1
Filed pursuant to Rule 424(b)(5)
Registration No. 333-61409
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT COMPLETE
AND MAY BE CHANGED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES AND WE
ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued on March 5, 2001)
(To Prospectus dated November 25, 1998)
3,000,000 Shares
AIMCO LOGO
% CLASS Q CUMULATIVE PREFERRED STOCK
------------------------
A BRIEF DESCRIPTION OF THE CLASS Q CUMULATIVE PREFERRED STOCK CAN BE FOUND UNDER
"SUMMARY" IN THIS PROSPECTUS SUPPLEMENT.
WE INTEND TO APPLY TO LIST THE CLASS Q CUMULATIVE PREFERRED STOCK ON THE NEW
YORK STOCK EXCHANGE. AIMCO EXPECTS THAT THE CLASS Q CUMULATIVE PREFERRED STOCK
WILL BEGIN TRADING ON THE NEW YORK STOCK EXCHANGE WITHIN 30 DAYS AFTER THEY ARE
FIRST ISSUED.
YOU ARE URGED TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE
S-11, WHERE SPECIFIC RISKS ASSOCIATED WITH THE CLASS Q CUMULATIVE PREFERRED
STOCK ARE DESCRIBED, ALONG WITH THE OTHER INFORMATION IN THIS PROSPECTUS
SUPPLEMENT BEFORE YOU MAKE YOUR INVESTMENT DECISION.
PRICE -- $25 PER SHARE
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS AIMCO
--------------- ------------- -----------
Per share.............................................. $25 $ $
Total.................................................. $75,000,000 $ $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
We have given the underwriters an option to purchase 450,000 additional shares
of Class Q Cumulative Preferred Stock.
Morgan Stanley & Co. Incorporated expects that the Class Q Cumulative Preferred
Stock will be ready for delivery in book-entry form only through The Depository
Trust Company on or about March , 2001.
------------------------
MORGAN STANLEY DEAN WITTER
PRUDENTIAL SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
UBS WARBURG LLC
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
TUCKER ANTHONY SUTRO CAPITAL MARKETS
March , 2001.
2
TABLE OF CONTENTS
PAGE
-----
PROSPECTUS SUPPLEMENT
Summary..................................................... S-3
Risk Factors................................................ S-11
Use of Proceeds............................................. S-18
Capitalization.............................................. S-19
Ratio of Earnings and Free Cash Flow to Fixed Charges....... S-20
The Company................................................. S-22
Description of Class Q Cumulative Preferred Stock........... S-26
Certain Federal Income Tax Consequences..................... S-32
Underwriters................................................ S-35
Experts..................................................... S-37
Legal Matters............................................... S-37
PROSPECTUS
AIMCO and the AIMCO Operating Partnership................... 1
Use of Proceeds............................................. 1
Ratio of Earnings to Fixed Charges.......................... 2
Description of AIMCO Debt Securities........................ 3
Description of OP Debt Securities........................... 10
Description of Preferred Stock.............................. 16
Description of Class A Common Stock......................... 20
Description of Other Classes of Outstanding Stock........... 23
Description of Warrants..................................... 32
Plan of Distribution........................................ 33
Certain Federal Income Tax Consequences..................... 35
Other Tax Consequences...................................... 45
Where You Can Find More Information......................... 45
Legal Matters............................................... 46
Experts..................................................... 46
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering of Class Q Preferred Stock
and also adds to and updates information contained in the accompanying
prospectus and the documents incorporated by reference into the prospectus. The
second part is the accompanying prospectus, which gives more general
information, some of which may not apply to the Class Q Preferred Stock. To the
extent there is a conflict between the information contained in this prospectus
supplement, on the one hand, and the information contained in the accompanying
prospectus or any document incorporated by reference, on the other hand, the
information in this prospectus supplement shall control.
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with information that is different from
that contained or incorporated by reference in this prospectus supplement or the
accompanying prospectus. We are offering to sell the Class Q Preferred Stock
only where offers and sales are permitted. The information contained in or
incorporated by reference in this prospectus supplement and the accompanying
prospectus is accurate only as of the date of this prospectus supplement,
regardless of the time of delivery of this prospectus supplement or of any sale
of the Class Q Preferred Stock.
S-2
3
SUMMARY
This summary highlights information from this prospectus supplement. It may
not contain all of the information that is important to you in deciding whether
to invest in our company. To understand this offering fully, you should read the
entire prospectus carefully, including the risk factors and financial
statements, as well as the documents we have filed with the Securities and
Exchange Commission which are incorporated by reference. Unless otherwise
indicated, all information in this prospectus supplement assumes that the
underwriters' over-allotment option is not exercised.
THE COMPANY
Apartment Investment and Management Company ("AIMCO"), a Maryland
corporation formed on January 10, 1994, is a self-administered and self-managed
real estate investment trust, or REIT, engaged in the ownership, acquisition,
redevelopment, expansion and management of multi-family apartment properties. As
of December 31, 2000, we owned, managed or held an equity interest in 326,289
apartment units in 1,720 properties located in 47 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
2000 by the National Multi Housing Council, we believe that we are the largest
owner and manager of multifamily apartment properties in the United States. As
of December 31, 2000, we:
- owned or controlled 153,872 units in 566 apartment properties;
- held an equity interest in 111,748 units in 683 apartment properties; and
- managed 60,669 units in 471 apartment properties for third party owners
and affiliates.
We conduct substantially all of our operations through our operating
partnership, AIMCO Properties, L.P. Through wholly owned subsidiaries, we act as
the sole general partner of the AIMCO operating partnership. As of December 31,
2000, we owned an approximately 91% interest in the AIMCO operating partnership.
We manage apartment properties for third parties and affiliates through
unconsolidated subsidiaries that we refer to as the "management companies."
Generally, when we refer to "we," "us" or the "Company" in this prospectus
supplement, we are referring to AIMCO, the AIMCO operating partnership, the
management companies and their respective subsidiaries.
Our principal executive offices are located at 2000 South Colorado
Boulevard, Tower Two, Suite 2-1000, Denver, Colorado 80222-7900, and our
telephone number is (303) 757-8101.
THE OFFERING
Issuer..................... Apartment Investment and Management Company
("AIMCO")
Securities Offered......... 3,000,000 shares of % Class Q Cumulative
Preferred Stock ("Class Q Preferred Stock")
(3,450,000 shares if the underwriters' option to
purchase an additional 450,000 shares within 30
days of completion of this offering is exercised in
full).
Dividends.................. Dividends are cumulative from the date of original
issue and are payable quarterly on or about the
day of March, June, September and December of each
year, when and as declared, beginning on June ,
2001. We will pay cumulative dividends on the Class
Q Preferred Stock in an amount per share equal to
$ per year, equivalent to % of the $25
liquidation preference.
Liquidation Preference..... $25 per share of Class Q Preferred Stock, plus an
amount equal to accumulated, accrued and unpaid
dividends, whether or not earned or declared.
Optional Redemption........ The stock is not redeemable prior to March ,
2006, except in limited circumstances relating to
the ownership limitation necessary to
S-3
4
preserve our qualification as a REIT. On and after
March , 2006, the stock will be redeemable for
cash, in whole or from time to time in part, at a
price per share equal to the liquidation
preference, plus accumulated, accrued and unpaid
dividends, if any, to the redemption date. The
redemption price for the Class Q Preferred Stock,
other than any portion thereof consisting of
accumulated, accrued and unpaid dividends, will be
payable solely with the proceeds from the sale of
equity securities by us or our subsidiaries.
Ranking.................... The stock will rank prior to our common stock, and
on the same level as our remaining outstanding
shares of preferred stock, with respect to the
payment of dividends and the distribution of
amounts upon liquidation, dissolution or winding
up.
Voting Rights.............. You will generally not have any voting rights. If,
however, we have not paid dividends on the Class Q
Preferred Stock for six or more quarterly periods,
whether or not consecutive, you will be entitled to
elect two additional directors to our Board of
Directors until all unpaid dividends on the Class Q
Preferred Stock have been paid or declared and set
apart for payment. In addition, certain material
adverse changes to the terms of the stock cannot be
made without the affirmative vote of holders of at
least 66 2/3% of the outstanding shares of Class Q
Preferred Stock. Any vote with respect to the Class
Q Preferred Stock, including for the election of
additional directors, will be together with the
holders of shares of any class or series of stock
ranking on a parity which are entitled to similar
voting rights, voting as a single class.
Ownership Limit............ You may not acquire more than 8.7% of the aggregate
value of all outstanding shares of our common and
preferred stock. In addition, you may not own more
than 8.7% of our outstanding common stock.
Listing.................... We intend to apply to list the shares on the New
York Stock Exchange, or NYSE, under the symbol
"AIVPrQ." If approved for listing, trading on the
NYSE is expected to begin within 30 days after the
closing of this offering.
Form....................... The Class Q Preferred Stock will be issued and
maintained in book-entry form registered in the
name of the nominee of the Depositary Trust Company
except under limited circumstances.
Use of Proceeds............ We intend to contribute the net proceeds from this
offering to the AIMCO operating partnership in
exchange for a preferred interest in the AIMCO
operating partnership. The AIMCO operating
partnership intends to use all of the amount
received from us to repay indebtedness, described
under "Use of Proceeds," incurred in connection
with our acquisition activities, described under
"The Company -- Recent Developments."
For additional information regarding the terms of the Class Q Preferred
Stock, see "Description of Class Q Cumulative Preferred Stock" beginning on page
S-26.
Your investment in the Class Q Preferred Stock will involve certain risks.
For a discussion of some of these risks, please see "Risk Factors," beginning on
page S-11 and the other information included in or incorporated by reference in
this prospectus supplement and the accompanying prospectus, before deciding
whether an investment in the Class Q Preferred Stock is suitable for you.
S-4
5
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth our summary historical financial
information. The summary historical financial information for the three years
ended December 31, 1999 is based on our audited financial statements
incorporated by reference in this prospectus supplement and the accompanying
prospectus. The summary historical financial information for the nine months
ended September 30, 2000 and 1999 is based on our unaudited financial statements
incorporated by reference in this prospectus supplement and the accompanying
prospectus. In the opinion of our management, the operating data for the nine
months ended September 30, 2000 and 1999 include all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
information set forth in the data. The results for the nine months ended
September 30, 2000 are not necessarily indicative of our results for the year
ending December 31, 2000. The following information should be read in
conjunction with our historical financial statements and notes to the financial
statements incorporated by reference in this prospectus supplement and the
accompanying prospectus.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Income from rental property
operations................................. $ 218,187 $ 129,355 $ 172,042 $ 133,950 $ 72,477
Income (loss) from service company
business................................... 13,262 (1,738) 17,985 7,143 2,976
Income from operations....................... 60,837 58,727 85,497 64,982 30,246
Net income................................... 67,940 53,986 80,959 64,474 28,633
PER SHARE DATA:
Basic earnings per common share.............. $ 0.35 $ 0.23 $ 0.39 $ 0.84 $ 1.09
Diluted earnings per common share............ $ 0.34 $ 0.23 $ 0.38 $ 0.80 $ 1.08
Weighted average number of common shares
outstanding................................ 66,641 61,054 62,242 45,187 24,055
Weighted average number of common shares and
common share equivalents outstanding....... 68,478 62,472 63,446 47,624 24,436
Dividends paid per common share.............. $ 2.10 $ 1.875 $ 2.50 $ 2.25 $ 1.85
BALANCE SHEET DATA (END OF PERIOD):
Real estate, before accumulated
depreciation............................... $6,121,674 $3,076,974 $4,512,697 $2,802,598 $1,657,207
Real estate, net of accumulated
depreciation............................... 5,471,364 2,757,218 4,096,200 2,573,718 1,503,922
Cash and cash equivalents.................... 106,544 56,203 101,604 71,305 37,088
Total assets................................. 7,156,784 4,507,168 5,684,471 4,248,800 2,100,510
Total indebtedness........................... 3,825,203 1,692,888 2,584,289 1,660,715 808,530
Minority interest in AIMCO operating
partnership................................ 297,631 132,688 225,381 148,847 111,962
Company-obligated mandatorily redeemable
convertible preferred securities........... 35,330 149,500 149,500 149,500 --
Stockholders' equity......................... 2,528,429 2,297,349 2,262,348 1,902,564 1,045,300
CASH FLOW DATA:
Cash provided by operating activities........ $ 281,185 $ 162,729 $ 253,257 $ 148,414 $ 73,032
Cash used in investing activities............ (563,026) (189,062) (281,106) (328,321) (717,663)
Cash provided by financing activities........ 286,781 11,231 58,148 214,124 668,549
OTHER DATA:
Funds from operations available to common
shares and AIMCO operating partnership
units(1)................................... $ 315,910 $ 230,540 $ 321,359 $ 194,746 $ 81,155
Weighted average number of common shares,
common share equivalents and AIMCO
operating partnership units outstanding.... 89,396 76,653 78,673 56,819 29,119
---------------
(1) We measure our economic profitability based on funds from operations, or
FFO, less a reserve for capital replacements of $300 per apartment unit. Our
management believes that FFO, less such a reserve, provides investors with
an understanding of our ability to incur and service debt and make capital
expenditures. The Board of Governors of the National Association of Real
Estate Investment Trusts, or NAREIT, defines FFO as net income (loss),
computed in accordance with U.S. generally accepted accounting principles,
or GAAP, excluding gains and losses from debt restructuring and sales
S-5
6
of property, plus real estate related depreciation and amortization
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. We calculate FFO available
to common shares and the AIMCO operating partnership units based on the
NAREIT definition, as adjusted for minority interest in the AIMCO operating
partnership, amortization, the non-cash deferred portion of the income tax
provision for unconsolidated subsidiaries, and the effect of dilutive
convertible preferred stock and convertible debt securities. You should not
consider FFO an alternative to net income or net cash flows from operating
activities, as calculated in accordance with GAAP, as an indication of our
performance or as a measure of liquidity. FFO is not necessarily indicative
of cash available to fund future cash needs. In addition, there can be no
assurance that our basis for computing FFO is comparable with that of other
real estate investment trusts.
The following is a reconciliation of income before minority interest in the
AIMCO operating partnership to FFO:
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------
2000 1999 1999 1998 1997
----------- ----------- -------- -------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Income before minority interest in AIMCO
operating partnership..................... $ 75,071 $ 59,057 $ 83,712 $ 69,656 $32,697
Extraordinary item........................ -- -- -- -- 269
Real estate depreciation, net of minority
interest................................ 206,298 79,565 121,689 80,369 33,751
Real estate depreciation related to
unconsolidated entities................. 51,235 73,960 104,764 34,840 9,864
Amortization of intangibles............... 6,171 39,492 36,731 26,177 2,535
Deferred tax provision.................... 2,675 3,102 1,763 9,215 4,894
Preferred stock dividends and
distributions........................... (19,590) (26,735) (33,943) (20,837) (135)
Interest expense on convertible preferred
securities.............................. 8,284 2,429 4,858 -- --
Loss (gain) on disposition of
properties.............................. (14,234) (330) 1,785 (4,674) (2,720)
-------- -------- -------- -------- -------
Funds from operations....................... $315,910 $230,540 $321,359 $194,746 $81,155
======== ======== ======== ======== =======
S-6
7
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following table sets forth our summary pro forma financial information
for the nine months ended September 30, 2000 and for the year ended December 31,
1999. The pro forma financial information has been prepared as if our proposed
merger with Oxford Tax Exempt Fund II Limited Partnership, or OTEF, and a number
of other transactions completed by AIMCO prior to the OTEF merger, including the
Oxford acquisition, had occurred on January 1, 1999. The pro forma balance sheet
data has been prepared as if these transactions had occurred on September 30,
2000. For a description of these transactions, see "The Company -- Recent
Developments."
FOR THE NINE FOR THE YEAR
MONTHS ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------------- --------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Income from rental property operations...................... $ 228,207 $ 202,994
Income from service company business........................ 11,866 17,671
Income before minority interest in AIMCO operating
partnership............................................... 95,317 58,997
Net income.................................................. 84,792 50,627
Net income allocable to preferred stockholders.............. 51,593 65,885
Net income (loss) allocable to common stockholders.......... 33,199 (15,258)
PER SHARE DATA:
Basic earnings (loss) per common share...................... $ 0.48 $ (0.24)
Diluted earnings (loss) per common share.................... $ 0.47 $ (0.24)
Weighted average number of common shares outstanding........ 68,832 64,433
Weighted average number of common shares and common share
equivalents outstanding................................... 70,669 64,433
Dividends paid per common share............................. $ 2.10 $ 2.80
CASH FLOW DATA:
Cash provided by operating activities....................... $ 284,637 $ 265,905
Cash used in investing activities........................... (252,477) (623,967)
Cash used in financing activities........................... (15,178) (30,915)
OTHER DATA:
Funds from operations(1).................................... $ 338,769 $ 343,336
Weighted average number of common shares, common share
equivalents and partnership common units outstanding...... 93,410 83,734
AT SEPTEMBER 30,
2000
----------------
(UNAUDITED)
(IN THOUSANDS)
BALANCE SHEET DATA:
Real estate, before accumulated depreciation................ $6,121,674
Real estate, after accumulated depreciation................. 5,471,364
Investments in unconsolidated real estate partnerships...... 849,606
Investments in unconsolidated subsidiaries.................. 95,733
Notes receivable from unconsolidated real estate
partnerships.............................................. 145,818
Notes receivable from and advances to unconsolidated
subsidiaries.............................................. 213,991
Investments in bonds and notes receivable................... 93,382
Cash and cash equivalents................................... 107,820
Total assets................................................ 7,303,948
Total mortgages and notes payable........................... 3,735,631
Minority interest in AIMCO operating partnership............ 318,574
Company-obligated mandatorily redeemable convertible
securities................................................ 35,330
Stockholders' equity........................................ 2,734,734
S-7
8
---------------
(1) The following is a reconciliation of the pro forma income before minority
interest in the AIMCO operating partnership to pro forma FFO:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED) (UNAUDITED)
Income before minority interest in AIMCO operating
partnership....................................... $ 95,317 $ 58,996
(Gain) loss on disposition of properties.......... (37,733) 1,785
Real estate depreciation, net of minority
interests...................................... 216,379 146,512
Real estate depreciation related to unconsolidated
entities....................................... 72,161 132,665
Amortization of intangibles....................... 10,701 50,724
Interest expense on convertible preferred
securities..................................... 8,284 4,858
Preferred stock dividends and distributions....... (26,340) (52,204)
-------- --------
Funds from operations............................... $338,769 $343,336
======== ========
S-8
9
RATIO OF EARNINGS AND FREE CASH FLOW TO FIXED CHARGES
HISTORICAL
-------------------------------------------------
AIMCO PRO FORMA(5)(6)
------------------------------------------------- ----------------------------
FOR THE NINE FOR THE YEARS
MONTHS ENDED ENDED FOR THE NINE FOR THE
SEPTEMBER 30, DECEMBER 31, MONTHS ENDED YEAR ENDED
------------------------- --------------------- SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997 2000 1999
----------- ----------- ----- ----- ----- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Ratio of earnings to fixed
charges(1)...................... 1.8:1 2.4:1 2.3:1 1.8:1 1.5:1 1.7:1 1.9:1
Ratio of earnings to combined
fixed charges and preferred
stock dividends(2).............. 1.4:1 1.7:1 1.6:1 1.4:1 1.5:1 1.3:1 1.4:1
Ratio of free cash flow to
interest expense(3)............. 2.7:1 2.8:1 2.7:1 2.8:1 2.2:1 2.3:1 2.2:1
Ratio of free cash flow to
interest expense and preferred
stock dividends(4).............. 2.1:1 2.1:1 2.0:1 2.2:1 2.2:1 1.9:1 1.7:1
---------------
(1) The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. For this purpose, "earnings" consists of income before
minority interests (which includes equity in earnings of unconsolidated
subsidiaries and partnerships only to the extent of dividends received) plus
fixed charges (other than any interest which has been capitalized); and
"fixed charges" consists of interest expense (including amortization of loan
costs) and interest which has been capitalized.
(2) The ratio of earnings to combined fixed charges and preferred stock
dividends was computed by dividing earnings by the total of fixed charges
and preferred stock dividends. For this purpose, "earnings" consists of
income before minority interests (which includes equity in earnings of
unconsolidated subsidiaries and partnerships only to the extent of dividends
received) plus fixed charges (other than any interest which has been
capitalized); "fixed charges" consists of interest expense (including
amortization of loan costs) and interest which has been capitalized; and
"preferred stock dividends" consists of the amount of pre-tax earnings that
would be required to cover preferred stock dividend requirements.
(3) The ratio of free cash flow to interest expense was computed by dividing
free cash flow by interest expense. For this purpose, "free cash flow"
consists of FFO less a reserve for capital replacements of $300 per
apartment unit, plus interest expense and preferred stock dividends.
"Interest expense" consists of our pro rata share of interest expense
(including amortization of loan costs) and "preferred stock dividends"
consists of the amount of pre-tax earnings that would be required to cover
preferred stock dividend requirements.
(4) The ratio of free cash flow to interest expense and preferred dividends was
computed by dividing free cash flow by interest expense plus preferred stock
dividends. For this purpose, "free cash flow" consists of FFO less a reserve
for capital replacements of $300 per apartment unit, plus interest expense
and preferred stock dividends. "Interest expense" consists of our pro rata
share of interest expense (including amortization of loan costs) and
"preferred stock dividends" consists of the amount of pre-tax earnings that
would be required to cover preferred stock dividend requirements.
(5) On a pro forma, as adjusted basis, to reflect the pro forma transactions and
the issuance of the Class Q Preferred Stock and the application of the net
proceeds therefrom to repay indebtedness as if all such transactions had
occurred on January 1, 1999, the ratio of earnings to fixed charges was
1.7:1 and 2.0:1 for the nine months ended September 30, 2000, and the year
ended December 31, 1999, respectively, the ratio of earnings to combined
fixed charges and preferred stock dividends was 1.3:1 and 1.4:1 for the nine
months ended September 30, 2000, and the year ended December 31, 1999,
respectively, the ratio of free cash flow to interest expense was 2.3:1 and
2.2:1 for the nine months ended September 30, 2000, and the year ended
December 31, 1999, respectively, and the ratio of free cash flow to interest
expense and preferred stock dividends was 1.9:1 and 1.7:1 for the nine
months ended September 30, 2000, and the year ended December 31, 1999,
respectively.
S-9
10
(6) The ratios of earnings to fixed charges and earnings to combined fixed
charges and preferred stock dividends and the ratios of free cash flow to
interest expense and free cash flow to interest expense and preferred stock
dividends on a pro forma basis and a pro forma, as adjusted basis, are lower
than the historical ratios for like periods as a result of the Oxford
acquisition. The Oxford properties are currently more highly leveraged than
the remainder of our properties. In addition, the purchase price of the
Oxford acquisition was primarily financed with corporate debt. The
borrowings related to the Oxford acquisition have been reduced from $279
million to $137 million, as of December 31, 2000. Additionally, the pro
forma ratios reflect historical operating results of the Oxford properties
and exclude anticipated expense savings under our management, primarily
related to general and administrative, personnel and property insurance
costs.
S-10
11
RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included or
incorporated by reference in this prospectus supplement and the accompanying
prospectus before you decide to purchase our securities.
Some of the information in this prospectus supplement and the accompanying
prospectus may contain forward-looking statements. These statements can be
identified by the use of forward-looking words such as "may," "will," "expect,"
"anticipate," "estimate," "continue" or other similar words. These statements
discuss future expectations, contain projections of results of operations or
financial condition or state other "forward-looking" information. When
considering forward-looking statements, you should keep in mind the risk factors
and other cautionary statements included or incorporated by reference in this
prospectus supplement and the accompanying prospectus . The risk factors noted
in this section and other factors noted throughout this prospectus supplement
and the accompanying prospectus, including certain risks and uncertainties,
could cause our actual results to differ materially from those contained in any
forward-looking statement.
IF WE ARE NOT BE ABLE TO SUCCESSFULLY ACQUIRE, REDEVELOP AND EXPAND APARTMENT
PROPERTIES, OUR RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED
Generally. The selective acquisition, redevelopment and expansion of
apartment properties is one component of our growth strategy. However, we may
not be able to successfully complete transactions in the future. Although we
seek to acquire, develop and expand properties only when such activities
increase our net income on a per share basis, such transactions may fail to
perform in accordance with our expectations. When we develop or expand
properties, we are subject to the risks that:
- costs may exceed original estimates;
- occupancy and rental rates at the property may be below our projections;
- financing may not be available on favorable terms or at all;
- redevelopment and leasing of the properties may not be completed on
schedule; and
- we may experience difficulty or delays in obtaining necessary zoning,
land-use, building, occupancy and other governmental permits and
authorizations.
We may have difficulty integrating any acquired businesses or
properties. We have grown rapidly. Since our initial public offering in July
1994, we have completed numerous acquisition transactions, expanding our
portfolio of owned or managed properties from 132 apartment properties with
29,343 units to 1,720 apartment properties with 326,289 units as of December 31,
2000. These acquisitions have included purchases of properties and interests in
entities that own or manage properties, as well as corporate mergers. Our
ability to successfully integrate acquired businesses and properties depends,
among other things, on our ability to:
- attract and retain qualified personnel;
- integrate the personnel and operations of the acquired businesses;
- maintain uniform standards, controls, procedures and policies; and
- maintain adequate accounting and information systems.
We can provide no assurance that we will be able to accomplish these goals
and successfully integrate any acquired businesses or properties. If we fail to
successfully integrate such businesses, our results of operations could be
adversely affected.
S-11
12
We are subject to litigation associated with partnership acquisitions,
which could increase our expenses and prevent completion of beneficial
transactions. We have engaged in, and intend to continue to engage in, the
selective acquisition of interests in limited partnerships that own apartment
properties. In some cases, we have acquired the general partner of a partnership
and then made an offer to acquire the limited partners' interests in the
partnership. In these transactions, we may be subject to litigation based on
claims that the general partner has breached its fiduciary duty to its limited
partners or that the transaction violates the relevant partnership agreement.
Although we intend to comply with our fiduciary obligations and relevant
partnership agreements, we may incur additional costs in connection with the
defense or settlement of this type of litigation. In some cases, this type of
litigation may adversely affect our desire to proceed with, or our ability to
complete, a particular transaction. Any litigation of this type could also have
a material adverse effect on our results of operations.
OUR EXISTING AND FUTURE DEBT FINANCING COULD RENDER US UNABLE TO OPERATE, RESULT
IN FORECLOSURE ON OUR PROPERTIES OR PREVENT US FROM MAKING DISTRIBUTIONS ON OUR
EQUITY
Our strategy is generally to incur debt to increase the return on our
equity while maintaining acceptable interest coverage ratios. We seek to
maintain a ratio of free cash flow to combined interest expense and preferred
stock dividends of between 2:1 and 3:1. However, our Board of Directors could
change this strategy at any time and increase our leverage. Our organizational
documents do not limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal and interest may
leave us with insufficient cash resources to operate our properties or pay
distributions required to be paid in order to maintain our qualification as a
REIT. We are also subject to the risk that our cash flow from operations will be
insufficient to make required payments of principal and interest, and the risk
that existing indebtedness may not be refinanced or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. If
we fail to make required payments of principal and interest on any debt, our
lenders could foreclose on the properties securing such debt which would result
in loss of income and asset value to us. As of September 30, 2000, substantially
all of the properties that we own or control were encumbered by debt. As of
September 30, 2000, we had $3.8 billion of indebtedness outstanding on a
consolidated basis, of which $3.4 billion was secured.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE
As of September 30, 2000, approximately $553 million of our debt was
subject to variable interest rates. An increase in interest rates could increase
our interest expense and reduce our cash flow and our ability to service our
indebtedness and make distributions.
WE MAY INCUR LOSSES DUE TO INTEREST RATE HEDGING TRANSACTIONS
From time to time, in anticipation of refinancing debt, we enter into
agreements to reduce the risks associated with increases in short term interest
rates. Although these agreements provide us with some protection against rising
interest rates, these agreements also reduce the benefits to us when interest
rates decline. These agreements involve the following risks:
- interest rate movements during the term of the agreement may result in a
loss to us;
- we may be exposed to losses if the hedge is not indexed to the same rate
as the debt anticipated to be incurred; and
- we may incur a loss if the counterparty to the agreement fails to pay.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS
Some of our debt and other securities contain covenants that restrict our
ability to make distributions or other payments to our investors unless certain
financial tests or other criteria are satisfied. Our credit facilities provide
that we may make distributions to our investors during any 12-month period in an
aggregate amount that does not exceed the greater of 80% of our funds from
operations for such period or
S-12
13
such amount as may be necessary to maintain our REIT status. The credit
facilities prohibit all distributions if our:
- fixed charge coverage ratio is less than 1.75 to 1;
- interest coverage ratio is less than 2.25 to 1;
- unsecured debt service coverage ratio is less than 3.00 to 1;
- total combined debt to gross asset value ratio exceeds 0.55 to 1;
- total combined debt to gross asset value ratio exceeds 0.65 to 1;
- encumbered property debt coverage ratio is less than 1.60 to 1; or
- consolidated net worth is less than the sum of $2.24 billion and 85% of
the net proceeds of any securities issuances after June 30, 2000.
Our outstanding classes of preferred stock prohibit the payment of
dividends on our common stock if we fail to pay the dividends to which the
holders of the preferred stock are entitled. In addition, our 6 1/2% convertible
debentures prohibit the payment of dividends on our capital stock if we elect to
defer payments of interest on these convertible debentures, which we may have
the right to do for up to 60 months. If we are unable to pay dividends, we may
fail to qualify as a REIT. This would subject us to corporate taxation and
reduce our ability to make distributions to you.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES THAT THEY
MAY BE PROHIBITED FROM MAKING
All of our properties are owned, and all of our operations are conducted,
by the AIMCO operating partnership and our other subsidiaries. As a result, we
depend on distributions and other payments from the subsidiaries in order to
satisfy our financial obligations and make payments to our investors. The
ability of the subsidiaries to make such distributions and other payments is
dependent upon their earnings and may be subject to statutory or contractual
limitations. As an equity investor in the subsidiaries, our right to receive
assets upon their liquidation or reorganization will be effectively subordinated
to the claims of their creditors. To the extent that we are recognized as a
creditor of such subsidiaries, our claims would still be subordinate to any
security interest in or other lien on their assets and to any of their debt or
other obligations that are senior to us.
CHANGES IN THE REAL ESTATE MARKET MAY LIMIT OUR ABILITY TO GENERATE FUNDS FROM
OPERATIONS
Our ability to make payments to our investors depends on our ability to
generate funds from operations in excess of required debt payments and capital
expenditure requirements. Funds from operations and the value of our properties
may be adversely affected by events or conditions beyond our control, including:
- 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;
- changes in governmental regulations and the related cost of compliance;
- 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 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.
S-13
14
WE MAY BE SUBJECT TO COSTLY ENVIRONMENTAL LIABILITIES, WHICH COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS
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. These laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of the hazardous substances. The presence of, or the failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and our ability to sell or borrow against these
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 liability for the cost of removal
or remediation of hazardous or toxic substances at the disposal or treatment
facility. Anyone who arranges for the disposal or treatment of hazardous or
toxic substances is potentially liable under these laws. These laws often impose
liability whether or not the person arranging for the disposal ever owned or
operated the disposal facility.
LAWS BENEFITING DISABLED PERSONS MAY RESULT IN OUR INCURRENCE OF UNANTICIPATED
EXPENSES
Under the Americans with Disabilities Act of 1990, or the ADA, all places
intended to be used by the public are required to meet certain Federal
requirements related to access and use by disabled persons. Likewise, the Fair
Housing Amendments Act of 1988, or FHAA, requires apartment properties first
occupied after March 13, 1990 to be accessible to the handicapped. These and
other Federal, state and local laws may require modifications to our properties,
or restrict renovations of the properties. Noncompliance with these laws could
result in the imposition of fines or an award of damages to private litigants
and also could result in an order to correct any non-complying feature, which
could result in substantial capital expenditures. Although we believe that our
properties are substantially in compliance with present requirements, we may
incur unanticipated expenses to comply with the ADA and the FHAA.
AFFORDABLE HOUSING REGULATIONS MAY LIMIT RENT INCREASES AT SOME OF OUR
PROPERTIES, REDUCING OUR REVENUE AND, IN SOME CASES, CAUSING US TO SELL
PROPERTIES THAT WE MIGHT OTHERWISE CONTINUE TO OWN
As of December 31, 2000, we owned or controlled 58 properties, held an
equity interest in 429 properties and managed for third parties and affiliates
298 properties that benefit from governmental programs intended to provide
housing to people with low or moderate incomes. These programs, which are
usually administered by the U.S. Department of Housing and Urban Development, or
HUD, or state housing finance agencies, typically provide mortgage insurance,
favorable financing terms or rental assistance payments to the property owners.
As a condition to the receipt of assistance under these programs, the properties
must comply with various requirements, which typically limit rents to pre-
approved amounts. If permitted rents on a property are insufficient to cover
costs, a sale of the property may become necessary, which could result in a loss
of management fee revenue. We usually need to obtain the approval of HUD in
order to manage, or acquire a significant interest in, a HUD-assisted property.
We may not always receive such approval.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS MAY REDUCE OUR REVENUES
We manage some properties owned by third parties. In 2000, we received
$25.1 million of revenue from the management of such properties, including $9.4
million from the Oxford entities. We acquired the Oxford entities in 2000. We
may suffer a loss of revenue if we lose our right to manage these properties or
if the rental revenues upon which our management fees are based decline. In
general, management contracts may be terminated or otherwise lost as a result
of:
- a disposition of the property by the owner in the ordinary course or as a
result of financial distress of the property owner;
- the property owner's determination that our management of the property is
unsatisfactory;
S-14
15
- 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.
WE DEPEND ON OUR CHIEF EXECUTIVE OFFICER AND PRESIDENT; OUR OPERATIONS WOULD BE
HARMED IF WE LOST THEIR SERVICES
Although we have entered into employment agreements with our Chairman and
Chief Executive Officer, Terry Considine, and our President, Peter K. Kompaniez,
the loss of any of their services could have an adverse effect on our
operations.
WE MAY ENGAGE IN TRANSACTIONS WITH AFFILIATES AND EXPERIENCE CONFLICTS OF
INTEREST INHERENT IN THESE TRANSACTIONS
We have been, and continue to be, involved in various transactions with a
number of our affiliates, including our executive officers, directors and
entities in which they own interests. For example, in order to satisfy certain
REIT requirements, Messrs. Considine and Kompaniez directly or indirectly
control the management companies, which manage properties for third parties and
affiliates. Although we own a 99% non-voting interest in these management
companies, we have no control over them or their operations. As a result, the
management companies could implement business decisions or policies that are not
in our best interests. We have adopted certain policies designed to minimize or
eliminate the conflicts of interest inherent in these transactions, including a
requirement that a majority of our disinterested directors approve certain
transactions with affiliates. However, we cannot assure you that these policies
will be successful in eliminating the influence of such conflicts. Furthermore,
these policies are subject to change without the approval of our stockholders.
AS A REIT, WE ARE SUBJECT TO SUBSTANTIAL RISKS RELATED TO OUR COMPLIANCE WITH
THE TAX LAWS
We may fail to qualify as a REIT. We believe that we operate in a manner
that enables us to meet the requirements for qualification as a REIT for Federal
income tax purposes; however, future economic, market, legal, tax or other
considerations may cause us to fail to qualify as a REIT, or our board of
directors may determine to revoke our REIT status. If we fail to qualify as a
REIT, we will not be allowed a deduction for dividends paid to our stockholders
in computing our taxable income, and we will be subject to Federal income tax at
regular corporate rates. This would substantially reduce our funds available for
payment to our investors. See "Certain Federal Income Tax Consequences".
In addition, our failure to qualify as a REIT would trigger the following
consequences:
- we would be obligated to repurchase a material amount of our preferred
stock, plus accrued and unpaid dividends to the date of repurchase; and
- we would be in default under our primary credit facilities and certain
other loan agreements.
REIT distribution requirements limit our available cash. As a REIT, we are
subject to annual distribution requirements, which limit the amount of cash we
have available for other business purposes, including amounts to fund our
growth.
Legislative or other actions affecting REITs could have a negative impact
on us. The rules dealing with Federal income taxation are constantly under
review by persons involved in the legislative process and by the Internal
Revenue Service, or IRS, and the U.S. Treasury Department. Changes to the tax
laws (which may have retroactive application), could adversely affect our
investors. We cannot predict how changes in the tax law might affect us or our
investors. For example, under recently enacted legislation, effective January 1,
2001, if any of our management companies were deemed to operate or manage a
health care or lodging facility, we would fail to qualify as a REIT. While we
believe that, as of January 1, 2001, none of the management companies operate or
manage any health care or lodging facilities, the statute provides little
guidance as to the definition of a health care or lodging facility. Accordingly,
we
S-15
16
cannot assure you that the IRS will not contend that any of our management
companies operate or manage a health care or lodging facility, resulting in our
disqualification as a REIT.
We may be subject to other tax liabilities. Even if we qualify as a REIT,
we and our subsidiaries may be subject to certain Federal, state and local taxes
on our income and property. Any such taxes would reduce our operating cash flow.
LIMITS ON OWNERSHIP OF SHARES IN OUR CHARTER MAY RESULT IN THE LOSS OF ECONOMIC
AND VOTING RIGHTS BY PURCHASERS THAT VIOLATE THOSE LIMITS
Our charter limits ownership of our common stock by any single stockholder
to 8.7% of our outstanding shares, or 15% in the case of certain pension trusts,
registered investment companies and Mr. Considine. Our charter also limits
ownership of our common stock and preferred stock by any single stockholder to
8.7% of the value of the outstanding common stock and preferred stock, or 15% in
the case of certain pension trusts, registered investment companies and Mr.
Considine. The charter also prohibits anyone from buying shares if the purchase
would result in us losing our REIT status. This could happen if a share
transaction results in fewer than 100 persons owning all of our shares or
results in five or fewer persons, applying certain attribution rules of the
Internal Revenue Code, owning 50% or more of the value of all of our shares. If
you or anyone else acquires shares in excess of the ownership limit or in
violation of the ownership requirements of the Internal Revenue Code for REITs:
- the transfer will be considered null and void;
- we will not reflect the transaction on our books;
- we may institute legal action to enjoin the transaction;
- we may demand repayment of any dividends received by the affected person
on those shares;
- we may redeem the shares;
- the affected person will not have any voting rights for those shares; and
- the shares (and all voting and dividend rights of the shares) will be
held in trust for the benefit of one or more charitable organizations
designated by us.
We may purchase the shares held in trust at a price equal to the lesser of
the price paid by the transferee of the shares or the then current market price.
If the trust transfers any of the shares, the affected person will receive the
lesser of the price he paid for the shares or the then current market price. An
individual who acquires shares that violate the above rules bears the risk that
the individual:
- may lose control over the power to dispose of such shares;
- may not recognize profit from the sale of such shares if the market price
of the shares increases;
- may be required to recognize a loss from the sale of such shares if the
market price decreases; and
- may be required to repay to us any distributions received from us as a
result of his or her ownership of the shares.
OUR CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO ACQUIRE
CONTROL OF US
Ownership limit. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of us by a third party without the
consent of our Board of Directors.
Preferred stock. Our charter authorizes our Board of Directors to issue up
to 510,587,500 shares of capital stock. As of December 31, 2000, 468,432,738
shares were classified as Class A Common Stock, and 42,154,762 shares were
classified as preferred stock. Under the charter, our Board of Directors has the
authority to classify and reclassify any of our unissued shares of capital stock
into shares of preferred stock with such preferences, rights, powers and
restrictions as our Board of Directors may determine. The authorization and
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
stockholders' best interests.
Maryland business statutes. As a Maryland corporation, we are subject to
various Maryland laws which may have the effect of discouraging offers to
acquire us and of increasing the difficulty of
S-16
17
consummating any such offers, even if our acquisition would be in our
stockholders' best interests. The Maryland General Corporation Law restricts
mergers and other business combination transactions between us and any person
who acquires beneficial ownership of shares of our stock representing 10% or
more of the voting power without our Board of Directors' prior approval. Any
such business combination transaction could not be completed until five years
after the person acquired such voting power, and generally only with the
approval of stockholders representing 80% of all votes entitled to be cast and
66% of the votes entitled to be cast, excluding the interested stockholder, or
upon payment of a fair price. Maryland law also provides generally that a person
who acquires shares of our stock that represent 10% 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. Additionally, recent changes to
Maryland law may make it more difficult for someone to acquire us. Maryland law
now provides, among other things, that the board of directors has broad
discretion in adopting stockholders' rights plans and has the sole power to fix
the record date, time and place for special meetings of the stockholders. In
addition, Maryland law provides that corporations which:
- have three directors who are not employees of the entity or related to an
acquiring person; and
- are subject to the reporting requirements of the Securities Exchange Act
of 1934,
may elect in their charter or bylaws or by resolution of the board of directors
to be subject to all or part of a special subtitle which provides that:
- the corporation will have a staggered board of directors;
- any director may be removed only for cause and by the vote of two-thirds
of the votes entitled to be cast in the election of directors generally,
even if a lesser proportion is provided in the charter or bylaws;
- the number of directors may only be set by the board of directors, even
if the procedure is contrary to the charter or bylaws;
- vacancies may only be filled by the remaining directors, even if the
procedure is contrary to the charter or bylaws; and
- the secretary of the corporation may call a special meeting of
stockholders at the request of stockholders only on the written request
of the stockholders entitled to cast at least a majority of all the votes
entitled to be cast at the meeting, even if the procedure is contrary to
the charter or bylaws.
LACK OF PUBLIC MARKET FOR THE CLASS Q PREFERRED STOCK
There is no established trading market for the Class Q Preferred Stock.
Although we intend to apply to list the Class Q Preferred Stock on the NYSE, we
cannot assure you either that we will make that application, or that it will be
accepted. Moreover, while the underwriters have informed us that they intend to
make a market in the Class Q Preferred Stock, they are not obligated to do so
and may discontinue market making activities at any time without notice.
Accordingly, we cannot assure you that a trading market for the Class Q
Preferred Stock will develop. Moreover, if a market for the Class Q Preferred
Stock does develop, the Class Q Preferred Stock could trade below the initial
public offering price. The initial public offering price has been determined by
agreement between us and the underwriters and may not be indicative of the
market price for Class Q Preferred Stock after the offering. If a market for the
Class Q Preferred Stock does not develop, you may be unable to resell the Class
Q Preferred Stock for an extended period of time, if at all. Future trading
prices of the Class Q Preferred Stock will depend upon many factors, including
among other things, our operating results.
S-17
18
USE OF PROCEEDS
We intend to contribute the net proceeds from the sale of the Class Q
Preferred Stock, estimated to be approximately $ after deducting the
underwriting discount and estimated offering expenses of $ ($ if the
underwriters' over-allotment option is exercised in full), to the AIMCO
operating partnership in exchange for a preferred interest in the AIMCO
operating partnership. The terms of the preferred interest in the AIMCO
operating partnership will be substantially equivalent to the economic terms of
the Class Q Preferred Stock. The AIMCO operating partnership intends to use the
amounts received from us first to repay indebtedness incurred in connection with
the Oxford acquisition. This indebtedness bore interest at a weighted average
rate of 9.18% at January 31, 2001 and is scheduled to be repaid by July 2002. To
the extent the AIMCO operating partnership has any proceeds remaining, it
intends to use those remaining proceeds to pay down its other existing
indebtedness. At January 31, 2001, the AIMCO operating partnership's other
existing indebtedness bore interest at a weighted average rate of 9.14% and is
scheduled to be repaid by July 2002.
S-18
19
CAPITALIZATION
The following table sets forth our capitalization at September 30, 2000: (1)
on a historical basis; (2) on a pro forma basis, as if our merger with OTEF and
a number of other transactions completed by AIMCO prior to the OTEF merger,
including the Oxford acquisition, had occurred on September 30, 2000, and (3) on
a pro forma, as adjusted, basis to reflect all pro forma adjustments and the
offering of the Class Q Preferred Stock. The information set forth in the
following table should be read in connection with, and is qualified in its
entirety by reference to, the financial statements and notes thereto and the pro
forma financial information and notes thereto incorporated by reference in the
accompanying prospectus. The following pro forma and pro forma, as adjusted data
assumes that the foregoing transactions occurred on September 30, 2000, and does
not purport to be indicative of the capitalization of AIMCO that would have
resulted had such transactions in fact occurred on such date. See
"Summary -- Summary Pro Forma Financial Information."
AT SEPTEMBER 30, 2000
---------------------------------------
PRO FORMA,
HISTORICAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Long Term Mortgage Debt:
Secured notes payable....................................... $2,836,097 $2,836,097 $2,836,097
Secured tax-exempt bond financing........................... 583,106 391,787 391,787
Unsecured Debt:
Unsecured short-term financing.............................. 406,000 507,747 435,897
Mandatorily Redeemable Convertible Preferred Securities and
Minority Interest:
Mandatorily redeemable convertible preferred securities of a
subsidiary trust.......................................... 35,330 35,330 35,330
Minority interest in other entities......................... 194,006 194,006 194,006
Minority interest in the AIMCO operating partnership........ 297,631 318,574 318,574
Stockholders' Equity:
Class B Cumulative Convertible Preferred Stock, $.01 par
value, 750,000 shares authorized, 419,471 shares issued
and outstanding(1)........................................ 41,947 41,947 41,947
Class C Cumulative Preferred Stock, $.01 par value,
2,400,000 shares authorized, 2,400,000 shares issued and
outstanding............................................... 59,845 59,845 59,845
Class D Cumulative Preferred Stock, $.01 par value,
4,200,000 shares authorized, 4,200,000 shares issued and
outstanding............................................... 105,000 105,000 105,000
Class G Cumulative Preferred Stock, $.01 par value,
4,050,000 shares authorized, 4,050,000 shares issued and
outstanding............................................... 101,000 101,000 101,000
Class H Cumulative Preferred Stock, $.01 par value,
2,000,000 shares authorized, 2,000,000 shares issued and
outstanding............................................... 49,925 49,925 49,925
Class I Cumulative Preferred Stock, $.01 par value,
10,000,000 shares authorized, 0 shares issued and
outstanding...............................................
Class J Cumulative Convertible Preferred Stock, $.01 par
value, 1,250,000 shares authorized, 0 shares issued and
outstanding...............................................
Class K Convertible Cumulative Preferred Stock, $.01 par
value, 5,000,000 shares authorized, 5,000,000 shares
issued and outstanding(2)................................. 125,000 125,000 125,000
Class L Convertible Cumulative Preferred Stock, $.01 par
value, 5,000,000 shares authorized, 5,000,000 shares
issued and outstanding(3)................................. 125,000 125,000 125,000
Class M Convertible Cumulative Preferred Stock, $.01 par
value, 1,600,000 shares authorized, 1,200,000 shares
issued and outstanding(4)................................. 30,000 30,000 30,000
Class N Convertible Cumulative Preferred Stock, $.01 par
value, 4,000,000 shares authorized, 4,000,000 shares
issued and outstanding(5)................................. 100,000 100,000 100,000
Class O Cumulative Convertible Preferred Stock, $.01 par
value, 1,904,762 shares authorized, 1,904,762 shares
issued and outstanding(6)................................. 100,000 100,000 100,000
Class P Convertible Cumulative Preferred Stock, $.01 par
value, 0 shares authorized on a historical basis and
4,000,000 shares authorized on a pro forma basis and on a
pro forma, as adjusted basis, 0 shares issued and
outstanding on a historical basis and 4,000,000 shares
issued and outstanding on a pro forma basis and on a pro
forma, as adjusted basis(7)............................... -- 100,000 100,000
Class Q Cumulative Preferred Stock, $.01 par value, 0 shares
authorized on a historical basis and on a pro forma basis
and 3,450,000 shares authorized on a pro forma, as
adjusted basis, 0 shares issued and outstanding on a
historical basis and on a pro forma basis and 3,000,000
shares issued and outstanding on a pro forma, as adjusted
basis..................................................... -- -- 75,000
Class A Common Stock, 468,432,738 shares authorized on a
historical basis, 464,432,738 on a pro forma basis, and
460,982,738 on a pro forma, as adjusted basis, 71,177,247
issued and outstanding on a historical basis, and
73,368,696 issued and outstanding on a pro forma basis and
on a pro forma, as adjusted basis......................... 712 734 734
Additional paid-in capital.................................. 2,065,618 2,171,901 2,168,751
Notes receivable on common stock purchases.................. (44,795) (44,795) (44,795)
Distributions in excess of earnings......................... (330,823) (330,823) (330,823)
---------- ---------- ----------
Total stockholders' equity......................... 2,528,429 2,734,734 2,806,584
---------- ---------- ----------
Total capitalization............................... $6,880,599 $7,018,275 $7,018,275
========== ========== ==========
---------------
(1) Each share is convertible into approximately 3.28407 shares of Class A
Common Stock.
(2) Each share is convertible into approximately 0.59524 shares of Class A
Common Stock.
S-19
20
(3) Each share is convertible into approximately 0.5379 shares of Class A Common
Stock.
(4) Each share is convertible into approximately 0.5681818 shares of Class A
Common Stock.
(5) Each share is convertible into approximately 0.4762 shares of Class A Common
Stock.
(6) Each share is convertible into approximately one share of Class A Common
Stock.
(7) Each share is convertible into approximately 0.4464 shares of Class A Common
Stock.
RATIO OF EARNINGS AND FREE CASH FLOW TO FIXED CHARGES
HISTORICAL
-------------------------------------------------
AIMCO PRO FORMA(5)(6)
------------------------------------------------- ----------------------------
FOR THE
FOR THE NINE MONTHS ENDED YEARS ENDED FOR THE NINE FOR THE
SEPTEMBER 30, DECEMBER 31, MONTHS ENDED YEAR ENDED
------------------------- --------------------- SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997 2000 1999
----------- ----------- ----- ----- ----- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Ratio of earnings to fixed
charges(1).......................... 1.8:1 2.4:1 2.3:1 1.8:1 1.5:1 1.7:1 1.9:1
Ratio of earnings to combined fixed
charges and preferred stock
dividends(2)........................ 1.4:1 1.7:1 1.6:1 1.4:1 1.5:1 1.3:1 1.4:1
Ratio of free cash flow to interest
expense(3).......................... 2.7:1 2.8:1 2.7:1 2.8:1 2.2:1 2.3:1 2.2:1
Ratio of free cash flow to interest
expense and preferred stock
dividends(4)........................ 2.1:1 2.1:1 2.0:1 2.2:1 2.2:1 1.9:1 1.7:1
---------------
(1) The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. For this purpose, "earnings" consists of income before
minority interests (which includes equity in earnings of unconsolidated
subsidiaries and partnerships only to the extent of dividends received) plus
fixed charges (other than any interest which has been capitalized); and
"fixed charges" consists of interest expense (including amortization of loan
costs) and interest which has been capitalized.
(2) The ratio of earnings to combined fixed charges and preferred stock
dividends was computed by dividing earnings by the total of fixed charges
and preferred stock dividends. For this purpose, "earnings" consists of
income before minority interests (which includes equity in earnings of
unconsolidated subsidiaries and partnerships only to the extent of dividends
received) plus fixed charges (other than any interest which has been
capitalized); "fixed charges" consists of interest expense (including
amortization of loan costs) and interest which has been capitalized; and
"preferred stock dividends" consists of the amount of pre-tax earnings that
would be required to cover preferred stock dividend requirements.
(3) The ratio of free cash flow to interest expense was computed by dividing
free cash flow by interest expense. For this purpose, "free cash flow"
consists of FFO less a reserve for capital replacements of $300 per
apartment unit plus interest expense and preferred stock dividends.
"Interest expense" consists of our pro rata share of interest expense
(including amortization of loan costs) and "preferred stock dividends"
consists of the amount of pre-tax earnings that would be required to cover
preferred stock dividend requirements.
(4) The ratio of free cash flow to interest expense and preferred dividends was
computed by dividing free cash flow by interest expense plus preferred stock
dividends. For this purpose, "free cash flow" consists of FFO less a reserve
for capital replacements of $300 per apartment unit plus interest expense
and preferred stock dividends. "Interest expense" consists of our pro rata
share of interest expense (including amortization of loan costs) and
"preferred stock dividends" consists of the amount of pre-tax earnings that
would be required to cover preferred stock dividend requirements.
(5) On a pro forma, as adjusted basis, to reflect the pro forma transactions and
the issuance of the Class Q Preferred Stock and the application of the net
proceeds therefrom to repay indebtedness as if all such transactions had
occurred on January 1, 1999, the ratio of earnings to fixed charges was
1.7:1 and 2.0:1 for the nine months ended September 30, 2000, and the year
ended December 31, 1999, respectively, the ratio of earnings to combined
fixed charges and preferred stock dividends was 1.3:1 and 1.4:1 for the nine
months ended September 30, 2000, and the year ended December 31, 1999,
respectively, the ratio of free cash flow to interest expense was 2.3:1 and
2.2:1 for the nine months ended September 30, 2000, and the year ended
December 31, 1999, respectively, and the ratio of free cash flow to interest
expenses and preferred stock dividends was 1.9:1 and 1.7:1 for the nine
months ended September 30, 2000, and the year ended December 31, 1999,
respectively.
(6) The ratios of earnings to fixed charges and earnings to combined fixed
charges and preferred stock dividends and the ratios of free cash flow to
interest expense and free cash flow to interest expense and preferred stock
dividends on a pro forma basis and a pro forma, as adjusted basis, are lower
than
S-20
21
the historical ratios for like periods as a result of the Oxford
acquisition. The Oxford properties are currently more highly leveraged than
the remainder of our properties. In addition, the purchase price of the
Oxford acquisition was primarily financed with corporate debt. The
borrowings related to the Oxford acquisition have been reduced from $279
million to $137 million, as of December 31, 2000. Additionally, the pro
forma ratios reflect historical operating results of the Oxford properties
and exclude anticipated expense savings under our management, primarily
related to general and administrative, personnel and property insurance
costs.
S-21
22
THE COMPANY
AIMCO, a Maryland corporation formed on January 10, 1994, is a
self-administered and self-managed REIT engaged in the ownership, acquisition,
redevelopment, expansion and management of multi-family apartment properties. As
of December 31, 2000, we owned, managed, or held an equity interest in 326,289
apartment units in 1,720 properties located in 47 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
2000 by the National Multi Housing Council, we believe that we are the largest
owner and manager of multifamily apartment properties in the United States. As
of December 31, 2000, we:
- owned or controlled 153,872 units in 566 apartment properties;
- held an equity interest in 111,748 units in 683 apartment properties; and
- managed 60,669 units in 471 apartment properties for third party owners
and affiliates.
We conduct substantially all of our operations through our operating
partnership, AIMCO Properties, L.P. Through wholly owned subsidiaries, we act as
the sole general partner of the AIMCO operating partnership. As of December 31,
2000, we owned an approximately 91% interest in the AIMCO operating partnership.
We manage apartment properties for third parties and affiliates through
unconsolidated subsidiaries that we refer to as the "management companies."
Generally, when we refer to "we," "us" or the "Company" in this prospectus
supplement, we are referring to AIMCO, the AIMCO operating partnership, the
management companies and their respective subsidiaries.
Our principal executive offices are located at 2000 South Colorado
Boulevard, Tower Two, Suite 2-1000, Denver, Colorado 80222-7900, and our
telephone number is (303) 757-8101.
RECENT DEVELOPMENTS
YEAR END RESULTS
On January 25, 2001, we announced that our funds from operations, or FFO,
equaled $439.8 million for the year ended December 31, 2000, compared to $321.4
million for the year ended December 31, 1999, an increase of 37%. Net income for
the year ended December 31, 2000 was $99.2 million, compared to $77.5 million
for the year ended December 31, 1999. On January 24, 2001, our Board of
Directors increased the annual dividend rate to $3.12 per common share, an 11%
increase from the previous annual dividend rate of $2.80.
OXFORD ACQUISITION
On September 20, 2000, we acquired all of the stock and other interests of
Oxford Realty Financial Group, Inc. and other entities, collectively referred to
as the Oxford entities, that own interests in and control the Oxford properties,
as described below. Our subsidiary purchased these interests from the
principals, officers and directors of Oxford Realty Financial Group, Inc. We
also acquired the entity which owns the managing general partner of Oxford Tax
Exempt Fund II Limited Partnership ("OTEF") and acquired an approximately 40%
interest in the non-managing general partner of OTEF. The Oxford properties,
which are owned by 166 separate partnerships, are 167 apartment communities
including 36,949 units, located in 18 states, and include properties financed by
mortgage revenue bonds held by OTEF. Through an affiliate, we have managed 165
of the 167 Oxford properties since 1997.
OTEF MERGER
On November 30, 2000, we entered into a definitive agreement pursuant to
which one of our subsidiaries will acquire OTEF in a merger for $206 million,
consisting of $100 million of AIMCO Class P Convertible Cumulative Preferred
Stock and $106 million of AIMCO Class A Common Stock. OTEF will survive as our
wholly-owned subsidiary after the merger. OTEF is a publicly traded Maryland
S-22
23
limited partnership that invests primarily in tax-exempt bonds issued to finance
high quality apartment and senior living/health care communities. We expect that
the merger will close on or about March 26, 2001.
CHANGES IN EXECUTIVE OFFICERS
On February 5, 2001, Ronald Monson was named Executive Vice President and
Head of Property Operations. Mr. Monson will be responsible for the operation
and management of our real estate portfolio. He was previously Divisional Vice
President of the Far West Division with responsibility for over 76,000 apartment
units and over 2,200 employees.
On February 28, 2001, we named Joseph DeTuno as our Executive Vice
President -- Redevelopment. In this position, he will be responsible for the
redevelopment and rehabilitation of our real estate portfolio. Mr. DeTuno was
previously Senior Vice President -- Redevelopment with responsibility for the
redevelopment and rehabilitation of over $375 million of apartment properties
owned and managed by us.
On February 5, 2001, Tom Toomey resigned his position as our Chief
Operating Officer in order to pursue other interests.
PROPERTY ACQUISITIONS AND DISPOSITIONS
Property Acquisitions. During the year ended December 31, 2000, we
purchased or acquired control of 12 properties consisting of 2,830 apartment
units.
Property Dispositions. During the year ended December 31, 2000, we sold 75
apartment properties and 4 land parcels for cash proceeds of approximately $154
million.
Properties Subject to Letter of Intent or Contract. In the ordinary course
of business, we are engaged in discussions and negotiations with property owners
regarding the purchase of apartment properties or interests in apartment
properties. We frequently enter into letters of intent, which may be binding or
nonbinding, and contracts with respect to the purchase of real property which
are subject to certain conditions which permit us to terminate the contract in
our sole and absolute discretion if we are not satisfied with the results of our
due diligence investigation of the properties under contract. Our management
believes that such contracts essentially result in the creation of an option on
the property subject to the contract and give us greater flexibility in seeking
to acquire properties.
BUSINESS AND GROWTH STRATEGIES
OPERATING AND FINANCIAL STRATEGIES
We strive to meet our objective of providing long-term, predictable FFO per
share of Class A Common Stock, less an allowance for Capital Replacements of
$300 per apartment unit, by implementing our operating and financing strategies
which include the following:
- Acquisition of Properties at Less than Replacement Cost. We attempt to
acquire properties at a significant discount to their replacement cost.
- Geographic Diversification. We operate in 47 states, the District of
Columbia and Puerto Rico. This geographic diversification insulates us,
to some degree, from inevitable downturns in any one market. Our net
income before depreciation and interest expense is earned in more than
164 local markets. In 2000, the largest single market contributed 8.3% to
net income before depreciation and interest expense, and the five largest
markets contributed 30.9%.
- Market Growth. We seek to operate in markets where population and
employment growth are expected to exceed the national average and where
we believe we can become a regionally significant owner or manager of
properties.
S-23
24
- Product Diversification. Our portfolio of apartment properties spans a
wide range of apartment community types, both within and among markets,
including garden and high-rise apartments, as well as corporate and
student housing.
- Capital Replacement. We believe that the physical condition and amenities
of our apartment communities are important factors in our ability to
maintain and increase rental rates. We allocate approximately $300
annually per owned apartment unit for capital replacements, and reserve
unexpended amounts for future capital replacements.
- Debt Financing. Our strategy is generally to incur debt to increase our
return on equity while maintaining acceptable interest coverage ratios.
We seek to maintain a ratio of free cash flow to combined interest
expense and preferred stock dividends of between 2:1 and 3:1, and to
match debt maturities to the character of the assets financed. For the
year ended December 31, 2000, we were within these targets. We use
predominantly long-term, fixed-rate and self-amortizing non-recourse debt
in order to avoid the refunding or repricing risks of short-term
borrowings. We use short-term debt financing to fund acquisitions and
generally expect to refinance such borrowings with proceeds from equity
offerings or long-term debt financings. As of December 31, 2000,
approximately 9% of our outstanding debt was short-term debt and 91% was
long-term debt.
- Dispositions. We regularly sell properties that do not meet our return on
investment criteria or that are located in areas where we do not believe
that the long-term neighborhood values justify the continued investment
in the properties.
- Dividend Policy. We pay dividends on our Class A Common Stock to share
our profitability with our stockholders. We distributed 59.9%, 61.3% and
65.8% of FFO to holders of Class A Common Stock for the years ended
December 31, 2000, 1999 and 1998, respectively. It is the present policy
of our Board of Directors to increase the dividend annually in an amount
equal to one-half of the projected increase in FFO, adjusted for capital
replacements, subject to minimum distribution requirements to maintain
our REIT status.
GROWTH STRATEGIES
We seek growth through two primary sources -- internal expansion and
acquisitions.
Internal Growth Strategies.
We pursue internal growth primarily through the following strategies:
- Revenue Increases. We increase rents where feasible and seek to improve
occupancy rates.
- Controlling Expenses. We reduce costs by local focus on the regional
operating center level and by exploiting economies of scale. As a result
of the size of our portfolio and our creation of regional concentrations
of properties, we have the ability to leverage fixed costs for general
and administrative expenditures and certain operating functions, such as
insurance, information technology and training, over a large property
base.
- Redevelopment of Properties. We believe redevelopment of selected
properties in superior locations provides advantages over development of
new properties. We believe that redevelopment generally allows us to
maintain rents comparable to new properties and, compared to development
of new properties, can be accomplished with relatively lower financial
risk, in less time and with reduced delays due to governmental
regulation.
- Expansion of Properties. We believe that expansion within or adjacent to
properties that we already own or manage also provides growth
opportunities at lower risk than new development. Such expansion can
offer cost advantages to the extent common area amenities and on-site
management personnel can service the property expansions. Our current
policy is to limit redevelopments and expansions to 10% of total equity
market capitalization.
S-24
25
- Ancillary Services. We believe that our ownership and management of
properties provides us with unique access to a customer base that allows
us to provide additional services and thereby increase occupancy,
increase rents and generate incremental revenue. We currently provide
cable television, telephone services, appliance rental, and carport,
garage and storage space rental at certain properties.
Acquisition Strategies.
We believe our acquisition strategies will increase profitability and
predictability of earnings by increasing our geographic diversification,
economies of scale and opportunities to provide ancillary services to tenants at
its properties. Since our initial public offering in July 1994, we have
completed numerous acquisition and management transactions, expanding our
portfolio of owned or managed properties from 132 apartment properties with
29,343 units to 1,720 apartment properties with 326,289 units as of December 31,
2000. We acquire additional properties primarily in three ways:
- Direct Acquisitions. We may directly, including through mergers and other
business combinations, acquire individual properties or portfolios of
properties and controlling interests in entities that own or control such
properties or portfolios. To date, a significant portion of our growth
has resulted from the acquisition of other companies that owned or
controlled properties.
- Acquisition of Managed Properties. We believe that our property
management operations support our acquisition activities. Since our
initial public offering, we have acquired from our managed portfolio 16
properties, not including those acquired in connection with the
acquisition of the Oxford properties, comprising 5,697 units for total
consideration of $189.9 million.
- Increasing Our Interest in Partnerships. For properties where we own a
general partnership interest in the property-owning partnership, we may
seek to acquire, subject to our fiduciary duties, the interests in the
partnership held by third parties for cash or, in some cases, in exchange
for interests in the AIMCO operating partnership. As of December 31,
2000, we have completed 1,800 tender offers of limited partnership
interests for cash and for interests in the AIMCO operating partnership.
PROPERTY MANAGEMENT STRATEGIES
We seek to improve the operating results from our property management
business by, among other methods, combining centralized financial control and
uniform operating procedures with localized property management decision-making
and market knowledge. Our management operations are organized into 25 regional
operating centers. Each of the regional operating centers is supervised by a
Regional Vice-President.
S-25
26
DESCRIPTION OF CLASS Q CUMULATIVE PREFERRED STOCK
The following summary of the material terms and provisions of the Class Q
Preferred Stock does not purport to be complete and is qualified in its entirety
by reference to the pertinent sections of our charter and the articles
supplementary to our charter establishing the Class Q Preferred Stock, each of
which is available from us. This description of the particular terms of the
Class Q Preferred Stock supplements, and to the extent inconsistent therewith,
replaces, the description of the general terms and provisions of our preferred
stock set forth in the accompanying prospectus. For purposes of this section,
when we refer to "we," "us" or "the Company," we are referring only to AIMCO.
GENERAL
Under our charter, we are authorized to issue up to 510,587,500 shares of
our capital stock, including common stock and preferred stock. As of December
31, 2000, 468,432,738 shares were classified as Class A Common Stock and
42,154,762 shares were classified as preferred stock. Since then, 4,000,000
shares of Class A Common Stock have been reclassified as preferred stock.
We are authorized to issue shares of preferred stock in one or more classes
or subclasses, with such designations, preferences, conversion and other rights,
voting powers, restriction, limitations as to dividends, qualifications and
terms and conditions of redemption, in each case, if any as are permitted by
Maryland law and as our Board of Directors may determine by resolution. See
"Description of Preferred Stock" in the accompanying prospectus. The Class Q
Preferred Stock will be a class of AIMCO's preferred stock. A total of 3,450,000
shares of Class Q Preferred Stock will be authorized and the authorized shares
of Class A Common Stock will be reduced accordingly. There are currently no
other classes or series of authorized preferred stock, except as follows:
NUMBER OF
NUMBER OF SHARES
CLASS OF PREFERRED STOCK SHARES AUTHORIZED OUTSTANDING
------------------------ ----------------- -----------
Class B Cumulative Convertible Preferred Stock
("Class B Preferred Stock")............................... 750,000 419,471
Class C Cumulative Preferred Stock ("Class C Preferred
Stock")................................................... 2,400,000 2,400,000
Class D Cumulative Preferred Stock ("Class D Preferred
Stock")................................................... 4,200,000 4,200,000
Class G Cumulative Preferred Stock ("Class G Preferred
Stock")................................................... 4,050,000 4,050,000
Class H Cumulative Preferred Stock ("Class H Preferred
Stock")................................................... 2,000,000 2,000,000
Class I Cumulative Preferred Stock ("Class I Preferred
Stock")................................................... 10,000,000 --
Class J Cumulative Convertible Preferred Stock
("Class J Preferred Stock")............................... 1,250,000 --
Class K Convertible Cumulative Preferred Stock
("Class K Preferred Stock")............................... 5,000,000 5,000,000
Class L Convertible Cumulative Preferred Stock
("Class L Preferred Stock")............................... 5,000,000 5,000,000
Class M Convertible Cumulative Preferred Stock
("Class M Preferred Stock")............................... 1,600,000 1,200,000
Class N Convertible Cumulative Preferred Stock
("Class N Preferred Stock")............................... 4,000,000 4,000,000
Class O Cumulative Convertible Preferred Stock
("Class O Preferred Stock")............................... 1,904,762 1,904,762
Class P Convertible Cumulative Preferred Stock
("Class P Preferred Stock")............................... 4,000,000 --
RANKING
The Class Q Preferred Stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of AIMCO, rank (a) prior or
senior to the common stock and any other class or series of our capital stock if
the holders of Class Q Preferred Stock shall be entitled to the receipt of
S-26
27
dividends or of amounts distributable upon liquidation, dissolution or winding
up in preference or priority to the holders of shares of such class or series
("Class Q Junior Stock"); (b) on a parity with the Class B Preferred Stock, the
Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred
Stock, the Class H Preferred Stock, the Class I Preferred Stock, the Class J
Preferred Stock, the Class K Preferred Stock, the Class L Preferred Stock, the
Class M Preferred Stock, the Class N Preferred Stock, the Class O Preferred
Stock, the Class P Preferred Stock and any other class or series of our capital
stock if the holders of such class or series of stock and the Class Q 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 of one over the other ("Class Q Parity Stock");
and (c) junior to any class or series of our capital stock if the holders of
such class or series shall be entitled to the receipt of dividends and amounts
distributable upon liquidation, dissolution or winding up in preference or
priority to the holders of the Class Q Preferred Stock ("Class Q Senior Stock").
DIVIDENDS
Holders of Class Q Preferred Stock shall be entitled to receive, when and
as declared by our Board of Directors, out of funds legally available for
payment, quarterly cash dividends on the Class Q Preferred Stock in an amount
per share equal to $ per share. The dividends shall be cumulative from the
date of original issue, whether or not in any dividend period or periods we
declare any dividends or have funds legally available for the payment of such
dividend. We shall pay dividends quarterly on March , June , September and
December of each year or, if not a business day, the next succeeding business
day (each a "Dividend Payment Date"), beginning June , 2001. Any dividend
payable on the Class Q Preferred Stock for any partial dividend period will be
computed ratably on the basis of twelve 30-day months and a 360-day year. The
initial dividend payable on the Class Q Preferred Stock will be $ per share.
Dividends will be payable in arrears to holders of record as they appear on our
stock records at the close of business on the March , June , September , or
December , as the case may be, before the applicable Dividend Payment Date.
Holders of Class Q Preferred Stock shall not be entitled to receive any
dividends in excess of cumulative dividends on the Class Q Preferred Stock. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Class Q Preferred Stock that may be in
arrears.
When dividends are not paid in full upon the Class Q Preferred Stock or any
other class or series of Class Q Parity Stock, or a sum sufficient for such
payment is not set apart, all dividends declared upon the Class Q Preferred
Stock and any shares of Class Q Parity Stock shall be declared ratably in
proportion to the respective amounts of dividends accumulated, accrued and
unpaid on the Class Q Preferred Stock and accumulated, accrued and unpaid on
such Class Q Parity Stock. Except as set forth in the preceding sentence, unless
dividends on the Class Q Preferred Stock equal to the full amount of
accumulated, accrued and unpaid dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for such payment, for all past dividend
periods, no dividends shall be declared or paid or set apart for payment by us
and no other distribution of cash or other property may be declared or made,
directly or indirectly, by us with respect to any shares of Class Q Parity
Stock. Unless dividends equal to the full amount of all accumulated, accrued and
unpaid dividends on the Class Q Preferred Stock have been paid, or declared and
set apart for payment, for all past dividend periods, no dividends (other than
dividends or distributions paid in shares of Class Q Junior Stock or options,
warrants or rights to subscribe for or purchase shares of Class Q Junior Stock)
may be declared or paid or set apart for payment by us and no other distribution
of cash or other property may be declared or made, directly or indirectly, by us
with respect to any shares of Class Q Junior Stock, nor shall any shares of
Class Q Junior Stock be redeemed, purchased or otherwise acquired (except for a
redemption, purchase or other acquisition of common stock made for purposes of
an employee incentive or benefit plan of AIMCO or any subsidiary) for any
consideration (or any monies be paid to or made available for a sinking fund for
the redemption of any shares of any such stock), directly or indirectly, by us
(except by conversion into or exchange for shares of Class Q Junior Stock, or
options, warrants or rights to subscribe for or purchase shares of Class Q
Junior Stock), nor shall any other cash or
S-27
28
other property be paid or distributed to or for the benefit of holders of shares
of Class Q Junior Stock. Notwithstanding the foregoing provisions of this
paragraph, we shall not be prohibited from (1) declaring or paying or setting
apart for payment any dividend or distribution on any shares of Class Q Parity
Stock or (2) redeeming, purchasing or otherwise acquiring any Class Q Parity
Stock, in each case, if such declaration, payment, redemption, purchase or other
acquisition is necessary to maintain our qualification as a REIT.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
AIMCO, before we make or set apart any payment or distribution for the holders
of any shares of Class Q Junior Stock, the holders of shares of Class Q
Preferred Stock shall be entitled to receive a liquidation preference of $25 per
share (the "Class Q Liquidation Preference"), plus an amount equal to all
accumulated, accrued and unpaid dividends (whether or not earned or declared) to
the date of final distribution to such holders. Holders of Class Q Preferred
Stock shall not be entitled to any further payment. Until the holders of the
Class Q Preferred Stock have been paid the Class Q Liquidation Preference in
full, plus an amount equal to all accumulated, accrued and unpaid dividends
(whether or not earned or declared) to the date of final distribution to such
holders, no payment shall be made to any holder of Class Q Junior Stock upon the
liquidation, dissolution or winding up of AIMCO. If upon any liquidation,
dissolution or winding up of AIMCO, our assets, or proceeds thereof,
distributable among the holders of Class Q Preferred Stock shall be insufficient
to pay in full the above described preferential amount and liquidating payments
on any other shares of any class or series of Class Q Parity Stock, then such
assets, or the proceeds thereof, shall be distributed among the holders of Class
Q Preferred Stock and any such other Class Q Parity Stock ratably in the same
proportion as the respective amounts that would be payable on such Class Q
Preferred Stock and any such other Class Q Parity Stock if all amounts payable
thereon were paid in full. A voluntary or involuntary liquidation, dissolution
or winding up of AIMCO shall not include our consolidation or merger with one or
more corporations, a sale or transfer of all or substantially all of our assets,
or a statutory share exchange. Upon any liquidation, dissolution or winding up
of AIMCO, after payment shall have been made in full to the holders of Class Q
Preferred Stock and any Class Q Parity Stock, any other series or class or
classes of Class Q Junior Stock shall be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Class Q Preferred
Stock and any Class Q Parity Stock shall not be entitled to share therein.
REDEMPTION
We may not redeem the shares of Class Q Preferred Stock prior to March ,
2006, except in certain limited circumstances relating to maintaining our
ability to qualify as a REIT as described in "-- Restrictions on Ownership and
Transfer". On and after March , 2006, we may, at our option, redeem shares of
Class Q Preferred Stock, in whole or from time to time in part, at a cash
redemption price equal to 100% of the Class Q Liquidation Preference, plus all
accumulated, accrued and unpaid dividends, if any, to the date fixed for
redemption (the "Redemption Date"). The redemption price for the Class Q
Preferred Stock (other than any portion thereof consisting of accumulated,
accrued and unpaid dividends) shall be payable solely with the proceeds from the
sale of equity securities by us or the AIMCO operating partnership (whether or
not such sale occurs concurrently with such redemption). For purposes of the
preceding sentence, "capital shares" means any common stock, preferred stock,
depositary shares, partnership or other interests, participations or other
ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable at the option of the holder for
equity securities (unless and to the extent such debt securities are
subsequently converted into capital shares)) or options to purchase any of the
foregoing of or in us or the AIMCO operating partnership.
If we redeem any shares of Class Q Preferred Stock and if the Redemption
Date occurs after a dividend record date and on or prior to the related Dividend
Payment Date, the dividend payable on such Dividend Payment Date with respect to
such shares called for redemption shall be payable on such Dividend Payment Date
to the holders of record at the close of business on such dividend record date,
and shall not be payable as part of the redemption price for such shares. We
shall select the Redemption Date
S-28
29
which shall not be less than 30 days nor more than 60 days after the date on
which we send the notice of redemption. If full cumulative dividends on all
outstanding shares of Class Q Preferred Stock have not been paid or declared and
set apart for payment, no shares of Class Q Preferred Stock may be redeemed
unless all outstanding shares of Class Q Preferred Stock are simultaneously
redeemed and neither we nor any of our affiliates may purchase or acquire shares
of Class Q Preferred Stock otherwise than pursuant to a purchase or exchange
offer made on the same terms to all holders of Class Q Preferred Stock.
If fewer than all the outstanding shares of Class Q Preferred Stock are to
be redeemed, we will select those shares to be redeemed pro rata or by lot or in
such other manner as the Board of Directors may determine.
We shall mail notice of redemption of the Class Q Preferred Stock to each
holder of record of the shares to be redeemed by first class mail, postage
prepaid at such holder's address as the same appears on our stock records. Any
notice which was mailed as described above shall be conclusively presumed to
have been duly given on the date mailed whether or not the holder receives the
notice. Each notice shall state:
- the Redemption Date;
- the number of shares of Class Q Preferred Stock to be redeemed;
- the place or places where certificates for the shares of Class Q
Preferred Stock are to be surrendered; and
- the redemption price payable on the Redemption Date, including, without
limitation, a statement as to whether or not accumulated, accrued and
unpaid dividends will be payable as part of the redemption price, or
payable on the next Dividend Payment Date to the record holder at the
close of business on the relevant record date as described above.
From and after the Redemption Date (unless we default in the payment of its
redemption obligation), dividends on the shares of Class Q Preferred Stock to be
redeemed will cease to accumulate or accrue, the shares shall no longer be
deemed to be outstanding and all rights of the holders thereof shall cease,
except the right to receive the cash payable upon such redemption without
interest thereon. If the Redemption Date occurs after a dividend record date and
on or prior to the related Dividend Payment Date, record holders at the close of
business on the record date will have the right to receive the dividend payable
on the Dividend Payment Date.
The Class Q Preferred Stock will have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions except as
provided under "-- Restrictions on Ownership and Transfer."
Subject to applicable law and the limitation on purchases when dividends on
the Class Q Preferred Stock are in arrears, we may, at any time and from time to
time, purchase any shares of Class Q Preferred Stock in the open market, by
tender or by private agreement.
VOTING RIGHTS
Holders of shares of Class Q Preferred Stock will not have any voting
rights, except as set forth below and except as otherwise required by applicable
law.
If and whenever dividends on any shares of Class Q Preferred Stock or any
series or class of Class Q Parity Stock shall be in arrears for six or more
quarterly periods, whether or not consecutive, the number of directors then
constituting the AIMCO Board of Directors shall be increased by two, if not
already increased by reason of similar types of provisions with respect to
shares of Class Q Parity Stock of any other class or series which is entitled to
similar voting rights (the "Voting Preferred Stock"), and the holders of shares
of Class Q Preferred Stock, together with the holders of shares of all other
Voting Preferred Stock then entitled to exercise similar voting rights, voting
as a single class regardless of series, 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 Q Preferred
Stock and of the Voting
S-29
30
Preferred Stock called for that purpose. We must call such special meeting upon
the request of any holder of shares of Class Q Preferred Stock. Whenever
dividends in arrears on outstanding shares of the Class Q Preferred Stock and
the Voting Preferred Stock shall have been paid and dividends thereon for the
current quarterly dividend period shall have been paid or declared and set apart
for payment, then the right of the holders of the Class Q Preferred Stock and of
the Voting Preferred Stock to elect the additional two directors shall cease and
the terms of office of the directors shall terminate and the number of directors
constituting our Board of Directors shall be reduced accordingly.
The affirmative vote or consent of at least 66 2/3% of the votes entitled
to be cast by the holders of the outstanding shares of Class Q Preferred Stock
and the holders of all other classes or series of Class Q Parity Stock entitled
to vote on such matters, voting as a single class, will be required to (1)
authorize, create, increase the authorized amount of, or issue any shares of any
class of Class Q Senior Stock or any security convertible into shares of any
class of Class Q Senior Stock, or (2) amend, alter or repeal any provision of,
or add any provision to, our charter or by-laws, if such action would materially
adversely affect the voting powers, rights or preferences of the holders of the
Class Q Preferred Stock; provided, however, that no such vote of the holders of
Class Q Preferred Stock shall be required if, at or prior to the time such
amendment, alteration or repeal is to take effect or the issuance of any such
Class Q Senior Stock or convertible security is to be made, as the case may be,
provisions are made for the redemption of all outstanding shares of Class Q
Preferred Stock. The amendment of or supplement to our charter to authorize,
create, increase or decrease the authorized amount of or to issue Class Q Junior
Stock, Class Q Preferred Stock or any shares of any class of Class Q Parity
Stock shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Class Q Preferred Stock.
With respect to the exercise of the above-described voting rights, each
share of Class Q Preferred Stock shall have one (1) vote per share, except that
when any other class or series of preferred stock shall have the right to vote
with the Class Q Preferred Stock as a single class, then the Class Q Preferred
Stock and such other class or series shall have one quarter of one (0.25) vote
per $25 of stated Class Q Liquidation Preference.
TRANSFER AGENT
The registrar and transfer agent for the Class Q Preferred Stock will be
BankBoston, N.A.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Ownership of shares of Class Q Preferred Stock by any person will be
limited such that the sum of the aggregate value of all capital stock of AIMCO
(including all shares of Class Q Preferred Stock) owned directly or
constructively by such person may not exceed 8.7% (or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine) of the
aggregate value of all outstanding shares of capital stock (the "Ownership
Limit"). AIMCO's board of directors may upon appropriate evidence waive the
Ownership Limit. Further, certain transfers which may have the effect of causing
AIMCO to lose its status as a REIT are void ab initio.
Any person who acquires or attempts to acquire beneficial or constructive
ownership of Class Q Preferred Stock that will or may violate the Ownership
Limit, or any person who would have owned Class Q Preferred Stock except for the
transfer of shares to the Trust as described below, is required to give notice
immediately to AIMCO and provide AIMCO with such other information as AIMCO may
request in order to determine the effect of such transfer on AIMCO's status as a
REIT.
If any transfer of Class Q Preferred Stock occurs which, if effective,
would result in any person beneficially or constructively owning Class Q
Preferred Stock in excess or in violation of the Ownership Limit (a "Prohibited
Transferee"), such shares of Class Q Preferred Stock in excess of the Ownership
Limit shall be automatically transferred to a trustee in his capacity as trustee
of a trust for the exclusive benefit of one or more charitable beneficiaries
designated by AIMCO, and the Prohibited Transferee shall generally have no
rights in such shares, except upon sale of the shares by the trustee. Such
automatic transfer shall be deemed to be effective as of the close of business
on the business day prior to the date of
S-30
31
such violative transfer. Shares of Class Q Preferred Stock held in the trust
shall be issued and outstanding shares of AIMCO. The Prohibited Transferee shall
not benefit economically from ownership of any shares of Class Q Preferred Stock
held in the trust, shall have no rights to dividends and shall not possess any
rights to vote or other rights attributable to the shares of Class Q Preferred
Stock held in the trust. The trustee shall have all voting rights and rights to
dividends with respect to shares of Class Q Preferred Stock held in the trust,
which rights shall be exercised for the benefit of the charitable beneficiaries.
Any dividend or other distribution paid prior to the discovery by AIMCO that
shares of Class Q Preferred Stock have been transferred to the trustee shall be
repaid to AIMCO upon demand, and any dividend or other distribution declared but
unpaid with respect to such shares shall be rescinded as void. Any dividend or
distribution so disgorged or rescinded shall be paid to the trustee and held in
trust for the charitable beneficiaries.
The trustee may sell the Class Q Preferred Stock held in the trust to a
person, designated by the trustee, whose ownership of the Class Q Preferred
Stock will not violate the Ownership Limit. Upon such sale, the interest of the
charitable beneficiaries in the shares sold shall terminate and the trustee
shall distribute the net proceeds of the sale to the Prohibited Transferee and
to the charitable beneficiary as described below. The Prohibited Transferee
shall receive the lesser of (i) the price paid by the Prohibited Transferee for
the shares or if the Prohibited Transferee did not give value for the shares in
connection with the event causing the shares to be held in the trust (e.g., a
gift, devise or other such transaction), the market price of such shares on the
day of the event causing the shares to be held in the trust and (ii) the price
per share received by the trustee from the sale or other disposition of the
shares held in the trust. Any proceeds in excess of the amount payable to the
Prohibited Transferee shall be payable to the charitable beneficiaries.
In addition, shares of Class Q Preferred Stock held in the trust shall be
deemed to have been offered for sale to AIMCO, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the trust (or, in the case of a devise or gift, the
market price at the time of such devise or gift) and (ii) the market price on
the date AIMCO or its designee accepts such offer.
If AIMCO's board of directors or a committee thereof determines that a
transfer or proposed transfer of shares of Class Q Preferred Stock violates or
will violate the Ownership Limit or certain other provisions of AIMCO's charter
prohibiting transfers which may have the effect of causing AIMCO to lose its
REIT status, AIMCO's board of directors or a committee thereof is empowered to
take any action it deems advisable to refuse to give effect to or to prevent
such transfer, including causing AIMCO to redeem such shares at the then current
market price and on such other terms and conditions as AIMCO's board of
directors may determine (including by means of the issuance of long-term
indebtedness for the purpose of such redemption) and demanding the repayment of
any dividends received in respect of such shares. In addition, AIMCO's board of
directors may take such action as it determines to be advisable to maintain
AIMCO's status as a REIT, including reducing the Ownership Limit in the event of
a change in law.
All certificates representing Class Q Preferred Stock will bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such lesser percentage prescribed in
regulations under the Internal Revenue Code) of the outstanding shares of Class
Q Preferred Stock, within 30 days after January 1 of each year, is required to
give written notice to AIMCO stating the name and address of such owner, the
number of shares of Class Q Preferred Stock which the owner beneficially owns
and a description of the manner in which such shares are held. Each such owner
shall provide to AIMCO such additional information as AIMCO may request in order
to determine the effect, if any, of such ownership on AIMCO's status as a REIT
and to ensure compliance with the Ownership Limit. In addition, each stockholder
shall provide to AIMCO such information as AIMCO may request, in its sole
discretion, in order to determine AIMCO's status as a REIT and to comply with
the requirements of any taxing authority or governmental agency to determine any
such compliance or to ensure compliance with the Ownership Limit.
S-31
32
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain Federal income tax considerations
regarding an investment in Class Q Preferred Stock is based on current law, is
for general information only and is not tax advice. This summary supplements the
discussion set forth in the accompanying prospectus under the heading "Certain
Federal Income Tax Consequences." This discussion does not purport to deal with
all aspects of taxation that may be relevant to particular investors in light of
their personal investment or tax circumstances.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF CLASS Q PREFERRED STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS
A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
INCOME AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
DISTRIBUTIONS ON CLASS Q PREFERRED STOCK
For a discussion of the treatment of dividends and other distributions with
respect to the shares of the Class Q Preferred Stock, see "Certain Federal
Income Tax Consequences -- Taxation of Taxable Domestic Stockholders," "Certain
Federal Income Tax Consequences -- Taxation of Tax-Exempt Stockholders,"
"Certain Federal Income Tax Consequences -- Taxation of Foreign Stockholders" in
the accompanying prospectus. In determining the extent to which a distribution
with respect to the Class Q Preferred Stock constitutes a dividend for tax
purposes, the earnings and profits of AIMCO will be allocated, on a pro rata
basis, first to distributions with respect to any class of preferred stock, and
then to AIMCO common stock.
REDEMPTION OF CLASS Q PREFERRED STOCK
A redemption of the Class Q Preferred Stock will be treated under Section
302 of the Internal Revenue Code as a dividend taxable at ordinary income tax
rates (to the extent of AIMCO's current or accumulated earnings and profits),
unless the redemption satisfies certain tests set forth in Section 302(b) of the
Internal Revenue Code enabling the redemption to be treated as a sale or
exchange of the Class Q Preferred Stock. The redemption will satisfy such test
if it (i) is "substantially disproportionate" with respect to the holder, (ii)
results in a "complete termination" of the holder's stock interest in AIMCO, or
(iii) is "not essentially equivalent to a dividend" with respect to the holder,
all within the meaning of Section 302(b) of the Internal Revenue Code. In
determining whether any of these tests have been met, shares considered to be
owned by the holder by reason of certain constructive ownership rules set forth
in the Internal Revenue Code, as well as shares actually owned, must generally
be taken into account. Because the determination as to whether any of the
alternative tests of Section 302(b) of the Internal Revenue Code is satisfied
with respect to any particular holder of the Class Q Preferred Stock will depend
upon the facts and circumstances as of the time the determination is made,
prospective investors are advised to consult their tax advisors to determine
such tax treatment.
If a redemption of the Class Q Preferred Stock is treated as a distribution
that is taxable as a dividend, the amount of the distribution would be measured
by the amount of cash and the fair market value of any property received by the
stockholders. The stockholder's adjusted tax basis in such redeemed Class Q
Preferred Stock would be transferred to the holder's remaining stockholdings in
AIMCO. If, however, the stockholder has no remaining stockholdings in AIMCO,
such basis may, under certain circumstances, be transferred to a related person
or it may be lost entirely.
TAXATION OF FOREIGN SHAREHOLDERS
A "Non-U.S. Holder" is any person other than (i) a citizen or resident of
the United States, (ii) a corporation, partnership, or other entity organized in
or under the laws of the United States or any state thereof, or the District of
Columbia, (iii) an estate whose income is includable in gross income for U.S.
Federal income tax purposes regardless of its source, or (iv) a trust if a
United States court is able to exercise primary supervision over the
administration of such trust and one or more United States
S-32
33
fiduciaries have the authority to control all substantial decisions of such
trust. This discussion is based on current law and is for general information
only.
Unless the Class Q Preferred Stock constitutes a United States real
property interest ("USRPI") within the meaning of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"), distributions by AIMCO which are not
dividends out of the current and accumulated earnings and profit of AIMCO will
not be subject to U.S. income tax. However, AIMCO is currently required to treat
all distributions as if made out of its current or accumulated earnings and
profits and thus intends to withhold at the rate of 30% (or a reduced treaty
rate if applicable) on the amount of any distribution (other than distributions
designated as a capital gain dividends) made to a Non-U.S. Holder. Under the
recently adopted United States Treasury Regulations, generally effective for
distributions after December 31, 1999, AIMCO would not be required to withhold
at the 30% rate (or reduced treaty rate if applicable) on distributions it
reasonably estimates to be in excess of its current and accumulated earnings and
profits. A Non-U.S. Holder may seek a refund of such amounts from the IRS if it
is subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company. A distribution from
AIMCO to a Non-U.S. Holder, whether or not designated as a capital gain
distribution, attributable to gain from the sale or exchange of a USRPI is
subject to withholding at a 35% rate.
Notwithstanding the discussion in the preceding paragraph, if the Class Q
Preferred Stock constitutes a USRPI, a distribution by AIMCO which is not a
dividend out of its current and accumulated earnings and profits will be subject
to 10% withholding and may also be subject to tax under FIRPTA to the extent
such distribution exceeds a Non-U.S. Holder's basis in its Class Q Preferred
Stock if the Class Q Preferred Stock constitutes a USRPI. The Class Q Preferred
Stock will not constitute a USRPI so long as AIMCO is a "domestically controlled
REIT." A domestically controlled REIT is a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Holders. AIMCO believes that it currently is a
domestically controlled REIT. Because AIMCO's Class A Common Stock, Class C
Preferred Stock, Class D Preferred Stock, Class G Preferred Stock, Class H
Preferred Stock and Class K Preferred Stock are, and its Class Q Preferred Stock
will be, publicly traded, however, no assurance can be given that AIMCO will
continue to be a domestically controlled REIT.
Unless the Class Q Preferred Stock constitutes a USRPI, a sale of such
stock by a Non-U.S. Holder generally will not be subject to U.S. taxation under
FIRPTA. As discussed above, the Class Q Preferred Stock will not constitute a
USRPI if AIMCO is a domestically controlled REIT. If AIMCO does not constitute a
domestically controlled REIT, a Non-U.S. Holder's sale of Class Q Preferred
Stock generally will still not be subject to tax under FIRPTA as a sale of a
USRPI provided that (i) the stock is "regularly traded" (as defined by
applicable Treasury Regulations) on an established securities market (e.g., the
New York Stock Exchange, on which AIMCO intends to apply to list the Class Q
Preferred Stock) and the selling Non-U.S. Holder held 5% or less of such class
of AIMCO stock at all times during a specified testing period, or (ii) the stock
is not regularly traded on an established securities market and is convertible
into stock that is so regularly traded and the value of such convertible stock
held by the selling Non-U.S. Holder at all times during a specified testing
period is less than or equal to the value of 5% of the regularly traded class of
stock into which such stock is convertible.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with Federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the Federal laws and interpretations thereof
could adversely affect an investment in AIMCO. Congress recently enacted
legislation, generally effective in 2001, that will, among other things:
- modify the current ownership limitations to permit a REIT to own up to
100% of the voting securities and 100% of the value of the other
interests in a taxable REIT subsidiary. In addition,
S-33
34
the 5% REIT asset test would not apply to taxable REIT subsidiaries, but
securities of taxable REIT subsidiaries could not exceed 20% of the total
value of a REIT's assets;
- permit a taxable REIT subsidiary to perform services to REIT's tenants
and impose a 100% excise tax on certain non-arms length transactions
between a taxable REIT subsidiary and a REIT;
- disallow REIT status where healthcare or lodging facilities are operated
or managed by a taxable REIT subsidiary, beginning in 2001;
- generally restrict a REIT from owning more than 10% of the vote or value
of the securities of an issuer, including a partnership (taking into
account only the partnership's debt securities) or a non-REIT C
corporation that is not a taxable REIT subsidiary;
- apply certain limitations to the deductibility of interest paid by a
taxable REIT subsidiary to a related REIT;
- allow a REIT to rent up to 10% of a property to a taxable REIT subsidiary
and generally have the rent qualify as good income for purposes of the
REIT gross income tests; and
- change the measurement of rent attributable to personal property leased
in connection with a lease of real property from a comparison based on
adjusted tax bases of properties to a comparison of fair market values.
We cannot predict whether, when, in what form, or with what effective
dates, other legislative proposals applicable to AIMCO or its stockholders will
become law.
We cannot predict whether, when, in what form, or with what effective
dates, the tax laws applicable to AIMCO, or an investment in AIMCO, will be
changed.
S-34
35
UNDERWRITERS
Under the terms and subject to the conditions in an underwriting agreement,
dated March , 2001, the underwriters named below, for whom Morgan Stanley &
Co. Incorporated, Prudential Securities Incorporated, Raymond James &
Associates, Inc., UBS Warburg LLC, Bear, Stearns & Co. Inc., Robertson Stephens,
Inc. and Tucker Anthony Incorporated are acting as representatives, have
severally agreed to purchase, and we have agreed to sell to them, the number of
shares of Class Q Preferred Stock set forth opposite their names below:
NUMBER OF
NAME SHARES
---- ---------
Morgan Stanley & Co. Incorporated...........................
Prudential Securities Incorporated..........................
Raymond James & Associates, Inc.............................
UBS Warburg LLC.............................................
Bear, Stearns & Co. Inc.....................................
Robertson Stephens, Inc.....................................
Tucker Anthony Incorporated.................................
---------
Total............................................. 3,000,000
=========
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of Class Q Preferred
Stock offered by this prospectus supplement are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to take and pay for all of the shares of Class Q
Preferred Stock offered in this offering if any are taken. However, the
underwriters are not required to take or pay for the shares covered by the
underwriters' over-allotment option described below.
The underwriters initially propose to offer some of the shares of Class Q
Preferred Stock directly to the public at the public offering price set forth on
the cover page of this prospectus supplement and some of the shares of Class Q
Preferred Stock to certain dealers at a concession not in excess of $ per
share. The underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share on sales to certain other dealers. If all of
the shares are not sold at the initial offering price, the representatives may
change the public offering price and other selling terms.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to an aggregate of
450,000 additional shares of Class Q Preferred Stock at the public offering
price set forth on the cover page of this prospectus supplement, less
underwriting discounts and commissions. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of Class Q Preferred Stock offered by
this prospectus supplement. To the extent this option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of Class Q Preferred
Stock as the number listed next to the underwriter's name in the preceding table
bears to the total number of shares of Class Q Preferred Stock listed next to
the names of all underwriters in the preceding table. If the underwriters'
option is exercised in full, the total price to the
S-35
36
public would be $ , the total underwriters' discounts and commissions would
be $ , and the total proceeds to us would be $ .
During the period from the date of the Underwriting Agreement and
continuing to and including the date that is thirty days after the closing for
the issuance and sale of the Class Q Preferred Stock, we will not, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, directly or indirectly, offer, sell, offer to sell, or otherwise
dispose of any shares of Class Q Preferred Stock or any other preferred shares
or any other securities which are substantially similar to the Class Q Preferred
Stock (except for the shares of Class Q Preferred Stock offered by this
prospectus supplement and the accompanying prospectus).
Prior to this offering, there has been no public market for the Class Q
Preferred Stock. We intend to apply to list the Class Q Preferred Stock on the
NYSE under the symbol "AIVPrQ". If this application is approved, trading of the
Class Q Preferred Stock on the NYSE is expected to begin within 30 days
following initial delivery of the Class Q Preferred Stock. The underwriters have
advised us that they intend to make a market in the Class Q Preferred Stock
prior to commencement of trading on the NYSE. The underwriters will have no
obligation to make a market in the Class Q Preferred Stock, however, and may
cease market making activities, if commenced, at any time. No assurance can be
given as to the liquidity of the trading market for the Class Q Preferred Stock.
In order to meet one of the requirements for listing the Class Q Preferred
Stock on the NYSE, the underwriters will undertake to sell the Class Q Preferred
Stock to a minimum of 400 or more beneficial holders.
We estimate that our expenses in connection with this offering, excluding
underwriting discounts and commissions, will be $525,000.
In order to facilitate the offering of the Class Q Preferred Stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class Q Preferred Stock. Specifically, the underwriters
may over-allot in connection with this offering, creating short positions in the
Class Q Preferred Stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class Q Preferred Stock, the
underwriters may bid for, and purchase, Class Q Preferred Stock in the open
market. Finally, the underwriters may reclaim selling concessions allowed to an
underwriter or dealer for distributing Class Q Preferred Stock in this offering,
if the underwriters maintain the market price of the Class Q Preferred Stock
above independent market levels. The underwriters are not required to engage in
these activities and may end any of these activities at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of these
liabilities.
In the ordinary course of the underwriters' respective businesses, the
underwriters and their affiliates have engaged and may engage in commercial and
investment banking transactions with us and our affiliates. The underwriters and
their affiliates also provide or have provided advisory and other financial
services. They have received customary fees and expenses for these commercial
and investment banking transactions and for these advisory and other financial
services.
S-36
37
EXPERTS
Ernst & Young LLP, independent auditors, have audited (i) AIMCO's
consolidated financial statements and schedule for the year ended December 31,
1999; (ii) Regency Windsor Apartment Communities' combined historical summary of
gross income and direct operating expenses for the year ended December 31, 1998;
and (iii) Dreyfuss Apartment Communities' combined historical summary of gross
income and direct operating expenses for the year ended December 31, 1998; as
set forth in their reports, which are incorporated by reference in the
accompanying prospectus. These financial statements and schedule and combined
historical summaries of gross income and direct operating expenses are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Reznick Fedder & Silverman, independent auditors, have audited (i) Oxford
Holding corporation and subsidiaries, Oxford Realty Financial Group, Inc. and
Subsidiaries, ZIMCO Entities and Oxford Equities Corporation III's combined
financial statements for the year ended December 31, 1999; (ii) ORFG Operations,
L.L.C. and Subsidiary's combined financial statements for the year ended
December 31, 1999; (iii) OXPARC L.L.C.'s combined financial statements for the
year ended December 31, 1999; and (iv) Oxford Realty Financial Group Properties'
combined financial statements for the year ended December 31, 1999; as set forth
in their reports, which are incorporated by reference in the accompanying
prospectus. These financial statements are incorporated by reference in reliance
on Reznick Fedder & Silverman's reports given on their authority as experts in
accounting and auditing.
The consolidated financial statements of Oxford Tax Exempt Fund II Limited
Partnership ("OTEF") appearing in OTEF's Annual Report on form 10-K for the year
ended December 31, 1999 have been audited by PricewaterhouseCoopers LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated by reference in the accompanying prospectus. Such consolidated
financial statements are incorporated by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for AIMCO by Skadden, Arps,
Slate, Meagher & Flom LLP, Los Angeles, California. Mayer, Brown & Platt,
Chicago, Illinois will act as counsel for the underwriters. The legality of the
shares of Class Q Preferred Stock offered hereby will be passed upon for AIMCO
by Piper Marbury Rudnick & Wolfe LLP, Baltimore, Maryland. Skadden, Arps, Slate,
Meagher & Flom LLP and Mayer, Brown & Platt will rely on Piper Marbury Rudnick &
Wolfe LLP as to certain matters of Maryland law.
S-37
38
PROSPECTUS
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
$1,268,168,000
DEBT SECURITIES
PREFERRED STOCK
CLASS A COMMON STOCK
WARRANTS
GUARANTEES
AIMCO PROPERTIES, L.P.
$500,000,000
DEBT SECURITIES
Apartment Investment and Management Company, a Maryland corporation
("AIMCO") which has elected to be taxed for federal income tax purposes as a
real estate investment trust (a "REIT"), may offer from time to time (i) senior,
senior subordinated or subordinated debt securities (the "AIMCO Debt
Securities") consisting of debentures, notes and/or other unsecured evidences of
indebtedness, (ii) shares of its preferred stock, par value $.01 per share (the
"Preferred Stock"), (iii) shares of its Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), and (iv) Warrants to purchase AIMCO Debt
Securities, Preferred Stock or Class A Common Stock, as shall be designated by
AIMCO at the time of the offering (the "Warrants"). AIMCO Properties, L.P., a
Delaware limited partnership and a subsidiary of AIMCO (the "AIMCO Operating
Partnership"), may offer from time to time senior, senior subordinated or
subordinated debt securities (the "OP Debt Securities" and, together with the
AIMCO Debt Securities, the "Debt Securities") consisting of debentures, notes
and/or other unsecured evidences of indebtedness, which may or may not be fully
and unconditionally guaranteed by AIMCO (any such guarantees being referred to
herein as "Guarantees"). The AIMCO Debt Securities, the Preferred Stock, the
Class A Common Stock, the Warrants and the Guarantees are collectively referred
to herein as the "AIMCO Securities" and will have an aggregate initial offering
price of up to $1,268,168,000. The OP Debt Securities will have an aggregate
initial offering price of up to $500,000,000. The AIMCO Securities and the OP
Securities (collectively, the "Securities") may be offered separately or
together (in any combination) and as separate series, in any case, in amounts,
at prices and on terms to be determined at the time of sale.
To the extent not otherwise described herein, the form in which the
Securities are to be issued, and the terms of such Securities, including without
limitation, their specific designation, aggregate principal amount or aggregate
initial offering price, maturity, if any, rate and times of payment of interest
or dividends, if any, redemption, conversion, exchange and sinking fund terms,
if any, voting or other rights, if any, exercise price and detachability, if
any, and other specific terms will be set forth in a Prospectus Supplement (the
"Prospectus Supplement"), together with the terms of offering of such
Securities. If so specified in the applicable Prospectus Supplement, Debt
Securities of a series may be issued in whole or in part in the form of one or
more temporary or permanent global securities. The Prospectus Supplement will
also contain information, as applicable, about certain material United States
Federal income tax considerations relating to the particular Securities offered
thereby. The Prospectus Supplement will also contain information, where
applicable, as to any listing on a national securities exchange of the
Securities covered by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by AIMCO or the AIMCO Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of the applicable Prospectus Supplement describing the method and terms
of the offering of such Securities.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED
UNDER "RISK FACTORS" SET FORTH IN THE APPLICABLE PROSPECTUS SUPPLEMENT.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
November 25, 1998
39
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
TABLE OF CONTENTS
AIMCO and the AIMCO Operating Partnership................... 1
Use of Proceeds............................................. 1
Ratio of Earnings to Fixed Charges.......................... 2
Description of AIMCO Debt Securities........................ 3
Description of OP Debt Securities........................... 10
Description of Preferred Stock.............................. 16
Description of Class A Common Stock......................... 20
Description of Other Classes of Outstanding Stock........... 23
Description of Warrants..................................... 32
Plan of Distribution........................................ 33
Certain Federal Income Tax Consequences..................... 35
Other Tax Consequences...................................... 45
Where You Can Find More Information......................... 45
Legal Matters............................................... 46
Experts..................................................... 46
40
AIMCO AND THE AIMCO OPERATING PARTNERSHIP
AIMCO, a Maryland corporation formed on January 10, 1994, is a
self-administered and self-managed REIT engaged in the ownership, acquisition,
development, expansion and management of multi-family apartment properties. As
of October 31, 1998, through our controlling interests in the AIMCO Operating
Partnership and other limited partnerships and limited liability companies
(collectively, the "Subsidiary Partnerships"), we owned or managed 386,430
apartment units in 2,240 properties located in 49 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled as of January 1,
1998 by the National Multi Housing Council, we believe that, as of October 31,
1998, we were the largest owner and manager of multifamily apartment properties
in the United States. As of October 31, 1998, we:
- owned or controlled 62,955 units in 241 apartment properties;
- held an equity interest in 168,746 units in 897 apartment properties; and
- managed 154,729 units in 1,102 apartment properties for third party
owners and affiliates.
We conduct substantially all of our operations through the AIMCO Operating
Partnership. Our wholly owned subsidiary, AIMCO-GP, Inc. (the "General Partner")
is the sole general partner of the AIMCO Operating Partnership. Through the
General Partner and another of our wholly owned subsidiaries, AIMCO-LP, Inc.
(the "Special Limited Partner"), as of October 31, 1998, we owned approximately
an 89% interest in the AIMCO Operating Partnership. Generally, when we refer to
"we" or "us" in this Prospectus, we are referring to AIMCO, the AIMCO Operating
Partnership, the management companies and their respective subsidiaries.
Our principal executive offices are located at 1873 South Bellaire Street,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, AIMCO
and the AIMCO Operating Partnership intend to use the net proceeds from the sale
of the Securities for working capital and general corporate purposes, which may
include the repayment or refinancing of outstanding indebtedness, the financing
of future acquisitions (which may include acquisitions of real properties,
interests therein or real estate-related securities) and the financing of
improvements or expansion of properties. Pending the use thereof, AIMCO and the
AIMCO Operating Partnership intend to invest any net proceeds in short-term,
interest-bearing securities. Neither AIMCO nor the AIMCO Operating Partnership
will receive any proceeds from the registered resale of any Securities pursuant
to this Prospectus.
1
41
RATIO OF EARNINGS TO FIXED CHARGES
The table below reflects AIMCO's ratios of earnings to fixed charges and
ratios of earnings to combined fixed charges and preferred stock dividends for
the following periods: (i) the nine months ended September 30, 1998 and 1997,
(ii) the years ended December 31, 1997, 1996 and 1995, (iii) the period January
10, 1994 to December 31, 1994, (iv) the period January 1, 1994 to July 28, 1994,
and (v) the year ended December 31, 1993. The ratios of earnings to fixed
charges and the ratios of earnings to combined fixed charges and partnership
preferred unit distributions for the AIMCO Operating Partnership are the same as
the ratios of earnings to fixed charges and the ratios of earnings to combined
fixed charges and preferred stock dividends, respectively, for such periods.
AIMCO
AIMCO PREDECESSORS(1)
------------------------------------------------- -------------------
FOR THE FOR THE
PERIOD PERIOD FOR THE
FOR THE NINE JAN. 10, JAN. 1, YEAR
MONTHS ENDED FOR THE YEARS ENDED 1994 TO 1994 TO ENDED
SEPTEMBER 30, DECEMBER 31, DEC. 31, JULY 28, DEC. 31,
------------- --------------------- --------- -------- --------
1998 1997 1997 1996 1995 1994 1994(3) 1993
----- ----- ----- ----- ----- --------- -------- --------
Ratio of earnings to fixed charges(2).... 1.8:1 1.6:1 1.5:1 1.6:1 2.1:1 5.8:1 N/A 1.2:1
Ratio of earnings to combined fixed
charges and preferred stock
dividends(4)(5)........................ 1.4:1 1.5:1 1.5:1 1.6:1 1.5:1 2.0:1 N/A 1.2:1
---------------
(1) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000
shares of Class A Common Stock. On such date, AIMCO and Property Asset
Management, L.L.C., and its affiliated companies and PDI Realty Enterprises,
Inc. (collectively, the "AIMCO Predecessors") engaged in a business
combination and consummated a series of related transactions which enabled
AIMCO to continue and to expand the property management and related
businesses of the AIMCO Predecessors.
(2) The ratio of earnings to fixed charges for AIMCO was computed by dividing
earnings by fixed charges. For this purpose, "earnings" consists of income
before minority interest plus fixed charges (other than any interest which
has been capitalized); and "fixed charges" consists of interest expense
(including amortization of loan costs) and interest which has been
capitalized. The ratio of earnings to fixed charges for the AIMCO
Predecessors was computed by dividing earnings by fixed charges. For this
purpose, "earnings" consists of income (loss) before extraordinary items and
income taxes plus fixed charges and "fixed charges" consists of interest
expense (including amortization of loan costs).
(3) The earnings of the AIMCO Predecessors for the period from January 1, 1994
to July 28, 1994 were inadequate to cover fixed charges by $1,463,000.
(4) The ratio of earnings to combined fixed charges and preferred stock
dividends for AIMCO was computed by dividing earnings by the total of fixed
charges and preferred stock dividends. For this purpose, "earnings" consists
of income before minority interest plus fixed charges (other than any
interest which has been capitalized); "fixed charges' consists of interest
expense (including amortization of loan costs) and interest which has been
capitalized; and "preferred stock dividends' consists of the amount of
pre-tax earnings that would be required to cover preferred stock dividend
requirements.
(5) The AIMCO Predecessors did not have any shares of preferred stock
outstanding during the period from January 1, 1993 through July 28, 1994.
2
42
DESCRIPTION OF AIMCO DEBT SECURITIES
GENERAL
The following description sets forth certain general terms and provisions
of the AIMCO Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the AIMCO Debt Securities offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may apply to
the AIMCO Debt Securities so offered will be described in the Prospectus
Supplement relating to such AIMCO Debt Securities.
The AIMCO Debt Securities may be issued, from time to time, in one or more
series, and will constitute either senior AIMCO Debt Securities ("Senior AIMCO
Debt Securities"), senior subordinated AIMCO Debt Securities ("Senior
Subordinated AIMCO Debt Securities") or subordinated AIMCO Debt Securities
("Subordinated AIMCO Debt Securities"). Senior AIMCO Debt Securities may be
issued under an Indenture (the "Senior AIMCO Debt Securities Indenture") to be
entered into between AIMCO and a trustee to be named in the applicable
Prospectus Supplement. The Senior Subordinated AIMCO Debt Securities may be
issued from time to time under an Indenture (the "Senior Subordinated AIMCO Debt
Securities Indenture") to be entered into between AIMCO and a trustee to be
named in the applicable Prospectus Supplement. The Subordinated AIMCO Debt
Securities may be issued from time to time under an Indenture (the "Subordinated
AIMCO Debt Securities Indenture") to be entered into between AIMCO and a trustee
to be named in the applicable Prospectus Supplement. The AIMCO Debt Securities
may be convertible or non-convertible.
The Senior AIMCO Debt Securities Indenture, the Senior Subordinated AIMCO
Debt Securities Indenture, and the Subordinated AIMCO Debt Securities Indenture
are referred to herein individually as an "AIMCO Indenture" and, collectively,
as the "AIMCO Indentures." Forms of the AIMCO Indentures are filed as exhibits
to the Registration Statement of which this Prospectus is a part. The AIMCO
Indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended (the "TIA"). Capitalized terms used in this section which are not
otherwise defined in this Prospectus shall have the meanings set forth in the
AIMCO Indenture to which they relate. The statements made under this heading
relating to the AIMCO Debt Securities and the AIMCO Indentures are summaries of
the material provisions of the AIMCO Debt Securities and the AIMCO Indentures,
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the AIMCO Indentures and the
AIMCO Debt Securities, including the definitions therein of certain terms.
The AIMCO Debt Securities will be direct, unsecured obligations of AIMCO.
The AIMCO Indentures do not limit the aggregate principal amount of AIMCO Debt
Securities that may be issued thereunder and provide that AIMCO Debt Securities
may be issued thereunder from time to time in one or more series. Under the
AIMCO Indentures, AIMCO will have the ability to issue AIMCO Debt Securities
with terms different from those of AIMCO Debt Securities previously issued,
without the consent of the holders of previously issued series of AIMCO Debt
Securities, in an aggregate principal amount determined by AIMCO.
The applicable Prospectus Supplement or Prospectus Supplements relating to
any Senior Subordinated AIMCO Debt Securities or Subordinated AIMCO Debt
Securities will set forth the aggregate amount of outstanding indebtedness, as
of the most recent practicable date, that by the terms of such AIMCO Debt
Securities would be senior to such AIMCO Debt Securities and any limitation on
the issuance of additional senior indebtedness.
AIMCO Debt Securities may be issued and sold at a discount below their
principal amount ("AIMCO Discount Securities"). Special United States Federal
income tax considerations applicable to AIMCO Debt Securities issued with
original issue discount, including AIMCO Discount Securities, will be described
in more detail in any applicable Prospectus Supplement. Even if AIMCO Debt
Securities are not issued at a discount below their principal amount, such AIMCO
Debt Securities may, for United States Federal income tax purposes, be deemed to
have been issued with "original issue discount" ("OID") because of certain
interest payment characteristics. In addition, special United States Federal tax
considerations or other restrictions or terms applicable to any AIMCO Debt
Securities offered exclusively to United States aliens or
3
43
denominated in a currency other than United States dollars will be set forth in
a Prospectus Supplement relating thereto.
The applicable Prospectus Supplement or Prospectus Supplements will
describe, among other things, the following terms of the AIMCO Debt Securities
offered thereby (the "Offered AIMCO Debt Securities"): (i) the title of the
Offered AIMCO Debt Securities; (ii) any limit on the aggregate principal amount
of the Offered AIMCO Debt Securities; (iii) whether the Offered AIMCO Debt
Securities may be represented initially by an AIMCO Debt Security in temporary
or permanent global form, and if so, the initial Depositary with respect to such
temporary or permanent global AIMCO Debt Security and whether and the
circumstances under which beneficial owners of interests in any such temporary
or permanent global AIMCO Debt Security may exchange such interests for AIMCO
Debt Securities of such series and of like tenor of any authorized form and
denomination; (iv) the price or prices at which the Offered AIMCO Debt
Securities will be issued; (v) the date or dates on which the principal of the
Offered AIMCO Debt Securities is payable or the method of determination thereof;
(vi) the place or places where and the manner in which the principal of and
premium, if any, and interest, if any, on such Offered AIMCO Debt Securities
will be payable and the place or places where such Offered AIMCO Debt Securities
may be presented for transfer and, if applicable, conversion or exchange; (vii)
the rate or rates at which the Offered AIMCO Debt Securities will bear interest,
or the method of calculating such rate or rates, if any, and the date or dates
from which such interest, if any, will accrue; (viii) the dates, if any, on
which any interest on the Offered AIMCO Debt Securities will be payable, and the
regular record date for any interest payable on any Offered AIMCO Debt
Securities; (ix) the right or obligation, if any, of AIMCO to redeem or purchase
AIMCO Debt Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a holder thereof, the conditions, if any, giving
rise to such right or obligation, and the period or periods within which, and
the price or prices at which and the terms and conditions upon which AIMCO Debt
Securities of the series shall be redeemed or purchased, in whole or part, and
any provisions for the remarketing of such AIMCO Debt Securities; (x) whether
such Offered AIMCO Debt Securities are convertible or exchangeable into other
debt securities of AIMCO or equity securities of AIMCO, and, if so, the terms
and conditions upon which such conversion or exchange will be effected,
including the initial conversion or exchange price or rate and any adjustments
thereto, the conversion or exchange period and other conversion or exchange
provisions; (xi) any terms applicable to such Offered AIMCO Debt Securities
which are AIMCO Discount Securities, including the issue price thereof and the
rate or rates at which original issue discount will accrue; (xii) if other than
the principal amount thereof, the portion of the principal amount of the Offered
AIMCO Debt Securities which will be payable upon declaration or acceleration of
the maturity thereof pursuant to an event of default; (xiii) any special United
States Federal income tax considerations applicable to the Offered AIMCO Debt
Securities; and (xiv) any other terms of the Offered AIMCO Debt Securities not
inconsistent with the provisions of the AIMCO Indenture. The applicable
Prospectus Supplement will also describe the following terms of any series of
Senior Subordinated AIMCO Debt Securities or Subordinated AIMCO Debt Securities
offered hereby in respect of which this Prospectus is being delivered: (a) the
rights, if any, to defer payments of interest on the Senior Subordinated AIMCO
Debt Securities or Subordinated AIMCO Debt Securities of such series by
extending the interest payment period, and the duration of such extensions, and
(b) the subordination terms of the Senior Subordinated AIMCO Debt Securities or
Subordinated AIMCO Debt Securities of such series. Any such Prospectus
Supplement will also describe any special provisions for the payment of
additional amounts with respect to the Offered AIMCO Debt Securities.
Since the operations of AIMCO are currently conducted principally through
its subsidiaries, AIMCO's cash flow and its consequent ability to service debt,
including the AIMCO Debt Securities, will be dependent, in large part, upon the
earnings of its subsidiaries and the distribution of those earnings to AIMCO,
whether by dividends, loans or otherwise. The payment of dividends and the
making of loans and advances to AIMCO by the subsidiaries may be subject to
statutory or contractual restrictions, are contingent upon the earnings of those
subsidiaries and are subject to various business considerations. Any right of
AIMCO to receive assets of any of the subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of the AIMCO Debt
Securities to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except to
the extent that AIMCO is recognized as a creditor
4
44
of such subsidiary, in which case the claims of AIMCO would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by AIMCO.
CONVERTIBILITY
No series of AIMCO Debt Securities that may be issued and sold pursuant
hereto will be convertible into, or exchangeable for, other securities or
property, except as set forth in the applicable Prospectus Supplement, which
will set forth the terms and conditions upon which such conversion or exchange
may be effected, including the initial conversion or exchange rate and any
adjustments thereto, the conversion or exchange period and any other conversion
or exchange provisions.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
The AIMCO Debt Securities of a series may be issued solely as registered
AIMCO Debt Securities. AIMCO Debt Securities of a series may be issuable in
whole or in part in the form of one or more global AIMCO Debt Securities, as
described below under "Global Debt Securities." Unless otherwise indicated in an
applicable Prospectus Supplement, AIMCO Debt Securities will be issuable in
denominations of $1,000 and integral multiples thereof. AIMCO Debt Securities of
any series will be exchangeable for other AIMCO Debt Securities of the same
series of any authorized denominations and of a like aggregate principal amount
and tenor.
AIMCO Debt Securities may be presented for exchange as provided above and,
unless otherwise indicated in an applicable Prospectus Supplement, may be
presented for registration of transfer, at the office or agency of AIMCO
designated as registrar or co-registrar with respect to such series of AIMCO
Debt Securities, without service charge and upon payment of any taxes,
assessments or other governmental charges as described in the AIMCO Indenture.
Such transfer or exchange will be effected on the books of the registrar or any
other transfer agent appointed by AIMCO upon such registrar or transfer agent,
as the case may be, being satisfied with the documents of title and identity of
the person making the request. AIMCO intends to initially appoint the trustee
for the particular series of Offered AIMCO Debt Securities as the registrar for
such Offered AIMCO Debt Securities and the name of any different or additional
registrar designated by AIMCO with respect to the Offered AIMCO Debt Securities
will be included in the Prospectus Supplement relating thereto. If a Prospectus
Supplement refers to any transfer agents (in addition to the registrar)
designated by AIMCO with respect to any series of AIMCO Debt Securities, AIMCO
or the may at any time rescind the designation of any such transfer agent or
approve a change in the location through which any such transfer agent acts,
except that AIMCO will be required to maintain a transfer agent in the Borough
of Manhattan, the City of New York. AIMCO may at any time designate additional
transfer agents with respect to any series of AIMCO Debt Securities.
In the event of any partial redemption of AIMCO Debt Securities of any
series, AIMCO will not be required to (i) issue, register the transfer of or
exchange AIMCO Debt Securities of that series during a period beginning at the
opening of business 15 days before any selection of AIMCO Debt Securities of
that series to be redeemed and ending at the close of business on the day of
mailing of the relevant notice of redemption; or (ii) register the transfer of
or exchange any AIMCO Debt Security, or portion thereof, called for redemption,
except the unredeemed portion of any AIMCO Debt Security being redeemed in part.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of, and interest, if any, on, AIMCO Debt Securities will be made at
the office of such paying agent or paying agents as AIMCO may designate from
time to time, except that, at the option of AIMCO, payment of principal or
interest may be made by check or by wire transfer to an account maintained by
the payee. Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on AIMCO Debt Securities will be made to
the person in whose name such AIMCO Debt Security is registered at the close of
business on the regular record date for such interest.
5
45
Unless otherwise indicated in an applicable Prospectus Supplement, the
trustee for the Offered AIMCO Debt Securities will be designated as AIMCO's sole
paying agent for payments with respect to the Offered AIMCO Debt Securities. Any
other paying agents initially designated by AIMCO for the Offered AIMCO Debt
Securities will be named in an applicable Prospectus Supplement. AIMCO may at
any time designate additional paying agents or rescind the designation of any
paying agent or approve a change in the office through which any paying agent
acts, except that AIMCO will be required to maintain a paying agent in the
Borough of Manhattan, The City of New York.
All moneys paid by AIMCO to a paying agent for the payment of principal of,
or interest, if any, on, any AIMCO Debt Security which remains unclaimed at the
end of two years after such principal or interest shall have become due and
payable will be repaid to AIMCO, and the holder of such AIMCO Debt Security or
any coupon will thereafter look only to AIMCO for payment thereof.
GLOBAL DEBT SECURITIES
The AIMCO Debt Securities of a series may be issued in whole or in part in
global form. An AIMCO Debt Security in global form will be deposited with, or on
behalf of, a depositary, which will be identified in the applicable Prospectus
Supplement. A global AIMCO Debt Security may be issued only in registered form
and in either temporary or permanent form. An AIMCO Debt Security in global form
may not be transferred except as a whole to the depositary for such AIMCO Debt
Security or to a nominee or successor of such depositary. If any AIMCO Debt
Securities of a series are issuable in global form, the applicable Prospectus
Supplement will describe the circumstances, if any, under which beneficial
owners of interests in any such global AIMCO Debt Security may exchange such
interests for definitive AIMCO Debt Securities of such series and of like tenor
and principal amount in any authorized form and denomination, the manner of
payment of principal of and interest, if any, on any such global AIMCO Debt
Security and the specific terms of the depositary arrangement with respect to
any such global AIMCO Debt Security.
MERGERS AND SALES OF ASSETS
AIMCO may not consolidate with or merge into any other person or convey,
transfer or lease its properties and assets substantially as an entirety to
another person, unless, among other things, (i) the resulting, surviving or
transferee person (if other than AIMCO) is organized and existing under the laws
of the United States, any state thereof or the District of Columbia and such
person expressly assumes all obligations of AIMCO under the AIMCO Debt
Securities and the AIMCO Indenture, and (ii) immediately after giving effect to
such transaction, no default or event of default shall have occurred or be
continuing under the AIMCO Indenture. Upon the assumption of AIMCO's obligations
by a person to whom such properties or assets are conveyed, transferred or
leased, subject to certain exceptions, AIMCO shall be discharged from all
obligations under the AIMCO Debt Securities and the AIMCO Indenture.
EVENTS OF DEFAULT
Each AIMCO Indenture provides that, if an Event of Default specified
therein shall have occurred and be continuing, with respect to each series of
the AIMCO Debt Securities outstanding thereunder individually, the trustee or
the holders of not less than 25% in aggregate principal amount of the
outstanding AIMCO Debt Securities of such series may declare the principal
amount (or, if any of the AIMCO Debt Securities of such series are AIMCO
Discount Securities, such portion of the principal amount of such AIMCO Debt
Securities as may be specified by the terms thereof) of the AIMCO Debt
Securities of such series to be immediately due and payable. Under certain
circumstances, the holders of a majority in aggregate principal amount of the
outstanding AIMCO Debt Securities of such series may rescind such a declaration.
Under each AIMCO Indenture, an event of default is defined as, with respect
to each series of AIMCO Debt Securities outstanding thereunder individually, any
of the following: (i) default in payment of the principal of any AIMCO Debt
Securities of such series; (ii) default in payment of any interest on any AIMCO
Debt Securities of such series when due, continuing for 30 days (or 60 days, in
the case of Senior Subordinated AIMCO Debt Securities or Subordinated AIMCO Debt
Securities); (iii) default by AIMCO
6
46
in compliance with other agreements in the AIMCO Debt Securities of such series
or the AIMCO Indenture relating to the AIMCO Debt Securities of such series upon
the receipt by AIMCO of notice of such default given by the trustee for such
AIMCO Debt Securities or the holders of at least 25% in aggregate principal
amount of the outstanding AIMCO Debt Securities of such series and AIMCO's
failure to cure such default within 60 days after receipt by AIMCO of such
notice; (iv) certain events of bankruptcy or insolvency; and (v) any other event
of default set forth in an applicable Prospectus Supplement with respect to the
AIMCO Debt Securities of such series.
The trustee shall give notice to holders of the AIMCO Debt Securities of
any continuing default known to the trustee within 90 days after the occurrence
thereof; provided, that the trustee may withhold such notice, as to any default
other than a payment default, if it determines in good faith that withholding
the notice is in the interests of the holders.
The holders of a majority in principal amount of the outstanding AIMCO Debt
Securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the AIMCO Debt Securities of such
series; provided that such direction shall not be in conflict with any law or
the Indenture and subject to certain other limitations. Before proceeding to
exercise any right or power under the AIMCO Indenture at the direction of such
holders, the trustee shall be entitled to receive from such holders reasonable
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
With respect to each series of AIMCO Debt Securities, no holder will have any
right to pursue any remedy with respect to the AIMCO Indenture or such AIMCO
Debt Securities, unless (i) such holder shall have previously given the trustee
written notice of a continuing event of default with respect to the AIMCO Debt
Securities of such series; (ii) the holders of at least 25% in aggregate
principal amount of the outstanding AIMCO Debt Securities of such series shall
have made a written request to the trustee to pursue such remedy; (iii) such
holder or holders have offered to the trustee reasonable indemnity satisfactory
to the trustee; (iv) the holders of a majority in aggregate principal amount of
the outstanding AIMCO Debt Securities of such series have not given the trustee
a direction inconsistent with such request within 60 days after receipt of such
request; and (v) the trustee shall have failed to comply with the request within
such 60-day period.
Notwithstanding the foregoing, the right of any holder of any AIMCO Debt
Securities to receive payment of the principal of and interest in respect of
such AIMCO Debt Securities on the date specified in such AIMCO Debt Securities
as the fixed date on which an amount equal to the principal of such AIMCO Debt
Securities or an installment of principal thereof or interest thereon is due and
payable (the "stated maturity" or "stated maturities") or to institute suit for
the enforcement of any such payments shall not be impaired or adversely affected
without such holder's consent. The holders of at least a majority in aggregate
principal amount of the outstanding AIMCO Debt Securities of any series may
waive an existing default with respect to such series and its consequences,
other than (i) any default in any payment of the principal of, or interest on,
any AIMCO Debt Securities of such series or (ii) any default in respect of
certain covenants or provisions in the AIMCO Indenture which may not be modified
without the consent of the holder of each of the outstanding AIMCO Debt
Securities of such series affected as described in "Modification and Waiver,"
below.
Each AIMCO Indenture provides that AIMCO shall deliver to the trustee
within 120 days after the end of each fiscal year of AIMCO an officers'
certificate stating whether or not the signers know of any default that occurred
during such period.
MODIFICATION AND WAIVER
AIMCO and the trustee may execute a supplemental indenture without the
consent of the holders of the AIMCO Debt Securities (i) to add to the covenants,
agreements and obligations of AIMCO for the benefit of the holders of all the
AIMCO Debt Securities of any series or to surrender any right or power conferred
in the AIMCO Indenture upon AIMCO; (ii) to evidence the succession of another
corporation, partnership or other Person to AIMCO and the assumption by such
corporation, partnership or other Person of the obligations of
7
47
AIMCO under the AIMCO Indenture and the AIMCO Debt Securities; (iii) to
establish the form or terms of AIMCO Debt Securities of any series as permitted
by the AIMCO Indenture; (iv) to provide for the acceptance of appointment under
the AIMCO Indenture of a successor trustee with respect to the AIMCO Debt
Securities of one or more series and to add to or change any provisions of the
AIMCO Indenture as shall be necessary to provide for or facilitate the
administration of the trusts by more than one trustee; (v) to cure any
ambiguity, defect or inconsistency; (vi) to add to, change or eliminate any
provisions (which addition, change or elimination may apply to one or more
series of AIMCO Debt Securities), provided that any such addition, change or
elimination does not (a) apply to any AIMCO Debt Securities of any series
created prior to the execution of such supplemental indenture that is entitled
to the benefit of such provision or (b) modify the rights of the holder of any
such AIMCO Debt Securities with respect to such provision; (vii) to secure the
AIMCO Debt Securities; or (viii) to make any other change that does not
adversely affect the rights of any holder of AIMCO Debt Securities.
Each AIMCO Indenture provides that, with the consent of the holders of not
less than a majority in aggregate principal amount of the outstanding AIMCO Debt
Securities of the series affected by such supplemental indenture, AIMCO and the
trustee may also execute a supplemental indenture to add provisions to, or
change in any manner or eliminate any provisions of, the AIMCO Indenture with
respect to such series of AIMCO Debt Securities or modify in any manner the
rights of the holders of the AIMCO Debt Securities of such series; provided that
no such supplemental indenture will, without the consent of the holder of each
such outstanding AIMCO Debt Security affected thereby (i) change the stated
maturity of the principal of, or any installment of principal or interest on,
any such AIMCO Debt Security or any premium payable upon redemption or
repurchase thereof, or reduce the amount of principal of any AIMCO Debt Security
that is an AIMCO Discount Security and that would be due and payable upon
declaration of acceleration of maturity thereof; (ii) reduce the principal
amount of, or the rate of interest on, any such AIMCO Debt Security; (iii)
change the place or currency of payment of principal or interest, if any, on any
such AIMCO Debt Security; (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any such AIMCO Debt Security;
(v) reduce the above-stated percentage of holders of AIMCO Debt Securities of
any series necessary to modify or amend the AIMCO Indenture for such AIMCO Debt
Securities; (vi) modify the foregoing requirements or reduce the percentage in
principal amount of outstanding AIMCO Debt Securities of any series necessary to
waive any covenant or past default; or (vii) in the case of Senior Subordinated
AIMCO Debt Securities or Subordinated AIMCO Debt Securities, amend or modify any
of the provisions of such AIMCO Indenture relating to subordination of the AIMCO
Debt Securities in any manner adverse to the holders of such AIMCO Debt
Securities. Holders of not less than a majority in principal amount of the
outstanding AIMCO Debt Securities of any series may waive certain past defaults
and may waive compliance by AIMCO with certain of the restrictive covenants
described above with respect to the AIMCO Debt Securities of such series.
DISCHARGE AND DEFEASANCE
Unless otherwise indicated in an applicable Prospectus Supplement, each
AIMCO Indenture provides that AIMCO may satisfy and discharge obligations
thereunder with respect to the AIMCO Debt Securities of any series by delivering
to the trustee for cancellation all outstanding AIMCO Debt Securities of such
series or depositing with the trustee, after such outstanding AIMCO Debt
Securities have become due and payable, cash sufficient to pay at stated
maturity all of the outstanding AIMCO Debt Securities of such series and paying
all other sums payable under the AIMCO Indenture with respect to such series.
In addition, unless otherwise indicated in an applicable Prospectus
Supplement, each AIMCO Indenture provides that: AIMCO, (a) shall be discharged
from its obligations in respect of the AIMCO Debt Securities of such series
("defeasance and discharge"), or (b) may cease to comply with certain
restrictive covenants ("covenant defeasance"), including those described under
"Mergers and Sales of Assets," and any such omission shall not be an event of
default with respect to the AIMCO Debt Securities of such series, in each case,
at any time prior to the stated maturity or redemption thereof, when AIMCO has
irrevocably deposited with the trustee, in trust, (i) sufficient funds to pay
the principal of and interest to stated maturity (or redemption) on, the AIMCO
Debt Securities of such series, or (ii) such amount of direct obligations of, or
8
48
obligations the principal of (and premium, if any) and interest on which are
fully guaranteed by, the government of the United States and which are not
subject to prepayment, redemption or call, as will, together with the
predetermined and certain income to accrue thereon without consideration of any
reinvestment thereof, be sufficient to pay when due the principal of (and
premium, if any) and interest to stated maturity (or redemption) on, the AIMCO
Debt Securities of such series. Upon such defeasance and discharge, the holders
of the AIMCO Debt Securities of such series shall no longer be entitled to the
benefits of the AIMCO Indenture, except for the purposes of registration of
transfer and exchange of the AIMCO Debt Securities of such series and
replacement of lost, stolen or mutilated AIMCO Debt Securities and shall look
only to such deposited funds or obligations for payment. In addition, under
present law such defeasance and discharge is likely to be treated as a
redemption of the AIMCO Debt Securities of that series prior to maturity in
exchange for such money or United States government obligations. In that event,
each holder would generally recognize, at the time of defeasance, gain or loss
measured by the difference between the amount of such money and the fair market
value of the United States government obligations deemed received and such
holder's tax basis in the AIMCO Debt Securities deemed surrendered. Thereafter,
each holder would likely be treated as if such holder held an undivided interest
in the money (or investments made therewith) or the United States government
obligations (or investments made with interest received therefrom), would
generally be subject to tax liability in respect of interest income and/or
original issue discount, if applicable, thereon and would recognize any gain or
loss upon any disposition, including redemption, of such assets or obligations.
Although tax might be owed, the holder of a defeased AIMCO Debt Security would
not receive any cash until the maturity or an earlier redemption of the AIMCO
Debt Security (except for current payments of interest on the AIMCO Debt
Securities of that issue). Such tax treatment could affect the purchase price
that a holder would receive upon the sale of the AIMCO Debt Securities. Holders
are urged to consult their own tax advisors with respect to the tax treatment of
defeasance of any AIMCO Debt Securities.
THE TRUSTEES
The trustee for any AIMCO Debt Securities will be named in the applicable
Prospectus Supplement. Each trustee will be permitted to engage in other
transactions with AIMCO and each of its subsidiaries; however, if a trustee
acquires any conflicting interest, it must eliminate such conflict or resign.
9
49
DESCRIPTION OF OP DEBT SECURITIES
GENERAL
The following description sets forth certain general terms and provisions
of the OP Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the OP Debt Securities offered by any Prospectus Supplement
and the extent, if any, to which such general provisions may apply to the OP
Debt Securities so offered will be described in the Prospectus Supplement
relating to such OP Debt Securities.
The OP Debt Securities may be issued by the AIMCO Operating Partnership,
from time to time, in one or more series, and will constitute either senior OP
Debt Securities ("Senior OP Debt Securities"), senior subordinated OP Debt
Securities ("Senior Subordinated OP Debt Securities") or subordinated OP Debt
Securities ("Subordinated OP Debt Securities"). Senior OP Debt Securities may be
issued under an Indenture (the "Senior OP Debt Securities Indenture") to be
entered into among the AIMCO Operating Partnership, AIMCO (as guarantor, as
applicable) and a trustee to be named in the applicable Prospectus Supplement.
The Senior Subordinated OP Debt Securities may be issued from time to time under
an Indenture (the "Senior Subordinated OP Debt Securities Indenture") to be
entered into among the AIMCO Operating Partnership, AIMCO (as guarantor, as
applicable) and a trustee to be named in the applicable Prospectus Supplement.
The Subordinated OP Debt Securities may be issued from time to time under an
Indenture (the "Subordinated OP Debt Securities Indenture") to be entered into
among the AIMCO Operating Partnership, AIMCO (as guarantor, as applicable) and a
trustee to be named in the applicable Prospectus Supplement. The OP Debt
Securities will be non-convertible. AIMCO will fully and unconditionally
guarantee the payment obligations on all OP Debt Securities unless, at the time
of sale, at least one nationally recognized statistical rating organization (as
that term is used in Rule 15c 3-1(c)(2)(vi)(F) under the Securities Exchange Act
of 1934) has rated such OP Debt Securities in one of its generic rating
categories which signifies investment grade.
The Senior OP Debt Securities Indenture, the Senior Subordinated OP Debt
Securities Indenture, and the Subordinated OP Debt Securities Indenture are
referred to herein individually as an "OP Indenture" and, collectively, as the
"OP Indentures." Forms of the OP Indentures are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The OP Indentures
will be subject to and governed by the TIA. Capitalized terms used in this
section which are not otherwise defined in this Prospectus shall have the
meanings set forth in the OP Indenture to which they relate. The statements made
under this heading relating to the OP Debt Securities and the OP Indentures are
summaries of the material provisions of the OP Debt Securities and the OP
Indentures, do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the OP Indentures and
the OP Debt Securities, including the definitions therein of certain terms.
The OP Debt Securities will be direct, unsecured obligations of the AIMCO
Operating Partnership. The OP Indentures do not limit the aggregate principal
amount of OP Debt Securities that may be issued thereunder and provide that OP
Debt Securities may be issued thereunder from time to time in one or more
series. Under the OP Indentures, the AIMCO Operating Partnership will have the
ability to issue OP Debt Securities with terms different from those of OP Debt
Securities previously issued, without the consent of the holders of previously
issued series of OP Debt Securities, in an aggregate principal amount determined
by the AIMCO Operating Partnership.
The applicable Prospectus Supplement or Prospectus Supplements relating to
any Senior Subordinated OP Debt Securities or Subordinated OP Debt Securities
will set forth the aggregate amount of outstanding indebtedness, as of the most
recent practicable date, that by the terms of such OP Debt Securities would be
senior to such OP Debt Securities and any limitation on the issuance of
additional senior indebtedness.
OP Debt Securities may be issued and sold at a discount below their
principal amount ("OP Discount Securities"). Special United States Federal
income tax considerations applicable to OP Debt Securities issued with original
issue discount, including OP Discount Securities, will be described in more
detail in any applicable Prospectus Supplement. Even if OP Debt Securities are
not issued at a discount below their principal amount, such OP Debt Securities
may, for United States Federal income tax purposes, be deemed to
10
50
have been issued with OID because of certain interest payment characteristics.
In addition, special United States Federal tax considerations or other
restrictions or terms applicable to any OP Debt Securities offered exclusively
to United States aliens or denominated in a currency other than United States
dollars will be set forth in a Prospectus Supplement relating thereto.
The applicable Prospectus Supplement or Prospectus Supplements will
describe, among other things, the following terms of the OP Debt Securities
offered thereby (the "Offered OP Debt Securities"): (i) the title of the Offered
OP Debt Securities; (ii) any limit on the aggregate principal amount of the
Offered OP Debt Securities; (iii) whether the Offered OP Debt Securities may be
represented initially by an OP Debt Security in temporary or permanent global
form, and if so, the initial Depositary with respect to such temporary or
permanent global OP Debt Security and whether and the circumstances under which
beneficial owners of interests in any such temporary or permanent global OP Debt
Security may exchange such interests for OP Debt Securities of such series and
of like tenor of any authorized form and denomination; (iv) the price or prices
at which the Offered OP Debt Securities will be issued; (v) the date or dates on
which the principal of the Offered OP Debt Securities is payable or the method
of determination thereof; (vi) the place or places where and the manner in which
the principal of and premium, if any, and interest, if any, on such Offered OP
Debt Securities will be payable and the place or places where such Offered OP
Debt Securities may be presented for transfer; (vii) the rate or rates at which
the Offered OP Debt Securities will bear interest, or the method of calculating
such rate or rates, if any, and the date or dates from which such interest, if
any, will accrue; (viii) the dates, if any, on which any interest on the Offered
OP Debt Securities will be payable, and the regular record date for any interest
payable on any Offered OP Debt Securities; (ix) the right or obligation, if any,
of the AIMCO Operating Partnership to redeem or purchase OP Debt Securities of
the series pursuant to any sinking fund or analogous provisions or at the option
of a holder thereof, the conditions, if any, giving rise to such right or
obligation, and the period or periods within which, and the price or prices at
which and the terms and conditions upon which OP Debt Securities of the series
shall be redeemed or purchased, in whole or part, and any provisions for the
remarketing of such OP Debt Securities; (x) any terms applicable to such Offered
OP Debt Securities which are OP Discount Securities, including the issue price
thereof and the rate or rates at which original issue discount will accrue; (xi)
if other than the principal amount thereof, the portion of the principal amount
of the Offered OP Debt Securities which will be payable upon declaration or
acceleration of the maturity thereof pursuant to an event of default; (xii) any
special United States Federal income tax considerations applicable to the
Offered OP Debt Securities; (xiii) whether the Offered OP Debt Securities will
be guaranteed by AIMCO and the terms of any such Guarantee; and (xiv) any other
terms of the Offered OP Debt Securities not inconsistent with the provisions of
the OP Indenture. The applicable Prospectus Supplement will also describe the
following terms of any series of Senior Subordinated OP Debt Securities or
Subordinated OP Debt Securities offered hereby in respect of which this
Prospectus is being delivered: (a) the rights, if any, to defer payments of
interest on the Senior Subordinated OP Debt Securities or Subordinated OP Debt
Securities of such series by extending the interest payment period, and the
duration of such extensions, and (b) the subordination terms of the Senior
Subordinated OP Debt Securities or Subordinated OP Debt Securities of such
series. Any such Prospectus Supplement will also describe any special provisions
for the payment of additional amounts with respect to the Offered OP Debt
Securities.
Since the operations of the AIMCO Operating Partnership is currently
conducted principally through its respective subsidiaries, the AIMCO Operating
Partnership's cash flow and its consequent ability to service debt, including
the OP Debt Securities, will be dependent, in large part, upon the earnings of
the subsidiaries and the distribution of those earnings to the AIMCO Operating
Partnership, whether by dividends, loans or otherwise. The payment of dividends
and the making of loans and advances to the AIMCO Operating Partnership by its
subsidiaries may be subject to statutory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations. Any right of the AIMCO Operating Partnership to receive
assets of any of its subsidiaries upon their liquidation or reorganization (and
the consequent right of the holders of the OP Debt Securities to participate in
those assets) will be effectively subordinated to the claims of that
subsidiary's creditors (including trade creditors), except to the extent that
the AIMCO Operating Partnership is recognized as a creditor of such subsidiary,
in which case the claims of
11
51
the AIMCO Operating Partnership would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the AIMCO Operating Partnership.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
The OP Debt Securities of a series may be issued solely as registered OP
Debt Securities. OP Debt Securities of a series may be issuable in whole or in
part in the form of one or more global OP Debt Securities, as described below
under "Global Debt Securities." Unless otherwise indicated in an applicable
Prospectus Supplement, OP Debt Securities will be issuable in denominations of
$1,000 and integral multiples thereof. OP Debt Securities of any series will be
exchangeable for other OP Debt Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor.
OP Debt Securities may be presented for exchange as provided above and,
unless otherwise indicated in an applicable Prospectus Supplement, may be
presented for registration of transfer, at the office or agency of the AIMCO
Operating Partnership designated as registrar or co-registrar with respect to
such series of OP Debt Securities, without service charge and upon payment of
any taxes, assessments or other governmental charges as described in the OP
Indenture. Such transfer or exchange will be effected on the books of the
registrar or any other transfer agent appointed by the AIMCO Operating
Partnership upon such registrar or transfer agent, as the case may be, being
satisfied with the documents of title and identity of the person making the
request. The AIMCO Operating Partnership intends to initially appoint the
trustee for the particular series of Offered OP Debt Securities as the registrar
for such Offered OP Debt Securities and the name of any different or additional
registrar designated by the AIMCO Operating Partnership with respect to the
Offered OP Debt Securities will be included in the Prospectus Supplement
relating thereto. If a Prospectus Supplement refers to any transfer agents (in
addition to the registrar) designated by the AIMCO Operating Partnership with
respect to any series of OP Debt Securities, the AIMCO Operating Partnership may
at any time rescind the designation of any such transfer agent or approve a
change in the location through which any such transfer agent acts, except that
the AIMCO Operating Partnership will be required to maintain a transfer agent in
the Borough of Manhattan, the City of New York. The AIMCO Operating Partnership
may at any time designate additional transfer agents with respect to any series
of OP Debt Securities.
In the event of any partial redemption of OP Debt Securities of any series,
the AIMCO Operating Partnership will not be required to (i) issue, register the
transfer of or exchange OP Debt Securities of that series during a period
beginning at the opening of business 15 days before any selection of OP Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; or (ii) register the
transfer of or exchange any OP Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any OP Debt Security being redeemed
in part.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of, and interest, if any, on, OP Debt Securities will be made at
the office of such paying agent or paying agents as the AIMCO Operating
Partnership may designate from time to time, except that, at the option of the
AIMCO Operating Partnership, payment of principal or interest may be made by
check or by wire transfer to an account maintained by the payee. Unless
otherwise indicated in an applicable Prospectus Supplement, payment of any
installment of interest on OP Debt Securities will be made to the person in
whose name such OP Debt Security is registered at the close of business on the
regular record date for such interest.
Unless otherwise indicated in an applicable Prospectus Supplement, the
trustee for the Offered OP Debt Securities will be designated as the AIMCO
Operating Partnership's sole paying agent for payments with respect to the
Offered OP Debt Securities. Any other paying agents initially designated by the
AIMCO Operating Partnership for the Offered OP Debt Securities will be named in
an applicable Prospectus Supplement. The AIMCO Operating Partnership may at any
time designate additional paying agents or rescind the designation of any paying
agent or approve a change in the office through which any paying agent
12
52
acts, except that the AIMCO Operating Partnership will be required to maintain a
paying agent in the Borough of Manhattan, The City of New York.
All moneys paid by the AIMCO Operating Partnership to a paying agent for
the payment of principal of, or interest, if any, on, any OP Debt Security which
remains unclaimed at the end of two years after such principal or interest shall
have become due and payable will be repaid to the AIMCO Operating Partnership,
and the holder of such OP Debt Security or any coupon will thereafter look only
to the AIMCO Operating Partnership for payment thereof.
GUARANTEES
If the AIMCO Operating Partnership issues any OP Debt Securities that are
rated below investment grade at the time of issuance, AIMCO will fully and
unconditionally guarantee, on a senior or subordinated basis, the due and
punctual payment of principal of, premium, if any, and interest on such OP Debt
Securities, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at a
maturity date, by declaration of acceleration, call for redemption or otherwise.
The applicability and terms of any such Guarantees relating to a series of OP
Debt Securities will be set forth in the Prospectus Supplement relating to such
OP Debt Securities.
GLOBAL DEBT SECURITIES
The OP Debt Securities of a series may be issued in whole or in part in
global form. An OP Debt Security in global form will be deposited with, or on
behalf of, a depositary, which will be identified in the applicable Prospectus
Supplement. A global OP Debt Security may be issued only in registered form and
in either temporary or permanent form. An OP Debt Security in global form may
not be transferred except as a whole to the depositary for such OP Debt Security
or to a nominee or successor of such depositary. If any OP Debt Securities of a
series are issuable in global form, the applicable Prospectus Supplement will
describe the circumstances, if any, under which beneficial owners of interests
in any such global OP Debt Security may exchange such interests for definitive
OP Debt Securities of such series and of like tenor and principal amount in any
authorized form and denomination, the manner of payment of principal of and
interest, if any, on any such global OP Debt Security and the specific terms of
the depositary arrangement with respect to any such global OP Debt Security.
MERGERS AND SALES OF ASSETS
The AIMCO Operating Partnership may not consolidate with or merge into any
other person or convey, transfer or lease its properties and assets
substantially as an entirety to another person, unless, among other things, (i)
the resulting, surviving or transferee person (if other than the AIMCO Operating
Partnership) is organized and existing under the laws of the United States, any
state thereof or the District of Columbia and such person expressly assumes all
obligations of the AIMCO Operating Partnership under the OP Debt Securities and
the OP Indenture, and (ii) immediately after giving effect to such transaction,
no default or event of default shall have occurred or be continuing under the OP
Indenture. Upon the assumption of the AIMCO Operating Partnership's obligations
by a person to whom such properties or assets are conveyed, transferred or
leased, subject to certain exceptions, the AIMCO Operating Partnership shall be
discharged from all obligations under the OP Debt Securities and the OP
Indenture.
EVENTS OF DEFAULT
Each OP Indenture provides that, if an Event of Default specified therein
shall have occurred and be continuing, with respect to each series of the OP
Debt Securities outstanding thereunder individually, the trustee or the holders
of not less than 25% in aggregate principal amount of the outstanding OP Debt
Securities of such series may declare the principal amount (or, if any of the OP
Debt Securities of such series are OP Discount Securities, such portion of the
principal amount of such OP Debt Securities as may be specified by the terms
thereof) of the OP Debt Securities of such series to be immediately due and
payable.
13
53
Under certain circumstances, the holders of a majority in aggregate principal
amount of the outstanding OP Debt Securities of such series may rescind such a
declaration.
Under each OP Indenture, an event of default is defined as, with respect to
each series of OP Debt Securities outstanding thereunder individually, any of
the following: (i) default in payment of the principal of any OP Debt Securities
of such series; (ii) default in payment of any interest on any OP Debt
Securities of such series when due, continuing for 30 days (or 60 days, in the
case of Senior Subordinated OP Debt Securities or Subordinated OP Debt
Securities); (iii) default by the AIMCO Operating Partnership in compliance with
its other agreements in the OP Debt Securities of such series (including, in the
case of AIMCO, any related Guarantee) or the OP Indenture relating to the OP
Debt Securities of such series (including, in the case of AIMCO, any related
Guarantee) upon the receipt by the AIMCO Operating Partnership of notice of such
default given by the trustee for such OP Debt Securities or the holders of at
least 25% in aggregate principal amount of the outstanding OP Debt Securities of
such series and the AIMCO Operating Partnership's failure to cure such default
within 60 days after receipt by the AIMCO Operating Partnership of such notice;
(iv) certain events of bankruptcy or insolvency; and (v) any other event of
default set forth in an applicable Prospectus Supplement with respect to the OP
Debt Securities of such series.
The trustee shall give notice to holders of the OP Debt Securities of any
continuing default known to the trustee within 90 days after the occurrence
thereof; provided, that the trustee may withhold such notice, as to any default
other than a payment default, if it determines in good faith that withholding
the notice is in the interests of the holders.
The holders of a majority in principal amount of the outstanding OP Debt
Securities of any series may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the OP Debt Securities of such
series; provided that such direction shall not be in conflict with any law or
the OP Indenture and subject to certain other limitations. Before proceeding to
exercise any right or power under the OP Indenture at the direction of such
holders, the trustee shall be entitled to receive from such holders reasonable
security or indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
With respect to each series of OP Debt Securities, no holder will have any right
to pursue any remedy with respect to the OP Indenture or such OP Debt
Securities, unless (i) such holder shall have previously given the trustee
written notice of a continuing event of default with respect to the OP Debt
Securities of such series; (ii) the holders of at least 25% in aggregate
principal amount of the outstanding OP Debt Securities of such series shall have
made a written request to the trustee to pursue such remedy; (iii) such holder
or holders have offered to the trustee reasonable indemnity satisfactory to the
trustee; (iv) the holders of a majority in aggregate principal amount of the
outstanding OP Debt Securities of such series have not given the trustee a
direction inconsistent with such request within 60 days after receipt of such
request; and (v) the trustee shall have failed to comply with the request within
such 60-day period.
Notwithstanding the foregoing, the right of any holder of any OP Debt
Securities to receive payment of the principal of and interest in respect of
such OP Debt Securities on the date specified in such OP Debt Securities as the
fixed date on which an amount equal to the principal of such OP Debt Securities
or an installment of principal thereof or interest thereon is due and payable
(the "stated maturity" or "stated maturities") or to institute suit for the
enforcement of any such payments shall not be impaired or adversely affected
without such holder's consent. The holders of at least a majority in aggregate
principal amount of the outstanding OP Debt Securities of any series may waive
an existing default with respect to such series and its consequences, other than
(i) any default in any payment of the principal of, or interest on, any OP Debt
Securities of such series or (ii) any default in respect of certain covenants or
provisions in the OP Indenture which may not be modified without the consent of
the holder of each of the outstanding OP Debt Securities of such series affected
as described in "Modification and Waiver," below.
Each OP Indenture provides that the AIMCO Operating Partnership shall
deliver to the trustee within 120 days after the end of each fiscal year of the
AIMCO Operating Partnership an officers' certificate stating whether or not the
signers know of any default that occurred during such period.
14
54
MODIFICATION AND WAIVER
The AIMCO Operating Partnership and the trustee may execute a supplemental
indenture without the consent of the holders of the OP Debt Securities (i) to
add to the covenants, agreements and obligations of the AIMCO Operating
Partnership for the benefit of the holders of all the OP Debt Securities of any
series or to surrender any right or power conferred in the OP Indenture upon the
AIMCO Operating Partnership; (ii) to evidence the succession of another
corporation, partnership or other Person to the AIMCO Operating Partnership and
the assumption by such corporation, partnership or other Person of the
obligations of the AIMCO Operating Partnership, under the OP Indenture and the
OP Debt Securities; (iii) to establish the form or terms of OP Debt Securities
of any series as permitted by the OP Indenture; (iv) to provide for the
acceptance of appointment under the OP Indenture of a successor trustee with
respect to the OP Debt Securities of one or more series and to add to or change
any provisions of the OP Indenture as shall be necessary to provide for or
facilitate the administration of the trusts by more than one trustee; (v) to
cure any ambiguity, defect or inconsistency; (vi) to add to, change or eliminate
any provisions (which addition, change or elimination may apply to one or more
series of OP Debt Securities), provided that any such addition, change or
elimination does not (a) apply to any OP Debt Securities of any series created
prior to the execution of such supplemental indenture that is entitled to the
benefit of such provision or (b) modify the rights of the holder of any such OP
Debt Securities with respect to such provision; (vii) to secure the OP Debt
Securities; or (viii) to make any other change that does not adversely affect
the rights of any holder of OP Debt Securities.
Each OP Indenture provides that, with the consent of the holders of not
less than a majority in aggregate principal amount of the outstanding OP Debt
Securities of the series affected by such supplemental indenture, the AIMCO
Operating Partnership and the Trustee may also execute a supplemental indenture
to add provisions to, or change in any manner or eliminate any provisions of,
the OP Indenture with respect to such series of OP Debt Securities or modify in
any manner the rights of the holders of the OP Debt Securities of such series;
provided that no such supplemental indenture will, without the consent of the
holder of each such outstanding OP Debt Security affected thereby (i) change the
stated maturity of the principal of, or any installment of principal or interest
on, any such OP Debt Security or any premium payable upon redemption or
repurchase thereof, or reduce the amount of principal of any OP Debt Security
that is an OP Discount Security and that would be due and payable upon
declaration of acceleration of maturity thereof; (ii) reduce the principal
amount of, or the rate of interest on, any such OP Debt Security; (iii) change
the place or currency of payment of principal or interest, if any, on any such
OP Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such OP Debt Security; (v) reduce the
above-stated percentage of holders of OP Debt Securities of any series necessary
to modify or amend the OP Indenture for such OP Debt Securities; (vi) modify the
foregoing requirements or reduce the percentage in principal amount of
outstanding OP Debt Securities of any series necessary to waive any covenant or
past default; or (vii) in the case of Senior Subordinated OP Debt Securities or
Subordinated OP Debt Securities, amend or modify any of the provisions of such
OP Indenture relating to subordination of the OP Debt Securities in any manner
adverse to the holders of such OP Debt Securities. Holders of not less than a
majority in principal amount of the outstanding OP Debt Securities of any series
may waive certain past defaults and may waive compliance by the AIMCO Operating
Partnership with certain of the restrictive covenants described above with
respect to the OP Debt Securities of such series.
DISCHARGE AND DEFEASANCE
Unless otherwise indicated in an applicable Prospectus Supplement, each OP
Indenture provides that the AIMCO Operating Partnership may satisfy and
discharge obligations thereunder with respect to the OP Debt Securities of any
series by delivering to the trustee for cancellation all outstanding OP Debt
Securities of such series or depositing with the trustee, after such outstanding
OP Debt Securities have become due and payable, cash sufficient to pay at stated
maturity all of the outstanding OP Debt Securities of such series and paying all
other sums payable under the OP Indenture with respect to such series.
In addition, unless otherwise indicated in an applicable Prospectus
Supplement, each OP Indenture provides that: the AIMCO Operating Partnership (a)
shall be discharged from its obligations in respect of the
15
55
OP Debt Securities of such series ("defeasance and discharge"), or (b) may cease
to comply with certain restrictive covenants ("covenant defeasance"), including
those described under "Mergers and Sales of Assets," and any such omission shall
not be an event of default with respect to the OP Debt Securities of such
series, in each case, at any time prior to the stated maturity or redemption
thereof, when the AIMCO Operating Partnership has irrevocably deposited with the
trustee, in trust, (i) sufficient funds to pay the principal of and interest to
stated maturity (or redemption) on, the OP Debt Securities of such series, or
(ii) such amount of direct obligations of, or obligations the principal of (and
premium, if any) and interest on which are fully guaranteed by, the government
of the United States and which are not subject to prepayment, redemption or
call, as will, together with the predetermined and certain income to accrue
thereon without consideration of any reinvestment thereof, be sufficient to pay
when due the principal of (and premium, if any) and interest to stated maturity
(or redemption) on, the OP Debt Securities of such series. Upon such defeasance
and discharge, the holders of the OP Debt Securities of such series shall no
longer be entitled to the benefits of the OP Indenture, except for the purposes
of registration of transfer and exchange of the OP Debt Securities of such
series and replacement of lost, stolen or mutilated OP Debt Securities and shall
look only to such deposited funds or obligations for payment. In addition, under
present law such defeasance and discharge is likely to be treated as a
redemption of the OP Debt Securities of that series prior to maturity in
exchange for such money or United States government obligations. In that event,
each holder would generally recognize, at the time of defeasance, gain or loss
measured by the difference between the amount of such money and the fair market
value of the United States government obligations deemed received and such
holder's tax basis in the OP Debt Securities deemed surrendered. Thereafter,
each holder would likely be treated as if such holder held an undivided interest
in the money (or investments made therewith) or the United States government
obligations (or investments made with interest received therefrom), would
generally be subject to tax liability in respect of interest income and/or
original issue discount, if applicable, thereon and would recognize any gain or
loss upon any disposition, including redemption, of such assets or obligations.
Although tax might be owed, the holder of a defeased OP Debt Security would not
receive any cash until the maturity or an earlier redemption of the OP Debt
Security (except for current payments of interest on the OP Debt Securities of
that issue). Such tax treatment could affect the purchase price that a holder
would receive upon the sale of the OP Debt Securities. Holders are urged to
consult their own tax advisors with respect to the tax treatment of defeasance
of any OP Debt Securities.
THE TRUSTEES
The trustee for any OP Debt Securities will be named in the applicable
Prospectus Supplement. Each trustee will be permitted to engage in other
transactions with the AIMCO Operating Partnership and each of their
subsidiaries; however, if a trustee acquires any conflicting interest, it must
eliminate such conflict or resign.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Under its Articles of Incorporation, as amended and supplemented from time
to time (the "Charter"), AIMCO may issue, from time to time, shares of one or
more series or classes of Preferred Stock. The following description sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. The particular terms of any series of
Preferred Stock that may be issued and sold pursuant hereto, and the extent, if
any, to which such general provisions may apply to the series of Preferred Stock
so offered will be described in the Prospectus Supplement relating to such
Preferred Stock. The following summary of the material 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, articles supplementary
relating to a specific series of the Preferred Stock, which will be in the form
filed as an exhibit to or incorporated by reference in the Registration
Statement of which this Prospectus is a part at or prior to the time of issuance
of such series of Preferred Stock.
As of November 15, 1998, the Charter authorizes the issuance of 510,750,000
shares of capital stock, of which 750,000 shares are classified as Class B
Preferred Stock, all of which are issued and outstanding,
16
56
2,760,000 shares are classified as Class C Preferred Stock, of which 2,400,000
shares are issued and outstanding, 4,600,000 shares are classified as Class D
Preferred Stock, of which 4,200,000 shares are issued and outstanding,
10,000,000 shares are classified as Class E Preferred Stock, of which 8,406,955
shares were issued to former Insignia stockholders and 0.5 million shares were
reserved for options and warrants, in the aggregate, pursuant to the October 1,
1998 merger of Insignia Financial Group, Inc. ("Insignia") into AIMCO, 4,050,000
shares are classified as Class G Preferred Stock, all of which are issued and
outstanding, 2,300,000 shares are classified as Class H Preferred Stock, of
which 2,000,000 shares are issued and outstanding, and 2,000,000 shares are
classified as Class J Preferred Stock, of which 1,250,000 shares are issued and
outstanding (including 250,000 shares which are held by the AIMCO Operating
Partnership). See "Description of Other Classes of Outstanding Stock." The Board
of Directors of AIMCO (the "AIMCO Board") is authorized to issue shares of
Preferred Stock, in one or more classes or subclasses, and may 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 (defined below) with respect to each series or class of capital
stock, and the number of shares constituting each series or class, and to
increase or decrease the number of shares of any such series or class, to the
extent permitted by the Maryland General Corporation Law (the "MGCL") and the
Charter.
The AIMCO Board shall be authorized to determine for each series of
Preferred Stock, and the Prospectus Supplement shall set forth with respect to
each series that may be issued and sold pursuant hereto: (i) the designation of
such shares and the number of shares that constitute such series, (ii) the
dividend rate (or the method of calculation thereof), if any, on the shares of
such series and the priority as to payment of dividends with respect to other
classes or series of capital stock of AIMCO, (iii) the dividend periods (or the
method of calculation thereof), (iv) the voting rights of the shares, (v) the
liquidation preference and the priority as to payment of such liquidation
preference with respect to other classes or series of capital stock of AIMCO and
any other rights of the shares of such series upon any liquidation or winding-up
of AIMCO, (vi) whether or not and on what terms the shares of such series will
be subject to redemption or repurchase at the option of AIMCO, (vii) whether and
on what terms the shares of such series will be convertible into or exchangeable
for other debt or equity securities of AIMCO, (viii) whether the shares of such
series of Preferred Stock will be listed on a securities exchange, (ix) any
special United States federal income tax considerations applicable to such
series, and (x) the other rights and privileges and any qualifications,
limitations or restrictions of such rights or privileges of such series not
inconsistent with the Charter and the MGCL.
CONVERTIBILITY
No series of Preferred Stock that may be issued and sold pursuant hereto
will be convertible into, or exchangeable for, other securities or property,
except as set forth in the applicable Prospectus Supplement, which will set
forth the terms and conditions upon which such conversion or exchange may be
effected, including the initial conversion or exchange rate and any adjustments
thereto, the conversion or exchange period and any other conversion or exchange
provisions.
DIVIDENDS
Holders of shares of Preferred Stock, shall be entitled to receive, when
and as declared by the AIMCO Board, out of funds of AIMCO legally available
therefor, an annual cash dividend payable at such dates and at such rates, if
any, per share per annum as set forth in the applicable Prospectus Supplement.
Unless otherwise set forth in the applicable Prospectus Supplement, each
series of Preferred Stock that may be issued and sold pursuant hereto, will rank
junior as to dividends to any Preferred Stock that may be issued in the future
that is expressly senior as to dividends to the Preferred Stock. If at any time
AIMCO has failed to pay accrued dividends on any such senior shares at the time
such dividends are payable, AIMCO may not pay any dividend on the Preferred
Stock or redeem or otherwise repurchase shares of Preferred Stock until such
accumulated but unpaid dividends on such senior shares have been paid or set
aside for payment in full by AIMCO.
17
57
Unless otherwise set forth herein or in the applicable Prospectus
Supplement relating to any class or series of Preferred Stock that may be issued
and sold pursuant hereto, no dividends (other than dividends payable in Class A
Common Stock or Class B Common Stock (collectively, the "Common Stock") or other
capital stock ranking junior to the Preferred Stock of any series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment, nor shall any other distribution be declared or made upon the Common
Stock, or any other capital stock of AIMCO ranking junior to or on a parity with
the Preferred Stock of such series as to dividends, nor shall any Common Stock
or any other capital stock of AIMCO ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by AIMCO (except by conversion into or exchange for other capital
stock of AIMCO ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) unless (i) if such series of Preferred Stock has
a cumulative dividend, full cumulative dividends on the Preferred Stock of such
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for all past dividend periods
and the then current dividend period and (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends on the Preferred Stock of
such series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment for the then
current dividend period; provided, however, that any monies theretofore
deposited in any sinking fund with respect to any Preferred Stock in compliance
with the provisions of such sinking fund may thereafter be applied to the
purchase or redemption of such Preferred Stock in accordance with the terms of
such sinking fund, regardless of whether at the time of such application full
cumulative dividends upon shares of the Preferred Stock outstanding on the last
dividend payment date shall have been paid or declared and set apart for
payment; and provided, further, that any such junior or parity preferred stock
or Common Stock may be converted into or exchanged for stock of AIMCO ranking
junior to the Preferred Stock as to dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
REDEMPTION AND SINKING FUND
No series of Preferred Stock that may be issued and sold pursuant hereto
will be redeemable or be entitled to receive the benefit of a sinking fund,
except as set forth in the applicable Prospectus Supplement, which will set
forth the terms and conditions thereof, including the dates and redemption
prices of any such redemption, any conditions thereto, and any other redemption
or sinking fund provisions.
LIQUIDATION RIGHTS
Unless otherwise set forth herein or in the applicable Prospectus
Supplement, in the event of any liquidation, dissolution or winding up of AIMCO,
the holders of shares of each series of Preferred Stock that may be issued and
sold pursuant hereto are entitled to receive out of assets of AIMCO available
for distribution to stockholders, before any distribution of assets is made to
holders of: (i) any other shares of Preferred Stock ranking junior to such
series of Preferred Stock as to rights upon liquidation, dissolution or winding
up; and (ii) shares of Common Stock, liquidating distributions per share in the
amount of the liquidation preference specified in the applicable Prospectus
Supplement for such series of Preferred Stock plus any dividends accrued and
accumulated but unpaid to the date of final distribution; but the holders of
each series of Preferred Stock will not be entitled to receive the liquidating
distribution of, plus such dividends on, such shares until the liquidation
preference of any shares of AIMCO's capital stock ranking senior to such series
of the Preferred Stock as to the rights upon liquidation, dissolution or winding
up shall have been paid (or a sum set aside therefor sufficient to provide for
payment) in full. If upon any liquidation, dissolution or winding up of AIMCO,
the amounts payable with respect to the Preferred Stock, and any other Preferred
Stock ranking as to any such distribution on a parity with the Preferred Stock
are not paid in full, the holders of the Preferred Stock and such other parity
preferred stock will share ratably in any such distribution of assets in
proportion to the full respective preferential amount to which they are
entitled. Unless otherwise specified in
18
58
a Prospectus Supplement for a series of Preferred Stock, after payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of shares of Preferred Stock will not be entitled to any further
participation in any distribution of assets by AIMCO. Neither a consolidation or
merger of AIMCO with another corporation nor a sale of securities shall be
considered a liquidation, dissolution or winding up of AIMCO.
VOTING RIGHTS
Holders of Preferred Stock that may be issued and sold pursuant hereto will
not have any voting rights except as set forth below or in the applicable
Prospectus Supplement or as otherwise from time to time required by law.
Whenever dividends on any applicable series of Preferred Stock or any other
class or series of stock ranking on a parity with the applicable series of
Preferred Stock with respect to the payment of dividends shall be in arrears for
the equivalent of six quarterly dividend periods, whether or not consecutive,
the holders of shares of such series of Preferred Stock (voting separately as a
class with all other series of Preferred Stock then entitled to such voting
rights) will be entitled to vote for the election of two of the authorized
number of directors of AIMCO at the next annual meeting of stockholders and at
each subsequent meeting until all dividends accumulated on such series of
Preferred Stock shall have been fully paid or set apart for payment. The term of
office of all directors elected by the holders of such Preferred Stock shall
terminate immediately upon the termination of the right of the holders of such
Preferred Stock to vote for directors. Unless otherwise set forth in the
applicable Prospectus Supplement, holders of shares of Preferred Stock that may
be issued and sold pursuant hereto will have one vote for each share held.
So long as any shares of any series of Preferred Stock remain outstanding,
AIMCO shall not, without the consent of holders of at least two-thirds of the
shares of such series of Preferred Stock outstanding at the time, voting
separately as a class with all other series of Preferred Stock of AIMCO upon
which like voting rights have been conferred and are exercisable, (i) issue or
increase the authorized amount of any class or series of stock ranking prior to
the outstanding Preferred Stock as to dividends or upon liquidation or (ii)
amend, alter or repeal the provisions of the Charter relating to such series of
Preferred Stock, whether by merger, consolidation or otherwise, so as to
materially adversely affect any power, preference or special right of such
series of Preferred Stock or the holders thereof; provided, however, that any
increase in the amount of the authorized Common Stock or authorized Preferred
Stock or any increase or decrease in the number of shares of any series of
Preferred Stock or the creation and issuance of other series of Common Stock or
Preferred Stock ranking on a parity with or junior to Preferred Stock as to
dividends and upon liquidation, dissolution or winding up shall not be deemed to
materially adversely affect such powers, preferences or special rights.
MISCELLANEOUS
The holders of Preferred Stock will have no preemptive rights. The
Preferred Stock that may be issued and sold pursuant hereto, upon issuance
against full payment of the purchase price therefor, will be fully paid and
nonassessable. Shares of Preferred Stock redeemed or otherwise reacquired by
AIMCO shall resume the status of authorized and unissued shares of Preferred
Stock undesignated as to series, and shall be available for subsequent issuance.
There are no restrictions on repurchase or redemption of the Preferred Stock
while there is any arrearage on sinking fund installments except as may be set
forth in an applicable Prospectus Supplement. Payment of dividends on, and the
redemption or repurchase of, any series of Preferred Stock may be restricted by
loan agreements, indentures and other agreements entered into by AIMCO. The
accompanying Prospectus Supplement will describe any material contractual
restrictions on such dividend payments.
NO OTHER RIGHTS
The shares of a series of Preferred Stock that may be issued and sold
pursuant hereto will not have any preferences, voting powers or relative,
participating, optional or other special rights except as set forth above or in
the applicable Prospectus Supplement or the Charter or as otherwise required by
law.
19
59
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for each series of Preferred Stock that
may be issued and sold pursuant hereto will be designated in the applicable
Prospectus Supplement.
DESCRIPTION OF CLASS A COMMON STOCK
GENERAL
As of November 15, 1998, the Charter authorizes the issuance of up to
510,750,000 shares of capital stock with a par value of $.01 per share, of which
484,027,500 shares were classified as Class A Common Stock and 262,500 shares
were classified as Class B Common Stock. As of November 15, 1998, there were
48,130,525 shares of Class A Common Stock issued and outstanding and 162,500
share of Class B Common Stock issued and outstanding. The Class A Common Stock
is traded on the NYSE under the symbol "AIV." BankBoston, N.A. serves as
transfer agent and registrar of the Class A Common Stock.
Holders of the Class A Common Stock are entitled to receive dividends, when
and as declared by the AIMCO Board, out of funds legally available therefor. The
holders of shares of Class A Common Stock, upon any liquidation, dissolution or
winding up of AIMCO, are entitled to receive ratably any assets remaining after
payment in full of all liabilities of AIMCO and the liquidation preferences of
preferred stock. The shares of Class A Common Stock (which vote with the Class B
Common Stock) possess ordinary voting rights for the election of directors of
AIMCO (the "Directors" and, collectively, the "AIMCO Board") and in respect of
other corporate matters, each share entitling the holder thereof to one vote.
Holders of shares of Class A Common Stock do not have cumulative voting rights
in the election of Directors, which means that holders of more than 50% of the
shares of Class A Common Stock voting for the election of Directors can elect
all of the Directors if they choose to do so and the holders of the remaining
shares cannot elect any Directors. Holders of shares of Class A Common Stock do
not have preemptive rights, which means they have no right to acquire any
additional shares of Class A Common Stock that may be issued by AIMCO at a
subsequent date.
RESTRICTIONS ON TRANSFER
For AIMCO to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"), not more than 50% in value of its outstanding capital
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year and the shares of capital stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. Because the AIMCO Board
believes that it is essential for AIMCO to continue to qualify as a REIT and to
provide additional protection for AIMCO's stockholders in the event of certain
transactions, the AIMCO Board has adopted provisions of the Charter restricting
the acquisition of shares of Common Stock.
Subject to certain exceptions specified in the Charter, no holder may own,
or be deemed to own by virtue of various attribution and constructive ownership
provisions of the 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. For purposes of calculating the
amount of stock owned by a given individual, the individual's Common Stock and
Partnership Common Units ("OP Units") of the AIMCO Operating Partnership are
aggregated. Under certain conditions, the AIMCO Board may waive the Ownership
Limit. 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 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 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
20
60
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 market value of such
shares on the date of the violative transfer 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 determines in good faith that a violative transfer has
occurred, whichever is later. All certificates representing shares of Common
Stock bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code and Rule 13d-3 under the Exchange Act, more than a specified percentage
of the outstanding shares of Common Stock must file a written statement or an
affidavit with AIMCO containing the information specified in the Charter within
30 days after January 1 of each year. In addition, each stockholder shall upon
demand be required to disclose to AIMCO in writing such information with respect
to the direct, indirect and constructive ownership of shares as the AIMCO Board
deems necessary to comply with the provisions of the Code applicable to a REIT
or to comply with the requirements of any taxing authority or governmental
agency.
The ownership limitations may have the effect of precluding acquisition of
control of AIMCO by a third party unless the AIMCO Board determines that
maintenance of REIT status is no longer in the best interests of AIMCO.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate or associate 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 or
associate 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 of AIMCO, ownership of OP Units will be
treated as beneficial ownership of the shares of Common Stock which may be
issued in exchange for the OP Units when such OP Units are tendered for
redemption. The business combination statute could have the effect of
discouraging offers to acquire AIMCO and of increasing the difficulty of
consummating any such offer. These provisions of the MGCL do not apply, however,
to business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The AIMCO Board has not passed such a resolution.
21
61
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority or
(iii) a majority 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. For purposes of determining whether a Person is
an Interested Stockholder of AIMCO, ownership of OP Units will be treated as
beneficial ownership of the shares of Common Stock which may be issued in
exchange for the OP Units when such OP Units are tendered for redemption.
A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions. A person who has made or proposes to make a
control share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the corporation's board of directors to
call a special meeting of stockholders, to be held within 50 days of demand, to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an "acquiring person statement" as required by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights, as of the date of the last control share acquisition
or of any meeting of stockholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the appraisal
rights may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the corporation's
articles of incorporation or bylaws prior to the control share acquisition. No
such exemption appears in the Charter or in AIMCO's bylaws (the "Bylaws"). The
control share acquisition statute could have the effect of discouraging offers
to acquire AIMCO and of increasing the difficulty of consummating any such
offer.
22
62
DESCRIPTION OF OTHER CLASSES OF OUTSTANDING STOCK
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") for $75.0
million. The Class B Preferred Stock has an aggregate liquidation value of $75
million and, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of AIMCO, ranks (a) prior or senior to the Class A
Common Stock, the Class B Common Stock, the Class E Preferred Stock, and any
other class or series of capital stock of AIMCO if the holders of the Class B
Preferred Stock shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding-up in preference or
priority to the holders of shares of such class or series ("Class B Junior
Stock"), (b) on a parity with the Class C 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 or
series of stock and the Class B Preferred Stock shall be entitled to the receipt
of dividends or 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
of one over the other ("Class B Parity Stock") and (c) 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
B Preferred Stock ("Class B Senior Stock"). Holders of the Class B Preferred
Stock are entitled to receive, when, as and if declared by the AIMCO Board,
quarterly cash dividends per share equal to the greater of (i) $1.78125 (the
"Base Rate") and (ii) the cash dividends declared on the number of shares of
Class A Common Stock into which one share of Class B Preferred Stock is
convertible. On or after August 4, 1998, each share of Class B Preferred Stock
may be converted at the option of the holder into 3.28407 shares of Class A
Common Stock, subject to certain anti-dilution adjustments. AIMCO may redeem any
or all of the Class B Preferred Stock on or after August 4, 2002 at a redemption
price of $100 per share, plus unpaid dividends accrued on the shares redeemed.
Holders of Class B Preferred Stock, voting as a class with the holders of
all Class B Parity Stock, will be entitled to elect (i) two directors of AIMCO
if six quarterly dividends (whether or not consecutive) on the Class B Preferred
Stock or any Class B Parity Stock are in arrears, and (ii) one director of AIMCO
if for two consecutive quarterly dividend periods AIMCO fails to pay at least
$0.4625 in dividends on the Class A Common Stock and, in any such case, the
number of directors constituting the AIMCO Board shall be increased by one or
two, as the case may be (if not already increased by reason of similar types of
provisions with respect to shares of Class B Parity Stock). The affirmative vote
of the holders of two-thirds of the outstanding shares of Class B Preferred
Stock will be required to amend the 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 Rate for the quarterly cash dividends on the Class B Preferred Stock
would increase to $3.03125 per share.
The agreement pursuant to which AIMCO issued the Class B Preferred Stock
(the "Preferred Share Purchase Agreement") provides that the Preferred Share
Investor may require AIMCO to repurchase such investor's Class B Preferred Stock
in whole or in part at a price of 105% of the liquidation preference thereof,
plus accrued and unpaid dividends on the purchased shares, if (i) AIMCO shall
fail to continue to be taxed as a REIT pursuant to Sections 856 through 860 of
the Code, or (ii) upon the occurrence of a change of control (as defined in the
Preferred Share Purchase Agreement). The Preferred Share Purchase Agreement also
provides that, so long as the Preferred Share Investor owns Class B Preferred
Stock with an aggregate liquidation preference of at least $18.75 million,
neither AIMCO, the AIMCO Operating Partnership nor any subsidiary of AIMCO may
issue preferred securities or incur indebtedness for borrowed money if
immediately following such issuance and after giving effect thereto and the
application of the net proceeds therefrom, AIMCO's ratio of aggregate
consolidated earnings before interest, taxes, depreciation and amortization to
23
63
aggregate consolidated fixed charges for the four fiscal quarters immediately
preceding such issuance would be less than 1.5 to 1.
Subject to certain exceptions specified in the provisions of the Charter
establishing the terms of the Class B Preferred Stock, no holder may own, or be
deemed to own by virtue of various attribution and constructive ownership
provisions of the Code and Rule 13d-3 under the Exchange Act, shares of Class B
Preferred Stock with a value in excess of the excess of (i) 8.7% (or 15% in the
case of certain pension trusts described in the Code, investment companies
registered under the Investment Company Act of 1940 and Mr. Considine) of the
aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate
value of all shares of capital stock of AIMCO other than Class B Preferred Stock
that are owned by such holder (the "Class B Preferred Ownership Limit"). Under
certain conditions, the AIMCO Board may waive such ownership limit. As a
condition of such waiver, the AIMCO Board 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 (a) such transferee's original purchase price (or the
market value of such shares on the date of the violative transfer 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 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 Class C Preferred
Stock in an underwritten public offering for net proceeds of approximately $57.9
million. The Class C Preferred Stock, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of AIMCO, ranks (a) prior or senior
to the Class A Common Stock, the Class B 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 shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding-up in preference
or priority to the holders of shares of such class or series ("Class C Junior
Stock"), (b) on a 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 or
series of stock 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
of one over the other ("Class C Parity Stock") and (c) 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").
24
64
Holders of Class C Preferred Stock are entitled to receive cash dividends
at the rate of 9% per annum of the $25 liquidation preference (equivalent to
$2.25 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year. Upon any liquidation, dissolution or
winding up of AIMCO, before payment or distribution by AIMCO shall be made to or
set apart for the holders of any shares of Class C Junior Stock, the holders of
Class C Preferred Stock shall be entitled to receive a liquidation preference of
$25 per share (the "Class C Liquidation Preference"), plus an amount equal to
all accumulated, accrued and unpaid dividends to the date of final distribution
to such holders; but such holders shall not be entitled to any further payment.
If proceeds available for distribution shall be insufficient to pay the
preference described above and any liquidating payments on any other shares of
any class or series of Class C Parity Stock, then such proceeds shall be
distributed among the holders of Class C Preferred Stock and any such other
Class C Parity Stock ratably in the same proportion as the respective amounts
that would be payable on such Class C Preferred Stock and any such other Class C
Parity Stock if all amounts payable thereon were paid in full.
On and after December 23, 2002, AIMCO may redeem shares of Class C
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class C Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class C Preferred Stock has no stated
maturity and will not be subject to any sinking find or mandatory redemption
provisions.
Holders of shares of Class C Preferred Stock have no voting rights, except
that if distributions on Class C Preferred Stock or any series or class of Class
C Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class C Preferred Stock (voting together as a single class with all
other shares of Class C Parity Stock which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class C Preferred Stock called for such purpose. The
affirmative vote of the holders of two thirds of the outstanding shares of Class
C Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class C Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class C
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class C Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS D PREFERRED STOCK
On February 19, 1998, AIMCO issued 4,200,000 shares of Class D Preferred
Stock in an underwritten public offering for net proceeds of approximately
$101.5 million. The Class D Preferred Stock, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of AIMCO, ranks (a) prior or
senior to the Class A Common Stock, the Class B 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 shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding-up in preference or priority to the holders of shares of such class or
series ("Class D Junior Stock"), (b) on a 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 or series of stock and the Class D Preferred Stock
shall be entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding-up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation preferences, without
preference or priority of one over the other ("Class D Parity Stock") and (c)
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
25
65
October 15 of each year. Upon any liquidation, dissolution or winding up of
AIMCO, before payment or distribution by AIMCO shall be made to or set apart for
the holders of any shares of Class D Junior Stock, the holders of Class D
Preferred Stock shall be entitled to receive a liquidation preference of $25 per
share (the "Class D Liquidation Preference"), plus an amount equal to all
accumulated, accrued and unpaid dividends to the date of final distribution to
such holders; but such holders shall not be entitled to any further payment. If
proceeds available for distribution shall be insufficient to pay the preference
described above and any liquidating payments on any other shares of any class or
series of Class D Parity Stock, then such proceeds shall be distributed among
the holders of Class D Preferred Stock and any such other Class D Parity Stock
ratably in the same proportion as the respective amounts that would be payable
on such Class D Preferred Stock and any such other Class D Parity Stock if all
amounts payable thereon were paid in full.
On and after February 19, 2003, AIMCO may redeem shares of Class D
Preferred Stock, in whole or in part, at a cash redemption price equal to 100%
of the Class D Liquidation Preference plus all accrued and unpaid dividends to
the date fixed for redemption. The Class D Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption
provisions.
Holders of shares of Class D Preferred Stock have no voting rights, except
that if distributions on Class D Preferred Stock or any series or class of Class
D Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class D Preferred Stock (voting together as a single class with all
other shares of Class D Parity Stock which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class D Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
D Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class D Preferred Stock, and to
approve the issuance of any capital stock that ranks senior to the Class D
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class D Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS E PREFERRED STOCK
On October 1, 1998, Insignia was merged into AIMCO. As merger
consideration, AIMCO has issued to former Insignia stockholders 8,406,955 shares
of Class E Preferred Stock and reserved 0.5 million shares for options and
warrants, in the aggregate. The Class E Preferred Stock (a) after January 15,
1999 ranks prior to Class A Common Stock and Class B Common Stock, and any other
class or series of capital stock of AIMCO if holders of the Class E Preferred
Stock are to be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution, and winding-up in preference or priority to the
holders of shares of such class or series ("Class E Junior Stock"), (b) ranks on
a parity with any class or series of capital stock of AIMCO if the holders of
such class or series of stock and the Class E Preferred Stock shall be entitled
to the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid dividends per share or liquidation preferences, without preference or
priority one over the other ("Class E Parity Stock") and (c) ranks junior to the
Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred
Stock, the Class G Preferred Stock, the Class H Preferred Stock and any other
class or series of capital stock of AIMCO if the holders of such class or series
shall be entitled to the receipt of dividends or amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of the Class E Preferred Stock ("Class E Senior Stock").
On any date (each, a "Dividend Payment Date") on which cash dividends are
paid on the Class A Common Stock prior to the Call Date (as defined below),
holders of Class E Preferred Stock shall be entitled to receive cash dividends
payable in an amount per share of Class E Preferred Stock equal to the per share
dividend payable on Class A Common Stock on such Dividend Payment Date. Such
dividends shall be cumulative from the date of original issue, and shall be
payable quarterly in arrears on the Dividend Payment Dates, commencing on the
first Dividend Payment Date after the date of original issue. Holders of Class E
26
66
Preferred Stock will be entitled to receive the same cash dividends per share as
holders of Class A Common Stock. In addition, holders of Class E Preferred Stock
on the record date for payment to be set by AIMCO's board of directors will be
entitled to receive a special dividend in an aggregate amount of $50 million
(the "Special Dividend"). Upon any liquidation, dissolution or winding up of
AIMCO, before payment or distribution by AIMCO shall be made to or set apart for
the holders of any shares of Class E Junior Stock, the holders of Class E
Preferred Stock shall be entitled to receive a liquidation preference of $1 per
share plus the Special Dividend if such dividend is unpaid on the date of the
final distribution to such holders (collectively, the "Class E Liquidation
Preference"), and thereafter each share of Class E Preferred Stock shall have
the same rights with respect to assets of AIMCO as one share of Class A Common
Stock.
On any date which the Special Dividend, or any portion thereof, is paid
(which may be declared by the AIMCO Board in its sole discretion), the holders
of Class E Preferred Stock shall be entitled to receive an amount per share of
Class E Preferred Stock equal to the Special Dividend divided by the Series E
Conversion Ratio (as defined in the Insignia Merger Agreement). After January
15, 1999, if any portion of the Special Dividend or any other dividend has yet
to be declared and paid to the holders of Class E Preferred Stock, no dividends
may be declared or paid or set apart for payment by AIMCO on its common stock.
On the close of business on the day on which the Special Dividend (or any
remaining unpaid portion thereof) is paid to the holders of the Class E
Preferred Stock, each share of Class E Preferred Stock will be automatically
converted into one share of Class A Common Stock without any action on the part
of AIMCO or the holder of such share (the "Conversion Date"). If AIMCO at any
time following the consummation of the Insignia merger pays a dividend or makes
a distribution, subdivides, combines, reclassifies, issues rights, options or
warrants or makes any other distribution in securities in relation to its
outstanding Class A Common Stock, then AIMCO will contemporaneously do the same
with respect to the Class E Preferred Stock.
On or after October 1, 2018, AIMCO may redeem shares of Class E Preferred
Stock, in whole or in part, at a cash redemption price equal to the sum of (i)
the greater of (A) the Current Market Price (as defined in the Insignia Merger
Agreement) of the Class A Common Stock on the date specified for redemption by
AIMCO in a notice sent to holders of Class E Preferred Stock (the "Call Date")
or (B) the AIMCO Index Price (as defined in the Insignia Merger Agreement), but
determined without giving effect to the limitation of $38.00 per share, plus
(ii) all accrued and unpaid dividends to the Call Date. The Class E Preferred
Stock has no stated maturity and will not be subject to any sinking fund or
mandatory redemption provisions.
Holders of shares of Class E Preferred Stock are entitled to one-half
( 1/2) of one vote with respect to all matters in which holders of Class A
Common Stock are entitled to vote thereon. In addition, if any portion of the
Special Dividend has yet to be declared and paid to the holders of Class E
Preferred Stock on January 15, 1999, or if distributions on Class E Preferred
Stock or any series or class of Preferred Stock of AIMCO 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 (without duplication of any
increase made pursuant to the terms of any other series of preferred stock of
AIMCO) 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 the
additional directors of AIMCO. Such right shall continue until full cumulative
dividends for all past dividend periods on all shares of Preferred Stock of
AIMCO, including any shares of Class E Preferred Stock, have been paid or
declared and set apart for payment.
CLASS G PREFERRED STOCK
On July 15, 1998, AIMCO issued 4,050,000 shares of its Class G Preferred
Stock in an underwritten public offering for net proceeds of approximately $98.0
million. The Class G Preferred Stock, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of AIMCO, ranks (a) prior or senior
to the Class A Common Stock, the Class B 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 shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding-up in preference
or priority to the holders of shares of such class or series ("Class G Junior
Stock"), (b) on a parity with the Class B Preferred Stock, the Class C Preferred
Stock, the Class D Preferred Stock and the Class H Preferred Stock
27
67
and with any other class or series of capital stock of AIMCO if the holders of
such class or series of stock 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 of one over the other ("Class G Parity Stock") and (c) junior to any
class or series of capital stock of AIMCO if the holders of such class or series
shall be entitled to the receipt of dividends or amounts distributable upon
liquidation, dissolution or winding-up in preference or priority to the holders
of the Class G Preferred Stock ("Class G Senior Stock").
Holders of Class G Preferred Stock are entitled to receive cash dividends
at the rate of 9 3/8% per annum of the $25 liquidation preference (equivalent to
$2.34375 per annum per share). Such dividends are cumulative from the date of
original issue, and are payable quarterly on or before January 15, April 15,
July 15 and October 15 of each year, commencing October 15, 1998. Upon any
liquidation, dissolution or winding up of AIMCO, before payment or distribution
by AIMCO shall be made to or set apart for the holders of any shares of Class G
Junior Stock, the holders of Class G Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share (the "Class G Liquidation
Preference"), plus an amount equal to all accumulated, accrued and unpaid
dividends to the date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If proceeds available for
distribution shall be insufficient to pay the preference described above and any
liquidating payments on any other shares of any class or series of Class G
Parity Stock, then such proceeds shall be distributed among the holders of Class
G Preferred Stock and any such other Class G Parity Stock ratably in the same
proportion as the respective amount that would be payable on such Class G
Preferred Stock and any such other Class G Parity Stock if all amounts payable
thereon were paid in full.
On and after July 15, 2008, AIMCO may redeem shares of Class G Preferred
Stock, in whole or in part, at a cash redemption price equal to 100% of the
Class G Liquidation Preference plus all accrued and unpaid dividends to the date
fixed for redemption. The Class G Preferred Stock has no stated maturity and
will not be subject to any sinking fund or mandatory redemption provisions.
Holders of shares of Class G Preferred Stock have no voting rights, except
that if distributions on Class G Preferred Stock or any series or class of Class
G Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class G Preferred Stock (voting together as a single class with all
other shares of Class G Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class G Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
G Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class G Preferred Stock, and to
approve the issuance of any capital Stock that ranks senior to the Class G
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class G Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS H PREFERRED STOCK
On August 14, 1998, AIMCO issued 2,000,000 shares of its Class H Preferred
Stock in an underwritten public offering for net proceeds of approximately $48.1
million. The Class H Preferred Stock, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of AIMCO, ranks (a) prior or senior
to the Class A Common Stock, the Class B 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 shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding-up in preference
or priority to the holders of shares of such class or series ("Class H Junior
Stock"), (b) on a 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 or
series of stock and the Class H Preferred Stock shall be entitled to the receipt
of dividends and of amounts distributable upon
28
68
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 of one over the other ("Class H Parity Stock") and (c)
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 shall be increased by two and the
holders of Class H Preferred Stock (voting together as a single class with all
other shares of Class H Parity Stock, which are entitled to similar voting
rights) will be entitled to vote for the election of the two additional
directors of AIMCO at any annual meeting of stockholders or at a special meeting
of the holders of the Class H Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
H Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class H Preferred Stock, and to
approve the issuance of any capital stock that ranks senior to the Class H
Preferred Stock with respect to payment of dividends or upon liquidation,
dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class H Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS J PREFERRED STOCK
On November 6, 1998, AIMCO issued 1,000,000 shares of its Class J Preferred
Stock in a private placement for net proceeds of approximately $100 million. In
addition, on the same date, AIMCO issued 250,000 shares of Class J Preferred
Stock to the AIMCO Operating Partnership in a private placement in exchange for
250,000 of the AIMCO Operating Partnership's Class J Partnership Preferred
Units. Any other class or series of capital stock of AIMCO ranks (a) prior or
senior to the Class J Preferred Stock, as to the payment of dividends and as to
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of Class J Preferred Stock
("Class J Senior Stock"); (b) on a parity with the Class J Preferred Stock, as
to the payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or liquidation prices per share thereof be different from those of the
Class J Preferred Stock, if (i) such capital stock is Class B Preferred Stock,
Class C Preferred Stock, Class D
29
69
Preferred Stock, Class G Preferred Stock, or Class H Preferred Stock of AIMCO,
or (ii) the holders of such class of stock or series and the Class J Preferred
Stock shall be entitled to the receipt of dividends and of amounts distributable
upon liquidation, dissolution or winding up in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation preferences,
without preference or priority of one over the other ("Class J Parity Stock");
and (c) junior to the Class J Preferred Stock, as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or winding
up, if (i) such capital stock or series is Class A Common Stock or Class B
Common Stock of AIMCO, (ii) such capital stock is Class E Preferred Stock of
AIMCO or (iii) the holders of Class J Preferred Stock shall be entitled to
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
shares of such class or series ("Class J Junior Stock").
Holders of Class J Preferred Stock are entitled to receive cash dividends
at the rate of 7% per annum of the $100 liquidation preference (equivalent to $7
per annum per share) for the period beginning on November 6, 1998 and lasting
until November 15, 1998, 8% per annum of the $100 liquidation preference
(equivalent to $8 per annum per share) for the period beginning on and including
November 15, 1998 and lasting until November 15, 1999, 9% per annum of the $100
liquidation preference (equivalent to $9 per annum per share) for the period
beginning on and including November 15, 1999 and lasting until November 15,
2000, and 9 1/2% per annum of the $100 liquidation preference (equivalent to
$9.50 per annum per share) thereafter. Such dividends are cumulative from
November 6, 1998 and are payable quarterly generally on the date dividends are
paid on the Class A Common Stock with respect to dividend periods ending on
February 15, May 15, August 15 and November 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 J
Junior Stock, the holders of Class J Preferred Stock shall be entitled to
receive a liquidation preference of $100 per share (the "Class J 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 J
Parity Stock, then such proceeds shall be distributed among the holders of Class
J Preferred Stock and any such other Class J Parity Stock ratably in the same
proportion as the respective amount that would be payable on such Class J
Preferred Stock and any such other Class J Parity Stock if all amounts payable
thereon were paid in full.
The Class J Preferred Stock is not redeemable, except in the event of a
violation of any of the ownership restrictions. AIMCO has the right to require
that all or part of the outstanding Class J Preferred Stock be converted into
Class A Common Stock at a conversion price (the "Conversion Price") of $40
(equivalent to a conversion rate of 2.5 shares of Class A Common Stock for each
share of Class J Preferred Stock) (a) at any time after November 6, 2002, if the
market price of the Class A Common Stock in the five most recent trading days is
equal to or greater than $40 or, (b) at any time on or prior to November 6,
2002, if the Internal Rate of Return (as defined in the Charter) exceeds 12.5%.
Holders of shares of Class J Preferred Stock also may at their option convert
any or all of such shares into the number of shares of Class A Common Stock
obtained by dividing the Class J Liquidation Preference (excluding any
accumulated accrued and unpaid dividends) per share of Class J Preferred Stock
by the Conversion Price. The Conversion Price is subject to adjustment from time
to time under certain circumstances.
Holders of shares of Class J Preferred Stock have no voting rights, except
that if distributions on Class J Preferred Stock or any series or class of Class
J Parity Stock shall be in arrears for six or more quarterly periods, the number
of directors constituting the AIMCO Board shall be increased by two and the
holders of Class J Preferred Stock (voting together as a single class with all
other shares of Class J 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 J Preferred Stock called for the purpose. The
affirmative vote of the holders of two-thirds of the outstanding shares of Class
J Preferred Stock will be required to amend the Charter in any manner that would
adversely affect the rights of the holders of Class J Preferred Stock and to
approve the issuance of any capital stock that ranks
30
70
senior to the Class J Preferred Stock with respect to payment of dividends or
upon liquidation, dissolution, winding up or otherwise.
There are ownership restrictions applicable to the Class J Preferred Stock
that are similar to those for the Class B Preferred Stock.
CLASS B COMMON STOCK
In connection with the initial formation of AIMCO, Terry Considine, Peter
Kompaniez, Steven Ira and Robert P. Lacy (a former officer of AIMCO) acquired an
aggregate of 650,000 shares of Class B Common Stock. The Charter, which
initially authorized 750,000 shares of Class B Common Stock, was amended in June
1998 to authorize 262,500 shares of Class B Common Stock, of which 162,500
shares were issued and outstanding as of October 1, 1998. The Class B Common
Stock does not have voting or dividend rights and, unless converted into Class A
Common Stock, as described below, is subject to repurchase by AIMCO as described
below. As of December 31 of each of the years 1994 through 1998 (each, a
"Year-End Testing Date"), a number of the shares of Class B Common Stock
outstanding as of such date (the "Eligible Class B Shares") become eligible for
automatic conversion (subject to the Ownership Limit) into an equal number of
shares of Class A Common Stock (subject to adjustment upon the occurrence of
certain events in respect of the Class A Common Stock, including stock
dividends, subdivisions, combinations and reclassifications). Once Class B
Common Stock has been converted into Class A Common Stock, holders of such
shares of converted Class A Common Stock will have voting and dividend rights of
Class A Common Stock generally. Once converted or forfeited, the Class B Common
Stock may not be reissued by AIMCO.
The Eligible Class B Shares convert to Class A Common Stock if (i) AIMCO's
Funds from Operations Per Share (as defined below) reaches certain annual and
cumulative growth targets and (ii) the average market price for a share of Class
A Common Stock for a 90 calendar day period beginning on any day on or after the
October 1 immediately preceding the relevant Year-End Testing Date equals or
exceeds a specified target price. "Funds from Operations Per Share" or "FFO Per
Share" means, for any period, (i) net income (loss), computed in accordance with
generally accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures, less any
preferred stock dividend payments, divided by (ii) the sum of (a) the number of
shares of the Class A Common Stock outstanding on the last day of such period
(excluding any shares of the Class A Common Stock into which shares of the Class
B Common Stock shall have been converted as a result of the conversion of shares
of the Class B Common Stock on the last day of such period) and (b) the number
of shares of the Class A Common Stock issuable to acquire units of limited
partnership that (x) may be tendered for redemption in any limited partnership
in which AIMCO serves as general partner and (y) are outstanding on the last day
of such period.
Set forth below for each of the remaining Year-End Testing Dates is (i) the
number of shares of Class B Common Stock that become Eligible Class B Shares as
of such date, (ii) the annual FFO Per Share growth target (as a percentage
increase in FFO Per Share from the prior year), (iii) the cumulative FFO Per
Share growth target (in FFO Per Share) and (iv) the average market price target:
ANNUAL FFO PER CUMULATIVE FFO PER
ELIGIBLE CLASS B SHARE GROWTH SHARE GROWTH AVERAGE MARKET
YEAR-END TESTING DATE SHARES(1) TARGET TARGET PRICE TARGET
--------------------- ---------------- -------------- ------------------ --------------
December 31, 1998........ 162,500 8.5% $2.760 $26.373
---------------
(1) Assumes that only the shares of Class B Common Stock outstanding as of
December 31, 1997 remain outstanding until converted into shares of Class A
Common Stock.
Any Class B Common Stock that has not been converted into Class A Common
Stock following December 31, 1998 will be subject to repurchase by AIMCO at a
price of $0.10 per share. Class B Common Stock is also subject to automatic
conversion upon the occurrence of certain events, including a change of control
(as defined in the Charter). The AIMCO Board may increase the number of shares
which are eligible for conversion as of any Year-End Testing Date and may, under
certain circumstances, accelerate the
31
71
conversion of outstanding Class B Common Stock at such time and in such amount
as it may determine appropriate.
All of the 65,000 shares of Class B Common Stock eligible for conversion as
of the December 31, 1994 Year-End Testing Date, all of the 130,000 shares of
Class B Common Stock eligible for conversion as of the December 31, 1995
Year-End Testing Date, all of the 130,000 shares of Class B Common Stock
eligible for conversion as of December 31, 1996 and all of the 162,500 shares of
Class B Common Stock eligible for conversion as of December 31, 1997, have been
converted into shares of Class A Common Stock. As of October 1, 1998, 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.
DESCRIPTION OF WARRANTS
GENERAL
AIMCO may issue, together with other Securities registered herein or
separately, warrants for the purchase of Debt Securities, Preferred Stock or
Class A Common Stock (the "Warrants"). The Warrants may be issued under a
Warrant Agreement (each, a "Warrant Agreement") to be entered into between AIMCO
and a bank or trust company, as warrant agent (the "Warrant Agent"), as set
forth in the applicable Prospectus Supplement relating to any or all Warrants in
respect of which this Prospectus is being delivered. The Warrant Agent will act
solely as an agent of AIMCO in connection with the Warrants of a particular
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Warrants. The Warrant Agreement for
each Warrant, including the forms of certificates representing the Warrants
("Warrant Certificates"), will be filed as an exhibit to, or incorporated by
reference in, the Registration Statement of which this Prospectus forms a part
at or prior to the time of the issuance of such Warrants.
The following description sets forth certain general terms and provisions
of the Warrants to which any Prospectus Supplement may relate. The particular
terms of the Warrants to which any Prospectus Supplement may relate and the
extent, if any, to which such general provisions may apply to the Warrants so
offered will be described in the applicable Prospectus Supplement. Capitalized
terms used in this section which are not otherwise defined in this Prospectus
shall have the meanings set forth in the Warrant Agreement and Warrant
Certificate. The following summary of the material provisions of the Warrants,
Warrant Agreement and Warrant Certificate does not purport to be complete and is
subject to, and is qualified in its entirety by express reference to, all the
provisions of the Warrant Agreement and Warrant Certificate, including the
definitions therein of certain terms.
Reference is made to the applicable Prospectus Supplement for the terms of
Warrants in respect of which this Prospectus is being delivered, the Warrant
Agreement relating to such Warrants and the Warrant Certificates representing
such Warrants, including the following: (i) the designation, aggregate principal
amount and terms of the Debt Securities of AIMCO or the designation and terms of
the Preferred Stock, if any, purchasable upon exercise of such Warrants; (ii)
the procedures and conditions relating to the exercise of such Warrants; (iii)
the designation and terms of any related Securities with which such Warrants are
issued and the number of such Warrants issued with each such Security; (iv) the
date, if any, on and after which such Warrants and the related Securities will
be separately transferable; (v) the offering price of the Warrants, if any; (vi)
the principal amount of Debt Securities of AIMCO or the number of shares of
Preferred Stock or Common Stock purchasable upon exercise of each Warrant and
the price at which such principal amount of Debt Securities of AIMCO or shares
of Preferred Stock or Class A Common Stock may be purchased upon such exercise,
or the method of determining such number and price; (vii) the date on which the
right to exercise such Warrants shall commence and the date on which such right
shall expire; (viii) a discussion of United States Federal income tax
considerations applicable to the ownership or exercise of such Warrants; (ix)
whether the Warrants represented by the Warrant Certificates will be issued in
registered or bearer form,
32
72
and, if registered, where they may be transferred and registered; (x) call
provisions of such Warrants, if any; and (xi) any other terms of the Warrants.
Warrant Certificates will be exchangeable for new Warrant Certificates of
different denominations and Warrants may be exercised at the corporate trust
office of the Warrant Agent or any other office indicated in the applicable
Prospectus Supplement. Prior to the exercise of their Warrants, holders of
Warrants will not have any of the rights of holders of the Securities
purchasable upon such exercise and will not be entitled to payments of principal
of (or premium, if any) or interest, if any, on the Debt Securities of AIMCO
purchasable upon such exercise or to any dividend payments or voting rights that
holders of the Preferred Stock or Common Stock purchasable upon such exercise
may be entitled to.
Each Warrant will entitle the holder to purchase for cash such principal
amount of Debt Securities of AIMCO, or such number of shares of Preferred Stock
or Class A Common Stock, at such exercise price as shall, in each case, be set
forth in, or be determinable as set forth in, the applicable Prospectus
Supplement relating to the Warrants offered thereby. Unless otherwise specified
in the applicable Prospectus Supplement, Warrants may be exercised at any time
up to 5:00 p.m. New York City time on the expiration date set forth in the
applicable Prospectus Supplement. After 5:00 p.m. New York City time on the
expiration date, unexercised Warrants will become void.
Warrants may be exercised as set forth in the applicable Prospectus
Supplement relating to the Warrants. Upon receipt of payment and the Warrant
Certificate properly completed and duly executed at the corporate trust office
of the Warrant Agent on any other office indicated in the applicable Prospectus
Supplement, AIMCO will, as soon as practicable, forward the Securities
purchasable upon such exercise. If less than all of the Warrants represented by
such Warrant Certificate are exercised, a new Warrant Certificate will be issued
for the remaining amount of Warrants.
PLAN OF DISTRIBUTION
AIMCO or the AIMCO Operating Partnership may sell the Securities to one or
more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents or dealers. Any such
underwriter, agent or dealer involved in the offer and sale of the Securities
will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to the prevailing market prices at the time of
sale or at negotiated prices. AIMCO or the AIMCO Operating Partnership also may,
from time to time, authorize underwriters acting as AIMCO's or the AIMCO
Operating Partnership's agents to offer and sell the Securities upon the terms
and conditions set forth in the applicable Prospectus Supplement. In connection
with the sale of Securities, underwriters may be deemed to have received
compensation from AIMCO or the AIMCO Operating Partnership in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions (which may be changed from
time to time) from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by AIMCO or the AIMCO Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters under the
Securities Act, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled under agreements entered into with AIMCO or
the AIMCO Operating Partnership, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act.
33
73
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, AIMCO or the AIMCO Operating Partnership will sell
such Securities to such dealer, as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale.
If so indicated in the applicable Prospectus Supplement, AIMCO or the AIMCO
Operating Partnership will authorize dealers acting as AIMCO's or the AIMCO
Operating Partnership's agents to solicit offers by certain institutions to
purchase Securities from AIMCO or the AIMCO Operating Partnership at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount or number of Securities
sold pursuant to Contracts shall not be less nor more than, the respective
amounts or numbers stated in the applicable Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will, in all cases, be
subject to the approval of AIMCO or the AIMCO Operating Partnership. Such
Contracts will not be subject to any conditions except (a) the purchase by an
institution of the Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject and (b) if the Securities are being sold to
underwriters, AIMCO or the AIMCO Operating Partnership shall have sold to such
underwriters the total principal amount or number of the Securities less the
principal amount or number thereof covered by the Contracts. The Prospectus
Supplement will set forth the commission payable for solicitation of such
Contracts. Agents and underwriters will have no responsibility in respect of the
delivery or performance of Contracts.
Until the distribution of the Securities offered pursuant to any Prospectus
Supplement is completed, the Commission's rules may limit the ability of any
underwriter participating in such distribution to bid for and purchase the
Securities offered thereby and other securities of AIMCO or the AIMCO Operating
Partnership. As an exception to these rules, the underwriters are permitted to
engage in certain transactions that stabilize or maintain the price of such
securities. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of such securities. If any such
underwriter creates a short position in such securities in connection with the
offering, such underwriter may reduce such short position by purchasing
securities.
In general, bids for or purchases of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might otherwise be in the absence of such bids or
purchases.
Neither AIMCO nor the AIMCO Operating Partnership nor any underwriter
participating in any distribution makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the offered Securities or other securities of AIMCO or
the AIMCO Operating Partnership. In addition, neither AIMCO nor the AIMCO
Operating Partnership nor any such underwriter makes any representation that
such underwriter will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Certain of the underwriters, if any, and their affiliates may be customers
of, engage in transactions with and perform services for AIMCO or the AIMCO
Operating Partnership in the ordinary course of business.
The Securities may or may not be listed on a national securities exchange.
No assurances can be given that there will be a market for any of the
Securities.
34
74
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences
resulting from the acquisition of, holding, exchanging, and otherwise disposing
of Securities. This discussion is based upon the Code, regulations promulgated
by the U.S. Treasury Department (the "Treasury Regulations"), rulings issued by
the Internal Revenue Service (the "IRS"), and judicial decisions, all in effect
as of the date of this Prospectus and all of which are subject to change,
possibly retroactively. Such summary is also based on the assumptions that the
operation of AIMCO, the AIMCO Operating Partnership and the Subsidiary
Partnerships will be in accordance with their respective organizational
documents and partnership agreements. This summary is for general information
only and does not purport to discuss all aspects of federal income taxation
which may be important to a particular investor in light of its investment or
tax circumstances, or to certain types of investors subject to special tax rules
(including financial institutions, broker-dealers, insurance companies, and,
except to the extent discussed below, tax-exempt organizations and foreign
investors, as determined for United States federal income tax purposes). This
summary assumes that investors will hold their Securities 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 Prospectus.
THE FEDERAL INCOME TAX TREATMENT OF HOLDERS OF SECURITIES 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 SECURITIES AND OF AIMCO'S
ELECTION TO BE SUBJECT TO TAX, FOR FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
GENERAL
The REIT provisions of the Code are highly technical and complex. The
following summary sets forth certain aspects of the provisions of the Code that
govern the federal income tax treatment of a REIT and its stockholders. This
summary is qualified in its entirety by the applicable Code provisions, Treasury
Regulations, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly retroactively.
AIMCO has elected to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1994, and AIMCO intends to continue such
election. In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP
("Counsel"), commencing with the AIMCO's initial taxable year ended December 31,
1994, AIMCO was organized in conformity with the requirements for qualification
as a REIT, and its proposed method of operation, and its actual method of
operation since its formation, will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based and conditioned upon certain assumptions and
representations made by AIMCO as to factual matters (including representations
of AIMCO concerning its business and properties as set forth in this
Prospectus). The opinion is expressed as of its date and Counsel has no
obligation to advise holders of Securities of any subsequent change in the
matters stated, represented or assumed or any subsequent change in the
applicable law. Moreover, such qualification and taxation as a REIT depends upon
AIMCO's ability to meet, through actual annual operating results, distribution
levels and diversity of stock ownership, the various qualification tests imposed
under the Code as discussed below, the results of which will not be reviewed by
Counsel. Accordingly, no assurance can be given that the actual results of
AIMCO's operation for any tax year will satisfy such requirements. See
"-- Failure to Qualify." An opinion of counsel is not binding on the IRS, and no
assurance can be given that the IRS will not challenge AIMCO's eligibility for
taxation as a REIT.
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
35
75
investment in a corporation. However, notwithstanding AIMCO's qualification as a
REIT, AIMCO will be subject to federal income tax as follows: First, AIMCO will
be taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain circumstances,
AIMCO may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if AIMCO has net income from prohibited transactions (which
are, in general, certain sales or other dispositions of property held primarily
for sale to customers in the ordinary course of business other than foreclosure
property), such income will be subject to a 100% tax. Fourth, if AIMCO should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which AIMCO fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect AIMCO's profitability. Fifth, if AIMCO should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year (other than certain long-term capital gains that AIMCO elects to
retain and pay the tax thereon), and (iii) any undistributed taxable income from
prior periods, AIMCO would be subjected to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Sixth, if AIMCO
acquires assets from a subchapter C corporation in a transaction in which the
adjusted tax basis of the assets in the hands of AIMCO is determined by
reference to the adjusted tax basis of such assets in the hands of the
subchapter C corporation, under Treasury Regulations not yet promulgated, the
subchapter C corporation would be required to recognize any net Built-In Gain
(as defined below) that would have been realized if the Subchapter C corporation
had liquidated on the day before the date of the transfer. Pursuant to IRS
Notice 88-19, AIMCO may elect, in lieu of the treatment described above, to be
subject to tax if it recognizes gain on the disposition of any such assets
during the ten-year period beginning on the day on which it acquires such assets
at the highest regular corporate tax rate on such gain to the extent of the
excess, if any, of the fair market value over the adjusted basis of such asset
as of the beginning of the ten-year period ("Built-in Gain"). AIMCO intends to
make such an election and, therefore, will be taxed at the highest regular
corporate rate on such Built-in Gain if, and to the extent, such assets are sold
within the specified ten-year period. It should be noted that AIMCO has acquired
(and may in the future acquire) a significant amount of assets with Built-in
Gain and a taxable disposition by AIMCO of these assets within ten years of
their acquisitions would subject AIMCO to tax under the foregoing rule. Seventh,
AIMCO could be subject to foreign taxes on its investments and activities in
foreign jurisdictions. In addition, AIMCO could 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's Charter
provides certain restrictions regarding transfers of its shares, which
provisions are intended to assist AIMCO in satisfying the share ownership
requirements described in conditions (5) and (6) above.
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 the dividends paid by AIMCO). A list of those persons failing or refusing
to comply with this demand must be maintained
36
76
as part of AIMCO's records. A stockholder who fails or refuses to comply with
the demand must submit a statement with its tax return disclosing the actual
ownership of the shares and certain other information.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. AIMCO satisfies this requirement.
Ownership of Partnership Interests
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the partnership's assets and to earn its proportionate share of the
partnership's income. In addition, the assets and gross income of the
partnership retain the same character in the hands of the REIT for purposes of
the gross income and asset tests applicable to REITs as described below. Thus,
AIMCO's proportionate share of the assets, liabilities and items of income of
the Subsidiary Partnerships in which it has ownership interests 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.
Various affiliates 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 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,
37
77
however, to state whether in all circumstances AIMCO would be entitled to the
benefit of these relief provisions. If these relief provisions are inapplicable
to a particular set of circumstances involving AIMCO, AIMCO will not qualify as
a REIT. As discussed above in "-- General," even where these relief provisions
apply, a tax is imposed with respect to the excess net income.
Asset Tests
AIMCO, at the close of each quarter of its taxable year, must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of AIMCO's total assets must be represented by real estate assets
(including its allocable share of real estate assets held by the Subsidiary
Partnerships), certain stock or debt instruments purchased by AIMCO with new
capital, cash, cash items and U.S. government securities. Second, not more than
25% of AIMCO's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by AIMCO may not exceed 5% of the
value of AIMCO's total assets, and AIMCO may not own more than 10% of any one
issuer's outstanding voting securities.
AIMCO indirectly owns interests in the Management Subsidiaries. As set
forth above, the ownership of more than 10% of the voting securities of any one
issuer by a REIT or the investment of more than 5% of the REIT's total assets in
any one issuer's securities is prohibited by the asset tests. AIMCO believes
that its indirect ownership interests in the Management Subsidiaries qualify
under the asset tests set forth above. However, no independent appraisals have
been obtained to support AIMCO's conclusions as to the value of the AIMCO
Operating Partnership's total assets and the value of the AIMCO Operating
Partnership's interest in the Management Subsidiaries and these values are
subject to change in the future. Accordingly, there can be no assurance that the
IRS will not contend that the AIMCO Operating Partnership's ownership interests
in the Management Subsidiaries disqualifies AIMCO from treatment as a REIT.
AIMCO's indirect interests in the AIMCO Operating Partnership and other
Subsidiary Partnerships are held through wholly owned corporate subsidiaries of
AIMCO organized and operated as "qualified REIT subsidiaries" within the meaning
of the Code. Qualified REIT subsidiaries are not treated as separate entities
from their parent REIT for federal income tax purposes. Instead, all assets,
liabilities and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets, liabilities and items of AIMCO. Each qualified
REIT subsidiary therefore is not subject to federal corporate income taxation,
although it may be subject to state or local taxation. In addition, AIMCO's
ownership of the voting stock of each qualified REIT subsidiary does not violate
the general restriction against ownership of more than 10% of the voting
securities of any issuer.
Annual Distribution Requirements
AIMCO, in order to qualify as a REIT, is required to distribute dividends
(other than capital gain dividends) to its stockholders in an amount at least
equal to (A) the sum of (i) 95% of AIMCO's "REIT taxable income" (computed
without regard to the dividends paid deduction and AIMCO's net capital gain) and
(ii) 95% of the net income (after tax), if any, from foreclosure property, minus
(B) the sum of certain items of noncash income. Such distributions must be paid
in the taxable year to which they relate, or in the following taxable year if
declared before AIMCO timely files its tax return for such year and if paid with
or before the first regular dividend payment after such declaration. To the
extent that AIMCO distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at ordinary
corporate tax rates. AIMCO may elect to retain, rather than distribute, its net
long-term capital gains and pay tax on such gains. In such a case, AIMCO's
stockholders would include their proportionate share of such undistributed
long-term capital gains in income and receive a credit for their share of the
tax paid by AIMCO. AIMCO's stockholders would then increase the adjusted basis
of their AIMCO shares by the difference between the designated amounts included
in their long-term capital gains and the tax deemed paid with respect to their
shares. If AIMCO should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year and (ii) 95% of its
REIT capital gain net income for such year (excluding retained long-term capital
gains), and (iii) any undistributed taxable income from prior periods, AIMCO
would be subject to a 4% excise tax on the excess of such required distribution
over the
38
78
amounts actually distributed. AIMCO believes that it has made, and intends to
make, timely distributions sufficient to satisfy this annual distribution
requirement.
It is possible that AIMCO, from time to time, may not have sufficient cash
to meet the 95% distribution requirement due to timing differences between (i)
the actual receipt of cash (including receipt of distributions from the AIMCO
Operating Partnership) and (ii) the inclusion of certain items in income by
AIMCO for federal income tax purposes. In the event that such timing differences
occur, in order to meet the 95% distribution requirement, AIMCO may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable distributions of property.
Under certain circumstances, AIMCO may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in AIMCO's deduction for
dividends paid for the earlier year. Thus, AIMCO may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, AIMCO will be
required to pay interest and a penalty based on the amount of any deduction
taken for deficiency dividends.
Distributions of Acquired Earnings and Profits
The Code provides that when a REIT acquires a corporation that is currently
a subchapter C corporation (i.e., a corporation without a REIT election), 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 subchapter C
corporation. If AIMCO succeeds to the earnings and profits of a subchapter C
corporation in connection with an acquisition of its assets or otherwise, AIMCO
must distribute such earnings and profits effective on or before December 31, of
the year of such acquisition. Any adjustments to the subchapter C corporation's
income for taxable years ending on or before the closing of such acquisition by
AIMCO, including as a result of an examination of its returns by the IRS and the
receipt of certain indemnity or other payments, could affect the calculation of
its 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 a
subchapter C corporation acquired by AIMCO 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 the subchapter C corporation as open for
review for purposes of determining the amount of its earnings and profits.
AIMCO's failure to distribute an amount equal to the earnings and profits
acquired from a subchapter C corporation effective on or before December 31, of
the year of such acquisition, 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
39
79
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
"-- Certain Federal Income Tax Consequences -- General -- Ownership of
Partnership Interests."
Entity Classification
AIMCO's direct and indirect investment in partnerships involves special tax
considerations, including the possibility of a challenge by the IRS of the
status of any of the 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
"-- Certain Federal Income Tax Consequences -- Asset Tests" and "-- Certain
Federal Income Tax Consequences -- Income Tests"), and in turn could prevent
AIMCO from qualifying as a REIT. See "-- Certain Federal Income Tax
Consequences -- 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 properties AIMCO
owns or controls). 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 holders of interests 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 might adversely affect AIMCO's ability to comply with
the REIT distribution requirements. See "-- Certain Federal Income Tax
Consequences -- 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 AIMCO Operating
Partnership Units) subsequent to the formation of AIMCO, such property will
initially have a tax basis equal to its fair market value and the special
allocation provisions described above will not apply.
40
80
Sale of the Properties
AIMCO's share of any gain realized by the AIMCO Operating Partnership or
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 "-- Certain Federal Income Tax Consequences -- General." Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of a partnership's trade or business is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. The AIMCO Operating Partnership and the other
Subsidiary Partnerships intend to hold the Owned Properties for investment with
a view to long-term appreciation, to engage in the business of acquiring,
developing, owning and operating the Owned Properties and to make such
occasional sales of the Owned Properties, including peripheral land, as are
consistent with AIMCO's investment objectives.
TAXATION OF MANAGEMENT SUBSIDIARIES
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from distributions made by the Management Subsidiaries to
the AIMCO Operating Partnership and interest paid by the Management Subsidiaries
on certain notes held by the AIMCO Operating Partnership. In general, the
Management Subsidiaries pay federal, state and local income taxes on their
taxable income at normal corporate rates. Any federal, state or local income
taxes that the Management Subsidiaries are required to pay will reduce AIMCO's
cash flow from operating activities and its ability to make payments to holders
of its securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
Distributions
Provided AIMCO qualifies as a REIT, distributions made to AIMCO's taxable
domestic stockholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions (and retained long-term capital gains) that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed AIMCO's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its stock. However, corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. In addition, net capital
gains attributable to the sale of depreciable real property held for more than
12 months is subject to a 25% maximum federal income tax rate to the extent of
previously claimed real property depreciation deductions.
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 shall be treated as both paid by AIMCO and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by AIMCO during January of the following calendar
year. Stockholders may not include in their individual income tax returns any
net operating losses or capital losses of AIMCO.
Dispositions of AIMCO Stock
In general, under the recently enacted Internal Revenue Service
Restructuring and Reform Act of 1988, capital gains recognized by individuals
and other non-corporate stockholders upon the sale or disposition of shares of
AIMCO stock will be subject to a maximum federal income tax rate of 20% if the
AIMCO stock is held for more than 12 months and will be taxed at ordinary income
rates if the AIMCO stock is held for
41
81
12 months or less. Capital losses recognized by a stockholder upon the
disposition of AIMCO stock held for more than one year at the time of
disposition will be a long-term capital loss. In addition, any loss upon a sale
or exchange of shares of AIMCO stock by a stockholder who has held such shares
for six months or less (after applying certain holding period rules) will be
treated as a long-term capital loss to the extent of distributions from AIMCO
required to be treated by such stockholder as long-term capital gain.
A redemption of the Preferred Stock will be treated under Section 302 of
the Code as a dividend subject to tax at ordinary income tax rates (to the
extent of AIMCO's current or accumulated earnings and profits), unless the
redemption satisfies certain tests set forth in Section 302(b) of the Code
enabling the redemption to be treated as a sale or exchange of the Preferred
Stock. The redemption will satisfy such test if it (i) is "substantially
disproportionate" with respect to the holder (which will not be the case if only
the Preferred Stock is redeemed, since it generally does not have voting
rights), (ii) results in a "complete termination" of the holder's stock interest
in AIMCO, or (iii) is "not essentially equivalent to a dividend" with respect to
the holder, all within the meaning of Section 302(b) of the Code. In determining
whether any of these tests have been met, shares considered to be owned by the
holder by reason of certain constructive ownership rules set forth in the Code,
as well as shares actually owned, must generally be taken into account. Because
the determination as to whether any of the alternative tests of Section 302(b)
of the Code is satisfied with respect to any particular holder of the Preferred
Stock will depend upon the facts and circumstances as of the time the
determination is made, prospective investors are advised to consult their own
tax advisors to determine such tax treatment. If a redemption of the Preferred
Stock is treated as a distribution that is taxable as a dividend, the amount of
the distribution would be measured by the amount of cash and the fair market
value of any property received by the stockholders. The stockholder's adjusted
tax basis in such redeemed Preferred Stock would be transferred to the holder's
remaining stockholdings in AIMCO. If, however, the stockholder has no remaining
stockholdings in AIMCO, such basis may, under certain circumstances, be
transferred to a related person or it may be lost entirely.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated U.S. federal income
and estate tax consequences of the ownership and disposition of AIMCO stock
applicable to Non-U.S. Holders of AIMCO stock. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof or the District of Columbia, (iii) an
estate whose income is includible in gross income for U.S. federal income tax
purposes regardless of its source or (iv) a trust if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of such trust. The discussion is based on current law and
is for general information only. The discussion addresses only certain and not
all aspects of U.S. federal income and estate taxation.
Ordinary Dividends
The portion of dividends received by Non-U.S. Holders payable out of
AIMCO's earnings and profits which are not attributable to capital gains of
AIMCO and which are not effectively connected with a U.S. trade or business of
the Non-U.S. Holder will be subject to U.S. withholding tax at the rate of 30%
(unless reduced by treaty). In general, Non-U.S. Holders will not be considered
engaged in a U.S. trade or business solely as a result of their ownership of
AIMCO stock. In cases where the dividend income from a Non-U.S. Holder's
investment in AIMCO stock is (or is treated as) effectively connected with the
Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S. Holder
generally will be subject to U.S. tax at graduated rates, in the same manner as
U.S. Holders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax in the case of a Non-U.S. Holder that is a
corporation).
Non-Dividend Distributions
Unless AIMCO stock constitutes a United States Real Property Interest (a
"USRPI") within the meaning of the Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA"), distributions by AIMCO
42
82
which are not dividends out of the earnings and profits of AIMCO will not be
subject to U.S. income or withholding tax. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Holder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of AIMCO. If AIMCO stock
constitutes a USRPI, such distributions will be subject to 10% withholding and
may be taxed pursuant to FIRPTA at a rate of 35% to the extent such
distributions exceed a stockholder's basis in his or her AIMCO stock.
Capital Gain Dividends
Under FIRPTA, a distribution made by AIMCO to a Non-U.S. Holder, to the
extent attributable to gains from dispositions of USRPIs such as the properties
beneficially owned by AIMCO ("USRPI Capital Gains"), will be considered
effectively connected with a U.S. trade or business of the Non-U.S. Holder and
subject to U.S. income tax at the rates applicable to U.S. individuals or
corporations, without regard to whether such distribution is designated as a
capital gain dividend. In addition, AIMCO will be required to withhold tax equal
to 35% of the amount of dividends to the extent such dividends constitute USRPI
Capital Gains. Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of a Non-U.S. Holder that is a corporation.
Dispositions of AIMCO Stock
Unless AIMCO stock constitutes a USRPI, a sale of such stock by a Non-U.S.
Holder generally will not be subject to U.S. taxation under FIRPTA. The stock
will not constitute a USRPI if AIMCO is a "domestically controlled REIT." A
domestically controlled REIT is a REIT in which, at all times during a specified
testing period, less than 50% in value of its shares is held directly or
indirectly by Non-U.S. Holders. AIMCO believes that it is, and it expects to
continue to be, a domestically controlled REIT and, therefore, the sale of AIMCO
stock should not be subject to taxation under FIRPTA. Because AIMCO's Class A
Common Stock, Class C Preferred Stock, Class D Preferred Stock, Class G
Preferred Stock and Class H Preferred Stock are publicly traded, however, no
assurance can be given that AIMCO will continue to be a domestically controlled
REIT.
If AIMCO does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of stock generally will still not be subject to tax under FIRPTA
as a sale of a USRPI provided that (i) the stock is "regularly traded" (as
defined by applicable Treasury Regulations) on an established securities market
(e.g., the NYSE, on which AIMCO stock is listed) and (ii) the selling Non-U.S.
Holder held 5% or less of AIMCO's outstanding stock at all times during a
specified testing period.
If gain on the sale of stock of AIMCO were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of the stock could be required to withhold 10% of
the purchase price and remit such amount to the IRS.
Gain from the sale of AIMCO stock that would not otherwise be subject to
FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in
two cases: (i) if the Non-U.S. Holder's investment in the AIMCO stock is
effectively connected with a U.S. trade or business conducted by such Non-U.S.
Holder, the Non-U.S. Holder will be subject to the same treatment as a U.S.
stockholder with respect to such gain, or (ii) if the Non-U.S. Holder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gain.
Estate Tax
AIMCO stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includible in the
43
83
individual's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may be
subject to U.S. federal estate tax on the property includible in the estate for
U.S. federal estate tax purposes.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
AIMCO will report to its U.S. stockholders and to the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide AIMCO with his correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, AIMCO may be required to withhold a portion
of capital gain distributions to any Non-U.S. Holders who fail to certify their
foreign status to AIMCO. The IRS has issued final Treasury Regulations regarding
the withholding, backup withholding and information reporting rules as applied
to Non-U.S. Holders. Those final Treasury Regulations alter the current system
of backup withholding compliance and will be effective for payments made after
December 31, 1999. Prospective investors in Securities should consult their tax
advisors regarding the application of these Treasury Regulations.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the IRS has ruled that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the shares of the REIT are not otherwise used in an
unrelated trade or business of the exempt employee pension trust. Based on that
ruling, amounts distributed by AIMCO to Exempt Organizations should generally
not constitute UBTI. However, if an Exempt Organization finances its acquisition
of the AIMCO stock with debt, a portion of its income from AIMCO will constitute
UBTI pursuant to the "debt-financed property" rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under paragraphs (7), (9), (17) and (20), respectively, of Section 501(c) of the
Code are subject to different UBTI rules, which generally will require them to
characterize distributions from AIMCO as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of AIMCO's stock is
required to treat a percentage of the dividends from AIMCO as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by AIMCO from an
unrelated trade or business (determined as if AIMCO were a pension trust)
divided by the gross income of AIMCO for the year in which the dividends are
paid. The UBTI rule applies to a pension trust holding more than 10% of AIMCO's
stock only if (i) the UBTI Percentage is at least 5%, (ii) AIMCO qualifies as a
REIT by reason of the modification of the 5/50 Rule that allows the
beneficiaries of the pension trust to be treated as holding shares of AIMCO in
proportion to their actuarial interest in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of AIMCO's stock or (B) a
group of pension trusts each individually holding more than 10% of the value of
AIMCO's stock collectively owns more that 50% of the value of AIMCO's stock. The
restrictions on ownership and transfer of AIMCO's stock should prevent an Exempt
Organization from owning more than 10% of the value of AIMCO's stock.
44
84
OTHER TAX CONSEQUENCES
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the federal laws and interpretations thereof
could adversely affect an investment in AIMCO or the AIMCO Operating
Partnership. For example, a proposal issued by President Clinton on February 2,
1998, if enacted into law, may adversely affect the ability of AIMCO to expand
the present activities of its Management Subsidiaries. It cannot be predicted
whether, when, in what forms, or with what effective dates, the tax laws
applicable to AIMCO or the AIMCO Operating Partnership, or an investment in
AIMCO or the AIMCO Operating Partnership, will be changed.
STATE, LOCAL AND FOREIGN TAXES
The AIMCO Operating Partnership and its partners and AIMCO and its
stockholders may be subject to state, local or foreign taxation in various
jurisdictions, including those in which it or they transact business, own
property or reside. It should be noted that the AIMCO Operating Partnership owns
properties located in a number of states and local jurisdictions, and the AIMCO
Operating Partnership may be required to file income tax returns in some or all
of those jurisdictions. The state, local or foreign tax treatment of the AIMCO
Operating Partnership and its partners and of AIMCO and its stockholders may not
conform to the federal income tax consequences discussed above. Consequently,
prospective investors should consult their own tax advisors regarding the
application and effect of state, local and foreign tax laws on an investment in
the Securities.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our
offering is completed.
- Apartment Investment and Management Company's Annual Report on Form
10-K/A for the year ended December 31, 1997;
- Apartment Investment and Management Company's Quarterly Reports on Form
10-Q/A and Form 10-Q for the quarters ended March 31, 1998, June 30, 1998
and September 30, 1998, respectively;
- Apartment Investment and Management Company's Current Reports on Form
8-K, dated December 23, 1997 (and Amendment No. 1 thereto filed February
6, 1998 and Amendment No. 2 thereto filed May 22, 1998), January 31,
1998, March 17, 1998 (and Amendment No. 1 thereto filed April 3, 1998,
Amendment No. 2 thereto filed June 22, 1998, Amendment No. 3 thereto
filed July 2, 1998, Amendment No. 4 thereto filed August 6, 1998,
Amendment No. 5 thereto filed September 4, 1998 and Amendment No. 6
thereto filed September 25, 1998), September 2, 1998, October 1, 1998,
October 19, 1998 and November 2, 1998 (and Amendment No. 1 thereto filed
November 24, 1998);
45
85
- 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;
- AIMCO Properties, L.P.'s Registration Statement on Form 10, dated
September 4, 1998, including Amendment No. 1 thereto filed October 16,
1998 and Amendment No. 2 thereto filed October 28, 1998; and
- AIMCO Properties, L.P.'s Current Report on Form 8-K, dated November 2,
1998.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address and telephone number:
Corporate Secretary
Apartment Investment and Management Company
1873 South Bellaire Street, 17th Floor
Denver, Colorado 80222
(303) 757-8101
LEGAL MATTERS
Certain tax matters will be passed upon for AIMCO by Skadden, Arps, Slate,
Meagher & Flom LLP. The validity of the Securities offered hereby will be passed
upon for AIMCO by Piper & Marbury L.L.P., Baltimore, Maryland and for the AIMCO
Operating Partnership by Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The consolidated financial statements of AIMCO included in AIMCO's Annual
Report on Form 10-K/A for the year ended December 31, 1997, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. The consolidated
financial statements of the AIMCO Operating Partnership as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in the AIMCO Operating Partnership's Registration Statement on Form 10
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. The
consolidated financial statements of Ambassador Apartments, Inc. as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17, 1998 (as
amended on April 3, 1998), and the consolidated financial statements of
Ambassador Apartments, Inc. as of December 31, 1996 and 1995, and for each of
the two years in the period ended December 31, 1996 and the period from August
31, 1994 through December 31, 1994, and the combined financial statements of
Prime Properties (Predecessor to Ambassador Apartments, Inc.) for the period
from January 1, 1994 through August 30, 1994, included in Amendment No. 1 to
AIMCO's Current Report on Form 8-K dated December 23, 1997, filed on February 6,
1998, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their reports thereon included therein and incorporated herein by reference.
The consolidated financial statements of Insignia Financial Group, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated March 17,
1998 (and Amendment No. 1 thereto filed April 3, 1998), have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. The Combined Historical
Summary of Gross Income and Direct Operating Expenses of Cirque Apartment
Communities for the year ended December 31, 1997 included in AIMCO's Current
Report on Form 8-K dated November 2, 1998 (and Amendment No. 1 thereto filed
November 24, 1998) and included in AIMCO Properties, L.P.'s Current Report on
Form 8-K dated November 2, 1998 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
46
86
combined historical summary are incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The Combined Historical Summary of Gross Income and Direct Operating
Expenses of Realty Investment Apartment Communities I for the year ended
December 31, 1997 included in AIMCO's Current Report on Form 8-K dated November
2, 1998 and included in AIMCO Properties, L.P.'s Current Report on Form 8-K
dated November 2, 1998 have been audited by Beers & Cutler PLLC, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. The Combined Historical Summary of Gross Income and Direct
Operating Expenses of Realty Investment Apartment Communities II for the year
ended December 31, 1997 included in AIMCO's Current Report on Form 8-K dated
November 2, 1998 and included in AIMCO Properties, L.P.'s Current Report on Form
8-K dated November 2, 1998 have been audited by Beers & Cutler PLLC, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such Combined Historical Summaries are incorporated herein
by reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
Any financial statements and schedules hereafter filed by AIMCO or the
AIMCO Operating Partnership pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act and incorporated herein by reference in this Prospectus that
have been examined and are the subject of a report by independent accountants
will be so incorporated herein by reference in reliance upon such reports given
and upon the authority of such firms as experts in accounting and auditing to
the extent covered by consents filed with the Commission.
47