UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-13808
HOUSING PROGRAMS LIMITED
(Exact name of registrant as specified in its charter)
California 95-3906167
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Explanatory Note
This document amends the Form 10-QSB for the quarter ended June 30, 2003 to
include a transaction relating to one of the Partnership's investments in a
local limited partnership that was not but should have been reported during the
three and six months ended June 30, 2003, which resulted in an understatement of
net income for the three and six months ended June 30, 2003 and an overstatement
of liabilities and partners' deficit as of June 30, 2003. This error has been
corrected in the restated financial statements.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOUSING PROGRAMS LIMITED
(a California limited partnership)
BALANCE SHEET
JUNE 30, 2003
(Unaudited)
(in thousands)
ASSETS
Investments in local limited partnerships (Note 3) $ --
Cash and cash equivalents 68
Total assets $ 68
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Notes payable in default (Note 1) $ 2,000
Accrued interest payable in default (Note 1) 3,417
Accrued fees due to affiliates (Note 4) 1,379
Accounts payable 58
Advances due to affiliates (Note 4) 101
6,955
Commitments and Contingencies (Note 5)
Partners' deficit:
General partners (320)
Limited partners (6,567)
(6,887)
Total liabilities and partners' deficit $ 68
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per interest data)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
operating Expenses:
Management fees - partners (Note 4) $ 49 $ 49 $ 98 $ 99
General and administrative (Note 4) 14 10 20 21
Legal and accounting 32 15 46 36
Interest 101 108 209 217
Total operating expenses 196 182 373 373
Loss from Partnership operations (196) (182) (373) (373)
Distributions from limited partnerships
recognized as income 6,820 11 6,820 11
Equity in loss of limited partnerships -- -- -- (30)
Gain on extinguishment of debt 102 -- 102 --
Net income (loss) $ 6,726 $ (171) $ 6,549 $ (392)
Net income (loss) to general partners
(1%) $ 67 $ (2) $ 65 $ (4)
Net income (loss) to limited partners
(99%) 6,659 (169) 6,484 (388)
$ 6,726 $ (171) $ 6,549 $ (392)
Net income (loss) per limited
partnership interest $538.41 $(13.66) $524.26 $(31.37)
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except interest data)
General Limited
Partners Partners Total
Partners' deficit,
December 31, 2002 $ (385) $(13,051) $(13,436)
Net income for the six months
ended June 30, 2003 65 6,484 6,549
Partners' deficit,
June 30, 2003 $ (320) $ (6,567) $ (6,887)
Percentage interest at
June 30, 2003 1% 99% 100%
(A)
(A) Consists of 12,260 partnership interests at June 30, 2003 and 12,368
partnership interests at December 31, 2002. During the six months ended
June 30, 2003, 108 interests were abandoned (Note 5).
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,549 $ (392)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Distributions from local limited partnerships (6,615) --
Equity in loss of limited partnerships -- 30
Gain on extinguishment of debt (102) --
Increase (decrease) in:
Accrued interest payable 209 217
Accounts payable and accrued expenses (90) 23
Accrued fees due to partners 112 109
Net cash provided by (used in) operating activities 63 (13)
Cash flows USED IN investing activities:
Capital contributions -- (30)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Operating advances from affiliates -- 46
NET INCREASE IN CASH AND CASH EQUIVALENTS 63 3
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5 8
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 68 $ 11
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Distribution of proceeds from a local limited partnership of approximately
$6,615,000 were sent directly to a trustee which, in turn, paid the proceeds
directly to the noteholders in satisfaction of the principal and accrued
interest on the notes. (See "Note 1. Going Concern")
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
A distribution of approximately $6,675,000 was made in June 2003 by one of the
local limited partnerships in which the Partnership has a limited partnership
interest. Approximately $6,615,000 of the proceeds were used to satisfy the
Partnership's obligations to certain noteholders. These transactions were not
reported during the three and six months ended June 30, 2003, which resulted in
an understatement of net income for the three and six months ended June 30, 2003
and an overstatement of liabilities and partners' deficit as of June 30, 2003.
This error has been corrected in the restated financial statements.
The following tables set forth the adjustments to the balance sheet as of June
30, 2003 and the statements of operations for the three and six months ended
June 30, 2003. The only financial statement line items included here are those
that have been restated from the originally reported amounts.
As of June 30, 2003
(in thousands)
As previously
reported As restated
Balance sheet data:
Notes payable in default $ 4,600 $ 2,000
Accrued interest payable in default 7,543 3,417
Total liabilities 13,681 6,955
Partners' deficit (13,613) (6,887)
Three Months Ended Six Months Ended
June 30, 2003 June 30, 2003
(in thousands, except per interest data)
As previously As previously
reported As restated reported As restated
Interest expense $ 110 $ 101 $ 218 $ 209
Operating expenses 205 196 382 373
Distributions from limited
partnerships
recognized as income 205 6,820 205 6,820
Gain on extinguishment of debt -- 102 --
Net income (loss) -- 6,726 (177) 6,549
Net income (loss) allocated to
general
partners -- 67 (2) 65
Net income (loss) allocated to
limited
partners -- 6,659 (175) 6,484
Net income (loss) per limited
partnership interest -- 538.41 (14.15) 524.26
NOTE 1 - GOING CONCERN
The accompanying unaudited financial statements have been prepared assuming
Housing Programs Limited ("HPL" or the "Partnership") will continue as a going
concern. The Partnership continues to generate recurring operating losses and
suffers from a lack of cash as well as a partners' deficit. National Partnership
Investments Corp. ("NAPICO" or the "Corporate General Partner") may approve
advances to the Partnership to fund certain operating expenses; however, it is
not required to take such action. Management is in discussions with the
Corporate General Partner to fund the current shortfall.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests in local limited partnerships from partners
who subsequently withdrew from the local limited partnership. The Partnership
issued non-recourse notes payable totaling $4,600,000 to the sellers of the
partnership interests, such notes bearing interest at 9.5% per annum. The notes
matured in 1999. These obligations and related interest are collateralized by
the Partnership's investment in the local limited partnership, as defined in the
notes. Unpaid interest was due at maturity of the notes.
During the six months ended June 30, 2003, Evergreen refinanced the mortgage
encumbering its investment property. The distribution from Evergreen relating to
the refinancing of approximately $6,765,000 was recognized as income in the
accompanying statements of operations. Pursuant to the agreement with the
noteholders, approximately $6,615,000 of the proceeds were sent to a trustee in
order to satisfy in full the principal of approximately $2,600,000 and
approximately $4,015,000 of accrued interest. The trustee distributed the funds
directly to the noteholders. The Partnership also recognized a gain on
extinguishment of debt of approximately $102,000 due to the write off of the
remaining accrued interest as it was forgiven by the noteholders.
At June 30, 2003, the obligation relating to the Plaza Village note was
$2,000,000 and accrued interest was approximately $3,417,000. Apartment
Investment and Management Company, a Maryland corporation ("AIMCO"), which
indirectly owns the Corporate General Partner of the Partnership, has a 15%
interest in and is the trustee for the Plaza Village note payable.
The Partnership has not made any payments on the Plaza Village note and is in
default under the terms of the note. Management is attempting to negotiate
extensions of the maturity date on the note payable. If the negotiations are
unsuccessful, the Partnership could lose its investment in the local limited
partnership, Plaza Village Group, to foreclosure.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classification of liabilities that may
result from these uncertainties.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The information contained in the following notes to the unaudited financial
statements is condensed from that which would appear in the annual audited
financial statements; accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and related
notes thereto contained in the Partnership's annual report for the year ended
December 31, 2002. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the interim period presented are not necessarily indicative of the results for
the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position of the Partnership
at June 30, 2003 and the results of operations and changes in cash flows for the
three and six months ended June 30, 2003 and 2002.
Organization
The Partnership was organized under the California Uniform Limited Partnership
Act on May 15, 1984. The Partnership was formed to invest primarily in other
limited partnerships which own or lease and operate federal, state or local
government-assisted housing projects. The general partners of the Partnership
are NAPICO, Coast Housing Investment Associates (CHIA), a limited partnership,
and Housing Programs Corporation II (collectively, the "General Partners").
The general partners have a one percent interest in profits and losses of the
Partnership. The limited partners share the remaining 99 percent interest, which
is allocated in proportion to their respective individual investments.
On December 3, 2001, Casden Properties Inc., entered into a merger agreement and
certain other transaction documents with AIMCO and certain of its subsidiaries,
pursuant to which, on March 11, 2002, AIMCO acquired Casden Properties Inc. and
its subsidiaries, including 100% of the stock of NAPICO. Prior to March 11,
2002, Casden Properties Inc. owned a 95.25% economic interest in NAPICO, with
the balance owned by Casden Investment Corporation ("CIC"). CIC, which is wholly
owned by Alan I. Casden, owned 95% of the voting common stock of NAPICO prior to
March 11, 2002. As a result of this transaction, the Corporate General Partner
became a subsidiary of AIMCO, a publicly traded real estate investment trust.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States.
Method of Accounting for Investment in Limited Partnerships
The investments in local limited partnerships are accounted for on the equity
method. Acquisition, selection fees and other costs related to the acquisition
of the projects have been capitalized to the investment account and are being
amortized by the straight line method over the estimated lives of the underlying
assets, which is generally 30 years.
Net Income (Loss) Per Limited Partnership Interest
Net income (loss) per limited partnership interest was computed by dividing the
limited partners' share of net income (loss) by the number of limited
partnership interests outstanding at the beginning of the period. The number of
limited partnership interests was 12,368 at both December 31, 2002 and 2001.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities.
FIN 46 requires the consolidation of entities in which an enterprise absorbs a
majority of the entity's expected losses, receives a majority of the entity's
expected residual returns, or both, as a result of ownership, contractual or
other financial interests in the entity. Prior to the issuance of FIN 46,
entities were generally consolidated by an enterprise when it had a controlling
financial interest through ownership of a majority voting interest in the
entity. FIN 46 applied immediately to variable interest entities created after
January 31, 2003, and with respect to variable interests held before February 1,
2003, FIN 46 will apply beginning October 1, 2003.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated partnerships that may be deemed variable interest
entities under the provisions of FIN 46. The Partnership has not yet determined
the anticipated impact of adopting FIN 46 for its partnership agreements that
existed as of January 31, 2003. However, FIN 46 may require the consolidation of
the assets, liabilities and operations of certain of the Partnership's
unconsolidated partnership investments. Although the Partnership does not
believe the full adoption of FIN 46 will have an impact on cash flow, the
Partnership cannot make any definitive conclusion on the impact of net earnings
until it completes its evaluation, including an evaluation of the Partnership's
maximum exposure to loss.
In May 2003, the FASB issued SFAS 150, which establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The requirements of SFAS 150
apply to the classification and measurement of freestanding financial
instruments. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Partnership has adopted
SFAS 150 as of July 1, 2003. Additionally, in September 2003, the FASB staff
indicated that SFAS 150 also applies to the non-controlling interests in
consolidated finite life partnerships. However, on October 29, 2003, the FASB
indefinitely deferred the provisions of SFAS 150 for finite life partnerships.
The adoption of SFAS 150 did not have a material impact on the Partnership's
results of operations taken as a whole.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of June 30, 2003, the Partnership holds limited partnership interests in
seven local limited partnerships (the "Local Limited Partnerships"). As of June
30, 2003, the seven Local Limited Partnerships owned residential low income
rental projects consisting of 1,153 apartment units. The mortgage loans of these
projects are payable to or insured by various governmental agencies.
The Partnership, as a limited partner, does not exercise control over the
activities and operations, including refinancing or selling decisions, of the
Local Limited Partnerships. Accordingly, the Partnership accounts for its
investments in the Local Limited Partnerships using the equity method. The
Partnership is allocated profits and losses of the Local Limited Partnerships
based upon its respective ownership percentage of 99%. Distributions of surplus
cash from operations from most of the Local Limited Partnerships are restricted
by the Local Limited Partnerships' Regulatory Agreements with the United States
Department of Housing and Urban Development ("HUD"). These restrictions limit
the distribution to a portion, generally less than 10%, of the initial invested
capital. The excess surplus cash is deposited into a residual receipts reserve,
of which the ultimate realization by the Partnership is uncertain as HUD
frequently retains it upon sale or dissolution of the Local Limited Partnership.
The Partnership is allocated profits and losses and receives distributions from
refinancings and sales in accordance with the Local Limited Partnerships'
partnership agreements. These agreements usually limit the Partnership's
distributions to an amount substantially less than its ownership percentage in
the Local Limited Partnership.
The individual investments are carried at cost plus the Partnership's share of
the Local Limited Partnership's profits less the Partnership's share of the
Local Limited Partnership's losses, distributions and impairment charges. The
Partnership is not legally liable for the obligations of the Local Limited
Partnerships and is not otherwise committed to provide additional support to
them. Therefore, it does not recognize losses once its investment in each of the
Local Limited Partnerships reaches zero. Distributions from the Local Limited
Partnerships are accounted for as a reduction of the investment balance until
the investment balance is reduced to zero. When the investment balance has been
reduced to zero, subsequent distributions received are recognized as income in
the accompanying statements of operations.
For those investments where the Partnership has determined that the carrying
value of its investments approximates the estimated fair value of those
investments, the Partnership's policy is to recognize equity in income of the
Local Limited Partnerships only to the extent of distributions received and
amortization of acquisition costs from those Local Limited Partnerships.
Therefore, the Partnership limits its recognition of equity earnings to the
amount it expects to ultimately realize.
The Partnership has no carrying value in investments in the Local Limited
Partnerships as of June 30, 2003.
The following are unaudited combined estimated statements of operations for the
three and six months ended June 30, 2003 and 2002 for the Local Limited
Partnerships in which the Partnership has investments (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues
Rental and other $ 1,457 $ 1,885 $ 3,268 $ 3,770
Expenses
Operating 1,204 1,402 2,545 2,804
Interest 192 242 436 484
Depreciation 371 374 737 748
1,767 2,018 3,718 4,036
Net loss $ (310) $ (133) $ (450) $ (266)
NAPICO, or one of its affiliates, is the general partner and property manager
for certain of the Local Limited Partnerships included above. During the six
months ended June 30, 2003 and 2002, affiliates of the Corporate General Partner
were paid approximately $50,000 and $40,000, respectively, for providing
property management services.
Four of the Local Limited Partnerships have outstanding purchase money notes and
accrued interest that matured in December 2000. In addition, a fifth Local
Limited Partnership has a subordinated note and accrued interest that matured in
December 1999. Each of these Local Limited Partnerships is in default on these
obligations. As a result, the Partnership risks losing its investments in the
Local Limited Partnerships through foreclosure. All of the investments in these
Local Limited Partnerships were zero at June 30, 2003.
Subsequent to June 30, 2003, the property in one of the Local Limited
Partnerships, Lancaster Heights Associates, was sold to an unrelated third
party. Proceeds from the sale were used to satisfy the purchase money note and
accrued interest that had matured in December 2000. An affiliate of the
Corporate General Partner received approximately $1,645,000 in payment of their
interest in the notes. The remaining proceeds from the sale were distributed and
the Partnership received approximately $1,400,000, of which approximately
$1,375,00 was used to pay accrued management fees due to an affiliate of the
Corporate General Partner during the fourth quarter of 2003.
Subsequent to June 30, 2003, the property in one of the Local Limited
Partnerships, Cloverleaf Apartments, Ltd., was sold to an unrelated third party.
Proceeds from the sale were used to satisfy the purchase money note and accrued
interest that had matured in December 2000. The remaining proceeds from the sale
were distributed and the Partnership received approximately $120,000 during the
fourth quarter of 2003.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties serving families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the Local Limited Partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
NOTE 4 - FEES AND EXPENSES DUE TO GENERAL PARTNERS
Under the terms of the Restated Certificate and Agreement of the Limited
Partnership, the Partnership is obligated to pay to the general partners an
annual management fee equal to 0.5 percent of the original invested assets of
the Local Limited Partnerships. Invested assets is defined as the costs of
acquiring project interests including the proportionate amount of the mortgage
loans related to the Partnership's interests in the capital accounts of the
respective Local Limited Partnerships. For the six months ended June 30, 2003
and 2002, approximately $98,000 and $99,000, respectively, has been expensed.
The unpaid balance at June 30, 2003 is approximately $1,336,000.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was approximately $10,000 and $9,000 for the six months ended June 30,
2003 and 2002, respectively, and is included in general and administrative
expenses. The unpaid balance at June 30, 2003 is approximately $43,000.
In accordance with the Partnership Agreement, the Corporate General Partner has
advanced the Partnership funds to assist in paying for normal operating
expenses. These advances do not accrue interest. As of June 30, 2003, the
Corporate General Partner had advanced approximately $101,000 for such purposes.
As of June 30, 2003, the fees and expenses due the general partners exceeded the
Partnership's cash. The general partners, during the forthcoming year, are not
expected to demand payment of amounts due in excess of such cash or such that
the Partnership would not have sufficient operating cash; however, the
Partnership will remain liable for all such amounts.
AIMCO, which indirectly owns the Corporate General Partner of the Partnership,
has a 15% interest in, and is the trustee for, the Plaza Village note payable.
NOTE 5 - ABANDONMENT OF LIMITED PARTNERSHIP INTERESTS
During the six months ended June 30, 2003, the number of limited partnership
interests decreased by 108 units due to limited partners abandoning their
interests. In abandoning his or her limited partnership interest(s), a limited
partner relinquishes all right, title, and interest in the Partnership as of the
date of abandonments. However, the limited partner is allocated his or her share
of net income or loss for that year. The income or loss per limited partnership
interests in the accompanying statements of operations is calculated based on
the number of units outstanding at the beginning of the year. There were no such
abandonments during the six months ended June 30, 2002.
NOTE 6 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the corporate general partner) and two investors
holding an aggregate of five units of limited partnership interests in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the corporate general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other defendants. The complaint alleged that the defendants breached
their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and violated securities laws by making materially false and
misleading statements in the consent solicitation statements sent to the limited
partners of such partnerships relating to approval of the transfer of
partnership interests in limited partnerships, owning certain of the properties,
to affiliates of Casden Properties Inc., organized by an affiliate of NAPICO.
The plaintiffs sought equitable relief, as well as compensatory damages and
litigation related costs. On August 4, 1999, one investor holding one unit of
limited partnership interest in the Partnership commenced a virtually identical
action in the United States District Court for the Central District of
California against the Partnership, NAPICO and certain other entities. The
second action was subsumed in the first action, and was certified as a class
action. On August 21, 2001, plaintiffs filed a supplemental complaint, which
added new claims, including a rescission of the transfer of partnership
interests and an accounting.
In November 2002, the jury returned special verdicts against NAPICO and certain
other defendants in the amount of approximately $25.2 million for violations of
securities laws and against NAPICO for approximately $67.3 million for breaches
of fiduciary duty. In addition, the jury awarded the plaintiffs punitive damages
against NAPICO of approximately $92.5 million. On April 29, 2003, the Court
entered judgment against NAPICO and certain other defendants in the amount of
$25.2 million for violations of securities laws and against NAPICO for $67.3
million for breaches of fiduciary duty, both amounts plus interest of $25.6
million, and for punitive damages against NAPICO in the amount of $2.6 million.
On August 11, 2003, NAPICO entered into a Stipulation of Settlement (the
"Stipulation of Settlement") with the plaintiff class (the "Plaintiffs") and
their counsel relating to the settlement of the litigation. On August 25, 2003,
the court granted preliminary approval of the Stipulation of Settlement.
Pursuant to the Stipulation of Settlement, Alan I. Casden, on behalf of himself,
NAPICO and other defendants in the litigation, caused $29 million to be
deposited into an escrow account for the benefit of the Plaintiffs. The
Stipulation of Settlement remains subject to the final approval of the court, as
well as the approval of the Plaintiffs, which hearing is currently scheduled for
November 24, 2003. Upon final court approval, approval by the Plaintiffs and the
lapse of any time to appeal the court approval of the settlement, the following
shall occur:
1. Alan I. Casden, on behalf of himself, NAPICO and other defendants in
the litigation, will transfer to an agent for the Plaintiffs shares
of common stock ("Class A Common Stock") of AIMCO owned by certain
affiliates of Alan I. Casden with an aggregate market value of $19
million, subject to certain transfer restrictions, or at Alan I.
Casden's option, $19 million in cash.
2. NAPICO will issue an aggregate of $35 million in promissory notes
for the benefit of the Plaintiffs. An aggregate of $7 million of
notes are to be repaid each year. The notes will bear interest based
on applicable rates of U.S. Treasury bills with similar maturities.
The notes will be guaranteed by AIMCO Properties, L.P., an affiliate
of AIMCO.
3. The parties to the Stipulation of Settlement will release each other
and related parties from any and all claims associated with the
litigation and the Plaintiffs' investment in the Partnership and the
other affiliated partnerships.
4. The $29 million in the escrow account established by Alan I. Casden
will be released to the Plaintiffs.
Pursuant to the Stipulation of Settlement, upon final approval of the settlement
by the court, the parties shall jointly request that a new judgment be entered
in the litigation that will, among other things, expunge the judgment originally
entered against NAPICO and the other defendants on April 29, 2003.
On September 24, 2003, Battle Fowler, LLP filed a request to intervene to
challenge the portion of the Stipulation of Settlement that would lead to
expungement of the judgment originally entered on April 29, 2003 against NAPICO
and the other defendants. All parties to the Stipulation of Settlement opposed
this request to intervene. A hearing regarding the request occurred November 10,
2003, and on November 14, 2003, the court denied Battle Fowler, LLP's request.
On August 12, 2003, in connection with the proposed settlement pursuant to the
Stipulation of Settlement, NAPICO and AIMCO executed a Settlement Agreement (the
"Settlement Agreement") with the prior shareholders of Casden Properties Inc.
The principal terms of the Settlement Agreement include:
1. That NAPICO will voluntarily discontinue the action it commenced on
May 13, 2003 against the former shareholders of Casden Properties
Inc. and other indemnitors in AIMCO's March 2002 acquisition of
Casden Properties Inc. (the "Casden Merger").
2. That Alan I. Casden and certain related entities will resolve
certain pending claims for indemnification made by NAPICO, AIMCO and
their affiliates. These claims include indemnification related to
the litigation and certain other matters in connection with the
Casden Merger.
3. AIMCO, or an affiliate, will deposit $25 million of the $29
million that Alan I. Casden is responsible for depositing into
the escrow account for the benefit of the Plaintiffs pursuant to
the terms of the Stipulation of Settlement. In connection with
this deposit by AIMCO, The Casden Company will transfer to AIMCO
531,915 shares of AIMCO Class A Common Stock owned by The Casden
Company, which shares are to be held in escrow by AIMCO until
final approval of the Stipulation of Settlement by the court and
the Plaintiffs. Upon such approval, AIMCO will become the owner
of the 531,915 shares. If final approval by the court and the
Plaintiffs is not obtained, the $25 million deposited by AIMCO
into the escrow account will be returned to AIMCO and AIMCO will
return to The Casden Company the 531,915 shares. On August 25,
2003, AIMCO caused the $25 million to be deposited in the escrow
account for the benefit of the Plaintiffs and the Casden Company
and Alan I Casden deposited in escrow the 531,915 shares in
accordance with the Settlement Agreement.
4. The Casden Company will promise to pay an aggregate amount of $35
million on a secured, nonrecourse basis to NAPICO. The Casden
Company will be obligated to repay an aggregate of $7 million of
the obligation each year. The obligation to pay the $35 million
will bear the same interest and mature on the same schedule as
the promissory notes issued by NAPICO to the plaintiffs pursuant
to the Stipulation of Settlement. Payment of these obligations
will be secured by (i) a pledge of 744,681 shares of AIMCO Class
A Common Stock owned by Alan I. Casden or an affiliated entity,
plus up to 60,000 additional shares for accrued interest, and
(ii) cash proceeds of recoveries or settlements that Alan I.
Casden or any of his affiliates, or any of the former
shareholders of Casden Properties Inc., receive in connection
with or related to the litigation (collectively, "Recoveries").
The payment obligations to NAPICO will be required to be prepaid
with any Recoveries received. Payment may be made in cash or in
shares of AIMCO Class A Common Stock having a value based on the
greater of $47 per share or the market value of such shares at
the time of payment, except payments with respect to Recoveries
must be made in cash.
In addition to the litigation discussed above, the Corporate General Partner is
involved in various other lawsuits arising from transactions in the ordinary
course of business. In the opinion of management and the Corporate General
Partner, the claims will not result in any material liability to the
Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Corporate General Partner monitors developments in the area of legal and
regulatory compliance and is studying new federal laws, including the
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests
additional compliance measures with regard to governance, disclosure, audit and
other areas. In light of these changes, the Partnership expects that it will
incur higher expenses related to compliance, including increased legal and audit
fees.
Liquidity and Capital Resources
The properties in which the Partnership has invested, through its investments in
the Local Limited Partnerships, receive one or more forms of assistance from the
Federal Government. As a result, the Local Limited Partnerships' ability to
transfer funds either to the Partnership or among themselves in the form of cash
distributions, loans or advances is generally restricted by those government
assistance programs.
The Partnership's primary sources of funds include interest income earned from
investing available cash and distributions from Local Limited Partnerships in
which the Partnership has invested. It is not expected that any of the Local
Limited Partnerships in which the Partnership has invested will generate cash
flow sufficient to provide for distributions to the Partnership's limited
partners in any material amount.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership continues to
generate recurring operating losses and suffers from a lack of cash as well as a
partners' deficit. The Corporate General Partner may approve advances to the
Partnership to fund certain operating expenses; however, it is not required to
take such action. In addition, the Partnership is in default on notes payable
and related accrued interest payable that matured in December 1999.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests in Local Limited Partnerships from partners
who subsequently withdrew from the Local Limited Partnership. The Partnership
issued non-recourse notes payable totaling $4,600,000 to the sellers of the
partnership interests, such notes bearing interest at 9.5% per annum. The notes
matured in 1999. These obligations and related interest are collateralized by
the Partnership's investment in the local limited partnership, as defined in the
notes. Unpaid interest was due at maturity of the notes.
During the six months ended June 30, 2003, Evergreen refinanced the mortgage
encumbering its investment property. The distribution from Evergreen relating to
the refinancing of approximately $6,765,000 was recognized as income in the
accompanying statements of operations. Pursuant to the agreement with the
noteholders, approximately $6,615,000 of the proceeds were sent to a trustee in
order to satisfy in full the principal of approximately $2,600,000 and
approximately $4,015,000 of accrued interest. The trustee distributed the funds
directly to the noteholders. The Partnership also recognized a gain on
extinguishment of debt of approximately $102,000 due to the write off of the
remaining accrued interest as it was forgiven by the noteholders.
At June 30, 2003, the obligation relating to the Plaza Village note was
$2,000,000 and accrued interest was approximately $3,417,000. Apartment
Investment and Management Company, a Maryland corporation ("AIMCO"), which
indirectly owns the Corporate General Partner of the Partnership, has a 15%
interest in and is the trustee for the Plaza Village note payable.
The Partnership has not made any payments on the Plaza Village note and is in
default under the terms of the note. Management is attempting to negotiate
extensions of the maturity date on the note payable. If the negotiations are
unsuccessful, the Partnership could lose its investment in the local limited
partnership, Plaza Village Group, to foreclosure.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Four of the Local Limited Partnerships have outstanding purchase money notes and
accrued interest that matured in December 2000. In addition, a fifth Local
Limited Partnership has a subordinated note and accrued interest that matured in
December 1999. Each of these Local Limited Partnerships is in default on these
obligations. As a result, the Partnership risks losing its investments in the
other Local Limited Partnerships through foreclosure. All of the investments in
these Local Limited Partnerships were zero at June 30, 2003.
Subsequent to June 30, 2003, the property in one of the Local Limited
Partnerships, Lancaster Heights Associates, was sold to an unrelated third
party. Proceeds from the sale were used to satisfy the purchase money note and
accrued interest that had matured in December 2000. An affiliate of the
Corporate General Partner received approximately $1,645,000 in payment of their
interest in the notes. The remaining proceeds from the sale were distributed and
the Partnership received approximately $1,400,000, of which approximately
$1,375,00 was used to pay accrued management fees due to an affiliate of the
Corporate General Partner during the fourth quarter of 2003.
Subsequent to June 30, 2003, the property in one of the Local Limited
Partnerships, Cloverleaf Apartments, Ltd., was sold to an unrelated third party.
Proceeds from the sale were used to satisfy the purchase money note and accrued
interest that had matured in December 2000. The remaining proceeds from the sale
were distributed and the Partnership received approximately $120,000 during the
fourth quarter of 2003.
Results of Operations
Partnership revenues consist primarily of interest income earned on investment
of funds. The Partnership also receives distributions from the Local Limited
Partnerships in which it has invested. During the six months ended June 30,
2003, the Partnership received approximately $55,000 of distributions from the
operations of the Local Limited Partnerships and approximately $6,765,000 from
the refinancing of the investment property at one of the Local Limited
Partnerships. These amounts were recognized as income because the Partnership
has no remaining basis in these investments.
Except for investing cash in money market funds, the Partnership's investments
consist entirely of interests in Local Limited Partnerships owning
government-assisted housing projects. Available cash not invested in Local
Limited Partnerships is invested in these money market funds to provide interest
income as reflected in the statements of operations. These funds can be
converted to cash to meet obligations as they arise. The Partnership intends to
continue investing available funds in this manner.
An annual management fee is payable to the general partners of the Partnership
and is calculated at 0.5 percent of the Partnership's invested assets. The
management fee is paid to the general partners for their continuing management
of partnership affairs. The fee is payable beginning with the month following
the Partnership's initial investment in a local limited partnership. Management
fees were approximately $98,000 and $99,000 for the six months ended June 30,
2003 and 2002, respectively.
In accordance with the Partnership Agreement, the Corporate General Partner has
advanced the Partnership funds to assist in paying for normal operating
expenses. These advances do not accrue interest. As of June 30, 2003, the
Corporate General Partner had advanced approximately $101,000 for such purposes.
Operating expenses, other than management fees and interest expense, consist of
legal and accounting fees for services rendered to the Partnership and general
and administrative expenses. Legal and accounting fees were approximately
$46,000 and $36,000 for the six months ended June 30, 2003 and 2002,
respectively. General and administrative expenses were approximately $20,000 and
$21,000 for the six months ended June 30, 2003 and 2002, respectively.
The Partnership, as a limited partner, does not exercise control over the
activities and operations, including refinancing or selling decisions of the
Local Limited Partnerships. Accordingly, the Partnership accounts for its
investment in the Local Limited Partnerships using the equity method. Thus the
individual investments are carried at cost plus the Partnership's share of the
Local Limited Partnership's profits less the Partnership's share of the Local
Limited Partnership's losses, distributions and impairment charges. However,
since the Partnership is not legally liable for the obligations of the Local
Limited Partnerships, or is not otherwise committed to provide additional
support to them, it does not recognize losses once its investment in each of the
Local Limited Partnerships reaches zero. Distributions from the Local Limited
Partnerships are accounted for as a reduction of the investment balance until
the investment balance is reduced to zero. Subsequent distributions received are
recognized as income in the accompanying statements of operations. The
Partnership received approximately $6,820,000 and $11,000 in distributions that
were recognized as income during the six months ended June 30, 2003 and 2002,
respectively. (See previous discussion on refinancing at Evergreen.) For those
investments where the Partnership has determined that the carrying value of its
investments approximates the estimated fair value of those investments, the
Partnership's policy is to recognize equity in income of the Local Limited
Partnerships only to the extent of distributions received and amortization of
acquisition costs from those Local Limited Partnerships. During the six months
ended June 30, 2002 the Partnership recognized equity in loss of approximately
$30,000 resulting from advances made to Local Limited Partnerships. Management
believed that repayment of these advances was doubtful and fully reserved them
in 2002. The Partnership did not make any advances in the same period in 2003.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties serving families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
Other
AIMCO and its affiliates owned 374 limited partnership units (the "Units") or
748 limited partnership interests in the Partnership representing 6.10% of the
outstanding Units at June 30, 2003. A Unit consists of two limited partnership
interests. It is possible that AIMCO or its affiliates will acquire additional
Units in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO. Pursuant to the Partnership Agreement, unitholders holding
a majority of the Units are entitled to take action with respect to a variety of
matters that include, but are not limited to, voting on certain amendments to
the Partnership Agreement and voting to remove the Corporate General Partner.
Although the Corporate General Partner owes fiduciary duties to the limited
partners of the Partnership, the Corporate General partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the
Corporate General Partner, as corporate general partner, to the Partnership and
its limited partners may come into conflict with the duties of the Corporate
General Partner to AIMCO, as its sole stockholder.
Method of Accounting for Investments in Local Limited Partnerships
The Partnership, as a limited partner, does not exercise control over the
activities and operations, including refinancing or selling decisions, of the
Local Limited Partnerships. Accordingly, the Partnership accounts for its
investments in the Local Limited Partnerships using the equity method. The
Partnership is allocated profits and losses of the Local Limited Partnerships
based upon its respective ownership percentage of 99%. Distributions of surplus
cash from operations from most of the Local Limited Partnerships are restricted
by the Local Limited Partnerships' Regulatory Agreements with the United States
Department of Housing and Urban Development ("HUD"). These restrictions limit
the distribution to a portion, generally less than 10%, of the initial invested
capital. The excess surplus cash is deposited into a residual receipts reserve,
of which the ultimate realization by the Partnership is uncertain as HUD
frequently retains it upon sale or dissolution of the Local Limited Partnership.
The Partnership is allocated profits and losses and receives distributions from
refinancings and sales in accordance with the Local Limited Partnerships'
partnership agreements. These agreements usually limit the Partnership's
distributions to an amount substantially less than its ownership percentage in
the Local Limited Partnership.
The individual investments are carried at cost plus the Partnership's share of
the Local Limited Partnership's profits less the Partnership's share of the
Local Limited Partnership's losses, distributions and impairment charges. The
Partnership is not legally liable for the obligations of the Local Limited
Partnerships and is not otherwise committed to provide additional support to
them. Therefore, it does not recognize losses once its investment in each of the
Local Limited Partnerships reaches zero. Distributions from the Local Limited
Partnerships are accounted for as a reduction of the investment balance until
the investment balance is reduced to zero. When the investment balance has been
reduced to zero, subsequent distributions received are recognized as income in
the accompanying statements of operations.
For those investments where the Partnership has determined that the carrying
value of its investments approximates the estimated fair value of those
investments, the Partnership's policy is to recognize equity in income of the
Local Limited Partnerships only to the extent of distributions received and
amortization of acquisition costs from those Local Limited Partnerships.
Therefore, the Partnership limits its recognition of equity earnings to the
amount it expects to ultimately realize.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities.
FIN 46 requires the consolidation of entities in which an enterprise absorbs a
majority of the entity's expected losses, receives a majority of the entity's
expected residual returns, or both, as a result of ownership, contractual or
other financial interests in the entity. Prior to the issuance of FIN 46,
entities were generally consolidated by an enterprise when it had a controlling
financial interest through ownership of a majority voting interest in the
entity. FIN 46 applied immediately to variable interest entities created after
January 31, 2003, and with respect to variable interests held before February 1,
2003, FIN 46 will apply beginning October 1, 2003.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated partnerships that may be deemed variable interest
entities under the provisions of FIN 46. The Partnership has not yet determined
the anticipated impact of adopting FIN 46 for its partnership agreements that
existed as of January 31, 2003. However, FIN 46 may require the consolidation of
the assets, liabilities and operations of certain of the Partnership's
unconsolidated partnership investments. Although the Partnership does not
believe the full adoption of FIN 46 will have an impact on cash flow, the
Partnership cannot make any definitive conclusion on the impact of net earnings
until it completes its evaluation, including an evaluation of the Partnership's
maximum exposure to loss.
In May 2003, the FASB issued SFAS 150, which establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The requirements of SFAS 150
apply to the classification and measurement of freestanding financial
instruments. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Partnership has adopted
SFAS 150 as of July 1, 2003. Additionally, in September 2003, the FASB staff
indicated that SFAS 150 also applies to the non-controlling interests in
consolidated finite life partnerships. However, on October 29, 2003, the FASB
indefinitely deferred the provisions of SFAS 150 for finite life partnerships.
The adoption of SFAS 150 did not have a material impact on the Partnership's
results of operations taken as a whole.
ITEM 3. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the Corporate General Partner, who are the equivalent of the Partnership's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, the principal
executive officer and principal financial officer of the Corporate General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures needed
to be improved and were improved subsequent to June 30, 2003 to provide that
actions taken at the Local Limited Partnerships, for which entities other than
the Partnership or its affiliates serve as the general partner, are reported to
the Partnership in a timely, accurate and complete fashion. In particular, the
Partnership has implemented a system to improve the coordination and
communication between those groups responsible for effecting transactions
related to the investments of the Partnership and those groups responsible for
general oversight of the investments of the Partnership and reporting of
transactions related thereto.
(b) Internal Control Over Financial Reporting. Except as described above, there
have not been any changes in the Partnership's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Partnership's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the corporate general partner) and two investors
holding an aggregate of five units of limited partnership interests in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the corporate general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other defendants. The complaint alleged that the defendants breached
their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and violated securities laws by making materially false and
misleading statements in the consent solicitation statements sent to the limited
partners of such partnerships relating to approval of the transfer of
partnership interests in limited partnerships, owning certain of the properties,
to affiliates of Casden Properties Inc., organized by an affiliate of NAPICO.
The plaintiffs sought equitable relief, as well as compensatory damages and
litigation related costs. On August 4, 1999, one investor holding one unit of
limited partnership interest in the Partnership commenced a virtually identical
action in the United States District Court for the Central District of
California against the Partnership, NAPICO and certain other entities. The
second action was subsumed in the first action, and was certified as a class
action. On August 21, 2001, plaintiffs filed a supplemental complaint, which
added new claims, including a rescission of the transfer of partnership
interests and an accounting.
In November 2002, the jury returned special verdicts against NAPICO and certain
other defendants in the amount of approximately $25.2 million for violations of
securities laws and against NAPICO for approximately $67.3 million for breaches
of fiduciary duty. In addition, the jury awarded the plaintiffs punitive damages
against NAPICO of approximately $92.5 million. On April 29, 2003, the Court
entered judgment against NAPICO and certain other defendants in the amount of
$25.2 million for violations of securities laws and against NAPICO for $67.3
million for breaches of fiduciary duty, both amounts plus interest of $25.6
million, and for punitive damages against NAPICO in the amount of $2.6 million.
On August 11, 2003, NAPICO entered into a Stipulation of Settlement (the
"Stipulation of Settlement") with the plaintiff class (the "Plaintiffs") and
their counsel relating to the settlement of the litigation. On August 25, 2003,
the court granted preliminary approval of the Stipulation of Settlement.
Pursuant to the Stipulation of Settlement, Alan I. Casden, on behalf of himself,
NAPICO and other defendants in the litigation, caused $29 million to be
deposited into an escrow account for the benefit of the Plaintiffs. The
Stipulation of Settlement remains subject to the final approval of the court, as
well as the approval of the Plaintiffs, which hearing is currently scheduled for
November 24, 2003. Upon final court approval, approval by the Plaintiffs and the
lapse of any time to appeal the court approval of the settlement, the following
shall occur:
1. Alan I. Casden, on behalf of himself, NAPICO and other defendants in
the litigation, will transfer to an agent for the Plaintiffs shares
of common stock ("Class A Common Stock") of AIMCO owned by certain
affiliates of Alan I. Casden with an aggregate market value of $19
million, subject to certain transfer restrictions, or at Alan I.
Casden's option, $19 million in cash.
2. NAPICO will issue an aggregate of $35 million in promissory notes
for the benefit of the Plaintiffs. An aggregate of $7 million of
notes are to be repaid each year. The notes will bear interest based
on applicable rates of U.S. Treasury bills with similar maturities.
The notes will be guaranteed by AIMCO Properties, L.P., an affiliate
of AIMCO.
3. The parties to the Stipulation of Settlement will release each other
and related parties from any and all claims associated with the
litigation and the Plaintiffs' investment in the Partnership and the
other affiliated partnerships.
4. The $29 million in the escrow account established by Alan I. Casden
will be released to the Plaintiffs.
Pursuant to the Stipulation of Settlement, upon final approval of the settlement
by the court, the parties shall jointly request that a new judgment be entered
in the litigation that will, among other things, expunge the judgment originally
entered against NAPICO and the other defendants on April 29, 2003.
On September 24, 2003, Battle Fowler, LLP filed a request to intervene to
challenge the portion of the Stipulation of Settlement that would lead to
expungement of the judgment originally entered on April 29, 2003 against NAPICO
and the other defendants. All parties to the Stipulation of Settlement opposed
this request to intervene. A hearing regarding the request occurred November 10,
2003, and on November 14, 2003, the court denied Battle Fowler, LLP's request.
On August 12, 2003, in connection with the proposed settlement pursuant to the
Stipulation of Settlement, NAPICO and AIMCO executed a Settlement Agreement (the
"Settlement Agreement") with the prior shareholders of Casden Properties Inc.
The principal terms of the Settlement Agreement include:
1. That NAPICO will voluntarily discontinue the action it commenced on
May 13, 2003 against the former shareholders of Casden Properties
Inc. and other indemnitors in AIMCO's March 2002 acquisition of
Casden Properties Inc. (the "Casden Merger").
2. That Alan I. Casden and certain related entities will resolve
certain pending claims for indemnification made by NAPICO, AIMCO and
their affiliates. These claims include indemnification related to
the litigation and certain other matters in connection with the
Casden Merger.
3. AIMCO, or an affiliate, will deposit $25 million of the $29
million that Alan I. Casden is responsible for depositing into
the escrow account for the benefit of the Plaintiffs pursuant to
the terms of the Stipulation of Settlement. In connection with
this deposit by AIMCO, The Casden Company will transfer to AIMCO
531,915 shares of AIMCO Class A Common Stock owned by The Casden
Company, which shares are to be held in escrow by AIMCO until
final approval of the Stipulation of Settlement by the court and
the Plaintiffs. Upon such approval, AIMCO will become the owner
of the 531,915 shares. If final approval by the court and the
Plaintiffs is not obtained, the $25 million deposited by AIMCO
into the escrow account will be returned to AIMCO and AIMCO will
return to The Casden Company the 531,915 shares. On August 25,
2003, AIMCO caused the $25 million to be deposited in the escrow
account for the benefit of the Plaintiffs and the Casden Company
and Alan I Casden deposited in escrow the 531,915 shares in
accordance with the Settlement Agreement.
4. The Casden Company will promise to pay an aggregate amount of $35
million on a secured, nonrecourse basis to NAPICO. The Casden
Company will be obligated to repay an aggregate of $7 million of
the obligation each year. The obligation to pay the $35 million
will bear the same interest and mature on the same schedule as
the promissory notes issued by NAPICO to the plaintiffs pursuant
to the Stipulation of Settlement. Payment of these obligations
will be secured by (i) a pledge of 744,681 shares of AIMCO Class
A Common Stock owned by Alan I. Casden or an affiliated entity,
plus up to 60,000 additional shares for accrued interest, and
(ii) cash proceeds of recoveries or settlements that Alan I.
Casden or any of his affiliates, or any of the former
shareholders of Casden Properties Inc., receive in connection
with or related to the litigation (collectively, "Recoveries").
The payment obligations to NAPICO will be required to be prepaid
with any Recoveries received. Payment may be made in cash or in
shares of AIMCO Class A Common Stock having a value based on the
greater of $47 per share or the market value of such shares at
the time of payment, except payments with respect to Recoveries
must be made in cash.
In addition to the litigation discussed above, the Corporate General Partner is
involved in various other lawsuits arising from transactions in the ordinary
course of business. In the opinion of management and the Corporate General
Partner, the claims will not result in any material liability to the
Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3, Restated Certificate and Agreement of Limited
Partnership dated May 15, 1984 filed with the Securities and
Exchange Commission Form S-11 No. 2-92352, which is hereby
incorporated by reference.
Exhibit 31.1, Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2, Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1, Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
Current Report on Form 8-K dated April 30, 2003 and filed with
the Securities and Exchange Commission on April 30, 2003
disclosing the initial judgment entered against NAPICO as the
Corporate General Partner of the Partnership.
Current Report on Form 8-K dated May 30, 2003 and filed with
the Securities and Exchange Commission on June 2, 2003
disclosing the initial memorandum of understanding relating to
a settlement of the litigation against NAPICO as the Corporate
General Partner of the Partnership.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
By: National Partnership Investments Corp.
Corporate General Partner
By: /s/David R. Robertson
David R. Robertson
President and Chief Executive Officer
By: /s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and
Chief Financial Officer
Date: November 19, 2003
Exhibit 31.1
CERTIFICATION
I, David R. Robertson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of Housing Programs
Limited;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 19, 2003
/s/David R. Robertson
David R. Robertson
President and Chief Executive Officer of
National Partnership Investments Corp.,
equivalent of the chief executive officer
of the Partnership
Exhibit 31.2
CERTIFICATION
I, Brian H. Shuman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of Housing Programs
Limited;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 19, 2003
/s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and Chief
Financial Officer of National
Partnership Investments Corp.,
equivalent of the chief financial
officer of the Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB/A of Housing Programs
Ltd. (the "Partnership"), for the quarterly period ended June 30, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
David R. Robertson, as the equivalent of the chief executive officer of the
Partnership, and Brian H. Shuman, as the equivalent of the chief financial
officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/David R. Robertson
Name: David R. Robertson
Date: November 19, 2003
/s/Brian H. Shuman
Name: Brian H. Shuman
Date: November 19, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.