damages, an injunction blocking the sale of control of the general
partners and a court order directing the defendants to discharge their fiduciary
duties to the plaintiffs. On June 25, 1998, the general partners filed a motion
seeking dismissal of the action. In lieu of responding to that motion, the
plaintiffs recently filed and amended complaint. IPT believes that the
allegations contained in the amended complaint are without merit and intends to
defend the action vigorously.
On July 30, 1998, certain entities claiming to own limited partner
interests in 44 of the IPT Partnerships filed a complaint in the Superior Court
of the State of California, County of Los Angeles against IPT, Insignia, the
applicable IPT Partnerships, the general partners of those partnerships and
additional entities affiliated with several of the defendants. Plaintiffs allege
that they have requested from, but have been denied by each of the partnerships,
lists of their respective limited partners for the purpose of making tender
offers to purchase up to 4.9% of the units of limited partner interest in each
of those partnerships. The complaint also alleges that certain of the defendants
made tender offers to purchase units of limited partner interest in many of the
partnerships, with the alleged result that plaintiffs have been deprived of the
benefits they would have realized from ownership of the additional units. The
plaintiffs assert eleven causes of action, including breach of contract, unfair
business practices and violations of the partnership statutes of the states in
which the partnerships are organized. Plaintiffs seek compensatory, punitive and
treble damages. None of defendants has yet responded to the complaint. IPT
believes the claims are without merit and intends to defend the action
vigorously.
F-10
<PAGE> 248
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In addition to the above, certain of the IPT Partnerships and other
subsidiaries of IPT are defendants in lawsuits arising in the ordinary course of
business. Such lawsuits are primarily insured claims arising from accidents at
managed properties. Claims may demand substantial compensatory and punitive
damages. Management believes that the litigation will be resolved without a
material impact on the financial position or results of operations of the IPT.
6. ANGELES MORTGAGE INVESTMENT TRUST MERGER
On September 17, 1998, Angeles Mortgage Investment Trust, an unincorporated
California business trust ("AMIT"), was merged with and into IPT (the "AMIT
Merger"). In the AMIT Merger, each issued and outstanding Class A common share
of AMIT was converted into 1.516 Common Shares of IPT and each issued and
outstanding Class B common share of AMIT was converted into 0.0309 Common Shares
of IPT. IPT issued approximately 4,019,198 Common Shares to the AMIT
shareholders in the AMIT Merger, including approximately 146,779 Common Shares
issued to a wholly-owned subsidiary of Insignia as a result of its ownership of
96,800 Class A common shares of AMIT and approximately 51,826 Common Shares
issued to MAE as a result of its ownership of 1,675,113 Class B common shares of
AMIT. IPT's Common Shares are listed on the American Stock Exchange under the
symbol "FFO". In connection with the AMIT Merger, on September 16, 1998 Insignia
purchased senior participation interests in certain loans of AMIT for an
aggregate purchase price of $11 million in cash. IPT acquired such cash in the
AMIT Merger, but has no interest (nor will it acquire any interest) in the
senior participation interests sold to Insignia.
Pro forma results of operations for the six-month periods ended June 30,
1998 and 1997, giving effect to the AMIT Merger as if effected at the beginning
of each period, are as follows (in thousands, except share and per share data):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues................................................... $ 15,956 $ 9,708
Income before extraordinary item........................... 11,808 3,592
Net income................................................. 11,551 3,592
Diluted earnings per Common Share:
Income before extraordinary item........................... $ .52 $ .23
Net income................................................. $ .51 $ .23
Weighed average Common Shares -- diluted................... 22,899,721 15,558,438
</TABLE>
7. OTHER MATTERS
Winthrop Option
On February 17, 1998, Insignia granted IPLP an option (the "Winthrop
Option") to acquire at any time on or before December 31, 1998, all of
Insignia's interest in certain limited partner interests in two public and 11
private real estate limited partnerships which own, in the aggregate, 29
properties containing approximately 12,100 residential apartment units, together
with the right to receive certain asset management, investor services and
partnership management fees from ten of those partnerships. Insignia acquired
such interests from Winthrop Financial Associates and certain affiliates of
Winthrop Financial Associates. The Winthrop Option is exercisable by IPLP for an
aggregate cash amount of approximately $46 million, plus interest on
approximately $40 million of that amount at a rate equal to Insignia's cost of
funds (based on the interest rate in effect from time to time under Insignia's
revolving credit facility) and a ratable portion of the transaction costs
incurred by Insignia in connection with the acquisitions of those interests.
F-11
<PAGE> 249
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Potential Apartment Investment and Management Company Merger
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, including its controlling interest
in IPT, with Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust. The merger was completed on October 1,
1998. In connection with that transaction, AIMCO committed, contingent upon
consummation of the merger, to offer to acquire (by merger) all of the
outstanding IPT Common Shares not owned by Insignia for not less than $13.25 per
share and to use its commercially reasonable best efforts to consummate such
merger within 90 days of the consummation of the merger of Insignia and AIMCO.
Cost of Start-up Activities
In 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"), which
is effective for financial statements for fiscal years beginning after December
15, 1998. SOP 98-5 requires costs of start-up activities and organization costs
to be expensed as incurred. Initial application should be reported as the
cumulative effect of a change in accounting principle and expensed in the first
quarter in the year of adoption. At June 30, 1998, IPT had approximately $1.0
million (net of accumulated amortization) capitalized as organizational costs
that would be affected by the requirements of SOP 98-5.
EITF 97-11
IPT has not capitalized any internal costs in connection with identifying
and acquiring operating properties. Therefore, EITF 97-11 will have no effect on
IPT's financial statements.
Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income ("Statement No. 130"). Statement No. 130
establishes new rules for the reporting and display of comprehensive income and
its components. IPT adopted Statement No. 130 as of January 1, 1998. Statement
No. 130 had no effect on IPT as of June 30, 1998.
F-12
<PAGE> 250
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Insignia Properties Trust and Predecessor Entities
We have audited the accompanying consolidated balance sheets of Insignia
Properties Trust (a majority-owned subsidiary of Insignia Financial Group, Inc.)
as of December 31, 1997 and 1996, and the related consolidated statement of
income, shareholders' equity and cash flows for the year ended December 31,
1997, and the combined statements of income, shareholders' equity and cash flows
for each of the two years in the period ended December 31, 1996 of the Insignia
Properties Trust Predecessor Entities. Our audits also included the financial
statement schedule included on pages F-32 to F-33. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Insignia
Properties Trust at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for the year ended December 31, 1997, and the
combined results of the operations and the cash flows of the Insignia Properties
Trust Predecessor Entities for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
February 13, 1998,
except for Note 10, as to which the date is
March 17, 1998
F-13
<PAGE> 251
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash and cash equivalents................................... $ 37,432 $ 4,928
Receivables................................................. 8 21
Investments in real estate limited partnerships............. 159,469 118,741
Apartment property, net..................................... 22,357 22,125
Other assets................................................ 6,802 1,942
-------- --------
Total assets...................................... $226,068 $147,757
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable -- Due to Insignia....................... $ 841 $ 275
Distribution payable -- Insignia.......................... 1,260 --
Distributions payable..................................... 2,786 5,880
Accrued expenses.......................................... 1,222 804
Note payable.............................................. -- 430
Non-recourse mortgage note................................ 19,300 19,300
-------- --------
Total liabilities................................. 25,409 26,689
Minority interests in Operating Partnership................. 54,447 50,429
Shareholders' equity:
Preferred shares, par value $.01 per share -- authorized
100,000,000 shares, issued and outstanding -0- (1997
and 1996).............................................. -- --
Common shares, par value $.01 per share -- authorized
400,000,000 shares, issued and outstanding 18,573,151
(1997) and 11,168,036 (1996)........................... 186 112
Additional paid-in capital................................ 145,594 70,527
Accumulated earnings in excess of distributions........... 432 --
-------- --------
Total shareholders' equity........................ 146,212 70,639
-------- --------
Total liabilities and shareholders' equity........ $226,068 $147,757
======== ========
</TABLE>
See accompanying notes.
F-14
<PAGE> 252
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
----------- ------- ------
<S> <C> <C> <C>
Revenues
Apartment rentals......................................... $ 6,646 $ 6,020 $ --
Equity earnings -- limited partnership interests.......... 8,062 3,587 2,455
Other..................................................... 2,118 98 4
----------- ------- ------
16,826 9,705 2,459
Expenses
Apartment property operating expenses..................... 3,258 3,034 --
Apartment property interest............................... 1,486 1,812 --
Apartment property depreciation........................... 966 901 --
Administrative............................................ 1,314 34 113
Amortization.............................................. 285 -- --
Other interest............................................ 47 11 --
----------- ------- ------
7,356 5,792 113
----------- ------- ------
Income before gain on sale of properties, minority interest
and extraordinary items................................... 9,470 3,913 2,346
Gain of sale of properties.................................. 1,044 -- --
----------- ------- ------
Income before minority interest and extraordinary items..... 10,514 3,913 2,346
Minority interests in consolidated subsidiaries and the
Operating Partnership..................................... (4,440) (356) (131)
----------- ------- ------
Income before extraordinary item............................ 6,074 3,557 2,215
Extraordinary loss -- property refinancings (net of minority
interest)................................................. (70) (1,132) --
----------- ------- ------
Net income.................................................. $ 6,004 $ 2,425 $2,215
=========== ======= ======
Net Income per share:
Income before extraordinary item.......................... $ .41 -- --
Extraordinary item........................................ (.01) -- --
----------- ------- ------
Net income................................................ $ .40 -- --
=========== ======= ======
Weighted average shares outstanding......................... 14,694,327 -- --
=========== ======= ======
</TABLE>
See accompanying notes.
F-15
<PAGE> 253
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF SHAREHOLDERS'
EQUITY AND INSIGNIA EQUITY IN PREDECESSORS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON ADDITIONAL ACCUMULATED INSIGNIA
STOCK PAID-IN EARNINGS IN EXCESS EQUITY IN
CLASS A CAPITAL OF DISTRIBUTIONS PREDECESSORS
------- ---------- ------------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994.............. $ -- $ -- $ -- $ 38,346
Capital contribution by Insignia........ -- -- -- 21,522
Distributions paid...................... -- -- -- (10,209)
Net income for 1995..................... -- -- -- 2,215
---- -------- ------ --------
Balance at December 31, 1995.............. -- -- -- 51,874
Issuance of 11,168,036 common shares.... 112 78,587 -- --
Capital contribution by Insignia........ -- -- -- 2,942
Distributions declared and paid......... -- (2,180) -- (6,812)
Distributions declared.................. -- (5,880) -- --
Net income for 1996..................... -- -- -- 2,425
Issuance of IPLP units in exchange for
Insignia limited partnership
interests -- transferred to minority
interest............................. -- -- -- (50,429)
---- -------- ------ --------
Balance at December 31, 1996.............. 112 70,527 -- --
Issuance of 7,405,115 common shares..... 74 75,067 -- --
Distributions declared and paid......... -- -- (2,786) --
Distributions declared.................. -- -- (2,786) --
Net income for 1997..................... -- -- 6,004 --
---- -------- ------ --------
Balance at December 31, 1997.............. $186 $145,594 $ 432 $ --
==== ======== ====== ========
</TABLE>
See accompanying notes.
F-16
<PAGE> 254
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income................................................ $ 6,004 $ 2,425 $ 2,215
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Apartment property depreciation........................ 966 901 --
Amortization of organization and formation costs....... 285 -- --
Equity earnings -- partnership investments............. (8,062) (3,587) (2,455)
Gain on sale of properties............................. (1,044) -- --
Extraordinary loss -- property refinancings............ 70 1,132 --
Minority interests in the Operating Partnership and
consolidated subsidiaries............................ 4,440 356 131
Changes in operating assets and liabilities:
Accounts receivable.................................. 13 (21) --
Other assets......................................... (1,316) 6 --
Accounts payable and accrued expenses................ 982 208 9
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 2,338 1,420 (100)
Investing activities
Purchase of partnership interests......................... (30,592) (71,427) (24,147)
Investment in apartment property, net of acquired cash.... -- (8,005) --
Distributions from partnerships........................... 18,235 9,258 10,910
Organizational and formation costs........................ (3,743) -- --
Additions to apartment property........................... (381) (733) --
Other..................................................... -- 73 --
-------- -------- --------
Net cash (used in) investing activities........... (16,481) (70,834) (13,237)
Financing activities
Payments on note payable.................................. $ (1,080) $ (310) $ --
Repayments of non-recourse mortgage note.................. -- (16,876) --
Proceeds from note payable................................ 650 -- --
Proceeds from refinancing of non-recourse mortgage note... -- 19,300 --
Investments made by minority investors.................... -- -- 2,652
Distributions made to minority investors.................. (1,321) (431) (100)
Debt issuance costs....................................... -- (505) --
Debt extinguishment costs................................. -- (333) --
Capital invested by Insignia.............................. -- 81,961 21,522
Loan costs paid........................................... (19) -- --
Distributions paid to Insignia by IPLP.................... (5,337) (6,812) (10,209)
Distributions paid to common shareholders................. (8,666) (2,180) --
Proceeds from issuance of common shares................... 62,420 -- --
-------- -------- --------
Net cash provided by financing activities................. 46,647 73,814 13,865
-------- -------- --------
Increase in cash and cash equivalents..................... 32,504 4,400 528
Cash and cash equivalents at beginning of year............ 4,928 528 --
-------- -------- --------
Cash and cash equivalents at end of year.................. $ 37,432 $ 4,928 $ 528
======== ======== ========
Supplemental disclosure of non-cash financing and investing
activities
Issuance of IPT shares and OP units for partnership
interests.............................................. $ 20,379 $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes.
F-17
<PAGE> 255
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Insignia Properties Trust ("IPT" or "the Company") was formed in 1996 by
Insignia Financial Group, Inc. ("Insignia") for the purpose of acquiring and
owning interests in multifamily residential properties, including limited and
general partner interests in partnerships which hold such real estate
properties. IPT has been organized in a manner that will allow it to be taxed as
a real estate investment trust ("REIT") under the Internal Revenue Code of 1986
beginning with the taxable year ended December 31, 1996. IPT was organized as a
Maryland Business Trust. Insignia and its affiliates have transferred to IPT
equity interests in entities comprising or controlling the general partners of
certain public real estate limited partnerships in exchange for shares of
beneficial interest of IPT. IPT has also issued common shares to Insignia and
certain of its employees and affiliates in exchange for the payment of certain
obligations of IPT. IPT began operations on December 31, 1996 as a result of
such transfers. The transfers were recorded at the historical cost of Insignia.
The Company is the sole general partner of Insignia Properties L.P. ("IPLP"
or the "Operating Partnership"). Insignia and its subsidiaries, other than IPT,
have transferred to IPLP certain limited partner interests in real estate
limited partnerships (or equity interests in entities which own such interests)
owned by Insignia and its subsidiaries in exchange for units of limited partner
interest in IPLP, which units are exchangeable for common shares of IPT or are
redeemable for cash. Because these units are held by Insignia, under the Limited
Partnership Agreement, they are Class A units of limited partner interest having
special rights with respect to matters concerning IPLP. As a result of these
formation transactions, at December 31, 1997 and 1996, IPT was 75% and 98% owned
by Insignia, with the remainder of its shares owned by Metropolitan Asset
Enhancement L.P. ("MAE LP") (an affiliated company), certain Insignia employees
and other non-affiliated investors. IPT's ownership of IPLP was 66% and 57% at
December 31, 1997 and 1996, respectively. Insignia owns the remaining units in
IPLP.
The formation transactions represent a reorganization of entities under
common control, and the accompanying financial statements represent the
consolidated and combined financial statements applicable to those assets and
entities contributed to IPT as a part of its formation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Combination
The accompanying financial statements include the consolidated balance
sheets of IPT as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for the year ended
December 31, 1997, and the combined statements of income, shareholders' equity
and cash flows for the years ended December 31, 1996 and 1995 of Insignia
Properties Trust Predecessor Entities. The financial statements include
wholly-owned subsidiaries which comprise or control the general partners of the
underlying partnerships, the majority-owned subsidiary IPLP, and certain
investments in real estate limited partnerships which were owned by Insignia
prior to contribution to IPLP ("Predecessor Entities"). Insignia's ownership in
IPLP is shown as minority interest. See Notes 3 and 6 regarding consolidation of
National Property Investors 4 ("NPI 4"), a majority-owned operating partnership.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-18
<PAGE> 256
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
The amount of cash on deposit in federally insured institutions at times
exceeds the limit on insured deposits. The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Investments in Real Estate Limited Partnerships
Investments in real estate limited partnerships represent general partner
interests (or interests in general partner interests) generally ranging from
0.2% to 3% in certain limited partnerships and limited partner interests in real
estate limited partnerships ranging from less than 1% to 62%. Partnerships in
which IPT has a general partner interest or limited partnership ownership (in
excess of 2.5%) are accounted for by the equity method, unless IPT has a
majority ownership and controls the partnership on a non-temporary basis, in
which case the partnership is consolidated.
Apartment Property
Apartment property, consisting of land of approximately $1.5 million,
buildings and personal property of approximately $22.7 million, is stated at
cost, net of accumulated depreciation of approximately $1.9 million. Apartment
property consists of buildings and improvements. Depreciation is computed
principally by the straight-line method over the estimated useful lives of the
assets. Buildings are being depreciated over the estimated life of 30 years and
personal property over the estimated life of 5 years (see Note 7).
In 1996, IPT adopted FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of" (FAS 121), which requires impairment
losses to be recognized for long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows are not sufficient to
recover the assets carrying amount. The impairment loss is measured by comparing
the fair value of the asset to its carrying amount. The adoption of FAS 121 had
no material effect on the accompanying financial statements.
Revenue Recognition
Rental income attributable to leases is recorded when due from tenants and
is recognized monthly as it is earned, which is not materially different than on
a straight-line basis. Interest income is recorded on an accrual basis.
Lease Agreements
The Company generally leases apartment units for twelve-month terms or
less, renewable upon consent of both parties.
Loan Costs
Loan costs include fees and costs paid to third parties for obtaining or
refinancing outstanding indebtedness. These costs are amortized over the term of
the respective outstanding debt. Loan costs of approximately $524,000 and
$505,000, net of accumulated amortization of approximately $81,000 and $9,000,
at December 31, 1997 and 1996, respectively, are included in other assets.
Advertising Expense
IPT expenses the cost of advertising as incurred. The amounts incurred for
1997, 1996 and 1995 did not have a material effect on the financial statements.
F-19
<PAGE> 257
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Expenses
Deferred expenses are included in other assets and primarily consist of
organization costs which are being amortized using the straight-line method over
five years.
Distributions
The Company intends to pay distributions of at least the amount required to
maintain REIT status under the Internal Revenue Code. In August 1997, the IPT
Board adopted a policy to pay a quarterly distribution of $0.15 per common
share; however, the payment of any distribution will be dependent on the
liquidity and cash flows of the Company, which are primarily dependent on
distributions from the underlying partnerships.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share.
Earnings per share is computed based on the weighted average number of
common shares outstanding. The conversion of an OP Unit to a Common Share is not
considered a dilutive item since the allocation of earnings to an OP Unit is
equivalent to a Common Share. Earnings per share was not calculated prior to
1997 because IPT shares were not issued until December 30, 1996. Diluted
earnings per share is not presented because the Company has no dilutive items;
thus, basic and diluted earnings per share are equal.
Fair Value
FASB Statement No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments for which it is practicable to estimate that value. The fair values
of the Company's financial instruments at December 31, 1997 and 1996 approximate
their carrying values.
Federal Income Taxes
The Company elected to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), beginning with its taxable year ending
December 31, 1996. Generally, a REIT which complies with the provisions of the
Code and distributes at least 95% of its taxable income to its shareholders does
not pay federal income taxes on its distributed income. Since IPT distributed in
excess of 100% of its taxable income, no provision has been made for federal
income taxes. If the Company fails to qualify as a REIT in any year, its taxable
income may be subject to income tax at regular corporate rates (including any
applicable alternative minimum tax). Even if the Company qualifies for taxation
as a REIT, the Company may be subject to certain state and local taxes.
Distributions declared of $0.53 per share to shareholders of record on
December 30, 1996 and $0.15 per share to shareholders of record on October 31,
1997 were paid during the year ended December 31, 1997. Distributions paid to
shareholders of $0.20 per share were made during the year ended December 31,
1996. For federal tax purposes, the portions of the 1997 distribution relating
to return of capital and earnings and profits are 59% and 41%, respectively. The
1996 distribution consisted entirely of a return of capital. No REIT operating
income was earned during 1996. Earnings and profits which determine the
taxability of dividends to shareholders, differ from net income reported for
financial reporting purposes due to differences for federal tax purposes in the
estimated useful lives to compute depreciation and the carrying value (basis) of
the investment in partnership interests.
F-20
<PAGE> 258
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications
Certain amounts from prior years have been reclassified to conform with the
1997 presentation.
3. INVESTMENTS IN REAL ESTATE LIMITED PARTNERSHIPS
The Company has significant investments in 28 limited partnerships and
nominal investments in 20 limited partnerships which own (or previously owned)
real estate consisting primarily of apartments, and to a lesser extent
commercial property, throughout the United States. The Company's capital
ownership percentages (which are generally less than the operating percentages)
of the significant investments in partnerships at December 31, 1997 and date
acquired are as follows:
<TABLE>
<CAPTION>
CAPITAL INITIAL
REAL ESTATE LIMITED PARTNERSHIP OWNERSHIP % ACQUISITION DATE
------------------------------- ----------- ----------------
<S> <C> <C>
Consolidated Capital Growth Fund....................... 39% December 1994
Consolidated Capital Institutional Properties.......... 26% December 1994
Consolidated Capital Institutional Properties/3........ 12% December 1994
Consolidated Capital VI................................ 22% December 1994
Consolidated Capital III............................... 24% January 1995
Consolidated Capital IV................................ 27% January 1995
Johnstown/Consolidated Income Partners................. 10% December 1995
Davidson Growth Plus, L.P.............................. 11% December 1995
Shelter Properties I................................... 39% May 1995
Shelter Properties II.................................. 33% May 1995
Shelter Properties III................................. 34% May 1995
Shelter Properties V................................... 39% May 1995
Shelter Properties VI.................................. 28% May 1995
National Property Investors III........................ 45% January 1996
National Property Investors 5.......................... 47% January 1996
National Property Investors 6.......................... 44% January 1996
National Property Investors 7.......................... 43% January 1996
National Property Investors 8.......................... 38% January 1996
Century Property Fund XIV.............................. 41% January 1996
Century Property Fund XV............................... 40% January 1996
Century Property Fund XVI.............................. 37% January 1996
Century Property Fund XVII............................. 38% January 1996
Century Property Fund XVIII............................ 29% January 1996
Century Property Fund XIX.............................. 33% January 1996
Century Property Fund XXII............................. 27% January 1996
Fox Strategic Housing Income Partners.................. 15% August 1997
Consolidated Capital Institutional Properties/2........ 20% December 1997
Shelter Properties IV.................................. 32% December 1997
</TABLE>
The Company also owns 62% of National Property Investors 4 and therefore
consolidates the financial statements of this partnership.
F-21
<PAGE> 259
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions were accounted for as purchase transactions by the
predecessor entities of IPT. A summary of the acquisitions follows:
1994 to 1996 Acquisitions
Limited partnership interests in four of the Consolidated Capital
partnerships were purchased in December 1994 by Insignia. Limited partnership
interests in two other Consolidated Capital partnerships were acquired by tender
offer through consolidated 60% owned subsidiaries of Insignia in January of
1995. The 40% minority interest in these subsidiaries was purchased in 1996.
The Shelter Properties limited partnership interests were acquired in May
1995 as a result of tender offers commenced by Insignia in April 1995. The
partnership interests in the National Property partnerships and the Century
partnerships were acquired in January 1996 in connection with the acquisition by
Insignia, and certain of its affiliates, of substantially all of the assets of
National Properties Investors, Inc. ("NPI Acquisition").
Limited partner interests in Davidson Growth Plus, L.P. were purchased in
December 1995 through a tender offer, and interests in Johnstown/Consolidated
Income Partners were acquired in private purchases during 1995 and 1996.
1997 Acquisitions
In June 1997, Insignia acquired additional limited partnership interests in
the Shelter Properties portfolio and Davidson Growth Plus, L.P. in a privately
negotiated transaction ("High River Transaction"). Insignia contributed, at
Insignia's cost, the interests acquired in the High River Transaction (with
exception of the limited partner interests in Shelter Properties IV Limited
Partnership) to IPT in exchange for 1,162,451 IPT Common Shares. IPT then
contributed the interests to IPLP in exchange for 1,162,451 general partner
units of IPLP.
In October 1997, a wholly-owned subsidiary of IPLP, completed tender offers
for limited partnership interest in six partnerships: Century Property Fund
XVII, Century Property Fund XIX, Century Property Fund XXII, National Property
Investors 4, Consolidated Capital Properties IV, and Fox Strategic Housing
Income Partners (the "August Tender Partnerships").
In December 1997, a wholly-owned subsidiary of IPLP, completed tender
offers for limited partnership interest in two partnerships: Consolidated
Capital Institutional Properties and Consolidated Capital Institutional
Properties/2 (the "December Tender Partnerships").
On December 31, 1997, IPLP exercised an option to acquire 16,010 limited
partner interests in Shelter Properties IV Limited Partnership in exchange for a
total of 1,016,448 units in IPLP to be issued to Insignia. The acquired limited
partner interests were recorded at Insignia's historical cost.
Equity in Earnings
Equity in earnings of the aforementioned partnerships have been included in
these financial statements from the date of their respective acquisition. Equity
in earnings from these partnerships amounted to approximately $8,062,000,
$3,587,000 and $2,455,000 for the years ended 1997, 1996 and 1995, respectively.
Equity in earnings excludes the Company's equity interest in extraordinary
losses by the partnerships from early extinguishments of debt which are
reflected separately in the income statement. The Company owns 62% of NPI 4 and,
therefore, consolidates the accounts of this partnership.
F-22
<PAGE> 260
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Summary of Investments
The following table presents a summary of investments made by IPT in
limited partnerships and the carrying amounts. The investment in NPI 4, in which
a 62% interest is held, is not included in the table below but rather is
included as a consolidated subsidiary in the accompanying financial statements.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
ConCap acquisition in December 1994......................... $ 38,233
Equity earnings for 1994.................................. 113
--------
Balance at December 31, 1994................................ 38,346
ConCap Tender Offers...................................... 5,479
Shelter Tender Offers..................................... 16,860
Other purchases........................................... 1,807
Equity earnings for 1995.................................. 2,455
Distributions received.................................... (10,910)
--------
Balance at December 31, 1995................................ 54,037
NPI Acquisition in January 1996........................... 66,501
Purchase of minority interest............................. 3,923
Other purchases........................................... 1,083
Equity earnings for 1996.................................. 3,587
Equity in extraordinary losses -- refinancings............ (1,132)
Distributions received.................................... (9,258)
--------
Balance at December 31, 1996................................ 118,741
Purchases................................................. 30,592
Equity Earnings........................................... 8,062
Equity in extraordinary losses -- refinancings............ (70)
Issuance of IPT shares for partnership interests.......... 20,379
Distributions received.................................... (18,235)
--------
Balance at December 31, 1997................................ $159,469
========
</TABLE>
Pro forma Information (Unaudited)
Pro forma unaudited results of operations for the years ended December 31,
1997, 1996 and 1995 assuming consummation of the August Tender Partnerships,
December Tender Partnerships, the High River Transaction, and the exercise of
the Shelter Properties IV option at January 1, 1996, the NPI and other 1996
acquisitions at January 1, 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.............................................. $19,848 $11,447 $10,720
Income before extraordinary items..................... 8,069 4,561 3,107
Net income............................................ 7,999 3,429 2,140
Per share amounts:
Income before extraordinary items................... .53 .37 .25
Net income.......................................... .53 .28 .17
</TABLE>
Minority interest for 1997, 1996 and 1995 has been adjusted for the
aforementioned acquisitions. The pro forma information is not necessarily
indicative of what the Company's results of operations would have been if the
transactions had occurred at the beginning of each period presented.
Additionally, the pro forma information does not purport to be an indication of
the Company's results of operations for future periods.
F-23
<PAGE> 261
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized financial information represents the combined
results as reported in the separate annual reports of the twenty-eight (1997)
and twenty-five (1996) partnerships in which IPT has a significant investment.
The information below excludes the financial information of NPI 4, which is
consolidated by the Company.
CONDENSED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and investments........................................ $ 102,994 $ 111,733
Restricted escrows, deposits and receivables................ 45,127 21,055
Other assets................................................ 19,249 35,473
Real estate................................................. 1,424,835 1,251,952
Less accumulated depreciation............................... (750,292) (622,433)
---------- ----------
Net real estate................................... 674,543 629,519
---------- ----------
Total assets...................................... $ 841,913 $ 797,780
========== ==========
Mortgage notes payable...................................... $ 660,919 $ 618,176
Other liabilities........................................... 32,196 43,085
---------- ----------
Total liabilities................................. 693,115 661,261
Partners' capital........................................... 148,798 136,519
---------- ----------
Total liabilities and partners' capital........... $ 841,913 $ 797,780
========== ==========
</TABLE>
CONDENSED STATEMENT OF EARNINGS INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................... $282,375 $247,017 $237,946
Expenses:
Property operations.............................. 149,562 136,646 130,225
Provision for possible losses.................... -- -- 8,255
Interest......................................... 56,307 51,823 54,939
Depreciation and amortization.................... 56,456 49,762 49,855
General and administrative....................... 11,205 10,103 11,858
Partnership management fees...................... -- -- 626
-------- -------- --------
Total expenses........................... 273,530 248,334 255,758
Gain on disposition of property.................... 8,679 5,572 18,285
-------- -------- --------
Income before extraordinary item................... 17,524 4,255 473
Extraordinary items................................ (200) 371 (2,884)
-------- -------- --------
Net income (loss)........................ $ 17,324 $ 4,626 $ (2,411)
======== ======== ========
</TABLE>
At December 31, 1997, the unamortized excess of the Company's investments
over the respective partnerships' historical cost of their net assets was
approximately $125 million, which has been attributed to the fair values of the
investee's underlying properties and is being depreciated through equity
earnings over their useful lives (30 years). The Company's investment has been
recorded at the historical cost of the acquisitions by Insignia. The partnership
interests were acquired over a three year period. The financial results of each
individual partnership are reflected in equity earnings subsequent to the date
of acquisition.
F-24
<PAGE> 262
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LIABILITIES
Accounts Payable -- Due to Insignia
Accounts Payable -- Due to Insignia represent payments made by Insignia on
behalf of IPT.
Distributions Payable
IPT's Board of Trustees declared a distribution of $2,786,000 and
$5,880,000 to shareholders of record on December 23, 1997 and December 30, 1996,
respectively. The distributions were paid during January 1998 and 1997,
respectively.
Accrued Expenses
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ----
(IN THOUSANDS)
<S> <C> <C>
Accrued professional fees................................... $ 485 $ --
Tenant security deposits.................................... 405 409
Accrued interest............................................ 118 118
Management fees............................................. 21 120
Other....................................................... 193 157
------ ----
$1,222 $804
====== ====
</TABLE>
5. NOTES PAYABLE
Note Payable
A note payable was issued in connection with the acquisition of the stock
of a corporate general partner and is payable as to principal and interest when
proceeds are received by that corporate general partner from an investment in a
limited partnership with a carrying amount of $430,020. The note payable is
unsecured and bears simple interest at 6.5% per annum. During 1997, the note was
paid in full.
Non-recourse Mortgage Note
The $19.3 million non-recourse mortgage note is a first mortgage
encumbering the real estate of NPI 4. The note bears interest at 7.33%, with
interest only payable in monthly installments, and matures in 2003. IPT paid
interest of approximately $1,415,000 for 1997.
6. MINORITY INTEREST
Operating Partnership
Net income is allocated to the Minority Interests based upon their
respective ownership percentage of the Operating Partnership. Ownership
percentage is represented by dividing the number of OP Units held by the
Minority Interests by the OP Units held by Minority Interest and Common Shares
Outstanding. Such transactions and the proceeds therefrom are treated as capital
transactions and result in an allocation between Shareholder's Equity and
Minority Interest to account for the change in the respective percentage
ownership of the underlying equity of the Operating Partnership.
IPLP had 27,989,098 and 19,567,535 units outstanding, including and
9,415,947 and 8,399,499 units held by Insignia at December 31, 1997 and 1996,
respectively. Pursuant to IPLP's partnership agreement, the limited partners
have received redemption rights, defined in the partnership agreement, which
will enable
F-25
<PAGE> 263
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
them to cause, subject to certain restrictions, IPLP to redeem each unit for
cash equal to the value of a common share of IPT (or, at the general partner's
election, it may purchase each unit offered for redemption for one common share
of IPT, subject to adjustment upon the occurrence of share splits, merger,
consolidations or similar pro rata share transactions, which would have the
effect of diluting the ownership interests of the limited partners of IPLP or
the shareholders of IPT).
NPI 4
NPI 4, in which a subsidiary of IPT is the sole general partner and IPLP
owns 62% of the limited partner interests (as of December 31, 1997), is
consolidated in the accompanying financial statements. The 62% of the NPI 4
property effectively owned by IPLP is stated at IPLP's cost, while the remaining
38% of the property not owned by IPLP is stated at the historical depreciated
cost of NPI 4. While Insignia paid approximately $9 million for a 62% interest
in the partnership, the 38% minority interest is recorded at zero since the
underlying partnership has a partners' deficit. Accordingly, assets of $25.6
million and liabilities of $17 million were recorded in connection with the
acquisition of a majority ownership in NPI 4. The result is that the property is
recorded on IPT's financial statements at below estimated fair value. The
distribution of $1.3 million to minority partners made in January 1997 by NPI 4
was recognized as a loss to IPT for financial reporting purposes because
generally accepted accounting principles do not allow a negative (debit) balance
in minority interest. Additional losses will be recognized for NPI 4, or any
other partnership which becomes a consolidated partnership, whenever
distributions are made to minority partners in excess of the recognized minority
interest in such partnership.
7. SHAREHOLDERS' EQUITY
IPT's declaration of trust has authorized the issuance of up to 400,000,000
common shares and 100,000,000 preferred shares of beneficial interest. In 1996,
the Company was initially capitalized by the issuance of 7,283,780 common shares
in payment of debt of $72,837,800 owed by IPT to Insignia as a result of the
acquisition of the NPI partnership interests. IPT issued 3,271,547 common shares
to Insignia in respect of Insignia's 100% ownership interest in IPT. IPT
subsequently issued an additional 612,709 common shares to Insignia and an
affiliate of Insignia in exchange for the contribution to IPT of shares of stock
of certain corporate general partners. During 1997, IPT also issued 6,300 common
shares to Insignia and 4,700 shares to six accredited investors, who are
executive officers of Insignia. In June 1997, the Company issued to Insignia
1,162,451 common shares of IPT in return for the contribution of limited
partnership interests owned by Insignia.
A private offering was completed in August 1997 with a total of 5,231,000
common shares issued at $10.00 per share. The Company also granted to certain
potential investors an option to purchase for cash up to 1,000,000 in the
aggregate, common shares of beneficial interest of IPT, at any time on or before
October 10, 1997, at the price of $10 per share, provided that the purchaser is
not in breach of certain covenants at the time of the purchase. This option was
exercised during 1997. IPLP had 27,989,098 and 19,567,535 units outstanding at
December 31, 1997 and 1996, respectively, which may be redeemed, subject to
certain restrictions, for an equivalent number of common shares of IPT.
At December 31, 1997 approximately $6.3 million of the Company's retained
earnings is represented by undistributed earnings of the Company's underlying
investments in real estate limited partnerships that are accounted for by the
equity method.
Share Incentive Plan
In August 1997, IPT adopted the 1997 Share Incentive Plan (the "Plan") to
provide for the granting of share options and restricted shares to certain key
employees (including officers), directors, consultants and advisors of IPT,
including certain employees of Insignia. The Plan will be administered by the
Board of
F-26
<PAGE> 264
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Trustees of IPT or a committee of the Board of Trustees. The Plan provides that
options granted under the Plan may be "incentive share options" (as defined in
the Code), non-qualified options or restricted shares, which vest on the
attainment of performance goals or subject to vesting requirements or other
restrictions prescribed by the Board of Trustees. The maximum number of IPT
common shares available for awards under the Plan is 1,200,000 shares, subject
to adjustment under certain circumstances. The Plan may be terminated by the
Board of Trustees of IPT at any time. As of December 31, 1997, the IPT Board of
Trustees had approved the granting of 25,000 share options and 38,000 restricted
shares.
The exercise price of options granted under the Plan may not be less than
100% of the fair market value of an IPT common share on the date of grant.
However, an incentive share option granted to the holder of more than 10% of the
total combined voting power of all of the shares of beneficial interest of IPT
or any subsidiary must have an exercise price of at least 110% of the fair
market value of the shares on the date of grant and the option by its terms must
not be exercisable after the expiration of five years from the date it is
granted. Absent a public market for the IPT common shares, the Plan provides for
the fair market value to be determined by the Board of Trustees (or a committee
thereof if one has been appointed to administer the Plan).
An option may not be granted with a term exceeding ten years (five years in
the case of incentive stock options granted to a holder of more than 10% of the
total voting power of all classes of IPT's capital stock on the date of the
grant). Options may be exercised by paying the purchase price in cash or, if the
option agreement permits, wholly or partly in IPT common shares already owned by
the optionee.
At or prior to the exercise of a nonqualified share option, the IPT Board
will have the discretion to permit the optionee, in lieu of purchasing the
entire number of shares subject to purchase under the option, to relinquish all
or part of the unexercised portion of the option for cash in the amount of the
difference between the aggregate value of the shares subject to the option and
the aggregate exercise price of the option. In the discretion of the optionee,
this amount may be paid in IPT common shares.
8. COMMITMENTS AND CONTINGENCIES
General Partners
The qualified REIT subsidiaries of IPT either control or serve as general
partner in limited partnerships and these subsidiaries may be liable for
recourse obligations of the limited partnerships if the limited partnerships
were unable to satisfy those obligations. IPT believes that each limited
partnership has more than adequate resources to discharge all recourse
obligations and maintain adequate insurance.
Loan Commitments
IPT is obligated to loan up to $500,000 to certain partnerships ($2,600,000
in aggregate) and $150,000 to certain other partnerships ($6,000,000 in
aggregate) at interest rates not to exceed the prime rate plus 2%. Subsidiaries
of IPT serve as general partner in these partnerships. There were no amounts
outstanding under these commitments at December 31, 1997 or 1996.
Year 2000 (Unaudited)
IPT is dependent upon Insignia for management and administrative services.
Insignia has completed an assessment and has determined that is will have to
modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
project is estimated to be completed not later than December 31, 1998, which is
prior to any anticipated impact on its operating systems. Insignia believes that
with modifications to existing software and conversions to new software, the
year 2000 issue will not pose significant operational problems for its computer
systems. However,
F-27
<PAGE> 265
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
if such modifications and conversions are not made, or are not completed in a
timely fashion, the year 2000 issue could have a material impact on the
operations of IPT.
Obligations to Former General Partners
Certain corporate general partners owned by IPT was acquired by Insignia
from unaffiliated prior owners. The acquisition agreements provided that
Insignia and IPT would be indemnified from claims attributable to events or
actions prior to their ownership, and Insignia (now IPT) indemnify the prior
owners from claims or causes of action arising after the change in ownership. In
addition, certain former owners of the general partners of seven limited
partners retained the obligation with respect to 100% (and in some instances
75%) for capital contributions that may be required by the general partners upon
windup of the applicable partnerships.
Environmental Liabilities
Under various Federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances or petroleum
product releases at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with contamination. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The owner or operator of a site may be liable under common law to third parties
for damages and injuries resulting from environmental contamination emanating
from the site. There can be no assurance that the Company, any of its
affiliates, or any assets owned or controlled by the Company or any of its
affiliates currently are in compliance with all of such laws and regulations, or
that the Company or its affiliates will not become subject to liabilities that
arise in whole or in part out of any such laws, rules or regulations. Management
is not currently aware of any environmental liabilities which are expected to
have a material adverse effect on the Company's operations or financial
condition.
Litigation
In January and February 1998, a limited partner in several partnerships in
which the Company owns limited partner interests commenced arbitration
proceedings and litigation against those partnerships and their corporate
general partners. The claims in both the arbitration and in complaints filed in
the Circuit Court of Jackson County, Missouri assert that the corporate general
partners owned by IPT breached certain contractual and fiduciary duties
allegedly owed to the claimant. The Company believes the claims asserted in
these proceedings to be without merit and intends to vigorously defend the
claims.
Certain subsidiaries and partnerships in which the Company owns limited
partner interests are defendants in lawsuits arising in the ordinary course of
business. Such lawsuits are primarily insured claims arising from accidents at
managed properties. Claims may demand substantial compensatory and punitive
damages. Management believes that the litigation will be resolved without a
material impact on the financial position or results of operations of the
Company.
9. RELATED PARTY TRANSACTIONS
Advisory Agreement
The Company initially engaged Insignia to provide a broad range of
services, including executive advisory, investment advisory, acquisition,
administrative, financial and accounting services. In consideration for these
services, the Company will pay Insignia an advisory fee as defined in the
Advisory Agreement adjusted annually based upon certain performance factors. The
initial fee for these services is $1.0 million
F-28
<PAGE> 266
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
divided equally between the two components. In addition to the advisory fee, the
Company agreed to pay to Insignia an annual incentive fee on January 31 of each
year beginning in 1998. The incentive fee will be equal to 3% of the amount by
which IPT's Funds from Operations per share, as defined in the Advisory
Agreement, for the year then ending exceeds 105% of the greater of IPT's Funds
from Operations per share for the preceding year or the highest level of Funds
from Operations per share of IPT attained during any previous calendar year,
multiplied by weighted average number of IPT common shares then outstanding
(including, for this purpose, all OP Units not owned by IPT). Finally, the
Company will reimburse Insignia for certain costs incurred in connection with
acquisition services and additional services provided to the Company. During
1997, $1.7 million was paid to Insignia in connection with the advisory
agreement, including $0.7 million for acquisition services which was capitalized
by IPT. No such amounts were incurred during 1996 and 1995.
Effective January 1, 1998, the Advisory Agreement between IPT, IPLP and
Insignia was terminated without penalty to IPT, IPLP or Insignia, and certain
provisions until then contained in the Advisory Agreement were incorporated into
the Partnership Agreement effective as of the same date. Also effective upon the
termination of the Advisory Agreement, IPT, IPLP and Insignia entered into the
Acquisition and Disposition Services Agreement. As of January 1, 1998, the
eleven employees of Insignia, who prior to that time had worked exclusively on
matters concerning IPT, became employees of IPT. Also, effective on that date,
certain executive officers of IPT, who are also employed as executive officers
of Insignia, received 510,000 restricted IPT common shares, in the aggregate,
which will vest ratably over a five-year period. The restricted shares received
by such officers constitutes the sole compensation that they will receive from
IPT for services rendered to IPT over such five-year period by such shared
employees.
Property Management
The Partnership Agreement requires IPT and IPLP to cause Insignia to be
retained as property manager for all properties now and hereafter controlled by
IPT pursuant to separate property management agreements. The property management
services to be provided by Insignia include (i) performing all accounting
functions incidental to the properties, such as rent processing and collection,
accounts payable (e.g., mortgages, taxes and insurance), payroll and financial
reporting, (ii) acting as a rental agent for the properties, and (iii)
overseeing the routine maintenance responsibilities relating to the properties.
The property management agreements generally provide for the payment of fees to
Insignia based on a percentage of rent collections from the managed properties.
The Partnership agreement also provides that if, after taking into account
certain equitable adjustments specified in the Partnership Agreement, IPLP may
be required pay an additional fee to Insignia (the "Contract Loss Fee") if
certain parameters are not met as specified in the Partnership Agreement.
IPT's obligation to cause Insignia to be retained as property manager for
all the properties controlled by IPT terminates, on a property by property
basis, upon the earliest to occur of (i) the termination of the Partnership
Agreement, (ii) the termination by Insignia of the applicable property
management agreement, (iii) the termination of the applicable property
management agreement by the applicable property-owning entity for cause (but not
for any other reason, notwithstanding that such termination may have been
expressly permitted by the terms of such property management agreement), or (iv)
such time as IPT no longer controls such property.
Partnership Administration Services
Insignia currently provides partnership administration services to each
Controlled Partnership. Such services, for which Insignia is typically paid on a
reimbursement basis only, generally include accounting functions, investor
relations and the preparation and filing of required reports under the Exchange
Act.
F-29
<PAGE> 267
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENTS
Raintree Apartment Acquisition
On January 28, 1998, Raintree Pensacola, L.P., a limited partnership
controlled by IPLP, acquired a property in Pensacola, Florida referred to as the
Raintree Apartments. The Raintree Apartments contain 168 residential apartment
units. The aggregate purchase price paid for the Raintree Apartments was
approximately $3.7 million.
December Tender Offers
On various dates in December 1997, a wholly-owned subsidiary of IPLP,
commenced tender offers to purchase units of limited partner interest in
Multi-Benefit Realty Fund 87-1, Century Properties Fund XIV, Century Properties
Fund XV, Century Properties Fund XVIII, Consolidated Capital Growth Fund,
Consolidated Capital Institutional Properties/3, Consolidated Capital Properties
V, Johnstown/Consolidated Income Partners and Shelter Properties VII Limited
Partnership. These tender offers expired in January and February 1998 with IPLP
acquiring additional limited partnership interest of approximately $11.0
million, including acquisition costs of approximately $0.6 million.
MAE GP Corporation Merger
Effective February 25, 1998, MAE GP Corporation, which until then was a
wholly-owned subsidiary of MAE LP, was merged with and into IPT, with IPT
surviving the merger (the "MAE GP Merger"). As consideration for the MAE GP
Merger, IPT issued 332,300 IPT Common Shares to MAE LP valued for purposes of
the MAE GP Merger at $10.53 per share. MAE GP Corporation owned or controlled
equity interests in entities which comprised or controlled the general partners
of 29 public and 61 private real estate limited partnerships (collectively, the
"MAE Partnerships"), nine of which are included in the IPT Partnerships. The MAE
Partnerships own, in the aggregate, 167 properties containing approximately
31,000 residential apartment units and approximately 2.2 million square feet of
commercial space. In connection with the MAE GP Merger, all of the AMIT Class B
Shares, which were until then owned by MAE GP Corporation, were transferred by
dividend to MAE prior to the MAE GP Merger.
MAE and Insignia Contributions to IPLP
In connection with the MAE GP Merger, on February 17, 1998, IPLP purchased
certain assets from MAE for approximately $596,000 cash. The assets purchased
from MAE consisted of (i) a 99% limited partner interest in Insignia Jacques
Miller, L.P. ("IJM"), which in turn owns non-controlling equity interests in
entities that comprise or control the general partners of 30 of the MAE
Partnerships and various notes receivable (the 1% general partner interest in
IJM was acquired by IPT from MAE GP in the MAE GP Merger), and (ii) a 6.557%
limited partner interest in Buccaneer Trace Limited Partnership, which owns a
208-unit residential apartment complex located in Savannah, Georgia.
Also in connection with the MAE GP Merger, on February 17, 1998, Insignia
contributed all of the limited partner interests it owned in the MAE
Partnerships to IPLP in exchange for OP Units. The value of the interests
contributed was approximately $5,460,000, for which Insignia received 518,528 OP
Units, based on a value of $10.53 per unit. The interests will be recorded at
the historical cost of Insignia.
Winthrop Option
On February 17, 1998, Insignia granted IPLP an option (the "Winthrop
Option") to acquire all but not less than all of the Winthrop Interest (acquired
by Insignia during 1997) at any time on or before December 31, 1998. The
Winthrop Option is exercisable by IPLP for an aggregate cash amount of
approximately $46 million, plus varying amounts of interest on approximately $40
million, of such amount at a
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<PAGE> 268
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
rate equal to Insignia's cost of funds (based on the interest rate in effect
from time to time under Insignia's revolving credit agreement) and a ratable
portion of the transaction costs incurred by Insignia in connection with the
acquisition.
11. EVENTS (UNAUDITED) SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT
Apartment Investment Management Company Merger
On October 1, 1998 Insignia merged its national residential property
management operations, and its controlling interest in Insignia Properties
Trust, with Apartment Investment Management Company ("AIMCO"), a publicly traded
real estate investment trust. In connection with the merger, AIMCO has committed
to offer to acquire the equity of IPT not owned by Insignia for not less than
$13.25 per share.
Angeles Mortgage Investment Trust Merger
On September 17, 1998, Angeles Mortgage Investment Trust ("AMIT"), an
unincorporated California Business Trust, was merged with and into IPT. The
merger provided that each AMIT Class A share will be exchanged for 1.516 IPT
common shares and each outstanding AMIT Class B share will be exchanged for
0.0309 IPT common shares.
F-31
<PAGE> 269
SCHEDULE III
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
REAL ESTATE AND ACCUMULATED DEPRECATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
DECEMBER 31, 1997
INITIAL COST -------------------------------------------
------------------ COST BUILDINGS
BUILDINGS CAPITALIZED AND
AND (REMOVED) RELATED
PERSONAL SUBSEQUENT TO PERSONAL ACCUMULATED
ENCUMBRANCES LAND PROPERTY ACQUISITION LAND PROPERTY TOTAL DEPRECIATION
------------ ------ --------- ------------- ------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Village of Pennbrook
Falls Township,
Pennsylvania....... $19,300 $1,529 $21,541 $1,154 $1,529 $22,695 $24,224 $1,867
======= ====== ======= ====== ====== ======= ======= ======
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIFE -- YEARS
------------ -------- -------------
<S> <C> <C> <C>
Village of Pennbrook
Falls Township,
Pennsylvania....... 1973 1/96 5-30
</TABLE>
F-32
<PAGE> 270
SCHEDULE III
INSIGNIA PROPERTIES TRUST AND PREDECESSOR ENTITIES
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Reconciliation of Real Estate
Balance at beginning of year.............................. $23,026 $ --
Acquisition............................................ 817 22,253
Apartment property improvements........................ 381 773
------- -------
Balance at end of year.................................... $24,224 $23,026
======= =======
Reconciliation of Accumulated Depreciation
Balance at beginning of year.............................. $ 901 $ --
Additions charged to expense........................... 966 901
------- -------
Balance at end of year.................................... $ 1,867 $ 901
======= =======
</TABLE>
F-33
<PAGE> 271
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
Shelter Properties Partnerships
We have audited the accompanying combined balance sheets of Shelter
Properties Partnerships as of December 31, 1996 and 1995, and the related
combined statements of operations, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
Our audits also included the financial statement schedule included on pages F-45
to F-47. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Shelter
Properties Partnerships at December 31, 1996 and 1995, and the combined results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 5, 1997
F-34
<PAGE> 272
SHELTER PROPERTIES PARTNERSHIPS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- --------
<S> <C> <C>
Cash:
Unrestricted.............................................. $ 15,741 $ 11,607
Restricted................................................ 986 983
Accounts receivable......................................... 125 118
Escrow for taxes and insurance.............................. 1,466 1,196
Restricted escrows.......................................... 5,505 4,400
Other assets................................................ 2,480 2,118
Investment properties:
Land...................................................... 13,715 13,714
Buildings and related personal property................... 180,571 177,167
--------- --------
194,286 190,881
Less accumulated depreciation............................. (101,529) (94,084)
92,757 96,797
--------- --------
$ 119,060 $117,219
========= ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accounts payable.......................................... $ 892 $ 1,411
Tenant security deposits.................................. 986 972
Accrued taxes............................................. 1,375 978
Other liabilities......................................... 1,733 2,963
Mortgage notes payable.................................... 87,997 83,744
--------- --------
92,983 90,068
Partners' capital (deficit):
General partners.......................................... (854) (856)
Limited partners.......................................... 26,931 28,007
--------- --------
26,077 27,151
--------- --------
$ 119,060 $117,219
========= ========
</TABLE>
See accompanying notes.
F-35
<PAGE> 273
SHELTER PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues
Rental income............................................. $36,287 $36,170 $34,667
Other income.............................................. 2,366 2,161 1,960
------- ------- -------
Total revenue..................................... 38,653 38,331 36,627
Expenses
Operating................................................. 12,401 12,506 12,559
General and administrative................................ 1,148 2,045 986
Maintenance............................................... 6,237 6,253 6,070
Depreciation.............................................. 7,658 7,776 7,448
Interest.................................................. 7,734 8,156 8,405
Property taxes............................................ 2,660 2,599 2,654
------- ------- -------
Total expenses.................................... 37,838 39,335 38,122
Casualty gain............................................... -- 199 2
Gain (loss) on sale of property, net........................ -- 1,296 (60)
------- ------- -------
Income (loss) before extraordinary item..................... 815 491 (1,553)
Extraordinary item -- early extinguishment of debt.......... (633) -- (87)
------- ------- -------
Net income (loss)........................................... $ 182 $ 491 $(1,640)
======= ======= =======
</TABLE>
See accompanying notes.
F-36
<PAGE> 274
SHELTER PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED
PARTNERSHIP GENERAL LIMITED
UNITS PARTNERS PARTNERS TOTAL
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Net original capital contributions.................. 192,362 $ 10 $161,716 $161,726
======== ===== ======== ========
Partners' (deficit) capital at December 31, 1993.... 192,362 $(817) $ 32,926 $ 32,109
Distributions payable to partners................. -- (15) (1,492) (1,507)
Net (loss) for the year ended December 31, 1994... -- (16) (1,624) (1,640)
-------- ----- -------- --------
Partners' (deficit) capital at December 31,
1994........................................... 192,362 (848) 29,810 28,962
Distributions payable to partners................. -- (13) (2,289) (2,302)
Net income for the year ended December 31, 1995... -- 5 486 491
-------- ----- -------- --------
Partners' (deficit) capital at December 31, 1995.... 192,362 (856) 28,007 27,151
Distributions payable to partners................. -- -- (1,256) (1,256)
Net income for the year ended December 31, 1996... -- 2 180 182
-------- ----- -------- --------
Partners' (deficit) capital at December 31, 1996.... $192,362 $(854) $ 26,931 $ 26,077
======== ===== ======== ========
</TABLE>
See accompanying notes.
F-37
<PAGE> 275
SHELTER PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Operating activities
Net income (loss)......................................... $ 182 $ 491 $(1,640)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 7,658 7,776 7,448
Amortization of discounts and loan costs............... 757 795 786
Casualty (gain)........................................ -- (199) (2)
(Gain) loss on sale of property........................ -- (1,296) 60
Extraordinary item -- early extinguishment of debt..... 633 -- 87
Change in accounts:
Restricted cash...................................... (4) 24 (77)
Accounts receivable.................................. (6) (42) 118
Escrows for taxes.................................... (271) 184 196
Other assets......................................... (168) (3) 71
Accounts payable..................................... (608) 376 (214)
Tenant security liability............................ 16 (52) 95
Accrued taxes........................................ 396 (200) (86)
Other liabilities.................................... (230) 78 46
-------- ------- -------
Net cash provided by operating activities................... 8,355 7,932 6,888
Investing activities
Property improvements and replacements.................... (3,594) (4,392) (3,670)
Deposits to restricted escrows............................ (1,422) (793) (860)
Receipts from restricted escrows.......................... 318 1,095 1,487
Proceeds from sale of property............................ -- 2,412 --
Insurance proceeds from property damage................... 59 296 89
Condemnation proceeds..................................... -- -- 14
-------- ------- -------
Net cash used in investing activities....................... (4,639) (1,382) (2,940)
Financing activities
Payments on mortgage notes payable........................ $ (2,820) $(2,294) $(2,114)
Repayment of mortgage notes payable....................... (13,094) -- (7,371)
Proceeds from long-term borrowings........................ 19,250 -- 7,074
Loan costs................................................ (597) -- (91)
Debt extinguishment costs................................. (66) -- (21)
Distributions paid........................................ (2,255) (1,309) (1,505)
-------- ------- -------
Net cash provided by (used in) financing activities....... 418 (3,603) (4,028)
-------- ------- -------
Net increase (decrease) in cash........................... 4,134 2,947 (80)
Cash at beginning of year................................. 11,607 8,660 8,740
-------- ------- -------
Cash at end of year....................................... $ 15,741 $11,607 $ 8,660
======== ======= =======
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 6,989 $ 7,374 $ 7,621
======== ======= =======
</TABLE>
See accompanying notes.
F-38
<PAGE> 276
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Insignia Properties Trust ("IPT" or "the Company") was formed in 1996 by
Insignia Financial Group, Inc. ("Insignia") for the purpose of acquiring and
owning interests in multifamily residential properties, including limited and
general partner interests in partnerships which hold such real estate
properties. IPT has been organized in a manner that will allow it to be taxed as
a real estate investment trust ("REIT") under the Internal Revenue Code of 1986
beginning with the taxable year ended December 31, 1996. Insignia and its
affiliates have transferred to IPT equity interests in entities comprising or
controlling the general partners of 46 public real estate limited partnerships
(the "Equity Partnerships") in exchange for shares of beneficial interest of
IPT. IPT has also issued common shares to Insignia and certain of its employees
and affiliates in exchange for the payment of certain obligations of IPT.
Insignia also transferred its limited partnership interests in certain limited
partnerships, including Shelter Properties Partnerships (defined below), to
Insignia Properties L.P. ("IPLP") in exchange for units of IPLP.
IPT is 98% owned by Insignia, with the remainder of its shares owned by
Metropolitan Asset Enhancement L.P., an affiliated company or certain Insignia
employees. As of December 31, 1996, IPLP is owned 57% by IPT with Insignia
owning the remaining 43%.
The accompanying financial statements represent the combined financial
statements applicable to certain assets and entities contributed to IPT as a
part of its formation.
Basis of Presentation
The accompanying combined financial statements include the assets,
liabilities and results of operations of 5 partnerships that Insignia acquired
limited partnership interests in during May 1995 as a result of tender offers.
Insignia subsequently transferred such partnership interests to IPT. Such
combined group is herein referred to as the Shelter Properties Partnerships (the
"Partnerships"). These Partnerships are part of the Equity Partnerships
mentioned above. The Partnerships operate apartment properties located in the
south and southwest.
The Partnerships included in these combined financial statements and IPT's
ownership interest in each are as follows:
<TABLE>
<CAPTION>
OWNERSHIP
PARTNERSHIP PERCENTAGE
----------- ----------
<S> <C>
Shelter Properties I........................................ 27%
Shelter Properties II....................................... 23%
Shelter Properties III...................................... 24%
Shelter Properties V........................................ 26%
Shelter Properties VI....................................... 20%
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include all of the accounts of the
Partnerships and their majority owned partnerships. All significant
interpartnership balances have been eliminated.
F-39
<PAGE> 277
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Escrows for Taxes and Insurance
Currently, these funds are held by the Partnerships for the Partnerships'
properties. All tax escrow funds are designated for the payment of real estate
taxes.
Restricted Escrows
The Partnerships' maintain a capital improvement and a repair and
maintenance escrow account in which the funds deposited into these accounts are
designated for capital improvements or repairs and maintenance. Certain of these
accounts require the properties to maintain a per apartment unit balance in
reserve to cover necessary repairs and maintenance.
Depreciation
Depreciation is provided by the straight-line method over the estimated
lives of the apartment properties and related personal property. The estimated
lives of the apartment properties are from 15 to 37 years and the estimated
lives of the related personal property is from 5 to 7 years.
Loan Costs
Loan costs are included in other assets and are being amortized on a
straight-line basis over the life of the loans.
Unrestricted Cash
Unrestricted cash includes cash on hand and in banks, demand deposits,
money market investments, and certificates of deposit with original maturities
less than 90 days. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.
Restricted Cash -- Tenant Security Deposits
The Partnerships require security deposits from lessees for the duration of
the lease and such deposits are considered restricted cash. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged the unit
and is current on rental payments.
General and Limited Partner Allocations
Profits, gains, losses and cash distributions are allocated between general
and limited partners in accordance with the provisions of the respective
partnership agreements. In accordance with the partnership agreements, the
general partners of the partnerships may designate a portion of cash generated
from operations as "other reserves" in determining net cash from operations
available for distributions. At December 31, 1996, approximately $2 million has
been designated as other reserves.
Leases
The Partnerships generally lease apartment units for twelve-month terms or
less. The Partnerships recognize income as earned on its leases. In addition,
the Corporate General Partner's policy is to offer rental
F-40
<PAGE> 278
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
concessions during particularly slow months or in response to heavy competition
from other similar complexes in the area. Concessions are charged to expense as
incurred.
Investment Properties
The Partnerships have adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. For the years ended December 31, 1996, 1995 and 1994, no
adjustments for impairment of value were recorded. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. The
effect of adoption was not material.
Advertising
The Partnerships expense the costs of advertising as incurred. Advertising
expense, included in operating expenses, was approximately $433,000 (1996),
$411,000 (1995) and $445,000 (1994), respectively.
Fair Value
The Partnerships have implemented FASB Statement No. 107, "Disclosure about
Fair Value of Financial Instruments," which requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. The carrying amount of the Partnerships' cash and investments
approximates fair value due to short-term maturities. The Partnerships estimate
the fair value of its fixed rate mortgages by discounted cash flow analysis,
based on estimated borrowing rates currently available to the Partnership.
3. MORTGAGES PAYABLE
Mortgages payable, which are collateralized by substantially all investment
properties are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
First mortgages with fixed interest rates ranging from 7.33%
to 7.5%, due at various dates through 2003................ $24,042 $ 4,866
First and second mortgages with fixed interest rates of
7.6%, maturing on November 15, 2002....................... 58,533 60,042
First and second mortgages with fixed interest rates at
7.83%, due on October 15, 2003............................ 1,727 1,746
Primarily first mortgages with fixed interest rates ranging
from 8.00%-9.5%, due at various dates through 2006........ -- 12,621
First mortgage with fixed interest rate at 10.375%, due on
December 10, 2016......................................... 6,629 6,722
First mortgage with a variable interest rate due on June 10,
2001...................................................... -- 1,600
------- -------
90,931 87,597
Less unamortized discounts.................................. (2,934) (3,853)
------- -------
Total mortgage payable............................ $87,997 $83,744
======= =======
</TABLE>
F-41
<PAGE> 279
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Partnerships' aggregate debt approximates
its carrying value. This estimate is not necessarily indicative of the amounts
the Partnerships may pay in actual market transactions.
The Partnerships exercised an interest rate buy-down option for some of the
refinanced mortgage notes reducing the stated rate from 8.76% to 7.6% and 8.13%
to 7.83%. The fee for the interest rate reduction amounted to approximately
$4,731,000 and is being amortized as a loan discount by the interest method over
the life of the loan. The discount fee is reflected as a reduction of the
mortgage notes payable and increases the effective rate of the debt to 8.76% and
8.13%.
During 1996 and 1994, Shelter I and Shelter V refinanced various
properties. As a result of the refinancings, the Partnerships recorded
extraordinary losses of approximately $633,000 (1996) and $87,000 (1994).
Annual principal payments and maturities in all mortgages payable are as
follows (in thousands):
<TABLE>
<S> <C>
1997..................................................... $ 1,836
1998..................................................... 1,985
1999..................................................... 6,653
2000..................................................... 2,208
2001..................................................... 2,385
Thereafter................................................. 75,864
-------
$90,931
=======
</TABLE>
The mortgages payable are nonrecourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. Also, all of the mortgages require prepayment penalties if
repaid prior to maturity and prohibit resale of the properties subject to
existing indebtedness.
4. INCOME TAX
The Partnerships have each received rulings from the Internal Revenue
Service that they will be classified as partnerships for Federal income tax
purposes. Accordingly, no provision for income taxes has been made in the
financial statements of the Partnerships. Taxable income or loss is reported in
the income tax returns of its partners.
The following is a reconciliation between the Partnerships' reported
amounts and Federal tax basis of net assets and liabilities (in thousands):
<TABLE>
<S> <C>
Net assets as reported...................................... $26,077
Land and buildings.......................................... 18,244
Accumulated depreciation.................................... (60,460)
Syndication fees............................................ 20,272
Other....................................................... 688
-------
Net assets -- tax basis..................................... $ 4,821
=======
</TABLE>
The aggregate cost of the Real Estate for Federal income tax purposes for
1996 and 1995, respectively, is approximately $213 million and $209 million. The
accumulated depreciation taken for Federal income tax purposes for 1996 and
1995, respectively, is approximately $162 million and $152 million.
F-42
<PAGE> 280
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. TRANSACTIONS WITH AFFILIATES
The Partnerships have no employees and are dependent on the Corporate
General Partner and its affiliates for the management and administration of all
partnership activities. The partnership agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnerships. Balances and other transactions with
Insignia Financial Group, Inc. and affiliates in 1996, 1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Property management fees................................... $1,901 $1,894 $1,804
Reimbursement for services of affiliates................... 779 630 568
Due to General Partners.................................... 344 344 344
Due from General Partners.................................. 10 10 10
Property insurance commissions............................. -- -- 86
Included in reimbursements for services of affiliates for
construction oversight costs............................. 18 -- --
Legal fees................................................. 72 -- --
</TABLE>
The Partnerships insure their properties under a master policy through an
agency and insurer unaffiliated with the Corporate General Partner. An affiliate
of the Corporate General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Corporate General
Partner who receives payment on these obligations from the agent. The amount of
the Partnerships' insurance premiums accruing to the benefit of the affiliate of
the Corporate General Partner by virtue of the agent's obligations is not
significant.
A director of Insignia Financial Group, Inc. is affiliated with a
professional legal association that received fees in connection with the 1996
refinancings. These fees totaled $36,000 and have been capitalized as loan
costs.
6. SALE OF PROPERTY
On September 29, 1995, Shelter V sold Marble Hills Apartments to an
unaffiliated party. The buyer assumed the related mortgage notes payable. The
total outstanding balance on the mortgage notes payable was approximately
$3,344,000. The carrying amount of the property was approximately $2,412,000
after payment of closing costs. This disposition resulted in a gain of
approximately $1,296,000. Operating revenues and expenses from Marble Hills were
approximately $1,214,000 and $1,206,000 for 1995 and approximately $1,242,000
and $1,365,000 for 1994, respectively.
7. CASUALTIES AND CONDEMNATIONS
The partnerships at times have casualty events which result in gains and
losses. During 1995 and 1994, the partnerships recorded $199,000 and $2,000 in
gains resulting from casualty events, respectively. In addition, the
partnerships recorded a gain of $14,000 in 1994 from the condemnation of land
for a road widening project.
8. CONTINGENCIES
Tender Offer Litigation
On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser")
affiliated with the Partnerships commenced tender offers for limited partner
interests in six limited partnerships. On May 27, 1995, the Affiliated Purchaser
acquired 12,616 Units of the Partnerships pursuant to the tender offer. On or
about May 12, 1995, in the United States District Court for the District of
South Carolina, certain limited partners
F-43
<PAGE> 281
SHELTER PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of the Shelter Properties Partnerships commenced a lawsuit, on behalf of
themselves, on behalf of a putative class of plaintiffs, and derivatively on
behalf of the Partnerships, challenging the actions taken by defendants
(including Insignia, the acquiring entities and certain officers of Insignia) in
the management of the Shelter Properties Partnerships and in connection with the
tender offers and certain other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the Partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the Partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the Partnerships, (ii) the
defendants' actions reduced the demand for the Partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners' interests in order to create a favorable
environment for the tender offers; (iii) through the tender offers, the
acquiring entities sought to acquire effective voting control over the
Partnerships while paying highly inadequate prices; and (iv) the documents
disseminated to the class in connection with the tender offers contained false
and misleading statements and omissions of material facts concerning such issues
as the advantages to limited partners of tendering pursuant to the tender
offers, the true value of the interest, the true financial condition of the
Partnerships, the factors affecting the likelihood that properties owned by the
Partnerships will be sold or liquidated in the near future, the liquidity and
true value of the limited partner interests, the reasons for the limited
secondary market for limited partner interests, and the true nature of the
market for the underlying real estate assets owned by the Shelter Properties
Partnerships, all in violation of the Federal securities laws.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchaser, waiver by the Shelter Properties Partnerships' general
partners of any right to certain proceeds from a sale or refinancing of the
Partnerships' properties; some restrictions on Insignia's ability to vote the
limited partner interests it acquired; payment of $1.25 million (which amount is
divided among the various partnerships and acquiring entities) for plaintiffs'
attorney fees and expenses in the litigation; and general releases of all the
defendants. Approximately $975,000 was paid by the Partnerships and was expensed
in 1995.
On June 24, 1996, after notice to the class and a hearing on the fairness
and adequacy of the notice and the terms of settlement, the court orally
approved the settlement. The court signed the formal order on July 30, 1996. No
appeal was filed within thirty days after the court entered the formal order,
and the settlement became effective on August 30, 1996. The Affiliated Purchaser
made the payments to investors in accordance with the settlement in early
September 1996.
General Contingencies
Certain of the partnerships are subject to various legal proceedings and
claims arising in the ordinary course of business, some of which are covered by
insurance. Management of the partnerships believes the ultimate resolution of
these matters is not likely to have a material adverse effect on the combined
financial statements.
9. EVENT (UNAUDITED) SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT
Apartment Investment Management Company Merger
On October 1, 1998 Insignia merged its national residential property
management operations, and its controlling interest in Insignia Properties
Trust, with Apartment Investment Management Company ("AIMCO"), a publicly traded
real estate investment trust. AIMCO now controls the General Partners of the
Shelter Properties Partnerships.
F-44
<PAGE> 282
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST
------------------- COST
BUILDINGS CAPITALIZED
AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
------------ ------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Carriage House
Gastonia, North
Carolina................. $ 2,090 $ 166 $ 3,038 $ 592
Colony House Apartments
Murfreesboro,
Tennessee................ 2,474 183 4,408 1,069
Essex Park Apartments
Columbia, South
Carolina................. 3,318 473 7,406 1,820
Foxfire Apartments
Atlanta, Georgia......... 4,792 830 9,122 301
Foxfire/Barcelona.......... 5,916 1,191 9,998 86
Durham, North Carolina... -- -- -- --
Heritage Pointe Apartments
Rome, Georgia............ 1,400 239 2,410 637
Lake Johnson Mews
Apartments
Raleigh, North
Carolina................. 4,350 338 6,725 1,031
Milhopper Village
Apartments
Gainesville, Florida..... 2,700 239 4,305 949
North River Village
Apartments
Atlanta, Georgia......... 1,727 336 4,085 1,187
Nottingham Square
Des Moines, Iowa......... 8,185 1,133 9,980 2,274
Old Salem Apartments
Charlottesville,
Virginia................. 6,629 654 12,664 2,306
Parktown Townhouses
Deer Park, Texas......... 3,318 1,095 5,329 2,972
Quail Hollow Apartments
West Columbia, South
Carolina................. 2,850 459 3,754 1,022
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT
DECEMBER 31, 1996
---------------------------------------------
BUILDINGS
AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE-YEARS
------- --------- -------- ------------ ------------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Carriage House
Gastonia, North
Carolina................. $ 166 $ 3,630 $ 3,796 $ 1,906 1970-71 6/29/84.. 5-27
Colony House Apartments
Murfreesboro,
Tennessee................ 183 5,477 5,660 2,989 1970-72 10/30/81 5-36
Essex Park Apartments
Columbia, South
Carolina................. 473 9,226 9,699 5,074 1973 10/29/81 5-36
Foxfire Apartments
Atlanta, Georgia......... 830 9,423 10,253 5,630 1969-71 7/19/83 5-29
Foxfire/Barcelona.......... 1,191 10,084 11,275 5,225 1973 3/28/85 5-29
Durham, North Carolina... -- -- -- -- 1975 9/30/84 5-31
Heritage Pointe Apartments
Rome, Georgia............ 239 3,047 3,286 2,218 1967-70 9/15/80 5-35
Lake Johnson Mews
Apartments
Raleigh, North
Carolina................. 338 7,756 8,094 3,907 1972-73 9/30/83 5-30
Milhopper Village
Apartments
Gainesville, Florida..... 239 5,254 5,493 2,820 1970-76 11/22/83 5-29
North River Village
Apartments
Atlanta, Georgia......... 336 5,272 5,608 2,909 1969 4/21/82 5-32
Nottingham Square
Des Moines, Iowa......... 1,133 12,254 13,387 6,083 1972 8/31/84 5-29
Old Salem Apartments
Charlottesville,
Virginia................. 654 14,970 15,624 8,018 1969-71 8/25/83 5-28
Parktown Townhouses
Deer Park, Texas......... 1,095 8,301 9,396 5,725 1969 3/1/81 5-35
Quail Hollow Apartments
West Columbia, South
Carolina................. 459 4,776 5,235 3,421 1973 9/1/80 5-34
</TABLE>
F-45
<PAGE> 283
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECATION -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST
------------------- COST
BUILDINGS CAPITALIZED
AND (REMOVED)
PERSONAL SUBSEQUENT TO
ENCUMBRANCES LAND PROPERTY ACQUISITION
------------ ------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Raintree Apartments
Anderson, South
Carolina................. $ 1,472 $ 184 $ 3,184 $ 620
River Reach
Jacksonville, Florida.... 7,693 1,872 10,854 1,418
Rocky Creek
Augusta, Georgia......... 2,268 168 3,821 486
Signal Pointe Apartments
Winter Park, Florida..... 4,399 535 8,062 2,515
Stone Mountain West
Apartments
Stone Mountain,
Georgia.................. 3,000 210 3,408 988
Tar River Estates
Greenville, North
Carolina................. 5,165 474 9,985 2,593
The Lexington Apartments
Sarasota, Florida........ 3,740 1,102 6,620 1,965
Village Garden
Fort Collins, Colorado... 2,663 420 3,050 472
Willowick Apartments
Greenville, South
Carolina................. 1,296 289 3,563 587
Windsor Hills Apartments
Blacksburg, Virginia..... 4,536 520 4,575 1,082
Woodland Village Apartments
Columbia, South
Carolina................. 4,950 605 9,135 2,118
------- ------- -------- -------
$90,931 $13,715 $149,481 $31,090
======= ======= ======== =======
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT
DECEMBER 31, 1996
---------------------------------------------
BUILDINGS
AND
RELATED
PERSONAL ACCUMULATED DATE OF DATE DEPRECIABLE
LAND PROPERTY TOTAL DEPRECIATION CONSTRUCTION ACQUIRED LIFE-YEARS
------- --------- -------- ------------ ------------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Raintree Apartments
Anderson, South
Carolina................. $ 184 $ 3,804 $ 3,988 $ 2,486 1972-74 4/30/81 5-38
River Reach
Jacksonville, Florida.... 1,872 12,272 14,144 6,033 1971 1/30/85 5-27
Rocky Creek
Augusta, Georgia......... 168 4,307 4,475 1,946 1979 6/29/84 5-35
Signal Pointe Apartments
Winter Park, Florida..... 535 10,577 11,112 6,832 1970 6/30/81 5-37
Stone Mountain West
Apartments
Stone Mountain,
Georgia.................. 210 4,396 4,606 3,076 1972 12/31/80 5-37
Tar River Estates
Greenville, North
Carolina................. 474 12,578 13,052 6,861 1969-72 1/18/84 5-27
The Lexington Apartments
Sarasota, Florida........ 1,102 8,585 9,687 4,247 1973-82 10/31/83 5-34
Village Garden
Fort Collins, Colorado... 420 3,522 3,942 1,607 1974 3/1/85 5-30
Willowick Apartments
Greenville, South
Carolina................. 289 4,150 4,439 2,316 1974 6/30/82 5-32
Windsor Hills Apartments
Blacksburg, Virginia..... 520 5,657 6,177 4,237 1973 9/1/80 5-30
Woodland Village Apartments
Columbia, South
Carolina................. 605 11,253 11,858 5,963 1974 9/1/83 5-30
------- -------- -------- --------
$13,715 $180,571 $194,286 $101,529
======= ======== ======== ========
</TABLE>
F-46
<PAGE> 284
SCHEDULE III
SHELTER PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECATION -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Reconciliation of Real Estate
Balance at beginning of year.............................. $190,881 $194,997 $191,886
Property improvements.................................. 3,594 4,392 3,670
Disposal of property................................... (189) (655) (559)
Sale of apartment property............................. -- (7,853) --
-------- -------- --------
Balance at end of year.................................... $194,286 $190,881 $194,997
======== ======== ========
Reconciliation of Accumulated Depreciation
Balance at beginning of year.............................. $ 94,084 $ 90,437 $ 83,428
Additions charged to expense........................... 7,658 7,776 7,448
Sale of apartment property............................. -- (3,661) --
Disposal of property................................... (213) (468) (439)
-------- -------- --------
Balance at end of year.................................... $101,529 $ 94,084 $ 90,437
======== ======== ========
</TABLE>
F-47
<PAGE> 285
INDEPENDENT AUDITORS' REPORT
To the National Property Investors and
Century Properties Partnerships
Greenville, South Carolina
We have audited the accompanying combined balance sheets of National
Property Investors and Century Properties Partnerships as of December 31, 1996
and December 31, 1995, and the related combined statements of operations,
statements of changes in partners' capital and statements of cash flows for each
of the three years in the period ended December 31, 1996, (see Note 1). Our
audit also included the supplemental schedule as of December 31, 1996. These
financial statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the combined financial position of
National Property Investors and Century Properties Partnerships as of December
31, 1996 and 1995, and the combined results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also in our opinion,
the related supplemental schedule, when considered in relation to the basic
combined financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
IMOWITZ KOENIG & CO. LLP
Certified Public Accountants
New York, N.Y.
February 18, 1997
F-48
<PAGE> 286
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 44,080 $ 34,735
Other assets................................................ 24,757 17,956
Investment properties:
Land...................................................... 70,634 74,215
Buildings and related personal property................... 590,209 595,812
--------- ---------
660,843 670,027
Less accumulated depreciation............................. (312,410) (298,586)
--------- ---------
Net real estate............................................. 348,433 371,441
--------- ---------
Total assets...................................... $ 417,270 $ 424,132
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities.................... $ 13,947 $ 10,305
Distribution payable...................................... 12,581 --
Mortgage notes payable.................................... 363,385 354,935
--------- ---------
Total liabilities................................. 389,913 365,240
Partners' capital (deficit):
General partners.......................................... (37,669) (36,877)
Limited partners.......................................... 65,026 95,769
--------- ---------
Total partners' capital........................... 27,357 58,892
--------- ---------
Total liabilities and partners' capital........... $ 417,270 $ 424,132
========= =========
</TABLE>
See accompanying notes and auditors' report.
F-49
<PAGE> 287
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Rental income............................................. $111,867 $115,759 $112,563
Other and interest income................................. 6,703 5,787 2,551
-------- -------- --------
Total revenue..................................... 118,570 121,546 115,114
Expenses:
Operating................................................. 63,107 63,802 61,615
General and administrative................................ 4,014 3,466 4,069
Depreciation.............................................. 22,464 23,551 24,382
Interest.................................................. 31,711 34,740 36,032
-------- -------- --------
Total expenses.................................... 121,296 125,559 126,098
Gain on sale of property.................................... 3,638 13,756 1,580
Loss on sale of property.................................... -- (592) (149)
Minority interest in joint venture.......................... -- (868) (145)
Impairment loss............................................. -- -- (500)
-------- -------- --------
Income (loss) before extraordinary item..................... 912 8,283 (10,198)
Extraordinary item -- early extinguishment of debt.......... (2,704) (3,158) (361)
-------- -------- --------
Net (loss) income................................. $ (1,792) $ 5,125 $(10,559)
======== ======== ========
</TABLE>
See accompanying notes and auditors' report.
F-50
<PAGE> 288
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED
PARTNERSHIP GENERAL LIMITED
UNITS PARTNERS PARTNERS TOTAL
----------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
Partners' (deficit) capital at December 31,
1993............................................ 1,012,492 $(35,774) $109,589 $ 73,815
Net (loss) for the year ended December 31, 1994... -- (835) (9,724) (10,559)
--------- -------- -------- --------
Partners' (deficit) capital at December 31,
1994............................................ 1,012,492 (36,609) 99,865 63,256
Distributions payable to partners................. -- (189) (9,300) (9,489)
Net (loss) income for the year ended December 31,
1995............................................ -- (79) 5,204 5,125
--------- -------- -------- --------
Partners' (deficit) capital at December 31,
1995............................................ 1,012,492 (36,877) 95,769 58,892
Distributions payable to partners................. -- (595) (29,148) (29,743)
Net (loss) for the year ended December 31, 1996... -- (197) (1,595) (1,792)
--------- -------- -------- --------
Partners' (deficit) capital at December 31,
1996............................................ 1,012,492 $(37,669) $ 65,026 $ 27,357
========= ======== ======== ========
</TABLE>
See accompanying notes and auditors' report.
F-51
<PAGE> 289
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net (loss) income......................................... $ (1,792) $ 5,125 $(10,559)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation........................................... 22,464 23,551 24,382
Amortization of discounts and loan costs............... 2,457 2,910 2,731
Loss on disposal of property........................... -- 592 149
Gain on disposal of property........................... (3,638) (13,756) (1,580)
Provision for doubtful receivables..................... -- 10 --
Impairment loss........................................ -- -- 500
Minority interest in joint venture..................... -- 868 145
Accrued interest added to note principal............... -- 81 29
Deferred interest expense.............................. -- -- 21
Extraordinary item -- early extinguishment of debt..... 2,704 3,158 361
Change in accounts:
Other assets......................................... (787) (894) (1,930)
Accounts payable and other liabilities............... 4,621 (942) (1,153)
--------- -------- --------
Net cash provided by operating activities......... 26,029 20,703 13,096
Investing activities
Property improvements and replacements.................... (10,853) (6,215) (7,570)
Restricted cash (increase) decrease....................... (3,346) 1,563 1,343
Net proceeds from sale of property........................ 12,312 27,825 3,537
Proceeds for cash investments............................. -- -- 1,879
Proceeds from note receivable............................. -- -- 50
--------- -------- --------
Net cash (used in) provided by investing
activities...................................... (1,887) 23,173 (761)
Financing activities
Payments on mortgage notes payable........................ (5,898) (5,748) (7,857)
Repayment of mortgage notes payable....................... (133,054) (82,470) (79,491)
Proceeds from long-term borrowings........................ 147,032 79,643 74,100
Loan costs................................................ (4,520) (1,568) (1,887)
Debt extinguishment costs................................. (1,195) (1,766) --
Joint venture partner distributions....................... -- (1,640) (143)
Payment of deferred interest payable...................... -- (456) --
Due to affiliate.......................................... -- -- (103)
Repayment of note payable to affiliate of general
partner................................................ -- -- (978)
Distributions paid........................................ (17,162) (9,489) --
--------- -------- --------
Net cash used in financing activities............. (14,797) (23,494) (16,359)
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 9,345 20,382 (4,024)
Cash and cash equivalents at beginning of year.............. 34,735 14,353 18,377
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 44,080 $ 34,735 $ 14,353
========= ======== ========
</TABLE>
F-52
<PAGE> 290
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Cash paid for interest.................................... $ 28,270 $ 32,842 $ 33,956
========= ======== ========
Property improvements and replacements in notes payable..... $ -- $ 39 $ --
========= ======== ========
Supplemental disclosure of non-cash investing and financing
activities
Accrued interest added to note principal.................... $ -- $ -- $ 2,139
========= ======== ========
Replacement reserve holdback from proceeds of mortgage
refinancing............................................... $ -- $ -- $ 225
========= ======== ========
Property sales expenses accrued............................. $ -- $ 91 $ --
========= ======== ========
Accrued interest assumed by purchaser of disposed
property.................................................. $ 667 $ -- $ --
========= ======== ========
Mortgage note assumed by purchaser of disposed property..... $ 2,173 $ -- $ --
========= ======== ========
Mortgage assumed on property sale........................... $ -- $ 7,359 $ --
========= ======== ========
Accrued distribution to partners............................ $ 12,581 $ -- $ --
========= ======== ========
</TABLE>
See accompanying notes and auditors' report.
F-53
<PAGE> 291
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization of Insignia Properties Trust
Insignia Properties Trust ("IPT" or the "Company") was formed in 1996 by
Insignia Financial Group, Inc. ("Insignia") for the purpose of acquiring and
owning interests in multifamily residential properties located throughout the
United States, including limited and general partner interests in partnerships
which hold such real estate properties. IPT has been organized in a manner that
will allow it to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986 beginning with the taxable year ended December 31,
1996. Insignia and its affiliates have transferred to IPT equity interests in
entities comprising or controlling the general partners of 46 public real estate
limited partnerships (the "Equity Partnerships") in exchange for shares of
beneficial interest of IPT. IPT has also issued common shares to Insignia and
certain of its employees and affiliates in exchange for the payment of certain
obligations of IPT. Insignia also transferred its limited partnership interests
in certain limited partnerships, including National Property Investors and
Century Properties Partnerships (defined below), to Insignia Properties L.P.
("IPLP") in exchange for units in IPLP.
IPT is 98% owned by Insignia, with the remainder of its shares owned by
Metropolitan Asset Enhancement L.P. (an affiliated company) or certain Insignia
employees. As of December 31, 1996, IPLP is owned 57% by IPT with Insignia
owning the remaining 43%.
Basis of Presentation
The accompanying combined financial statements include the assets,
liabilities and results of operations of 13 partnerships that Insignia acquired
limited (and general) partnership interests in January 1996 as a result of an
acquisition. Such combined group is herein referred to as the National Property
Investors ("NPI") and Century Properties Partnerships ("CP") (the
"Partnerships"). These Partnerships are part of the Equity Partnerships
mentioned above.
The Partnerships included in these combined financial statements and IPLP's
limited partnership ownership interest in each, as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
OWNERSHIP
PARTNERSHIP PERCENTAGE
----------- -----------
<S> <C>
National Property Investors III ("NPI III")................. 45%
National Property Investors 4 ("NPI 4")..................... 54%
National Property Investors 5 ("NPI 5")..................... 46%
National Property Investors 6 ("NPI 6")..................... 44%
National Property Investors 7 ("NPI 7")..................... 42%
National Property Investors 8 ("NPI 8")..................... 37%
Century Properties Fund XIV ("CPF XIV")..................... 41%
Century Properties Fund XV ("CPF XV")....................... 40%
Century Properties Fund XVI ("CPF XVI")..................... 37%
Century Properties Fund XVII ("CPF XVII")................... 34%
Century Properties Fund XVIII ("CPF XVIII")................. 29%
Century Properties Fund XIX ("CPF XIX")..................... 27%
Century Properties Growth Fund XXII ("CPGF XXII")........... 20%
</TABLE>
F-54
<PAGE> 292
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The ownership interests in CPF XIV and CPF XV do not include commercial
properties. IPLP did not acquire an economic interest in those properties.
The condensed, combined balance sheets of the commercial properties in CPF
XIV and CPF XV at December 31, 1996 and 1995; and the condensed, combined
statements of operations of the commercial properties in CPF XIV and CPF XV for
the years ended December 31, 1996, 1995 and 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ -------
<S> <C> <C>
Total assets, primarily real estate at December 31, 1996 and
1995...................................................... $6,733 $18,575
====== =======
Liabilities, primarily mortgages payable.................... $4,176 $11,257
Equity...................................................... 2,557 7,318
------ -------
Total liabilities and equity...................... $6,733 $18,575
====== =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Total revenue.............................................. $1,889 $6,355 $5,960
Operating and other expenses............................... 715 2,476 2,452
Depreciation............................................... 549 1,483 1,437
Mortgage interest.......................................... 543 1,770 1,967
------ ------ ------
Total expenses................................... 1,807 5,729 5,856
Gain on sale of property................................... 3,638 3,857 --
Loss on sale of property................................... -- (592) --
------ ------ ------
Income before extraordinary item........................... 3,720 3,891 104
Extraordinary item:
Loss on early extinguishment of debt..................... (411) (189) --
------ ------ ------
Net income....................................... $3,309 $3,702 $ 104
====== ====== ======
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include all of the accounts of the
Partnerships and all majority owned partnerships. All significant
interpartnership balances have been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Depreciation
Depreciation is provided by the straight-line method over the estimated
lives of the rental properties and related personal property ranging from 5 to
39 years.
F-55
<PAGE> 293
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Costs
Deferred costs represent deferred financing costs and deferred leasing
commissions and are included in other assets. Deferred financing costs are
amortized as interest expense over the lives of the related loans, or expensed,
if financing is not obtained. Deferred leasing commissions are amortized over
the life of the applicable lease. Such amortization is charged to operating
expenses. As of December 31, 1996 and 1995, accumulated amortization of deferred
costs totaled approximately $2,548,000 and $3,933,000, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash equivalents.
At certain times, the amount of cash deposited at a bank may exceed the limit of
insured deposits.
Leases
The Partnerships generally lease apartment units for twelve-month terms or
less and lease commercial units with remaining lease terms of up to five years.
The Partnership recognized income as earned on its leases.
Investment Properties
The Partnerships have adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. For the year ended December 31, 1994, an adjustment for
impairment of value of $500,000 was recorded. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount. The effect of
adoption was not material.
Discounts on Notes Payable
Discounts on notes payable are amortized using the straight-line method
over the remaining terms of the related notes.
Income Taxes
Taxable income or loss of the Partnerships is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is made in
the financial statements of the Partnerships.
The tax basis of the Partnerships' assets and liabilities is approximately
$27.6 million less than the assets and liabilities as reported in the financial
statements.
The aggregate cost of the Real Estate for Federal income tax purposes at
December 31, 1996 and 1995, respectively, is approximately $662.2 million and
$675.7 million. The accumulated depreciation taken for Federal income tax
purposes at December 31, 1996 and 1995, respectively, is approximately $453.1
million and $445.8 million.
Advertising
The Partnerships expense the costs of advertising as incurred.
F-56
<PAGE> 294
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value
The Partnerships have implemented FASB Statement No. 107, "Disclosure about
Fair Value of Financial Instruments," which requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. The carrying amount of the Partnerships' financial instruments
(except for long term debt) approximates fair value due to short-term
maturities. The fair value of the Partnerships long term debt after discounting
the scheduled loan payments to maturity, approximates its carrying balance.
General and Limited Partner Allocations
Profits, gains, losses and cash distributions are allocated between general
and limited partners in accordance with the provisions of the respective
partnership agreements. Upon sale of all properties and termination of a
Partnership, the general partners may be required to contribute certain funds to
the Partnership in accordance with the partnership agreement.
3. MORTGAGES PAYABLE
Mortgages payable, which are collateralized by substantially all investment
properties are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First mortgages with fixed interest rates ranging from 7.00%
to 7.33%, due at various dates through June 2021.......... $103,685 $ 6,963
First mortgages with fixed interest rates ranging from 7.50%
to 8.00%, maturing at various dates through September
2021...................................................... 112,011 87,237
First and second mortgages with fixed interest rates ranging
from 8.25% to 8.50%, due at various dates through July
2005...................................................... 54,538 72,346
First mortgages with fixed interest rates ranging from 8.56%
to 9.00%, due at various dates through December 2008...... 26,092 46,080
First mortgages with fixed interest rates ranging from 9.38%
to 10.64%, due at various dates through February 2002..... 41,202 59,762
First and second mortgages with fixed and variable interest
rates, due at various dates............................... 30,465 88,394
-------- --------
367,993 360,782
Less: unamortized discounts................................. (4,608) (5,847)
-------- --------
Total mortgages payable........................... $363,385 $354,935
======== ========
</TABLE>
The estimated fair value of the Partnerships' aggregate debt approximates
its carrying value. This estimate is not necessarily indicative of the amounts
the Partnerships may pay in actual market transactions.
During 1996, 1995 and 1994, various properties were either sold or
refinanced, which resulted in the Partnerships' recording extraordinary losses
of approximately $2,704,000 (1996), $3,158,000 (1995) and $361,000 (1994). The
extraordinary losses were incurred as a result of writing off unamortized loan
costs and prepayment premiums related to the old mortgages.
F-57
<PAGE> 295
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Annual principal payments and maturities for all mortgages payable as of
December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997...................................................... $ 22,201
1998...................................................... 2,770
1999...................................................... 24,317
2000...................................................... 44,652
2001...................................................... 45,368
Thereafter................................................ 228,685
--------
$367,993
========
</TABLE>
The mortgages payable are nonrecourse and are secured by pledge of the
respective rental properties and by pledge of revenues from the respective
properties. Also, substantially all of the mortgages require prepayment
penalties if repaid prior to maturity and prohibit resale of the properties
subject to existing indebtedness.
As of December 31, 1996, one partnership was in default of a mortgage of
approximately $4,557,000 and in January 1997 two mortgages amounting to
approximately $12,510,000 on the same property were in default. The combined
carrying value of these properties at December 31, 1996 was approximately
$11,230,000.
4. TRANSACTIONS WITH AFFILIATES
The Partnerships have no employees and are dependent on the Corporate
General Partner and its affiliates for the management and administration of all
partnership activities. The partnership agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnerships.
Transactions with Insignia, NPI, and affiliates of Insignia and NPI in
1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Property management fees................................... $5,687 $5,552 $4,758
Reimbursement for services of affiliates................... 2,326 2,701 2,658
Property insurance premiums................................ -- 3,218 1,054
Included in reimbursements for services of affiliates for 146 -- --
construction oversight costs.............................
Brokerage fees............................................. 1,057 181 --
Included in reimbursements for services of affiliates for 83 -- --
loan costs...............................................
Partnership management fees................................ 7 -- --
Management and operation fees paid to joint venture -- -- 104
partners.................................................
Fees for real estate tax appeals........................... -- 135 14
Administrative fees........................................ 185 -- --
</TABLE>
For the period of January 19, 1996 to December 31, 1996, the Partnerships
insured their properties under a master policy through an agency and insurer
unaffiliated with the Corporate General Partner. An affiliate of the Corporate
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the financial
obligations to the affiliate of the Corporate General Partner who receives
payment on these obligations from the agent. The amount of the Partnerships'
insurance premiums accruing
F-58
<PAGE> 296
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
to the benefit of the affiliate of the Corporate General Partner by virtue of
the agent's obligations is not significant.
Prior to January 19, 1996, the Partnerships paid insurance premiums to the
Corporate General Partner under a master insurance policy arranged for by the
Corporate General Partner.
An affiliate of the Corporate General Partner has established a revolving
credit facility (the "Partnership Revolver"), with each NPI Partnership, to be
used to fund deferred maintenance and working capital needs of the NPI
Partnerships. The maximum draw available to the NPI Partnerships under the
Partnership Revolver is $2,800,000. In addition, an affiliate of the Corporate
General Partner has established a working capital line of credit for the CP
Partnerships of $150,000 per property. The maximum draw available to the CP
Partnerships under this credit facility was $5,100,000 at December 31, 1996.
There has been no loan activity or outstanding balances under these credit
facilities during the three year period ended December 31, 1996.
5. SALE OR DISPOSITION OF REAL ESTATE
On January 5, 1997, CPF XV sold Phoenix Business Park to an unrelated third
party for a contract price of $5,600,000. After payment of the mortgage payable,
closing costs and related expenses, CPF XV received proceeds of approximately
$2,314,000. A gain of approximately $1,000 will be recognized in 1997 on
disposition of the property. A loss on early extinguishment of debt of
approximately $233,000 will be recognized in 1997.
On April 26, 1996, CPF XIV sold The Oaks Shopping Center, located in
Beaumont, Texas. The buyer of the property assumed the outstanding debt on the
property, and CPF XIV received net proceeds of $1,000. As a result of the sale,
CPF XIV paid a disposition fee of approximately $16,000. For financial statement
purposes, the sale resulted in a gain of $65,000. The Partnership had recorded
an $883,000 provision for impairment in 1992.
On March 7, 1996, CPF XIV sold Broadway Trade Center located in San
Antonio, Texas, to an unaffiliated third party for $3,825,000. After repayment
of the first, second and third mortgages totaling $1,591,000 and closing
expenses of $244,000, the net proceeds received by CPF XIV were $1,990,000. As a
result of the loans being paid in full, an extraordinary loss representing the
remaining unamortized mortgage discount of $315,000 was recorded. For financial
statement purposes, the sale resulted in a gain of $1,531,000. CPF XIV had
previously recorded a $1,421,000 provision for impairment of value for the
property.
On February 12, 1996, CPF XIV sold University Square, located in Bozeman,
Montana, to an unaffiliated third party for $4,850,000. After closing expenses
of $231,000, the net proceeds received by CPF XIV were $4,619,000. For financial
statement purposes, the sale resulted in a gain of $1,416,000.
On February 1, 1996, CPF XV sold Northbank Office Complex, located in
Eugene, Oregon, to an unaffiliated third party for $4,605,000. After payment of
the mortgage totaling approximately $2,443,000 and closing expenses, the net
proceeds received by CPF XV were approximately $1,992,000. For financial
statement purposes, the sale resulted in a gain on disposal of property of
approximately $881,000 and an extraordinary loss on early extinguishment of debt
of approximately $96,000.
On December 29, 1995, CPF XV sold Farmers Lane Plaza, located in Santa
Rosa, California, to an unaffiliated third party for $8,750,000. Net proceeds to
CPF XV after payment of closing costs and existing debt were approximately
$3,995,000. The sale resulted in a gain of $3,618,000. Subsequent to the
closing, CPF XV paid $255,000 in additional costs in connection with the sale.
On November 9, 1995, CPF XIV sold Wingren Plaza, located in Dallas, Texas,
for $1,000,000. After closing expenses of $68,000, the net proceeds received by
CPF XIV were $932,000. For financial statement
F-59
<PAGE> 297
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purposes, the sale resulted in a gain of $239,000. CPF XIV had previously
recorded a $1,901,000 provision for impairment of value in 1991.
On October 6, 1995, CPF XIV sold Duck Creek Shopping Center, located in
Garland, Texas, for $2,250,000. After closing expenses of $138,000, the net
proceeds received by CPF XIV were $2,112,000. For financial statement purposes,
the sale resulted in a loss of $36,000.
On September 12, 1995, CPF XIV sold Greenbriar Plaza Shopping Center,
located in Duncanville, Texas, for $1,050,000. After closing expenses of
$70,000, the net proceeds received by CPF XIV were $980,000. For financial
statement purposes, the sale resulted in a loss of $556,000.
On April 12, 1995, an affiliate of CPF XV's joint venture partner in
Plumtree Apartments acquired, pursuant to a right of first refusal, Plumtree
Apartments for $12,500,000. After repayment of existing loans of $4,595,000, a
prepayment premium of $42,000 and closing expenses of $113,000, net proceeds
received by the joint venture were $7,750,000. CPF XV retained $6,229,000 of the
$7,750,000 proceeds in accordance with the joint venture agreement. For
financial statement purposes, the sale resulted in a gain of $7,866,000.
On August 18, 1995, CPGF XXII sold Monterey Village Apartments to an
unaffiliated third party for $10,609,000. After assumption of the mortgage
balance of $7,359,000 and closing costs, CPGF XXII received net proceeds of
$2,926,000. For financial reporting purposes, the sale resulted in a gain on
disposition of $2,033,000. CPGF XXII also recognized an extraordinary loss on
extinguishment of debt of $217,000 in 1995 due to the write-off of unamortized
loan costs.
On January 28, 1994, NPI 7 sold its California property to an unaffiliated
third party, subject to the first and second mortgages. NPI 7's share of the
proceeds after closing expenses was $2,866,000. The sale resulted in a gain of
approximately $105,000. NPI 7 had recorded a $525,000 provision for loss on
disposition of this property during 1992. Net cash proceeds to NPI 7, after
closing expenses and $239,000 to purchase the third mortgage, at a discount were
approximately $277,000.
On January 28, 1994, NPI 8 sold its California property to an unaffiliated
third party, subject to the first and second mortgages. NPI 8's share of the
proceeds after closing expenses was $5,819,000. The sale resulted in a gain of
approximately $229,000. NPI 8 had recorded a $1,063,000 provision for loss on
disposition of this property during 1992. Net cash proceeds to NPI 8, after
deducting closing expenses and $486,000 to purchase the third mortgage at a
discount, were approximately $563,000.
In February 1994, CPF XIX sold Plantation Forest Apartments, located in
Atlanta, Georgia for $2,450,000. After assumption of the existing loan of
$1,965,000 and costs of sale of $3,000, the proceeds to CPF XIX were $482,000.
The net loss on the sale was $149,000.
In February 1994, CPF XVIII sold Plantation Ridge Apartments, located in
Marietta, Georgia for $15,353,000. The existing loans of $13,653,000 were
assumed by the buyer at the time of sale. After assumption of the existing loans
and costs of the sale of $210,000, proceeds to CPF XVIII were $1,490,000. For
financial statement purposes, CPF XVIII recorded a $1,246,000 gain on sale of
property.
6. OPERATING LEASES
The Partnerships lease their residential properties under short-term
operating leases. Lease terms are generally one year or less in duration. The
Partnership expects that in the normal course of business, these leases will be
renewed or replaced by other leases. Commercial office property leases vary from
periods ranging up to five years. The future minimum rental payments to be
received under operating leases that have initial or
F-60
<PAGE> 298
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
remaining noncancelable lease terms in excess of one year as of December 31,
1996, are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $279
1998........................................................ 230
1999........................................................ 110
2000........................................................ 73
2001........................................................ 45
Thereafter.................................................. --
----
$737
====
</TABLE>
For commercial leases with scheduled rental increases, rental income is
recognized on a straight-line basis over the life of the applicable leases.
There is no assurance that this income will continue at the same level when the
leases expire.
7. DISTRIBUTION PAYABLE
NPI 6 declared a distribution of approximately $10,621,000 in 1996 payable
to its partners. The distribution was paid in January 1997, with approximately
$10,515,000 being paid to the limited partners and approximately $106,000 being
paid to the Corporate General Partner. The distribution was from net proceeds
from mortgage refinancings and cash from operations.
NPI 7 declared a distribution of approximately $1,960,000 in 1996 payable
to its partners. The distribution was paid in January 1997, with approximately
$1,940,000 being paid to the limited partners and $20,000 being paid to the
Corporate General Partner.
F-61
<PAGE> 299
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT
DECEMBER 31, 1996
INITIAL COST ---------------------------------------------
------------------- COST BUILDINGS
BUILDINGS CAPITALIZED AND
AND (REMOVED) RELATED
PERSONAL SUBSEQUENT TO PERSONAL ACCUMULATED
ENCUMBRANCES LAND PROPERTY ACQUISITION LAND PROPERTY TOTAL DEPRECIATION
------------ ------- --------- ------------- ------- --------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alpine Village
Birmingham, AL.... $ 2,100 $ 359 $ 3,515 $ 1,096 $ 366 $ 4,604 $ 4,970 $ 3,003
Autumn Run Apts.
Naperville, IL.... 9,100 1,462 14,957 1,003 1,458 15,964 17,422 6,080
Cherry Creek Gardens
Apts. Englewood,
CA................ 7,766 1,320 11,879 1,448 1,320 13,327 14,647 6,419
Colony at Kenilworth
Towson, MA........ 7,985 1,306 13,187 4,881 1,366 18,008 19,374 12,291
Cooper's Pointe
Apts. Charleston,
SC................ 4,217 513 6,696 191 510 6,890 7,400 2,954
Cooper's Pond Apts.
Tampa, FL......... 7,771 1,476 12,505 216 1,315 12,882 14,197 6,593
Copper Mill Apts.
Richmond, VA...... 6,052 933 8,061 333 929 8,398 9,327 3,156
Creekside Apts.
Denver, CO........ 5,249 1,366 7,307 1,475 1,366 8,782 10,148 4,159
Fairview View I
Apts. Baton Rouge,
LA................ 4,000 762 7,048 1,115 767 8,158 8,925 5,592
Fairway II Apts.
Baton Rouge, LA... 4,200 1,086 8,788 474 1,094 9,254 10,348 4,642
Four Winds Apts.
Overland, KA...... 9,607 1,363 14,288 531 1,357 14,825 16,182 5,494
Gateway Park Dublin,
CA................ 1,518 484 1,135 176 487 1,308 1,795 684
Greenspoint Apts.
Phoenix, AZ....... 8,900 2,165 11,199 426 2,141 11,649 13,790 5,007
Hampton Green Apts.
Dallas, TX........ 5,755 2,086 9,474 568 2,086 10,042 12,128 4,375
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIFE-YEARS
------------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Alpine Village
Birmingham, AL.... 1972 10/16/84 5-27.5
Autumn Run Apts.
Naperville, IL.... 1987 6/1/86 5-30
Cherry Creek Gardens
Apts. Englewood,
CA................ 1979 9/1/82 5-30
Colony at Kenilworth
Towson, MA........ 1967 3/15/84 5-27.5
Cooper's Pointe
Apts. Charleston,
SC................ 1986 11/1/85 5-30
Cooper's Pond Apts.
Tampa, FL......... 1979-81 3/1/83 5-30
Copper Mill Apts.
Richmond, VA...... 1987 9/1/86 5-30
Creekside Apts.
Denver, CO........ 1974 10/1/82 5-30
Fairview View I
Apts. Baton Rouge,
LA................ 1974 5/31/84 5-27.5
Fairway II Apts.
Baton Rouge, LA... 1981 11/1/84 5-27.5
Four Winds Apts.
Overland, KA...... 1987 9/1/85 5-30
Gateway Park Dublin,
CA................ 1977 10/1/80 5-39
Greenspoint Apts.
Phoenix, AZ....... 1986 2/1/84 6-30
Hampton Green Apts.
Dallas, TX........ 1986 12/1/85 5-30
</TABLE>
F-62
<PAGE> 300
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT
DECEMBER 31, 1996
INITIAL COST ---------------------------------------------
------------------- COST BUILDINGS
BUILDINGS CAPITALIZED AND
AND (REMOVED) RELATED
PERSONAL SUBSEQUENT TO PERSONAL ACCUMULATED
ENCUMBRANCES LAND PROPERTY ACQUISITION LAND PROPERTY TOTAL DEPRECIATION
------------ ------- --------- ------------- ------- --------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Huntington Apts.
Morrisville, NC... $ 3,583 $ 1,368 $ 9,233 $ 715 $ 1,376 $ 9,940 $ 11,316 $ 3,741
Lakeside Apts.
Lisle, IL......... 17,200 2,087 15,363 3,378 2,093 18,735 20,828 13,439
Lakeside Place Apts.
Houston, TX....... 14,636 3,659 21,481 5,025 3,659 26,506 30,165 13,811
The Landings Apts.
Tampa, FL......... 2,282 504 4,702 519 504 5,221 5,725 2,706
The Lodge Apts.
Denver, CO........ 5,775 1,575 8,580 1,808 1,577 10,386 11,963 4,886
McMillan Place Apts.
Dallas, TX........ 12,510 2,399 10,826 548 2,427 11,346 13,773 5,072
Misty Woods Apts.
Charlotte, NC..... 5,407 429 6,846 277 434 7,118 7,552 3,061
Northwood I & II
Apts. Pensacola,
FL................ 5,000 478 7,919 991 483 8,905 9,388 4,616
Oak Run Apts.
Dallas, TX........ 10,626 6,218 8,713 1,762 6,218 10,475 16,693 5,037
Oakwood Village
Orlando, FL....... 4,012 589 7,181 1,626 595 8,801 9,396 6,501
Overlook Apts. Salt
Lake City, UT..... 8,049 1,082 8,225 701 1,078 8,930 10,008 4,053
Palisades Apts.
Montgomery, AL.... 4,899 970 8,448 2,444 976 10,886 11,862 8,515
Patchen Place Apts.
Lexington, KY..... 3,000 706 6,409 1,286 714 7,687 8,401 4,765
Phoenix Business
Park Atlanta, GA.. 2,578 746 5,176 2,412 746 7,588 8,334 3,286
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIFE-YEARS
------------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Huntington Apts.
Morrisville, NC... 1986 2/1/88 5-29
Lakeside Apts.
Lisle, IL......... 1973-75 12/18/80 5-27.5
Lakeside Place Apts.
Houston, TX....... 1976-78 12/1/80 5-30
The Landings Apts.
Tampa, FL......... 1979 6/1/82 5-30
The Lodge Apts.
Denver, CO........ 1974 10/1/82 5-30
McMillan Place Apts.
Dallas, TX........ 1985 6/1/85 6-30
Misty Woods Apts.
Charlotte, NC..... 1986 6/1/85 6-30
Northwood I & II
Apts. Pensacola,
FL................ 1981 7/1/85 5-27.5
Oak Run Apts.
Dallas, TX........ 1979 11/1/83 5-30
Oakwood Village
Orlando, FL....... 1973 8/3/82 5-27.5
Overlook Apts. Salt
Lake City, UT..... 1984 7/1/83 5-30
Palisades Apts.
Montgomery, AL.... 1968-72 6/22/83 5-27.5
Patchen Place Apts.
Lexington, KY..... 1971 7/1/85 5-27.5
Phoenix Business
Park Atlanta, GA.. 1980 5/1/82 5-39
</TABLE>
F-63
<PAGE> 301
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT
DECEMBER 31, 1996
INITIAL COST ---------------------------------------------
------------------- COST BUILDINGS
BUILDINGS CAPITALIZED AND
AND (REMOVED) RELATED
PERSONAL SUBSEQUENT TO PERSONAL ACCUMULATED
ENCUMBRANCES LAND PROPERTY ACQUISITION LAND PROPERTY TOTAL DEPRECIATION
------------ ------- --------- ------------- ------- --------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Pines Apts.
Roanoke, VA....... $ 3,517 $ 579 $ 6,521 $ 671 $ 584 $ 7,187 $ 7,771 $ 4,152
Pinetree Apts.
Charlotte, NC..... 2,241 493 3,873 1,726 499 5,593 6,092 3,979
Place du Plantier
Apts. Baton Rouge,
LA................ 3,800 840 7,773 1,197 844 8,966 9,810 6,204
Plantation Creek
Apts. Atlanta,
GA................ 15,788 2,653 20,827 1,990 2,655 22,815 25,470 10,025
Preston Creek Apts.
Dallas, TX........ 4,500 2,118 5,793 1,211 2,107 7,015 9,122 3,466
Promontory Point
Austin, TX........ 2,840 1,690 10,129 (180) 1,595 10,044 11,639 4,294
Rocky Ridge
Birmingham, AL.... 1,450 323 2,972 966 330 3,931 4,261 2,670
Sandspoint Apts.
Phoenix, AZ....... 9,887 2,124 13,158 761 2,146 13,897 16,043 6,058
Ski Lodge Apts.
Montgomery, AL.... 6,800 672 11,587 2,627 676 14,210 14,886 9,403
South Point Apts.
Durham, NC........ 4,600 859 7,686 570 863 8,252 9,115 4,197
St. Charleston
Village Apts. Las
Vegas, NV......... 6,210 751 7,322 1,423 743 8,753 9,496 4,920
Stoney Creek Apts.
Dallas, TX........ 6,995 1,803 12,509 (260) 1,689 12,363 14,052 5,461
Summerhill Apts.
Dallas, TX........ 2,930 1,003 6,069 830 999 6,903 7,902 3,600
Summerwalk Apts.
Winter Park, FL... 4,557 427 6,347 561 431 6,904 7,335 4,806
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIFE-YEARS
------------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
The Pines Apts.
Roanoke, VA....... 1978 4/1/85 5-27.5
Pinetree Apts.
Charlotte, NC..... 1974 7/80 5-27.5
Place du Plantier
Apts. Baton Rouge,
LA................ 1974 5/1/84 5-27.5
Plantation Creek
Apts. Atlanta,
GA................ 1977-78 6/1/84 5-30
Preston Creek Apts.
Dallas, TX........ 1979 8/1/81 5-30
Promontory Point
Austin, TX........ 1984 10/1/85 5-30
Rocky Ridge
Birmingham, AL.... 1973 10/16/84 5-27.5
Sandspoint Apts.
Phoenix, AZ....... 1986 2/1/84 6-30
Ski Lodge Apts.
Montgomery, AL.... 1977 7/19/84 5-27.5
South Point Apts.
Durham, NC........ 1980 3/1/86 5-27.5
St. Charleston
Village Apts. Las
Vegas, NV......... 1980 9/1/79 5-30
Stoney Creek Apts.
Dallas, TX........ 1983 6/1/85 5-30
Summerhill Apts.
Dallas, TX........ 1979 8/1/81 5-30
Summerwalk Apts.
Winter Park, FL... 1974 12/24/80 5-27.5
</TABLE>
F-64
<PAGE> 302
SCHEDULE III
NATIONAL PROPERTY INVESTORS AND CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH CARRIED AT
DECEMBER 31, 1996
INITIAL COST ---------------------------------------------
------------------- COST BUILDINGS
BUILDINGS CAPITALIZED AND
AND (REMOVED) RELATED
PERSONAL SUBSEQUENT TO PERSONAL ACCUMULATED
ENCUMBRANCES LAND PROPERTY ACQUISITION LAND PROPERTY TOTAL DEPRECIATION
------------ ------- --------- ------------- ------- --------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sun River Apts.
Tempe, AZ......... $ 6,278 $ 1,102 $ 8,770 $ 784 $ 1,090 $ 9,566 $ 10,656 $ 5,169
Sunrunner Apts. St.
Petersburg, FL.... 3,250 634 6,485 145 587 6,677 7,264 3,160
Torrey Pines Village
Apts. Las Vegas,
NV................ 3,697 460 4,595 1,020 455 5,620 6,075 3,095
The Village Apts.
Voorhees Township,
NJ................ 11,058 1,307 17,121 2,632 1,329 19,731 21,060 10,703
The Village in the
Woods Apts.
Cypress, TX....... 9,813 2,852 20,915 (9,497) 1,500 12,770 14,270 6,083
Village of Pennbrook
Falls Township,
PA................ 19,300 1,972 18,245 5,505 1,980 23,742 25,722 17,026
Williamsburg on the
Lake Indianapolis,
IN................ 7,400 590 14,822 2,808 594 17,626 18,220 10,174
Willow Park
Altamonte Springs,
FL................ 2,968 567 5,218 1,073 574 6,284 6,858 4,533
Wood Creek Apts.
Mesa, AZ.......... 12,810 2,130 13,440 535 2,117 13,988 16,105 6,339
Wood Lake Apts.
Atlanta, GA....... 7,649 1,206 10,980 612 1,206 11,592 12,798 5,299
Wood Ridge Apts.
Atlanta, GA....... 8,883 1,632 12,321 781 1,632 13,102 14,734 5,875
Woods of Inverness
Apts. Houston,
TX................ 5,205 1,292 10,305 (2,622) 905 8,070 8,975 4,167
Plantation Crossing
Apts. Atlanta,
GA................ 5,182 1,062 7,576 417 1,062 7,993 9,055 3,614
-------- ------- -------- ------- ------- -------- -------- --------
$363,385 $72,632 $532,500 $55,711 $70,634 $590,209 $660,843 $312,410
======== ======= ======== ======= ======= ======== ======== ========
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIFE-YEARS
------------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sun River Apts.
Tempe, AZ......... 1981 11/1/80 5-30
Sunrunner Apts. St.
Petersburg, FL.... 1981 7/1/84 6-30
Torrey Pines Village
Apts. Las Vegas,
NV................ 1980 9/1/79 5-30
The Village Apts.
Voorhees Township,
NJ................ 1979-80 1/5/84 5-27.5
The Village in the
Woods Apts.
Cypress, TX....... 1983 10/1/82 5-30
Village of Pennbrook
Falls Township,
PA................ 1973 12/15/81 5-27.5
Williamsburg on the
Lake Indianapolis,
IN................ 1974-76 3/1/86 5-27
Willow Park
Altamonte Springs,
FL................ 1973 12/13/82 5-27.5
Wood Creek Apts.
Mesa, AZ.......... 1985 5/1/84 5-30
Wood Lake Apts.
Atlanta, GA....... 1983 12/1/83 5-30
Wood Ridge Apts.
Atlanta, GA....... 1982 4/1/84 6-30
Woods of Inverness
Apts. Houston,
TX................ 1981 7/1/82 5-30
Plantation Crossing
Apts. Atlanta,
GA................ 1980 6/84 6-30
</TABLE>
F-65
<PAGE> 303
NATIONAL PROPERTY INVESTORS AND
CENTURY PROPERTIES PARTNERSHIPS
REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reconciliation of Real Estate
Balance at beginning of year.............................. $670,026 $700,437 $730,969
Property improvements.................................. 10,853 6,215 7,570
Revaluation allowance on rental property sold.......... -- -- (3,073)
Cost of rental property disposed of.................... -- -- (20,288)
Disposal of properties................................. (20,036) (36,625) (14,741)
-------- -------- --------
Balance at end of year.................................... $660,843 $670,027 $700,437
======== ======== ========
Reconciliation of Accumulated Depreciation
Balance at beginning of year.............................. $298,584 $289,734 $278,090
Additions charged to expense........................... 22,464 23,551 24,382
Allowance for impairment of rental properties sold or
disposed of.......................................... -- -- (7,445)
Disposal of properties................................. (8,638) (14,699) (5,293)
-------- -------- --------
Balance at end of year.................................... $312,410 $298,586 $289,734
======== ======== ========
</TABLE>
F-66
<PAGE> 304
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Notes Receivable:
[Mortgage notes receivable]................................. $37,353,000 $39,347,000
Promissory notes receivable (primarily due from
affiliates)............................................... 6,110,000 6,789,000
----------- -----------
43,463,000 46,136,000
Less: Allowances for estimated losses....................... (8,147,000) (8,826,000)
----------- -----------
35,316,000 37,310,000
Foreclosed real estate held for sale........................ 8,755,000 4,521,000
Cash and cash equivalents................................... 6,248,000 3,947,000
Restricted cash............................................. 812,000 --
Accrued interest receivable................................. 604,000 654,000
Prepaid expenses and other assets........................... 130,000 98,000
----------- -----------
Total assets...................................... $51,865,000 $46,530,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses....................... $ 429,000 $ 588,000
Mortgage note payable....................................... 4,525,000 --
----------- -----------
Total liabilities................................. 4,954,000 588,000
----------- -----------
Shareholders' equity:
Class A Shares (2,617,000 issued and outstanding, $1.00 par
value, unlimited shares authorized)....................... 2,617,000 2,617,000
Class B Shares (1,675,113 issued and outstanding, $.01
value, unlimited shares authorized)....................... 14,000 14,000
Additional paid-in capital.................................. 50,199,000 50,199,000
Accumulated distributions in excess of cumulative net
income.................................................... (5,919,000) (6,888,000)
----------- -----------
Total shareholders' equity........................ 46,911,000 45,942,000
----------- -----------
Total liabilities and shareholders' equity........ $51,865,000 $46,530,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-67
<PAGE> 305
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Interest income.............................. $ 967,000 $1,357,000 $1,939,000 $2,525,000
Rental income, net........................... 275,000 32,000 361,000 99,000
Gain from sale of real property.............. -- 28,000 -- 28,000
Recovery of bad debts........................ 679,000 341,000 679,000 341,000
---------- ---------- ---------- ----------
Total revenue...................... 1,921,000 1,758,000 2,979,000 2,993,000
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
General and administrative................... 247,000 283,000 302,000 618,000
Amortization................................. 13,000 13,000 33,000 31,000
---------- ---------- ---------- ----------
Total costs and expenses........... 260,000 296,000 335,000 649,000
---------- ---------- ---------- ----------
NET INCOME................................... $1,661,000 $1,462,000 $2,644,000 $2,344,000
========== ========== ========== ==========
NET INCOME PER CLASS A SHARE................. $ 0.63 $ 0.55 $ 1.00 $ 0.89
========== ========== ========== ==========
CASH DISTRIBUTIONS PER CLASS A SHARE......... $ 0.32 $ 0.24 $ 0.64 $ 0.46
========== ========== ========== ==========
WEIGHTED AVERAGE CLASS A SHARES
OUTSTANDING................................ 2,617,000 2,617,000 2,617,000 2,617,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-68
<PAGE> 306
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
DISTRIBUTIONS
IN
EXCESS OF
ADDITIONAL CUMULATIVE
CLASS A CLASS B PAID-IN NET
SHARES SHARES CAPITAL INCOME TOTAL
---------- ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.... $2,617,000 $14,000 $50,199,000 $(6,888,000) $45,942,000
Distributions paid to Class A
Shareholders.................. -- -- -- (1,675,000) (1,675,000)
Net income...................... -- -- -- 2,644,000 2,644,000
---------- ------- ----------- ----------- -----------
Balance at June 30, 1998........ $2,617,000 $14,000 $50,199,000 $(5,919,000) $46,911,000
========== ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-69
<PAGE> 307
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 2,644,000 $ 2,344,000
Adjustments to reconcile net income to cash flows from
operating activities:
Gain from sale of real estate.......................... -- (28,000)
Recovery of bad debt................................... (679,000) (341,000)
Interest income in exchange for notes receivable....... -- (864,000)
Amortization of loan fees.............................. 33,000 31,000
Decrease (increase) in interest receivable............. 50,000 (135,000)
Decrease (increase) in prepaid expenses and other
assets................................................ (40,000) 24,000
Decrease in accounts payable and accrued expenses...... (459,000) (120,000)
Increase (decrease) in unearned loan fee income........ (16,000) 66,000
------------ -----------
Cash flows from operating activities.............. 1,533,000 977,000
------------ -----------
Cash flows from investing activities:
Funding of notes receivable............................ (10,365,000) (9,850,000)
Principal collections of notes receivable.............. 12,672,000 2,604,000
Proceeds from sale of real property.................... -- 613,000
Improvements and replacements to real property held for
sale.................................................. (25,000) --
Proceeds from foreclosure of real estate............... 161,000 --
------------ -----------
Cash flows from investing activities.............. 2,443,000 (6,633,000)
------------ -----------
Cash flows from financing activities:
Distributions to Class A Shareholders.................. (1,675,000) (1,204,000)
------------ -----------
Cash flows used in financing activities........... (1,675,000) (1,204,000)
------------ -----------
Increase (decrease) in cash and cash equivalents............ 2,301,000 (6,860,000)
Cash and cash equivalents
At beginning of period................................. 3,947,000 9,789,000
------------ -----------
At end of period....................................... $ 6,248,000 $ 2,929,000
============ ===========
Schedule of noncash financing and investing activities:
Assumption of first mortgage loan payable................. $ 4,525,000 $ --
Conversion of second mortgage receivable to real
property............................................... 380,000 --
Deed-in-lieu of foreclosure, real property................ 4,369,000 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE> 308
PART I. FINANCIAL INFORMATION
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- The accompanying financial statements have not been audited by
independent certified accountants, but in the opinion of management, all of the
adjustments necessary to present fairly the financial position of Angeles
Mortgage Investment Trust (the "Trust") and the results of its operations and
its cash flows at the dates and for the periods indicated have been included.
Certain prior year amounts have been reclassified to conform to current year
classifications.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly
they do not include all the information and footnotes required by generally
accepted accounting principals for complete financial statements.
Operating results for the three and six month periods ended June 30, 1998
are not indicative of the results that may be expected for the year ending
December 31, 1998.
For further information, refer to the financial statements and notes
thereto included in the Trust's annual report on Form 10-K for the year ended
December 31, 1997.
NOTE 2 -- The net income per Class A Share was based on 2,617,000 weighted
average Class A Shares outstanding during the three and six months ended June
30, 1998 and 1997, after deduction of the 1% interest for Class B Shares.
NOTE 3 -- In May 1998 the Trust's $5 million line of credit was renewed
through October 1998 with the ability to extend the line of credit through April
1999 at the Trust's option. The line of credit requires monthly interest only
payments based upon prime plus 1/2% and a $12,500 commitment fee paid
quarterly. During the three and six months ended June 30, 1998, the Trust did
not draw on the line of credit.
NOTE 4 -- During the second quarter ended June 30, 1998 the Trust received
cash proceeds of approximately $842,000, from the loan referred to by the Trust
as "Northprior." In June the Trust recorded a recovery of bad debt in the amount
of $679,000 for which an allowance for estimated loss had been previously
established and recorded $163,000 in interest income. The Trust may receive a
minimal amount of additional proceeds from the Northprior loan from excess
amounts, if any, held in an escrow account to remediate environmental problems
at the property.
NOTE 5 -- In December 1997 the Trust purchased a second mortgage loan for
$380,000 on a 186-unit apartment complex, Silver Ridge Apartments, located in
Maplewood, Minnesota. The Silver Ridge second mortgage has an interest rate of
10% and default rate of 12% and matured December 31, 1997. In addition, during
1997 the Trust obtained judgement liens against the Silver Ridge Apartments
property based upon recourse provisions on other Trust loans. Through a
judgement lien, the Trust foreclosed on the property in October 1997 subject to
a twelve-month redemption period. On January 30, 1998, the Trust received title
to Silver Ridge Apartments through deed-in-lieu of foreclosure as a result of
provisions in the second mortgage held by the Trust. In connection with taking
title to Silver Ridge Apartments the Trust assumed a first trust deed mortgage
from a third party in the amount of $4,525,000. This first mortgage provides for
a variable interest rate not to exceed 12%, interest only paid monthly, with a
current interest rate of 4% per annum. The loan matures in July 2023.
In addition, the Trust assumed control of restricted cash relating to
Silver Ridge Apartments with a balance of $812,000 as of June 30, 1998. The
restricted cash balance is comprised of approximately $457,000, held by the
first mortgage lender in escrow for: principal $310,000; interest of $62,000;
real estate taxes and insurance $60,000; and processing and other fees of
$25,000. The remaining $355,000 relates to funds for capital improvements and
tenant security deposits.
F-71
<PAGE> 309
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees of
Angeles Mortgage Investment Trust
We have audited the accompanying balance sheets of Angeles Mortgage
Investment Trust (the "Trust") as of December 31, 1997 and 1996, and the related
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. We have also
audited schedules III and IV. These financial statements and schedules are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on the financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by the Trust's management, as well as evaluating the
overall presentation of the financial statements and schedules. We believe that
our audits provide a reasonable basis for our opinion.
At December 31, 1997, 50 percent of the Trust's notes receivable are due
from partnerships which affiliates of Insignia Financial Group, Inc.
("Insignia") are the general partner. As discussed in Note 10, the Trust and an
Insignia affiliate (Insignia Properties Trust) have executed a merger agreement
subject to the approval of the Trust shareholders. If the merger is approved,
the Trust's business activities as it relates to these related party notes
receivable may be impacted due to overlapping management.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Trust at December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Also, in our opinion the schedules present fairly, in all material
respects, the information set forth therein.
BDO Seidman, LLP
Dallas, Texas
January 15, 1998
F-72
<PAGE> 310
ANGELES MORTGAGE INVESTMENT TRUST
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
NOTES 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Notes receivable..................................... 2,3,5,6
Mortgage notes receivable, (including $16,344,000
and $16,791,000 due from affiliates in 1997 and
1996)........................................... $39,347,000 $ 26,043,000
Promissory notes receivable, (including $6,714,000
and $10,650,000 due from affiliates in 1997 and
1996)........................................... 6,789,000 14,175,000
----------- ------------
46,136,000 40,218,000
Allowance for estimated losses..................... (8,826,000) (12,100,000)
----------- ------------
37,310,000 28,118,000
Foreclosed real estate held for sale................. 4 4,521,000 5,070,000
Cash and cash equivalents............................ 3,947,000 9,789,000
Accrued interest receivable.......................... 654,000 174,000
Prepaid expenses and other........................... 98,000 224,000
----------- ------------
Total assets............................... $46,530,000 $ 43,375,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses.............. $ 588,000 $ 287,000
----------- ------------
Total liabilities.......................... 588,000 287,000
----------- ------------
Commitments and contingencies........................ 1,2,3,4,6,10 -- --
Shareholders' equity:................................ 8,9
Class A Shares (2,617,000 in 1997 and 1996, issued
and outstanding, $1.00 par value, unlimited
shares authorized).............................. 2,617,000 2,617,000
Class B Shares (1,675,113 issued and outstanding,
$.01 value, unlimited shares authorized)........ 14,000 14,000
Additional paid-in capital......................... 50,199,000 50,199,000
Accumulated distributions in excess of cumulative
net income...................................... (6,888,000) (9,742,000)
----------- ------------
Total shareholders' equity................. 45,942,000 43,088,000
----------- ------------
Total liabilities and shareholders'
equity................................... $46,530,000 $ 43,375,000
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-73
<PAGE> 311
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
REVENUE:
Interest income (including $2,954,000, $2,405,000, and
$1,710,000 from affiliates in 1997, 1996 and 1995,
respectively)......................................... $5,109,000 $6,419,000 $ 3,017,000
Rental income........................................... 266,000 321,000 96,000
Gain from sale of real property......................... 80,000 184,000 435,000
Recovery of bad debt from Angeles Corporation
settlement............................................ -- -- 12,844,000
Recovery of other bad debts............................. 1,744,000 3,126,000 3,110,000
---------- ---------- -----------
Total revenue................................. 7,199,000 10,050,000 19,502,000
---------- ---------- -----------
COSTS AND EXPENSES:
Property operating expenses............................. 56,000 180,000 262,000
Loss from sale of real property......................... -- -- 3,000
Interest expense to bank................................ -- -- 227,000
Legal expenses.......................................... 393,000 (257,000) 851,000
General and administrative.............................. 958,000 858,000 835,000
Amortization............................................ 63,000 44,000 35,000
Income taxes............................................ 180,000 139,000 --
---------- ---------- -----------
Total costs and expenses...................... 1,650,000 964,000 2,213,000
---------- ---------- -----------
INCOME BEFORE EXTRAORDINARY ITEM........................ 5,549,000 9,086,000 17,289,000
EXTRAORDINARY ITEM -- Debt forgiveness.................. -- -- 1,844,000
---------- ---------- -----------
NET INCOME.............................................. $5,549,000 $9,086,000 $19,133,000
========== ========== ===========
PER CLASS A SHARE:
Net income before extraordinary......................... $ 2.10 $ 3.33 $ 5.77
Extraordinary item...................................... -- -- 0.61
---------- ---------- -----------
Net income.............................................. $ 2.10 $ 3.33 $ 6.38
========== ========== ===========
Cash distributions...................................... $ 1.03 $ 0.52 $ --
========== ========== ===========
Weighted average Class A Shares......................... 2,617,000 2,704,375 2,968,532
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-74
<PAGE> 312
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACCUMULATED
DISTRIBUTIONS
IN
ADDITIONAL EXCESS OF
CLASS A CLASS B PAID-IN CUMULATIVE NET
SHARES SHARES CAPITAL INCOME TOTAL
---------- ------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995..... $3,394,000 $14,000 $55,656,000 $(36,554,000) $22,510,000
Class A Shares received from
Angeles Corporation
settlement................... (567,000) -- (3,687,000) -- (4,254,000)
Purchase of Class B Share
Option....................... -- -- (250,000) -- (250,000)
Net income..................... -- -- -- 19,133,000 19,133,000
---------- ------- ----------- ------------ -----------
Balance at December 31, 1995... 2,827,000 14,000 51,719,000 (17,421,000) 37,139,000
Purchase of Class A Shares..... (210,000) -- (1,520,000) -- (1,730,000)
Net income..................... -- -- -- 9,086,000 9,086,000
Cash distributions............. -- -- -- (1,407,000) (1,407,000)
---------- ------- ----------- ------------ -----------
Balance at December 31, 1996... 2,617,000 14,000 50,199,000 (9,742,000) 43,088,000
Net income..................... -- -- -- 5,549,000 5,549,000
Cash distributions............. -- -- -- (2,695,000) (2,695,000)
---------- ------- ----------- ------------ -----------
Balance at December 31, 1997... $2,617,000 $14,000 $50,199,000 $ (6,888,000) $45,942,000
========== ======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-75
<PAGE> 313
ANGELES MORTGAGE INVESTMENT TRUST
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 5,549,000 $ 9,086,000 19,133,000
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH FLOWS
FROM OPERATING ACTIVITIES:
Net gain from sale of real property................. (80,000) (184,000) (432,000)
Amortization........................................ 63,000 44,000 35,000
Recovery of bad debt................................ (1,744,000) (3,126,000) (15,954,000)
Interest income in exchange of notes receivable or
real property..................................... (864,000) (3,708,000) (501,000)
Extraordinary gain.................................. -- -- (1,844,000)
Decrease (increase) in interest receivable.......... (480,000) 87,000 (108,000)
Decrease (increase) in prepaid expenses and other... 64,000 215,000 (326,000)
(Decrease) increase in accounts payable and accrued
expenses.......................................... 301,000 94,000 (61,000)
Increase (decrease) in unearned loan fee income..... 115,000 56,000 (38,000)
------------ ----------- ------------
Cash flows from (used in) operating activities...... 2,924,000 2,564,000 (96,000)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of foreclosed real estate...................... (37,000) -- (355,000)
Funding of notes receivable......................... (14,251,000) (2,968,000) --
Principal collections of notes receivable........... 7,552,000 10,256,000 9,056,000
Proceeds from sale of real estate................... 665,000 1,845,000 1,952,000
Investment in securities............................ -- (979,000) --
Principal collections of investment in securities... -- 979,000 --
------------ ----------- ------------
Cash flows from (used in) investing activities...... (6,071,000) 9,133,000 10,653,000
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Draw on bank line of credit......................... -- 430,000 --
Repayment of bank line of credit.................... -- (430,000) (3,500,000)
Repayment of cash advances from affiliate
partnerships...................................... -- -- (6,682,000)
Purchase of Class B share option.................... -- -- (250,000)
Distributions to shareholders....................... (2,695,000) (1,407,000) --
Purchase of Class A shares.......................... -- (1,730,000) --
------------ ----------- ------------
Cash flows used in financing activities............. (2,695,000) (3,137,000) (10,432,000)
------------ ----------- ------------
Increase (decrease) in cash and cash equivalents.... (5,842,000) 8,560,000 125,000
Cash and cash equivalents:
At beginning of period............................ 9,789,000 1,229,000 1,104,000
------------ ----------- ------------
At end of period.................................. $ 3,947,000 $ 9,789,000 $ 1,229,000
============ =========== ============
Supplemental operating cash flow disclosure:
Cash received for interest................ $ 3,765,000 $ 2,798,000 $ 2,213,000
Cash paid for interest.................... -- -- 312,000
Schedule of noncash financing and investing
activities:
Carrying value of real estate in satisfaction of
notes receivable with carrying values of
$2,622,000 in 1996 and $3,580,000 in 1995...... $ -- $ 2,019,000 $ 3,969,000
Mortgage notes receivable from sale of real
estate......................................... -- -- 700,000
Restructuring of past due interest into notes
receivable..................................... -- 2,625,000 1,914,000
Notes receivable from lawsuit settlement.......... -- 75,000 --
Recovery of Class A stock in connection with
Angeles Settlement............................. -- -- 4,254,000
Write-off of fully reserved note receivable....... 1,530,000 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-76
<PAGE> 314
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION, BUSINESS ACTIVITIES AND SIGNIFICANT EVENTS
Angeles Mortgage Investment Trust ("AMIT" or the "Trust") is an
unincorporated California business trust, which was organized to qualify as a
REIT for federal income tax purposes. AMIT was originally organized as a
publicly held limited partnership that began offering limited partnership units
on August 18, 1986 and commenced operations on July 9, 1987. In January 1989,
the holders of a majority of the limited partnership units elected to transfer
all of the partnership's assets to AMIT. Presently AMIT's capital structure
consists of 2,617,000 outstanding AMIT Class A Shares and 1,675,113 outstanding
AMIT Class B Shares. The AMIT Class A Shares are registered under the Exchange
Act and listed on the American Stock Exchange under the symbol "ANM." Each AMIT
Class A Share and each AMIT Class B Share is entitled to one vote with respect
to all matters put before AMIT's shareholders.
Angeles Funding Corporation ("AFC"), a wholly owned subsidiary of Angeles
Corporation ("Angeles") served as advisor to AMIT until February 1993. Through
AFC, AMIT had invested in various types of intermediate-term real estate loans
(the "AMIT Loans"). Prior to December 1996, the majority of the AMIT Loans were
made to partnerships that were once controlled by Angeles and are now controlled
by Insignia Financial Group, Inc., a Delaware corporation, which through MAE GP,
its affiliate, holds the Trust's Class B Shares, (Insignia Financial Group, Inc.
and its affiliates are collectively referred to as "Insignia" in this document).
These partnerships include private and public real estate limited partnerships
which were formed to acquire, own and operate income-producing real properties.
As of December 31, 1997, there were 23 AMIT Loans outstanding, with an aggregate
portfolio balance of approximately $37 million, net of loan loss reserves, and
AMIT owned as a result of foreclosures or receipt of deeds in lieu of
foreclosure on certain assets securing certain AMIT Loans approximately $4.5
million of real property. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of AMIT."
By virtue of its ownership of the Class B Shares, Insignia owns a 1%
interest in the profits, losses, credits and distributions of the Trust and 39%
of the Trust's total voting shares. As discussed in Note 7, "Notes to Financial
Statements," the Trust and MAE GP entered into an agreement, effective April
1995, pursuant to which MAE GP granted to the Trust the option to purchase all
the Class B Shares currently owned by MAE GP. The option is exercisable by the
Trust in 2005 for approximately $94,000. During the 10 year period that the
option is outstanding, all of the Class B Shares are required to vote, pursuant
to an irrevocable proxy, with the majority of Class A Shares in connection with
any proposal involving the Trust and Insignia or the election of any Trustee
nominated by MAE GP which is an insider affiliate of MAE GP including Insignia.
Such majority will be determined without consideration of the votes of "Excess
Class A Shares," as defined in the Trust's Declaration of Trust. With respect to
all other matters, MAE GP can vote the Class B Shares without restriction.
Beginning in February 1993, AMIT faced significant liquidity problems
caused by (i) the failure of a significant number of the obligors of the AMIT
Loans (primarily partnerships controlled by MAE) to fully service outstanding
debt obligations under their respective AMIT Loans, and (ii) Angeles' inability
to fully service its debt obligations under its promissory note payable to AMIT
or perform its other obligations to AMIT under its third party loan guarantees
and shareholder distribution guarantees. As of February 1993, approximately 75%
of the AMIT Loans were in payment default. In February 1993, Angeles informed
AMIT that it was unable to perform its obligations under its guarantees because
of liquidity problems caused by its inability to complete sales or refinancings
of real estate assets, its inability to fully realize asset values in a
continuing sluggish and depressed real estate market and the failure of the
obligors of the AMIT Loans to service fully, if at all, their debt obligations
to Angeles. On May 3, 1993, Angeles filed for protection under Chapter 11 of the
federal bankruptcy code. Angeles' failure to perform under its guarantees,
together with the defaults on AMIT Loans, resulted in AMIT's suspension of cash
distributions to the holders of AMIT Class A Shares starting in February 1993
and resuming in February 1996. AMIT filed various claims against Angeles and
eventually reached agreement with Angeles and the Committee of Creditors Holding
Unsecured Claims
F-77
<PAGE> 315
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of Angeles to settle all claims between AMIT and Angeles. The settlement
agreement was approved by the Bankruptcy Court in March 1995. Under the
agreement, AMIT received over $15 million in cash, notes and AMIT Class A
Shares.
Since February 1993 (when AMIT terminated its advisory agreement with AFC),
AMIT has restructured its loan portfolio and has paid in full its then
outstanding bank loan of $20 million. However, certain AMIT Loans, which in the
aggregate have a carrying value (net of loan loss reserves) of approximately
$1.3 million (constituting approximately 3% of AMIT's net investments), are
currently in default with respect to debt service obligations. AMIT's lending is
primarily concentrated in secured and, to a lesser extent, unsecured real estate
loans. The realizable value of real estate collateralizing notes receivable or
acquired in loan foreclosure proceedings can only be determined based upon a
sales negotiation between independent third parties in an arm's length
transaction. In addition, considering that, in most cases, it is the proceeds of
sale and/or refinancing which will enable AMIT to receive funds, the actual
proceeds may be significantly impacted by the condition of the real estate
industry at the time the principal amounts become due or properties sold.
AMIT will terminate December 31, 2003, unless extended to no later than
December 31, 2015 by vote of the shareholders of AMIT, or by the AMIT Board to
no later than December 31, 2020 without a vote of the shareholders of AMIT if
the AMIT Board believes that termination at such time would result in material
under-realization of the value of AMIT's assets. Upon liquidation of AMIT,
disposition proceeds will be distributed to the shareholders.
An entity will qualify for taxation as a REIT if it satisfies certain
income and asset tests. Among these tests is a requirement that a certain
percentage of assets constitute "real estate assets" and a certain percentage of
income be derived from such assets. AMIT's loan assets are collateralized in a
variety of ways, and some loans have not been collateralized. AMIT has not
requested nor obtained an IRS determination that any of its assets qualify as a
"real estate asset," and has not obtained an opinion of counsel that it
currently qualifies as a REIT. If AMIT were to fail to qualify as a REIT in any
taxable year, AMIT would not be allowed a deduction for dividend distributions
in computing taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. AMIT believes that it has operated in
a manner designed to qualify as a REIT. However, if the Internal Revenue Service
were successfully to challenge the qualification of AMIT's REIT assets, AMIT
would be subject to federal income tax only after the utilization of AMIT's net
operating losses.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting -- The financial statements of the Trust are prepared
on the accrual basis and therefore, revenue is recorded as earned and costs and
expenses are recorded as incurred. The preparation of the financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from these estimates. Certain
prior years amounts have been reclassified to conform to current year
classifications.
Cash and Cash Equivalents -- For financial reporting purposes, the Trust
considers cash and cash equivalents to include cash on deposit and amounts
invested in money market funds with original maturity terms of less than 90
days.
Interest Recognition on Notes Receivable -- Interest income is recorded as
earned in accordance with the terms of the loans. Interest income is not
recorded on individual loans if the carrying value of the receivable exceeds the
realizable value of the underlying collateral or if payments are in default in
excess of two months.
F-78
<PAGE> 316
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Foreclosed Real Estate Held for Sale -- Foreclosed real estate is initially
recorded at new cost, defined as the lower of original cost or fair value minus
estimated costs of sale. After foreclosure, the excess of new cost, if any, over
fair value minus estimated costs of sale is recognized in a valuation allowance.
Subsequent changes in fair value either increases or decreases such valuation
allowance. See "Allowance for Estimated Losses" below.
Allowance for Estimated Losses -- Valuation allowances are established by
the Trust for estimated losses on notes receivable and properties held for sale
to the extent that the investment in notes or properties exceeds the Trust's
estimate of net realizable values of the property or collateral securing each
note, or fair value if foreclosure is probable. The provision for losses is
based on estimates using the direct capitalization of net operating income for
the underlying properties. Capitalization rates have been determined by using
micro and macro economic factors. Actual losses may vary from current estimates.
Such estimates are reviewed periodically and any additional provision determined
to be necessary is charged against earnings in the period in which it becomes
reasonably estimated.
Revenue Recognition on Sale of Real Estate -- Sales of real estate are
recognized when and to the extent permitted by Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate."
Income Taxes -- The Trust has elected to be taxed as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code for each taxable year
of operations. As a qualified REIT, the Trust is subject to income taxation at
corporate rates on its REIT taxable income. However, the Trust is allowed a
deduction for the amount of dividends paid to its shareholders, thereby
subjecting the distributed net income of the Trust to taxation at the
shareholder level only. As of December 31, 1997 the Trust had no tax loss
carryforwards.
Net Income Per Class A Share -- The net income per Class A Share was based
on 2,617,000, 2,704,375, and 2,968,532 weighted average Class A Shares
outstanding during the years ended December 31, 1997, 1996 and 1995,
respectively, after deduction of the Class B Shares' 1% interest. The Trust
adopted Statement of Financial Accounting Standards No. 128 during 1997 and it
had no effect on the financial statements.
Amortization -- The Trust amortizes loan fees to interest income over the
lives of the related Trust Loans. Loan fees and refinancing expenses paid by the
Trust are amortized over the life of the relevant loans. The Trust amortizes
leasing commissions to leasing commission expense over the term of the related
leases.
Concentration of Credit Risk -- Financial instruments which potentially
expose the Trust to concentrations of credit risk are primarily temporary cash
investments and mortgage and promissory notes receivable. The Trust places its
temporary cash investments with major financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution. Of all
notes receivable, 50% are with partnerships who have previously defaulted on
their obligations (see Note 3).
Investment in Joint Venture -- The Trust's investment in joint venture is
accounted for using the equity method since it is the Trust's intention to
dispose of the joint venture interest.
Market Value of Financial Instruments -- The Trust used the following
assumptions in estimating the fair value of its notes receivable. For performing
notes receivable, the fair value was estimated by discounting future cash flows
using current interest rates for similar loans. For nonperforming notes
receivable, the estimated fair value of the Trust's interest in the collateral
property was used. The market value of notes receivable can only be determined
based upon a sales negotiation between independent third parties in an arm's
length transaction. Actual proceeds may be significantly impacted by the
condition of the real estate industry at the time the principal amounts become
due.
F-79
<PAGE> 317
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- NOTES AND INTEREST RECEIVABLE
Notes receivable are collateralized by real property owned by the borrowers
of such Trust Loans, or by an assignment of the limited partnership interest in
the limited partnership that owns the property (but not the specific underlying
property) or by a general obligation of the limited partnership that owns the
property. All of the Trust's notes receivable collateralize the Trust's line of
credit with a third party lender (see Note 6).
Activity in the allowance for estimated loan losses was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period........................ $12,100,000 $13,598,000 $26,595,000
Provisions for losses................................. -- 4,334,000 2,350,000
Deductions............................................ (3,274,000) (5,832,000) (15,347,000)
----------- ----------- -----------
Balance at end of period.............................. $ 8,826,000 $12,100,000 $13,598,000
=========== =========== ===========
</TABLE>
The provisions for losses for 1996 and 1995 relate to debt modifications
whereby unrecorded past due interest receivable was restructured as principal
(see below).
The deductions to the estimated loan losses relate primarily to the full or
partial repayment of Trust loans and foreclosure of properties by either the
Trust or the first lien holder, where the Trust is in a second position. During
1995 the Trust modified the Fox Run loans and capitalized approximately
$1,914,000 of past due interest and default interest into the principal of the
loans. The Trust reversed $1,800,000 of allowance for estimated loss relating to
the Fox Run loans, based upon improved property performance, the commencement of
modified debt service in the fourth quarter of 1995 and an anticipated
refinancing of the mortgages on the property. In 1996 approximately $660,000 of
deductions were due to the significant improvement of property performance
underlying certain of the Trust loans.
Included in the Trust's allowances for estimated losses on notes receivable
is approximately $4.8 million relating to one loan, -- a promissory note on a
Waukegan, Illinois apartment complex, referred to as Fox Crest. The property has
continued to improve in operations since February 1993, which may lead to some
future recovery of some portion of this promissory note. The property still
needs maintenance and capital improvements and has not provided the Trust with
any debt service since February 1993 and no debt service is anticipated in the
near future. The Trust has not reduced the allowance. There can be no assurances
that the value in this property will exceed the first mortgage debt.
During the quarter ended March 31, 1997 the Trust restructured a first
mortgage referred to as LaSalle, on which the Trust had began foreclosure
proceedings in 1996. In connection with the related loan modification, the Trust
capitalized and recognized as interest income, approximately $409,000 of past
due interest, late fees, default interest along with approximately $14,000 of
out-of-pocket costs incurred by the Trust during the foreclosure process. The
restructured loan required monthly interest only payments based upon the stated
note rate of 11.5% on the reconstituted loan balance. In October 1997 this loan
was paid in full.
During the year ended December 31, 1997, four AMIT loans prepaid the total
outstanding principal balances of approximately, $6,800,000 and another loan,
referred to by the Trust as Northprior, made a substantial repayment in the
amount of $340,000. The four loans, which made full repayments, are referred to
by AMIT as Angeles Partners X ($614,000), Angeles Corporation ($3,450,000),
Carriage Hills ($1,404,000) and LaSalle ($1,334,000). The Northprior and
Carriage Hill loans had been previously fully reserved for loan loss and as a
result of the principal repayments AMIT realized recovery of bad debt in the
amounts of $340,000 and $1,404,000, respectively. In addition, the Carriage
Hills loan repaid all past due interest in the amount of $237,000 which the
Trust recognized as interest income in November 1997.
F-80
<PAGE> 318
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1997 the Trust began receiving debt service on two loans which had
been previously restructured in 1996, the Angeles Partners XIV and Brittany
Point loans. The Angeles Partners XIV loan in October 1997 paid all past due
interest in the amount of $82,000 and made a partial principal repayment of
$48,000. During the first six months of 1997 the Brittany Point loan began
making cash flow interest payments to the Trust and effective July 1997 began
making monthly interest only payments at the stated interest rate of 12 1/2%. As
a result of the commencement of monthly debt service and significant improvement
of the property operations for the Brittany Point loan, the Trust in December
1997 realized as interest income $337,000 of past due interest.
In December 1997 the Trust wrote-off a promissory note, with a principal
outstanding balance of $1,530,000 referred to by the Trust as Vista Hills. Based
upon the Trust's evaluation of the property operations and discussions with the
borrower regarding the likelihood of foreclosure by the first lien holder in
1998 the Trust believed there would be no recovery in the future. The Borrower
had indicated to the Trust that the property would most likely be foreclosed
upon the first lien holder during 1998. The Trust had previously fully provided
for loan loss reserves for this loan and did not realize any loss or gain from
the sale.
In February 1997, AMIT made its first new loan since January 1993, in the
amount of $5,000,000, secured by first deeds of trust on three manufactured home
parks located in Texas. This new loan requires interest only payments at 8.9%
and matures in December 2003. In April 1997, AMIT made a second new loan in the
amount of $2,950,000 secured by a first deed of trust on a 628,000 square foot
industrial warehouse located in Martinsville, Virginia. This loan requires
interest only payments at 11% and matures in April 1998. In June 1997 AMIT made
a new first mortgage loan in the amount of $1,900,000 secured by four
manufactured home parks located in Wyoming. The new loan requires interest only
payments of 9.07% and matures in December 2003. In December 1997 AMIT made three
first mortgage loans in the amounts and terms as follows: $1,300,500 on a
144,000 square foot office/warehouse facility located in Houston, Texas with an
8% interest rate, interest only payable monthly; $531,250 on a 56,080 square
foot industrial/warehouse located in Aiken, South Carolina with an 8% interest
rate, principal and interest payable monthly, with principal amortized over 20
years; and $2,185,000 on a 335,000 square foot industrial facility located in
Jackson, Tennessee, initially monthly interest only payable at a rate of 10 1/2
%, with the interest rated reduced to 230 basis points over ten-year Treasuries
upon the debt coverage ratio increasing to a stipulated level. All three of
these December 1997 first mortgage loans mature in December 2007.
In December 1997 the Trust purchased a second mortgage loan for $384,000.
This second mortgage loan is on a 186-unit apartment complex, Silver Ridge
Apartments, located in Maplewood, Minnesota. The Silver Ridge second mortgage
has a contract interest rate of 10% and a default rate of 12% and matured
December 31, 1997. In addition, during 1997 the Trust obtained judgement liens
against the Silver Ridge Apartments property based upon recourse provisions on
other Trust loans. Through one of these judgement liens the Trust successfully
foreclosed on the property in October 1997 and will be the owner of the property
after a twelve-month redemption period which ends in October 1998. Silver Ridge
Apartments is also encumbered by a $4.5 million first mortgage held by an
independent third party.
As of December 31, 1997, the Trust has signed and proposed commitments to
fund approximately $1 million of new loans.
During 1996, the Trust began foreclosure proceedings on three industrial
properties in Cleveland, Ohio that represent additional collateral available to
the Trust through recourse provisions of a failed loan referred to as Marina
Plaza. Although the properties are heavily indebted and in need of maintenance
and capital improvements, the Trust has received early indications of sales
value from potential purchasers that may provide recovery of approximately
$300,000 which would be recognized as income after foreclosure and sale of these
properties.
F-81
<PAGE> 319
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As reported by the Trust in 1995, the Trust loan referred to as North Prior
defaulted on its obligation to the Trust as well as to the senior lender on the
property. The property was sold just prior to foreclosure with proceeds
sufficient to pay the senior lender the full amount of the senior obligation.
Proceeds above the senior obligation were escrowed for potential use in an
environmental remediation that occurred prior to the foreclosure and sale.
Approximately $870,000 remains in the escrow and in January 1998 a site closure
letter was received from the state environmental government authority. The Trust
will recognize income for amounts, when and if, received from escrow, which is
anticipated to occur in 1998.
During 1996 the Trust modified five loans referred to as Brittany Point,
Fox Crest, Carriage Hills, Vista Hills and Angeles Partners XIV-Waterford. In
connection, with the modifications, the Trust extended the maturity dates on all
of the loans except for Angeles Partners XIV-Waterford, to December 31, 2000,
March 1, 2003, September 1, 2000 and September 1, 2002, respectively, and
capitalized approximately $320,000, $1,765,000, $204,000, $230,000 and $134,000,
respectively, of past due interest into principal. The modified notes require
payments only out of cash flows provided by the properties. The Trust did not
recognize any interest income in connection with these loan modifications.
During the last quarter of 1996 the Trust modified and received a
significant repayment on two of the Trust's largest loans. In October 1996, the
Arrowhead Joint Venture $6 million loan (which was previously secured only by a
partnership interest), along with a related $1.2 million unsecured preferred
partnership distribution interest ("Preferred Interest"), was restructured to a
$9 million first trust deed mortgage, with a current effective interest rate of
10.20% reducing to a 9.8% rate upon repayment of $1.5 million which is scheduled
to occur in late 1998. The restructuring has resulted in the Trust significantly
strengthening the collateral on this loan along with increasing the annual debt
service on this loan by approximately $400,000. The $1.2 million Preferred
Interest was originally acquired in the settlement with Angeles (see Note 9 of
Notes to Financial Statements) and was previously valued at zero as it had an
indeterminable value when it was acquired. In addition, the Trust capitalized
approximately $1.7 million in deferred interest that was not previously
recognized in income, as full recovery of such interest was until the
modification, considered doubtful.
In December 1996, the Trust received approximately $7 million from its
three Fox Run mortgages as a result of the borrower refinancing the property.
The $7 million of cash proceeds represented the full repayment of approximately
$6.7 million of principal on these three loans with the remainder representing a
portion of the accrued interest associated with the loans. In addition to this
repayment, the Trust took back a new third mortgage on the Fox Run property in
the amount of $875,000. The $875,000 is comprised of approximately $425,000 of
the remaining accrued interest from the three Fox Run loans and approximately
$450,000 of accrued interest and principal on the Angeles Partners XI-Harbour
Landing promissory note. The Trust recognized $2 million of bad debt recovery on
this transaction, and approximately $900,000 of interest income from accrued
interest not previously recognized, as full recovery of such interest was not
reasonably assured until the repayment.
In addition, in December 1996 the Trust acquired, at par, three first
mortgage loans from an unaffiliated third party for approximately $2.9 million.
These mortgages are on three properties known as Hospitality Inns (three
separate properties and locations) on which the Trust held three second
mortgages. All of these six mortgages matured in October 1996. The Trust
restructured the first and second mortgage loans on these three properties
effective April 30, 1997. The loan modifications for each property provided that
the first and second mortgages be combined into one first mortgage loan. In
addition to combining the first and second mortgages on each property, the Trust
also capitalized and recognized as interest income, a total of approximately
$440,000 of accrued interest and late fees for all three loans. Each
restructured loan requires monthly principal and interest based upon the stated
note rate of 11% for two of the loans and 11.25% for the third loan on the
reconstituted loan balance, with principal paid based on a 30-year amortization.
The current
F-82
<PAGE> 320
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
monthly debt service the Trust receives from this restructuring is $50,000. The
Trust also received a one-point loan fee in conjunction with the loan
restructuring totaling approximately $52,000.
Notes receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1997 1996
------------------------- -------------------------
ESTIMATED ESTIMATED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
MORTGAGE NOTES RECEIVABLE:
First trust deeds, primarily requiring
monthly interest only payments ranging
from 8% to 12.5%, maturing through
December 2007.......................... $34,510,000 $33,038,000 $18,385,000 $17,868,000
Second trust deeds, requiring monthly
interest only payments ranging from 10%
to 12.5%, maturing through December
2000................................... 4,113,000 5,680,000 4,790,000 7,427,000
Third trust deed, requiring monthly
interest and principal payments of
11.25%, maturing January 2002.......... 872,000 872,000 875,000 875,000
----------- ----------- ----------- -----------
39,495,000 39,590,000 24,050,000 26,170,000
Less: Unearned loan fees................. (243,000) (127,000)
----------- -----------
Net mortgage notes
receivable................... 39,347,000 26,043,000
PROMISSORY NOTES RECEIVABLE:
Promissory notes receivable, requiring
monthly interest payments ranging from
8% to 12.5%, maturing through March
2003 (See Note 5)...................... 2,697,000 6,789,000 7,314,000 14,175,000
----------- ----------- ----------- -----------
NOTES RECEIVABLE............... $42,192,000 $46,136,000 $31,364,000 $40,218,000
=========== =========== =========== ===========
</TABLE>
At December 31, 1997 mortgage notes receivable of $3,735,000 and promissory
notes receivable of $1,539,000, all of which are due from affiliates, are in
default.
With respect to the promissory notes receivable as of December 31, 1997,
$4,764,000 is secured by partnership interests and other loans and $2,024,000
are general obligations of partnerships or individuals. The underlying
properties are not collateral for such loans.
During year ended December 31, 1995, debt holders senior to the debts of
the Trust foreclosed upon two Trust Loans referred to as Marina Plaza and
Burnhamthorpe, respectively. Both loans had been fully reserved for loss.
However, due to recourse provisions on the Marina Plaza loan, the Trust was able
to obtain title to a property having an estimated value of $300,000.
Scheduled maturities of notes receivable due subsequent to December 31,
1997 are, $5,236,000 in 1998, $7,504,000 in 1999, $1,645,000 in 2000, $1,567,000
in 2001, $6,081,000 in 2002 and $19,072,000 thereafter. It is likely that the
scheduled maturity dates, for certain of the notes, will be extended.
NOTE 4 -- REAL ESTATE HELD FOR SALE
In August 1993, the Trust foreclosed on a parcel of land located in
Houston, Texas, referred to by the Trust as "Martinique," for which it held a
first trust deed mortgage. The Trust did not recognize a loss on foreclosure in
1993 in excess of the reserve of $600,000 previously provided. The property was
sold in December 1995, for $1.5 million and the Trust received net cash proceeds
of approximately $1,371,000. The Trust realized a $3,000 loss on the sale.
F-83
<PAGE> 321
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1994, the Trust began a foreclosure action on a $1,500,000 first trust
deed mortgage held on a property referred to as 4851 Van Epps, an industrial
warehouse located in Cleveland, Ohio. The Trust had previously provided a loss
reserve of $600,000 on this loan. In September 1995 the Trust obtained title to
the property through a deed-in-lieu of foreclosure. In October 1995 the Trust
sold the property for $1,370,000, taking back a $700,000 first trust deed
mortgage on the property and received net cash proceeds of approximately
$580,000. The Trust realized income of $435,000 from the sale.
In January 1994, the Trust acquired, through a foreclosure on its loan of
$3,600,000, a 220-unit apartment complex located in Decatur, Georgia. The
foreclosure resulted in no loss in 1994 as the reserve of $430,000 had been
previously provided. See Note 3. In April 1994, the Trust sold the property and
received net cash proceeds of approximately $3.3 million. The Trust recognized
income of $2,000 from the sale.
The Trust obtained title to the 4705 Van Epps property through a
deed-in-lieu of foreclosure in August 1995. The Trust had obtained a judgment
lien of approximately $2.7 million on this property as a result of recourse
provisions in the $2 million note referred to as Marina Plaza. In consideration
of the deed-in-lieu of foreclosure, the Trust agreed to reduce the judgment lien
by $500,000 and a payment of $5,000. The 4705 Van Epps property had a $343,000
delinquent first mortgage from an independent financial institution which the
Trust was required to pay upon transfer of title to the Trust. The Trust
recorded this property at $500,000 and recognized approximately $151,000 as
recovery of bad debt. The property was sold in February 1996 for $752,000,
received net cash proceeds of approximately $677,000 and realized a $184,000
gain on the sale.
In August 1996, the Trust foreclosed on a 443 unit mobile home park located
in Belton, Missouri, referred to by the Trust as Springdale Lake Estates MHP
("Springdale"), for which it held a second trust deed mortgage in the amount of
$1,720,000 and had capitalized foreclosure costs of approximately $2,000. Upon
taking title to Springdale, the Trust assumed a first mortgage on the property
in the amount of approximately $2,800,000. The Trust did not recognize any loss
from the foreclosure as a reserve of $531,000 had been previously provided. In
October 1996, the Trust sold Springdale for $4,000,000 and received net cash
proceeds of approximately $1,112,000 with no gain or loss recognized on the
sale.
As of December 31, 1997, the Trust owned three real estate properties held
for sale, referred to as University Center Phase IV a 56,000 square foot retail
center and University Center Phase I & II, a 51,200 square foot warehouse office
space, both of these properties are located in Fridley, Minnesota, and a
240-acre parcel of raw land referred to as Colony Cove located in Ellenton,
Florida.
The Trust foreclosed on University Center Phase IV in December 1995, on which it
held a $1,800,00 first trust deed mortgage. This note contained recourse
provisions, accordingly, the Trust received as a function of the foreclosure
action, a judgment lien in the amount of $464,000 on a property called
University Center Phase I & II. As the Trust had two additional loans with the
same borrower, the borrower agreed to deed-in-lieu of foreclosure the University
Center Phase I & II property in consideration of reducing the principal loan
balance by $880,000 on a second trust deed mortgage held by the Trust in the
original amount of $2,600,000, known as Springdale Lake Estates. The Trust
recorded the University Center Phase I and II property at $1,100,000, its
estimated fair market value.
In October 1997 and previously in April 1996, the Trust foreclosed on a 40
and an adjacent 200 acre parcel of land, respectively, located in Ellenton,
Florida, referred to by the Trust as "Colony Cove", for which it held a first
trust deed mortgage in the amount of $1,572,000 on the 200-acres and had
recourse, through provisions on the mortgage note, allowing the foreclosure on
the adjacent 40-acres. In conjunction with the foreclosures, the Trust incurred
approximately $178,000 in expenses, which have been capitalized into the cost of
the property. The Trust did not recognize any income or loss from the
foreclosure. During 1997 the Trust entered into a contract to sell approximately
224 acres of this property zoned residential for $8,500 per acre.
F-84
<PAGE> 322
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The contract requires the sale to close in the latter part of 1998, although
there can be no assurances that this transaction will occur. Subsequent to 1997,
in January 1998 the Trust garnished cash of approximately $160,000 held by the
borrower based upon the recourse provisions of the mortgage note. The $160,000
reduced the capitalized cost of the property.
In June 1996, the Trust obtained through foreclosure a 57% joint venture
interest in a 160-acre parcel of land in Ocala, Florida. This property was
collateral for a Trust loan in the amount of $1,050,000, referred to as "Rolling
Greens." The Trust did not recognize any loss on the foreclosure as a reserve of
$465,000 had been previously provided. This property was sold in 1997 and the
Trust received approximately $665,000 and realized a gain of $80,000 on the
sale.
NOTE 5 -- ANGELES PROMISSORY NOTE RECEIVABLE
The Trust had provided Angeles with a $10,000,000 promissory note
receivable secured by real estate, expiring May 31, 1993. At December 31, 1994,
outstanding borrowings on the note were $9,255,000. As a result of the Angeles
settlement as discussed in Note 9 the Trust received over $15 million in cash,
notes and stock to settle this note along with other matters. The new note in
the amount of $6,100,000 received from Angeles in the settlement was fully
repaid during 1997.
NOTE 6 -- NOTE PAYABLE TO BANK
The Trust's line of credit with the Bank, in the amount of $5 million
requires monthly interest only payments based upon prime plus 1/2% and matures
April 30, 1998. The line of credit with the Bank allows the Trust to draw on
such line to facilitate the foreclosure process on Trust Loans. In August 1995
the Trust drew down on such line of credit in the amount of $343,000 in order to
pay-off the first trust deed on a property obtained through a deed-in-lieu of
foreclosure (see Note 4). As of December 5, 1995, the Trust paid off the
remaining outstanding balance on the line of credit. In June 1996, the Trust
drew down for a three day period of time $480,000. During 1997 the Trust did not
draw on the line of credit and as of December 31, 1997 the Trust has no
outstanding borrowings with the Bank.
The Trust's average month-end borrowings on the working capital line of
credit were $0 in 1997 and 1996. In conjunction with the financing, the Trust
paid loan fees of $25,000, $19,000, and $43,000 in 1997, 1996 and 1995,
respectively.
NOTE 7 -- RECORDED CASH ADVANCES FROM AFFILIATED PARTNERSHIPS AND PROPOSED
SETTLEMENT WITH INSIGNIA
In July 1993, the Trust had filed a lawsuit challenging the Trust's
indebtedness and any liability for principal and interest relating to funds
allegedly loaned to the Trust by eight partnerships. The balance outstanding on
these alleged loans, as of December 31, 1994, was $7,585,000 along with accrued
interest of approximately $941,000. Cross complaints were filed against the
Trust by certain of the lending partnerships in this same lawsuit seeking, among
other things, repayment in full of the alleged loans. Effective March 31, 1995,
the following settlement was consummated between the Trust and seven
partnerships, Insignia and affiliates of Insignia. Funds were paid to such
entities on April 14, 1995 as follows:
- the Trust paid approximately, $5,752,000 in cash;
- the Trust purchased, for $250,000, an option from MAE GP Corporation, an
affiliate of Insignia, to purchase all the Class B Shares of the Trust
currently owned by the affiliate. Such holdings represent 100% of the
Trust's outstanding Class B Shares. The option is exercisable by the
Trust in 10 years for approximately $94,000. During the 10 year period
the option is outstanding all of the Class B Shares will be voted,
pursuant to an irrevocable proxy, with the majority of Class A Shares in
connection with
F-85
<PAGE> 323
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
any proposal involving the Trust and Insignia or any affiliate thereof or
election of any Trustee nominated by or affiliated with Insignia. Such
majority will be determined without consideration of the votes of "Excess
Class A Shares," as defined in the Trust's Declaration of Trust. With
respect to all other matters the affiliate of Insignia can vote the Class
B Shares without restriction.
In addition, one partnership, not affiliated with Insignia, having an
alleged loan to the Trust of $1,150,000 along with accrued interest of
approximately $145,000 as of March 31, 1995, reached an agreement with the Trust
for a settlement of all claims between the Trust and the partnership. Pursuant
to this agreement the Trust paid a total of $930,000 of cash on May 9, 1995,
upon execution of the settlement agreement.
As a result of this settlement the Trust recognized an extraordinary gain
of $1,844,000 summarized as follows:
<TABLE>
<S> <C>
Recorded cash advances from affiliated partnerships......... $ 7,585,000
Accrued interest on recorded cash advances through
12/31/94.................................................. 941,000
-----------
Total recorded liabilities relating to recorded
cash advances.................................... 8,526,000
Less:
Settlement of principal and interest on Insignia related
partnerships........................................... (5,686,000)
Additional interest due on settlement of Insignia related
partnerships........................................... (66,000)
Settlement of principal on non-Insignia related
partnership............................................ (930,000)
-----------
Extraordinary gain................................ $ 1,844,000
===========
</TABLE>
NOTE 8 -- SHAREHOLDERS' EQUITY
The Shares of the Trust are of two classes: Class A Shares (par value $1.00
per share) and Class B Shares (par value $.01 per share). There is no limit on
the number of either Class A or Class B Shares which the Trust is authorized to
issue. Class A and Class B Shares are each entitled to one vote per share with
respect to the election of Trustees and other matters.
In 1995, the Trust purchased, for $250,000, an option from MAE GP
Corporation, an affiliate of Insignia to purchase all the Class B Shares of the
Trust currently owned by the affiliate. Such holdings represent 100% of the
Trust's outstanding Class B Shares. The option is exercisable by the Trust in 10
years for approximately $94,000. During the 10 year period the option is
outstanding, all of the Class B Shares will be voted, pursuant to an irrevocable
proxy, with majority of Class A Shares in connection with any proposal involving
the Trust and Insignia or any affiliate thereof or election of any Trustee
nominated by or affiliated with Insignia. The majority will be determined
without consideration of the votes of "Excess Class A Shares," as defined in the
Trust's Declaration of Trust. With respect to all other matters, the affiliate
of Insignia can vote the Class B Shares without restriction.
In November 1996, the Trust's Board of Trustees adopted a Shareholders
Rights Plan and declared a dividend of one Right on each outstanding share of
the Trust's Class A Shares to stockholders of record on November 18, 1996. The
Rights are exercisable if a person or group acquires 20% or more of the Trust's
Class A Shares or announces or commences a tender offer for 20% or more of the
such shares. When a person or group acquires such 20%, each exercisable Right
will entitle its holder (other than such person or group) to purchase, at the
Right's then-current exercise price, a number of the Trust's Class A Shares
having a market value of twice such price. In addition, if the Trust is acquired
in a merger or other business combination transaction after a person has
acquired 20% or more of the Trust's outstanding Class A Shares, each right will
entitle its holder to purchase, at the Right's then-current exercise price, a
number of the acquiring company's common shares having a market value of twice
such price. Prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the Trust's common stock, the Rights are redeemable
for one cent per
F-86
<PAGE> 324
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Right at the option of the Board of Trustees. The Board of Trustees is also
authorized, under certain circumstances, to reduce the 20% threshold referred to
above to not less than 10%. The Rights will expire on December 31, 2003 unless
otherwise extended by the Board of Trustees.
The Board of Trustees of the Trust has authorized the Trust to repurchase,
in open market transactions, up to 10% of its Class A Shares. The Trust has
repurchased 43,800 shares under this program. There were no purchases in the
open market in 1997, 1996 and 1995 however the Trust acquired 209,700 Class A
Shares for $1,730,000 less $764,000 in expenses, in settlement of actions it had
brought against certain third parties.
In February 1993, the Trust's policy of distributing monthly the net cash
from operations to its Class A shareholders was temporarily suspended as a
result of the failure of the Insignia Partnerships and partnerships affiliated
with Angeles to fully service their Trust Loan obligations and Angeles'
inability to perform its guarantee of a minimum annual distribution of $2.00 per
Class A Share through May 1994 or meet its obligations under its promissory note
receivable with the Trust because of its own liquidity problems. The Trust made
shareholder distributions aggregating $1.03 and $0.52 per share in 1997 and
1996, respectively, and made no distributions in 1995. In December 1997, the
Board of Trustees of the Trust declared a $.32 per share dividend payable on
February 11, 1998, to shareholders of record on January 13, 1998.
NOTE 9 -- SETTLEMENT WITH ANGELES CORPORATION
Angeles had been unable to service its debt obligations under its
promissory note receivable with the Trust or perform its obligations under its
guarantees of the Trust's Loans. In May 1993 Angeles filed for protection under
Chapter 11 of the federal bankruptcy code. Angeles's failure to perform under
its debt obligations and guarantees with the Trust together with other matters,
resulted in the March 1994 filing by the Trustees, on behalf of the Trust, of
substantial claims against Angeles in a proof of claim in the Angeles
bankruptcy.
The Trust reached agreement with Angeles and the Committee of Creditors
Holding Unsecured Claims of Angeles to settlement of all claims between the
Trust and Angeles. The settlement agreement was approved by the Bankruptcy Court
under a plan of reorganization and the Trust received on April 14, 1995, after
the effective date of Court approval (March 31, 1995), the following:
- cash of $6.0 million;
- collateralized note payable of $6,100,000 due December 31, 1998, interest
paid quarterly at prime plus 1% not to exceed 8.5%;
- 567,326 Class A Shares of the Trust, owned by Angeles, representing 16%
of the then total outstanding Class A Shares of the Trust;
- payment of $1 million on a third party claim;
- assignment of a third party preferred interest with a face value of $1.2
million; and
- a release of all claims on behalf of Angeles against the Trust.
The $6.1 million note is collateralized with a pledge of Angeles's limited
partnership interest in a limited partnership whose assets are comprised of
notes and receivables from various real estate investment partnerships. This
note was paid in full during 1997.
The third party $1.2 million preferred interest received in the settlement
had an indeterminable value when acquired and therefore was recorded at zero.
F-87
<PAGE> 325
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The settlement transaction with Angeles resulted in the Trust recording
$12,844,000 as recovery of bad debt, summarized as follows:
<TABLE>
<S> <C>
Consideration received in settlement:
Cash...................................................... $ 6,000,000
Collateralized note....................................... 6,100,000
Third party subordinated note............................. 1,200,000
Reimbursement for third party claim....................... 1,000,000
567,326 Class A Trust Shares (valued as of effective date
of settlement, $7.50/ Class A share)................... 4,254,000
Other..................................................... 745,000
-----------
Total............................................. 19,299,000
Less:
Repayment of Angeles note receivable, net of reserve...... (4,255,000)
Reserve for third party subordinated note................. (1,200,000)
Payment of third party claim.............................. (1,000,000)
-----------
Recovery of bad debt from Angeles Settlement...... $12,844,000
===========
</TABLE>
NOTE 10 -- PROPOSED MERGER
On July 18, 1997, AMIT, IPT, Insignia and MAE GP entered into the Merger
Agreement which, provides for, among other things, the Merger of AMIT with and
into IPT, with IPT surviving the Merger. Upon consummation of the Merger the
separate existence of AMIT will cease. A Special Meeting of AMIT shareholders
will be called to consider and vote, a proposal, to approve and adopt the Merger
Agreement and the transactions contemplated thereby, including the merger of
AMIT with and into IPT, with IPT being the surviving entity (the "Merger"), and
approve the amendment of AMIT's Declaration of Trust (the "Trust Amendment") to
permit AMIT to merge and consolidate with other entities subject to the required
vote of the AMIT Board and AMIT's shareholders (collectively, the "Merger
Proposal"). It is currently expected that the Special Meeting of Shareholders
will convene in mid 1998. A proxy statement will be circulated to all AMIT
shareholders in advance of the meeting, containing information on the proposed
merger.
Pursuant to the Merger Agreement, each outstanding AMIT Class A Share will
be converted into IPT Common shares (the "Class A Exchange Ratio"). The Class A
Exchange Ratio is determined by adjusting the base exchange values set in the
Merger Agreement of $16.25 per AMIT Class A Share and $10.00 per IPT Common
Share to account for dividends paid by AMIT since December 31, 1996 and by IPT
since January 31, 1997. The Class A Exchange Ratio is subject to further
adjustment should either AMIT or IPT declare any additional dividends prior to
the Merger. No fractional IPT Common Shares will be issued. In lieu of any
fractional shares, an AMIT shareholder otherwise entitled to a fractional IPT
Common Share will receive cash from IPT in an amount determined by multiplying
such fractional share amount by the IPT Share Value.
During the year ending December 31, 1997, Insignia paid approximately $1
million for professional and legal fees on behalf of the Trust with regard to
the proposed merger.
F-88
<PAGE> 326
ANGELES MORTGAGE INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the selected quarterly financial data for
the Trust (in thousands except for per share amounts).
<TABLE>
<CAPTION>
QUARTER ENDING
-----------------------------------------
1997 12/31/97 9/30/97 6/30/97 3/31/97
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue....................................... $3,118 $1,088 $1,758 $1,235
Net income.................................... $2,427 $ 778 $1,462 $ 882
PER CLASS A SHARE
Net income.................................... $ 0.92 $ 0.29 $ 0.55 $ 0.33
Weighted average Class A Shares outstanding... 2,617 2,617 2,617 2,617
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDING
-----------------------------------------
1996 12/31/96 9/30/96 6/30/96 3/31/96
---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue....................................... $7,387 $ 878 $ 631 $1,154
Net income.................................... $6,780 $ 562 $1,033 $ 711
PER CLASS A SHARE
Net income.................................... $ 2.56 $ 0.21 $ 0.37 $ 0.25
Weighted average Class A Shares outstanding... 2,617 2,617 2,757 2,827
</TABLE>
F-89
<PAGE> 327
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INITIAL COST
TO TRUST COST CAPITALIZED
------------ SUBSEQUENT TO
ACQUISITION GROSS AMOUNT AT
BUILDING ----------------------- WHICH CARRIED
AND LAND CARRYING AT CLOSE OF ACCUMULATED DATE OF
DESCRIPTION ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS COSTS PERIOD(1)(2) DEPRECIATION CONSTRUCTION
- ----------- ------------ ------------ ------------ -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
University Center
Phase IV............. $1,800,000 -- -- $1,671,000 0 1975
Retail Shopping
Friedly, Minnesota
University Center
Phase I & II......... 1,100,000 -- -- 1,100,000 0 1975
Warehouse Office
Friedly, Minnesota
Colony Cove........... 1,714,000 -- -- 1,750,000 0 N/A
Raw Land
-- ---------- -- -- ---------- --
Ellenton, Florida
Total.......... $0 $4,614,000 $0 $0 $4,521,000 $0
== ========== == == ========== ==
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN LATEST
INCOME
DATE STATEMENTS
DESCRIPTION ACQUIRED IS COMPUTED
- ----------- ---------- ------------
<S> <C> <C>
University Center
Phase IV............. Dec.-'95 N/A
Retail Shopping
Friedly, Minnesota
University Center
Phase I & II......... Nov.-'95 N/A
Warehouse Office
Friedly, Minnesota
Colony Cove........... Apr.-'96 N/A
Raw Land & Oct.-'97
Ellenton, Florida
Total..........
</TABLE>
FOOTNOTES TO SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
(1) Reconciliation of real property investment:
<TABLE>
<S> <C>
Balance at January 1, 1995.................................. $ 1,400,000
Additions during period:
Acquisition through foreclosure........................... $ 4,312,000
Deductions during period.................................. $(2,312,000)
-----------
Balance at December 31, 1995................................ $ 3,400,000
-----------
Additions during period:
Acquisition through foreclosure........................... $ 3,490,000
Deductions during period.................................. $(1,820,000)
-----------
Balance at December 31, 1996................................ $ 5,070,000
-----------
Additions during period:
Acquisition through foreclosure........................... $ 36,000
Deductions during period.................................. $ (585,000)
-----------
Balance at December 31, 1997................................ $ 4,521,000
===========
</TABLE>
(2) The carrying value for federal income tax purposes is $4,521,000.
F-90
<PAGE> 328
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
FACE
FINANCIAL PERIODIC AMOUNT CARRYING
INTEREST MATURITY PAYMENT PRIOR OF AMOUNT OF
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES(2)(3)
----------- ----------- --------- --------- ------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FIRST TRUST DEEDS
Lake Arrowhead Resort Hotel
Lake Arrowhead, California.......... 10.20% Nov-99 (1)(9) -- 9,004 9,004
*Mesa Dunes, Wakonda, Town & Country
Retail Stores, Cedar Rapids/Des
Moines, Iowa...................... 9.00% Dec-03 (4) -- 5,000 3,390
*Princeton Meadows Joint Venture
Golf Course, Princeton Meadows, New
Jersey............................ 12.50% Sep-01 (1) -- 1,280 1,567
Virginia Industrial Capital, LLC
Warehouse,
Martinsville, Virginia.............. 11.00% Apr-98 (1) -- 2,950 2,950
*Hospitality Inn Hotel,
Pensacola, Florida.................. 11.25% Nov-02 (4) -- 1,652 1,648
*Hospitality Inn Hotel,
Pensacola, Florida.................. 11.00% Nov-02 (4) -- 1,297 1,294
*Hospitality Inn Hotel,
Jacksonville, Florida............... 11.00% Nov-02 (4) -- 2,274 2,268
Affordable Residential Communities,
LP I
Three manufactured home parks
Denton and Tyler, Texas............. 8.90% Dec-03 (1) -- 5,000 5,000
JJ & T Enterprises, Inc.
Four manufactured home parks
Cheyenne, Wyoming................... 9.07% Dec-03 (1) -- 1,900 1,900
American Industrial Capital, LLC
Office/warehouse
Houston, Texas...................... 8.00% Dec-07 (1) -- 1,301 1,301
American Industrial Capital, LLC
Industrial warehouse
Aiken, South Carolina............... 8.00% Dec-07 (4) -- 531 531
American Industrial Capital, LLC
Industrial warehouse
Jackson, Tennessee.................. 10.50% Dec-07 (1) -- 2,185 2,185
------- ------- -------
TOTAL FIRST TRUST DEEDS............. $ 0 $34,374 $33,038
<CAPTION>
PRINCIPAL AMOUNT OF LOANS
SUBJECT TO DELINQUENT
DESCRIPTION PRINCIPAL OR INTEREST
----------- -------------------------
<S> <C>
FIRST TRUST DEEDS
Lake Arrowhead Resort Hotel
Lake Arrowhead, California.......... --
*Mesa Dunes, Wakonda, Town & Country
Retail Stores, Cedar Rapids/Des
Moines, Iowa...................... --
*Princeton Meadows Joint Venture
Golf Course, Princeton Meadows, New
Jersey............................ --
Virginia Industrial Capital, LLC
Warehouse,
Martinsville, Virginia.............. --
*Hospitality Inn Hotel,
Pensacola, Florida.................. --
*Hospitality Inn Hotel,
Pensacola, Florida.................. --
*Hospitality Inn Hotel,
Jacksonville, Florida............... --
Affordable Residential Communities,
LP I
Three manufactured home parks
Denton and Tyler, Texas............. --
JJ & T Enterprises, Inc.
Four manufactured home parks
Cheyenne, Wyoming................... --
American Industrial Capital, LLC
Office/warehouse
Houston, Texas...................... --
American Industrial Capital, LLC
Industrial warehouse
Aiken, South Carolina............... --
American Industrial Capital, LLC
Industrial warehouse
Jackson, Tennessee.................. --
------
TOTAL FIRST TRUST DEEDS............. $ 0
</TABLE>
F-91
<PAGE> 329
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE -- (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
FACE
FINANCIAL PERIODIC AMOUNT CARRYING
INTEREST MATURITY PAYMENT PRIOR OF AMOUNT OF
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES(2)(3)
----------- ----------- --------- --------- ------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SECOND TRUST DEEDS
*Silver Ridge Apartments
Maplewood, Minnesota................ 10.00% Dec-97 (1) 4,525 375 385
*Bercado Shores Apartments,
South Bend, Indiana................. 12.50% Jun-95 (1) 4,307 1,350 1,350
*Brittany Point Apartments,
Huntsville, Alabama................. 12.50% Dec-00 (1) 9,536 1,570 1,570
Nolana Apartments, Inc.
Los Angeles, California............. 12.00% Sep-98 (1) 1,873 455 375
*Southgate Apartments,
Bedford Heights, Ohio............... 11.50% Mar-95 (1) 2,723 2,000 2,000
------- ------- -------
TOTAL SECOND TRUST DEEDS............ 22,964 5,750 5,680
THIRD TRUST DEEDS
*Fox Run(A)......................... 11.25% Jan-02 (4) 30,400 875 872
Apartments, Plainsboro, New Jersey
------- ------- -------
TOTAL THIRD TRUST DEEDS............. 30,400 875 872
PROMISSORY NOTES RECEIVABLE.........
*North Prior Warehouse Complex,
St. Paul, Minnesota................. 12.25% Jun-96 (1) -- 2,000 679
J. Schultz
An Individual....................... 8.00% May-00 (1) -- 75 75
*Angeles Partners 16................ 12.50% Jun-97 (1) -- 860 860
California Limited Partnership
*Angeles Partners XIV
California Limited Partnership...... 12.00% Feb-98 (1) -- 459 411
*Fox Crest
Apartments, Waukegan, Illinois...... 12.50% Mar-03 (1) 6,682 4,764 4,764
------- ------- -------
TOTAL PROMISSORY NOTES RECEIVABLE... $ 6,682 $ 8,158 $ 6,789
------- ------- -------
<CAPTION>
PRINCIPAL AMOUNT OF LOANS
SUBJECT TO DELINQUENT
DESCRIPTION PRINCIPAL OR INTEREST
----------- -------------------------
<S> <C>
SECOND TRUST DEEDS
*Silver Ridge Apartments
Maplewood, Minnesota................ 385
*Bercado Shores Apartments,
South Bend, Indiana................. 1,350
*Brittany Point Apartments,
Huntsville, Alabama................. --
Nolana Apartments, Inc.
Los Angeles, California............. --
*Southgate Apartments,
Bedford Heights, Ohio............... 2,000
------
TOTAL SECOND TRUST DEEDS............ 3,735
THIRD TRUST DEEDS
*Fox Run(A)......................... --
Apartments, Plainsboro, New Jersey
------
TOTAL THIRD TRUST DEEDS............. 0
PROMISSORY NOTES RECEIVABLE.........
*North Prior Warehouse Complex,
St. Paul, Minnesota................. 679
J. Schultz
An Individual....................... --
*Angeles Partners 16................ 860
California Limited Partnership
*Angeles Partners XIV
California Limited Partnership...... --
*Fox Crest
Apartments, Waukegan, Illinois...... --
------
TOTAL PROMISSORY NOTES RECEIVABLE... $1,539
------
</TABLE>
F-92
<PAGE> 330
ANGELES MORTGAGE INVESTMENT TRUST
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE -- (CONTINUED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
FACE
AMOUNT CARRYING PRINCIPAL AMOUNT OF LOANS
PRIOR OF AMOUNT OF SUBJECT TO DELINQUENT
DESCRIPTION LIENS MORTGAGES MORTGAGES(2)(3) PRINCIPAL OR INTEREST
----------- ------- --------- --------------- -------------------------
<S> <C> <C> <C> <C>
SUMMARY
TOTAL FIRST TRUST DEEDS..................... 0 34,374 33,038 0
TOTAL SECOND TRUST DEEDS.................... 22,964 5,750 5,680 3,735
TOTAL THIRD TRUST DEEDS..................... 30,400 875 872 0
TOTAL PROMISSORY NOTES RECEIVABLE........... 6,682 8,158 6,789 1,539
------- ------- ------- ------
TOTAL....................................... $60,046 $49,157 46,379 $5,274
======= ======= ======
UNEARNED LOAN FEES.......................... (243)
-------
46,136
ALLOWANCE FOR ESTIMATED LOSSES.............. (8,826)
-------
$37,310
=======
</TABLE>
F-93
<PAGE> 331
ANGELES MORTGAGE INVESTMENT TRUST
FOOTNOTES TO SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
(1) Note requires periodic interest only payments through maturity, when the
principal balance is due.
(2) Reconciliation of notes receivable:
<TABLE>
<S> <C>
Balance at January 1, 1996.................................. $ 45,369,000
Additions:
New mortgage loans(5)..................................... 15,574,000
Deductions:
Principal collections(6).................................. (16,256,000)
Foreclosures.............................................. (4,342,000)
------------
Balance at December 31, 1996................................ $ 40,345,000
Additions:
New mortgage loans(7)..................................... 15,116,000
Deductions:
Principal collections..................................... (7,552,000)
Write-off of loan(8)...................................... (1,530,000)
------------
Balance at December 31, 1997................................ $ 46,379,000
============
</TABLE>
(3) The carrying amount for Federal income tax purposes is approximately
$42,245,000.
(4) Note requires monthly interest and principal payments through maturity, when
the principal balance is due.
(5) Amount includes modified loans in which accrued but unrecorded interest
income was recast as principal for the following loans; Lake
Arrowhead -- $9,004,000, Fox Run -- $875,000, Fox Crest -- $1,764,000,
Brittany -- $291,000 and Angeles Partners XIV -- $134,000.
(6) Amount includes the refinancing of the Lake Arrowhead promissory note of $6
million.
(7) Amount includes modified loans in which accrued but unrecorded interest
income was recast as principal for the following loans; Hospitality Inns
Pensacola I -- $237,000, Hospitality Inns Pensacola II -- $97,000,
Hospitality Inns Jacksonville -- $106,000 and LaSalle -- $423,000.
(8) Amount represents write-off of Vista Hills promissory note of $1,530,000.
(9) Requires a principal repayment of $1,500,000 in November 1998 with the
remaining outstanding principal balance due in 1999.
* Indicates a transaction with a partnership now controlled by IPT.
F-94
<PAGE> 332
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AND
INSIGNIA PROPERTIES TRUST
---------------------
DATED AS OF OCTOBER 1, 1998
---------------------
- --------------------------------------------------------------------------------
<PAGE> 333
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER........................................................ A-2
Section 1.1 Structure of the Merger..................................... A-2
Section 1.2 The Merger.................................................. A-2
Section 1.3 Effects of the Merger....................................... A-2
Section 1.4 Effective Time of the Merger................................ A-2
ARTICLE II TREATMENT OF SHARES.............................................. A-3
Section 2.1 Effect of the Merger on IPT Shares.......................... A-3
Section 2.2 Surrender of Certificates................................... A-6
Section 2.3 Closing of Transfer Books; Etc. ............................ A-7
Section 2.4 Fractional Shares........................................... A-7
Section 2.5 No Other Rights............................................. A-7
ARTICLE III THE CLOSING..................................................... A-8
Section 3.1 Closing..................................................... A-8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF IPT............................ A-8
Section 4.1 Organization and Qualification of IPT....................... A-8
Section 4.2 Organization and Qualification of IPLP...................... A-8
Section 4.3 Capitalization.............................................. A-8
Section 4.4 Authority; Non-Contravention................................ A-9
Section 4.5 Tax Matters................................................. A-9
Section 4.6 Vote Required............................................... A-9
Section 4.7 AMIT Merger................................................. A-9
Section 4.8 Opinion of Financial Advisor................................ A-9
Section 4.9 Brokers..................................................... A-9
Section 4.10 Absence of Inducement....................................... A-10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF AIMCO........................... A-10
Section 5.1 Organization and Qualification.............................. A-10
Section 5.2 Capitalization.............................................. A-10
Section 5.3 Authority; Non-Contravention; Required Filings.............. A-11
Section 5.4 Reports and Financial Statements............................ A-12
Section 5.5 Absence of Certain Changes or Events........................ A-12
Section 5.6 Registration Statement, Information Statement/Prospectus and
Schedule 13E-3............................................ A-12
Section 5.7 No Vote Required............................................ A-12
Section 5.8 Tax Matters................................................. A-12
Section 5.9 Brokers..................................................... A-13
Section 5.10 Absence of Inducement....................................... A-13
ARTICLE VI ADDITIONAL AGREEMENTS............................................ A-14
Section 6.1 IPT and IPLP Distributions.................................. A-14
Section 6.2 Registration Statement, Information Statement/Prospectus and
Schedule 13E-3............................................ A-14
Section 6.3 Regulatory Matters.......................................... A-15
</TABLE>
i
<PAGE> 334
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 6.4 Shareholder Approval........................................ A-15
Section 6.5 Vote of IPT Shares Owned by AIMCO........................... A-15
Section 6.6 Public Announcements........................................ A-16
Section 6.7 Expenses.................................................... A-16
Section 6.8 Further Assurances.......................................... A-16
Section 6.9 Transfer Taxes.............................................. A-16
Section 6.10 IPT Trustees and Officers................................... A-16
Section 6.11 Modification of Form of Transaction......................... A-17
Section 6.12 Indemnification............................................. A-18
Section 6.13 Insurance................................................... A-19
Section 6.14 Conduct of IPT's Business Pending the Effective Time........ A-19
ARTICLE VII CONDITIONS...................................................... A-20
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger.................................................... A-20
Section 7.2 Additional Conditions to Obligation of IPT to Effect the
Merger.................................................... A-21
Section 7.3 Additional Conditions to Obligation of AIMCO to Effect the
Merger.................................................... A-22
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.............................. A-22
Section 8.1 Termination................................................. A-22
Section 8.2 Effect of Termination....................................... A-23
Section 8.3 Amendment................................................... A-25
Section 8.4 Waiver...................................................... A-25
ARTICLE IX GENERAL PROVISIONS............................................... A-26
Section 9.1 Survival of Representations and Warranties.................. A-26
Section 9.2 Notices..................................................... A-26
Section 9.3 Adjustment for Dilution..................................... A-27
Section 9.4 Entire Agreement............................................ A-27
Section 9.5 Assignment.................................................. A-27
Section 9.6 GOVERNING LAW............................................... A-27
Section 9.7 Interpretation.............................................. A-27
Section 9.8 Counterparts; Effect........................................ A-27
Section 9.9 Parties' Interest........................................... A-27
Section 9.10 Enforcement................................................. A-27
Section 9.11 Severability................................................ A-28
Section 9.12 Letter Agreement............................................ A-28
Section 9.13 Knowledge................................................... A-28
Section 9.14 Breaches.................................................... A-28
</TABLE>
ii
<PAGE> 335
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Agreement................................................... 1
AIMCO....................................................... 1
AIMCO Benefit Plans......................................... 14
AIMCO Board................................................. 1
AIMCO Charter............................................... 3
AIMCO Class B Common Stock.................................. 13
AIMCO Collar Price.......................................... 3
AIMCO Common Stock.......................................... 4
AIMCO Exchange Value........................................ 4
AIMCO Material Adverse Effect............................... 13
AIMCO OP.................................................... 1
AIMCO Preferred Stock....................................... 13
AIMCO Reference Period...................................... 4
AIMCO Reference Price....................................... 4
AIMCO Required Filings...................................... 15
AIMCO Restricted Shares..................................... 7
AIMCO SEC Reports........................................... 15
AIMCO Termination Reference Price........................... 31
AIMCO Termination Share Value............................... 31
AIMCO-nominated Trustees.................................... 21
Alternative Proposal........................................ 30
AMIT........................................................ 1
AMIT Merger................................................. 1
Cash Election Notice........................................ 4, 7
Cash Percentage............................................. 4, 7
Certificate................................................. 6
Closing..................................................... 10
Closing Date................................................ 10
Code........................................................ 2
Control..................................................... 31
Controlled AIMCO Entity..................................... 31
Controlled IPT Entity....................................... 31
Conversion Ratio............................................ 4
Distribution Shortfall Amount............................... 4
Effective Time.............................................. 3
Excess Distribution Amount.................................. 4, 19
Exchange Act................................................ 15
Exchange Fund............................................... 8
Financial Institution....................................... 20
</TABLE>
iii
<PAGE> 336
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GAAP........................................................ 16
Governmental Authority...................................... 15
HUD......................................................... 15
IFG......................................................... 1
IFG Agreement............................................... 1
Indemnitee.................................................. 23
Information Statement/Prospectus............................ 19
Insignia Merger............................................. 1
IPLP Limited Partnership Agreement.......................... 11
IPT......................................................... 1
IPT Board................................................... 1
IPT Bylaws.................................................. 10
IPT Charter................................................. 10
IPT Distribution Amount..................................... 4
IPT Exchange Value.......................................... 5
IPT Meeting Date............................................ 20
IPT Preferred Shares........................................ 11
IPT Security................................................ 32
IPT Share Plan.............................................. 7
IPT Shareholders............................................ 1
IPT Shareholders' Approval.................................. 12
IPT Shares.................................................. 1
IPT Termination Share Value................................. 32
IPT Unwind Consideration.................................... 32
IPT Unwind Consideration Price.............................. 32
Losses...................................................... 23
Material Adverse Effect..................................... 13
MCAA........................................................ 3
Merger...................................................... 1
Merger Consideration........................................ 5
MGCL........................................................ 3
NYSE........................................................ 5
Paying Agent................................................ 8
Person...................................................... 5
Proxyholders................................................ 20
Registration Statement...................................... 19
REIT........................................................ 2
Schedule 13E-3.............................................. 19
SEC......................................................... 15
Securities Act.............................................. 15
Special AIMCO Distribution.................................. 18
</TABLE>
iv
<PAGE> 337
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Status Requirements......................................... 17
Stock Percentage............................................ 5
Subsidiary.................................................. 5
Superior Proposal........................................... 30
Surviving Entity............................................ 3
Tax Return.................................................. 12
Taxes....................................................... 12
Termination Date............................................ 32
Transfer Taxes.............................................. 21
Violation................................................... 15
Voting Debt................................................. 11
</TABLE>
v
<PAGE> 338
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October 1, 1998, by
and between Apartment Investment and Management Company, a Maryland corporation
("AIMCO"), and Insignia Properties Trust, a Maryland real estate investment
trust ("IPT").
WHEREAS, AIMCO, AIMCO Properties, L.P., a Delaware limited partnership ("AIMCO
OP"), Insignia Financial Group, Inc., a Delaware corporation ("IFG"), and
Insignia/ESG Holdings, Inc., a Delaware corporation, have entered into an
Amended and Restated Agreement and Plan of Merger (the "IFG Agreement"), dated
as of May 26, 1998;
WHEREAS, pursuant to the IFG Agreement, IFG has merged with and into AIMCO, with
AIMCO being the surviving entity (the "Insignia Merger");
WHEREAS, the IFG Agreement requires AIMCO to propose to acquire (by merger) IPT
and to use its reasonable best efforts to consummate such merger within three
months following the effective time of the Insignia Merger, and the performance
of AIMCO's obligations under this Agreement, if it uses its reasonable best
efforts to consummate the Merger (as hereinafter defined) within such period,
will constitute AIMCO's performance of such obligations under the IFG Agreement;
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of July 18, 1997,
by and among Angeles Mortgage Investment Trust, an unincorporated California
business trust ("AMIT"), IPT, IFG and MAE GP Corporation, a Delaware
corporation, AMIT was merged with and into IPT on September 17, 1998, with IPT
being the surviving entity (the "AMIT Merger");
WHEREAS, the Board of Trustees of IPT (the "IPT Board") has received the written
opinion of Lehman Brothers Inc. dated the date hereof that the Merger
Consideration (as defined in Section 2.1(b)) is fair from a financial point of
view to the holders (the "IPT Shareholders") of common shares of beneficial
interest, par value $.01 per share, of IPT ("IPT Shares"), other than IFG and
AIMCO and their respective Subsidiaries (as defined in Section 2.1(a));
WHEREAS, the Board of Directors of AIMCO (the "AIMCO Board") and the IPT Board
have approved the merger of IPT and AIMCO (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement; and
WHEREAS, the surviving entity in the Merger intends that, following the Merger,
it shall continue to be subject to taxation as a real estate investment trust (a
"REIT") within the meaning of the Internal Revenue Code of 1986, as amended (the
"Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.1 Structure of the Merger.
(a) At least 14 business days prior to the anticipated mailing of the
Information Statement/ Prospectus (as defined in Section 6.2) AIMCO shall notify
IPT whether, at the Effective Time (as defined in Section 1.4) (x) IPT shall be
merged with and into AIMCO, with AIMCO being the surviving entity or (y) a
subsidiary of AIMCO shall be merged with and into IPT, with IPT being the
surviving entity. If AIMCO elects to cause the Merger to occur pursuant to (y)
above, then this Agreement shall be amended to (i) add such subsidiary as a
party to this Agreement, (ii) make such other additional incidental amendments
as are needed to provide for a subsidiary merger, and where required, to provide
that AIMCO will cause its subsidiary to take action in lieu of AIMCO, as agreed
by IPT and AIMCO and their respective counsel, and (iii) include an
unconditional guarantee by AIMCO of the obligations of its subsidiary in the
Merger.
(b) In the event AIMCO shall have been advised by its tax counsel that it does
not expect to be able to issue the opinion referred to in Section 7.2(f) of this
Agreement at the Closing, in addition to the actions referenced to in the second
sentence of this Section 1.1, IPT, acting through a majority of the Continuing
Trustees, and AIMCO shall use their best efforts to restructure the form of the
transaction to provide for the issuance of AIMCO Common Stock without materially
changing either the consideration to be received by IPT Shareholders or the tax
or other economic consequences of the transaction to AIMCO and its Subsidiaries,
but if the transaction cannot reasonably be so restructured, it shall be
restructured as an all cash transaction.
SECTION 1.2 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time IPT shall be merged with and into AIMCO in
accordance with the laws of the State of Maryland. AIMCO shall be the surviving
entity in the Merger and shall continue its corporate existence under the laws
of the State of Maryland. AIMCO after the Effective Time is sometimes referred
to herein as the "Surviving Entity." The effects of the Merger shall be as set
forth in Section 1.3. AIMCO covenants and agrees to use its reasonable best
efforts to consummate the Merger as soon as possible.
SECTION 1.3 Effects of the Merger. At the Effective Time, (a) the charter of
AIMCO (the "AIMCO Charter"), as in effect immediately prior to the Effective
Time, shall be the charter of the Surviving Entity until thereafter amended as
provided by law and the AIMCO Charter, (b) the by-laws of AIMCO, as in effect
immediately prior to the Effective Time, shall be the by-laws of the Surviving
Entity until thereafter amended as provided by law, the AIMCO Charter and such
by-laws and (c) the directors and officers of AIMCO immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Entity until their respective successors are duly elected and
qualified. Subject to the foregoing, the additional effects of the Merger shall
be as provided in Section 3-114 of the Maryland General Corporation Law ("MGCL")
and Section 8-501.1(n) of Title 8 of the Corporations and Associations Article
of the Annotated Code of Maryland (the "MCAA").
SECTION 1.4 Effective Time of the Merger. On the Closing Date (as defined in
Section 3.1), articles of merger shall be executed and filed by AIMCO and IPT
with the State Department of Assessments and Taxation of the State of Maryland
pursuant to the MGCL and the MCAA. The Merger shall become effective upon the
acceptance of the
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articles of merger for record by the State Department of Assessments and
Taxation of the State of Maryland (the "Effective Time").
ARTICLE II
TREATMENT OF SHARES
SECTION 2.1 Effect of the Merger on IPT Shares.
(a) Certain Definitions. As used in this Agreement, the following terms have the
following meanings:
"AIMCO Collar Price" means the average price (computed based on the sum of the
high and low sales prices of AIMCO Common Stock (as reported in the NYSE
Composite Transactions reporting system as published in The Wall Street Journal
or, if not published therein, in another authoritative source) divided by two)
of a share of AIMCO Common Stock during the ten consecutive NYSE trading day
period ending on (and including) December 31, 1998.
"AIMCO Common Stock" means the Class A Common Stock, par value $.01 per share,
of AIMCO.
"AIMCO Exchange Value" means (a) the AIMCO Reference Price, if the Effective
Time occurs on or prior to December 31, 1998, or (b) the lesser of the AIMCO
Collar Price or the AIMCO Reference Price, if the Effective Time occurs on or
after January 1, 1999.
"AIMCO Reference Period" means the ten consecutive NYSE trading day period
commencing on and including the tenth (10th) NYSE trading day preceding the IPT
Meeting Date (as defined in Section 6.4) and ending on and including the NYSE
trading day immediately preceding the IPT Meeting Date.
"AIMCO Reference Price" means the average price (computed based on the sum of
the high and low sales prices of AIMCO Common Stock (as reported in the NYSE
Composite Transactions reporting system as published in The Wall Street Journal
or, if not published therein, in another authoritative source) divided by two)
of a share of AIMCO Common Stock during the AIMCO Reference Period.
"Cash Election Notice" is defined in Section 2.1(e).
"Cash Percentage" is defined in Section 2.1(e).
"Conversion Ratio" means the IPT Exchange Value divided by the AIMCO Exchange
Value.
"Distribution Shortfall Amount" means the aggregate per-IPT Share amount, if
any, of the distributions required to be paid by IPT pursuant to Section 6.1 but
which IPT fails to make for any reason, plus a return on the amount of each such
unpaid distribution at an annual rate equal to the lesser of 20% or the maximum
rate permitted by applicable law, to be calculated based on the number of days
elapsed from and including the date on which such distribution was required to
be paid through and including the date of the Effective Time (and assuming a 365
day year).
"Excess Distribution Amount" is defined in Section 6.1(c).
"IPT Distribution Amount" means, as of any date of determination, (a) $.16
during the period from the date of this Agreement through and including February
28, 1999, and
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(b) thereafter, the greater of (i) $.16 and (ii) the amount determined by
dividing $13.28 by the AIMCO Collar Price and multiplying the result by the per
share amount of the corresponding distribution declared by AIMCO in respect of
AIMCO Common Stock.
"IPT Exchange Value" means $13.28.
"NYSE" means the New York Stock Exchange.
"Person" means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
"Stock Percentage" means a percentage equal to 100% minus the Cash Percentage.
"Subsidiary" means as to any Person, any other Person of which at least a
majority of the voting power represented by the outstanding shares of capital
stock or other voting securities or interests (including, without limitation,
general partner interests) having voting power under ordinary circumstances to
elect directors or similar members of the governing body of such other Person
shall at the time be held, directly or indirectly, by such first Person.
(b) General. Subject to Sections 2.1(c) and (d), as of the Effective Time, by
virtue of the Merger and without any action on the part of any holder of an IPT
Share, each issued and outstanding IPT Share shall be converted into and become
the right to receive the following (together with any cash to be issued in lieu
of fractional shares pursuant to Section 2.4, the "Merger Consideration"):
(i) If the Effective Time occurs on or prior to December 31, 1998: (A) that
number of shares of AIMCO Common Stock equal to the Stock Percentage
multiplied by the Conversion Ratio; and(B) an amount in cash equal to the
Cash Percentage multiplied by the sum of (x) $13.25, plus (y) the
Distribution Shortfall Amount (if any), minus (z) the Excess Distribution
Amount (if any); and (C) an amount in cash equal to the IPT Distribution
Amount, determined as of Effective Time, multiplied by the number of days
that have elapsed from and including the day immediately following the
record date for the last regular quarterly distribution declared by IPT
through and including the date immediately preceding the Closing Date,
divided by 91; or
(ii) If the Effective Time occurs between January 1, 1999 and January 31,
1999: (A) that number of shares of AIMCO Common Stock equal to the Stock
Percentage multiplied by the Conversion Ratio; and (B) an amount in cash
equal to the Cash Percentage multiplied by the sum of (w) $13.25, plus (x)
$.0018 multiplied by the number of days that has elapsed from and including
January 1, 1999 through and including the day immediately preceding the
Closing Date, plus (y) the Distribution Shortfall Amount (if any), minus
(z) the Excess Distribution Amount (if any); and (C) an amount in cash
equal to the IPT Distribution Amount, determined as of Effective Time,
multiplied by the number of days that have elapsed from and including the
day immediately following the record date for the last regular quarterly
distribution declared by IPT through and including the date immediately
preceding the Closing Date, divided by 91; or
(iii) If the Effective Time occurs between February 1, 1999 and February
28, 1999: (A) that number of shares of AIMCO Common Stock equal to the
Stock Percentage multiplied by the Conversion Ratio; and (B) an amount in
cash equal to the Cash Percentage multiplied by the sum of (w) $13.25, plus
(x) $.0036 multiplied by the
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number of days that has elapsed from and including January 1, 1999 through
and including the day immediately preceding the Closing Date, plus (y) the
Distribution Shortfall Amount (if any), minus (z) the Excess Distribution
Amount (if any); and (C) an amount in cash equal to the IPT Distribution
Amount, determined as of Effective Time, multiplied by the number of days
that have elapsed from and including the day immediately following the
record date for the last regular quarterly distribution declared by IPT
through and including the date immediately preceding the Closing Date,
divided by 91; or
(iv) If the Effective Time occurs on or after March 1, 1999: (A) that
number of shares of AIMCO Common Stock equal to the Conversion Ratio; and
(B) an amount in cash equal to the IPT Distribution Amount, determined as
of Effective Time, multiplied by the number of days that have elapsed from
and including the day immediately following the record date for the last
regular quarterly distribution declared by IPT through and including the
date immediately preceding the Closing Date, divided by 91;
and shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate (a
"Certificate") which immediately prior to the Effective Time represented any
such IPT Share shall cease to have any rights with respect to such IPT Share,
except the right to receive the Merger Consideration contemplated by this
Section 2.1.
(c) Cancellation of Certain IPT Shares. As of the Effective Time, by virtue of
the Merger and without any action on the part of any IPT Shareholder, all IPT
Shares owned directly or indirectly by AIMCO and its Subsidiaries shall
automatically be canceled and retired and shall cease to exist, and no Merger
Consideration or other consideration shall be issued or delivered in exchange
therefor.
(d) Restricted Shares.
(i) Treatment. At the Effective Time, each unvested restricted IPT Share
awarded under the IPT 1997 Share Incentive Plan (the "IPT Share Plan")
shall, by virtue of this Agreement and without any further action of IPT,
AIMCO or the holder of such restricted share, be converted into that number
of restricted shares ("AIMCO Restricted Shares") of AIMCO Common Stock
equal to the Conversion Ratio. Each such AIMCO Restricted Share shall
continue to have, and be subject to, the same terms and conditions
(including rights to Dividend Equivalents (as defined in the IPT Share
Plan), if any) set forth in the IPT Share Plan and the applicable
restricted share agreement, each as in effect immediately prior to the
Effective Time.
(ii) Registration. AIMCO shall (A) cause such shares of AIMCO Common Stock
to be covered by an effective registration statement on Form S-8 (or any
successor or other appropriate forms), and (B) use its reasonable best
efforts to maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus contained therein) for so
long as the restricted shares remain outstanding.
(e) Cash Election Option. Not later than the close of business on the second
NYSE trading day immediately preceding the first day of the AIMCO Reference
Period, AIMCO shall deliver to IPT a written notice (the "Cash Election
Notice"), which shall be irrevocable, in which AIMCO specifies a percentage,
from 0% to 100%, of the Merger Consideration to be paid in cash (the "Cash
Percentage"); provided, however, that if (x) AIMCO fails to timely
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deliver the Cash Election Notice to IPT or (y) the IPT Meeting Date is on or
after March 1, 1999, then AIMCO shall not be entitled to deliver a Cash Election
Notice (i.e., the Cash Percentage shall be deemed to be zero percent (0%) and
AIMCO shall not be entitled to pay any portion of the Merger Consideration in
cash). AIMCO shall use its best efforts to cause IPT to issue, on the date the
Cash Election Notice is required to be delivered, via the Dow Jones News Service
and PR Newswire, a press release announcing the Cash Percentage.
SECTION 2.2 Surrender of Certificates.
(a) AIMCO shall provide on the date of the Effective Time to the paying agent
selected by AIMCO (the "Paying Agent") certificates representing shares of AIMCO
Common Stock and funds as necessary to make issuances and payments pursuant to
Sections 2.1(b) and 2.4 (such certificates and funds being hereinafter referred
to as the "Exchange Fund"). Out of the Exchange Fund, the Paying Agent shall
make, pursuant to irrevocable instructions, the issuances and payments referred
to in Sections 2.1(b) and 2.4, and the Exchange Fund shall not be used for any
other purpose. The Paying Agent may invest portions of the Exchange Fund as
AIMCO may direct, provided that such investments be in obligations of, or
guaranteed by, the United States of America, in commercial paper obligations
receiving the highest rating from either Moody's Investors Service or Standard &
Poor's Corporation or in certificates of deposit, bank repurchase agreements or
bankers' acceptances of commercial banks with capital exceeding $100,000,000.
Any net profit resulting from, or interest or income produced by, such
investments shall be payable to AIMCO. AIMCO shall replace any monies lost
through any investment made pursuant to this Section 2.2(a) upon request
therefor by the Paying Agent. Any portion of the Exchange Fund that remains
unclaimed after 180 days after the Effective Time shall be returned to AIMCO
upon its request made to the Paying Agent, after which time the holder of any
unsurrendered Certificates shall look only to AIMCO for delivery of the Merger
Consideration. AIMCO shall not be liable to any Person for any funds delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(b) As soon as practicable after the Effective Time, AIMCO shall cause the
Paying Agent to mail to each holder of record of a Certificate which immediately
prior to the Effective Time represented an IPT Share that was canceled and
became instead the right to receive Merger Consideration pursuant to Section
2.1(b): (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
actual delivery of the Certificates to the Paying Agent); and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration. Upon surrender of a Certificate to the Paying Agent for
exchange (or to such other agent or agents as may be appointed by AIMCO),
together with a duly executed letter of transmittal and such other documents as
the Paying Agent shall require, the holder of such Certificate shall be entitled
to receive, in respect of the IPT Shares formerly represented thereby, (A) a
certificate or certificates representing that number of whole shares of AIMCO
Common Stock which such holder has the right to receive pursuant to the
provisions of Section 2.1(b), if any, (B) the amount of cash which such holder
has the right to receive pursuant to the provisions of Section 2.1(b) and (C)
cash in lieu of fractional shares which such holder is entitled to receive
pursuant to Section 2.4. If payment is to be made to a Person other than the one
in whose name a surrendered Certificate is registered, it shall be a condition
of receipt of the Merger Consideration that the Certificate so surrendered be
properly endorsed or otherwise in proper form for transfer and that the Person
requesting such payment either pay any transfer or other taxes required by
reason of the payment to a Person other than the
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registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Entity that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
2.2, after the Effective Time each Certificate shall represent for all purposes
only the right to receive the Merger Consideration for each IPT Share
represented by such Certificate, together with any dividends and other
distributions paid in respect thereof after the Effective Time.
SECTION 2.3 Closing of Transfer Books; Etc. From and after the Effective Time,
the share transfer books of IPT shall be closed, and no registration of any
transfer of any IPT Shares shall thereafter be made on the records of IPT. If,
after the Effective Time, Certificates are presented to AIMCO for any reason,
they shall be canceled, and each IPT Share represented thereby shall be
exchanged for the Merger Consideration, together with any dividends and other
distributions paid in respect thereof after the Effective Time. Shares of AIMCO
Common Stock issued in the Merger shall be issued as of, and be deemed to be
outstanding as of, the Effective Time. AIMCO shall cause all such shares of
AIMCO Common Stock issued pursuant to the Merger to be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. In
the event any Certificate(s) shall have been lost, stolen or destroyed, upon the
making of any affidavit of that fact by the IPT Shareholder claiming such
Certificate(s) to be lost, stolen or destroyed and, if reasonably required by
AIMCO or the Paying Agent, upon the posting by such IPT Shareholder of a bond in
such amount as reasonably determined as indemnity against any claim that may be
made against either of them with respect to such Certificate(s), the Paying
Agent shall issue the Merger Consideration in respect of each IPT Share
represented by such lost, stolen or destroyed Certificate(s). Appropriate
procedures shall be established by AIMCO and the Paying Agent so that each
holder of a Certificate at the Effective Time shall be entitled to vote on all
matters subject to the vote of holders of AIMCO Common Stock with a record date
on or after the date of the Effective Time, whether or not such Certificate
holder shall have surrendered Certificates in accordance with the provisions of
this Agreement. For purposes of the immediately preceding sentence, AIMCO may
rely conclusively on the shareholder records of IPT in determining the identity
of, and the number of IPT Shares held by, each holder of a Certificate at the
Effective Time.
SECTION 2.4 Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of AIMCO Common Stock will be issued, and any
IPT Shareholder entitled to receive a fractional share of AIMCO Common Stock but
for this Section 2.4 will be entitled to receive a cash payment in lieu thereof
equal to such shareholder's proportionate interest in a share of AIMCO Common
Stock multiplied by the AIMCO Reference Price as of the Effective Time.
SECTION 2.5 No Other Rights. Upon consummation of the Merger, the holder of a
Certificate at and after the Effective Time shall have no rights under this
Agreement with respect to the IPT Shares represented thereby other than the
right to receive the Merger Consideration together with any dividends and other
distributions paid in respect thereof after the Effective Time, upon the
surrender of such Certificate pursuant to Section 2.2 and the right to receive
any declared but unpaid distributions in respect of such IPT Shares. Nothing in
this Agreement supersedes the right of the IPT Shareholders to enforce Section
5.6 for the period provided in Section 9.1.
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ARTICLE III
THE CLOSING
SECTION 3.1 Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue,
New York, New York 10022, at 10:00 A.M., local time, on the business day on
which all of the conditions set forth in Article VII hereof are first fulfilled
or have been waived, provided that all of the conditions set forth in Article
VII hereof continue to be so satisfied or waived on such day, and if not so
satisfied or waived, the Closing shall be automatically extended from time to
time until the first subsequent day on which all such conditions are again so
satisfied or waived, subject, however, to Article VIII hereof, or shall take
place at such other time, date and place as AIMCO and IPT shall mutually agree
(the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF IPT
IPT represents and warrants to AIMCO as follows:
SECTION 4.1 Organization and Qualification of IPT. IPT is a real estate
investment trust duly formed, validly existing and in good standing under the
laws of the State of Maryland. IPT has furnished to AIMCO true and complete
copies of IPT's Declaration of Trust (the "IPT Charter") and bylaws (the "IPT
Bylaws"), each as is in effect on the date of this Agreement.
SECTION 4.2 Organization and Qualification of IPLP. IPLP is a limited
partnership duly formed, validly existing and in good standing under the laws of
the State of Delaware. IPT has furnished to AIMCO true and complete copies of
the Fourth Amended and Restated Agreement of Limited Partnership of IPLP as in
effect on the date of this Agreement (the "IPLP Limited Partnership Agreement").
As of the date hereof, the sole general partner of IPLP is IPT, and the sole
limited partners of IPLP are IFG and Insignia Capital Corporation (which is a
wholly-owned subsidiary of IFG).
SECTION 4.3 Capitalization. As of the date hereof, the authorized shares of IPT
beneficial interest consist of 400,000,000 IPT Shares and 100,000,000 preferred
shares of beneficial interest, par value $.01 per share, of IPT ("IPT Preferred
Shares"). As of the date hereof, 23,446,538 IPT Shares were issued and
outstanding, of which 510,000 have been issued under the IPT Share Plan. In
addition, (a) 25,000 IPT Shares are issuable upon exercise of outstanding
options, and 28,000 IPT Shares are issuable upon vesting of restricted share
awards under the IPT Share Plan, (b) no IPT Shares were held by IPT's
Subsidiaries, (c) no IPT Preferred Shares were issued and (d) no bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into securities having the right to vote) on any matters on which shareholders
of IPT may vote ("Voting Debt") were issued or outstanding. All outstanding IPT
Shares are validly issued, fully paid and nonassessable and are not subject to
preemptive rights. Except as described above, as of the date hereof there are no
outstanding subscriptions, calls, options, contracts, voting trusts, proxies or
other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating IPT or IPLP to issue,
deliver or sell, or cause to be issued, delivered or sold, additional IPT
Shares, IPT Preferred Shares or other ownership interests in IPT or IPLP or any
Voting Debt of IPT
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or IPLP or obligating IPT or IPLP to grant, extend or enter into any such
agreement or commitment.
SECTION 4.4 Authority; Non-Contravention
(a) Authority. IPT has all requisite power to enter into this Agreement and,
subject to obtaining the IPT Shareholders' Approval (as defined in Section 4.6),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation by IPT of the transactions contemplated
hereby have been duly authorized by the IPT Board, which constitutes all
necessary action on the part of IPT, subject to obtaining the IPT Shareholders'
Approval. This Agreement has been duly and validly executed and delivered by IPT
and, assuming the due authorization, execution and delivery hereof by AIMCO,
constitutes the legal, valid and binding obligation of IPT enforceable against
IPT in accordance with its terms.
(b) Non-Contravention. As of the date hereof, the execution and delivery of this
Agreement by IPT do not, and, subject to obtaining the IPT Shareholders'
Approval, the consummation of the transactions contemplated hereby will not, in
any respect, violate, conflict with or result in a breach of any provision of
the IPT Charter or the IPT Bylaws.
SECTION 4.5 Tax Matters. "Taxes," as used in this Agreement, means any and all
federal, state, local and foreign taxes, including, without limitation, income,
sales and use, withholding, transfer, franchise, real and personal property,
employment, and payroll taxes, together with any interest, penalties and
additions thereto. "Tax Return," as used in this Agreement, means any report,
return or other information required to be supplied to any person with respect
to Taxes.
(a) REIT Classification. At all times since its organization, IPT has been
organized and operated in conformity with Section 856-860 of the Code (the
"Status Requirements"), and its proposed method of operation will enable it to
meet the Status Requirements and otherwise qualify as a REIT. The consummation
by IPT of the transactions contemplated hereby and the compliance with or
fulfillment of the terms and provisions hereof by IPT will not adversely affect
the qualification of IPT as a REIT for each taxable year ending on or after the
Closing Date.
(b) Subchapter C Earnings and Profits. IPT does not have any earnings and
profits in excess of $1 million accumulated in any non-REIT year within the
meaning of Section 857 of the Code, including as a result of the AMIT Merger.
SECTION 4.6 Vote Required. The affirmative vote of a majority of the IPT Shares
outstanding on the record date for the IPT Meeting (as defined below) at which
such vote is taken (the "IPT Shareholders' Approval") is the only vote of the
holders of any class of shares of beneficial interest of IPT that is required to
approve this Agreement, the Merger and the other transactions contemplated
hereby.
SECTION 4.7 AMIT Merger. AMIT was merged with and into IPT on September 17,
1998.
SECTION 4.8 Opinion of Financial Advisor. The IPT Board has received the
opinion of Lehman Brothers Inc., dated the date hereof, that the Merger
Consideration is fair from a financial point of view to the holders of IPT
Shares other than IFG and AIMCO and their respective Subsidiaries.
SECTION 4.9 Brokers. Except for Lehman Brothers Inc., no broker, finder or
investment banker is entitled to any broker's, finder's or other fee or
commission in connection with the
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Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of IPT.
SECTION 4.10 Absence of Inducement. In entering into this Agreement, IPT has
not been induced by, or relied upon, any representations, warranties, or
statements by AIMCO not set forth or referred to in this Agreement, the
schedules hereto or the other documents required to be delivered hereby, whether
or not such representations, warranties, or statements have actually been made,
in writing or orally, and IPT acknowledges that, in entering into this
Agreement, AIMCO has been induced by and relied upon the representations and
warranties of IPT herein set forth and in the other documents required to be
delivered hereby. IPT has made its own investigation of AIMCO prior to the
execution of this Agreement and has not been induced by or relied upon any
representations, warranties or statements as to the advisability of entering
into this Agreement other than as set forth above or in the AIMCO SEC Reports
(as defined in Section 5.4).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AIMCO
AIMCO represents and warrants to IPT as follows:
SECTION 5.1 Organization and Qualification. AIMCO is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. AIMCO is duly qualified and in good standing to do business in each
jurisdiction where such qualification is required, other than in such
jurisdictions where the failure to so qualify would not have, individually or in
the aggregate, a material adverse effect on the business, assets, financial
condition, results of operations or prospects (a "Material Adverse Effect") of
AIMCO and its Subsidiaries taken as a whole (an "AIMCO Material Adverse
Effect"). AIMCO has all requisite corporate power and authority, and has been
duly authorized by all necessary approvals and orders, to own, lease and operate
its assets and properties to the extent owned, leased and operated and to carry
on it business as it is now being conducted.
SECTION 5.2 Capitalization. As of the date hereof, the authorized stock of
AIMCO consists of 486,027,500 shares of AIMCO Common Stock, 262,500 shares of
Class B Common Stock, par value $.01 per share ("AIMCO Class B Common Stock")
and 24,460,000 shares of Preferred Stock, par value $.01 per share ("AIMCO
Preferred Stock"). As of the date hereof, (a) 47,982,057 shares of AIMCO Common
Stock were issued and outstanding, (b) 162,500 shares of AIMCO Class B Common
Stock were issued and outstanding, (c) 22,345,921 shares of AIMCO Preferred
Stock were issued and outstanding (including 750,000 shares of AIMCO Class B
Cumulative Convertible Preferred Stock, par value $.01 per share, 2,400,000
shares of AIMCO 9% Class C Cumulative Preferred Stock, par value $.01 per share,
4,200,000 shares of AIMCO 8.75% Class D Cumulative Preferred Stock, par value
$.01 per share, 8,945,921 shares of AIMCO Class E Cumulative Convertible
Preferred Stock, par value $.01 per share, 4,050,000 shares of AIMCO Class G
Preferred Stock, par value $.01 per share, and 2,000,000 shares of AIMCO Class H
Preferred Stock, par value $.01 per share), (d) 5,362,879 shares of AIMCO Common
Stock were reserved for issuance upon the exchange of units of limited
partnership in AIMCO OP, (e) 5,115,246 shares of AIMCO Common Stock were
reserved for issuance pursuant to the AIMCO benefit plans (the "AIMCO Benefit
Plans") listed on Schedule 5.2 hereof and outstanding warrants, (f) 11,408,973
shares of AIMCO Common Stock were reserved for issuance upon conversion of AIMCO
Preferred Stock, (g) 162,500 shares of AIMCO Common Stock were reserved for
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issuance upon conversion of AIMCO Class B Common Stock and (h) no Voting Debt of
AIMCO was issued or outstanding. All outstanding shares of AIMCO Common Stock
and AIMCO Preferred Stock are validly issued, fully paid and nonassessable and
are not subject to preemptive rights. Upon consummation of the Merger and
issuance of shares of AIMCO Common Stock which comprise all or a part of the
Merger Consideration, all such shares will be validly issued, fully paid and
nonassessable and will not be subject to preemptive rights. As of the date
hereof, except as set forth on Schedule 5.2 hereof or pursuant to this Agreement
or the AIMCO Benefit Plans, there are no outstanding subscriptions, calls,
options, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating AIMCO or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other ownership interest or any Voting Debt of AIMCO or any AIMCO
Subsidiary or obligating AIMCO or any AIMCO Subsidiary to grant, extend or enter
into any such agreement or commitment. Except as set forth on Schedule 5.2
hereof or in connection with the AIMCO Benefit Plans, after the Effective Time,
there will be no agreement or commitment of any character obligating AIMCO or
any AIMCO Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, any shares of capital stock or other ownership interest or any Voting
Debt of AIMCO or any AIMCO Subsidiary, or obligating AIMCO or any AIMCO
Subsidiary to grant, extend or enter into any such agreement or commitment.
SECTION 5.3 Authority; Non-Contravention; Required Filings.
(a) Authority. AIMCO has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation by AIMCO of the
transactions contemplated hereby have been duly authorized by the AIMCO Board,
which constitutes all necessary corporate action on the part of AIMCO. This
Agreement has been duly and validly executed and delivered by AIMCO and,
assuming the due authorization, execution and delivery hereof by IPT,
constitutes the legal, valid and binding obligation of AIMCO enforceable against
AIMCO in accordance with its terms.
(b) Non-Contravention. The execution and delivery of this Agreement by AIMCO do
not, and the consummation of the transactions contemplated hereby will not,
result in a violation, conflict with or breach of (any such violation, conflict
or breach is referred to herein as a "Violation") any provisions of (i) the
AIMCO Charter or by-laws of AIMCO, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
governmental authority applicable to AIMCO or any AIMCO Subsidiary or any of
their respective properties or assets or (iii) any note, bond, mortgage,
indenture, credit enhancement agreement, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which AIMCO or any AIMCO Subsidiary is a party or by which it or
any of its properties or assets may be bound or affected, except in the case of
clause (ii) or (iii) for any such Violation which would not have, individually
or in the aggregate, an AIMCO Material Adverse Effect.
(c) Required Filings. Except as required under the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules of the NYSE (the "AIMCO Required Filings"),
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any court, federal, state, local or foreign government
or regulatory body (including the United States Depart-
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ment of Housing and Urban Development and/or applicable state housing agencies
(collectively, "HUD"), a stock exchange or other self-regulatory body) or
authority (each, a "Governmental Authority") is necessary for the execution and
delivery of this Agreement by AIMCO or the consummation by AIMCO of the
transactions contemplated hereby, except as would not result, individually or in
the aggregate, in an AIMCO Material Adverse Effect.
SECTION 5.4 Reports and Financial Statements. All filings required to be made
by AIMCO since December 31, 1997 under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act have been filed with the Securities and Exchange Commission ( the
"SEC") (the "AIMCO SEC Reports"). The AIMCO SEC Reports, as of their respective
dates, complied in all material respects with all applicable requirements of the
appropriate statutes and the rules and regulations thereunder. As of their
respective dates, the AIMCO SEC Reports did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of AIMCO included in the
AIMCO SEC Reports have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as may be
indicated therein or in the notes thereto or, with respect to unaudited interim
financial statements, as permitted by Form 10-Q of the SEC) and fairly present,
in all material respects, the financial position of AIMCO as of the dates
thereof and the results of its operations and cash flows for the periods then
ended, subject, in the case of the unaudited interim financial statements, to
normal, recurring audit and year-end adjustments.
SECTION 5.5 Absence of Certain Changes or Events. Except as set forth in the
AIMCO SEC Reports, since December 31, 1997, each of AIMCO and its Subsidiaries
has conducted its business in the ordinary course of business consistent with
past practice, and there has not been any AIMCO Material Adverse Effect.
SECTION 5.6 Registration Statement, Information Statement/Prospectus and
Schedule 13E-3. The information supplied or to be supplied by or on behalf of
AIMCO for inclusion or incorporation by reference in (a) the Registration
Statement (as defined in Section 6.2), at the time it is filed with the SEC, at
the time it becomes effective under the Securities Act and at the Effective
Time, (b) the Information Statement/Prospectus (as defined in Section 6.2), at
the time it is filed with the SEC, at the time it is mailed to the IPT
Shareholders and at the time of the IPT Meeting and (c) the Schedule 13E-3 (as
defined in Section 6.2), at the time such statement is filed with the SEC, will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement, the Information Statement/Prospectus and
the Schedule 13E-3 will comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder.
SECTION 5.7 No Vote Required. The approval of this Agreement, the Merger and
the other transactions contemplated hereby, including without limitation, the
issuance and listing on the NYSE of the AIMCO Common Stock to be issued in the
Merger, does not require the vote of the holders of any class or series of the
capital stock of AIMCO or any of its Subsidiaries.
SECTION 5.8 Tax Matters.
(a) Filing of Timely Tax Returns. AIMCO and each of its Subsidiaries have filed
(or there has been filed on its behalf) all Tax Returns required to be filed by
each of them under
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applicable law. All such Tax Returns were and are in all material respects true,
complete and correct and filed on a timely basis.
(b) Payment of Taxes. AIMCO and each of its Subsidiaries have, within the time
and in the manner prescribed by law, paid all Taxes that are currently due and
payable for all periods through and including the Closing Date, except for those
contested in good faith and for which adequate reserves have been taken.
(c) Tax Reserves. AIMCO and its Subsidiaries have established on their books and
records reserves adequate to pay all material Taxes and reserves for deferred
income Taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the material assets of AIMCO or any
of its Subsidiaries except liens for Taxes not yet delinquent.
(e) REIT Classification. At all times since the initial public offering of
AIMCO, AIMCO has been organized and operated in conformity with the Status
Requirements, and its proposed method of operation will enable it to continue to
meet the Status Requirements and otherwise qualify as a REIT.
(f) Continuation as REIT. The consummation by AIMCO of the transactions
contemplated hereby or compliance with or fulfillment of terms and provisions
hereof by AIMCO, will not adversely affect the qualification of AIMCO as a REIT
for each taxable year ending on or after the Closing Date.
(g) Deficiencies. No deficiencies for any Taxes have been proposed, asserted or
assessed against AIMCO and there is no outstanding waiver of the statute of
limitations with respect to any Taxes or Tax Returns of AIMCO.
(h) Domestic Control. AIMCO believes that it is a "domestically-controlled" REIT
within the meaning of Section 897(h)(4)(B) of the Code.
SECTION 5.9 Brokers. No broker, finder or investment banker is entitled to any
broker's, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of AIMCO.
SECTION 5.10 Absence of Inducement. In entering into this Agreement, AIMCO has
not been induced by, or relied upon, any representations, warranties, or
statements by IPT not set forth or referred to in this Agreement or the other
documents required to be delivered hereby, whether or not such representations,
warranties, or statements have actually been made, in writing or orally, and
AIMCO acknowledges that, in entering into this Agreement, IPT has been induced
by and relied upon the representations and warranties of AIMCO herein set forth,
the information set forth in the AIMCO SEC Reports and in the other documents
required to be delivered hereby. AIMCO has made its own investigation of IPT
prior to the execution of this Agreement and has not been induced by or relied
upon any representations, warranties or statements as to the advisability of
entering into this Agreement other than as set forth above.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 IPT and IPLP Distributions.
(a) IPT shall (and shall cause IPLP to) continue to make regular quarterly
distributions, as follows: IPT shall pay on October 15, 1998 its previously
declared distribution of $.16 per IPT Share to IPT Shareholders of record on
September 30, 1998; thereafter, IPT shall declare and pay quarterly
distributions with record dates and payment dates which are exactly the same as
the record dates and payment dates for regular quarterly distributions paid by
AIMCO in respect of the AIMCO Common Stock, in each case at the then current IPT
Distribution Amount (determined as of the applicable record date); provided,
however, that with respect to the first such IPT distribution required to be
declared and paid after October 15, 1998, the per-IPT Share amount of such
distribution shall be an amount equal to the otherwise applicable IPT
Distribution Amount, multiplied by the number of days that have elapsed from and
including December 23, 1998 through and including the record date for such
distribution, divided by 91 (rounded up to the next whole cent).
(b) In the event that the Effective Time has not occurred on or before February
28, 1999, if at any time thereafter AIMCO declares any distribution on the AIMCO
Common Stock other than a regular quarterly distribution, with a record date for
such distribution which is a date prior to the date of the Effective Time (a
"Special AIMCO Distribution"), then IPT shall promptly declare and pay a
corresponding distribution in an amount equal to the amount of such Special
AIMCO Distribution, multiplied by the IPT Exchange Value, divided by the AIMCO
Collar Price.
(c) If and to the extent that IPT reasonably determines that the distributions
paid by IPT pursuant to the foregoing subsections (a) and (b) of this Section
6.1 are not sufficient for IPT to meet the distribution requirements applicable
to REITs for its taxable year ended on the Closing Date, including as a result
of the AMIT Merger, then IPT shall, prior to the Effective Time, pay one or more
special distributions, in respect of the IPT Shares in an aggregate amount equal
to amount of such shortfall (the per-IPT Share aggregate amount of such
distributions, if any, is referred to herein as the "Excess Distribution
Amount").
(d) AIMCO covenants and agrees that AIMCO will use its best efforts to cause IPT
to timely declare and pay the distributions it is required to make pursuant to
the foregoing subsections (a), (b) and (c) of this Section 6.1.
SECTION 6.2 Registration Statement, Information Statement/Prospectus and
Schedule 13E-3. As soon as reasonably practicable after the date hereof (a)
AIMCO shall prepare and file with the SEC a registration statement (as amended,
the "Registration Statement") in connection with the issuance of AIMCO Common
Stock pursuant to the Merger, in which the Information Statement/Prospectus (as
defined below) shall be included as a prospectus, and (b) the parties shall
prepare and file with the SEC a combined information statement and prospectus to
be distributed in connection with the Merger and the transactions contemplated
hereby (as amended, the "Information Statement/Prospectus") and a transaction
statement on Schedule 13E-3 (the "Schedule 13E-3"). The parties shall use their
reasonable best efforts to have the Registration Statement declared effective
under the Securities Act by the SEC as soon as practicable after such filing and
to cause the Information Statement/Prospectus to be mailed to IPT Shareholders
as soon as practicable after the Registration Statement is declared effective by
the SEC. Each party shall furnish all
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information concerning itself which is required or customary for inclusion in
the Registration Statement, the Information Statement/Prospectus or the Schedule
13E-3. The information provided by any party for use in the Registration
Statement, the Information Statement/ Prospectus or the Schedule 13E-3 shall be
true and correct in all material respects without omission of any material fact
which is required to make such information not false or misleading. No
representation, covenant or agreement is made by any party with respect to
information supplied by the other party for inclusion in the Registration
Statement, the Information Statement/Prospectus or the Schedule 13E-3. Each
party shall also take such action as may be reasonably required to cause the
shares of AIMCO Common Stock covered by the Registration Statement to be
approved for listing on the NYSE as of the Effective Time, upon official notice
of issuance. Each party shall also take such action as may be reasonably
required to cause the shares of AIMCO Common Stock issuable in connection with
the Merger to be registered or to obtain an exemption from registration under
applicable state "blue sky" or securities laws; provided, however, that no party
shall be required to register or qualify as a foreign corporation or to take
other action which would subject it to general service of process in any
jurisdiction where the Surviving Entity will not be, following the Merger, so
subject.
SECTION 6.3 Regulatory Matters. Each party shall cooperate and use its
reasonable best efforts to promptly prepare and file all necessary documentation
and to effect all necessary applications, notices, petitions, filings and other
documents, including, without limitation, the AIMCO Required Filings.
SECTION 6.4 Shareholder Approval. IPT shall, as soon as practicable after the
date hereof, (a) take all steps necessary to duly call, give notice of, convene
and hold a meeting of the IPT Shareholders (an "IPT Meeting") for the purpose of
voting on the Merger, which meeting shall be held on a date (the "IPT Meeting
Date") which is a NYSE trading day, provided that the day immediately preceding
such date must also be a NYSE trading day, and (b) distribute to IPT
Shareholders the Information Statement/Prospectus. The IPT Board, acting upon
the recommendation of a majority of the Continuing Trustees (as defined in the
IPT Bylaws), unless otherwise required in accordance with its fiduciary duties
to IPT Shareholders, shall recommend to such shareholders the approval of the
Merger, this Agreement and the transactions contemplated hereby and cooperate
and consult with AIMCO with respect to each of the foregoing matters.
Notwithstanding the foregoing, IPT and the Continuing Trustees may take and
disclose to IPT Shareholders a position contemplated by Rule 14e-2 promulgated
under the Exchange Act if required to do so by the Exchange Act, comply with
Rule 14d-9 thereunder and make all other disclosures required by applicable law.
SECTION 6.5 Vote of IPT Shares Owned by AIMCO. AIMCO agrees to vote all IPT
Shares owned of record by it, and to cause all IPT Shares owned of record by its
Subsidiaries to be voted, for approval of this Agreement and the transactions
contemplated hereby and has executed a proxy in favor of Messrs. Aston, Farkas
and Garrison (the "Proxyholders") to vote all such IPT Shares held by AIMCO,
directly or indirectly, in favor of the Merger. AIMCO further agrees that,
through the Effective Time, it shall not (i) sell, transfer or otherwise dispose
of any IPT Shares owned by it or any of its Subsidiaries, (ii) cause or permit
IPT to issue additional IPT Shares to any other Person or take any other action
which could have the effect of reducing the proportion of IPT Shares owned by
AIMCO and its Subsidiaries that are entitled to vote on this Agreement and the
transactions contemplated hereby, or (iii) grant any proxies with respect to
such shares; provided, however, that AIMCO may
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(a) transfer IPT Shares owned by it to its Subsidiaries so long as such
Subsidiary agrees to be bound by the terms of this Agreement and to execute a
proxy to vote such IPT Shares in favor of the Merger in the form attached as
Exhibit 6.5 or (b) pledge such IPT Shares to a commercial bank or other bona
fide financial institution with capital exceeding $100,000,000 (a "Financial
Institution") so long as such Financial Institution agrees in writing to (1)
honor the proxy given by AIMCO to the Proxyholders with respect to such pledged
IPT Shares on the date hereof, (2) execute a proxy in favor of the Proxyholders
or their successors once the Financial Institution obtains the right to vote
such pledged IPT Shares and (3) cause any transferee of such IPT Shares from the
Financial Institution to execute a proxy in favor of the Proxyholders or their
successors and to agree to cause any subsequent transferee of the IPT Shares to
also agree to the obligations in subsection (3).
SECTION 6.6 Public Announcements. Subject to each party's disclosure
obligations imposed by law and the rules of any national securities exchange or
inter-dealer quotation system on or in which the shares of stock, beneficial
interest or other ownership interests of IPT or AIMCO are now or may later be
listed or authorized to be quoted, IPT and AIMCO shall cooperate with each other
in the development and distribution of all news releases and other public
announcements with respect to this Agreement or any of the transactions
contemplated hereby and shall not issue any public announcement or statement
with respect hereto or thereto without the consent of the other party (which
consent shall not be unreasonably withheld).
SECTION 6.7 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
SECTION 6.8 Further Assurances. Each party shall, and shall cause its
Subsidiaries to, execute such further documents and instruments and take such
further action, including, without limitation, obtaining any consents,
authorizations, exemptions and approvals, as may be necessary to perform the
obligations and satisfy the conditions to be performed or satisfied by either
party pursuant to this Agreement or as may reasonably be requested by the other
party in order to consummate the Merger in accordance with the terms hereof. In
addition, AIMCO agrees to use its commercially reasonable efforts to retain
counsel within 30 days from the date hereof to provide the form of opinion
required by Section 7.2(g).
SECTION 6.9 Transfer Taxes. The parties shall cooperate in the preparation,
execution and filing of all returns, questionnaires, applications or other
documents regarding the real property transfer or gains, sales, use, transfer,
value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees or similar Taxes ("Transfer Taxes") which become
payable in connection with the transactions contemplated by this Agreement that
are required to be filed on or before the Closing Date.
SECTION 6.10 IPT Trustees and Officers. No later than promptly after the
execution and delivery of this Agreement by both parties, IPT shall (a) cause
two members of the IPT Board to resign their trusteeships, (b) increase the size
of the IPT Board to eleven and cause each of the trustee candidates designated
by AIMCO listed on Schedule 6.10-1 hereto (together with their successors, the
"AIMCO-nominated Trustees") to be elected as a trustee of IPT, (c) cause the
officer candidates designated by AIMCO and listed on Schedule 6.10-2 hereto to
be appointed to the respective positions indicated on such Schedule, (d)
establish a committee of the IPT Board, consisting solely of AIMCO-nominated
Trustees, authorized and empowered to act to the extent set forth in the IPT
Bylaws, (e) recognize that the Continuing Trustees (as defined in the IPT
Bylaws) of the IPT Board, consisting of
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Andrew L. Farkas, James A. Aston, Warren M. Eckstein, Frank M. Garrison and
Bryan L. Herrmann, are authorized and empowered to act to the extent set forth
in the IPT Bylaws, and (f) establish an executive committee of the IPT Board, to
consist solely of AIMCO-nominated Trustees listed on Schedule 6.10-3, to act to
the extent set forth in the IPT Bylaws. The committees referred to in the
preceding sentence shall not be dissolved prior to the Effective Time or the
termination of this Agreement. The powers of the Continuing Trustees shall not
be modified prior to the Effective Time or the termination of this Agreement
without the consent of a majority of the Continuing Trustees. If, after the date
hereof and prior to the Effective Time, any IPT Shareholder vote is taken for
the election of a trustee to any position on the IPT Board currently occupied by
any of the Continuing Trustees or by their successors duly elected hereunder,
AIMCO shall vote its IPT Shares for the reelection of each such Continuing
Trustee or for the election of such Continuing Trustee's successor designated by
a majority of the Continuing Trustees. If, after the date hereof and prior to
the Effective Time, any vacancy on the IPT Board arises with respect to a
trustee position occupied by a Continuing Trustee, AIMCO shall cause the
AIMCO-nominated Trustees to vote to fill such vacancy by electing a person
nominated by a majority of the Continuing Trustees. After the date hereof and
prior to the earlier of the Effective Time or the termination of this Agreement,
without the prior written consent of a majority of the Continuing Trustees,
which shall not be unreasonably withheld, IPT shall not terminate (x) its
independent auditors, (y) Lehman Brothers Inc. from serving as its financial
advisor with respect to the Merger, or (z) Proskauer Rose LLP, Miles &
Stockbridge, Rogers & Wells or Akin, Gump, Strauss, Hauer & Feld from serving as
its legal counsel with respect to the Merger. The parties agree that Jeffrey P.
Cohen shall remain as Secretary of the Company, and in such capacity shall be
invited and entitled to attend all meetings of the IPT Board and each committee
thereof. In the event that Jeffrey P. Cohen shall cease to serve as Secretary of
the Company for any reason, another individual nominated by a majority of the
Continuing Trustees shall be appointed to such position and be so invited and
entitled to attend such meetings. Without the approval of a majority of the
Continuing Trustees, AIMCO shall not, and shall not permit any AIMCO-nominated
Trustee to, remove a Continuing Trustee as a trustee of the IPT Board or amend
the IPT Charter unless such amendment shall have been approved by a majority of
the Continuing Trustees.
SECTION 6.11 Modification of Form of Transaction. Upon the earlier to occur of
(i) December 31, 2000 or (ii) such time (if ever) as any Law is adopted or
issued after the date hereof which has the effect, as supported by the written
opinion of outside counsel for AIMCO, of prohibiting the Merger, or any court of
competent jurisdiction in the United States shall have issued an order, judgment
or decree permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, judgment or decree has become final and nonappealable, IPT,
acting upon the recommendation of the Continuing Trustees, and AIMCO shall use
their best efforts to restructure the form of the transaction to one which has a
materially improved chance of completion and can be accomplished without
materially changing either the consideration to be received by IPT Shareholders
or the tax or other economic consequences of the transaction to AIMCO and its
Subsidiaries. Pending a definitive agreement between IPT and AIMCO providing for
such a restructured transaction, AIMCO and IPT shall continue to be obligated to
diligently pursue the consummation of the Merger on the terms contemplated by
this Agreement until such time, if ever, as this Agreement is terminated
pursuant to Section 8.1.
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SECTION 6.12 Indemnification.
(a) "Losses" shall mean any and all actual costs or expenses (including, without
limitation, attorneys' fees billed at standard hourly rates, investigation costs
and remediation costs, interest, penalties and fines and all legal and other
costs, expenses and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), judgments, amounts paid in settlement,
fines, penalties, assessments, Taxes (as defined in the IFG Agreement, but
excluding Taxes arising from amounts paid to an Indemnitee (as defined in
Section 6.12(b)), losses, actions or causes of action, claims, demands, damages,
liabilities, obligations, awards, disbursements or assessments of every kind,
nature and description (including, without limitation, counsel's fees billed at
standard hourly rates and expenses, as and when incurred, in connection with any
action, claim or proceeding relating thereto). Notwithstanding the foregoing,
Losses shall be reduced to reflect any insurance proceeds actually recovered by
the Indemnitee relating to such claim, provided that this reduction shall not be
applied if to do so would excuse any insurer from any obligation to cover any
loss. If the Indemnitee receives insurance proceeds after it receives indemnity
hereunder, then the Indemnitee, within 10 days of receipt of such proceeds,
shall pay to AIMCO the amount by which AIMCO's payment would have been reduced
if the insurance proceeds had been received before the indemnity payments.
(b) AIMCO shall save, defend, indemnify and hold harmless each person who is a
trustee or officer of IPT, any person succeeding to their position prior to the
Closing Date, and their respective successors and heirs (each, an "Indemnitee")
to the fullest extent permitted by applicable law from and against all Losses,
as and when incurred, whether or not involving a third party, that arise out of
or are the result of the fact that he is, was, or is to be, either prior to or
after the execution of this Agreement, a trustee, officer or employee of IPT,
except that no Indemnitee shall be entitled to be indemnified hereunder with
respect to any Loss determined to have been incurred (i) by reason of such
Indemnitee's wilful misconduct or (ii) with respect to attorney's fees and
expenses which are not reasonable, in each case in a written factual finding
issued in a court proceeding or other adjudication not subject to further appeal
or issued in an arbitration (as to (ii) only), and, in the event of such a
finding, any funds advanced to such Indemnitee pursuant to Section 6.12(c) and
which are not found to be within the provision of clause (i) or (ii) shall be
returned by such Indemnitee promptly to AIMCO. AIMCO shall make payments under
this Section 6.12 within 30 days from the date that an Indemnitee has requested
indemnification hereunder.
(c) If any action, suit, proceeding or investigation is commenced as to which an
Indemnitee proposes to demand indemnification, he shall notify AIMCO with
reasonable promptness; provided, however, that failure to give reasonably prompt
notice to AIMCO shall not affect the indemnification obligations of AIMCO
hereunder except to the extent that the failure to so notify has led to
prejudice against AIMCO in such action, suit, proceeding or investigation. The
Indemnitee shall have the right to retain counsel of its own choice to represent
him; and such counsel shall, to the extent consistent with its professional
responsibilities, cooperate with AIMCO and any counsel designated by AIMCO.
AIMCO shall be liable only for any settlement of any claim against an Indemnitee
made with AIMCO's written consent, which consent shall not be unreasonably
withheld. AIMCO shall not, without the prior written consent of an Indemnitee,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereof, unless such settlement, compromise or consent
includes, as an unconditional term thereof, the giving by the claimant to such
Indemnitee of an unconditional release from all liability in respect of such
claim.
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(d) Before enforcing his rights under this Section 6.12, an Indemnitee must
first demand indemnification from IPT pursuant to the indemnification provisions
set forth in the IPT Charter, IPT Bylaws and any contractual arrangement between
such Indemnitee and IPT. If, after ten business days from the date that such
Indemnitee had requested indemnification from IPT pursuant to the
indemnification provisions of the IPT Charter, IPT Bylaws and any contractual
arrangement between such Indemnitee and IPT, IPT has not paid the Indemnitee's
claim or satisfactorily responded to such Indemnitee's request, as reasonably
determined by the Indemnitee, the Indemnitee shall be free to assert a claim for
indemnification pursuant to this Section 6.12.
(e) Notwithstanding any other provision of this Agreement to the contrary, this
Section 6.12 and Section 6.13 shall survive the consummation of the Merger and
termination of this Agreement.
SECTION 6.13 Insurance. AIMCO and IPT agree that after the date hereof and
until the Effective Time, IPT shall maintain in full force and effect, and AIMCO
shall use its best efforts to cause IPT to maintain in full force and effect,
directors', trustees' and officers' liability insurance covering the existing
and Continuing Trustees, directors and officers of IPT and its Subsidiaries
which is no less favorable than the insurance coverage which is in effect and
covering such trustees, directors and officers on the date hereof. AIMCO further
agrees that following the Effective Time, the Surviving Entity will maintain
such insurance covering such persons, and each such person covered by such
insurance immediately prior to the Effective Time shall be named as additional
insureds.
SECTION 6.14 Conduct of IPT's Business Pending the Effective Time.
Each of IPT and AIMCO covenants and agrees that from the date of this Agreement
until the Effective Time:
(a) IPT shall use its best efforts to maintain its listing on the American Stock
Exchange;
(b) none of IPT, IPLP or any Controlled IPT Entity (as defined in Section 8.2)
shall loan money to AIMCO or any Controlled AIMCO Entity (as defined in Section
8.2);
(c) neither IPT nor IPLP shall reclassify any of their respective equity
securities or other interests or issue or authorize or propose the issuance of
any other securities or interests in respect of, in lieu or, or in substitution
for, their respective equity securities or other interests;
(d) neither IPT nor AIMCO shall cause the IPLP Limited Partnership Agreement to
be amended, except with the prior consent of a majority of the Continuing
Trustees, provided that IPLP may admit Additional Limited Partners (as defined
the IPLP Limited Partnership Agreement) other than AIMCO or its affiliates to
IPLP in accordance with the terms of the IPLP Limited Partnership Agreement
without such consent;
(e) during such time as AIMCO controls (as such term is defined in the rules and
regulations promulgated under Rule 12b-2 of the Exchange Act) IPT, neither IPT
nor AIMCO shall cause IPT to make termination fee payments to IFG or any of its
subsidiaries under sections 7.1(c), 7.2(c) or 7.2(d) of the IPLP Limited
Partnership Agreement or benefit from the rights provided in Section 9.6
thereof;
(f) IPT shall duly and timely file all reports and other documents required to
be filed pursuant to the Securities Act, the Exchange Act and the rules and
regulations thereunder;
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(g) IPT shall follow the same general policy as AIMCO in releasing and drafting
its future press releases and such releases will include the AIMCO Collar Price
(if determinable), the IPT Exchange Value and, if applicable, the future date
through which AIMCO may elect to pay cash;
(h) AIMCO shall not, nor shall AIMCO permit any of its Subsidiaries to,
willfully take any action that would result in a state of facts which would make
the Merger impossible to be consummated or would result in a material breach of
any provision of this Agreement or in any of its material representations and
warranties set forth in this Agreement being untrue on and as of the Closing
Date; provided, however, that AIMCO and its Subsidiaries (other than IPT) may
issue securities, acquire securities or assets and otherwise act in the ordinary
course of their business;
(i) all transactions between IPT, IPLP or any Controlled IPT Entity, on the one
hand, and AIMCO or any Controlled AIMCO Entity, on the other hand, shall be on
arms' length terms;
(j) IPT shall not increase its annual general and administrative expenses in
excess of an annual increase based on the Consumer Price Index (with the
amortization of restricted stock outstanding as of the date hereof being
excluded from the definition of general and administrative expenses); and
(k) neither AIMCO nor any of its affiliates (as defined in Rule 12b-2 of the
Exchange Act), directly or indirectly, shall bid for, purchase or attempt to
induce any Person to bid for or purchase AIMCO Common Stock except in compliance
with Regulation M and, treating the purchasing entity as the "issuer," Rule
10b-18 under the Exchange Act (a) from the fifth business day prior to the first
day of the period in which the AIMCO Collar Price is determined until the last
day of the period in which the AIMCO Collar Price is determined or (b) from the
fifth business day prior to the first day of the period in which the AIMCO
Reference Price is determined until the last day of the period on which the
AIMCO Reference Price is determined. AIMCO shall report the volume, dates and
prices of such purchases to IPT's Secretary weekly.
ARTICLE VII
CONDITIONS
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction of the following conditions:
(a) Shareholder Approval. The IPT Shareholders' Approval shall have been
obtained on or prior to the Closing Date.
(b) No Injunction. No temporary restraining order or preliminary or permanent
injunction or other order by any federal or state court preventing consummation
of the Merger shall have been issued and be continuing in effect.
(c) No Change in Law. The Merger and the other transactions contemplated hereby
shall not have been prohibited under any applicable federal or state law or
regulation adopted or amended after the date hereof.
(d) Effectiveness of Registration Statement. If the Merger Consideration to be
issued pursuant to Section 2.1 consists of any shares of AIMCO Common Stock, (i)
the
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Registration Statement shall continue to be effective under the Securities Act
at the Effective Time, and no stop order suspending such effectiveness shall be
in effect, and (ii) all applicable time periods required under the Exchange Act
following the mailing of the Information Statement/Prospectus to IPT
Shareholders shall have elapsed.
SECTION 7.2 Additional Conditions to Obligation of IPT to Effect the
Merger. The obligation of IPT to effect the Merger shall be further subject to
the satisfaction of the following conditions, unless waived by a majority of the
Continuing Trustees of the IPT Board in writing.
(a) Fairness Opinion. As of the Closing Date, the opinion of Lehman Brothers
Inc. referred to in Section 4.8 shall not have been withdrawn.
(b) Representations and Warranties. If the Merger Consideration is to be
comprised in whole or in part of AIMCO Common Stock, the representations and
warranties of AIMCO contained in Article V which are qualified as to materiality
shall be true and correct, and all other representations and warranties of AIMCO
contained in this Agreement shall be true and correct, in all material respects,
in each case (i) on and as of the date hereof and (ii) at and as of the
Effective Time with the same effect as though such representations and
warranties had been made at and as of the Effective Time (except for
representations and warranties that expressly speak only as of a specific date
or time which need only be true and correct as of such date or time); provided
that this condition to the obligation of IPT to consummate the Merger shall be
deemed satisfied if the aggregate losses, costs, damages and expenses to IPT due
to breaches of such representations and warranties (without giving effect to any
materiality qualification or standard contained in any such representations and
warranties), when aggregated with failures to comply with covenants by AIMCO and
AIMCO Material Adverse Effects, does not exceed $50.0 million.
(c) Performance of Obligations of AIMCO. If the Merger Consideration is to be
comprised in whole or in part of AIMCO Common Stock, each of AIMCO and the AIMCO
Subsidiaries shall have performed, in all respects, all obligations set forth in
Sections 6.10, 6.13, 6.14(d) and 6.14(k).
(d) AIMCO Officer's Certificate. If the Merger Consideration is to be comprised
in whole or in part of AIMCO Common Stock, IPT shall have received a certificate
signed by the President of AIMCO, dated as of the Closing Date, to the effect
that, to the best of such officer's knowledge, the conditions set forth in
Sections 7.2(b) and (c) have been satisfied.
(e) AIMCO REIT Opinion. If the Merger Consideration is to be comprised in whole
or in part of AIMCO Common Stock, IPT shall have received an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to AIMCO, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit 7.2(e).
(f) AIMCO Reorganization Opinion. If the Merger Consideration is to be comprised
in whole or in part of AIMCO Common Stock, IPT shall have received an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to AIMCO, dated as of the
Closing Date, substantially in the form attached hereto as Exhibit 7.2(f) or
such revised opinion as contemplated by Section 1.1 which is reasonably
satisfactory to a majority of Continuing Trustees and their counsel; provided,
however, that if AIMCO is unable to deliver either opinion, the Merger
Consideration shall include only cash, regardless of any Cash Election Notice to
the contrary.
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(g) AIMCO Corporate Law Opinion. IPT shall have received an opinion, dated as of
the Closing Date, substantially in the form attached hereto as Exhibit 7.2(g)
from counsel mutually satisfactory to the parties hereto.
SECTION 7.3 Additional Conditions to Obligation of AIMCO to Effect the
Merger. The obligation of AIMCO to effect the Merger shall be further subject to
the satisfaction of the following conditions, unless waived by AIMCO in writing:
(a) Representations and Warranties. The representations and warranties of IPT
contained in Article IV which are qualified as to materiality shall be true and
correct and all other representations and warranties of IPT contained in this
Agreement shall be true and correct, in all material respects, on and as of the
date hereof; provided that this condition to the obligation of AIMCO to
consummate the Merger shall be deemed satisfied if the aggregate loss, cost,
damage or expense to AIMCO due to breaches of such representations and
warranties (without giving effect to any materiality qualification or standard
contained in any such representations and warranties) does not exceed $50.0
million.
(b) REIT Opinion. The opinion of Akin, Gump, Strauss, Hauer and Feld, L.L.P.,
counsel to IPT, dated and delivered to AIMCO on the date hereof, receipt of
which is hereby acknowledged by AIMCO, shall not have been withdrawn on the
basis solely of facts existing as of the date hereof.
(c) Opinion of IPT's Counsel. The opinion of Miles & Stockbridge, counsel to
IPT, dated and delivered to AIMCO on the date hereof, receipt of which is hereby
acknowledged by AIMCO, shall not have been withdrawn on the basis solely of
facts existing as of the date hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after receipt of the IPT Shareholders'
Approval contemplated by this Agreement:
(a) by mutual written consent of a majority of the Continuing Trustees and the
AIMCO Board; or
(b) by AIMCO, by written notice to each of the Continuing Trustees, if the
Effective Time shall not have occurred on or before December 31, 2001; or
(c) by a majority of the Continuing Trustees, on behalf of IPT, by written
notice to AIMCO, if:
(i) the Effective Time shall not have occurred on or before December 31,
2001;
(ii) a majority of the Continuing Trustees shall determine in good faith
that any proposal by or offer from any Person relating to any (A)
acquisition of a substantial amount of assets of IPT or IPLP or any of the
outstanding IPT Shares or IPLP partnership interests, (B) offer to purchase
outstanding IPT Shares or IPLP partnership interests or (C) merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation or similar transaction involving IPT or IPLP,
other than the transactions contemplated by this Agreement (an "Alternative
Proposal"), constitutes a proposal that is reasonably likely to be
consummated and would, if
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consummated, result in a transaction which is more favorable, from a
financial point of view, to IPT Shareholders than the transactions
contemplated by this Agreement (a "Superior Proposal"); provided, however,
that the Continuing Trustees may not terminate this Agreement pursuant to
this Section 8.1(c)(ii) unless (x) five days shall have elapsed after
delivery to AIMCO of a written notice of such determination by the
Continuing Trustees and at all reasonable times during such five-day period
the Continuing Trustees shall have cooperated with AIMCO in informing AIMCO
of the terms and conditions of such Alternative Proposal and the identity
of the person or group making such Alternative Proposal, with the objective
of providing AIMCO a reasonable opportunity, during such five-day period,
to propose a modification of the terms and conditions of this Agreement so
that a business combination between IPT and AIMCO may be effected, (y)
during such five-day period, the Continuing Trustees negotiate in good
faith with AIMCO with respect to such proposed modifications, and (z) at
the end of such five-day period, a majority of the Continuing Trustees
continues to believe in good faith that such Alternative Proposal
constitutes a Superior Proposal; or
(iii) AIMCO has taken any action that constitutes an anticipatory
repudiation of this Agreement and has failed to cure such action within 10
days from receipt of notice (whether written or oral) from a majority of
the Continuing Trustees.
SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement by either IPT or AIMCO pursuant to Section 8.1, the effects and
consequences of such termination, and relative rights and obligations of the
parties as a result thereof, shall be as set forth in this Section 8.2 and in
the IPT Bylaws.
(a) Certain Definitions. As used in this Agreement, the following terms have the
following meanings:
"AIMCO Termination Reference Price" means the average price (computed based on
the sum of the high and low sales prices of AIMCO Common Stock (as reported in
the NYSE Composite Transactions reporting system as published in The Wall Street
Journal or, if not published therein, in another authoritative source) divided
by two) of a share of AIMCO Common Stock during the ten consecutive NYSE trading
day period ending on and including the Termination Date.
"AIMCO Termination Share Value" means (i) the AIMCO Termination Reference Price,
if the Termination Date is on or prior to December 31, 1998, or (ii) the lesser
of the AIMCO Collar Price or the AIMCO Termination Reference Price, if the
Termination Date is on or after January 1, 1999.
"Control" has the meaning specified in Rule 12b-2 of the Exchange Act.
"Controlled AIMCO Entity" means AIMCO and each Person which, as of or after the
date of this Agreement, is or becomes directly or indirectly Controlled by
AIMCO.
"Controlled IPT Entity" means any Person which, as of or after the date of this
Agreement, is or becomes directly or indirectly Controlled by IPT, other than
IPLP and each wholly-owned Subsidiary of IPT or IPLP.
"Covered IPT Assets" means any and all (i) securities, assets (whether real or
personal, tangible or intangible) and other things of value acquired by any
Controlled AIMCO Entity from any of IPT, IPLP or any wholly-owned Subsidiary of
IPT or IPLP at any time prior to the Termination Date (including prior to the
Insignia Merger) and (ii) cash and non-cash
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distributions received in respect of the foregoing, together, in the case of
cash distributions, with a return thereon at an annual rate of 10%, compounded
annually, from the date of receipt thereof through the Termination Date;
provided that to the extent any item which would have otherwise constituted a
Covered IPT Asset has been sold or otherwise disposed of, the consideration
received therefor, together with interest on any cash portion thereof on the
same basis, shall be substituted for such item.
"Covered Third-Party Assets" means any and all of the following acquired by any
Controlled AIMCO Entity from any Person other than IPT, IPLP or a wholly-owned
Subsidiary of IPT or IPLP at any time prior to the Termination Date (including
prior to the Insignia Merger): (i) equity securities or debt securities of, or
other ownership interests in or indebtedness of, any Controlled IPT Entity; (ii)
assets, whether real or personal, tangible or intangible, of any Controlled IPT
Entity; (iii) any other thing of value acquired from a Controlled IPT Entity;
and (iv) cash and non-cash distributions received in respect of the foregoing,
together, in the case of cash distributions, with a return thereon at an annual
rate of 10%, compounded annually, from the date of receipt thereof through the
Termination Date; provided that to the extent any item which would have
otherwise constituted a Covered Third-Party Asset has been sold or otherwise
disposed of, the consideration received therefor, together with interest on any
cash portion thereof on the same basis, shall be substituted for such item.
"IPT Unwind Consideration" means any and all (i) consideration delivered to IPT,
IPLP and wholly-owned Subsidiaries of IPT and IPLP in exchange for the Covered
IPT Assets, and (ii) cash and non-cash distributions received in respect of the
foregoing, together, in the case of cash distributions, with a return thereon at
an annual rate of 10%, compounded annually, from the date of receipt thereof
through the Termination Date; provided that to the extent any item which would
have otherwise constituted IPT Unwind Consideration has been sold or otherwise
disposed of, the consideration received therefor, together with interest on any
cash portion thereof on the same basis, shall be substituted for such item.
"IPT Security" means, at the option of the recipients, either an IPT Share or a
Common Partnership Unit (as defined in the IPLP Limited Partnership Agreement).
"IPT Termination Share Value" means an amount equal to the IPT Exchange Value,
divided by the AIMCO Termination Share Value, multiplied by the AIMCO
Termination Reference Price.
"IPT Unwind Consideration" means the issuance to AIMCO (or its designee) of a
number of fully paid, validly issued and non-assessable IPT Securities equal to
the Termination Purchase Price divided by the IPT Termination Share Value.
"IPT Unwind Consideration Price" means the consideration originally paid or
delivered by AIMCO or its affiliates to IPT or its affiliate together with all
distributions received with respect thereto together, in the case of a cash
distribution, with interest thereon at an annual rate of 10%, compounded
annually; provided that to the extent any such consideration has been sold or
otherwise disposed of, the consideration received therefor, together with
interest on any cash portion thereof on the same basis, shall be substituted for
such consideration.
"Termination Date" means the date on which this Agreement is terminated pursuant
to Section 8.1.
"Third-Party Unwind Consideration" means a number of fully paid, validly issued
and non-assessable IPT Securities equal to the Third-Party Unwind Price divided
by the IPT Termination Share Value.
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"Third-Party Unwind Price" means the aggregate fair value of the consideration
originally paid or delivered by the applicable Controlled AIMCO Entity in
exchange for the Covered Third-Party Assets, plus interest thereon at an annual
rate of 10%, compounded annually, from the date of acquisition through the
Termination Date, minus the aggregate fair value of all cash and non-cash
distributions received in respect of the Covered Third-Party Assets, minus
interest on the amount of cash distributions at an annual rate of 10%,
compounded annually, from the date of receipt through the Termination Date;
provided that to the extent any such consideration has been sold or otherwise
disposed of, the consideration received therefor, together with interest on any
cash portion thereof on the same basis, shall be substituted for such
consideration.
(b) "Third-Party Unwind." As soon as practicable after such termination, AIMCO
shall transfer and assign to IPT or IPLP, as appropriate, all of the Covered
Third-Party Assets, in exchange for which IPT or IPLP, as appropriate, shall
issue to AIMCO (or its designee) the Third-Party Unwind Consideration, provided
that equal cash amounts due from each party may be netted out.
(c) "IPT Unwind." As soon as practicable after such termination, AIMCO shall
assign and transfer to IPT, IPLP of the wholly-owned Subsidiary or IPT or IPLP,
as applicable, all of the Covered IPT Assets, in exchange for which IPLP shall
return to the applicable Controlled AIMCO Entity the applicable IPT Unwind
Consideration, provided that equal cash amounts due from each party may be
netted out.
(d) Limitation on Liability; Survival. Except as set forth in this Section 8.2,
there shall be no liability on the part of either IPT or AIMCO or their
respective officers, trustees or directors hereunder after a termination, except
that (i) the foregoing limitation on liability shall not apply with respect to
any party whose breach of any representation, warranty, covenant or agreement is
reason for such termination, and (ii) in all events, in addition to the
provisions of Section 9.1, Sections 6.7, 6.10, 6.12, 6.13, 9.10 and this Section
8.2 hereof shall survive such termination.
SECTION 8.3 Amendment. This Agreement may be amended, at any time before or
after the IPT Shareholders' Approval has been obtained and prior to the
Effective Time, only by a written instrument signed by AIMCO and a majority of
the Continuing Trustees, on behalf of IPT; provided, however, that after the IPT
Shareholders' Approval has been obtained, no such amendment shall, without the
further approval of the IPT Shareholders, (a) alter or change the amount or type
of Merger Consideration or any proceedings relating to the treatment of IPT
Shares under Article II hereof or (b) alter or change any of the other terms and
conditions of this Agreement if such alterations or changes, individually or in
the aggregate, would adversely affect the rights of holders of IPT Shares.
SECTION 8.4 Waiver. At any time prior to the Effective Time, AIMCO or IPT,
acting pursuant to the decision of a majority of the Continuing Trustees may (a)
extend the time for the performance of any of the obligations or other acts of
the other party, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions of the other party contained herein, to the extent permitted by
applicable law. Any agreement on the part of a party to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party, provided that in order for a waiver by IPT to be valid and
effective, such instrument must be signed by a majority of the Continuing
Trustees.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Survival of Representations and Warranties. In addition to the
provisions of Section 8.2, the representations and warranties contained in this
Agreement shall not survive the Effective Time, except for (i) Section 5.6,
which shall remain in effect until one year after the Effective Time and shall
survive the consummation of the Merger and the termination of this Agreement
(ii) Sections 6.14(e), which shall survive the termination of this Agreement,
indefinitely, and (iii) the third sentence of Section 5.2, which shall survive
the consummation of the Merger indefinitely.
SECTION 9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) when delivered personally, (b) one
business day after delivered to a reputable overnight courier service or (c)
when sent via facsimile (which is confirmed by copy sent within one business day
by a reputable overnight courier service) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to IPT, to:
Insignia Properties Trust
375 Park Avenue, Suite 3401
New York, New York 10152
Attn: Jeffrey P. Cohen
Facsimile: (212) 980-8544
Telephone: (212) 750-6070
with a copy (which shall not constitute notice) to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attn: Arnold S. Jacobs
Facsimile: (212) 969-2900
Telephone: (212) 969-3210
(b) If to AIMCO, to:
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
Attn: Peter K. Kompaniez
Facsimile: (303) 757-8735
Telephone: (303) 757-8101
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom, LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attn: Michael V. Gisser
Facsimile: (213) 687-5600
Telephone: (213) 687-5000
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SECTION 9.3 Adjustment for Dilution. All references in this Agreement to per
share amounts and prices shall be equitably adjusted to take into account any
splits, combinations, equity dividends, reclassifications and similar
transactions, such that no party or IPT Shareholder is any better or worse off
than they would have been had such transaction not occurred.
SECTION 9.4 Entire Agreement. This Agreement and the schedules hereto
constitute the entire agreement, and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
SECTION 9.5 Assignment. This Agreement may not be assigned by either party and
any attempted assignment shall be void and of no effect.
SECTION 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW
AND SECTION 327(b) OF THE NEW YORK CIVIL PRACTICE LAWS AND RULES, EXCEPT TO THE
EXTENT THAT SECTIONS 1.1, 1.2, 1.3, 1.4 AND 2.1(b) AND (c) ARE EXPRESSLY
GOVERNED BY OR DERIVE THEIR AUTHORITY FROM THE MGCL OR MCAA.
SECTION 9.7 Interpretation. When reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for convenience only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
SECTION 9.8 Counterparts; Effect. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 9.9 Parties' Interest. This Agreement shall be binding upon each party
hereto and shall inure solely to the benefit of each party hereto and the IPT
Shareholders. Nothing in this Agreement, express or implied, is intended to
confer upon any third party, other than the IPT Shareholders, any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9.10 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly, it
is agreed that the parties shall be entitled to an injunction or injunctions, in
addition to any other remedy to which they are entitled at law or in equity, to
prevent breaches of this Agreement and to specifically enforce the terms and
provisions of this Agreement in any federal or state court located in the County
of New York, State of New York. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal or state
court located in the County of New York in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (b)
agrees that it shall not attempt to deny such personal jurisdiction by motion or
other request for leave from any such court and (c) agrees that it shall not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal or state court
sitting in the County of New York.
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SECTION 9.11 Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
SECTION 9.12 Letter Agreement. The letter agreement, dated October 14, 1997, as
amended by the letter dated March 2, 1998, between AIMCO and IFG, if it has been
terminated, shall be reinstated each time AIMCO breaches any of its obligations
under Section 6.12, whereupon it shall remain in effect for a period of two
years from the date of breach, insofar as such agreement applies to Controlled
IPT Entities.
SECTION 9.13 Knowledge. As used herein, the "knowledge" of IPT or any IPT
Subsidiary shall mean the actual knowledge of any of Andrew L. Farkas, James A.
Aston, Frank M. Garrison, Ronald Uretta or Jeffrey P. Cohen, and the "knowledge"
of AIMCO or any AIMCO Subsidiary shall mean the actual knowledge of any of Terry
Considine, Peter Kompaniez, Patrick Foye, Thomas M. Toomey or (with respect to
property-related matters only) Harry G. Alcock.
SECTION 9.14 Breaches. Notwithstanding any other provision herein, if at the
time of execution of this Agreement AIMCO has actual knowledge of a breach of
any representation or warranty by IPT, or IPT has actual knowledge of a breach
of any representation or warranty by AIMCO, such party shall be deemed to have
waived such breach to the extent of its actual knowledge of such breach at such
time.
* * * * *
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IN WITNESS WHEREOF, AIMCO and IPT have caused this Agreement to be signed by
their respective officers thereunto duly authorized as of the date first written
above.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ PATRICK J. FOYE
--------------------------------
Name: Patrick J. Foye
Title: Executive Vice
President
INSIGNIA PROPERTIES TRUST
By: /s/ JEFFREY P. COHEN
--------------------------------
Name: Jeffrey P. Cohen
Title: Senior Vice President
A-29
<PAGE> 367
ANNEX B
LEHMAN BROTHERS
October 1, 1998
Board of Trustees
Insignia Properties Trust
One Insignia Financial Plaza
P.O. Box 1089
Greenville, SC 29602
Members of the Board:
We understand that Insignia Financial Group, Inc. ("Insignia") and Apartment
Investment and Management Company ("AIMCO") have entered into an Agreement and
Plan of Merger between AIMCO and Insignia (the "IFS Agreement"), pursuant to
which Insignia will merge with and into AIMCO (the "IFS Merger") and each share
of common stock of Insignia ("Insignia Common Stock") shall be converted into
the right to receive such number of shares of Series E Preferred Stock of AIMCO
(the "Series E Preferred Stock") as is determined by dividing $303,000,000 by
the AIMCO Index Price (as defined in the IFS Agreement) (the "IFS
Consideration"), subject to the right of AIMCO to substitute up to $15,000,000
cash for such shares under certain circumstances as provided in the IFS
Agreement, which shares of Series E Preferred Stock will entitle the holders of
Insignia Common Stock to receive a special dividend in the aggregate amount of
$50,000,000 and, after payment thereof, will be automatically converted into
shares of common stock of AIMCO ("AIMCO Common Stock"). We further understand
that AIMCO has proposed to enter into a merger with Insignia Properties Trust
("IPT" or the "Company"), the terms and conditions of which will be set forth in
more detail in the Agreement and Plan of Merger between AIMCO and IPT (the "IPT
Agreement"), pursuant to which IPT will merge with and into AIMCO (the "IPT
Merger") and each share of beneficial interest of IPT (the "IPT Common Stock")
shall be converted into the right to receive (i) an amount in cash equal to
$13.25, subject to adjustment in certain circumstances as provided in the IPT
Agreement, multiplied by the percentage between zero and 100 (the "Cash Factor")
that AIMCO shall have given by notice in writing by AIMCO to IPT prior to the
beginning of the period over which the AIMCO Index Price (as defined in the IPT
Agreement) is calculated and (ii) that number of shares of the common stock of
AIMCO (the "AIMCO Common Stock") as is determined by dividing $13.28 by the
AIMCO Index Price multiplied by one hundred percent minus the Cash Factor,
provided that if the closing date shall occur at any time after February 28,
1999, the Cash Factor shall be deemed to be zero (the "IPT Consideration" and,
together with the IFS Consideration, the "Consideration").
B-1
<PAGE> 368
We have been requested by the Board of Directors of the Company to render our
opinion with respect to the fairness to the holders of IPT Common Stock (other
than AIMCO and its subsidiaries, as defined in the IPT Merger Agreement), from a
financial point of view, of the IPT Consideration to be received by such
holders. We have not been requested to opine as to, and our opinion does not in
any manner address, (i) the Company's underlying business decision to proceed
with or effect the IPT Merger or (ii) the fairness of the allocation of the
Consideration between the IFS Consideration to be received by the holders of
Insignia Common Stock and the IPT Consideration to be received by the holders of
IPT Common Stock. Pursuant to our letter dated March 17, 1998, we have opined to
the reasonableness of the allocation of the Consideration between the IFS
Consideration to be received by the holders of Insignia Common Stock and the IPT
Consideration to be received by the holders of IPT Common Stock.
In arriving at our opinion, we reviewed and analyzed: (1) a draft dated
September 29, 1998 of the IPT Agreement and the proposed terms of the IPT
Merger, (2) publicly available information concerning the Company and AIMCO that
we believe to be relevant to our analysis, including, without limitation, the
Joint Proxy Statement/Prospectus relating to the IFS Merger, (3) financial and
operating information with respect to the business, operations and prospects of
the Company and AIMCO furnished to us by the Company and AIMCO, respectively,
(4) a trading history of the common stock of AIMCO from January 1, 1996 to the
present and a comparison of that trading history with those of other companies
that we deemed relevant, (5) a comparison of the historical financial results
and present financial condition of the Company with those of other companies
that we deemed relevant, (6) a comparison of the historical financial results
and present financial condition of AIMCO with those of other companies that we
deemed relevant, (7) a comparison of the financial terms of the IPT Merger with
the financial terms of certain other recent transactions that we deemed
relevant, and (8) liquidation values of the Company's properties furnished to us
by the Company. In addition, we have had discussions with the managements of the
Company and AIMCO concerning their respective businesses, operations, assets,
financial conditions and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of managements of the Company and AIMCO that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial forecasts of
the Company and AIMCO, upon advice of the Company and AIMCO we have assumed that
such forecasts have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the managements of the Company
and AIMCO, as the case may be, as to the future financial performance of the
Company and AIMCO, and that the Company and AIMCO will perform substantially in
accordance with such forecasts. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the Company
or AIMCO and have not made or obtained any evaluations or appraisals of the
assets of liabilities of the Company or AIMCO. In addition, you have not
authorized us to solicit, and we have not solicited, any indications of interest
from any third party with respect to the purchase of all or a part of the
Company's business. Our opinion necessarily is based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter.
B-2
<PAGE> 369
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that, from a financial point of view, the IPT Consideration to be
received by the holders of IPT Common Stock (other than AIMCO and its
subsidiaries, as defined in the IPT Merger Agreement) is fair to such holders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services. In addition, the
Company has agreed to indemnify us for certain liabilities that may arise out of
the rendering of this opinion. Lehman Brothers is currently a lender under the
Company's and IFS' credit facilities, and has committed to provide an interim
credit facility to AIMCO, the proceeds of which are intended to refinance
certain liabilities being assumed by AIMCO in the IFS Merger. We also have
performed various investment banking services for the Company, IFS and AIMCO in
the past and have received customary fees for such services. In addition, Lehman
Brothers and certain officers thereof own an aggregate of 510,000 shares of IPT
Common Stock and will receive their respective pro rata portions of the IPT
Merger Consideration upon consummation of the IPT Merger. In the ordinary course
of our business, we actively trade in the debt and equity securities of the
Company, IFS and AIMCO for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
This opinion is for the use and benefit of the Board of Trustees of the Company
and is rendered to such Board of Trustees in connection with its consideration
of the IPT Merger. This opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the IPT Merger.
Very truly yours,
LEHMAN BROTHERS
B-3
<PAGE> 370
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The AIMCO Charter limits the liability of AIMCO's directors and officers to
AIMCO and its stockholders to the fullest extent permitted from time to time by
Maryland law. Maryland law presently permits the liability of directors and
officers to a corporation or its stockholders for money damages to be limited,
except (i) to the extent that it is proved that the director or officer actually
received an improper benefit or profit in money, property or services for the
amount of the benefit or profit in money, property or services actually
received, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of AIMCO or its stockholders to obtain other relief,
such as an injunction or rescission.
The AIMCO Charter and AIMCO Bylaws require AIMCO to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The MGCL permits a corporation to indemnify its directors,
officers and certain other parties against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service to
or at the request of the corporation, unless it is established that (i) the act
or omission of the indemnified party was material to the matter giving rise to
the proceeding and (x) was committed in bad faith or (y) was the result of
active and deliberate dishonesty, (ii) the indemnified party actually received
an improper personal benefit in money, property or services or (iii) in the case
of any criminal proceeding, the indemnified party had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the SEC that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
AIMCO has entered into agreements with certain of its officers, pursuant to
which AIMCO has agreed to indemnify such officers to the fullest extent
permitted by applicable law.
II-1
<PAGE> 371
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of October 1,
1998, by and between AIMCO and IPT(1)
3.1 -- Charter of AIMCO(2)
3.2 -- Bylaws of AIMCO(3)
4.1 -- Specimen certificate for shares of AIMCO Class A Common
Stock(4)
5.1* -- Opinion of Ballard, Spahr, Andrews & Ingersoll LLP
regarding the validity of the offered shares of AIMCO
Class A Common Stock
8.1* -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters
12.1 -- Computation of ratio of earnings to fixed charges
16.1 -- Letter of Imowitz Koenig & Co., LLP regarding change in
certifying accountants for NPI 4(5)
23.1* -- Consent of Ballard, Spahr, Andrews & Ingersoll LLP
(included in Exhibit 5.1)
23.2* -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
23.3* -- Consent of Lehman Brothers Inc.
23.4 -- Consent of Ernst & Young LLP, Denver, Colorado
23.5 -- Consent of Ernst & Young LLP, Greenville, South Carolina
23.6 -- Consent of Ernst & Young LLP, Greenville, South Carolina
23.7 -- Consent of Ernst & Young LLP, Greenville, South Carolina
23.8 -- Consent of Ernst & Young LLP, Chicago, Illinois
23.9 -- Consent of Imowitz Koenig & Co., LLP
23.10 -- Consent of BDO Seidman LLP
24.1 -- Power of Attorney (included on signature page)
</TABLE>
- -------------------------
* To be filed by amendment.
(1) Included in Annex A to the Information Statement/Prospectus.
(2) Incorporated by reference from AIMCO's Annual Report on Form 10-K/A filed on
December 31, 1997 (File No. 1-13232).
(3) Incorporated by reference from AIMCO's Current Report on Form 8-K filed on
July 2, 1998 (File No. 1-13232).
(4) Incorporated by reference from AIMCO's Registration Statement on Form 8-A
filed on July 19, 1994 (File No. 1-13232).
(5) Incorporated by reference from National Property Investors 4, L.P.'s Current
Report on Form 8-K filed on December 8, 1997 (File No. 0-10412).
II-2
<PAGE> 372
(B) FINANCIAL STATEMENT SCHEDULES
Included in the financial statements included, or incorporated by
reference, in the Information Statement/Prospectus.
(C) REPORT, OPINION OR APPRAISAL
The opinion of Lehman Brothers is included as Annex B to the Information
Statement/ Prospectus.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(l) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC 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;
(2) That, for the purpose of determining any liability under the Securities
Act of l933, as amended, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of l933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (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, as amended), 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 l933, as amended, may be permitted to directors, officers and controlling
persons of the registrant
II-3
<PAGE> 373
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, 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 Securities Act of 1933, as amended, and will be
governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Information
Statement/Prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 374
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Apartment Investment and Management Company 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 twenty-seventh day
of October, 1998.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ TERRY CONSIDINE
-----------------------------------
Terry Considine,
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Terry
Considine and Peter K. Kompaniez his or her true and lawful attorney-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement and any registration statement related thereto
filed pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as
amended, and to file same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERRY CONSIDINE Chairman and Chief October 27, 1998
- ------------------------------------------------ Executive Officer and
Terry Considine Director and
Principal Executive
Officer
/s/ PETER K. KOMPANIEZ Vice Chairman and October 27, 1998
- ------------------------------------------------ President and
Peter K. Kompaniez Director
/s/ TROY D. BUTTS Senior Vice President October 27, 1998
- ------------------------------------------------ and Chief Financial
Troy D. Butts Officer and Principal
Accounting Officer
</TABLE>
II-5
<PAGE> 375
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD S. ELLWOOD Director October 27, 1998
- ------------------------------------------------
Richard S. Ellwood
/s/ J. LANDIS MARTIN Director October 27, 1998
- ------------------------------------------------
J. Landis Martin
/s/ THOMAS L. RHODES Director October 27, 1998
- ------------------------------------------------
Thomas L. Rhodes
/s/ JOHN D. SMITH Director October 27, 1998
- ------------------------------------------------
John D. Smith
</TABLE>
II-6
<PAGE> 376
INDEX TO EXHIBITS
<TABLE>
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of October 1,
1998, by and between AIMCO and IPT(1)
3.1 -- Charter of AIMCO(2)
3.2 -- Bylaws of AIMCO(3)
4.1 -- Specimen certificate for shares of AIMCO Class A Common
Stock(4)
5.1* -- Opinion of Ballard, Spahr, Andrews & Ingersoll LLP
regarding the validity of the offered shares of AIMCO
Class A Common Stock
8.1* -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters
12.1 -- Computation of ratio of earnings to fixed charges
16.1 -- Letter of Imowitz Koenig & Co., LLP regarding change in
certifying accountants for NPI 4(5)
23.1* -- Consent of Ballard, Spahr, Andrews & Ingersoll LLP
(included in Exhibit 5.1)
23.2* -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 8.1)
23.3* -- Consent of Lehman Brothers Inc.
23.4 -- Consent of Ernst & Young LLP, Denver, Colorado
23.5 -- Consent of Ernst & Young LLP, Greenville, South Carolina
23.6 -- Consent of Ernst & Young LLP, Greenville, South Carolina
23.7 -- Consent of Ernst & Young LLP, Greenville, South Carolina
23.8 -- Consent of Ernst & Young LLP, Chicago, Illinois
23.9 -- Consent of Imowitz Koenig & Co., LLP
23.10 -- Consent of BDO Seidman LLP
24.1 -- Power of Attorney (included on signature page)
</TABLE>
- -------------------------
* To be filed by amendment.
(1) Included in Annex A to the Information Statement/Prospectus.
(2) Incorporated by reference from AIMCO's Annual Report on Form 10-K/A filed on
December 31, 1997 (File No. 1-13232).
(3) Incorporated by reference from AIMCO's Current Report on Form 8-K filed on
July 2, 1998 (File No. 1-13232).
(4) Incorporated by reference from AIMCO's Registration Statement on Form 8-A
filed on July 19, 1994 (File No. 1-13232).
(5) Incorporated by reference from National Property Investors 4, L.P.'s Current
Report on Form 8-K filed on December 8, 1997 (File No. 0-10412).
<PAGE> 1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Historical
--------------------------------------------------
Six months ended June 30 Year ended December 31
------------------------- ------------------------
1998 1997 1998 1997
------------------------- ------------------------
<S> <C> <C> <C> <C>
Earnings (1) $ 35,586 $ 12,763 $ 67,535 $ 15,696
Fixed Charges:
Interest Expense 34,778 20,604 51,385 24,802
Capitalized Interest 1,252 475 1,300 821
--------- --------- --------- ---------
Total fixed charges (A) 36,030 $ 21,079 $ 52,685 $ 25,623
--------- --------- --------- ---------
Earnings before fixed charges (2)(B) $ 70,384 $ 33,387 $ 18,920 $ 40,498
========= ========= ========= =========
Ratio of earnings to fixed
charges (B divided by A) 2.0 1.6 2.3 1.6
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
ProForma
------------------------------ ------------------------------
Six months ended June 30 1998 Year ended December 31, 1997
------------------------------ ------------------------------
Pre-merger Post-merger Pre-merger Post-merger
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Earnings (1) $ 43,177 $ 41,763 $ 116,400 $ 113,613
Fixed Charges:
Interest Expense 52,393 52,393 96,830 96,830
Capitalized Interest 1,252 1,252 1,300 1,300
--------- --------- ---------- ----------
Total fixed charges (A) $ 53,645 $ 53,645 $ 98,130 $ 98,130
--------- --------- ---------- ----------
Earnings before fixed charges (2)(B) $ 95,570 $ 94,156 $ 213,270 $ 210,443
========= ========= ========== ==========
Ratio of earnings to fixed
charges (B divided by A) 1.6 1.8 2.2 2.1
========= ========= ========== ==========
</TABLE>
(1) Earnings represents pretax income before Minority Interest in Operating
Partnership and minority interest in other partnerships.
Equity in earnings of unconsolidated subsidiaries and partnerships is
included in earnings only to the extent of dividends and distributions
received.
(2) Earnings before fixed charges exclude capitalized interest.
Page 1
<PAGE> 2
SHEET 1
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------------- -------------------------------------------
Six months ended Year ended
Six months ended Year ended June 30, 1998 December 31
June 30 December 31 ------------------- ---------------------
1998 1997 1997 1998 Pre merger Merger Pre merger Merger
------------------- ------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (1) $ 35,586 $ 12,763 $ 67,535 $ 15,696 $ 43,177 $ 41,763 $ 116,440 $ 113,613
Fixed charges:
Interest expense 34,778 20,604 51,385 24,802 52,393 52,393 96,830 96,830
Capitalized interest 1,252 475 1,300 821 1,252 1,252 1,300 1,300
Preferred stock dividends 8,650 -- 2,315 -- 17,004 17,004 34,174 34,174
-------- -------- -------- -------- -------- -------- --------- ---------
Total fixed charges (A) 44,680 21,079 55,000 25,623 70,649 70,649 132,304 132,304
-------- -------- -------- -------- -------- -------- --------- ---------
Earnings before fixed charges (B) $ 70,346 $ 33,367 $118,920 $ 40,498 $ 95,570 $ 94,156 $ 213,270 $ 210,443
======== ======== ======== ======== ======== ======== ========= =========
Ratio of earnings to fixed
charges (B divided by A) 1.6 1.8 2.2 1.8 1.4 1.3 1.6 1.6
======== ======== ======== ======== ======== ======== ========= =========
</TABLE>
(1) Earnings represents pretax income before Minority Interest in Operating
Partnership and minority interest in other partnerships.
(2) Earnings before fixed charges excluded capitalized interest.
Page 2
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of Apartment Investment and Management Company
for the registration 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, as amended (Form 10-K/A) for the year ended December 31,
1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Denver, Colorado
October 22, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Information Statement of Insignia Properties Trust that is made a part of the
Registration Statement (Form S-4) and Prospectus of Apartment Investment and
Management Company 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
Greenville, South Carolina
October 26, 1998
<PAGE> 1
Exhibit 23.6
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 5, 1997; with respect to the combined
financial statements and schedule of Shelter Properties Partnerships for the
year ended December 31, 1996, included in the Information Statement of Insignia
Properties Trust that is made a part of the Registration Statement (Form S-4)
and Prospectus of Apartment Investment and Management Company dated October 27,
1998.
/s/ Ernst & Young LLP
Greenville, South Carolina
October 26, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 13, 1998, except for Note 10, as to which the
date is march 17, 1998, with respect to the consolidated and combined financial
statements and schedule of Insignia Properties Trust and Predecessor Entities
for the year ended December 31, 1997, included in the Information Statement of
Insignia Properties Trust that is made a part of the Registration Statement
(Form S-4) and Prospectus of Apartment Investment and Management
Company dated October 27, 1998.
ERNST & YOUNG LLP
Greenville, South Carolina
October 26, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Information Statement/Prospectus
of Apartment Investment and Management Company (AIMCO) for the registration of
10.5 million 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 AIMCO's Current Report on Form 8-K dated March
17, 1998 (as amended on April 3, 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 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
Chicago, Illinois
October 22, 1998
<PAGE> 1
EXHIBIT 23.9
Consent of Imowitz Koenig & Co., LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 18, 1997 with respect to the combined
financial statements and schedules of National Property Investors and Century
Properties Partnerships included in the Registration Statement of Apartment
Investment and Management Company's Form S-4.
/s/ Imowitz Koenig & Co., LLP
New York, NY
October 27, 1998
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Trustees of
Insignia Properties Trust
We hereby consent to the use in the Proxy/Prospectus constituting a part of
this Registration Statement of our report dated January 15, 1998, relating to
the financial statements and schedules of Angeles Mortgage Investment Trust,
which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Dallas, Texas
October 23, 1998
