SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
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LNR PROPERTY CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE APPLIED FOR
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
760 NORTHWEST 107TH AVENUE
MIAMI, FLORIDA 33172
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (305) 485-2000
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Securities to be Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Common Stock, Par Value .10 Per Share New York Stock Exchange
Securities to be Registered Pursuant to Section 12(g) of the Act:
None
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
LENNAR CORPORATION
INFORMATION STATEMENT
Relating to Distribution of
Common Stock, Par Value .10 per share,
of
LNR PROPERTY CORPORATION
This Information Statement and the accompanying materials are being
mailed on or about [ ____________ ], 1997 to stockholders of Lennar Corporation
("Lennar"), a Delaware corporation, in connection with the distribution (the
"Distribution") by Lennar to its stockholders of what will be all the
outstanding common stock ("LNR Common Stock"), par value $.10 per share, and all
the outstanding class B common stock ("LNR Class B Stock"), par value $.10 per
share, of LNR Property Corporation. ("LNR" and, together with its subsidiaries,
the "Company"), a Delaware corporation.
Lennar expects the Distribution to be made on [ _____ ], 1997. In the
Distribution, Lennar will distribute to each holder of its common stock or its
class B common stock one share of LNR Common Stock for each share of Lennar
common stock or Lennar class B common stock held of record. However, any holder
of Lennar common stock or Lennar class B common stock may elect, by a notice
delivered to Lennar before 5:00 P.M. Miami, Florida time on [ _____ ], 1997, to
receive shares of LNR Class B Stock at the rate of one share of LNR Class B
Stock for each share of Lennar common stock or Lennar class B common stock,
instead of receiving LNR Common Stock. See "The Distribution -- Election to
Receive LNR Class B Stock" on page [ ] for information about how to make this
election and "Description of Capital Stock" beginning on page [ ] for a
description of the differences between LNR Common Stock and LNR Class B Stock.
There currently is no public market for LNR Common Stock. LNR has
applied to list the LNR Common Stock on the New York Stock Exchange (the
"NYSE"), under the symbol [" ____________ "] and expects that trading on the
NYSE will begin on the record date for the Distribution. With minor exceptions,
LNR Class B Stock may not be transferred (although it may be converted into LNR
Common Stock, which may be transferred). Because of this, the LNR Class B Stock
will not be listed on any securities exchange and LNR will not apply to have it
quoted on any quotation system.
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WE ARE NOT ASKING FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
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The date of this Information Statement is [_______________ , 1997].
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION...................................................... 4
SUMMARY .................................................................. 5
SUMMARY FINANCIAL DATA..................................................... 9
INTRODUCTION............................................................... 10
RISK FACTORS............................................................... 12
Limited Relevance of Historical Financial Information.................. 12
Absence of History as a Stand-Alone Group.............................. 12
Risk of Leveraged Investment Activities................................ 12
Cyclical Nature of the Business........................................ 12
No Corporate Borrowing Arrangements.................................... 12
Guaranty of Lennar Net Worth........................................... 13
Indemnification of Lennar in Case the Distribution is not Tax-Free..... 13
Absence of a Prior Public Market for LNR Common Stock.................. 14
Possibility of Substantial Sales of LNR Common Stock................... 14
Antitakeover Effects of LNR Class B Stock.............................. 14
Unavailability of Pooling of Interests Method.......................... 14
THE DISTRIBUTION........................................................... 15
Background of and Reasons for the Distribution......................... 15
Terms of the Distribution.............................................. 15
Election to Receive LNR Class B Stock.................................. 16
Certain Federal Income Tax Consequences of the Distribution............ 16
Listing and Trading of LNR Stock....................................... 17
CAPITALIZATION............................................................. 18
DIVIDEND POLICY............................................................ 18
SELECTED FINANCIAL DATA.................................................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................... 20
Overview ............................................................... 20
Results of Operations................................................... 21
Financial Condition, Liquidity and Capital Resources.................... 23
BUSINESS .................................................................. 25
Overview ............................................................... 25
Commercial and Multi-Family Residential Rental Real Estate.............. 26
Portfolios of Commercial Mortgage Loans and Owned Real Estate........... 27
Special Servicing with Regard to Commercial Mortgage Backed
Securities ("CMBS")................................................... 27
Commercial Lending...................................................... 27
Lennar Land Partners.................................................... 28
Regulation.............................................................. 29
Employees............................................................... 29
Competition............................................................. 29
Legal Proceedings....................................................... 29
Properties.............................................................. 29
2
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MANAGEMENT................................................................. 30
Directors and Executive Officers of LNR................................. 30
Annual Meeting.......................................................... 31
Stock Ownership......................................................... 31
Executive Compensation.................................................. 34
RELATIONSHIPS BETWEEN LNR AND LENNAR....................................... 36
The Separation and Distribution Agreement............................... 36
The Land Partnership.................................................... 38
Other Relationships..................................................... 38
DESCRIPTION OF CAPITAL STOCK............................................... 39
Preferred Stock......................................................... 39
Common Stock............................................................ 39
Class B Common Stock.................................................... 39
INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................. 40
PRO FORMA FINANCIAL DATA................................................... 41
3
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AVAILABLE INFORMATION
LNR has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (the "Registration Statement")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the LNR Common Stock. This Information Statement does not contain all
the information included in the Registration Statement and the exhibits and
supplements to it. For further information, reference is made to the
Registration Statement and the exhibits and schedules to it. Copies of those
documents may be inspected without charge at the principal office of the
Commission at 450 5th Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048; Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661; and 5670 Wilshire Boulevard, Suite 1100, Los Angeles, California
90036. Copies of all or any part of the Registration Statement may be obtained
from the Commission upon payment of the charges prescribed by the Commission.
Copies also can be obtained from the Commission's Web Site (http://www.sec.gov).
Following the Distribution, LNR will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. LNR will also be subject to the proxy
solicitation requirements of the Exchange Act, and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders. Upon the listing of the LNR Common Stock on the New
York Stock Exchange, LNR will be required to file copies of those reports and
proxy statements and other information with the New York Stock Exchange. They
then can be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.
NO PERSON IS AUTHORIZED BY LENNAR OR LNR TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY LENNAR, LNR OR ANY OTHER PERSON.
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<TABLE>
<CAPTION>
SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Information Statement, including the discussion under the
caption "Risk Factors."
<S> <C>
Distributing Company........................ Lennar Corporation ("Lennar")
Company to be Distributed................... LNR Property Corporation ("LNR", and together with its
subsidiaries, the "Company"). Lennar formed LNR in June 1997
and has contributed to LNR the Lennar subsidiaries which have
been engaged in its real estate investment and management
business, as well as some assets of other subsidiaries which were
used in that business and cash, which will be used primarily to
reduce indebtedness relating to assets of the Company. The pro-
forma consolidated net worth of LNR and its subsidiaries at May
31, 1997 was $542.5 million.
Shares to be Distributed.................... Approximately shares of LNR Common Stock or Class B
Stock, which will be all the outstanding shares of LNR stock
immediately following the Distribution.
Distribution Ratio.......................... One share of LNR Common Stock for each share of Lennar
common stock or Lennar class B common stock, unless the Lennar
stockholder elects to receive LNR Class B Stock. Lennar
stockholders will not be required to make any payment for the
LNR stock or to surrender or exchange their Lennar stock in order
to receive LNR stock.
A Lennar stockholder may elect to receive one share of LNR Class
B Stock for each share of Lennar common stock or Lennar class B
common stock, instead of receiving LNR Common Stock. AN
ELECTION TO RECEIVE LNR CLASS B STOCK MUST BE RECEIVED BY LENNAR
NOT LATER THAN 5:00 P.M. MIAMI, FLORIDA TIME, ON [ ], 1997.
See "The Distribution -- Election to Receive LNR Class B Stock."
Difference Between LNR
Common Stock and LNR
Class B Stock............................ The LNR Common Stock is identical with the LNR Class B Stock,
except that (a) the Class B Stock is entitled to ten votes per share,
while the Common Stock is entitled to one vote per share, (b) the
per share cash dividends paid with regard to the Class B Stock in
a year may not be more than 90% of the per share cash dividends,
if any, paid with regard to the Common Stock in that year, (c) the
Class B Stock cannot be transferred, except to close relatives of the
holder, fiduciaries for the holder or close relatives, or entities of
which the holder and close relatives are majority owners, (d) Class
B Stock may be converted into Common Stock, but Common Stock
may not be converted into Class B Stock, and (e) amendments to
LNR's Certificate of Incorporation which affect the Common Stock
or the Class B Stock must be approved by holders of a majority of
the Common Stock, as well as by holders of a majority in voting
power of both classes combined.
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<S> <C>
Distribution Record Date.................... LNR shares will be distributed to holders of Lennar common stock
and Lennar class B common stock of record at the close of
business on [ ], 1997 (the "Distribution Record Date").
Federal Income Tax Consequences............. The Distribution is subject to receipt of a ruling from the Internal
Revenue Service ("IRS") to the effect that for United States Federal
income tax purposes no gain or loss will be recognized by Lennar
or by Lennar's stockholders as a result of the Distribution. Lennar
stockholders are urged to consult their own tax advisors as to the
specific tax consequences of the Distribution to them. See "Certain
Federal Income Tax Consequences of the Distribution."
Risk Factors................................ Several important factors concerning LNR and the Distribution are
discussed under "Risk Factors."
Background of and Reasons for
the Distribution............................ Although Lennar was originally a homebuilder, at least since 1991,
it has had an active real estate investment and management
business. Nonetheless, most of the analysts who regularly report
about Lennar are homebuilding company specialists. As a result,
Lennar has had to maintain financial statement ratios, including a
consolidated debt to equity ratio, which are customary for a
homebuilder, and has been unable to seek the type of borrowing
leverage which is normal for a business like its real estate
investment and management business. Lennar's banks also required it
to maintain financial statement ratios which are customary for
homebuilders. Putting the real estate investment and management business
into a separate company should substantially enhance the ability of the real
estate investment and management business to use borrowings to increase the
size of its real estate asset portfolio. Also, Lennar believes the price of its
stock has not reflected the full value of its real estate investment
and management business. Therefore, Lennar has been unwilling
to use stock to acquire other companies. Lennar will be willing to
use stock for acquisitions after the Distribution. It has agreed to
acquire Pacific Greystone Corporation, a New York Stock
Exchange listed homebuilding company, in a stock merger which
will not take place unless and until the Distribution is completed.
After the Distribution, LNR also will be able to use its stock to
make acquisitions if it chooses to do so (although it has no
acquisition transactions pending in which it would use stock). In
addition, it will be able to give employees involved in the real
estate investment and management business stock based incentives
and other incentives based on that business alone. See "The
Distribution -- Background and Reasons for the Distribution."
Trading Market.............................. There currently is no public market for LNR Common Stock.
LNR has applied to list the LNR Common Stock on the New York
Stock Exchange ("NYSE") under the symbol [" "] and expects
that trading on the NYSE will begin on the Distribution Record
Date.
6
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<S> <C>
Distribution Date........................... Expected to be [ , 1997] (the "Distribution Date").
Commencing on or about the Distribution Date, Lennar will mail
share certificates or arrange book-entry credits for shares of LNR
stock to persons who hold Lennar common stock or Lennar class
B common stock on the Distribution Record Date. Lennar
stockholders will not be required to make any payment or to take
any other action to receive the LNR stock. See "The Distribution -
- Manner of Effecting the Distribution."
Conditions to the
Distribution............................... The Distribution is conditioned upon, among other things, (a)
Lennar's having received a ruling from the IRS to the effect that
the Distribution qualifies as a tax-free distribution under Section
355 of the Internal Revenue Code of 1986, as amended (the
"Code"); (b) all required governmental approvals of the
Distribution, if any, having been obtained; (c) the LNR Common
Stock to be distributed in the Distribution having been authorized
for listing on the NYSE; and (d) no court order enjoining the
Distribution being in effect and no governmental proceeding being
pending which is reasonably likely to result in material penalties
against Lennar or LNR as a result of the Distribution. These
conditions may be waived by Lennar and LNR. In addition,
regardless of whether these conditions are satisfied, Lennar has
reserved the right to abandon, defer or modify the Distribution at
any time prior to the Distribution Date.
Management of LNR........................... The executive officers of LNR immediately following the
Distribution will be persons who currently are involved in senior
positions in Lennar's real estate investment and management
business or related aspects of its finance business. See
"Management."
Intercompany Agreements..................... LNR and Lennar have entered into a Separation and Distribution
Agreement, and may enter into other agreements governing
relationships between them. See "Relationships between LNR and
Lennar."
Post-Distribution Dividend
Policy..................................... LNR expects to adopt a dividend policy after the Distribution.
However, adoption of that policy, and the declaration of specific
dividends, will be at the discretion of LNR's Board of
Directors. See "Dividend Policy."
Transfer Agent and Registrar................ BankBoston, N.A. will be the Transfer Agent and Registrar for the
LNR Common Stock. There will not be a transfer agent (other
than LNR itself) or registrar for LNR's Class B Stock.
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Antitakeover Effects........................ Leonard Miller (one of the founders of Lennar) will elect to receive
LNR Class B Stock with regard to the 9,930,030 shares of Lennar
class B common stock which Mr. Miller holds through family
partnerships. Mr. Miller's ownership of that LNR Class B Stock,
which has substantially greater voting rights than LNR's Common
Stock (which is the only LNR stock which will be tradable), would
likely have the effect of discouraging non-negotiated tender offers
or other types of non-negotiated takeovers, if any were
contemplated. See "Risk Factors -- Anti-Takeover Effects of LNR
Class B Stock."
</TABLE>
8
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SUMMARY FINANCIAL DATA
The following table presents selected combined financial data regarding
LNR and its subsidiaries. The information set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements
included elsewhere in this Information Statement.
The combined financial statements of the Company have been prepared
and are presented to reflect the Company as a separate combined group for all
periods presented and have been extracted from the financial statements of
Lennar using Lennar's historical results of operations and historical cost basis
of its assets and liabilities which are used in the businesses being operated by
the Company (including some assets and liabilities which were not recorded as
belonging to current LNR subsidiaries, but which were used primarily in
connection with their businesses). Expenses which related both to the businesses
operated by the Company and the businesses retained by Lennar have been
allocated on a basis which both Lennar and the Company believe is reasonable.
However, the expenses allocated to the Company are not necessarily the same as
those the Company would have incurred if it had operated independently, and in
general, the results of operations reflected in the combined financial
statements of LNR and its subsidiaries are not necessarily the same as those
which would have been realized if the Company had been operated independently of
Lennar during the periods to which those financial statements relate.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEARS ENDED NOVEMBER 30,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF
OPERATIONS
Revenues ................ $101,104 $ 84,672 $175,692 $155,212 $114,252 $ 63,073 $ 48,814
Operating income ........ 56,316 49,882 97,980 81,099 58,881 32,399 20,511
Earnings before income
taxes................. 43,115 39,890 77,467 66,407 53,193 29,021 17,653
Net earnings ............ 26,300 24,333 47,255 40,508 32,498 18,574 11,344
FINANCIAL POSITION
(End of Period)
Total assets ............ 793,092 721,076 752,968 652,400 547,722 310,355 205,794
Total debt .............. 369,965 303,347 354,406 252,256 119,935 34,163 42,733
Parent Company investment 384,143 390,849 367,048 370,903 396,403 266,965 155,606
</TABLE>
Pro forma financial information, giving effect to contributions to the
capital of the Company by Lennar in connection with the Distribution and
reflecting the Company's expected contribution to Lennar Land Partners, appears
under the capition "Pro Forma Financial Data."
9
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INTRODUCTION
LNR operates a real estate investment and management business which
engages principally in (i) developing, acquiring and actively managing
commercial and residential multi-family rental real estate, (ii) acquiring,
itself or through partnerships which it manages, portfolios of commercial
mortgage loans and properties and providing workout, property management and
asset sale services with regard to the portfolio assets, (iii) acting as special
servicer with regard to commercial mortgage pools which are the subject of
commercial mortgage backed securities ("CMBS"), (iv) acquiring unrated and rated
CMBS issued with regard to commercial mortgage pools as to which the Company
acts as special servicer, and (v) making mortgage loans to companies and
individuals engaged in commercial real estate activities and to developers and
builders of residential communities.
LNR was formed by Lennar in June 1997 to separate Lennar's homebuilding
business from its real estate investment and management business. Lennar has
transferred to LNR the subsidiaries, and some additional assets, which formerly
had been grouped as Lennar's Investment Division, as well as the portions of its
Financial Services Division which were involved in commercial mortgage lending
and investments (but not the portions of its Financial Services Division which
were involved in lending to homeowners, servicing residential mortgages or
providing services to home buyers or homeowners). LNR's stock is being
distributed to Lennar's stockholders in a tax-free spin-off, as described below.
Activities conducted by Lennar, as predecessor to the Company, of the type
currently being conducted by the Company are treated below as historical
activities of the Company.
Lennar and LNR have entered into an agreement (the "Separation and
Distribution Agreement") under which they have agreed that at least until
December 2002, Lennar and its homebuilding (including home mortgage)
subsidiaries will not engage in the businesses in which the Company currently is
engaged and the Company will not engage in the businesses in which Lennar and
its homebuilding subsidiaries currently are engaged (except in limited areas in
which the activities, or currently anticipated activities, of the two groups
overlap). The Separation and Distribution Agreement also contains provisions
regarding the mechanics of the Distribution, conditions to the obligations of
Lennar and LNR to carry out the Distribution, sharing of tax expense and the
terms of any transactions (including loans) between the Company, on the one
hand, and Lennar and its homebuilding subsidiaries, on the other. In the
Separation and Distribution Agreement, LNR agrees to indemnify Lennar against
any costs it may suffer if it ultimately is determined, other than because of
actions taken by Lennar after its merger with Pacific Greystone Corporation (the
"Pacific Greystone Merger"), that the Distribution was not tax-free to Lennar
and to its stockholders under the Code, including taxes, interest and penalties
which may be due from Lennar and costs of any stockholder litigation or
controversies. Lennar believes it is extremely unlikely that, despite issuing a
ruling that the Distribution is tax-free (which is a condition to Lennar's and
LNR's obligations to carry out the Distribution), the IRS would argue
successfully that the Distribution is not tax-free. However, if it were
determined after the Distribution takes place that the Distribution is not
tax-free, the Distribution would result in taxable gain to Lennar equal to the
difference between its basis in LNR and the fair market value of LNR at the time
of the Distribution, and would result in taxable dividend income to at least
most of the Lennar stockholders equal to the fair market value of the LNR stock
they receive in the Distribution.
The Distribution will be carried out by Lennar's distributing to
holders of its common stock and its class B stock one share of LNR Common Stock
for each share of Lennar common stock or Lennar class B common stock held of
record on the Distribution Record Date, except that holders of either class of
Lennar stock may elect on or before [ ______________ ], 1997 to receive instead
one share of LNR Class B Stock for each share of Lennar common stock or Lennar
class B common stock held of record on the Distribution Record Date. See "The
Distribution -- Election to Receive LNR Class B Stock." The Distribution is
conditioned upon, among other things, the receipt of a ruling from the IRS that
the transaction will be a tax-free spin-off for Federal income tax purposes. See
"Certain Federal Income Tax Consequences of the Distribution."
LNR's Class B Stock will be identical with its Common Stock, except
that (a) each share of Class B Stock will be entitled to ten votes on each
matter, while each share of Common Stock will be entitled to one vote, (b) the
cash dividends paid with regard to a share of Class B Stock in a year cannot be
more than 90% of the cash dividends paid with regard to a share of Common Stock
in that year, (c) the Class B Stock cannot be transferred, except to close
relatives of the Class B stockholder, fiduciaries for the Class B stockholder or
for close relatives, or entities of which the Class B stockholder or close
relatives are majority owners, (d) Class B Stock may at any
10
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time be converted into Common Stock, but Common Stock may not be converted into
Class B Stock, (e) amendments to LNR's Certificate of Incorporation relating to
its Common Stock or Class B Stock require the approval of holders of a majority
of the shares of Common Stock which are voted with regard to them, as well as
holders of a majority in voting power of the shares of both classes combined,
and (f) under Delaware law, certain matters affecting the rights of holders of
the Class B Stock may require approval of holders of the Class B Stock voting as
a separate class.
Leonard Miller, the Chairman of the Board of Lennar, holds through
family partnerships 9,930,030 shares of Lennar class B common stock and 9,197
shares of Lennar common stock, which is approximately 27.6% of all the
outstanding Lennar stock (and is 99.6% of the outstanding Lennar class B common
stock). Therefore, he is entitled to approximately 79% of the votes which can be
cast by the holders of both classes of Lennar stock voting together. Mr. Miller
has stated he intends to elect to receive LNR Class B Stock with respect to all
his Lennar stock. If Mr. Miller were the only Lennar stockholder to elect to
receive LNR Class B Stock, he would be entitled to approximately 79% of the
votes which can be cast by holders of LNR Common Stock and LNR Class B Stock
combined. While all holders of Lennar common stock and Lennar class B common
stock may elect to receive LNR Class B Stock instead of LNR Common Stock,
because the holders of LNR Class B Stock will receive lower per share dividends
than the holders of LNR Common Stock (if there are any dividends) and the LNR
Class B Stock must be converted into LNR Common Stock before it can be
transferred (other than to close relatives of the Class B stockholder, or
fiduciaries for, or entities majority-owned by, the Class B stockholder or close
relatives), Lennar believes it is unlikely many holders of Lennar common stock
will elect to receive LNR Class B Stock, and it is likely that most, if any,
people other than Leonard Miller who elect to receive LNR Class B Stock will
relatively soon convert it into LNR Common Stock in order to be able to sell it
or otherwise dispose of it. Mr. Miller has no current intention of converting
any significant number of shares of LNR Class B Stock into LNR Common Stock,
although he would be free to do so at any time.
Although the distribution of stock to the Lennar stockholders will end
Lennar's ownership of the Company, and therefore make the Company legally
independent of Lennar, there will continue to be substantial relationships
between Lennar and the Company. Principal among these will be indemnifications
by LNR of Lennar under the Separation and Distribution Agreement against, among
other things, liabilities not related to Lennar's homebuilding business and tax
and other liabilities if it were determined that the Distribution is not
tax-free. The relationships between Lennar and the Company also will include (a)
initially the stockholders of LNR will be the same persons as the stockholders
of Lennar, (b) even after there have been changes in the ownership of the common
stock of Lennar and of LNR, it is expected that Leonard Miller will have voting
control of both companies through his ownership of class B common stock of both
companies, (c) Stuart Miller will be the chief executive officer of Lennar and
the Chairman of the Board of LNR, (d) Leonard Miller will be the Chairman of the
Board of Lennar and a director of LNR, (e) Steven Saiontz, the Chief Executive
Officer of LNR, will be a director of Lennar, (f) LNR and Lennar will each own
50% of Lennar Land Partners (a partnership which will be managed by Lennar and
will own primarily properties suitable for residential developments which are
acquired from Lennar or at Lennar's suggestion, and as to which in many
instances Lennar will have purchase options), (g) Lennar leases some office
space from LNR and (h) LNR and Lennar will, for a period after the Distribution,
share some computers and computer service personnel, and other facilities. See
"Relationships Between LNR and Lennar."
Lennar stockholders who have questions about the Distribution should
call Lennar toll-free at (800) , Monday through Friday, 9:00 a.m. to 5:30
p.m. (Eastern time). After the Distribution Date, LNR stockholders may address
questions to LNR Investor Relations during normal business hours at 760
Northwest 107th Avenue, Miami, Florida 33172, or by telephone at (305) 485-2000.
NO ACTION IS REQUIRED BY A LENNAR STOCKHOLDER IN ORDER TO RECEIVE LNR
COMMON STOCK IN THE DISTRIBUTION.
ANY LENNAR STOCKHOLDER WHO WISHES TO ELECT TO RECEIVE LNR CLASS B STOCK
IN THE DISTRIBUTION MUST DELIVER AN ELECTION FORM TO LENNAR AT 700 NORTHWEST
107th AVENUE, MIAMI, FlORIDA 33172, NOT LATER THAN 5:00 P.M., MIAMI, FLORIDA,
TIME ON [ ], 1997.
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RISK FACTORS
There are a number of factors about LNR of which investors should be
particularly aware. They are as follows:
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The historical financial information about the Company included in this
Information Statement relates to periods when the entities which currently
constitute the Company were subsidiaries of Lennar. The Company's results of
operations during those periods are not necessarily the same as they would have
been if LNR and its subsidiaries had operated as a separate, stand-alone group
during those periods. Also, LNR intends to take a number of steps after the
Distribution which should affect the results of the Company's operations, and
could significantly increase the level of its borrowings. While LNR will take
steps in order to improve the results of the Company's earnings, these steps
may not accomplish an improvement and could have a negative effect upon the
Company. See "Risk of Leveraged Investment Activities."
ABSENCE OF HISTORY AS A STAND-ALONE GROUP
LNR and its subsidiaries have never operated as a stand-alone group of
companies.
RISK OF LEVERAGED INVESTMENT ACTIVITIES
One of the reasons for separating LNR and its subsidiaries from Lennar
is to enable the Company to increase its borrowings and therefore increase the
investments it can make. While increased borrowing leverage can substantially
increase the Company's earnings potential, it also will expose the Company to
increased risks if because of changes in market conditions, changes in interest
rates or for any other reason, the value of its investment assets declines.
CYCLICAL NATURE OF THE BUSINESS
Most aspects of the United States real estate markets are cyclical. To
some extent, the cycles for different types of real estate assets (such as for
single family homes and for office buildings) are different. However, all
aspects of the real estate markets are affected by interest rates, with the
value of various types of real estate tending to decline relative to non-real
estate assets when interest rates are high. All aspects of the real estate
markets also may be affected by changes in the economy in general. Because a
significant portion of the Company's business involves acquiring distressed
mortgages, properties and real estate related securities at discounted prices,
periods of low real estate values have in the past provided growth opportunities
for the Company. However, although future periods of poor real estate markets
may provide additional acquisition opportunities for the Company, they also may
seriously impair the value of the assets the Company already holds and the
Company's ability to dispose of assets at prices which are acceptable to it.
In accordance with the Company's strategy of trying to enhance the
value of assets it acquires and sell those assets at prices which reflect the
enhanced values, during periods when real estate markets are strong, the Company
tends to accelerate the rate at which it sells assets. Conversely, when real
estate markets are strong, there may be fewer opportunities for the Company to
acquire assets at prices which are likely to generate the returns which the
Company seeks. While the Company believes there are attractive investment
opportunities even when real estate markets are strong (for example, during
1997, it has made several investments in development or redevelopment projects,
which should benefit from a strong real estate market), the Company's rate of
asset acquisitions during periods of strong real estate markets may be slower
than it is during periods of weaker real estate markets.
NO CORPORATE BORROWING ARRANGEMENTS
Although LNR expects to arrange credit lines based on its consolidated
creditworthiness which can be used to acquire assets or for general corporate
purposes, it has not yet done so. Currently, the Company has leveraged a number
of its investments by borrowing against the security of particular assets.
However, in periods of weaker
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<PAGE>
real estate markets, lenders may be less willing to lend against the collateral
of some types of assets in which the Company invests than they are in periods of
strong real estate markets. Further, many of the loans collateralized by
specific assets are guaranteed by Lennar, and Lennar will not be guaranteeing
the Company's borrowings after the Distribution (except to the extent of
pre-Distribution guarantees which are not discharged by the time of the
Distribution). The Company expects to have a consolidated net worth at the time
of the Distribution of more than $550 million, and believes it will be able to
arrange significant credit lines based on this net worth. However, because
opportunities for the Company to acquire the types of assets it seeks increase
during downturns in the real estate markets but those are the periods when the
Company is likely to find it difficult to borrow against particular assets it is
acquiring, the Company's long term performance could be seriously impeded if it
were unable to arrange credit lines based upon its consolidated
creditworthiness.
GUARANTY OF LENNAR NET WORTH
It is contemplated that the assets and liabilities of Lennar and its
subsidiaries will be divided between LNR and its subsidiaries and Lennar and its
homebuilding subsidiaries so (i) Lennar and its homebuilding subsidiaries will,
at the time of the Pacific Greystone Merger, have a net worth (with specified
adjustments) of $200 million plus an amount approximating the anticipated
earnings of Lennar and its homebuilding subsidiaries from August 31, 1997 to the
Effective Time of the Pacific Greystone Merger, and (ii) the remaining net worth
of Lennar and its subsidiaries (which is expected to exceed $550 million) will
be transferred to LNR and its subsidiaries. The Plan and Agreement of Merger
between Lennar and Pacific Greystone (the "Merger Agreement") provides for an
audit of the balance sheet of Lennar immediately before the Effective Time of
the Pacific Greystone Merger, and the Separation and Distribution Agreement
provides that to the extent it is determined that Lennar's net worth at the
Effective Time of the Merger (as adjusted) was less than the required amount,
LNR will have to make a payment to Lennar equal to the amount of the deficiency
plus interest. On the other hand, to the extent Lennar's net worth at the
Effective Time of the Pacific Greystone Merger is more than the required amount,
Lennar will make a payment to LNR equal to the excess amount. While Lennar will
attempt to divide its assets and liabilities between LNR and its subsidiaries
and Lennar and its homebuilding subsidiaries so the net worth of Lennar and its
homebuilding subsidiaries at the Effective Time of the Pacific Greystone Merger
will be very close to the required amount, if because of period-end adjustments
or otherwise, it eventually is determined that the net worth of Lennar and its
homebuilding subsidiaries at the Effective Time of the Pacific Greystone Merger
was substantially less than the required amount, LNR could be required to make a
significant payment to Lennar.
INDEMNIFICATION OF LENNAR IN CASE THE DISTRIBUTION IS NOT TAX-FREE
The Separation and Distribution Agreement provides that if it is
ultimately determined that the Distribution did not qualify as a transaction in
which the LNR stock distributed to the Lennar stockholders does not result in
income or gain to the Lennar stockholders and does not require Lennar to
recognize income or gain, other than because of actions taken by Lennar after
completion of the Pacific Greystone Merger, and as a result Lennar incurs any
liabilities for taxes, interest or penalties to any taxing jurisdiction which it
would not have incurred if the Distribution had been tax-free, LNR will pay
Lennar an amount equal to the liabilities incurred for taxes, interest and
penalties as a result of the Distribution and all related accounting, legal and
professional fees, as well as any costs, expenses or damages Lennar incurs as a
result of stockholder litigation or controversies because the Distribution is
not tax-free. Either Lennar or LNR can refuse to proceed with the Distribution
unless Lennar obtains a ruling from the Internal Revenue Service that the
Distribution will be tax-free. Lennar believes that if it obtains that ruling,
the possibility that the Internal Revenue Service will subsequently assert that
the Distribution was not tax-free and will be successful in that assertion is
very small. However, if it were determined that the ruling was issued on the
basis of an inaccurate statement of facts, or if events occur after the ruling
is issued which Lennar or its principal stockholder had stated would not occur,
the Internal Revenue Service could ignore the ruling and seek to demonstrate
that the Distribution was not tax-free. If it were determined that the
Distribution was not tax-free, Lennar could be taxed on the entire amount by
which the fair value of LNR at the time of the Distribution exceeds Lennar's
basis in the stock of LNR. LNR would be required to reimburse Lennar for the
Federal tax on this amount (probably at a tax rate of 35%), plus interest and
any penalties Lennar is required to pay to the Internal Revenue Service, as well
as any state or other taxes resulting from the Distribution. This could require
LNR and
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<PAGE>
its subsidiaries to dispose of substantial portions of their assets, and could
substantially impair the ability of LNR and its subsidiaries to conduct their
activities as they expect to conduct them.
ABSENCE OF A PRIOR PUBLIC MARKET FOR LNR COMMON STOCK
There currently is no public market for LNR's Common Stock. Although
LNR has applied to list its Common Stock on the New York Stock Exchange, there
is no historical basis for predicting the prices at which the LNR Common Stock
will trade or how actively it will be traded. Also, until the LNR Common Stock
is fully distributed and an orderly trading market develops, the prices at which
the LNR Common Stock trades may fluctuate more than will subsequently be the
case.
The prices at which LNR Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
Company's performance and prospects, the depth and liquidity of the market for
LNR's Common Stock, investor perception of LNR and of the commercial real estate
industry, LNR's dividend policy, general financial and other market conditions,
and United States economic conditions generally.
Because of the limitations on transfers of LNR Class B Stock, no
trading market in LNR's Class B Stock should develop. Any owner of LNR Class B
Stock who wants to dispose of that stock (other than to close relatives or in
similar transactions), will have to convert the stock into LNR Common Stock and
dispose of the LNR Common Stock. Therefore, a holder of LNR Class B Stock will
not be able to benefit through sale from the fact that a share of LNR Class B
Stock entitles the holder to ten times the vote available to a holder of a share
of LNR Common Stock.
POSSIBILITY OF SUBSTANTIAL SALES OF LNR COMMON STOCK
The Distribution could involve the distribution of more than 26 million
shares of LNR Common Stock to Lennar stockholders. Substantially all those
shares will be eligible for immediate resale in the public market. Neither
Lennar nor LNR can predict how much LNR Common Stock will be sold in the market
shortly after the Distribution. Sales of a substantial amount of LNR Common
Stock in a short time period, or the perception that such sales might occur,
whether as a result of the Distribution or otherwise, could materially adversely
affect the market price of LNR's Common Stock. See "The Distribution -- Listing
and Trading of LNR Stock."
ANTITAKEOVER EFFECTS OF LNR CLASS B STOCK
Because LNR's Class B Stock has substantially greater voting rights
than LNR's Common Stock, as long as Leonard Miller owns a substantial portion of
the LNR Class B Stock he receives in the Distribution, his ownership of that
Class B Stock would make it impossible for anyone to acquire shares which have
voting control of LNR. Therefore, Mr. Miller's ownership of Class B Stock
probably would discourage any non-negotiated tender offers or other
non-negotiated efforts to take over LNR, if any were contemplated.
UNAVAILABILITY OF POOLING OF INTERESTS METHOD
The issuance of the Class B Common Stock may preclude LNR from
accounting for business combinations using the "pooling of interests" method.
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<PAGE>
THE DISTRIBUTION
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
LNR currently is a wholly owned subsidiary of Lennar, engaged in the
real estate investment and management business. The Distribution will separate
Lennar's homebuilding business from its real estate investment and management
business. Until the early 1990's, Lennar's principal business was homebuilding.
However, at least since 1991, Lennar has had an active real estate investment
and management business. Nonetheless, most of the analysts who regularly report
about Lennar specialize in homebuilding companies and most of their reports have
analyzed Lennar on the basis of standards normally applied to homebuilding
companies. Because of this, Lennar has had to maintain financial statement
ratios, including a ratio of consolidated debt to equity, which are customary
for homebuilding companies. Lennar's banks also have required Lennar to maintain
financial statement ratios which are customary for homebuiding companies.
Typically, companies which invest in real estate securities and real estate
assets of the type held by the Company have substantially higher ratios of debt
to equity than do homebuilding companies. Therefore, following the Distribution,
LNR and its subsidiaries should be able to borrow substantially greater sums,
and because of this to make substantially more investments, than they can as
part of Lennar.
In addition, Lennar believes that the price of its stock has not
reflected the full value of its real estate investment and management business.
Therefore, Lennar has for many years been unwilling to use stock to acquire
other companies. After the Distribution, Lennar will no longer own the real
estate investment and management business, and therefore will not have to be
concerned about the possibility that the price of its stock does not reflect the
full value of that business. Because of that, Lennar will be willing to use its
stock for acquisitions after the Distribution. It has agreed to acquire Pacific
Greystone Corporation, another New York Stock Exchange listed homebuilding
company, in a stock merger which will take place after the Distribution is
completed (and will not take place unless the Distribution is completed).
Also, after the Distribution, LNR will be able to use its stock to make
acquisitions if it chooses to do so (although it does not currently have any
acquisition transactions pending in which it would use stock). In addition, LNR
will be able to give employees engaged in its real estate investment and
management business stock based and other incentives which relate solely to that
business.
TERMS OF THE DISTRIBUTION
Lennar will distribute to each holder of its common stock or its class
B common stock of record at the close of business on [ _______ ], 1997 (the
"Distribution Record Date"), one share of LNR Common Stock for each share of
Lennar common stock or Lennar class B common stock held by the stockholder,
unless the stockholder notifies Lennar, not later than 5:00 P.M., Miami, Florida
time, on [ _______ ], 1997, that the Lennar stockholder elects to receive one
share of LNR Class B Stock for each share of Lennar stock, instead of receiving
LNR Common Stock. See "Distribution -- Election to Receive LNR Class B Stock." A
description of LNR's Common Stock and Class B Stock appears under the caption
"Description of Capital Stock." Among the differences between LNR's Common Stock
and its Class B Stock is that (a) the Class B Stock is entitled to ten votes per
share while the common stock is entitled to one vote per share, (b) the per
share cash dividends with regard to the Class B Stock in a year may not be more
than 90% of the per share cash dividends paid with regard to the Common Stock in
that year, (c) the Class B Stock cannot be transferred, except to close
relatives of the holder, fiduciaries for the holder or close relatives, or
entities of which the holder or close relatives are majority owners and (d)
Class B Stock may be converted into Common Stock, but Common Stock may not be
converted into Class B Stock.
On [ ____________ ], 1997, or as soon as practicable after that date,
Lennar will mail certificates representing the shares of LNR Common Stock or LNR
Class B Stock which Lennar stockholders are to receive in the Distribution or
will credit those shares of LNR stock to appropriate accounts with The
Depositary Trust Company or other clearing facilities.
NO HOLDER OF LENNAR COMMON STOCK OR OF LENNAR CLASS B COMMON STOCK WILL
BE REQUIRED TO MAKE ANY PAYMENT, TO SURRENDER OR EXCHANGE SHARES OF LENNAR
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<PAGE>
COMMON STOCK OR LENNAR CLASS B COMMON STOCK OR TO TAKE ANY OTHER ACTION IN ORDER
TO RECEIVE LNR COMMON STOCK IN THE DISTRIBUTION.
LENNAR STOCKHOLDERS WHO WANT TO RECEIVE LNR CLASS B STOCK IN THE
DISTRIBUTION MUST NOTIFY LENNAR NOT LATER THAN 5:00 P.M., MIAMI, FLORIDA TIME,
ON [ ], 1997 OF THEIR ELECTIONS TO RECEIVE LNR CLASS B STOCK. SEE "THE
DISTRIBUTION -- ELECTION TO RECEIVE LNR CLASS B STOCK."
ELECTION TO RECEIVE LNR CLASS B STOCK
Each Lennar stockholder will receive LNR Common Stock in the
Distribution, regardless of the class of Lennar stock which the stockholder
owns, unless the Lennar stockholder makes a timely election to receive LNR Class
B Stock. In order to make a timely election, a Lennar stockholder must transmit
a Notice of Election to Lennar which is received by Lennar not later than 5:00
P.M., Miami, Florida time on [ ________ ], 1997. The Notice of Election may be
in the form of Exhibit A to this Information Statement, or may be in any other
form which clearly states (i) the name of the stockholder making the election,
(ii) the number of shares of Lennar common stock or Lennar class B common stock
as to which the election is being made and (iii) that with regard to the Lennar
stock as to which the election is being made, the Lennar stockholder elects to
receive shares of LNR Class B Stock instead of receiving LNR Common Stock. It
will be up to a Lennar stockholder to determine how to send a Notice of Election
to Lennar. HOWEVER, A NOTICE OF ELECTION WILL NOT BE HONORED UNLESS IT IS
RECEIVED BY LENNAR AT 700 NORTHWEST 107TH AVENUE, MIAMI, FLORIDA 33172 BY 5:00
P.M. MIAMI, FLORIDA TIME ON [ _______ ], 1997.
The principal benefit of owning LNR Class B Stock instead of LNR Common
Stock is that the LNR Class B Stock is entitled to ten votes per share, while
the LNR Common Stock is only entitled to one vote per share. On the other hand
(i) the per share dividend with respect to the LNR Class B Stock in a year must
be lower than the per share dividend (if any) with respect to LNR's Common Stock
in that year, and (ii) the LNR Class B Stock is subject to restrictions on
transfer which make it untradeable. The only way to dispose of LNR Class B Stock
other than to close relatives or in similar dispositions, is to convert the LNR
Class B Stock into LNR Common Stock. However, once LNR Class B Stock is
converted into LNR Common Stock, it cannot be converted back into LNR Class B
Stock. Therefore, a holder of LNR Class B Stock cannot benefit in the market
from the special voting rights of the LNR Class B Stock. Leonard Miller, who
owns 99.6% of Lennar's Class B Common Stock, has stated he intends to elect to
receive LNR Class B Stock. LNR expects that few, if any, other Lennar
stockholders will elect to receive LNR Class B Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution is intended to qualify as a tax-free distribution
under Section 355 of the Code. The Distribution is conditioned upon receipt by
Lennar of a ruling to that effect from the Internal Revenue Service. If the
Distribution qualifies as a tax-free distribution under Section 355 of the Code,
neither Lennar nor LNR will recognize any income, gain or loss with respect to
the Distribution, and Lennar stockholders will not recognize any income, gain or
loss upon the receipt of LNR stock in the Distribution. A Lennar stockholder's
tax basis in the Lennar stock with respect to which LNR Common Stock or LNR
Class B Stock is received will be apportioned between the Lennar stock and the
LNR stock in proportion to their respective fair market values on the
Distribution Date. If a Lennar stockholder holds blocks of Lennar common stock
or Lennar class B stock that were purchased at different times or for different
prices, the allocation of basis must be calculated separately for each of those
blocks of Lennar stock. The holding period for LNR stock received in the
Distribution will include the period during which the recipient held the shares
of Lennar common stock or Lennar class B common stock with respect to which the
LNR stock was issued, provided the Lennar shares are held as capital assets.
Each Lennar stockholder who receives LNR stock in the Distribution must
attach to the Lennar stockholder's Federal income tax return for the year in
which the LNR stock is received a statement which describes the applicability of
Section 355 of the Internal Revenue Code to the Distribution. Lennar will
provide each of its stockholders with the information necessary to comply with
this requirement.
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Each Lennar stockholder is urged to consult the stockholder's own tax
advisor with respect to the tax consequences of the Distribution to that
stockholder, particularly under state and local tax laws and of tax laws of
jurisdictions outside the United States.
LISTING AND TRADING OF LNR STOCK
There currently is no public market for LNR Common Stock. LNR has
applied to list its Common Stock on the New York Stock Exchange and expects that
trading on the New York Stock Exchange will begin on [the Distribution Record
Date.]
Shares of LNR Common Stock distributed to Lennar stockholders in the
Distribution will be freely transferable, except that affiliates of LNR will
have to comply with requirements of the Securities Act of 1933, as amended (the
"Securities Act"). Affiliates of LNR are individuals or entities that control,
are controlled by, or are under common control with, LNR, and may include
certain officers and directors of LNR, as well as its principal stockholders. It
is likely that Leonard Miller is the only person who would be deemed to be an
affiliate of LNR solely because of stock holdings. Affiliates of LNR will be
permitted to sell their shares of LNR Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(2) of the Securities Act (relating to private sales) or by Rule 144
under the Securities Act.
Because LNR's Class B Stock may only be transferred to close relatives
of the holder, fiduciaries for the holder or close relatives, or entities which
are majority-owned by the holder or close relatives, LNR does not expect a
trading market for its Class B Stock to develop.
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<PAGE>
CAPITALIZATION
Set forth below is the capitalization of LNR at May 31, 1997 and as
adjusted to give effect to (i) the Distribution and the other transactions
contemplated by the Separation and Distribution Agreement and (ii) the formation
of the Land Partnership (see "Business-Lennar Land Partners") and acquisition by
the Company of a 50% interest in it.
ACTUAL AS ADJUSTED
-------- -----------
(In Thousands)
DEBT:
Short term debt $156,256 107,530
Current portion of long term debt 14,360 14,360
Long term debt, net of current portion 199,349 199,349
------- -------
Total debt 369,965 321,239
------- -------
PARENT COMPANY INVESTMENT/STOCKHOLDERS' EQUITY
AS ADJUSTED:
Parent Company investment 370,382 -
Common stock (1) - 3,603
Additional paid-in capital - 525,153
Unrealized gains on securities available-for-
sale, net 13,761 13,761
------- -------
Total Parent Company investment/
stockholders' equity as adjusted 384,143 542,517
------- -------
Total debt and Parent Company
investment/stockholders' equity
as adjusted $754,108 863,756
======== ========
(1) Includes both LNR Common Stock and LNR Class B Common Stock. The number of
shares of each of those classes of stock which will be outstanding will
depend primarily on how many holders of Lennar common stock elect to
receive LNR Class B Stock in the Distribution. The number of shares which
will be outstanding also will be affected by the number of Lennar stock
options, if any, which are exercised before the Distribution Record Date.
At May 31, 1997, Lennar had outstanding stock options entitling the
holders to purchase a total of 1,287,700 shares of Lennar common stock, of
which options relating to 257,100 shares were then exercisable or would
become exercisable within 60 days.
DIVIDEND POLICY
The Board of Directors of LNR expects to adopt a dividend policy prior
to the Distribution Date. If the Board of Directors adopts a dividend policy, it
may change the policy at any time. In deciding whether to declare dividends, the
Board of Directors will consider the Company's earnings and cash flow, its
financial condition, its need for and availability of funds and any other
factors the Board of Directors deems relevant.
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SELECTED FINANCIAL DATA
The following table presents selected combined financial data regarding
LNR and its subsidiaries. The information set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined financial statements
included elsewhere in this Information Statement.
The combined financial statements of the Company have been prepared
and are presented to reflect the Company as a separate combined group for all
periods presented and have been extracted from the financial statements of
Lennar using Lennar's historical results of operations and historical cost basis
of its assets and liabilities which are used in the businesses being operated by
the Company (including some assets and liabilities which were not recorded as
belonging to current LNR subsidiaries, but which were used primarily in
connection with their businesses). Expenses which related both to the businesses
operated by the Company and the businesses retained by Lennar have been
allocated on a basis which both Lennar and the Company believe is reasonable.
However, the expenses allocated to the Company are not necessarily the same as
those the Company would have incurred if it had operated independently, and in
general, the results of operations reflected in the combined financial
statements of LNR and its subsidiaries are not necessarily the same as those
which would have been realized if the Company had been operated independently of
Lennar during the periods to which those financial statements relate.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MAY 31, YEARS ENDED NOVEMBER 30,
----------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF
OPERATIONS
Revenues ................ $101,104 $ 84,672 $175,692 $155,212 $114,252 $ 63,073 $ 48,814
Operating income ........ 56,316 49,882 97,980 81,099 58,881 32,399 20,511
Earnings before income
taxes ................ 43,115 39,890 77,467 66,407 53,193 29,021 17,653
Net earnings ............ 26,300 24,333 47,255 40,508 32,498 18,574 11,344
FINANCIAL POSITION
(End of Period)
Total assets ............ 793,092 721,076 752,968 652,400 547,722 310,355 205,794
Total debt .............. 369,965 303,347 354,406 252,256 119,935 34,163 42,733
Parent Company investment 384,143 390,849 367,048 370,903 396,403 266,965 155,606
</TABLE>
Pro forma financial information, giving effect to contributions to the
capital of the Company by Lennar in connection with the Distribution and
reflecting the Company's expected contribution to Lennar Land Partners, appears
under the capition "Pro Forma Financial Data."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS INFORMATION WHICH CONSTITUTES FORWARD LOOKING
STATEMENTS. FORWARD LOOKING STATEMENTS INHERENTLY INVOLVE RISKS AND
UNCERTAINTIES. THE FACTORS, AMONG OTHERS, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE FORWARD LOOKING STATEMENTS IN THIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDE
(I) CHANGES IN INTEREST RATES, (II) CHANGES IN DEMAND FOR COMMERCIAL REAL ESTATE
NATIONALLY, IN AREAS IN WHICH THE COMPANY OWNS PROPERTIES, OR IN AREAS IN WHICH
PROPERTIES SECURING MORTGAGES DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY ARE
LOCATED, (III) NATIONAL OR REGIONAL BUSINESS CONDITIONS WHICH AFFECT THE ABILITY
OF MORTGAGE OBLIGORS TO PAY PRINCIPAL OR INTEREST WHEN IT IS DUE, AND (IV) THE
CYCLICAL NATURE OF THE COMMERCIAL REAL ESTATE BUSINESS.
OVERVIEW
The Company is engaged primarily in (i) developing, acquiring, and
actively managing commercial and residential multi-family rental real estate,
(ii) acquiring, itself or through partnerships which it manages, portfolios of
commercial mortgage loans and properties and providing workout, property
management and asset sale services with regard to the portfolio assets, (iii)
acting as special servicer with regard to pools of commercial mortgages which
are the subject of commercial mortgage backed securities ("CMBS"), (iv)
acquiring unrated and rated CMBS issued with regard to mortgage pools as to
which it will be the special servicer, and (v) making mortgage loans to
companies and individuals engaged in commercial real estate activities and to
developers and builders of residential communities.
LNR was formed by Lennar, which contributed to LNR all Lennar's
subsidiaries which were engaged in the businesses described in the preceding
paragraph and assets of other Lennar subsidiaries which are used primarily in
connection with those businesses. LNR and Lennar have entered into a Separation
and Distribution Agreement, and may enter into other agreements, providing for
the separation of the companies into independent groups and governing various
relationships between them.
Although Lennar had been involved in the ownership and management of
commercial and residential multi-family rental real estate since 1969, it was
not until 1991 that it began to be actively involved in acquiring portfolios of
distressed loans and related real estate, acquiring CMBS and making commercial
mortgage loans. Primarily, as a result of those activities, between fiscal 1992
and fiscal 1996, the Company's revenues increased from $48.8 million to $175.7
million, its net earnings increased from $11.3 million to $47.3 million and its
total assets increased from $205.8 million to $753.0 million. During this
period, the Company's net earnings as a percentage of Lennar's investment
increased from 7.3% in 1992 to 12.9% in 1996.
A significant portion of the Company's assets were acquired at
substantial discounts from their face amounts because they were portfolios of
distressed mortgages and other underperforming real estate assets or because
they were subordinated CMBS. The Company generally will not acquire assets of
that type unless it has the right to control and direct the workout, property
improvement, leasing and disposition of the assets, and therefore attempt to
enhance the value of the assets. The Company's returns with regard to the assets
reflect both the ongoing cash flows from debt payments or rental income and any
appreciation in the value of the assets as a result of the Company's efforts or
because of changes in real estate markets.
Strong real estate markets help the Company generate gains from
dispositions of assets it acquired during periods of weaker real estate markets.
However, during periods of strong real estate markets, there are fewer
opportunities for the Company to acquire assets at substantial discounts than
there are during periods of weak real estate markets. Therefore, during periods
of strong real estate markets, the Company has to seek other types of
investments from which it expects to generate its desired returns. The
combination of sales of assets in order to benefit from appreciation in their
values and the need to find suitable investment opportunities in periods of
strong real estate markets could affect the rate at which the Company's total
assets grow.
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The combined financial statements of the Company are extracted from the
financial statements of Lennar using the historical results of operations and
historical cost basis of the assets and liabilities of Lennar's real estate
investment and management businesses. Additionally, the combined financial
statements of the Company include certain assets, liabilities, revenues and
expenses that were not historically recorded as assets of those businesses, but
are primarily associated with them. Management believes the assumptions
underlying the Company's financial statements are reasonable. However, those
financial statements may not reflect the results of operations, financial
position and cash flows the Company would have realized if it had operated as a
separate, stand-alone group during the periods presented, rather than as part of
the larger Lennar enterprise. The financial information included in this
Information Statement does not reflect any changes that may occur in the
funding or operations of the Company as a result of the Distribution. The
pro forma effect of those changes upon the Company's historical operating
results and financial condition is, however, shown under "Pro Forma Financial
Data."
RESULTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996 COMPARED WITH YEAR ENDED NOVEMBER 30, 1995
Rental income increased to $59.2 million in 1996 from $51.7 million in
1995, due primarily to the acquisition of a 36-story office building in downtown
Atlanta during the first quarter of 1996. The cost of rental operations
increased to $35.1 million in 1996 from $27.8 million in 1995. The increase was
due primarily to the acquisition of the office building, but also reflected an
increase in repairs and maintenance incurred during 1996.
Equity in earnings of partnerships increased to $51.9 million in 1996
from $31.2 million in 1995. This was because of increased earnings of the
partnerships themselves, due to increases in the collections with regard to
distressed loans, foreclosed properties and other assets which had been acquired
by the partnerships, resulting to some extent from an improvement in the real
estate market, and to some extent from management of the assets. Most of the
Company's investments in partnerships occurred between 1992 and 1995. Because
the purchase price of assets acquired by the partnerships is allocated among the
assets on the basis of their relative values at the time of the purchase, there
is generally little profit from dispositions of partnership assets shortly after
they are acquired. Therefore, the partnerships in which the Company invests tend
to generate greater profits as they mature, at least while real estate markets
are strong and until the partnerships become significantly liquidated.
Partnership distributions received by the Company in 1996 were $95.4
million, which was substantially greater than the Company's equity in earnings
of the partnerships of $51.9 million. This was because as assets were
liquidated, the partnerships received and could distribute a significant portion
of the liquidating proceeds whereas partnership earnings are only based on net
liquidation proceeds in excess of book basis.
Interest income increased to $30.5 million in 1996 from $21.0 million
in 1995. The increase was due primarily to the Company's increased investments
in CMBS and mortgage loans, which grew to $260.5 million and $67.7 million,
respectively, at November 30, 1996 from $163.3 million and $53.9 million,
respectively, at November 30, 1995. Because of uncertainties as to the amount
the Company will collect with regard to a CMBS over the life of its investment,
the Company records interest received plus amortization of the difference
between the carrying value and the face amount of the securities using a
methodology which results in a level yield. To date, this had resulted in less
recognition of interest income than interest received. The excess interest
received is applied to reduce the Company's investment.
Sales of real estate were $15.9 million in 1996 compared with $38.2
million in 1995. Gains on sales of real estate were $3.7 million in 1996,
compared with $15.8 million in 1995. The 1995 sales of real estate and gains on
those sales were substantially affected by a sale of a recreational facility in
1995 for $16.5 million. There were no sales of comparable size in 1996.
Management fees increased to $18.2 million in 1996 from $10.3 million
in 1995. These fees typically are based on the amount of assets managed, the
performance of assets or partnerships, or both. The 1996 increase was due
primarily to incentive fees received from partnerships managed by the Company
(including an incentive fee of $9.6 million received from one partnership which
liquidated a significant portion of its assets in 1996), coupled with
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an increase in special servicing fees earned in 1996. The special servicing fees
increased because of an increased number of mortgage pools as to which the
Company purchased CMBS and acts as special servicer.
General and administrative expenses increased to $23.7 million in 1996
from $18.3 million in 1995. This increase was attributable to a general increase
in the Company's operating cost, primarily relating to personnel costs,
including bonuses, and an increase in due diligence and other costs primarily
associated with CMBS investment activity.
During 1996 and 1995, interest expense of $20.5 million and $14.7
million, respectively, was incurred by the Company. Interest amounts incurred
and charged to expense in 1996 were greater than those in 1995 due to higher
debt levels. The higher debt levels, in turn, reflected increased borrowings to
finance the expansion of the Company's lines of business.
YEAR ENDED NOVEMBER 30, 1995 COMPARED WITH YEAR ENDED NOVEMBER 30, 1994
Rental income increased to $51.7 million in 1995 from $46.0 million in
1994, due primarily to the acquisition of retail, office and industrial
operating properties late in fiscal 1994, offset partially by loss of revenues
from a recreational facility which was sold during the second quarter of 1995,
and a similar recreational facility which was sold in the third quarter of 1994.
The cost of rental operations increased to $27.8 million in 1995 from $23.9
million in 1994, primarily because of the additional operating properties
acquired late in fiscal 1994.
Equity in earnings of partnerships increased to $31.2 million in 1995
from $20.7 million in 1994. This was due to an increase in the number of
partnerships in which the Company had investments, and increased earnings of the
partnerships themselves, resulting from increases in collections with regard to
distressed loans, foreclosed properties and other assets, to some extent
reflecting effects of improving real estate markets and maturing of the
partnerships.
Interest income increased to $21.0 million in 1995 from $11.6 million
in 1994. The increase was due primarily to the Company's increased investment in
CMBS, which grew to $163.3 million at November 30, 1995 from $88.5 million at
November 30, 1994. Because the Company records interest received and
amortization of purchase discounts with regard to CMBS using a methodology which
results in a level yield, in 1995, the Company received more in interest related
to CMBS than it recorded as interest income. The excess was applied to reduce
the Company's investment in the CMBS.
Sales of real estate were $38.2 million in 1995 compared with $21.5
million in 1994. Gains on sales of real estate were $15.8 million in 1995,
compared with $9.1 million in 1994. The increases resulted from a higher level
of sales of land held for investment and operating properties in 1995.
Management fees decreased to $10.3 million in 1995 from $12.4 million
in 1994. The lower management fees in 1995 were due to a substantially lower
level of managed assets for one partnership because of asset dispositions and
due to an incentive payment by a partnership in 1994. These decreases were
partially offset by increased special servicing fees because of an increased
number of mortgage pools as to which the Company purchased CMBS and acts as
special servicer.
General and administrative expenses increased to $18.3 million in 1995
from $14.4 million in 1994, primarily as a result of increased personnel costs,
including bonuses, and higher due diligence and other costs associated with
partnerships and CMBS investment activity.
During 1995 and 1994, interest expense of $14.7 million and $5.7
million, respectively, was incurred by the Company. The increased interest
expense in 1995 was due to higher debt levels, as a result of increased
borrowings to finance the expansion of the Company's lines of business.
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SIX MONTHS ENDED MAY 31, 1997 COMPARED WITH SIX MONTHS ENDED MAY 31, 1996
Equity in the earnings of partnerships decreased to $19.3 million in
the first six months of 1997 compared with $24.6 million in the first six months
of 1996. This was primarily due to one partnership which liquidated a
significant portion of its assets by 1996.
Partnership distributions received by the Company in the first six
months of 1997 were $29.1 million, which were substantially greater than the
Company's equity in earnings of the partnerships of $19.3 million. This was
because as assets were liquidated, the partnerships received and could
distribute a significant portion of the liquidation proceeds whereas partnership
earnings are only based on net liquidation proceeds in excess of book basis.
Interest income increased to $20.6 million in the first six months of
1997 from $15.0 million in the comparable 1996 period. The increase was
primarily due to the Company's increased investments in CMBS, which grew from
$203.4 million at May 31, 1996 to $286.5 million at May 31, 1997.
Sales of real estate increased to $18.3 million in the first six months
of 1997 from $5.3 million in the comparable 1996 period. The increase is due to
a higher number of sales transactions during 1997, which is consistent with the
Company's strategy of trying to enhance the value of assets it acquires and
selling those assets at prices which reflect the enhanced values during periods
when real estate markets are strong. Correspondingly, the cost of real estate
sold increased to $11.9 million in the first six months of 1997 from $2.8
million in the comparable 1996 period.
Management fees decreased to $6.4 million in the first six months of
1997 from $10.2 million in the comparable 1996 period. The 1997 decrease is
primarily due to the inclusion of incentive fees in 1996 related to the
liquidation of a significant portion of the assets of one of the partnerships,
offset by an increase in special servicing fees. The special servicing fees
increased because of an increased number of CMBS in which the Company invested
and as to which it acted as special servicer.
Other revenues increased to $6.4 million in the first six months of
1997 compared to 1996, primarily due to gains on the sale of investment
securities.
General and administrative expenses were $12.2 million in the first six
months of 1997 compared to $11.2 million in the comparable 1996 period. The
increase during 1997 is primarily due to a general increase in the Company's
operating costs, primarily related to personnel costs, including bonuses, and an
increase in due diligence and other costs primarily associated with CMBS
investment activity.
During the six months ended May 31, 1997 and 1996, interest expense of
$13.2 million and $10.0 million, respectively, was incurred by the Company.
Interest amounts incurred and charged to expense in 1997 were greater than those
in 1996 due to higher debt levels. The higher debt levels, in turn, reflected
increased borrowings to finance the expansion of the Company's lines of
businesses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has obtained the funds it used in its activities primarily
from its cash flow, from borrowings and from funds advanced by Lennar. While the
Company has been part of Lennar, borrowings have consisted of repurchase
agreements and loans secured by particular assets of the Company and borrowings
under Lennar revolving credit lines arranged specifically to finance purchases
of mortgaged backed securities and commercial assets. At November 30, 1996,
those revolving credit lines totalled $135.0 million and borrowings under them
totalled $97.6 million. In addition, the Company has received funds from Lennar,
which are treated as a Parent Company investment.
The Company used $11.7 million of cash in operating activities in 1996
compared with $1.6 million in 1995. The fact that operating activities were a
net user of cash resulted primarily from the fact that the net earnings of the
Company in those years included non-cash equity in earnings of partnerships of
$51.9 million in 1996 and $31.2 million in 1995. However, in those years, cash
distributions by those partnerships totalled $95.4 million and
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$93.9 million, respectively. Distributions from partnerships are classified as
cash provided by investing activities, not as cash from operating activities.
Even after subtracting investments in and advances to partnerships, the Company
received net distributions of $83.2 million and $23.5 million from its
partnership investing activities in 1996 and 1995, respectively.
Cash flows provided by investing activities totalled $3.5 million in
1996 compared with a net use of $28.8 million in investing activities in 1995.
The increased net cash from investing activities in 1996 compared with 1995 was
primarily attributable to substantially lower investments in partnerships, fewer
purchases of mortgage loans and more proceeds from sales of investment
securities, as well as more interest received from investment securities in
excess of interest recognized, partially offset by increased purchases of
investment securities and operating properties.
The Company also received cash from financing activities of $6.4
million in 1996 compared with $34.5 million in 1995. The decrease in cash
received from financing activities during 1996 was primarily due to reduced
borrowing activity under repurchase agreements and revolving credit lines,
partially offset by lower payments to Lennar in comparison with 1995. Although
cash borrowing activity decreased during 1996, outstanding debt for repurchase
agreements and revolving credit lines increased over $100 million to $283
million.
To date, the Company has had access to cash flow generated by Lennar's
combined operations, including its homebuilding business, and to Lennar's
corporate credit facilities, to help finance the Company's growth. After the
Distribution, the Company will no longer have access to the cash flow generated
by Lennar's homebuilding business or to Lennar's corporate credit facilities.
One of the reasons for the Distribution is that, because most of the
analysts who regularly report about Lennar specialize in homebuilding companies
and analyze Lennar on the basis of standards normally applied to homebuilding
companies, Lennar has had to maintain financial statement ratios, including a
ratio of consolidated debt to equity, which are customary for homebuilding
companies. Lennar's banks also required it to maintain financial statement
ratios which are customary for homebuilders. Typically, companies which invest
in real estate securities and real estate assets of the type held by the Company
have substantially higher debt to equity ratios than do homebuilding companies.
Therefore, it is expected that following the Distribution, the Company will be
able to borrow substantially greater sums than it can as part of Lennar.
The Company does not yet, however, have any corporate credit
facilities. It is in the early stages of attempting to arrange such facilities.
While its management is confident that credit facilities can be arranged for the
Company, it does not know the terms on which they will be arranged.
The Company believes the combination of its shareholders' equity, which
is expected to exceed $550 million at the time of the Distribution, its liquid
assets, cash flows and its ability to obtain borrowings will provide all the
funds the Company requires to meet its short-term needs and to meet its
long-term needs based upon its currently anticipated levels of growth.
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BUSINESS
OVERVIEW
LNR Property Corporation ("LNR" and, together with its subsidiaries,
the "Company") operates a real estate investment and management business which
engages primarily in (i) developing, acquiring and actively managing commercial
and residential multi-family rental real estate, (ii) acquiring itself or
through partnerships which it manages, portfolios of commercial mortgage loans
and properties and providing workout, property management and asset sale
services with regard to the portfolio assets, (iii) acting as special servicer
with regard to commercial mortgage pools which are the subject of CMBS, (iv)
acquiring unrated and rated CMBS issued with respect to commercial mortgage
pools as to which the Company acts as special servicer, and (v) making mortgage
loans to companies and individuals engaged in commercial real estate activities
and to developers and builders of residential communities. The Company also will
own a 50% interest in Lennar Land Partners (the "Land Partnership"), a
partnership which will acquire and develop, under a management agreement with
Lennar, land which had been acquired by Lennar for use in its homebuilding
business, and possibly to acquire in the future additional land which would be
suitable for homebuilding and similar purposes.
LNR was formed by Lennar in June 1997 to separate Lennar's homebuilding
business from its real estate investment and management business. Lennar has
transferred to LNR the Lennar subsidiaries which are engaged in the real estate
investment and management business, as well as some assets of its homebuilding
subsidiaries which are principally suitable for commercial development.
Activities conducted by Lennar, as predecessor to the Company, of the type
currently being conducted by the Company are treated below as historical
activities of the Company.
LNR has entered into an agreement with Lennar (the "Separation and
Distribution Agreement") under which they have agreed that at least until 2002,
Lennar and its homebuilding subsidiaries will not engage in the business of (i)
acquiring and actively managing commercial and residential multi-family rental
real estate other than as an incident to, or otherwise in connection with, their
homebuilding business, (ii) acquiring portfolios of commercial mortgage loans or
real estate assets acquired through foreclosures of mortgage loans, other than
real estate acquired as sites of homes to be built or sold as part of their
homebuilding business, (iii) making or acquiring mortgage loans, other than
mortgage loans secured by detached or attached homes or residential condominium
units, (iv) constructing office buildings or other commercial or industrial
buildings, other than small shopping centers, professional office buildings and
similar facilities which will be adjuncts to their residential developments, (v)
purchasing CMBS or real estate asset backed securities or (vi) acting as a
servicer or special servicer with regard to securitized commercial mortgage
pools. Lennar and its homebuilding subsidiaries will not, however, be prevented
from owning or leasing office buildings in which they occupy a majority of the
space; acquiring securities backed by pools of residential mortgages; acquiring
an entity which, when it is acquired, is engaged in one of the prohibited
activities as an incidental part of its activities; owning as a passive investor
an interest of less than 10% of a publicly traded company which is engaged in a
prohibited business; acquiring commercial paper or short-term debt instruments
of entities engaged in one or more of the prohibited businesses; or owning an
interest in, and managing, the Land Partnership.
In the Separation and Distribution Agreement, the Company has agreed
that at least until 2002, it will not engage in (a) building or selling single
family detached or attached homes or condominium units in low-rise residential
buildings, (b) developing properties primarily as sites of homes or condominium
units (other than properties included in portfolios acquired by the Company or
partnerships in which it is a partner which Lennar elects not to acquire for the
prices paid by LNR or the partnerships), (c) providing first mortgage financing
for the purchases of homes or condominium units or (d) providing first mortgage
refinancing of loans secured by homes or condominium units. The Company is not,
however, precluded from developing properties acquired upon default of mortgages
or as incidental portions of real estate portfolios until they can be disposed
of in an orderly manner; selling as condominium units apartments in multi-family
buildings which, when the buildings or mortgages secured by them were acquired
by the Company, were being operated as rental buildings; acquiring securities
backed by pools of residential mortgages; providing financing to homebuilders or
land developers, acquiring their properties
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upon default and overseeing their operations until they or their properties can
be disposed of in an orderly manner, owning as a passive investor an interest of
less than 10% in a publicly traded company which is engaged in a prohibited
business; acquiring an entity which, at the time it is acquired by the Company,
is engaged in one or more of the prohibited activities as an incidental part of
its activities; acquiring commercial paper or other short-term debt instruments
of entities engaged in one or more of the prohibited businesses; or owning an
interest in Lennar Land Partners.
The Separation and Distribution Agreement requires that any
transactions between the Company and Lennar or any of its homebuilding
subsidiaries be on substantially the same terms as those which would prevail in
a transaction between unaffiliated persons. The Company may not enter any
transaction or related series of transactions with Lennar or any of its
homebuilding subsidiaries which will involve a payment or loan to or from the
Company of more than $5 million unless LNR and Lennar each receives a certified
copy of a resolution of the Board of Directors of the other of them in which
that Board of Directors determines that the transaction is on substantially the
same terms as those which would prevail in a transaction between unaffiliated
persons.
COMMERCIAL AND MULTI-FAMILY RESIDENTIAL RENTAL REAL ESTATE
In 1969 Lennar began engaging in the ownership and management of
commercial and residential multi-family rental real estate. Its initial
activities of this type included acquiring an apartment complex, and building
and operating small office buildings, local regional shopping centers and other
commercial and industrial facilities on properties being developed as part of
Lennar's homebuilding operations. Gradually, this was expanded to general
development, acquisition and active management of commercial and residential
multi-family rental real estate, as well as acquiring land for development and
sale or leasing for commercial uses. Among other things, these activities helped
offset the cyclical nature of Lennar's homebuilding business. The Company has
developed a staff of in-house real estate professionals to engage in those
activities, including on-site management, leasing and maintenance personnel, and
accounting and management personnel located at several offices. It also, in some
instances, has used outside management companies to perform day-to-day
activities. In those instances, employees of the Company have closely supervised
the operation of the commercial properties and the activities of the outside
management companies. At May 31, 1997, the Company's portfolio included 17
shopping centers, four office buildings, an industrial property, 2,500 apartment
units, a mobile home park and two hotels, one of which it manages and the other
of which is managed by a national chain under a management contract.
The shopping centers the Company owns and operates include six small
regional shopping centers (sometimes referred to as "strip centers") with
between 12,000 square feet and 36,400 square feet of store space, as well as
parking areas and public areas, and 11 larger shopping centers, with 71,000
square feet to 234,000 square feet of store space. At May 31, 1997,
approximately 80% of the rentable store space was occupied under leases expiring
between 1997 and 2020, with rents in the year ending November 30, 1997 totalling
$21.6 million, plus, in some instances, additional rent based upon tenants'
sales or similar measures. All the small regional centers are located in
Florida. Of the larger shopping centers, nine are in Florida, one is in Arizona
and one is in Virginia.
The Company's four office buildings range from one to 36 stories, with
16,500 to 543,000 square feet of rentable office space. Two of the office
buildings are in Florida, one is in Georgia and one is in California.
The Company's industrial property is located in Florida and consists of
80,000 square feet of usable floor space.
The Company's eight apartment properties range in size from 96 to 712
units and all are located in Florida.
The two hotels owned by the Company are the Sunrise Hilton Hotel, a
297-room, full-service hotel in South Florida, which is managed by the Company,
and the Quality Inn, a 165 room, limited service hotel in Bossier City,
Louisiana, which is managed by an unrelated company under a management contract
which can be terminated by either party on 10 days' notice.
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PORTFOLIOS OF COMMERCIAL MORTGAGE LOANS AND OWNED REAL ESTATE
In 1992, the Company began acquiring, itself and through partnerships,
portfolios of commercial mortgage loans and related pools of owned real estate
assets. Its first transaction of this type was a partnership with The Morgan
Stanley Real Estate Fund, which acquired from Resolution Trust Corporation a
portfolio of almost $1 billion face value of assets consisting of more than
1,000 mortgage loans and 65 properties. Since 1992, the Company has formed 11
additional partnerships with several different investment banking firms and real
estate funds to purchase and handle workout activities regarding portfolios of
distressed commercial loans and related real estate. In each of these
partnerships, a subsidiary formed by the Company acts as the managing general
partner and conducts the business of the partnership. The Company earns
management fees and asset disposition fees from the partnerships and has carried
interests in cash flow and sale proceeds once the partners have recovered their
capital and achieved specified returns. In 1996, the Company earned
approximately $16 million in management fees from the partnerships. The Company
makes investments in each of the partnerships. To date these have ranged from
15% to 50% of the partnerships' capital. In addition to investing through these
partnerships, the Company has made direct acquisitions of distressed real estate
portfolios.
The principal activity of the Company with respect to distressed
portfolios (whether owned by partnerships or directly owned by the Company) is
to work out the non-performing loans, including negotiating new or modified
financing terms and foreclosing on defaulted loans. The assets generally are
held only as long as is required to enhance their value and prepare them for
sale. Approximately 20% to 25% of each portfolio is turned over each year. The
Company believes its workout and property rehabilitation skills are the
principal reasons financial institutions have sought the Company as a partner in
acquiring portfolios of distressed assets and have given the Company management
control of the partnerships.
SPECIAL SERVICING WITH REGARD TO COMMERCIAL MORTGAGE BACKED SECURITIES ("CMBS")
As a further use of its loan and real estate workout capabilities, the
Company acquires unrated junior CMBS and provides "special servicing" for the
mortgage pools to which they relate. At May 31, 1997, the Company was entitled
to be the special servicer with regard to 37 securitized commercial mortgage
pools and owned unrated junior CMBS related to 33 of those pools. Special
servicing is the business of managing and working out the problem assets in a
pool of commercial mortgages or other assets. For example, when a mortgage in a
securitized pool goes into default, the special servicer negotiates with the
borrower on behalf of the pool to resolve the situation. The Company uses as
special servicer essentially the same workout skills it applies with regard to
its distressed assets portfolios. Increased collections benefit the holders of
the unrated junior CMBS, because they receive everything that is collected after
the various more senior levels of CMBS have been paid in full. Therefore,
ownership of the unrated junior securities gives the Company an opportunity for
a return from its special servicing in addition to the fees paid with regard to
the pools. The Company has not purchased unrated CMBS unless it has the right to
be the special servicer of the mortgage pools to which they relate.
The Company also, in some instances, purchases non-investment grade
rated subordinated CMBS relating to commercial mortgage pools as to which the
Company will act as special servicer. The Company expects to receive a yield on
these securities based on the stated interest and amortization of the Company's
purchase discount. However, if, as senior CMBS issued with regard to a pool
begin to be paid down, the performance of the pool exceeds initial expectations,
then the ratings of the subordinated CMBS are sometimes upgraded by the rating
agencies. This increases their market values and gives the Company an
opportunity to achieve gains on sale of the securities, as well as receiving the
stated interest while it holds them. Therefore, purchases of non-investment
grade rated subordinated securities, like purchases of unrated junior
securities, is a means for the Company to profit from its workout skills.
COMMERCIAL LENDING
The Company includes Lennar subsidiaries which have been making
mortgage loans with regard to commercial properties or properties being
developed as residential communities, and have been making loans to the
developers and builders themselves. At May 31, 1997, the Company held five
mortgage loans with a total outstanding principal balance of $23.8 million and
nine loans to developers and builders with a total outstanding
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principal balance of $25.6 million. The states in which the properties securing
the Company's mortgage loans were located were as follows:
STATE PRINCIPAL AMOUNT OF LOANS
---------- -------------------------
California $31,500,000
Florida 11,600,000
New Jersey 4,500,000
Other 1,800,000
-----------
$49,400,000
===========
LENNAR LAND PARTNERS
Before the Distribution, Lennar and the Company will transfer to the
Land Partnership (i.e., Lennar Land Partners), which will be 50% owned by the
Company and 50% owned by another Lennar subsidiary, parcels of land which had a
total book value on Lennar's books at May 31, 1997 of approximately $341
million. This land was acquired by Lennar primarily to be used for residential
home development. It consists of approximately 34,000 potential home sites in 40
communities, of which 19 communities with 19,400 potential home sites are in
Florida, two communities with 900 potential home sites are in Arizona, five
communities with 5,000 potential home sites are in Texas and 14 communities with
8,700 potential home sites are in California. Approximately 10% of the land is
developed and ready to be built upon, 45% of the land is in various stages of
development and 45% of the land is totally undeveloped.
When the land is contributed to the Land Partnership, Lennar will
receive options to purchase at least portions of the contributed land. Any
remaining land will be available for sale to independent homebuilders or to
Lennar at prices determined from time to time, which, as is discussed below,
must be approved by LNR.
The Land Partnership has an agreement with Lennar under which Lennar
will, for a fee, administer all day-to-day activities of the Land Partnership,
including overseeing planning and development of properties and overseeing sales
of land to Lennar and other builders.
The Land Partnership is governed by an Executive Committee consisting
of representatives of Lennar and of the Company, with Lennar's representatives
and the Company's representatives each having in total one vote. This, in
effect, gives each of Lennar and the Company a veto with regard to matters
presented to the Executive Committee. The Company's by-laws require that all
significant decisions relating to the Land Partnership be approved by a Board of
Directors committee consisting entirely of directors who have no relationship
with Lennar.
Lennar may, but will be under no obligation to, offer additional
properties to the Land Partnership. Lennar will be free to acquire properties
for itself without any consideration of whether those properties might have been
appropriate for the Land Partnership. If Lennar would like the Land Partnership
to acquire a particular property, it will propose to the Executive Committee
that the Land Partnership acquire the property on terms, including any options
Lennar would receive to purchase all or portions of the property, described by
Lennar. Acquisition of a property by the Land Partnership will require unanimous
approval of its Executive Committee. This will, in effect, enable the Company to
veto the acquisition of each property or negotiate regarding the terms of the
purchase or of Lennar's options. If the Land Partnership does not elect to
acquire a new property, Lennar will be free to acquire the property. If the
Company were to veto every proposed acquisition of new properties, or if Lennar
did not present any new properties to the Land Partnership, the Land Partnership
would be limited to owning and disposing of the properties which have already
been contributed to it by Lennar. Arrangements with regard to particular
properties might include, in addition to options to Lennar, (i) rights of first
refusal for Lennar to acquire lots if other builders propose to acquire them, or
(ii) buy/sell arrangements under which, if Lennar wanted to purchase lots on
which it did not have an option, it would propose a purchase price and the
Company would have the option to approve the sale to Lennar at that price or
itself to purchase the lots for that price (probably in order to resell them to
someone who would be willing to pay a higher price).
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The Company might seek to acquire commercial portions of properties
owned or acquired by the Land Partnership or options relating to them. If it
did, Lennar could, if it wanted to do so, veto acquisitions by the Company.
REGULATION
Commercial properties owned by the Company or partnerships in which it
participates must comply with a variety of state and local regulations relating
to, among other things, zoning, treatment of waste, construction materials which
must be used and some aspects of building design.
In its loan workout activities, the Company is required to comply with
a number of Federal and state laws designed to protect debtors against
overbearing loan collection techniques. However, in most instances, laws of this
type apply to consumer level loans (including home mortgages), but do not apply
to commercial loans.
The Company's hotels have to be licensed to conduct various aspects of
their businesses, including sales of alcoholic beverages.
EMPLOYEES
At May 31, 1997, the Company had 295 full time and 60 part time
employees, of whom 10 were management and administrative personnel, 190 were
engaged in asset acquisitions, loan workouts and rehabilitation and disposition
of properties, and 155 were hotel personnel.
None of the Company's employees are members of unions. The Company believes its
relationships with its employees are good.
COMPETITION
In virtually all aspects of its activities, the Company competes with a
variety of real estate development companies, investment firms, investment funds
and others. Competitive conditions relating to shopping centers, office
buildings, industrial properties, residential apartment buildings and hotels
owned or operated by the Company vary depending on the locations of particular
properties. Although properties owned by the Company may be significant
competitors in some of the areas in which they are located, the Company is not a
significant national competitor with regard to any of the properties it owns or
any type of real estate securities, except that the Company invested in, and
became special servicer with regard to, commercial mortgage pools which were the
subject of approximately 28% of all the CMBS issued with subordinated bonds in
1996 and approximately 20% of all the CMBS issued with subordinated bonds during
the first six months of 1997 (although the Company's investments, which were
limited to unrated and non-investment grade rated securities issued with regard
to those pools, totalled only 1.6% and 1.7%, respectively, of the CMBS issued
in 1996 and in the first six months of 1997).
LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings other than suits
relating to properties it owns which the Company views as an ordinary part of
its business, and at least most of which are covered by insurance. LNR believes
these suits will not, in aggregate, have a material adverse effect upon the
Company.
PROPERTIES
The Company maintains its principal executive offices at 760 Northwest
107th Avenue, Miami, Florida, in a building which was built and is owned by the
Company. Those offices occupy approximately 20,000 square feet. Additional
Company offices are located in leased space in a variety of locations. Other
properties owned by the Company are described above.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF LNR
The following table lists the directors and executive officers of LNR.
Directors normally will be elected for three year terms, with the terms of as
nearly as possible one-third of the directors expiring at each annual meeting of
stockholders. Because all the directors of LNR were elected in 1997, one-third
of the directors were elected for one year terms (expiring in 1998), one-third
of the directors were elected for two year terms (expiring in 1999) and
one-third of the directors were elected for three year terms (expiring in 2000).
DIRECTOR
PRINCIPAL TERM
NAME AGE POSITION EXPIRES
---- --- --------- --------
Stuart A. Miller 39 Chairman of the Board; Director
Steven J. Saiontz 39 Chief Executive Officer; Director
Jeffrey P. Krasnoff 42 President
Shelly Rubin 35 Financial Vice President
Michelle Simon 33 Secretary and Corporate Counsel
Leonard Miller 64 Director
Director
Director
Director
Stuart Miller has been the President and Chief Executive Officer of
Lennar since April 1997. He became the Chairman of the Board of LNR when it was
founded in June 1997. For more than five years prior to April 1997, Mr. Miller
was a vice president of Lennar and held various executive positions with Lennar
subsidiaries, including being the president of its principal homebuilding
subsidiary from December 1991 to April 1997 and the president of its principal
real estate investment and management subsidiary (the principal predecessor of
the Company) from April 1995 to April 1997.
Steven Saiontz became the Chief Executive Officer of LNR when it was
formed in June 1997. For more than five years prior to that, he was the
president of Lennar Financial Services, Inc., a wholly owned subsidiary of
Lennar. He is the brother-in-law of Stuart Miller and the son-in-law of Leonard
Miller.
Jeffrey Krasnoff became the President of LNR when it was formed in June
1997. From 1987 until June 1997, he had been a vice president of Lennar. From
1990 until he became the president of LNR, Mr. Krasnoff was involved almost
entirely in Lennar's real estate investment and management division (the
predecessor to the Company).
Shelly Rubin became the Financial Vice President of LNR when it was
formed in June 1997. From May 1994 until June 1997, she was the principal
financial officer of Lennar's real estate investment and management division
(the predecessor of the Company). From 1991 until May 1994, Ms. Rubin was
employed by Burger King Corporation as the controller for its real estate
division. Prior to that she was employed as a manager by KPMG Peat Marwick.
Michelle Simon became the Secretary and Corporate Counsel of LNR when
it was formed in June 1997. From 1994 until June 1997, she was the corporate
counsel to Lennar's real estate investment division (a predecessor of the
Company). From 1992 to 1994, Ms. Simon was an associate and then a vice
president in the investment banking
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<PAGE>
division, special execution group, of Goldman, Sachs & Co. Prior to that she was
an associate with Willkie Farr & Gallagher.
Leonard Miller is the Chairman of the Board of Lennar. He has been the
President or Chairman of the Board, or both, of Lennar since it was founded in
1969. From the time Lennar was founded until April 1997, Mr. Miller was the
chief executive officer of Lennar.
[INFORMATION ABOUT ADDITIONAL DIRECTORS WILL BE ADDED WHEN THEY ARE
SELECTED]
LNR will have an Audit Committee, consisting entirely of directors who
are not employees, officers or former officers of LNR or any of its subsidiaries
or divisions, are not relatives of any of its principal executive officers, and
are not individual members of organizations which act as advisors, consultants
or legal counsel to LNR which receive compensation on a continuing basis from
LNR. The functions of the Audit Committee will be to recommend to the full Board
of Directors the engagement of independent auditors, review the scope of
non-audit services performed for LNR or its subsidiaries by the independent
auditors, review the independent auditors' recommendations for improvements of
internal controls and review the scope of work, findings and conclusions of
LNR's Internal Audit Department.
LNR's By-Laws require that LNR have, until 2002, an Independent
Directors Committee consisting of three or more directors, none of whom is an
officer or employee of LNR or a subsidiary, and none of whom is a director,
officer or employee of Lennar Corporation or a subsidiary of Lennar Corporation.
LNR's By-Laws state that, unless the action has been approved by the Independent
Directors Committee, LNR may not, and its Board of Directors may not approve or
authorize it to, (i) instruct or permit the representatives of its subsidiary on
the Executive Committee of the Land Partnership to vote or consent with regard
to any action which requires the unanimous vote of that Executive Committee,
(ii) enter into, or permit any of its subsidiaries to enter into, any
transaction with Lennar Corporation or any of its subsidiaries, or (iii) agree
to any amendment of, or give any waiver or consent under, the Separation and
Distribution Agreement.
LNR's Board of Directors will determine, after the Spin-Off, whether it
should have a Compensation Committee, a Nominating Committee or any other
committees.
ANNUAL MEETING
LNR's Bylaws provide that its annual meeting of stockholders will be
held on the first Wednesday after the first Monday in April of each year. The
first annual meeting for which proxies will be solicited from stockholders will
be held in 1998.
STOCK OWNERSHIP
When the Distribution takes place, each Lennar stockholder will receive
one share of LNR Common Stock or LNR Class B Stock for each share of Lennar
common stock or Lennar class B common stock held by the stockholder. The
following persons are the only persons known by LNR to have owned beneficially
more than 5% of any class of voting securities of Lennar on May 31, 1997:
31
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
-------------- --------------------- -------------------- ----------------
<S> <C> <C> <C>
Class B Stock Leonard Miller 9,930,030(1) 99.6
23 Star Island
Miami Beach, FL 33139
Common Stock FMR Corp. 3,061,968(2) 11.8
82 Devonshire Street
Boston, MA 02109-3614
Common Stock Neuberger & Berman 1,652,300(2) 6.4
605 Third Avenue
New York, NY 10158-3698
<FN>
- ----------
(1) Leonard Miller's shares are owned by two limited partnerships. A
corporation wholly-owned by Mr. Miller is the sole general partner of
those partnerships. The limited partners consist of Mr. Miller, his wife
and a trust of which Mr. Miller is the primary beneficiary.
(2) Based on information contained in Schedule 13G's dated February 14, 1997
as to FMR Corp. and February 10, 1997 as to Neuberger & Berman.
</FN>
</TABLE>
On May 31, 1997, The Depository Trust Company owned of record ________
shares of common stock of Lennar, constituting _____ % of the outstanding Lennar
common stock. LNR understands those shares were held beneficially for members of
the New York Stock Exchange, some of whom may in turn have been holding shares
beneficially for customers.
The directors and executive officers of LNR beneficially owned the
following voting securities of Lennar on May 31, 1997:
<TABLE>
<CAPTION>
AMOUNT
AND NATURE
OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP(1) OF CLASS
- ------------------------ ------------------- ------------ --------
<S> <C> <C> <C>
Leonard Miller Common Stock 9,197 .04%
Class B Common Stock 9,930,030(2)(3) 99.61%
Stuart A. Miller Common Stock 129,093(3) .50%
Steven J. Saiontz Common Stock 119,075 .46%
Jeffrey P. Krasnoff Common Stock 14,503 .06%
All directors and executive officers Common Stock
as a group ( persons) Class B Common Stock 9,930,030 99.61%
<FN>
- ----------
(1) Includes currently exercisable stock options and stock options which
become exercisable within sixty days after May 31, 1997, as follows:
Stuart A. Miller (52,500), Steven Saiontz (52,500), Jeffrey P. Krasnoff
(11,250), all directors and executive officers ( _______ ). Also incudes
shares held by the Company's Employee Stock Ownership/401(k) Plan for the
accounts of the named persons.
(2) Leonard Miller's shares are owned by two limited partnerships. A
corporation wholly owned by Mr. Miller is the sole general partner of
those partnerships. The limited partners consist of Mr. Miller, his wife
and a trust of which Mr. Miller is the primary beneficiary. In addition,
Mr. Miller is a custodian of 2,000 shares held for a nephew who is a
minor.
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<PAGE>
(3) Stuart Miller is the trustee and a beneficiary of a trust which holds
limited partnership interests in a partnership which owns 4,500,000 shares
of Class B Common Stock. Because Leonard Miller is the principal
beneficiary of the trust and owns the corporation which is the sole
general partner of the partnership, Leonard Miller is shown as the
beneficial owner of the 4,500,000 shares and Stuart Miller is not shown as
a beneficial owner of those shares.
</FN>
</TABLE>
Because each outstanding share of Class B Stock is entitled to ten
votes, Leonard Miller will be entitled to 99,309,497 votes, which, if no other
Lennar stockholder elects to receive Class B Stock, would be 79% of the combined
votes which may be cast by all the holders of LNR Common Stock and LNR Class B
Stock and all directors and officers as a group would be entitled to _________
votes, which will be ____ % of the combined votes which may be cast by all the
holders of LNR Common Stock and LNR Class B Stock.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information about compensation by Lennar
of the chief executive officer of LNR and of the two other of the four most
highly compensated executive officers of LNR who were executive officers of
Lennar (based upon their compensation by Lennar during its fiscal year ended
November 30, 1996).
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- -----------------------------------
AWARDS PAYOUTS
----------------------- -------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND POSITION SALARY BONUS COMPENSATION AWARDS(1) OPTIONS/ PAYOUTS COMPENSATION(2)
WITH LENNAR YEAR ($) ($) ($) ($) SARS ($) ($)
----------------- ---- -------- -------- ------------ ---------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stuart A. Miller 1996 $207,700 $577,000 $1,500 $3,443
Vice President 1995 197,100 384,900 1,500 2,563
1994 175,000 372,500 1,500 2,376
Steven J. Saiontz 1996 207,700 577,000 1,500 3,444
President of Lennar 1995 197,100 384,900 1,500 2,571
Financial Services, 1994 175,000 372,500 1,500 2,372
Inc.
Jeffrey P. Krasnoff 1996 145,400 317,900 1,500 $59,067 3,233
Vice President 1995 138,800 215,700 1,500 28,900 2,577
1994 130,000 150,600 1,500 2,376
<FN>
- ----------
(1) At November 30, 1996, a total of 258,309 restricted shares of Lennar
common stock, with an aggregate market value of $6,716,034 on that day,
were held in employees' accounts under Lennar's Employee Stock
Ownership/401(k) Plan. All shares in the accounts of employees with more
than five years' service are vested. Shares in the accounts of other
employees become vested when and if the employees attain five years of
service. Holders of both vested and non-vested shares are entitled to the
dividends on the shares. The restricted shares outstanding on November 30,
1996 included 7,708 shares in Stuart A. Miller's account (with a market
value on that day of $200,408), 2,420 shares in Steven J. Saiontz' account
(with a market value on that day of $62,920) and 425 shares in Jeffrey P.
Krasnoff's accounts (with a market value on that day of $11,050). All
shares held in these accounts were vested.
(2) Consisting of matching payments by Lennar under the 401(k) aspect of
Lennar's Employee Stock Ownership/401(k) plan, term life insurance
premiums and long term disability insurance premiums paid by Lennar, as
follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
LONG TERM
401(K) MATCH TERM LIFE INSURANCE DISABILITY INSURANCE
------------ ------------------- --------------------
<S> <C> <C> <C> <C>
Stuart A. Miller 1996 $2,375 $660 $408
1995 2,310 253
1994 2,310 66
Steven J. Saiontz 1996 2,375 661 408
1995 2,310 261
1994 2,310 62
Jeffrey P. Krasnoff 1996 2,375 568 290
1995 2,310 267
1994 2,310 66
</TABLE>
Directors who are not employees of the Company will be paid annual fees
of $10,000 plus $2,500 for each of the first five board meetings attended and
$400 for each additional meeting in the same year. Directors who are employees
of the Company will receive no additional remuneration for services as
directors.
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<PAGE>
The following table sets forth information about a sum awarded by
Lennar to one of the five highest paid officers of LNR for the year ended
November 30, 1996, which is payable over a period of years:
LONG-TERM INCENTIVE PLANS - AWARDS
IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS
----------------------------------------------
PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME PAYOUT $ $ $
- ---- ------------ -------------- -------------- ---------
Jeffrey P. 1-5 Years Not Applicable Not Applicable $317,900(1)
Krasnoff
(1) This amount is payable in five equal annual installments, conditioned on
Mr. Krasnoff's continuing to be employed by Lennar.
The following table sets forth information about exercises by executive
officers of LNR of Lennar options and SAR's in the fiscal year ended November
30, 1996, and the values of options and SAR's held by them at the end of that
year.
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
NUMBER OF
UNEXERCISED VALUE OF
OPTIONS/SARS UNEXERCISED
AT FISCAL IN-THE-MONEY
YEAR-END OPTIONS/SARS
SHARES VALUE ----------------- AT FISCAL
ACQUIRED ON REALIZED EXERCISABLE (E)/ YEAR-END($)(1)
NAME EXERCISE ($) UNEXERCISABLE (U) ----------------
---- ----------- -------- ----------------- EXERCISABLE (E)/
UNEXERCISABLE (U)
-----------------
<S> <C> <C> <C> <C>
Stuart A. Miller 0 $ 0 37,500(E) $ 729,686(E)
112,500(U) 2,189,059(U)
Steven J. Saiontz 0 0 37,500(E) 729,686(E)
112,500(U) 2,189,059(U)
Jeffrey P. Krasnoff 0 0 9,000(E) 133,470(E)
36,000(U) 533,880(U)
<FN>
- ----------
(1) Based upon the difference between the exercise price of the options/SAR's
and the last reported sale price of Lennar's common stock on November 29,
1996.
</FN>
</TABLE>
35
<PAGE>
RELATIONSHIPS BETWEEN LNR AND LENNAR
LNR and Lennar have entered into, or expect to enter into, (a) a
Separation and Distribution Agreement relating to the Distribution and
relationships between them after the Distribution and (b) a Partnership
Agreement forming the Land Partnership (the "Partnership Agreement"). They may
enter into additional agreements governing relationships after the Distribution.
Certain of the agreements described below have been filed as exhibits
to the Registration Statement. The descriptions of those agreements are
qualified by the full texts of the agreements, which may be inspected or
obtained as described under "Available Information."
THE SEPARATION AND DISTRIBUTION AGREEMENT
The Separation and Distribution Agreement has a number of provisions
relating to the Distribution and relationships between LNR and Lennar after
Distribution. They include the following:
/bullet/ Lennar agrees to contribute to LNR prior to the Distribution
all the Lennar subsidiaries which are engaged wholly or
primarily in the real estate investment and management
business and any assets of other subsidiaries which are not
used or expected to be used wholly or primarily in connection
with Lennar's homebuilding business. LNR will transfer back
to Lennar any assets of LNR subsidiaries which are used
primarily in connection with Lennar's homebuilding business.
/bullet/ Prior to the Distribution, Lennar will contribute to LNR cash
or additional assets so that, after LNR's assumption of all
Lennar's obligations which relate primarily to its real
estate investment and management business, Lennar's net worth
at the effective time of Lennar's merger with Pacific
Greystone Corporation will be $200 million plus an amount
approximating the anticipated earnings of Lennar and its
homebuilding subsidiaries from September 1, 1997 to the
Effective Time of the Pacific Greystone Merger.
/bullet/ LNR will assume all the obligations of Lennar and its
subsidiaries which relate primarily to its real estate
investment and management business, including assuming the
obligations under specified contracts and assuming specified
obligations for borrowed money.
/bullet/ LNR will issue to Lennar the shares Lennar requires to
complete the Distribution. LNR will also issue to Lennar any
shares Lennar is required to distribute to holders of stock
options which were granted by Lennar prior to the date of the
Distribution.
/bullet/ Lennar and its homebuilding (including home mortgage)
subsidiaries will not engage in the businesses in which the
Company currently is engaged, and the Company will not engage
in the businesses in which Lennar and its homebuilding
subsidiaries currently are engaged (except in limited areas
in which the activities, or currently anticipated activities,
of the two groups overlap). The agreements not to compete are
described in greater detail under the caption "Business --
Overview."
/bullet/ All indebtedness of Lennar or any of its homebuilding
subsidiaries to the Company, and all indebtedness of the
Company to Lennar or any of its homebuilding subsidiaries,
will be eliminated immediately before the date of the
Distribution.
/bullet/ Lennar will indemnify the Company against any liabilities or
expenses relating to (a) Lennar's homebuilding business, (b)
any Lennar obligations for borrowings incurred before the
date of the Distribution which are not assumed by LNR, or (c)
any registration statement, proxy statement, press release or
other document issued by Lennar in connection with the
Pacific Greystone Merger (except with regard to information
about LNR provided in writing by LNR).
36
<PAGE>
/bullet/ LNR will indemnify Lennar and each of its homebuilding
subsidiaries against any liabilities or expenses relating to
(i) the real estate investment and management business,(ii)
any obligations assumed by LNR or any of its subsidiaries,
(iii) the Distribution, (iv) this Information Statement, (v)
any press release or any document issued by LNR with regard
to the Distribution, (vi) any obligations, including
contingent obligations, of Lennar or any of its past or
current subsidiaries or affiliates existing on or before the
date of the Distribution that did not arise exclusively or
primarily in the conduct of Lennar's homebuilding business
(except that indemnification with regard to Lennar corporate
financings or other Lennar corporate activities which do not
specifically relate to any aspects of its operations will be
limited to 71.5% of the liability or expense) and (vii) any
actual or contingent liabilities of Lennar or any of its past
or current subsidiaries or affiliates existing on or before
the date of the Distribution relating to any business or line
of business which at any time was treated on Lennar's
consolidated financial statements as a discontinued operation
or a discontinued line of business, or which was divested by
Lennar or any of its current or former subsidiaries prior to
the date of the Distribution.
/bullet/ If, other than because of actions taken by Lennar after
completion of the Pacific Greystone Merger, it is determined
that the Distribution did not qualify as a transaction in
which the LNR stock distributed to the Lennar stockholders
does not result in income or gain to the Lennar stockholders
and does not require Lennar to recognize income or gain, and
as a result Lennar incurs any liabilities for taxes, interest
or penalties to any taxing jurisdiction which it would not
have incurred if the Distribution had been tax-free, LNR will
pay Lennar an amount equal to the liabilities incurred for
taxes, interest and penalties as a result of the Distribution
and all related accounting, legal and professional fees, as
well as any costs, expenses or damages Lennar incurs as a
result of stockholder litigation or controversies because the
Distribution is not tax-free.
/bullet/ All transactions between Lennar or any of its homebuilding
subsidiaries and the Company must be on substantially the
same terms as those which would prevail in a transaction
between unaffiliated persons. Neither Lennar nor any of its
homebuilding subsidiaries may enter into any transaction with
the Company which will involve a payment or loan of more than
$5 million unless Lennar receives a copy of a resolution of
LNR's Board of Directors in which that Board of Directors
determines that the transaction is on substantially the same
terms as those which would prevail in a transaction between
unaffiliated persons. The Company may not enter into any
transaction with Lennar or any of its homebuilding
subsidiaries which will involve a payment or loan of more
than $5 million unless the Company receives a copy of a
resolution of Lennar's Board of Directors in which that Board
of Directors determines that the transaction or loan is on
substantially the same terms as those which would prevail in
a transaction between unaffiliated persons. The requirement
that transactions be on substantially the same terms as those
which would prevail in a transaction between unaffiliated
persons does not include transactions with Lennar Land
Partners.
/bullet/ LNR will pay Lennar an amount equal to its share of Lennar's
total income tax liability for the period from December 1,
1996 to the Distribution Date, allocating income to the
Company on a basis provided in the Treasury Regulations as if
Lennar and LNR were separately incorporated members of the
same consolidated group during that period and LNR owned and
operated Lennar's real estate investment and management
business during the period.
/bullet/ Lennar and LNR will give one another access to their books
and records and knowledgeable personnel in order to permit
the other of them to prepare financial statements and tax
returns, in connection with audits of tax returns, and for
other business purposes.
/bullet/ If, after an audit required by the Pacific Greystone Merger
Agreement, it is determined that Lennar's net worth at the
Effective Time of the Pacific Greystone Merger was less or
more than $200 million plus the amount approximating the
anticipated earnings of Lennar and its homebuilding
subsidiaries from September 1, 1997 to the date of the
Pacific Greystone Merger, LNR will pay Lennar a sum equal to
the amount by which Lennar's net worth was less than that
amount, or Lennar will pay LNR a sum equal to the amount by
which Lennar's net worth was more than that amount.
Under the Separation and Distribution Agreement, the obligations of
Lennar and LNR to carry out the Distribution are conditioned upon, among other
things, (a) Lennar's having obtained a private letter ruling from the Internal
Revenue Service
37
<PAGE>
that the Distribution will qualify under Section 355(a) of the Internal Revenue
Code, and accordingly, no gain or loss will be recognized to (and no amount will
be included in income of) Lennar stockholders, and no gain or loss will be
recognized to Lennar as the result of the Distribution, and (b) the LNR Common
Stock having been authorized for listing on the New York Stock Exchange.
THE LAND PARTNERSHIP
Wholly owned subsidiaries of LNR and Lennar will be entering into the
Partnership Agreement creating the Land Partnership. Lennar and LNR, through
their subsidiaries, each will own 50% of the Land Partnership. The purpose of
the Land Partnership will be to have Lennar and LNR share the risks and profits
of ownership of some real property which has been acquired by Lennar for use in
its homebuilding activities, and possibly additional properties which will be
acquired in the future. Prior to formation of the Land Partnership, Lennar will
transfer to the Company approximately 50% in value of the original properties
which are to be contributed to the Land Partnership. Lennar and LNR will then
contribute all the original properties to the Land Partnership in exchange for
50% interests in the Land Partnership.
Lennar will manage the day-to-day activities of the Land Partnership
under a management agreement. Lennar will be reimbursed by the Land Partnership
for all direct out-of-pocket expenses plus an agreed monthly amount (which will
be $500,000 per month in 1997) for certain indirect expenses. The reimbursement
is subject to adjustment in the Land Partnership's annual business plan.
The Land Partnership will be governed by an Executive Committee of not
more than three members designated by each partner, with all the members
designated by a partner acting as representatives of that partner (without
fiduciary or other obligations to the other partner) and together having a
single vote. Actions of the Executive Committee must be by majority vote (based
upon one vote per partner). Therefore, while the LNR and Lennar subsidiaries are
the only partners, each of them will have a veto over all matters presented to
the Executive Committee. Even if there were additional partners, a number of
matters would require the unanimous vote of the Executive Committee (based upon
one vote per partner), including (i) the acquisition by the Land Partnership of
real property, other than the original properties contributed by Lennar and LNR,
(ii) the sale of any real property to a partner or an affiliate of a partner,
other than upon exercise of an option or under a purchase agreement which had
been approved by the Executive Committee, (iii) the adoption of an annual
business plan, (iv) approval of a master plan relating to a property owned by
the Land Partnership, (v) a borrowing from or loan to any person, including a
partner or its affiliate, (vi) any amendment to the Management Agreement with
Lennar, (vii) any requirement that the partners make additional capital
contributions to the Land Partnership, or (viii) any agreement with a partner or
an affiliate of a partner which is not otherwise subject to the requirement of
unanimous Executive Committee approval.
Although Lennar may recommend that the Land Partnership acquire
additional properties, Lennar will be under no obligation to do so, and Lennar
will be free to acquire properties itself without considering whether they would
be suitable for the Land Partnership. Conversely, because of the requirements
discussed above for unanimous Executive Committee approval of acquisitions of
properties, LNR could, in effect, veto any future property acquisitions by the
Land Partnership. If Lennar failed to recommend that the Land Partnership
acquire additional properties, or LNR vetoed all proposed acquisitions of
additional properties by the Land Partnership, the activities of Land
Partnership would be limited to developing and disposing of the original
properties which are contributed to it when it is formed.
LNR's Bylaws provide that its representatives on the Executive
Committee of the Land Partnership may not vote in favor of any action specified
to require the unanimous vote of the Executive Committee without approval of the
Independent Directors Committee of LNR's Board of Directors, none of the members
of which may be an officer or employee of the Company or a director, officer or
employee of Lennar or any subsidiary of Lennar.
OTHER RELATIONSHIPS
There will be a number of relationships between Lennar and LNR after
the Distribution, in addition to those arising under the Separation and
Distribution Agreement or relating to the Land Partnership. Among other things,
immediately after the Distribution, all the stockholders of LNR will be persons
who were stockholders of Lennar on the Distribution Record Date. More
importantly, Leonard Miller, who has voting control of Lennar, probably also
will have voting control of LNR through his ownership of LNR Class B Stock.
Also, Stuart Miller, the Chairman of the Board of LNR, is the chief executive
officer of Lennar, Steven Saiontz, the Chief Executive Officer of LNR, is a
director of Lennar, and Leonard Miller, who is a director
38
<PAGE>
and probably will have voting control of LNR, is the Chairman of the Board of
Lennar. In addition, LNR and Lennar will, for a period after Distribution, share
some computers and computer service personnel and other facilities and Lennar
leases office space from LNR. Finally, because all LNR's employees immediately
after the Distribution will be people who were previously employees of Lennar,
LNR will have to assume many of Lennar's benefit obligations with regard to the
people who become employees of LNR.
DESCRIPTION OF CAPITAL STOCK
LNR's authorized capital stock is 150,000,000 shares of Common Stock,
$.10 par value, 40,000,000 shares of Class B Common Stock, $.10 par value, and
500,000 shares of Preferred Stock, $10 par value. It is anticipated that a total
of approximately 36,027,500 shares of Common stock and Class B Stock (including
at least 9,930,030 shares of Class B Stock) will be issued in the Distribution.
PREFERRED STOCK
The Preferred Stock may be issued in series with any rights, powers and
preferences which may be authorized by LNR's Board of Directors. Those rights,
powers and preferences may relate to voting, dividends, preferences on
liquidation or other distributions, redemption (including sinking fund
requirements), conversion into (or exchange for) other securities or other
matters.
COMMON STOCK
When LNR Common Stock is distributed to Lennar's stockholders in the
Distribution, all the outstanding shares of LNR Common Stock will be fully paid
and nonassessable and entitled to participate equally and ratably in dividends
and in distributions available for the Common Stock on liquidation. Each share
is entitled to one vote for the election of directors and upon all other matters
on which the common stockholders vote. Holders of Common Stock do not have
preemptive rights and are not entitled to cumulative votes in the election of
Directors.
The transfer agent and registrar for the Common Stock is BankBoston,
N.A., Canton, Massachusetts.
CLASS B COMMON STOCK
The Class B Stock is identical in every respect with the LNR Common
Stock, except that (a) each share of Class B Stock is entitled to ten votes on
each matter submitted to the vote of the common stockholders, while each share
of Common Stock is entitled to only one vote on each matter submitted to the
vote of the common stockholders, (b) the cash dividends, if any, paid with
regard to a share of Class B Stock in a year cannot be more than 90% of the cash
dividends, if any, paid with regard to the Common Stock in that year, (c) Class
B Stock cannot be transferred, except to a limited group of permitted
transferees (primarily close relatives of the Class B stockholder, fiduciaries
for the Class B stockholder or for close relatives, and entities of which the
Class B stockholder or close relatives are majority owners), (d) Class B Stock
may at any time be converted into Common Stock, but Common Stock may not be
converted into Class B Stock, (e) amendments to provisions of LNR's Certificate
of Incorporation relating to the Common Stock or the Class B Stock require the
approval of a majority of holders the shares of Common Stock which are voted
with regard to them (as well as a majority in voting power of all the
outstanding Common Stock and Class B Stock combined), and (f) under Delaware
law, certain matters affecting the rights of holders of Class B Stock may
require approval of the holders of the Class B Common Stock voting as a separate
class.
Because of his holdings of Lennar common stock and Lennar class B
common stock and his intention to elect to receive Class B Stock in the
Distribution, Leonard Miller, the Chairman of the Board of Lennar and a director
of LNR, will receive 9,930,030 shares of Class B Stock, which may be as much as
100% of the outstanding Class B Stock and will be 27.6% of the outstanding
common stock of both classes. If no other Lennar stockholders elect to receive
Class B Stock, Mr. Miller's Class B Stock will give him approximately 79% of the
total votes which can be cast by the holders of both classes of common stock.
Under those circumstances, even if Mr. Miller converted 6,327,289 shares of
Class B Common Stock into Common Stock and sold that Common Stock, thereby
reducing his holdings to 10% of the total common stock of both classes, Mr.
Miller would be entitled to cast more than 50% of the votes. In connection with
a Lennar request for a ruling from the Internal Revenue Service that the
Distribution will not result in taxable gain or income either to Lennar or to
its stockholders, Mr. Miller
39
<PAGE>
represented that neither he nor his family partnerships have any current
intention of disposing of Class B Stock, except in order to give a minor number
of shares to charity, to members of Mr. Miller's family or to others.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the General Corporation Law of Delaware,
LNR's By-Laws provide that an officer, director, employee or agent of the
Company is entitled to be indemnified for the expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with any action, suit or proceeding brought against the person by
reason of the fact that the person was or is such an officer, director, employee
or agent, provided the person acted in good faith or in a manner the person
reasonably believed to be in or not opposed to the best interests of the Company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe the person's conduct was unlawful, except that in any action or suit
by or in the right of the Company, if a person is adjudged to be liable for
negligence or misconduct, the person shall not be indemnified unless and only to
the extent that a court of appropriate jurisdiction shall determine that the
person is fairly and reasonably entitled to indemnification.
40
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined balance sheet of the Company
as of May 31, 1997 and the unaudited pro forma combined statements of earnings
for the six months ended May 31, 1997 and for the year ended November 30, 1996
have been prepared to reflect the Company's expected contribution to Lennar Land
Partners and contributions to the capital of the Company by Lennar in connection
with the spin-off of the Company to Lennar's stockholders.
The unaudited pro forma combined balance sheet has been prepared as if
the spin-off occurred on May 31, 1997 and the unaudited pro forma combined
statements of earnings have been prepared as if the spin-off occurred on the
first day of the periods presented. The unaudited pro forma financial statements
have been prepared utilizing the accounting policies outlined in the historical
financial statements.
The following data should be read in conjunction with the Company's
combined financial statements and the notes thereto, Management's Discussion and
Analysis of Financial Condition and Results of Operations and other financial
information included elsewhere in this document. The unaudited pro forma
financial statements do not necessarily reflect what the results of operations
and financial position would have been had the spin-off occurred as assumed in
preparing the unaudited pro forma financial statements, nor do they necessarily
reflect the future results or financial position of the Company.
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MAY 31, 1997
(IN THOUSANDS)
ASSETS
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents $9,015 9,015
Investment securities 286,485 286,485
Mortgage loans, net 72,577 72,577
Operating properties and equipment, net 212,825 212,825
Land held for investment 89,791 89,791
Investments in and advances to partnerships 102,289 86,698 (1) 188,987
Deferred income taxes 5,639 22,950 (2) 28,589
Other assets 14,471 14,471
---------- ---------- ----------
Total assets $793,092 109,648 902,740
========== ========== ==========
LIABILITIES AND PARENT COMPANY INVESTMENT
Liabilities
Accounts payable $3,265 3,265
Accrued expenses and other liabilities 35,719 35,719
Mortgage notes and other debts payable 369,965 (48,726) (3) 321,239
---------- ---------- ----------
Total liabilities 408,949 (48,726) 360,223
---------- ---------- ----------
Parent Company investment
Parent Company investment 370,382 (370,382) (1,2,3,4) -
Common stock - 3,603 (4) 3,603
Additional paid-in capital - 525,153 (4) 525,153
Unrealized gains on securities available for sale, net 13,761 13,761
---------- ---------- ----------
Total Parent Company investment 384,143 158,374 542,517
---------- ---------- ----------
Total liabilities and Parent Company investment $793,092 109,648 902,740
========== ========== ==========
</TABLE>
See accompanying notes to pro forma combined financial information.
41
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED MAY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues
Rental income $29,978 29,978
Equity in earnings of partnerships 19,343 2,923 (1) 22,266
Interest income 20,630 20,630
Sales of real estate 18,334 18,334
Management fees 6,425 6,425
Other, net 6,394 6,394
---------- ----------- ----------
Total revenues 101,104 2,923 104,027
---------- ----------- ----------
Costs and expenses
Cost of rental operations 17,695 17,695
Cost of real estate sold 11,933 11,933
General and administrative 12,245 12,245
Depreciation 2,915 2,915
---------- ----------- ----------
Total costs and expenses 44,788 - 44,788
---------- ----------- ----------
Operating income 56,316 2,923 59,239
Interest expense 13,201 (1,559) (3) 11,642
---------- ---------- ----------
Earnings before taxes 43,115 4,482 47,597
Income taxes 16,815 1,748 (5) 18,563
---------- ---------- ----------
Net earnings $26,300 2,734 29,034
========== ========== ==========
Earnings per share (6) $0.80
==========
Weighted average pro forma shares outstanding (6) 36,300
==========
</TABLE>
See accompanying notes to pro forma combined financial information.
42
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED NOVEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Revenues
Rental income $59,215 59,215
Equity in earnings of partnerships 51,862 2,055 (1) 53,917
Interest income 30,461 30,461
Sales of real estate 15,925 15,925
Management fees 18,229 18,229
--------- --------- ---------
Total revenues 175,692 2,055 177,747
--------- --------- ---------
Costs and expenses
Cost of rental operations 35,144 35,144
Cost of real estate sold 12,256 12,256
General and administrative 23,738 23,738
Depreciation 5,916 5,916
Other, net 658 658
--------- ---------- ---------
Total costs and expenses 77,712 0 77,712
--------- ---------- ---------
Operating income 97,980 2,055 100,035
Interest expense 20,513 (1,800) (3) 18,713
--------- --------- ---------
Earnings before taxes 77,467 3,855 81,322
Income taxes 30,212 1,503 (5) 31,715
--------- ---------- ---------
Net earnings $47,255 2,352 49,607
========= ========== =========
Earnings per share (6) $1.37
=========
Weighted average pro forma shares outstanding (6) 36,233
=========
See accompanying notes to pro forma combined financial information.
43
<PAGE>
<FN>
- ----------
LNR PROPERTY CORPORATION
Notes to Unaudited Pro Forma Combined Financial Information
(1) Represents entries to reflect the transfer of parcels of land from the
Parent Company to the Company and from the Company to Lennar Land
Partners, which will be 50% owned by the Company. Equity in earnings of
partnerships includes the Company's 50% interest in the earnings of Lennar
Land Partners.
(2) Represents entries to reflect the Company's share of deferred tax assets
associated with the Company's interest in Lennar Land Partners.
(3) In accordance with the Separation and Distribution Agreement with Lennar,
the assets and liabilities of Lennar and its subsidiaries will be divided
between Lennar and its homebuilding subsidiaries and the Company so that
Lennar and its homebuilding subsidiaries will have a net worth of $200
million (with specified adjustments) and the remaining net worth will be
transferred to the Company. The entries reflect the equity contribution
from Lennar and the planned use of a portion of that contribution to
reduce debt, as well as lower interest expense due to the reduced debt
level.
(4) Represents entries to reflect the conversion of the Parent Company
investment into common stock and additional paid-in capital as a result of
the Distribution.
(5) The adjustment to taxes represents the estimated income tax effect of the
pro forma adjustments at the Company's effective tax rate of 39.0%.
(6) Earnings per share have been calculated using the average number of common
shares and common share equivalents outstanding for Lennar since Lennar
stockholders will receive one share of the Company's stock for each share
of Lennar stock held on the distribution date.
</FN>
</TABLE>
44
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS.
1. Combined financial statements of LNR Property Corporation as of November
30, 1996 and 1995 and for the years ended November 30, 1996, 1995 and
1994.
2. Unaudited combined financial information of LNR Property Corporation as
of May 31, 1997 and 1996 and for the six-month periods then ended.
3. Combined financial statements of Lennar Florida Partners I, L.P. and
Qualified Affiliates for the years ended December 31, 1996 and 1995 (a
significant 50% or less owned investee of LNR Property Corporation).
4. Consolidated financial statements and supplemental information of LW
Real Estate Investments, L.P. and Subsidiaries for the years ended
December 31, 1996 and 1995 (a significant 50% or less owned investee of
LNR Property Corporation).
5. Financial Statement schedules of LNR Property Corporation
Schedule II Valuation and qualifying accounts
Schedule III Real estate and accumulated depreciation
Schedule IV Mortgage loans on real estate
EXHIBITS.
3.1 Certificate of Incorporation and Amendment.
3.2 By-laws.
4.1 Form of Company's Stock certificate.*
10.1 Separation and Distribution Agreement between the Company and Lennar
Corporation, dated June 10, 1997.
10.2 Form of Partnership Agreement between Lennar Land Partners Sub, Inc. and
LPC Land Partners Sub, Inc.
11.1 Statement re: Computation of Per Share Earnings.*
21.1 Subsidiaries of the Company.*
27.1 Financial Data Schedule.
- --------------------------
*To be filed by amendment.
45
<PAGE>
<TABLE>
<CAPTION>
INDEX TO
FINANCIAL STATEMENTS
<S> <C>
FINANCIAL STATEMENTS.
Page
1. Combined financial statements of LNR Property Corporation as of November
30, 1996 and 1995 and for the years ended November 30, 1996, 1995 and
1994 and report of independent auditors. F-2
2. Unaudited combined financial information of LNR Property Corporation as
of May 31, 1997 and 1996 and for the six-month periods then ended. F-19
3. Combined financial statements of Lennar Florida Partners I, L.P. and
Qualified Affiliates for the years ended December 31, 1996 and 1995 and
report of independent certified public accountants (a significant 50% or
less owned investee of LNR Property Corporation). F-23
4. Consolidated financial statements and supplemental information of LW
Real Estate Investments, L.P. and Subsidiaries for the years ended
December 31, 1996 and 1995 and report of independent certified public
accountants (a significant 50% or less owned investee of LNR Property
Corporation). F-38
5. Financial Statement schedules of LNR Property Corporation
Schedule II Valuation and qualifying accounts F-61
Schedule III Real estate and accumulated depreciation F-62
Schedule IV Mortgage loans on real estate F-63
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of LNR Property Corporation:
We have audited the accompanying combined balance sheets of LNR Property
Corporation (the "Company") as of November 30, 1996 and 1995 and the related
combined statements of earnings, and cash flows for each of the three years in
the period ended November 30, 1996. Our audits also included the financial
statement schedules listed in the Index to the financial statements. The
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of LNR Property Corporation as of
November 30, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended November 30, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
combined financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
July 22, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED BALANCE SHEETS
As of November 30, 1996 and 1995
(IN THOUSANDS) 1996 1995
-------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,847 5,596
Investment securities 260,537 163,292
Mortgage loans, net 67,746 53,932
Operating properties and equipment, net 203,266 177,582
Land held for investment 91,177 96,761
Investments in and advances to partnerships 110,180 141,541
Deferred income taxes 10,067 --
Other assets 6,148 13,696
-------- -------
Total assets $752,968 652,400
======== =======
LIABILITIES AND PARENT COMPANY INVESTMENT
Liabilities
Accounts payable $ 2,698 1,414
Accrued expenses and other liabilities 28,816 23,407
Deferred income taxes -- 4,420
Mortgage notes and other debts payable 354,406 252,256
-------- -------
Total liabilities 385,920 281,497
-------- -------
Commitments and contingent liabilities (Note 12)
Parent Company investment
Parent Company investment 359,148 365,133
Net unrealized gain on available-for-sale securities 7,900 5,770
-------- -------
Total Parent Company investment 367,048 370,903
-------- -------
Total liabilities and Parent Company investment $752,968 652,400
======== =======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF EARNINGS
Years Ended November 30, 1996, 1995 and 1994
(IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues
Rental income $ 59,215 51,664 45,978
Equity in earnings of partnerships 51,862 31,203 20,710
Interest income 30,461 20,988 11,640
Sales of real estate 15,925 38,173 21,518
Management fees 18,229 10,274 12,390
Other, net -- 2,910 2,016
-------- -------- --------
Total revenues 175,692 155,212 114,252
-------- -------- --------
Costs and expenses
Cost of rental operations 35,144 27,766 23,884
Cost of real estate sold 12,256 22,397 12,433
General and administrative 23,738 18,279 14,436
Depreciation 5,916 5,671 4,618
Other, net 658 -- --
-------- -------- --------
Total costs and expenses 77,712 74,113 55,371
-------- -------- --------
Operating income 97,980 81,099 58,881
Interest expense 20,513 14,692 5,688
-------- -------- --------
Earnings before income taxes 77,467 66,407 53,193
Income taxes 30,212 25,899 20,695
-------- -------- --------
Net earnings $ 47,255 40,508 32,498
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
Years Ended November 30, 1996, 1995 and 1994
(IN THOUSANDS) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 47,255 40,508 32,498
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation 5,916 5,671 4,618
Amortization of discount on mortgage loans and loan costs (6) (881) (1,702)
Gain on sales of operating properties and land held for investment (3,669) (15,776) (9,085)
Equity in earnings of partnerships (51,862) (31,203) (20,710)
Gain on sales of investment securities (1,735) (513) --
Decrease in deferred income taxes (12,614) (14,742) (10,344)
Changes in assets and liabilities:
Decrease (increase) in other assets 8,129 (3,892) 7,831
Decrease (increase) in mortgage loans held for sale (9,776) 10,285 3,203
Increase in accounts payable and accrued liabilities 6,694 8,910 6,478
--------- --------- ---------
Net cash provided by (used in) operating activities (11,668) (1,633) 12,787
--------- --------- ---------
Cash flows from investing activities:
Operating properties and equipment
Additions (19,269) (9,511) (53,468)
Sales 11,667 21,804 20,000
Land held for investment
Additions (3,699) (5,911) (12,739)
Sales 4,258 16,365 1,518
Investments in and advances to partnerships (12,138) (70,442) (54,590)
Distributions from partnerships 95,361 93,899 10,755
Purchase of mortgage loans held for investment (15,927) (39,730) (74,478)
Proceeds from mortgage loans held for investment 9,616 5,374 58,554
Purchase of investment securities (96,295) (57,450) (45,932)
Proceeds from sales of investment securities and other 29,896 16,792 4,258
--------- --------- ---------
Net cash provided by (used in) investing activities 3,470 (28,810) (146,122)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings under repurchase agreements and revolving credit
lines 76,424 109,482 --
Mortgage notes and other debts payable
Proceeds from borrowings 1,255 -- 40,000
Principal payments (18,752) (1,323) (1,054)
Payments (to) from Parent Company (52,478) (73,708) 94,776
--------- --------- ---------
Net cash provided by financing activities 6,449 34,451 133,722
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1,749) 4,008 387
Cash and cash equivalents at beginning of year 5,596 1,588 1,201
--------- --------- ---------
Cash and cash equivalents at end of year $ 3,847 5,596 1,588
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 20,428 14,489 5,107
Supplemental disclosures of non-cash investing and financing
activities:
Purchases of investment securities financed by sellers $ 25,619 24,162 46,826
Purchase of operating property financed by a mortgage note $ 17,400 -- --
Contribution of loan held for investment to acquire investment
in partnership $ -- 27,651 --
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LNR PROPERTY CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1996, 1995 AND 1994
1. SUMMARY OF ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SPIN-OFF TRANSACTION
On June 11, 1997, Lennar Corporation (the "Parent Company") announced,
pursuant to a separation and distribution agreement (the "Agreement"), that its
Board of Directors had approved a plan to spin-off its real estate investment
and management business into a new, publicly held, independently-operated
company to be called LNR Property Corporation (the "Company"). Shareholders of
the Parent Company will receive one share of the Company's stock for each share
of the Parent Company's stock held on the distribution date. The spin-off is
subject to certain conditions, including receipt of a ruling from the Internal
Revenue Service that the proposed spin-off will qualify as a tax-free
distribution under the Internal Revenue Code of 1986, as amended. The spin-off
is expected to occur in the fourth quarter of fiscal 1997.
The assets and liabilities of the Parent Company and its subsidiaries will
be divided between the Company and the Parent Company and its homebuilding
subsidiaries so that the Parent Company and its homebuilding subsidiaries will
have a net worth of $200 million (with specified adjustments) and the remaining
net worth will be transferred to the Company.
Under the Agreement, the Parent Company and the Company have agreed that at
least until December 2002, the Parent Company and its homebuilding subsidiaries
will not engage in the businesses in which the Company currently is engaged and
the Company will not engage in the businesses in which the Parent Company and
its homebuilding subsidiaries currently are engaged (except in limited areas in
which the activities, or currently anticipated activities, of the two groups
overlap). In the Agreement, the Company agrees to indemnify the Parent Company
against any costs it may suffer if it ultimately is determined that the
distribution was not tax-free to the Parent Company and to its stockholders,
including taxes, interest and penalties which may be due from the Parent Company
and costs of any stockholder litigation or controversies.
DESCRIPTION OF BUSINESS
The Company operates a real estate investment and management business which
engages principally in (i) developing, acquiring and actively managing
commercial and residential multi-family rental real estate, (ii) acquiring,
itself or through partnerships which it manages, portfolios of commercial
mortgage loans and properties and providing workout, property management and
asset sale services with regard to the portfolio assets, (iii) acting as special
servicer with regard to pools of commercial mortgages which are the subject of
commercial mortgage backed securities ("CMBS"), (iv) acquiring unrated and
F-6
<PAGE>
rated CMBS issued with regard to mortgage pools as to which the Company acts as
special servicer and (v) making mortgage loans to companies and individuals
engaged in commercial real estate activities and to developers and builders of
residential communities.
BASIS OF PRESENTATION AND COMBINATION
The combined financial statements of the Company have been prepared and are
presented to reflect the Company as a separate combined group for all periods
presented and have been extracted from the financial statements of the Parent
Company using the Parent Company's historical results of operations and
historical cost basis of its assets and liabilities of the businesses being
operated by the Company. All significant intercompany transactions and balances
have been eliminated.
The combined financial statements do not include the anticipated 50%
interest the Company will have in a partnership expected to be formed between
the Parent Company and the Company. The partnership will own parcels of land
which are either currently being developed or are expected to be developed into
primarily residential communities. The assets to be contributed to the
partnership are currently owned and operated by certain subsidiaries of the
Parent Company and are not a part of the Company's current operations. The
combined financial statements also do not reflect the additional capital
contribution from the Parent Company expected as of the spin-off date when the
Parent Company adjusts its net worth to $200 million.
Expenses which related both to the businesses operated by the Company and
the businesses retained by the Parent Company have been allocated on a basis
which the Company believes is reasonable. However, the expenses allocated to the
Company are not necessarily the same as those the Company would have incurred if
it had operated independently, and in general, the results of operations,
financial position and cash flows reflected in the combined financial statements
of the Company are not necessarily the same as those which would have been
realized if the Company had been operated independently of the Parent Company
during the periods to which those financial statements relate.
The Company's investments in partnerships and similar entities in which a
less than controlling interest is held are accounted for by the equity method.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVESTMENT SECURITIES
Debt and equity securities that have determinable fair values are
classified as available-for-sale unless they are classified as held-to-maturity
or trading. Securities classified as held-to-maturity are carried at amortized
cost because they are purchased with the intent and ability to hold to maturity.
At November 30, 1996, no securities were held for trading purposes.
Securities classified as available-for-sale are recorded at fair value in
the balance sheet, with unrealized holding gains or losses, net of tax effects,
reported as a separate component of Parent
F-7
<PAGE>
Company investment. Realized gains and losses, as well as unrealized losses that
are other than temporary are recognized in earnings. The cost of securities sold
is based on the specific identification method.
MORTGAGE LOANS
Mortgage loans held for sale are recorded at the lower of cost or market,
as determined on a discounted cash flow basis. Purchase discounts recorded on
these loans are presented as a reduction of the carrying amount of the loans and
are not amortized. Mortgage loans held for investment are carried net of
unamortized discounts.
OPERATING PROPERTIES AND EQUIPMENT
Operating properties and equipment are recorded at cost. Depreciation is
calculated to amortize the cost of depreciable assets over their estimated
useful lives using the straight-line method. The range of estimated useful lives
for operating properties is 15 to 40 years and for equipment is 2 to 10 years.
LAND HELD FOR INVESTMENT
Land held for investment is stated at the lower of accumulated cost or net
realizable value. Net realizable value is evaluated at the individual property
level and is defined as the estimated proceeds upon disposition less all future
costs to complete and sell.
REVENUE RECOGNITION
Interest income is comprised of interest received plus amortization of the
discount between the carrying value of the mortgage loan held for investment or
investment security and its unpaid principal balance using a methodology which
results in a level yield.
Revenues from sales of real estate (including the sales of land held for
investment and operating properties) are recognized when a significant down
payment is received, the earnings process is complete and the collection of any
remaining receivables is reasonably assured. Management fees are recognized in
income when earned and realization is reasonably assured.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured by using enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to reverse.
NET EARNINGS PER SHARE AND STOCK OPTION PLANS
The Company was formed in June 1997 and had no outstanding stock prior to
formation; therefore, earnings per share have not been calculated in the
attached financial statements. Certain members of the Company's management
participate in the Parent Company's stock option plans, but the Company has not
yet adopted its own plan.
F-8
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS No. 121 requires companies to
evaluate long-lived assets for impairment based on the undiscounted future cash
flows of the asset. If a long-lived asset is identified as impaired, the value
of the asset must be reduced to its fair value. The Company's land holdings and
operating properties would be considered long-lived assets under this
pronouncement. The Company adopted this statement in the first quarter of its
fiscal year ending November 30, 1997 and it did not have any material effect on
the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement encourages, but does not require, a fair value
based method of accounting for employee stock options or similar equity
instruments. Entities which elect not to adopt the fair value method of
accounting are required to make pro forma disclosures of net income and earnings
per share as if the fair value method were adopted. This statement is effective
for fiscal years beginning after December 15, 1995. The Company does not intend
to adopt the fair value method of accounting, but has elected to make the
pro forma disclosures at such time as stock-based compensation plans are adopted
by the Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
statement is effective for financial statements for periods ending after
December 15, 1997. Earlier adoption is not permitted. This statement changes the
method in which earnings per share will be determined. Adoption of this
statement will not have an impact on the Company until such time as stock-based
compensation plans are adopted.
F-9
<PAGE>
2. RESTRICTED CASH
Cash includes restricted deposits of $1.6 million and $1.4 million as of
November 30, 1996 and 1995, respectively. These balances are comprised primarily
of security deposits from tenants of commercial and apartment properties.
3. MORTGAGE LOANS
At November 30, 1996 and 1995, mortgage loans consisted of the following:
November 30,
---------------------------
(IN THOUSANDS) 1996 1995
-------- --------
Mortgage loans $ 83,576 67,384
Allowance for loan losses (4,979) (340)
Unamortized discounts (10,851) (13,112)
-------- --------
$ 67,746 53,932
======== ========
At November 30, 1996 and 1995, the balance of mortgage loans classified as
held for sale were $41.6 million and $5.5 million, respectively, and classified
as held for investment were $26.1 million and $48.4 million, respectively.
4. INVESTMENT SECURITIES
Investment securities consist of investments in various issues of rated and
unrated portions of CMBS. The Company's investment in rated CMBS are classified
as available-for-sale and its investment in unrated CMBS are classified as
held-to-maturity. In general, principal payments on each class of security are
made in the order of the stated maturities of each class so that no payment of
principal will be made on any class until all classes having an earlier maturity
date have been paid in full. The Company's investment securities have stated
maturity dates in years 2004 through 2030 and carry stated interest rates
ranging from 6.59% to 13.33%. The annual principal repayments are dependent upon
collections on the underlying mortgages, affected by prepayments and extensions,
and as a result, the actual maturity of any class of securities may differ from
its stated maturity.
These investments represent securities which are collateralized by pools of
mortgage loans on commercial real estate assets located across the country.
Concentrations of credit risk with respect to these securities are limited due
to the diversity of the underlying loans across geographical areas and diversity
among property types. In addition, the Company only invests in these securities
when it performs significant due diligence analysis on the real estate
supporting the underlying loans and when it is named special servicer for the
entire securitization.
F-10
<PAGE>
As special servicer, the Company monitors and impacts the performance of the
securitization by having the ability to resolve non-performing loans using its
loan workout and asset management expertise.
At November 30, 1996 and 1995, the Company's investment securities
consisted of the following:
(IN THOUSANDS) 1996 1995
----------- -----------
Available-for-sale $ 193,869 141,832
Held-to-maturity 66,668 21,460
----------- -----------
$ 260,537 163,292
=========== ===========
At November 30, 1996 and 1995, the amortized cost and fair value of
investment securities consisted of the following:
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
-------- ------- ------- -------
1996
Available-for-sale $180,918 14,626 (1,675) 193,869
Held-to-maturity $ 66,668 19,490 -- 86,158
1995
Available-for-sale $132,373 10,630 (1,171) 141,832
Held-to-maturity $ 21,460 -- -- 21,460
During 1996, proceeds from the sale of available-for-sale securities
amounted to $18.1 million and resulted in gross realized gains of $1.7 million.
During 1995, proceeds from the sale of available-for-sale securities amounted to
$11.0 million and resulted in gross realized gains of $0.5 million.
F-11
<PAGE>
5. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Summarized financial information on a combined 100% basis related to the
Company's significant partnerships accounted for by the equity method follows:
NOVEMBER 30,
-------------------------
(IN THOUSANDS) 1996 1995
---------- ----------
Assets
Cash $ 53,109 66,927
Portfolio investments 839,441 1,078,841
Other assets 16,213 22,160
---------- ----------
$ 908,763 1,167,928
========== ==========
Liabilities and equity
Accounts payable and other liabilities $ 57,557 77,424
Notes and mortgages payable 425,716 570,882
Equity of:
The Company 119,133 149,174
Others 306,357 370,448
---------- ----------
$ 908,763 1,167,928
========== ==========
The equity of the Company in the partnerships' financial statements shown
above exceeds the Company's recorded investment in and advances to the
partnerships by $9.0 million at November 30, 1996 primarily due to purchase
discounts. Portfolio investments consist primarily of mortgage loans and
business loans collateralized by real property, as well as commercial properties
and land held for investment or sale.
YEARS ENDED NOVEMBER 30,
----------------------------------
(IN THOUSANDS) 1996 1995 1994
-------- -------- --------
Revenues $257,062 280,286 246,236
Costs and expenses 87,629 115,269 128,784
-------- -------- --------
Earnings of partnerships $169,433 165,017 117,452
======== ======== ========
The Company's share of earnings $ 51,862 31,203 20,710
======== ======== ========
At November 30, 1996, the Company's equity interests in these partnerships
ranged from 15% to 50%. These partnerships are involved in the acquisition and
management of portfolios of real estate loans and properties. The Company shares
in the profits and losses of these partnerships and, when appointed the manager
of the partnerships, receives fees for the management and disposition of the
assets. The outstanding debt of these partnerships is not guaranteed by the
Company.
F-12
<PAGE>
6. OPERATING PROPERTIES AND EQUIPMENT
NOVEMBER 30,
--------------------------
(IN THOUSANDS) 1996 1995
--------- ---------
Rental apartments $ 70,357 69,027
Office buildings 65,725 39,334
Retail centers 60,344 62,952
Hotels 18,713 17,963
Other 18,871 15,557
--------- ---------
Total land and buildings 234,010 204,833
Furniture, fixtures and equipment 5,028 4,597
--------- ---------
239,038 209,430
Accumulated depreciation (35,772) (31,848)
--------- ---------
$ 203,266 177,582
========= =========
The Company leases as lessor its retail, office and other facilities under
non-cancelable operating leases with terms in excess of twelve months. The
future minimum rental revenues under these leases for the five years subsequent
to November 30, 1996 are as follows (in thousands): 1997-$21,627; 1998-$14,321;
1999-$12,301; 2000-$10,107 and 2001-$7,842.
<TABLE>
<CAPTION>
7. MORTGAGE NOTES AND OTHER DEBTS PAYABLE
NOVEMBER 30,
-------------------
(IN THOUSANDS) 1996 1995
-------- --------
<S> <C> <C>
Secured without recourse to the Parent Company:
Mortgage notes on operating properties and land with fixed interest rates from
7.4% to 9.5%, due through 2003 $ 23,994 24,386
Other secured debt:
Mortgage notes on operating properties and land with fixed interest rates from
3.7% to 10.3%, due through 2015 47,648 47,400
Repurchase agreements with floating interest rates (6.4% to 6.6% at November
30, 1996), secured by commercial mortgage-backed securities, due through
1998 118,182 24,120
Revolving credit lines with floating interest rates (6.1% to 6.9% at November
30, 1996), total available facility $135 million, secured by commercial
mortgage-backed securities, mortgage loans held for sale and investments
in and advances to partnerships, due through 1999 97,582 67,375
Unsecured revolving credit notes payable with floating interest rates 67,000 53,975
Uncommitted lines of credit payable with floating interest rates -- 35,000
-------- --------
$354,406 252,256
======== ========
</TABLE>
F-13
<PAGE>
Certain subsidiaries of the Parent Company included in the combined
financial statements of the Company are co-borrowers in the Parent Company's
unsecured revolving credit agreement, and at November 30, 1996 and 1995, their
total allocated borrowings under this agreement amounted to $67.0 million and
$54.0 million, respectively. During 1996, the Parent Company amended this
agreement by increasing the total commitment to $450 million and extending the
expiration date to 2001. The interest rate under this agreement was 6.4% at
November 30, 1996.
The Parent Company has guaranteed most of the Company's debt and letters of
credit. As part of the Agreement, the Company is required to negotiate its own
credit facilities and to reduce the level of Parent Company guarantees,
including letters of credit, to under $50 million.
During 1995, the Company entered into two uncommitted short-term bank
credit lines which provided for aggregate borrowings of $35.0 million. These
lines expired in 1996 and were repaid.
The aggregate principal maturities of mortgage notes and other debts
payable during the five years subsequent to November 30, 1996, are as follows
(in thousands): 1997-$54,817; 1998-$183,304; 1999-$2,261; 2000-$850; and
2001-$67,885. All of the notes secured by land contain collateral release
provisions.
8. INCOME TAXES
The Company is included in the consolidated federal income tax return of
the Parent Company. The income tax provision included in these combined
financial statements reflect the historical income tax provision and temporary
differences attributable to the operations of the Company on a separate return
basis.
The provisions for income taxes consisted of the following:
YEARS ENDED NOVEMBER 30,
------------------------------------------
(IN THOUSANDS) 1996 1995 1994
-------- -------- --------
Current:
Federal $ 37,866 35,593 26,103
State 4,960 5,048 4,936
-------- -------- --------
42,826 40,641 31,039
-------- -------- --------
Deferred:
Federal (12,337) (15,303) (8,701)
State (277) 561 (1,643)
-------- -------- --------
(12,614) (14,742) (10,344)
-------- -------- --------
Total expense $ 30,212 25,899 20,695
======== ======== ========
F-14
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax effects
of significant temporary differences of the Company's deferred tax assets and
liabilities are as follows:
NOVEMBER 30,
----------------------
(IN THOUSANDS) 1996 1995
------- -------
Deferred tax assets:
Reserves and accruals $ 7,748 3,894
Investment securities income 11,828 4,193
Investment in partnerships 11,251 14,174
Other 325 273
------- -------
Total deferred tax assets 31,152 22,534
------- -------
Deferred tax liabilities:
Capitalized expenses 989 2,604
Deferred gains 4,306 4,391
Acquisition adjustments 9,550 13,902
Installment sales 845 1,242
Unrealized gain on
available-for-sale securities 5,051 3,689
Other 344 1,126
------- -------
Total deferred tax liabilities 21,085 26,954
------- -------
Net deferred tax asset (liability) $10,067 (4,420)
======= =======
Based on management's assessment, it is more likely than not that the
deferred tax assets will be realized through future taxable income.
A reconciliation of the statutory rate to the effective tax rate follows:
% OF PRE-TAX INCOME
---------------------------------
1996 1995 1994
------ ------ ------
Statutory rate 35.0 35.0 35.0
State income taxes, net of
federal income tax benefit 4.0 4.0 4.0
------ ------ ------
Effective rate 39.0 39.0 39.0
====== ====== ======
F-15
<PAGE>
<TABLE>
<CAPTION>
9. PARENT COMPANY INVESTMENT
Changes in the Parent Company's investment consisted of the following:
YEARS ENDED NOVEMBER 30,
-----------------------------------
(IN THOUSANDS) 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 370,903 396,403 266,965
Net earnings 47,255 40,508 32,498
Advances (to) from Parent Company (53,240) (71,778) 96,940
Net unrealized gains on available-for-sale
securities 2,130 5,770 --
--------- --------- ---------
Balance, end of year $ 367,048 370,903 396,403
========= ========= =========
</TABLE>
10. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of financial instruments held by the Company at November 30, 1996 and 1995,
using available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The table excludes cash and cash equivalents and accounts payable which
had fair values approximating their carrying values.
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------------------------------
1996 1995
----------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Mortgages loans $ 67,746 78,114 53,932 59,449
Investment securities held to maturity 66,668 86,158 21,460 21,460
Investment securities available-for-sale 193,869 193,869 141,832 141,832
Liabilities:
Mortgage notes and other debts payable $ 354,406 354,406 252,256 252,256
</TABLE>
F-16
<PAGE>
The following methods and assumptions were used by the Company in
estimating fair values:
Mortgages loans: The fair values are based on discounting future cash flows
using the current interest rates at which similar loans would be made or are
estimated by the Company on the basis of financial or other information.
Investment securities available-for-sale and held-to-maturity: The fair
values are based on quoted market prices if available. The fair values for
instruments which do not have quoted market prices are estimated by the Company
on the basis of financial and other information.
Mortgages notes and other debts payable: The fair value of fixed rate
borrowings is based on discounting future cash flows using the Company's
incremental borrowing rate. Variable rate borrowings are tied to market indices
and thereby, approximate fair value.
11. RELATED PARTY TRANSACTIONS
The Parent Company provides various general and administrative services to
the Company including information systems, treasury, legal, human resources,
payroll, accounting, risk management and others. Costs for these services are
designed to approximate the actual costs incurred by the Parent Company to
render these services. Management believes the methods used to determine these
costs are reasonable, however, such costs may not be representative of those
which would be incurred if the Company operated as an independent entity.
Charges for these costs are included in general and administrative expenses and
amounted to $3.1 million, $2.6 million and $2.6 million for 1996, 1995 and 1994,
respectively.
A portion of the Parent Company's facilities were provided on a rent-free
basis by the Company for the years ended November 30, 1996, 1995 and 1994. As
part of the spin-off, the Company is negotiating market-based lease agreements
with the Parent Company and its subsidiaries that should result in additional
rental income of over $1.0 million annually.
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
The Company is subject to the usual obligations associated with entering
into contracts for the purchase, development and sale of real estate as well as
the management of partnerships and special servicing of CMBS in the routine
conduct of its business.
The Parent Company is committed under various letters of credit to provide
certain guarantees in the normal course of business on behalf of the Company.
Outstanding letters of credit under these arrangements totaled approximately
$37.3 million at November 30, 1996.
F-17
<PAGE>
<TABLE>
<CAPTION>
13. QUARTERLY DATA (UNAUDITED)
(IN THOUSANDS) FIRST SECOND THIRD FOURTH
--------- -------- ------- --------
1996
<S> <C> <C> <C> <C>
Revenues $ 40,117 44,555 44,142 46,878
Operating income $ 22,801 27,081 23,739 24,359
Earnings before income taxes $ 18,169 21,721 18,405 19,172
Net earnings $ 11,083 13,250 11,227 11,695
1995
Revenues $ 31,000 51,001 32,733 40,478
Operating income $ 17,746 27,350 18,069 17,934
Earnings before income taxes $ 15,539 23,173 14,174 13,521
Net earnings $ 9,479 14,135 8,646 8,248
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED BALANCE SHEETS
(UNAUDITED)
As of May 31, 1997 and 1996
(IN THOUSANDS) 1997 1996
ASSETS ---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 9,015 8,134
Investment securities 286,485 203,414
Mortgage loans, net 72,577 72,110
Operating properties and equipment, net 212,825 202,107
Land held for investment 89,791 96,760
Investments in and advances to partnerships 102,289 126,093
Deferred income taxes 5,639 -
Other assets 14,471 12,458
--------- ----------
Total assets $ 793,092 721,076
========== ==========
LIABILITIES AND PARENT COMPANY INVESTMENT
Liabilities
Accounts payable $ 3,265 1,689
Accrued expenses and other liabilities 35,719 25,164
Deferred income taxes - 27
Mortgage notes and other debts payable 369,965 303,347
--------- ---------
Total liabilities 408,949 330,227
--------- ---------
Parent Company investment
Parent Company investment 370,382 386,287
Unrealized gain on securities available-for-sale, net 13,761 4,562
--------- ---------
Total Parent Company investment 384,143 390,849
--------- ---------
Total liabilities and Parent Company investment $ 793,092 721,076
========== =========
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-19
<PAGE>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF EARNINGS
(Unaudited)
Six Month Periods Ended May 31 1997, and 1996
(IN THOUSANDS) 1997 1996
-------- --------
Revenues
Rental income $ 29,978 29,672
Equity in earnings of partnerships 19,343 24,574
Interest income 20,630 14,954
Sales of real estate 18,334 5,314
Management fees 6,425 10,158
Other, net 6,394 --
-------- --------
Total revenues 101,104 84,672
-------- --------
Costs and expenses
Cost of rental operations 17,695 17,074
Cost of real estate sold 11,933 2,782
General and administrative 12,245 11,233
Depreciation 2,915 2,981
Other, net -- 720
-------- --------
Total costs and expenses 44,788 34,790
-------- --------
Operating income 56,316 49,882
Interest expense 13,201 9,992
-------- --------
Earnings before income taxes 43,115 39,890
Income taxes 16,815 15,557
-------- --------
Net earnings $ 26,300 24,333
======== ========
See accompanying notes to unaudited combined financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Periods Ended May 31, 1997 and 1996
(IN THOUSANDS) 1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 26,300 24,333
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation 2,915 2,981
Amortization of discount on mortgage loans and loan costs (532) (6)
Gain on sales of other real estate (6,401) (2,532)
Equity in earnings of partnerships (19,343) (24,574)
Gain on sales of securities (2,932) (1,412)
Decrease in deferred income taxes 682 (3,620)
Changes in assets and liabilities:
Decrease (increase) in other assets (8,089) 674
Increase in mortgage loans held for sale (6,263) (14,406)
Increase in accounts payable and accrued liabilities 7,470 2,032
--------- ---------
Net cash used in operating activities (6,193) (16,530)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Operating properties and equipment
Additions (20,340) (11,881)
Sales 14,591 3,475
Land held for investment
Additions (2,844) (764)
Sales 3,743 1,839
Investments in and advances to partnerships (1,907) (2,851)
Distributions from partnerships 29,141 42,873
Purchase of mortgage loans held for investment (5,016) (8,699)
Proceeds from mortgage loans held for investment 4,108 5,208
Purchase of investment securities (109,825) (53,220)
Proceeds from sales of investment securities and other 126,887 23,651
--------- ---------
Net cash provided by (used in) investing activities 38,538 (369)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit agreement (46,624) 23,818
Mortgage notes and other debts payable
Proceeds from borrowings 38,491 --
Principal payments (3,978) (1,202)
Payments to Parent Company (15,066) (3,179)
--------- ---------
Net cash provided by (used in) financing activities (27,177) 19,437
--------- ---------
Net increase in cash and cash equivalents 5,168 2,538
Cash and cash equivalents at beginning of period 3,847 5,596
--------- ---------
Cash and cash equivalents at end of period $ 9,015 8,134
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 14,806 9,687
Supplemental disclosures of non-cash investing and financing activities:
Purchase of investment securities financed by sellers $ 28,475 11,122
Purchase of operating property financed by a mortgage note $ -- 17,400
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-21
<PAGE>
LNR PROPERTY CORPORATION
NOTES TO COMBINED FINANCIAL INFORMATION
MAY 31, 1997 AND 1996
SPIN-OFF TRANSACTION
On June 11, 1997, Lennar Corporation (the "Parent Company") announced,
pursuant to a separation and distribution agreement (the "Agreement"), that its
Board of Directors had approved a plan to spin-off its real estate investment
and management business into a new, publicly held, independently-operated
company to be called LNR Property Corporation (the "Company"). Shareholders will
receive one share of the Company's stock for each share of the Parent Company's
stock held on the distribution date. The spin-off is subject to certain
conditions, including receipt of a ruling from the Internal Revenue Service that
the proposed spin-off will qualify as a tax-free distribution under the Internal
Revenue Code of 1986, as amended. The spin-off is expected to occur in the
fourth quarter of fiscal 1997.
BASIS OF PRESENTATION AND COMBINATION
The combined financial information of the Company has been prepared and is
presented to reflect the Company as a separate combined group for all periods
presented and has been extracted from the financial statements of the Parent
Company using the Parent Company's historical results of operations and
historical cost basis of its assets and liabilities which are used in the real
estate investment and management businesses. All significant intercompany
transactions and balances have been eliminated.
The combined financial statements do not include the anticipated 50%
interest the Company will have in a partnership expected to be formed between
the Parent Company and the Company. The partnership will own parcels of land
which are either currently being developed or are expected to be developed into
primarily residential communities. The assets to be contributed to the
partnership are currently owned and operated by certain subsidiaries of the
Parent Company and are not a part of the Company's current operations. The
combined financial information also does not reflect the additional capital
contribution from the Parent Company expected as of the spin-off date when the
Parent Company adjusts its net worth to $200 million.
The unaudited combined financial statements should be read in conjunction
with the November 30, 1996 combined audited financial statements. In the opinion
of management, all adjustments, consisting of normal recurring accruals,
necessary for the fair presentation of the accompanying combined financial
statements, have been made.
F-22
<PAGE>
Report of Independent Certified Public Accountants
The Partners
Lennar Florida Partners I, L.P.
We have audited the accompanying combined balance sheets of Lennar Florida
Partners I, L.P. and qualified affiliates as of December 31, 1996 and 1995, and
the related combined statements of income, partners' capital and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Lennar Florida
Partners I, L.P. and qualified affiliates at December 31, 1996 and 1995, and the
combined results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 28, 1997
F-23
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995
---------------------
ASSETS
Cash and cash equivalents $ 3,043 $ 15,086
Restricted cash and cash equivalents 5,519 705
Portfolio investment, net 52,329 98,876
Other assets, net 2,300 2,270
-------- --------
Total assets $ 63,191 $116,937
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 2,153 $ 2,214
Loan payable to affiliated party -- 21,528
Commercial Mortgage Pass-Through Certificates 8,913 22,490
Other liabilities 351 335
-------- --------
Total liabilities 11,417 46,567
Partners' capital 51,774 70,370
-------- --------
Total liabilities and partners' capital $ 63,191 $116,937
======== ========
SEE ACCOMPANYING NOTES.
F-24
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995
------- -------
Revenues:
Interest income on loans $ 2,954 $ 8,479
Gain on satisfactions and sales of loans 4,322 34,223
Sales of real estate 61,072 28,884
Income from operations of real estate owned, net 5,264 4,484
Other income 326 1,491
------- -------
Total revenues 73,938 77,561
Costs and Expenses:
Cost of real estate sold 30,376 16,918
General and administrative expenses 8,241 9,217
Interest expense 1,267 6,609
------- -------
Total costs and expenses 39,884 32,744
------- -------
Net income $34,054 $44,817
======= =======
SEE ACCOMPANYING NOTES.
F-25
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED
GENERAL PARTNERS PARTNER
-------------------------- ------------
THE
LENNAR MORGAN
FLORIDA STANLEY REAL TOTAL
HOLDINGS, MS FLORIDA ESTATE FUND, PARTNERS'
INC. CORPORATION L.P. CAPITAL
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $ 20,023 $ 398 $ 19,432 $ 39,853
Cash distributions (7,150) (143) (7,007) (14,300)
Net income 22,408 448 21,961 44,817
-------- -------- -------- --------
Balance at December 31, 1995 35,281 703 34,386 70,370
Cash distributions (26,325) (527) (25,798) (52,650)
Net income 17,027 341 16,686 34,054
-------- -------- -------- --------
Balance at December 31, 1996 $ 25,983 $ 517 $ 25,274 $ 51,774
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 34,054 $ 44,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on loan satisfactions and sales of assets (35,018) (46,189)
Amortization of discount on performing loans (209) (794)
Amortization of capitalized costs 363 1,393
Amortization of discount on Commercial Mortgage
Pass-Through Certificates 547 547
Depreciation 123 2,028
Loss on impairment of loans 2,398 --
Loss on impairment of assets held for disposal 596 --
Changes in operating assets and liabilities:
Other assets (30) 738
Accounts payable and accrued liabilities (61) (532)
Other liabilities 16 (201)
-------- --------
Net cash provided by operating activities 2,779 1,807
INVESTING ACTIVITIES
Proceeds from loan satisfactions, sales and
principal repayments 18,369 64,435
Proceeds from sales of real estate 61,072 28,884
Capitalized costs and building improvements (1,147) (2,035)
(Increase) decrease in restricted cash and cash equivalents (4,814) 2,222
-------- --------
Net cash provided by investing activities 73,480 93,506
-------- --------
</TABLE>
CONTINUED ON NEXT PAGE.
F-27
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31
1996 1995
-----------------------
FINANCING ACTIVITIES
Principal payments on loan payable $ -- $(73,387)
Proceeds of loan payable to affiliated party -- 34,509
Principal payments on loan payable to
affiliated party (21,528) (12,981)
Principal payments on Commercial Mortgage
Pass-Through Certificates (14,124) (16,107)
Cash distributions (52,650) (14,300)
-------- --------
Net cash used in financing activities (88,302) (82,266)
-------- --------
Net (decrease) increase in cash and cash equivalents (12,043) 13,047
Cash and cash equivalents at beginning of year 15,086 2,039
-------- --------
Cash and cash equivalents at end of year $ 3,043 $ 15,086
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 1,461 $ 7,498
======== ========
Noncash reduction in loan payable $ -- $ 3,570
======== ========
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS
Lennar Florida Partners I, L.P. (the Partnership) is a Delaware operating
limited partnership formed on April 30, 1992 for the purpose of acquiring,
managing and disposing of a portfolio of assets acquired from the Resolution
Trust Corporation (RTC), as Receiver for AmeriFirst Federal Savings Bank. The
portfolio of assets, primarily located in Florida, consists of performing and
nonperforming commercial loans, and real estate owned (REO).
The partners are Lennar Florida Holdings, Inc. (general partner), a wholly-owned
subsidiary of Lennar Corporation (Lennar); MS Florida Corporation (general
partner), a wholly-owned subsidiary of The Morgan Stanley Real Estate Fund,
L.P., and The Morgan Stanley Real Estate Fund, L.P. (limited partner). The
Partnership agreement sets forth the basis for capital contributions,
allocations and distributions to the partners including allocation of profit and
loss, special allocations for tax purposes and distribution of net cash flow
from the Partnership.
The Partnership terminates on December 31, 2000, unless sooner terminated or
further extended pursuant to the provisions in the Partnership agreement.
Through a phased acquisition on July 1 and September 9, 1992, the Partnership
purchased the portfolio of assets from the RTC for a total net purchase price of
$443 million. The acquisition of the portfolio was partially financed by the RTC
with a nonrecourse loan totaling $376 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The accompanying combined financial statements include the accounts of the
Partnership and all qualified affiliated limited partnerships. A qualified
affiliate is a separate single purpose limited partnership owned by
substantially the same interests as the Partnership and formed for the sole
purpose of acquiring, managing and disposing of the REO properties purchased as
part of the portfolio.
PORTFOLIO INVESTMENT
The portfolio investment is carried at cost, net of purchase discount, loss on
impairment and accumulated depreciation.
F-29
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The purchase discount related to performing loans is amortized over the terms of
the loans based on their outstanding principal balances. In 1996 and 1995,
included in interest income on loans is approximately $209,000 and $794,000 of
purchase discount amortization, respectively. At December 31, 1996 and 1995,
unamortized discount on performing loans totaled approximately $5.3 million and
$7.8 million, respectively.
Generally, a loan is classified as impaired and the accrual of interest on such
loan is discontinued when the contractual payment of principal or interest has
become 60 days past due or management has serious doubts about further
collectibility of principal or interest, even though the loan is currently
performing. Interest received on impaired loans is either applied against
principal or reported as interest income, according to management's judgment as
to the collectibility of principal. Loans are reclassified as performing loans
when the obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt. For the years ended December 31, 1996 and 1995, the Partnership
recognized interest income on impaired loans of $311,000 and $2.2 million,
respectively, using the cash basis method of income recognition.
In accordance with Statement No. 114, Accounting by Creditors for Impairment of
a Loan, the Partnership performs periodic evaluations of the carrying value of
the loans based on discounted cash flows using the loan's initial effective rate
or the fair value of the collateral for certain collateral dependent loans.
Beginning January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. In accordance with Statement
121, long-lived assets that are expected to be disposed of (REO building and
equipment) are carried at the lower of carrying amount or fair value. Fair value
is based on estimated future cash flows to be generated by the assets,
discounted at a market rate of interest. Depreciation and/or amortization is not
recorded during the period in which assets are held for disposal. Accordingly,
no depreciation and/or amortization was recorded during 1996.
F-30
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Partnership has estimated future cash flows on its portfolio assets based on
the current market environment for real estate assets. It is reasonably possible
that these estimates could change in the near term and additional losses
material to the financial statements may be incurred.
During 1995, depreciation of REO building and equipment totaling $1.9 million
was recorded on a straight line basis over the estimated useful lives of the
assets and commenced upon acquisition or conversion to REO. Tenant improvements
were amortized on a straight line basis over the shorter of their estimated
useful lives or the term of the applicable leases.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Concentrations of credit risk and market
risk associated with cash and cash equivalents are considered low due to the
credit quality of the issuers of the financial instruments held by the
Partnership and due to their short duration to maturity.
RESTRICTED CASH AND CASH EQUIVALENTS
Pursuant to a Pooling and Servicing Agreement (see Note 5), the proceeds from
the collection of certain loans are deposited into various trust funds which are
managed by a bank serving as a trustee. These funds are invested in certain
short-term investments in accordance with the Pooling and Servicing Agreement.
All assets of the trust funds are restricted as to their use.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-31
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The accompanying combined financial statements include no provision for income
taxes, except for corporate subsidiaries, since pursuant to the provisions of
the applicable federal, state, and local taxing authorities, each item of
income, gain, loss, deduction or credit is reportable by the partners. For
corporate subsidiaries income taxes are provided on taxable income at the
statutory rates, as applicable to such income. No significant amounts for income
taxes were accrued or paid in 1996 and 1995.
RECLASSIFICATIONS
Certain items in the 1995 financial statements have been reclassified to conform
to the 1996 presentation.
3. PORTFOLIO INVESTMENT
At December 31, 1996 and 1995, the portfolio investment consists of the
following (DOLLARS IN THOUSANDS):
DECEMBER 31
1996 1995
------------------------
Commercial loans substantially
secured by real estate, net of
purchase discount of $14,565 and
$20,735 in 1996 and 1995, respectively $12,115 $31,600
Real estate owned, net of accumulated
depreciation of $2,262 and $3,945 in
1996 and 1995, respectively 40,214 67,276
------------------------
$52,329 $98,876
========================
F-32
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PORTFOLIO INVESTMENT (CONTINUED)
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under Statement 114 was $3.3 million and $9.9 million,
respectively, for which a specific write-down has been recorded of approximately
$2.4 million in 1996. The average recorded investment in impaired loans during
the years ended December 31, 1996 and 1995, was approximately $6.6 million and
$17.2 million, respectively. The partnership has not established a general
allowance for loan losses as it is the Partnership's policy to specifically
identify impaired loans and record a direct write-down for such impairment.
Real estate owned includes property acquired through a foreclosure proceeding or
acceptance of a deed-in-lieu of foreclosure and loans classified as in-substance
foreclosure. In accordance with Statement 114, a loan is classified as
in-substance foreclosure when the Partnerships have taken possession of the
collateral regardless of whether formal foreclosure proceedings have taken
place. Additionally, real estate owned consists of retail, office and industrial
operating properties and unimproved land.
In accordance with Statement 121, real estate owned is classified as an asset to
be disposed of as the Partnership has committed to a plan for disposing of these
assets. These assets will be disposed of over time with final disposal expected
in the year 2000. In 1996, the Partnership recorded a loss on impairment of
$596,000 on REOs which is included in general and administrative expenses in the
accompanying statement of income. During 1995, the Partnership converted loans
in the amount of $16.7 million to REO.
At December 31, 1995, REO included depreciable assets totaling $47.1 million.
4. LOAN PAYABLE TO AFFILIATE
On September 15, 1995, the then outstanding balance of $34.6 million on the RTC
loan was assigned to Morgan Stanley Mortgage Capital, Inc. (MSMC), an affiliate
of the limited partner. The loan payable was collateralized by all of the
portfolio assets. The loan provided for principal payments to release assets
pledged as collateral under the loan as well as certain unscheduled principal
payments made by the borrower. The note bore interest at LIBOR plus 2.5% (8.42%
at December 31, 1995). Interest payments made to related parties totaled
$274,000 and $593,000 in 1996 and 1995, respectively.
F-33
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LOAN PAYABLE TO AFFILIATE (CONTINUED)
On April 10, 1996, the outstanding balance on the MSMC loan of $3.3 million was
paid in full.
5. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
On November 3, 1993, the Partnership transferred loans with outstanding
principal balances totaling $82.9 million, to a trust fund. The loans are
secured by first liens on multi-family and commercial real estate properties.
Commercial mortgage pass-through certificates (the Certificates), representing
beneficial interests in the trust, were issued pursuant to a Pooling and
Servicing Agreement, which sets forth, among other things, priority of
distributions of principal and interest on the Certificates. An election was
made to treat a segregated asset pool within the trust fund as a real estate
mortgage investment conduit (a REMIC), for federal income tax purposes.
Certificates representing seven classes of "regular interests" in the REMIC were
sold in a private placement at a discount of $3.3 million, resulting in net
proceeds to the Partnership of $74.7 million. Underwriting fees and legal costs
totaled $2.2 million and are included in other assets in the accompanying
financial statements. These fees and costs are being amortized, on a straight
line basis, over the term of the Certificates. The sole residual interest in the
REMIC (the Class R Certificates), with an initial class certificate balance of
approximately $5 million, was retained by the Partnership.
The interest bearing Certificates bear interest at rates ranging from the lesser
of LIBOR plus .9%, or 10% and the lesser of LIBOR plus 1.55%, or 10%. The Class
R Certificates are subordinated to all other classes, and are entitled to
receive distributions to the extent of any remaining funds after distributions
are made to all other classes. In addition, the Partnership is the sub-servicer
of the loans and receives as a servicing fee, .07% per annum of the scheduled
principal balance of all loans, other than specially serviced loans, for which
the Partnership receives 1% of the recoveries of principal on any such loans.
Distributions are made monthly based on respective class priorities for
interest, principal and prepayments, in accordance with the Pooling and
Servicing Agreement. During 1996 and 1995, interest incurred by the Partnership
on the Certificates totaled $1.1 million and $2.2 million, respectively.
F-34
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTIINUED)
5. COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES (CONTINUED)
The Partnership has an option to repurchase the mortgages when the aggregate
principal balances are at or below 10% of the principal balances as determined
on November 1, 1993.
The Partnership retained a portion of the future economic benefits relating to
the loans by retaining the Class R Certificates. Accordingly, the sale of the
"regular interests" has been accounted for as a financing transaction. As such,
the loans transferred to the trust fund are included in portfolio investment and
the sold Certificates are reflected as outstanding debt in the accompanying 1996
and 1995 combined balance sheets.
6. RELATED PARTY TRANSACTIONS
The Partnership agreement provides for asset management fees and asset
disposition fees to be paid to Lennar Florida Holdings, Inc., as administrative
partner to the Partnership. The asset management fees are based on gross assets
under management. The disposition fees are paid on asset sales and payoffs of
nonperforming loans. During the years ended December 31, 1996 and 1995, $730,000
and $1.4 million, respectively, in asset management fees and $621,000 and
$695,000, respectively, in asset disposition fees were incurred and paid.
The Partnership leases office space under a five-year lease with an affiliate of
Lennar Florida Holdings, Inc. During the years ended December 31, 1996 and 1995,
$148,000 and $140,000 of total rental expense was incurred in connection with
this lease. Minimum future obligations under this lease are as follows: 1997 -
$65,000.
The Partnership has an agreement with Lennar to provide the Partnership with
computer processing and support services necessary for the Partnership's
accounting functions for a monthly fee of $6,000 of which $72,000 was expensed
during both 1996 and 1995.
During 1996 and 1995, affiliated partnerships reimbursed the Partnership $3.9
million and $1.3 million, respectively, for certain overhead expenses including
payroll, rent and other administrative expenses. Included in other assets in the
accompanying balance sheets is $399,000 and $215,000 at December 31, 1996 and
1995, respectively, due from affiliated partnerships related to this
reimbursement.
F-35
<PAGE>
LENNAR FLORIDA PARTNERS I, L.P
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS--The
carrying value of these instruments approximates fair value due to their
short duration to maturity.
PORTFOLIO INVESTMENT: COMMERCIAL LOANS--Commercial loans include both
performing and nonperforming loans. The carrying amounts of performing loans
approximate their fair value. The fair values of the Partnership's
nonperforming loans are estimated using discounted cash flow analyses.
LOAN PAYABLE TO AFFILIATED PARTY--The carrying amount of the loan payable to
affiliated party approximates its fair value as it is tied to a market rate
of interest.
The carrying amounts and the fair values of the Partnership's financial
instruments at December 31, 1996 and 1995 are as follows (dollars in thousands):
1996 1995
----------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------------------------------
Cash and cash equivalents $ 3,043 $ 3,043 $15,086 $15,086
Restricted cash and cash
equivalents 5,519 5,519 705 705
Portfolio investment:
Commercial loans 12,115 19,209 31,600 51,239
Loan payable to affiliated party -- -- 21,528 21,528
Commercial Mortgage
Pass-Through Certificates 8,913 (see below) 22,490 (see below)
It was not practicable to estimate the fair value of the Commercial Mortgage
Pass-Through Certificates due to a lack of quoted market price and the inability
to estimate fair value without incurring excessive costs. The $8.9 million and
$22.5 million carrying amounts at December 31, 1996 and 1995, respectively,
represent the then outstanding principal balance on the Certificates.
F-36
<PAGE>
LENNAR FLORIDA PARTNERS I,L.P.
AND QUALIFIED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. CONTINGENCIES
The Partnership is a plaintiff in several mortgage foreclosure actions in which
defendants have filed counterclaims. The Partnership intends to vigorously
contest these counterclaims and believes the outcome of these matters will not
have a material adverse effect on the Partnership's combined financial
statements.
F-37
<PAGE>
Report of Independent Certified Public Accountants
The Partners
LW Real Estate Investments, L.P.
We have audited the accompanying consolidated balance sheets of LW Real Estate
Investments, L.P. and subsidiaries (together, the "Partnership") as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LW Real Estate
Investments, L.P. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental information
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Ernst & Young LLP
March 11, 1997
F-38
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Balance Sheets
(DOLLARS IN THOUSANDS)
DECEMBER 31
1996 1995
--------- --------
ASSETS
Cash and cash equivalents $ 7,505 $ 8,622
Restricted cash and cash equivalents -- 15,158
Receivables 3,300 6,078
Prepaid expenses 257 1,133
Multiclass pass-through certificates 28,022 34,244
Portfolio investments 66,378 195,420
Deferred and other assets, net of
accumulated amortization of $10,580 and
$10,282, respectively 922 2,362
-------- --------
Total assets $106,384 $263,017
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 2,414 $ 9,595
Loans payable, including accrued interest
of $179 and $351, respectively 25,391 59,282
Minority interest 784 1,940
-------- --------
Total liabilities 28,589 70,817
Partners' capital 77,795 192,200
-------- --------
Total liabilities and partners' capital $106,384 $263,017
======== ========
SEE ACCOMPANYING NOTES.
F-39
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Statements of Operations
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995
-------- --------
REVENUES
Interest income from portfolio investments $ 4,516 $ 11,808
Net operating income from real estate
owned 7,081 9,773
Net gain on dispositions of portfolio
investments 84,860 65,431
Net gain on sale of multiclass
pass-through certificates 3,730 38,473
Other income 1,032 24,516
-------- --------
Total revenues 101,219 150,001
-------- --------
EXPENSES
General and administrative expenses 12,893 10,355
Interest expense 4,448 6,732
Writedown of portfolio investments 893 16,878
Other expense, including amortization 1,898 5,249
-------- --------
Total expenses 20,132 39,214
-------- --------
Income before minority interest 81,087 110,787
Minority interest 811 1,106
-------- --------
Net income $ 80,276 $109,681
======== ========
SEE ACCOMPANYING NOTES.
F-40
<PAGE>
<TABLE>
<CAPTION>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Statements of Partners' Capital
Years ended December 31, 1996 and 1995
(DOLLARS IN THOUSANDS)
GENERAL
PARTNER LIMITED PARTNERS
---------- ------------------------------------------------------------
WESTINGHOUSE TOTAL
LW-LP, ELECTRIC LENNAR L.W. LFS ASSET PARTNERS'
LW-GP1, LP INC. CORPORATION ASSETS, INC. CORP. CAPITAL
---------- --------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 4,357 $ 193,943 $ 193,900 $ 43,578 $ -- $ 435,778
Change in unrealized gains
on available-for-sale
securities (356) (15,847) (15,844) (3,561) -- (35,608)
Sale of interest
by limited partner -- 71,231 (108,385) -- 37,154 --
Net income 1,097 53,432 41,775 10,968 2,409 109,681
Distributions (3,177) (161,016) (111,446) (31,765) (10,247) (317,651)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 1,921 141,743 -- 19,220 29,316 192,200
Change in unrealized gains
on available-for-sale
securities 51 3,818 -- 517 789 5,175
Net income 803 59,202 -- 8,027 12,244 80,276
Distributions (1,998) (147,389) -- (19,986) (30,483) (199,856)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 $ 777 $ 57,374 $ -- $ 7,778 $ 11,866 $ 77,795
========= ========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-41
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Consolidated Statements of Cash Flows
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
1996 1995
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 80,276 $ 109,681
Adjustments to reconcile net income to
net cash (used by) provided by
operating activities:
Net gain on dispositions of portfolio
investments (84,860) (65,431)
Net gain on sale of multiclass
pass-through certificates (3,730) (38,473)
Amortization of deferred and other
assets 298 2,120
Writedown of portfolio investments 893 16,878
Minority interest 811 1,106
Change in operating assets and
liabilities:
Decrease (increase) in receivables 2,778 (3,592)
Decrease (increase) in prepaid
expenses 876 (423)
Decrease in deferred and other assets 1,142 2,116
Decrease in interest payable (172) (1,587)
Decrease in accounts payable and
accrued liabilities (7,181) (1,782)
Net cash (used by) provided by operating ----------- ----------
activities (8,869) 20,613
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from dispositions of portfolio
investments 206,348 149,957
Proceeds from sale and collections on
multiclass pass-through certificates 15,179 227,528
Collections and other decreases in
portfolio investments, net 6,661 26,732
Purchase of multiclass pass-through
certificates -- (4,800)
----------- ----------
Net cash provided by investing activities 228,188 399,417
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of loans payable (33,719) (126,280)
Distributions to partners (199,856) (317,651)
Distributions to general partners of
subpartnerships (2,019) (3,208)
Net change in restricted cash 15,158 22,942
----------- ----------
Net cash used in financing activities (220,436) (424,197)
----------- ----------
Net decrease in cash and cash equivalents (1,117) (4,167)
Cash and cash equivalents at beginning of year 8,622 12,789
----------- ----------
Cash and cash equivalents at end of year $ 7,505 $ 8,622
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 4,602 $ 6,851
=========== ==========
Cash paid during the year for income taxes $ 1,970 $ 1,184
=========== ==========
F-42
SEE ACCOMPANYING NOTES.
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. BACKGROUND AND ORGANIZATION
LW Real Estate Investments, L.P. (the "Partnership"), a Delaware limited
partnership, was formed on April 7, 1993 for the purpose of acquiring, managing
and disposing of a portfolio of assets from Westinghouse Electric Corporation, a
Pennsylvania corporation ("WEC"), and certain of its subsidiaries (collectively
the "Sellers") pursuant to an asset purchase agreement dated April 7, 1993 (the
"APA"). In accordance with the APA, the economic interests in a majority of the
assets purchased were transferred effective February 1, 1993 (date of
commencement of operations), with interest paid to the Sellers from that date.
The assets consisted primarily of performing and non-performing mortgage loans,
owned real estate and investments in partnerships.
The assets were purchased by various substantially owned partnerships of the
Partnership in several closings during 1993, for a total purchase price of
approximately $1.1 billion. The acquisitions were financed with equity and
borrowings from Lehman Commercial Paper, Inc. ("LCPI"), an indirect wholly-owned
subsidiary of Lehman Brothers Holdings Inc. ("LBHI") (see Note 3).
The initial and beneficial partners of the Partnership were LW-GP1, L.P., a
Delaware limited partnership, as general partner (the "General Partner"), and
WEC, Westinghouse Credit Corporation ("WCC"), First Westinghouse Equities
Corporation, First Hotel Investment Corporation, and LW-LP, Inc., all Delaware
corporations, as limited partners. In May 1993, WCC merged with WEC. On July 12,
1993, First Westinghouse Equities Corporation and First Hotel Investment
Corporation sold their entire limited partnership interests to Lennar L.W.
Assets, Inc. ("Lennar"), a Florida corporation and wholly-owned subsidiary of
Lennar Corporation and WEC and LW-LP, Inc. sold a portion of their limited
partnership interests to Lennar. On September 5, 1995, WEC sold their entire
limited partnership interest to LW-LP, Inc. of which LW-LP, Inc. then sold a
portion to LFS Asset Corp., a Florida corporation and wholly-owned subsidiary of
Lennar Corporation. As a result, of these transactions the ownership of the
Partnership at December 31, 1996 and 1995 is:
LW-GP1, L.P. 1.00%
LW-LP, Inc. 73.75%
Lennar L.W. Assets, Inc. 10.00%
LFS Asset Corp. 15.25%
F-43
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BACKGROUND AND ORGANIZATION (CONTINUED)
The partners of LW-GP1, L.P. and LW-L.P., Inc. are indirect wholly-owned
subsidiaries of LBHI. Prior to May 31, 1994, the American Express Company owned
100% of LBHI's common stock (the "Common Stock"), which represented
approximately 93% of LBHI's voting stock. Effective May 31, 1994, LBHI became a
widely held public company with its Common Stock traded on the New York Stock
Exchange.
The Partnership agreement sets forth the basis for capital contributions and
distributions to the partners, including the allocation of profits and losses.
The Partnership continues until April 7, 2028, unless sooner dissolved by
election of the partners or liquidation of substantially all of the portfolio
investments.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Partnership
and the consolidated accounts of LW-SP1, L.P., LW-SP2, L.P., LW-SP3, L.P. and
LW-SP4, L.P. (the "Subpartnerships"). The Subpartnerships are Delaware limited
partnerships owned substantially by the Partnership and formed for the sole
purpose of acquiring, managing, financing and disposing of the assets purchased
from the Sellers. All significant intercompany accounts and transactions have
been eliminated in consolidation.
PORTFOLIO INVESTMENTS
At December 31, 1996 and 1995, portfolio investments consisted of the following
(IN THOUSANDS):
1996 1995
--------- --------
Investment in mortgage loans $10,074 $ 40,914
Real estate owned ("REO") 46,046 134,744
Investments in partnerships and other
entities 10,258 19,762
--------- --------
$66,378 $195,420
========= ========
F-44
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PORTFOLIO INVESTMENTS (CONTINUED)
At the portfolio acquisition date, the aggregate cost of the mortgage loans, REO
and investments in partnerships and joint ventures was allocated to the
individual assets based on their relative fair values. The portfolio is carried
at the lower of cost, net of closing adjustments and principal reductions on the
mortgage loans, or fair value. Direct costs of the acquisition were capitalized
and included in the portfolio balance. The fair value of the Partnership's
investment in mortgage loans approximated $28 million and $90 million at
December 31, 1996 and 1995, respectively.
The Partnership recognizes interest income on the accrual basis for performing
loans and on the cash basis for non-performing loans, including in-substance
foreclosures. Non-performing loans are defined as 90 days delinquent or past
maturity. Interest income previously accrued but not received for performing
loans is reversed upon reclassification to non-performing. The Partnership
recognizes net operating income or loss on REO in the statement of operations as
earned. No depreciation is recorded on REO for financial reporting purposes.
As of December 31, 1996 and 1995 the Partnership's investment in mortgage loans
consisted of commercial loans secured by properties in various states.
Additionally, as of December 31, 1995 the Partnership's investment in mortgage
loans included a loan that was secured by a property in Mexico. At December 31,
1996, the loans' collateral was concentrated in Maryland (36%) and Pennsylvania
(32%); at December 31, 1995 the concentration was in Mexico (17%) and Missouri
(18%).
F-45
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PORTFOLIO INVESTMENTS (CONTINUED)
The Partnership's investment in real estate had significant concentrations in
the U.S. Virgin Islands and various states as follows, at December 31 (IN
MILLIONS):
REAL ESTATE
------------------------------------------------------
1996 1995
------ -----
U.S. Virgin Islands $ - $ 20
Michigan - 20
Florida 8 16
Louisiana 17 15
Pennsylvania 9 -
Other 12 64
---- -----
$ 46 $ 135
==== =====
The concentrations by the collateral types for mortgage loans and real estate
are as follows, at December 31 (IN MILLIONS):
MORTGAGE LOANS REAL ESTATE
------------------------ -------------------------
1996 1995 1996 1995
------ ------ ------ ------
Office $ - $ 15 $ 20 $ 62
Hospitality - 5 - 40
Retail 7 8 10 15
Multifamily 2 11 6 7
Land/Other 1 2 10 11
----- ----- ----- ------
$ 10 $ 41 $ 46 $ 135
===== ===== ===== ======
F-46
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PORTFOLIO INVESTMENTS (CONTINUED)
As of December 31, 1995, a significant portion of the Partnership's investments
in other than mortgage loans and real estate owned are accounted for by
increasing the investment account for capital contributions and decreasing the
investment account for distributions received. All distributions in excess of
the carrying value are recorded as income.
In 1996, the Partnership received shares of common stock from one of its
investments in partnerships and other entities. The shares were previously owned
indirectly by the Partnership. These equity securities are being carried on the
cost method as the shares represent approximately 6.8% ownership of the
underlying company and under a lock-up agreement the Partnership is restricted
from trading a portion of the shares until 1998 and the balance until 1999. The
fair value of the publicly traded common stock of this company, without the
trading restrictions imposed on the Partnership totaled $57.4 million at
December 31, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
MULTICLASS PASS-THROUGH CERTIFICATES
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
At December 31, 1996 and 1995 such debt securities are comprised solely of
multiclass pass-through certificates. Multiclass pass-through certificates are
classified as held-to-maturity when the Partnership has the positive intent and
ability to hold the securities to maturity. Distributions received on
held-to-maturity securities are accounted for by decreasing the carrying value.
Distributions in excess of the carrying value will be recorded as income.
F-47
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MULTICLASS PASS-THROUGH CERTIFICATES (CONTINUED)
Multiclass pass-through certificates not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses reported directly to partners'
capital. The cost of securities acquired was based on the relative fair values
at the date acquired and the cost of securities sold is based on specific
identification. Realized gains and losses and declines in the value judged to be
other-than-temporary are included in the statement of operations. Interest and
dividends on securities classified as available-for-sale is included in interest
income from portfolio investments.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Excess cash is invested in investment grade institutional funds, some of which
are sponsored by affiliates of LBHI. The funds consist of investment grade
commercial paper, federal agency securities, municipal bonds, repurchase
agreements, asset backed securities and/or U.S. Treasury bills.
DEFERRED AND OTHER ASSETS
At December 31, 1996 and 1995 deferred and other assets consisted of the
following (IN THOUSANDS):
1996 1995
------- -------
Deferred organization costs, net of
accumulated amortization of $2,399
and $2,101, respectively $ - $ 298
Escrow deposits 305 1,000
Other 617 1,064
------ -------
$ 922 $ 2,362
====== =======
F-48
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED AND OTHER ASSETS (CONTINUED)
Organization costs are capitalized and amortized over 36 months. Escrow deposits
consists mainly of funds held for mortgagees for property taxes and insurance
premiums, with a corresponding liability included in accounts payable and
accrued liabilities.
FAIR VALUES
The fair value of the Partnership's investment in mortgage loans and multiclass
pass-through certificates (see Note 9) was determined based on the discounted
value of future cash flows expected to be received. The discount rates used take
into account management's estimates for risk. The carrying value of cash and
cash equivalents and restricted cash and cash equivalents approximates the fair
value. The fair value of the Partnership's long-term debt (see Note 3) is
estimated using discounted cash flow analysis, based upon the Partnership's
estimated borrowing rates for similar types of borrowing arrangements.
INCOME TAXES
The consolidated financial statements include no provision for income taxes,
except for wholly-owned corporate subsidiaries, since pursuant to the statutes
and regulations of the applicable federal, state and local taxing authorities,
each item of income, gain, loss, deduction or credit is reportable by the
partners. For wholly-owned corporate subsidiaries, income taxes are provided on
taxable income at the statutory rates applicable to such income which resulted
in an accrued liability of $250,000 and $1.4 million as of December 31, 1996 and
1995, respectively. Income tax expense has been recorded as other expense in the
statements of operations.
F-49
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LOANS PAYABLE
LOAN PAYABLE TO LCPI
In order to finance the purchase of the portfolio investments, the Partnership
obtained a loan from LCPI (the "Loan"), which included a one percent commitment
fee of approximately $7.6 million. The Loan is evidenced by a promissory note,
collateralized by all of the portfolio investments, and bears interest at the
three month London Interbank Offering Rate ("LIBOR") plus 4.25% (approximately
10.125% at December 31, 1995). Interest incurred and paid on this loan totaled
approximately $1 million during 1995 and was insignificant in 1996.
Quarterly payments of interest are required on the last day of each interest
period (February 18, May 18, August 18, and November 18, collectively the
payment dates). A mandatory principal prepayment is required on any payment date
to the extent the Partnership has an available distribution amount, defined in
the Loan agreement as excess funds in the Central account, and at any time the
balance in the Central account reaches $50 million. Additionally, the Loan may
be prepaid once per month without penalty.
The Loan agreement requires the Partnership to maintain restrictive cash
accounts (see Note 5) for potential debt service shortfalls (the "Liquidity
Account"), collection of proceeds from portfolio investments (the "Central
Account"), and to meet the Partnership's working capital needs (the "Working
Capital Account"). In February 1994, the Working Capital Account funds were
released to the Central Account and made available for payment of debt.
Additionally, the Loan agreement contains certain restrictive covenants, among
which are limitations on cash distributions to partners and other payments until
the loan is paid in full.
The Loan was paid down to a balance of $10,000 on February 2, 1995 as a result
of cash received from the Series 1995 C1 offering of multiclass pass-through
certificates (see Note 8). No amounts were available for borrowing at December
31, 1996 or 1995. In conjunction with the paydown, the requirement for the
Liquidity Account was eliminated. The remaining balance was paid off on February
28, 1996.
At December 31, 1995, the carrying amount of the loan payable approximated its
fair value.
F-50
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LOANS PAYABLE (CONTINUED)
LOANS PAYABLE
At December 31, 1996 and 1995, loans payable includes approximately $25.2 and
$48.5 million owed to Structured Asset Securities Corporation ("SASCO"), an
indirect wholly-owned subsidiary of LBHI. Such loans are nonrecourse, secured by
the related REO (with carrying values of $24.4 and $46.5 million at December 31,
1996 and 1995, respectively) and applicable leases and bear interest, primarily
at fixed rates, ranging from 8.5% to 9.0%. Generally principal and interest are
payable monthly with principal amortization calculated on a twenty-five year
basis. The loans mature at various dates through May 2004.
Additionally, at December 31, 1995, loans payable also includes $10.4 million in
loans payable to unaffiliated third parties. There were no loans payable to
unaffiliated third parties at December 31, 1996.
The following is a summary of the aggregate amount of maturities due for the
loans payable at December 31, 1996 (IN THOUSANDS):
Year ending December 31,
1997 $ 365
1998 398
1999 12,774
2000 241
2001 7,806
Thereafter 3,628
--------
Total $ 25,212
========
At December 31, 1996 and 1995, the carrying value of the loans approximated the
fair value.
F-51
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. INTEREST RATE SWAP AGREEMENTS (CONTINUED)
Swap agreements purchased prior to 1995 were terminated on February 2, 1995, and
as a result the Partnership received approximately $21.2 million in settlement
fees. The settlement fees are included in other income in 1995.
5. SERVICING AND GENERAL PARTNER FEES
The Partnership pays a servicing fee to Lennar Partners, Inc. ("LP"), a
wholly-owned subsidiary of Lennar Corporation, pursuant to a Servicing Agreement
between LP and the Partnership dated July 12, 1993. Total servicing fees earned
by LP for the period ended December 31, 1996 and 1995 were approximately $11.9
million and $4.1 million, respectively. The 1996 and 1995 servicing fees include
$10.6 million and $1 million in incentive compensation, respectively.
The Partnership pays a management fee to the General Partner, as defined in the
Partnership agreement. Total fees earned by the General Partner during 1995 were
approximately $.4 million. The General Partner has earned the maximum management
fees allowed by the Partnership agreement and will receive no additional fees.
Accordingly, no fees were paid to the General Partner during 1996.
The Partnership has a revolving line of credit note receivable from Lennar
Partners, a wholly-owned subsidiary of Lennar Corporation. At December 31, 1996
and 1995 the receivable balance was approximately $2.5 million and $2.3 million,
respectively. Interest accrues at prime and the line of credit, which is
unsecured, has a limit of $2.5 million. Interest income recognized by the
Partnership was $208,000 and $131,000 in 1996 and 1995, respectively. The line
of credit matures on the earlier of 45 days after the sale of the certain of the
multiclass pass-through certificates or the dissolution of the Partnership.
F-52
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES
Total unfunded commitments of the Partnership related to investments in
partnerships was limited to $35.7 million as of December 31, 1996 and 1995.
The Partnership is a defendant in several lawsuits related to its role as
creditor whereby the borrowers are alleging various claims including tortuous
interference in their business and seeking damages of specified and unspecified
amounts. In every case, the Partnership is vigorously disputing the charges and
in some cases has filed counterclaims. Management believes that the litigation
and claims will not have a material adverse affect on the Partnership.
7. SIGNIFICANT DISPOSITIONS OF PORTFOLIO INVESTMENTS
SERIES 1994 C1 OFFERING
In April 1994, the Partnership sold mortgage loans with a carrying value of
approximately $173 million to SASCO to be included in a public offering of
multiclass pass-through certificates, referred to as the 1994 Series C1
offering. The certificates represent beneficial interests in a trust whose
primary assets are commercial mortgage loans. In exchange, the Partnership
received $154 million in cash and various classes of multiclass pass-through
certificates (Classes G and H and residual interests in certain of its mortgage
loans) with an estimated fair value of approximately $17.2 million.
During 1995, the Partnership purchased certain Class X certificates in the
amount of $4.8 million. As of December 31, 1995 and 1996 the carrying value of
all the Series 1994 C1 certificates is $15.1 million and $11.9 million,
respectively. These certificates are included in the total of multiclass
pass-through certificates on the accompanying balance sheet (see Note 9).
F-53
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. SIGNIFICANT DISPOSITIONS OF PORTFOLIO INVESTMENTS (CONTINUED)
SERIES 1995 C1 OFFERING
In December 1994, the Partnership sold to SASCO mortgage loans with a carrying
value of $205 million and received in exchange its prorata share of various
classes of pass-through certificates (Classes A through H) to be included in
offerings referred to as the Series 1995 C1 offering. The certificates represent
beneficial interests in a trust whose primary assets are commercial mortgage
loans.
In February 1995, the Partnership sold the Class A through D certificates to an
affiliate of LBHI and received approximately $213 million in cash. Of such
amount, approximately $112 million was used to substantially repay the
Partnership's outstanding debt to LCPI and the balance was distributed to the
Partnership partners. At the same time, the affiliate of LBHI completed the sale
of substantially all of the Class A through D certificates to the public.
In March 1995, the Partnership sold half of the Class E certificates to an
affiliate of LBHI for approximately $8 million. At the same time, the affiliate
of LBHI completed the sale of such Class E certificates to third parties. The
Partnership retained the remaining Class E certificates as well as the Class F,
G and H certificates. The entire transaction resulted in a gain of $38.5
million. The Series 1995 C1 retained certificates are included in the total
multiclass pass-through certificates on the accompanying balance sheet (see Note
9).
In April 1996, the remaining Class E certificates with a basis of $5.3 million
were sold resulting in a gain of $3.7 million. The Partnership sold these
certificates due to favorable market conditions.
The Partnership paid fees of $5.6 million to affiliates of LBHI and
approximately $300,000 in fees were paid to Lennar, related to the Series 1995
C1 offering. Lennar Partners, Inc. was named special servicer of the offering.
F-54
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. MULTICLASS PASS-THROUGH CERTIFICATES
As described in Note 8, the Partnership sold certificates with a cost of $5.3
million and recognized a gain of $3.7 million in 1996, due to favorable market
valuations of its certificates. In 1995, certificates with a cost of $205
million were sold and the Partnership recognized a gain of $38.5 million.
At December 31, 1995, the Partnership classified all of the Multiclass
Pass-Through Certificates in the held-to-maturity category, as it was the
Partnership's intent to do so. The Multiclass Pass-Through Certificates were
reclassified to the available-for-sale category during 1996 due to management's
sale of certain certificates and its assessment of the market for the remaining
certificates.
The following is a summary of securities held as of December 31 (IN THOUSANDS):
ESTIMATED
FAIR CARRYING
COST VALUE VALUE
------- --------- --------
DECEMBER 31, 1996
Available-for-Sale Securities:
Multiclass Pass-Through
Certificates, Series 1994 C1,
Classes G, H, X-1A, X-1B and X-2 $ 5,271 $ 6,530 $ 6,530
Multiclass Pass-Through
Certificates, Series 1995 C1,
Classes F, G and H 10,845 14,813 14,813
-------- -------- --------
Total 16,116 21,343 21,343
Held-to-Maturity:
Certain residual interests in
mortgage loans 6,679 6,679 6,679
-------- -------- --------
Total Multiclass Pass-Through
Certificates $ 22,795 $ 28,022 $ 28,022
======== ======== ========
F-55
<PAGE>
8. MULTICLASS PASS-THROUGH CERTIFICATES (CONTINUED)
ESTIMATED
FAIR CARRYING
COST VALUE VALUE
------- --------- --------
DECEMBER 31, 1995
Held-to-Maturity Securities:
Multiclass Pass-Through
Certificates, Series 1994 C1,
Classes G, H, X-1A, X-1B and X-2
and certain residual interests
in mortgage loans $ 15,142 $ 16,359 $ 15,142
Multiclass Pass-Through
Certificates, Series 1995 C1,
Classes E, F, G and H 19,102 19,855 19,102
-------- -------- --------
Total Multiclass Pass-Through
Certificates $ 34,244 $ 36,214 $ 34,244
======== ======== ========
The multiclass pass-through certificates were purchased at discounts ranging
from 45% to 99% of par value. The discounts reflected anticipated payment
performance which is expected to vary from contractual maturities. Such
maturities generally range from two to ten years.
F-56
<PAGE>
LW Real Estate Investments, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. MINIMUM RENTAL UNDER LEASES
Minimum future rentals under operating leases in effect at December 31, 1996
under which the Partnership is lessor are summarized as follows (IN THOUSANDS):
Year ending December 31,
1997 $ 9,957
1998 8,083
1999 7,135
2000 6,725
2001 6,429
Thereafter 18,203
--------
Total $ 56,352
========
Minimum rentals exclude percentage rentals, which generally are based on
operations of lessees, and fees for maintenance of common areas.
F-57
<PAGE>
SUPPLEMENTAL INFORMATION
F-58
<PAGE>
<TABLE>
<CAPTION>
LW REAL ESTATE INVESTMENTS, L.P. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31,1996
(DOLLARS IN THOUSANDS)
ELIMINATION
LW-SP1 LW-SP2 LW-SP3 LW-SP4 LWREI SUBTOTAL ENTRIES CONSOLIDATED
---------- --------- -------- --------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ 1,135 $ -- $ -- $ 6,370 $ 7,505 $ -- $ 7,505
Restricted cash and cash
equivalents -- -- -- -- -- -- -- --
Intercompany 332 5,937 (3) 136 (6,402) -- -- --
Receivables -- 2,938 -- 362 -- 3,300 -- 3,300
Prepaid expenses -- 257 -- -- -- 257 -- 257
Multiclass pass-through
certificates -- 27,970 52 -- -- 28,022 -- 28,022
Portfolio investments 7,623 58,755 -- -- -- 66,378 -- 66,378
Deferred and other assets, net
of accumulated amortization
of $10,282 -- 922 -- -- -- 922 -- 922
Investments in partnerships -- -- 12 (13) (218,936) (218,937) 218,937 --
---------- --------- --------- --------- -------- ---------- ---------- -----------
Total assets $ 7,955 $ 97,914 $ 61 $485 $(218,968) $(112,553) $218,937 $106,384
========== ========= ========= ========= ========== ========== ========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued
liabilities $ 14 $ 2,400 $ -- $ -- $ -- $ 2,414 $ -- 2,414
Loans payable, including
accrued interest of $351 -- 25,391 -- -- -- 25,391 -- 25,391
Minority interest -- 175 -- -- -- 175 609 784
---------- --------- --------- --------- --------- --------- ---------- -----------
Total liabilities 14 27,966 -- -- -- 27,980 609 28,589
Partners' capital (deficit) 7,941 64,825 9 485 (218,968) (145,708) 218,328 72,620
Unrealized gain on
available-for-sale securities -- 5,123 52 -- -- 5,175 -- 5,175
---------- --------- --------- ---------- ---------- ---------- ---------- -----------
Total liabilities and partners'
capital $ 7,955 $ 97,914 $ 61 $485 $(218,968) $(112,553) $218,937 $106,384
========== ========= ========= ========== ========== ========== ========== ===========
</TABLE>
F-59
<PAGE>
<TABLE>
<CAPTION>
LW REAL ESTATE INVESTMENTS, L.P. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Year ended December 31,1996
(DOLLARS IN THOUSANDS)
ELIMINATION
LW-SP1 LW-SP2 LW-SP3 LW-SP4 LWREI SUBTOTAL ENTRIES CONSOLIDATED
-------- -------- -------- -------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Interest income from
portfolio investment $ -- $4,516 $ -- $ -- $ -- $4,516 $ -- $ 4,516
Net operating income from
real estate owned -- 7,081 -- -- -- 7,081 -- 7,081
Net gain on dispositions of
portfolio investments 25 88,565 -- -- -- 88,590 -- 88,590
Net gain on sale of
multiclass pass-through
certificates 74 897 (1) 62 -- 1,032 -- 1,032
Other income -- -- 38 572 -- 610 (610) --
--------- -------- ------ ------- ------- --------- -------- ---------
Total revenues 99 101,059 37 634 -- 101,829 (610) 101,219
EXPENSES
General and administrative
expenses 925 11,966 -- 1 1 12,893 -- 12,893
Interest expense -- 893 -- -- -- 893 -- 893
Writedown of portfolio
investments -- 4,448 -- -- -- 4,448 -- 4,448
Net loss from investments in
partnerships 29 269 -- -- 298 -- 298
Other expenses including
amortization 235 1,330 -- 22 13 1,600 -- 1,600
-------- -------- ------ ------- ------- --------- ------- ---------
Total expenses 1,189 18,906 -- 23 14 20,132 -- 20,132
Minority interest -- -- -- -- -- -- 811 811
-------- -------- ------ ------- ------- --------- -------- ----------
Net income (loss) $(1,090) $82,153 $37 $611 $(14) $81,697 $(1,421) $80,276
======== ======== ====== ======= ======= ========= ======== ==========
</TABLE>
F-60
<PAGE>
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED NOVEMBER 30, 1996, 1995 AND 1994
ADDITIONS
-----------------------------
CHARGED CHARGED
BEGINNING TO COSTS (CREDITED) TO ENDING
DESCRIPTION BALANCE AND EXPENSES OTHER ACCOUNTS (DEDUCTIONS) BALANCE
- ------------------------------------------------------ ---------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended November 30, 1996
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 871,000 511,000 0 (444,000) 938,000
=========== ========= ========== ========== ==========
Deferred income and unamortized discounts $13,112,000 0 (746,000) (B) (1,515,000) (A) 10,851,000
=========== ========= ========== ========== ==========
Loan loss reserve $ 0 1,869,000 1,396,000 (1,194,000) 2,071,000
=========== ========= ========== ========== ==========
Valuation allowance $ 340,000 2,711,000 580,000 (723,000) 2,908,000
=========== ========= ========== ========== ==========
Year ended November 30, 1995
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 273,000 1,190,000 4,000 (596,000) 871,000
=========== ========= ========== ========= ==========
Deferred income and unamortized discounts $10,600,000 0 4,186,000 (B) (1,674,000) (A) 13,112,000
=========== ========= ========== ========== ==========
Valuation allowance $ 172,000 0 168,000 0 340,000
=========== ========= ========== ========== ==========
Year ended November 30, 1994
Allowances deducted from assets to which they apply:
Allowances for doubtful accounts and notes
receivable $ 112,000 477,000 69,000 (385,000) 273,000
=========== ========= ========= =========== ===========
Deferred income and unamortized discounts $ 5,547,000 0 8,209,000 (B) (3,156,000) (A) 10,600,000
=========== ========= ========= =========== ===========
Valuation allowance $ 88,000 0 84,000 0 172,000
=========== ========= ========= =========== ===========
</TABLE>
Notes:
(A) Includes amortization of discounts, reduction of discounts on sold loans
and recognition of deferred income.
(B) Includes discounts on mortgages purchased.
F-61
<PAGE>
Schedule III
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
Real Estate and Accumulated Depreciation (D)
Year ended November 30, 1996
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT TO GROSS AMOUNT AT WHICH
TO COMPANY ACQUISITION CARRIED AT CLOSE OF PERIOD
------------------------- ----------------------- --------------------------
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS LAND (A) BUILDINGS (A)
- -------------------------- ------------ --------- ------------ ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental apartment property:
Dade County, Florida $21,032,000 1,872,000 9,063,000 4,623,000 360,000 2,046,000 13,872,000
Rental office property:
Dade County, Florida 16,839,000 1,779,000 -- 13,577,000 1,959,000 4,319,000 12,996,000
Hotel:
Broward County, Florida -- 1,000,000 3,478,000 8,850,000 367,000 1,367,000 12,328,000
Rental apartment property:
Dade County, Florida -- 3,526,000 9,999,000 -- -- 3,526,000 9,999,000
Rental office property:
Orange County, California -- 3,839,000 15,356,000 -- 120,000 3,862,000 15,453,000
Rental office property:
Fulton County, Georgia -- 5,238,000 20,020,000 114,000 -- 5,238,000 20,134,000
Other miscellaneous
properties which are
individually less than
5% of total 33,771,000 37,427,000 67,777,000 21,474,000 2,192,000 41,102,000 87,768,000
----------- ---------- ----------- ---------- --------- ---------- -----------
$71,642,000 54,681,000 125,693,000 48,638,000 4,998,000 61,460,000 172,550,000
=========== ========== =========== ========== ========= ========== ===========
</TABLE>
[BELOW IS RESTUB OF ABOVE]
<TABLE>
<CAPTION>
GROSS
AMOUNT
AT WHICH
CARRIED
AT CLOSE
OF PERIOD DATE OF
---------- ACCUMULATED COMPLETION OF DATE
DESCRIPTION TOTAL (C) DEPRECIATION (B) CONSTRUCTION ACQUIRED
- -------------------------- ---------- ---------------- ------------- --------
<S> <C> <C> <C> <C>
Rental apartment property:
Dade County, Florida 15,918,000 9,631,000 1979 1977
Rental office property:
Dade County, Florida 17,315,000 2,852,000 Various 1980
Hotel:
Broward County, Florida 13,695,000 2,709,000 Various 1987
Rental apartment property:
Dade County, Florida 13,525,000 1,873,000 Various 1991
Rental office property:
Orange County, California 19,315,000 825,000 1989 1994
Rental office property:
Fulton County, Georgia 25,372,000 447,000 1973 1996
Other miscellaneous
properties which are
individually less than
5% of total 128,870,000 13,634,000 Various Various
----------- ----------
234,010,000 31,971,000
=========== ==========
</TABLE>
Notes:
(A) Includes related improvements and capitalized carrying costs.
(B) Depreciation is calculated using the straight-line method over the estimated
useful lives which vary from 15 to 40 years.
(C) The aggregate cost of the listed property for federal income tax purposes
was $183,972,000 at November 30, 1996.
(D) The listed real estate includes operating properties completed or under
construction.
(E) Reference is made to Notes 1 and 7 of the combined financial statements.
(F) The changes in the total cost of investment properties and accumulated
depreciation for the years ended November 30, 1996, 1995 and 1994 are as
follows (in thousands):
1996 1995 1994
-------- -------- -------
Cost:
Balance at beginning of year $204,833 206,022 167,276
Additions, at cost 34,410 6,808 53,156
Accounting change -- -- 7,482
Cost of real estate sold (9,051) (8,304) (11,802)
Transfers 3,818 307 (10,090)
-------- -------- -------
Balance at end of year $234,010 204,833 206,022
======== ======== =======
Accumulated depreciation:
Balance at beginning of year $ 28,686 25,763 22,149
Depreciation and amortization
charged against earnings 5,170 4,992 4,202
Accounting change -- -- --
Depreciation on real estate sold (1,885) (2,069) (351)
Depreciation on transfers -- -- (237)
-------- -------- -------
Balance at end of year $ 31,971 28,686 25,763
======== ======== =======
F-62
<PAGE>
Schedule IV
<TABLE>
<CAPTION>
LNR PROPERTY CORPORATION
Mortgage Loans on Real Estate
November 30, 1996
PRINCIPAL
AMOUNT
OF LOSSES
SUBJECT TO
DELINQUENT
CARRYING PRINCIPAL
FINAL PERIODIC FACE AMOUNT AMOUNT OF OR
DESCRIPTION INTEREST RATE MATURITY DATE PAYMENT TERMS PRIOR ITEMS MORTGAGES MORTGAGES(A)(B) INTEREST
- ----------------------------- ------------- ------------- --------------- ------------ ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
First mortgage notes
secured by real estate:
Retail Shopping Center -
Harris County, TX 9.5% 1996 Varying payment $ 3,703,850 3,354,518
Office Building - Pasadena
County, California 7.8% 2003 Varying payment 16,800,000 12,146,550
Residential Land -
Dade County, FL Prime + 1% 1998 Varying payment 5,729,828 5,629,828
Hotel - Burlington
County, NJ 9.5% 1999 Varying payment 4,500,000 4,194,138
Other 6% - 14.58% 1997 - 2017 Various 44,207,978 35,209,797
-----------
60,534,831
Second mortgage notes
secured by real estate:
Residential Land -
Dade County, Florida Prime + 2% 2001 Varying payment $ 5,629,828 4,400,000 4,400,000
Residential Land -
Orange County,
California 12.0% 1998 Varying payment 7,002,798 4,905,790 4,882,479
-----------
9,282,479
-----------
69,817,310
Loan loss reserve 2,070,993
-----------
67,746,317
===========
</TABLE>
Notes:
(A) For Federal income tax purposes, the aggregate basis of the listed
mortgages was $67,746,317 at November 30, 1996
(A) Carrying amounts are net of unamortized discounts and valuation allowance
(B) The changes in the carrying amounts of mortgages for the years ended
November 30, 1996, 1995 and 1994 are as follows:
1996 1995 1994
----------- ------------ ------------
Balance at beginning of year $53,550,991 55,893,465 40,313,679
Additions (deductions):
New mortgage loans, net 77,369,000 42,572,000 89,478,116
Collections of principal (53,346,648) (44,495,367) (71,162,962)
Transfers to Lennar Corporation (7,063,000) (1,779,000) (4,210,000)
Amortization of discount 488,000 344,175 445,000
Deferred income recognized - 1,065,283 -
Other (3,252,026) (49,565) 1,029,632
----------- ----------- ------------
Balance at end of year $67,746,317 53,550,991 55,893,465
=========== =========== ============
F-63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
LNR PROPERTY CORPORATION
Date: July 29, 1997 By: /s/ JEFFREY P. KRASNOFF
----------------------------
Jeffrey P. Krasnoff
President
46
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation and Amendment.
3.2 By-laws.
4.1 Form of Company's Stock certificate.*
10.1 Separation and Distribution Agreement between the Company
and Lennar Corporation, dated June 10, 1997.
10.2 Form of Partnership Agreement between Lennar Land Partners
Sub, Inc. and LPC Land Partners Sub, Inc.
11.1 Statement re: Computation of Per Share Earnings.*
21.1 Subsidiaries of the Company.*
27.1 Financial Data Schedule.
- ----------
* To be filed by amendment.
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
LPC, INC.
The undersigned, David W. Bernstein, for the purpose of forming a
corporation pursuant to Section 102 of the Delaware General Corporation Law,
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is LPC, Inc.
SECOND: The address of the Corporation's initial registered office in
Delaware and the name of the Corporation's initial registered agent at that
address are as follows:
The Corporation Trust Company
1209 Orange Street
New Castle County
Wilmington, Delaware
THIRD: The purpose for which the corporation is formed is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is 190,500,000 shares. Of these, 150,000,000 shares are
classified as Common Stock, par value $.10 per share, 40,000,000 shares are
classified as Class B Common Stock, par value $.10 per share, and 500,000 shares
are classified as Preferred Stock, par value $10.00 per share, except that if at
any time after shares of Class B Common Stock are issued, there no longer are
any outstanding shares of
<PAGE>
Class B Common Stock, (i) the authorization to issue Class B Common Stock will
terminate and after that time the shares of stock the Corporation is authorized
to issue will be 190,000,000 shares of Common Stock, par value $.10 per share,
and 500,000 shares of Preferred Stock, par value $10.00 per share, and (ii) the
Corporation will file a Certificate of Amendment to its Certificate of
Incorporation or a restated Certificate of Incorporation showing the change in
the authorized stock.
A description of the classes of stock and a grant of authority to the
Board of Directors of the Corporation to authorize the issuance of Preferred
Stock are as follows:
PREFERRED STOCK
A. The 500,000 shares of Preferred Stock may be issued from time to
time in one or more series, each of which will have such voting powers (or no
voting powers), designations, preferences and relative, participating, optional
or other special rights, and qualifications or restrictions of those powers,
preferences or rights, as are stated in the resolution or resolutions of the
Board of Directors providing for the issuance of the series.
B. The Board of Directors will have the authority to authorize from
time to time the issuance of one or more series of Preferred Stock, and with
respect to each series to fix by resolution or resolutions the voting powers (or
no voting powers), designations, preferences and relative, participating,
optional or other rights, if any, or the qualifications, limitations or
restrictions of those powers, preferences or rights. The rights which the Board
of Directors may (but will not be required to) give to the holders of one or
more series of Preferred Stock will include, but not be limited to, (i) the
right to receive dividends at such rates, on such conditions and at such times,
as may be stated in the resolution or resolutions providing for the issuance of
the Series, (ii) such rights upon the liquidation or dissolution, or upon any
distribution of the assets, of the Corporation as may be stated in the
resolution or resolutions providing for the issuance of the Series, and (iii)
such rights to convert shares of the series into, or exchange shares of the
series for, shares of any other class or classes or any other series of the same
or
2
<PAGE>
any other class of stock of the Corporation, as may be stated in the resolution
or resolutions providing for the issuance of the series.
COMMON STOCK AND CLASS B COMMON STOCK
(a) VOTING RIGHTS AND POWERS.
With respect to all matters upon which stockholders are entitled to
vote or to which stockholders are entitled to consent, (1) the holders of the
outstanding shares of Common Stock and the holders of the outstanding shares of
Class B Common Stock will vote together, (2) each holder of record of Common
Stock will be entitled to one vote for each share of Common Stock held in the
holder's name, and (3) each holder of record of Class B Common Stock will be
entitled to ten votes for each share of Class B Common Stock held in the
holder's name, except that (4) any amendment to this Certificate of
Incorporation which would change the number of authorized shares, the par value
or the voting rights of, the restriction on dividends upon, or any other
provision of this Certificate of Incorporation relating to, the Common Stock or
the Class B Common Stock, in addition to being adopted by a majority of the
votes eligible to be cast by the holders of the Common Stock and the Class B
Common Stock voting together with the respective numbers of votes provided in
this Paragraph, must be approved by holders of a majority of the shares of
Common Stock which are voted with regard to the amendment.
(b) DIVIDENDS AND DISTRIBUTIONS.
(1) CASH DIVIDENDS. The cash dividends paid with regard to a
share of Class B Common Stock in a calendar year may not be more than 90%
of the cash dividends paid with regard to a share of Common Stock in that
calendar year.
(2) OTHER DIVIDENDS AND DISTRIBUTIONS. Each dividend or
distribution made to the holders of Common Stock or Class B Common Stock
(other than cash dividends) will be distributable to the holders of the
Common Stock and the Class B Common Stock without regard to class, except
that in the case of dividends or other distributions payable in stock of
the Corporation other than Preferred Stock, the stock distributed with
respect to the Common Stock
3
<PAGE>
will be additional shares of Common Stock and the stock distributed with
respect to the Class B Common Stock will be additional shares of Class B
Common Stock.
(c) RESTRICTIONS ON TRANSFER OF
CLASS B COMMON STOCK.
(1) PERMITTED TRANSFEREES. No beneficial owner of shares of Class
B Common Stock (a "Class B Stockholder") may transfer shares of Class B
Common Stock, whether by sale, assignment, gift, bequest or otherwise,
except to a Permitted Transferee of that Class B Stockholder. A "Permitted
Transferee" of a Class B Stockholder is (i) the Class B Stockholder's
spouse; (ii) a parent or lineal descendant (including an adopted child) of
a parent of the Class B Stockholder, or the spouse of a lineal descendant
of a parent of the Class B holders; (iii) a trustee, guardian or custodian
for, or an executor, administrator or other legal representative of the
estate of, the Class B Stockholder, or a trustee, guardian or custodian for
a Permitted Transferee of the Class B Stockholder; (iv) the trustee of a
trust (including a voting trust) for the benefit of the Class B Stockholder
and (v) a corporation, partnership or other entity of which the Class B
Stockholder and Permitted Transferees of the Class B Stockholder are the
beneficial owners of a majority in voting power of the equity. For the
purpose of this Paragraph a "beneficial owner" of Class B Common Stock is a
person who, or entity which, has or shares the power to direct the voting
or disposition of the Class B Common Stock.
(2) IMPERMISSIBLE TRANSFER VOID. Any purported transfer of Class
B Common Stock other than to a Permitted Transferee will be void and will
not be recognized by the Corporation. The Corporation may, as a condition
to the registration of a transfer of Class B Common Stock to a purported
Permitted Transferee, require such affidavits or other proof as the
Corporation deems necessary to establish that the transferee is a Permitted
Transferee.
(3) LEGEND ON STOCK CERTIFICATES. Each certificate representing
Class B Common Stock will bear a legend referring to the restrictions on
transfer of the Class B Common Stock.
4
<PAGE>
(4) REGISTERED OWNER. Each share of Class B Common Stock will be
registered in the name of the beneficial owner of the share and not in
"street name" or the name of a nominee.
(d) ISSUANCE OF CLASS B COMMON STOCK.
(1) INITIAL ISSUANCE. Shares of Class B Common Stock may be
issued to Lennar Corporation ("Lennar"), a Delaware corporation, for the
purpose of being distributed by Lennar as a dividend or other distribution
to the holders of its Common Stock or Class B Common Stock, or may be
issued directly to the holders of Common Stock or Class B Common Stock of
Lennar as a distribution with regard to the Common Stock or Class B Common
Stock of Lennar or to fulfill obligations of Lennar with regard to stock
options issued on or before August 31, 1997.
(2) SUBSEQUENT ISSUANCE. The Corporation may not issue any shares
of Class B Common Stock except (i) as provided in subparagraph (1) or (ii)
as a dividend or distribution with respect to the Class B Common Stock as
provided in Paragraph (b)(2).
(e) CONVERSION OF CLASS B COMMON
STOCK INTO COMMON STOCK.
A Class B Stockholder may at any time convert shares of Class B Common
Stock into a like number of shares of Common Stock by surrendering the
certificates representing the shares of Class B Common Stock to be converted (or
representing a greater number of shares of Class B Common Stock) to the
Corporation accompanied by a request that all or a specified number of the
shares of Class B Common Stock represented by the certificates be converted into
Common Stock. Once Class B Common Stock has been converted into Common Stock,
the Common Stock may not be reconverted into Class B Common Stock.
(f) TERMINATION OF CLASS RIGHTS AND POWERS.
If at any time the number of outstanding shares of Class B Common
Stock is less than 10% of the outstanding shares of Common Stock and Class B
Common Stock taken together, the Class
5
<PAGE>
B Common Stock will automatically be converted into, and become for all
purposes, shares of Common Stock. After the Class B Common Stock is converted
into Common Stock as provided in this paragraph, the Corporation may issue
certificates which represent Common Stock in exchange for certificates which
represented Class B Common Stock. However, the automatic conversion of Class B
Common Stock into Common Stock will be effective whether or not certificates are
exchanged.
(g) OTHER RIGHTS.
Except as otherwise provided in this Certificate of Incorporation, or
provided by law, each share of Common Stock and each share of Class B Common
Stock will have identical powers, preferences and rights, including rights in
liquidation, and copies of all reports and other communications which are sent
by the Corporation to the holders of the Common Stock or to the holders of the
Class B Common Stock must also be sent to the holders of shares of the other
Class.
FIFTH: The name and address of the incorporator are as follows:
David W. Bernstein, Esq.
200 Park Avenue
New York, New York 10166
SIXTH: The directors of the Corporation will have the power to amend
the by-laws of the corporation.
SEVENTH: No director will be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
6
<PAGE>
IN WITNESS WHEREOF, I have signed this Certificate on June 6, 1997.
/s/ DAVID W. BERNSTEIN
----------------------
David W. Bernstein
7
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LPC, INC.
The undersigned, LPC, Inc. (the "Corporation"), a Delaware corporation,
certifies as follows:
1. At a duly called meeting of the Corporation's Board of Directors
held on July 25, 1997, at which a quorum was present at all times, the Board of
Directors adopted and declared advisable the amendment to the Corporation's
Certificate of Incorporation described in Paragraph 3.
2. The sole stockholder of LPC, Inc., by written consent authorized
under Section 141(f) of the General Corporation Law of Delaware, approved the
amendment to the Corporation's Certificate of Incorporation described in
Paragraph 3. Therefore, that amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
3. The Amendment to the Corporation's Certificate of Incorporation
which was adopted as described in Paragraphs 1 and 2 was to amend Article FIRST
of the Corporation's Certificate of Incorporation so that, as amended, Article
FIRST reads as follows:
FIRST. The name of the Corporation is LNR Property Corporation.
IN WITNESS WHEREOF, I have signed this Certificate on July 25, 1997.
/s/ STUART A. MILLER
--------------------
Stuart A. Miller
Chairman of the Board
EXHIBIT 3.2
BY-LAWS
of
LNR PROPERTY CORPORATION
A Delaware Corporation
Adopted June 10, 1997
ARTICLE I
OFFICES
SECTION 1. The registered office of the Corporation will be in the City
of Wilmington, County of New Castle, State of Delaware.
SECTION 2. The Corporation may also have offices at such other places,
within or outside of the State of Delaware, as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. All meetings of stockholders will be held at the registered
office of the Corporation, or at such other place within or outside of the State
of Delaware as may be fixed from time to time by the Board of Directors.
SECTION 2. Commencing with the year 1998, annual Meetings of
Stockholders will be held on the first Wednesday after the first Monday in the
month of April of each year, or if that is a legal holiday, on the next
following business day, at 11:00 o'clock A.M., or at such other date and time as
may be fixed by the Board of Directors. At each annual meeting of stockholders
the
1
<PAGE>
stockholders will elect directors and transact such other business as may
properly be brought before the meeting.
SECTION 3. Special meetings of stockholders may be called at any time
for any purpose or purposes by the Board of Directors or by the President, and
must be called by the President or the Secretary upon the written request of a
majority of the directors or upon the written request of the holders of at least
50% in voting power of all the outstanding shares entitled to vote on the action
proposed to be taken. Each written request must state the time, place and
purpose or purposes of the proposed meeting. A special meeting of stockholders
called by the Board of Directors or the President, other than one required to be
called by reason of a written request of stockholders, may be cancelled by the
Board of Directors at any time not less than 24 hours before the scheduled
commencement of the meeting.
SECTION 4. Written notice of each annual or special meeting of
stockholders, stating the date, time and place of the meeting and the matters to
be voted upon at it, must be given in the manner set forth in Article VI of
these By-Laws not less than ten nor more than sixty days before the date of the
meeting, to each stockholder entitled to vote at the meeting.
SECTION 5. Except as otherwise required by law or the Certificate of
Incorporation, the presence in person or by proxy of holders of a majority of
the shares entitled to vote at a meeting of stockholders will be necessary, and
will constitute a quorum, for the transaction of business at such meeting. If a
quorum is not present or represented by proxy at any meeting of stockholders,
the holders of a majority of the shares entitled to vote at the meeting who are
present in person or represented by proxy may adjourn the meeting from time to
time until a quorum is present. An adjourned meeting may be held later without
notice other than announcement at the meeting, except that if the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned meeting must be given
in the manner set forth in Article VII to each stockholder of record entitled to
vote at the adjourned meeting.
2
<PAGE>
SECTION 6. At any meeting of stockholders each stockholder having the
right to vote may vote in person or by proxy. Except as otherwise provided by
law or in the Certificate of Incorporation, each stockholder will be entitled to
one vote for each share of stock entitled to vote standing in his name on the
books of the Corporation. All elections will be determined by plurality votes.
Except as otherwise provided by law or in the Certificate of Incorporation or
By-Laws, any other matter will be determined by the vote of a majority of the
shares which are voted with regard to it.
SECTION 7. Whenever the vote of stockholders at a meeting is required
or permitted in connection with any corporate action, the meeting and vote may
be dispensed with if the action taken has the written consent of the holders of
shares having at least the minimum number of votes required to authorize the
action at a meeting at which all shares entitled to vote were present and voted.
ARTICLE III
DIRECTORS
SECTION 1. The Board of Directors will manage the business of the
Corporation, except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws.
SECTION 2. The number of directors which will constitute the entire
Board of Directors will be such number, not less than three nor more than
twenty, as is determined by the Board of Directors from time to time. Until
further action by the Board of Directors, the number of directors which will
constitute the entire Board of Directors will be nine. As used in these By-Laws,
the term "entire Board of Directors" means the total number of directors which
the Corporation would have if there were no vacancies.
SECTION 3. Except as provided in Section 5 of this Article, the
directors will be elected at each annual meeting of stockholders. Except as
otherwise provided by law, the Certificate
3
<PAGE>
of Incorporation, or these By-Laws, each director elected will serve until the
next succeeding annual meeting of stockholders and until his successor is
elected and qualified.
SECTION 4. Any of the directors may be removed for cause by vote of a
majority of the entire Board. Any or all of the directors may be removed for
cause or without cause by vote of the holders of a majority of the outstanding
shares of each class of voting stock of the Corporation voting as a class.
SECTION 5. Newly created directorships resulting from an increase in
the number of directors and vacancies occurring in the Board may be filled by
vote of a majority of the directors then in office, even if less than a quorum
exists. A director elected to fill a vacancy, including a vacancy created by a
newly created directorship, will serve until the next succeeding annual meeting
of stockholders and until his successor is elected and qualified.
SECTION 6. The books of the Corporation, except as such as are required
by law to be kept within the State of Delaware, may be kept at such place or
places within or outside of the State of Delaware as the Board of Directors may
from time to time determine.
SECTION 7. The Board of Directors, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of any or
all directors for services to the Corporation as directors or officers or
otherwise.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. The first meeting of each newly elected Board of Directors
will be held immediately following the annual meeting of the stockholders. If
the meeting is held at the place of the meeting of stockholders, no notice of
the meeting need be given to the newly elected directors. If the
4
<PAGE>
first meeting is not held at that time and place, it will be held at a time and
place specified in a notice given in the manner provided for notice of special
meetings of the Board of Directors.
SECTION 2. Regular meetings of the Board of Directors may be held upon
such notice, or without notice, at such times and at such places within or
outside of the State of Delaware, as is determined from time to time by the
Board of Directors.
SECTION 3. Special meetings of the Board of Directors may be called by
the Chairman of the Board, if there is one, or by the Chief Executive Officer or
the President, on at least two days' notice to each director and must be called
by the Secretary on like notice at the written request of any two directors.
SECTION 4. Whenever notice of a meeting of the Board of Directors is
required, the notice must be given in the manner set forth in Article VII of
these By-Laws and must state the place, date and hour of the meeting. Except as
provided by law, the Certificate of Incorporation, or other provisions of these
By-Laws, neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of the meeting.
SECTION 5. Except as otherwise required by law or the Certificate of
Incorporation or other provisions of these By-Laws, a majority of the directors
in office, but in no event less than one-third of the entire Board of Directors,
will constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which a quorum is present
will be the act of the Board of Directors. If a quorum is not present at any
meeting of directors, a majority of the directors present at the meeting may
adjourn the meeting from time to time, without notice of the adjourned meeting
other than announcement at the meeting. To the extent permitted by law, a
director participating in a meeting by conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other will be deemed present in person at the meeting and all acts
taken by him during his participation will be deemed taken at the meeting.
5
<PAGE>
SECTION 6. Any action of the Board of Directors may be taken without a
meeting if written consent to the action signed by all members of the Board of
Directors is filed with the minutes of the Board of Directors.
ARTICLE V
COMMITTEES
SECTION 1. The Board of Directors may designate from among its members
an Executive Committee and other committees, each consisting of two or more
directors, and may also designate one or more of its members to serve as
alternates on these committees. To the extent permitted by law, the Executive
Committee will have all the authority of the Board of Directors, except as the
Board otherwise provides, and, except as provided in Article VI with regard to
the Independent Directors Committee, the other committees will have such
authority as the Board grants them. The Board of Directors will have power at
any time to change the membership of any committees, to fill vacancies in their
membership and to discharge any committees. All resolutions establishing or
discharging committees, designating or changing members of committees, or
granting or limiting authority of committees, may be adopted only by the
affirmative vote of a majority of the entire Board of Directors.
SECTION 2. Each committee (including the Independent Directors
Committee described in Article VI) must keep regular minutes of its proceedings
and report to the Board of Directors as and when the Board requires. Unless the
Board otherwise provides, a majority of the members of any committee may
determine its actions and the procedures to be followed at its meetings (which
may include a procedure for participating in meetings by conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other), and may fix the time and place of its meetings.
6
<PAGE>
SECTION 3. Any action of a committee may be taken without a meeting if
written consent to the action signed by all the members of the committee is
filed with the minutes of the committee.
ARTICLE VI
INDEPENDENT DIRECTORS COMMITTEE
SECTION 1. The Board of Directors shall appoint an Independent
Directors Committee consisting of three or more Directors, none of whom is an
officer or employee of the Corporation or of a subsidiary of the Corporation,
and none of whom is a director, officer or employee of Lennar Corporation or a
subsidiary of Lennar Corporation (each, an "Independent Director"). The Chairman
of the Independent Directors Committee shall be designated by the Board of
Directors.
SECTION 2. All actions of the Independent Directors Committee will
require the vote of a majority of the members present at a meeting at which a
quorum is present. A quorum of the Independent Directors Committee will be a
majority of its members. The Independent Directors Committee, by a vote of a
majority of its members, shall fix its own times and places of meeting, and
shall prescribe its own rules of procedure.
SECTION 3. The Corporation may not take any of the following actions,
and the Board of Directors may not approve or authorize any of the following
actions (if its approval or authorization is required), unless the action has
been approved by the Independent Directors Committee:
(i) Instruct or permit the representatives of its subsidiary on the
Executive Committee of Lennar Land Partners to vote or consent
with regard to any item which requires the unanimous vote of that
Executive Committee as provided in the Partnership Agreement of
Lennar Land Partners.
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(ii) Enter into, or permit any of its subsidiaries to enter into, any
transactions with Lennar Corporation or any of its subsidiaries.
(iii) Agree to any amendment of, or give any waiver or consent under, a
Separation and Distribution Agreement dated June 10, 1997,
between the Corporation and Lennar Corporation.
SECTION 4. The Independent Directors Committee shall keep regular
minutes of its proceedings, which will be filed with the minutes of the meetings
of the Board of Directors.
ARTICLE VII
NOTICES
SECTION 1. Any notice to a stockholder may be given personally or by
mail. If mailed, a notice will be deemed given when deposited in the United
States mail, postage prepaid, directed to the stockholder at the stockholder's
address as it appears on the Corporation record of stockholders.
SECTION 2. Any notice to a director may be given personally, by
telephone or by mail, facsimile transmission, telex, telegram, cable or similar
instrumentality. A notice will be deemed given when actually given in person or
by telephone, when received if given by facsimile transmission or telex, on the
third business day after the day when deposited in the United States mail,
postage prepaid, or on the day when delivered to a cable or similar
communications company, directed to the director at the director's business
address or at such other address as the director may have designated to the
Secretary in writing as the address to which notices should be sent.
SECTION 3. Any person may waive notice of any meeting by signing a
written waiver, whether before or after the meeting. In addition, attendance at
a meeting will be deemed a waiver of notice unless the person attends for the
purpose, expressed to the meeting at its
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commencement, of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE VIII
OFFICERS
SECTION 1. The officers of the Corporation will be a President, a
Secretary and a Treasurer, and the Board of Directors may also elect a Chief
Executive Officer, a Chairman of the Board, a Vice Chairman of the Board, one or
more Vice Presidents (one or more of whom may be designated an Executive Vice
President or a Senior Vice President), one or more Assistant Secretaries or
Assistant Treasurers, and such other officers as it may from time to time deem
advisable. Any two or more offices, except the offices of President and
Secretary, may be held by the same person. No officer except the Chairman of the
Board need be a director of the Corporation.
SECTION 2. Each officer will be elected by the Board of Directors and
will hold office for such term, if any, as the Board of Directors shall
determine. Any officer may be removed at any time, either with or without cause,
by the vote of a majority of the entire Board of Directors.
SECTION 3. The compensation of officers will be fixed by the Board of
Directors or in such manner as it may provide.
SECTION 4. The Chairman of the Board, if any, will preside at all
meetings of the stockholders and of the Board of Directors and will have such
other duties as from time to time may be prescribed by the Board of Directors.
SECTION 5. The Chief Executive Officer, if any, will be the chief
executive officer of the Corporation, will have general charge of management of
the business and affairs of the Corporation, subject to the control of the Board
of Directors, and will see that all orders and resolutions of the Board of
Directors are carried into effect. The Chief Executive Officer, if any, will
preside over
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any meeting of the stockholders or the Board of Directors at which neither the
Chairman of the Board nor a Vice Chairman of the Board is present.
SECTION 6. If there is no Chief Executive Officer, the President will
be the chief executive officer of the Corporation and will have the powers and
duties described in Section 5. If there is a Chief Executive Officer, the
President will be the chief operating officer of the Corporation and will have
such powers and duties, subject to the control of the Board of Directors and the
Chief Executive Officer, as generally pertain to that position, as well as such
powers and duties as from time to time may be prescribed by the Board of
Directors.
SECTION 7. The officers of the Corporation, other than the Chairman of
the Board, the Chief Executive Officer and the President, will have such powers
and perform such duties in the management of the property and affairs of the
Corporation, subject to the control of the Board of Directors and the chief
executive officer, as generally pertain to their respective offices, as well as
such powers and duties as from time to time may be prescribed by the Board of
Directors.
SECTION 8. The Board of Directors may require any officer, agent or
employee to give security for the faithful performance of his duties.
ARTICLE IX
CERTIFICATES FOR SHARES
SECTION 1. The shares of stock of the Corporation will be represented
by certificates, in such form as the Board of Directors may from time to time
prescribe, signed by the Chairman of the Board, the Chief Executive Officer, the
President or a Vice-President and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary.
SECTION 2. Any or all signatures upon a certificate may be facsimiles.
Even if an officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon
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a certificate ceases to be that officer, transfer agent or registrar before the
certificate is issued, that certificate may be issued by the Corporation with
the same effect as if he, she or it were that officer, transfer agent or
registrar at the date of issue.
SECTION 3. The Board of Directors may direct that a new certificate be
issued in place of any certificate issued by the Corporation which is alleged to
have been lost, stolen or destroyed. When doing so, the Board of Directors may
prescribe such terms and conditions precedent to the issuance of the new
certificate as it deems expedient, and may require a bond sufficient to
indemnify the Corporation and its transfer agent against any claim that may be
made against it with regard to the allegedly lost, stolen or destroyed
certificate or the issuance of the new certificate.
SECTION 4. The Corporation or a transfer agent of the Corporation, upon
surrender to it of a certificate representing shares, duly endorsed or
accompanied by proper evidence of lawful succession, assignment or authority to
transfer, shall issue a new certificate to the person entitled to it, and shall
cancel the old certificate and record the transaction upon the books of the
Corporation.
SECTION 5. The Board of Directors may fix in advance a date as the
record date for determination of the stockholders entitled to notice of or to
vote at any meeting of stockholders, or to express consent to, or dissent from,
any proposal without a meeting, or to receive payment of any dividend or
allotment of any rights, or to take or be the subject of any other action. That
date must be not less than ten and not more than sixty days before the date of
the meeting, nor more than sixty days prior to any other action. If no record
date is fixed, the record date will be as provided by law. A determination of
stockholders entitled to notice of or to vote at any meeting of stockholders
which has been made as provided in this Section will apply to any adjournment of
the meeting, unless the Board of Directors fixes a new record date for the
adjourned meeting.
SECTION 6. The Corporation will for all purposes be entitled to treat a
person registered on its books as the owner of shares as the owner of those
shares, with the exclusive right, among other things, to receive dividends and
to vote with regard to those shares, and the Corporation
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will not be bound to recognize any equitable or other claim to or interest in
shares of its stock on the part of any other person, whether or not the
Corporation has notice of the claim or interest of the other person, except as
otherwise provided by the laws of Delaware.
ARTICLE X
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify any person who was or is
made a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, will not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
conduct was unlawful.
SECTION 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that the person is or
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was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or such suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
SECTION 3. To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1 and 2 of this Article, or
in defense of any claim, issue or matter therein, the person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection therewith.
SECTION 4. Any indemnification under Sections 1 and 2 of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because the person has
met the applicable standard of conduct set forth in Section 1 or 2. Such
determination shall be made (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) if there are no such directors, or if such directors so direct, by
independent legal counsel (compensated by the Corporation) in a written opinion,
or (3) by the stockholders.
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SECTION 5. Expenses incurred by an officer, director, employee or agent
in defending a civil, criminal, administrative or investigative action, suit or
proceeding, or threat thereof, may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that the person is not entitled
to be indemnified by the Corporation as authorized in this Article.
SECTION 6. The Indemnification and advancement of expenses provided by,
or granted pursuant to, the other Sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacity and as to action in another capacity while holding such
office.
SECTION 7. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 8. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against the
person and incurred by him in any such capacity, or arising out of the person's
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article.
SECTION 9. References in this Article to "the Corporation" will
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had
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power and authority to indemnify its directors, officers and employees or agents
so that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, will stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to the constituent
corporation if its separate existence had continued.
SECTION 10. For purposes of this Article, references to "other
enterprises" will include employee benefit plans; references to "fines" will
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation" will
include any service as a director, officer, employee or agent of a subsidiary of
the Corporation and any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan will be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
SECTION 11. The provisions of this Article will be deemed retroactive
and will include all acts of the officers and directors of the Corporation since
the date of incorporation.
ARTICLE XI
GENERAL PROVISIONS
SECTION 1. The corporate seal will have inscribed on it the name of the
Corporation, the year of its creation, the words "CORPORATE SEAL DELAWARE," and
such other appropriate legend as the Board of Directors may from time to time
determine. Unless prohibited by the Board of
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Directors, a facsimile of the corporate seal may be affixed or reproduced in
lieu of the corporate seal itself.
SECTION 2. The fiscal year of the Corporation will end on the 30th of
November of each year.
ARTICLE XII
AMENDMENTS
SECTION I. These By-Laws may be amended or repealed, and new By-Laws
may be adopted, amended or repealed (a) at any regular or special meeting of
stockholders, or (b) by the affirmative vote of a majority of the entire Board
at any regular or special meeting of the Board, except that (i) no By-Law may be
adopted or amended by the Board of Directors if the By-Law or amendment is
inconsistent with a By-Law, or an amendment to a By-Law, adopted by the
stockholders, (ii) Article VI of these By-laws may only be amended or repealed
with the approval of the Independent Directors Committee or with the affirmative
vote of the holders of a majority of the shares of Common Stock (voting separate
and apart from the Class B Common Stock) which are voted with respect to the
amendment or repeal, and (iii) Article VI, in its entirety, will be
automatically repealed on November 30, 2002 without action of the Board of
Directors, the stockholders or the Independent Directors Committee.
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EXHIBIT 10.1
SEPARATION AND DISTRIBUTION AGREEMENT
This is an agreement dated June 10, 1997 between Lennar Corporation
("Lennar"), a Delaware corporation, and LPC, Inc. ("LPC"), a Delaware
corporation.
Lennar formed LPC with the intention of contributing to LPC, through
contributions of the stock of various Lennar subsidiaries and of assets of other
subsidiaries, and assumptions of obligations by LPC, the assets and liabilities
constituting Lennar's entire commercial and multi-family residential real estate
asset management business and the portion of Lennar's finance business relating
to the financing of commercial properties (together, the "Commercial Asset
Management Business"). The Commercial Asset Management Business is described on
Exhibit A. Lennar will retain its business of building and selling single family
detached and attached homes and condominium units in low-rise buildings and
related activities, as well as the portion of its finance business relating to
the financing of residential homes (the "Homebuilding Business"). The
Homebuilding Business is described on Exhibit B.
In forming LPC, Lennar acquired 100 shares of common stock of LPC
("Common Stock"). After Lennar contributes the Commercial Asset Management
Business to LPC, Lennar intends to distribute the stock of LPC to Lennar's
stockholders at the rate of one share of Common Stock for each share of common
stock of Lennar ("Lennar common stock") or Class B common stock of Lennar
("Lennar Class B Stock"), and to give each Lennar stockholder the right to
exchange Common Stock for Class B Common Stock of LPC ("Class B Common Stock")
by an election (an "Exchange Election") delivered to LPC at least 10 days prior
to the date the Common Stock is to be distributed to Lennar's stockholders.
<PAGE>
The purpose of this Agreement is to set forth the agreement between
Lennar and LPC regarding the issuance of the Common Stock and Class B Common
Stock which is to be distributed to Lennar's stockholders and matters relating
to the activities of Lennar and its subsidiaries and of LPC and its subsidiaries
after the distribution of that stock to Lennar's stockholders.
Lennar and LPC agree as follows:
ARTICLE I
CONTRIBUTIONS OF COMMERCIAL ASSET MANAGEMENT BUSINESS
1.1 CONTRIBUTION OF ASSETS. (a) Not later than the day before the
Distribution Date (defined below), Lennar will contribute to LPC or wholly owned
subsidiaries of LPC all the shares of all the subsidiaries of Lennar which are
engaged wholly or primarily in aspects of the Commercial Asset Management
Business.
(b) To the extent that Lennar or any of its subsidiaries which do
not become subsidiaries of LPC on or before the Distribution Date (together the
"Lennar Companies") own any assets which are not used, and are not expected to
be used, wholly or primarily in connection with the Homebuilding Business, not
later than the day before the Distribution Date, the applicable Lennar Companies
will transfer those assets to LPC or subsidiaries designated by LPC. To the
extent that LPC or any subsidiaries which are contributed by Lennar to LPC on or
before the Distribution Date (LPC and its subsidiaries on the Distribution Date
being the "LPC Companies") own any assets which are used, or are expected to be
used, primarily in connection with the Homebuilding Business, not later than the
day before the Distribution Date, the applicable LPC Companies will transfer
those assets to Lennar or subsidiaries designated by Lennar.
(c) Not later than the day before the Distribution Date, Lennar
will contribute to LPC cash or additional assets so that, after the assumption
by LPC Companies of obligations of Lennar
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and its subsidiaries as described in Paragraph 1.2, the net worth of the Lennar
Companies will be reduced to the Lennar Minimum Net Worth, as that term is
described in a Plan and Agreement of Merger (the "Merger Agreement") dated the
same date as this Agreement between Lennar and Pacific Greystone Corporation.
(d) Lennar and the other Lennar Companies, and LPC and the other
LPC Companies, will execute and deliver such deeds, bills of sale, stock powers
and other documents, and will do such other things, as are necessary or
appropriate to carry out the contributions and transfers of assets described in
the preceding subparagraphs of this Paragraph and which, at the request of
Pacific Greystone Corporation, will be satisfactory in form and substance to
Pacific Greystone Corporation.
1.2 ASSUMPTION OF OBLIGATIONS AND LIABILITIES. Not later than the day
before the Distribution Date, Lennar and LPC will execute an Assignment and
Assumption Agreement (the "Assumption Agreement") in the form of Exhibit 1.2 by
which (i) the Lennar Companies assign certain contracts, agreements, and
commitments (the "Assigned Agreements") to LPC Companies, (ii) the LPC Companies
agree to fulfill the obligations of Lennar or its subsidiaries under the
Assigned Agreements, and (iii) LPC assumes all the obligations of Lennar and its
subsidiaries which relate primarily to the Commercial Asset Management Business
and assumes the obligations for borrowed money described in the Assumption
Agreement.
ARTICLE II
ISSUANCE AND DISTRIBUTION OF SHARES
2.1 ISSUANCE OF SHARES TO LENNAR. (a) On a date designated by Lennar
(the "Distribution Date") on at least five days' prior notice to LPC, LPC will
issue to Lennar certificates representing (i) a number of shares of Common Stock
equal to the number of shares of Lennar common stock and Lennar Class B Stock
which are outstanding on the Distribution Date minus (x)100 shares and
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(y) the number of shares of Lennar common stock and Lennar Class B Stock which
are the subject of properly made Exchange Elections, and (ii) a number of shares
of Class B Stock equal to the number of shares of Lennar common stock and Lennar
Class B Stock which are the subject of properly made Exchange Elections.
(b) If at any time after the Distribution Date, Lennar notifies LPC
that Lennar is required to deliver shares of Common Stock to persons who have
exercised options which were granted by Lennar prior to the Distribution Date,
LPC will, as promptly as practicable after the notice from Lennar, deliver to
Lennar certificates representing a number of shares of Common Stock equal to the
number of shares Lennar is required to deliver because of the exercise of
options as specified in the notice from Lennar.
2.2 DISTRIBUTION OF SHARES BY LENNAR. On the Distribution Date, Lennar
will distribute to its stockholders the shares of Common Stock or Class B Stock
which Lennar receives from LPC in accordance with Paragraph 2.1(a). Promptly
after Lennar receives any shares of Common Stock from LPC in accordance with
Paragraph 2.1(b), Lennar will distribute those shares to people whose exercise
of options caused LPC to be required to issue the shares to Lennar.
2.3 TRANSFER OF DISTRIBUTED SHARES. To the extent practicable, LPC will
issue shares to Lennar by delivering to Lennar each time shares of a class are
to be issued to it a global certificate representing all the shares of that
class being issued to Lennar at that time. LPC will then cause its transfer
agent to cooperate with Lennar in transferring shares from Lennar to its
stockholders or to the people who exercised warrants or converted convertible
securities.
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ARTICLE III
CONDITIONS TO OBLIGATIONS
3.1 CONDITIONS. The obligations of Lennar and LPC under Articles I and
II are subject to the following conditions (each of which may be waived as a
condition to its obligations by Lennar or by LPC):
(a) Lennar will have obtained a private letter ruling from the
Internal Revenue Service (the "Ruling") to the effect that (i) the distribution
of LPC stock to Lennar stockholders on the Distribution Date as described in
Paragraphs 2.1(a) and 2.2 (the "Distribution") will qualify as a distribution
within the meaning of Section 355(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and accordingly, no gain or loss will be recognized to
(and no amount will be included in the income of) Lennar's stockholders upon the
receipt of stock of LPC as a result of the Distribution and (ii) no gain or loss
will be recognized to Lennar on the distribution of stock of LPC to Lennar's
stockholders as a result of the Distribution (except that the Ruling may exclude
from its coverage the possibility that Lennar will realize income or gain as a
result of the payment contemplated by Paragraph 10.1)
(b) All required governmental approvals of the Distribution, if any,
will have been obtained, other than governmental approvals the lack of which
would not have a material adverse effect on either the Lennar Companies, taken
together, or the LPC Companies, taken together.
(c) LPC will have filed a combined Form 10 and information statement
with the Securities and Exchange Commission relating to its Common Stock (the
"Form 10 Information Statement"), and that Form 10 will have become effective.
(d) The shares of Common Stock to be distributed in the Distribution
and the shares of Common Stock which Lennar may have to deliver upon exercise of
options which are outstanding on the Distribution Date will have been authorized
for listing on the New York Stock Exchange upon notice of issuance.
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(e) Lennar will have distributed to its stockholders a proxy statement
or information statement relating to the Distribution which contains all the
information about the Distribution required by Regulation 14A or 14C under the
Securities Exchange Act of 1934, as amended.
(f) No order of a court enjoining or otherwise restraining the
Distribution will be in effect and no governmental proceeding regarding the
Distribution will be pending which is reasonably likely to result in the
imposition of penalties against Lennar or LPC as a result of the Distribution
which would be material to either of those entities and its subsidiaries taken
as a whole.
(g) LPC will have executed the Assumption Agreement.
3.2 EFFORTS TO FULFILL CONDITIONS. Lennar and LPC each will use its
best efforts to cause all the conditions in Paragraph 3.1 to be fulfilled on or
before the Distribution Date.
ARTICLE IV
AGREEMENTS NOT TO COMPETE
4.1 LENNAR AGREEMENT NOT TO COMPETE. From the Distribution Date until
December 1, 2002, Lennar will not, and will cause its subsidiaries not to,
engage directly or indirectly in (i) acquiring and actively managing commercial
or residential multi-family rental real estate, other than as an incident to, or
otherwise in connection with, the Homebuilding Business, (ii) acquiring
portfolios of commercial mortgage loans or of real estate assets acquired
through foreclosures of mortgage loans (other than real estate acquired as the
site of homes to be built or sold as part of the Homebuilding Business), (iii)
making or acquiring mortgage loans, other than mortgage loans secured by
detached or attached homes or residential condominium units, (iv) constructing
office buildings or other commercial or industrial buildings, other than small
shopping centers, professional office buildings, educational facilities,
recreational facilities and other commercial facilities built on properties
which Lennar is developing primarily as residential developments and which will
be adjuncts to those residential developments,
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(v) owning or leasing an office building in which it occupies a majority of the
usable office space and leasing or subleasing the remainder of the office space
in that building, (vi) purchasing commercial mortgage backed securities or real
estate asset backed securities, or (vii) acting as a servicer or special
servicer with regard to securitized commercial mortgage pools. Nothing in this
Paragraph will, however, prevent Lennar or any of its subsidiaries from, (v)
acquiring securities backed by pools of residential mortgages, (w) acquiring an
entity or an interest in an entity which, at the time the entity or interest in
it is acquired by Lennar or a subsidiary, is engaged in one or more of the
activities described in the first sentence of this Paragraph as an incidental
(but not as a principal) part of its activities, (x) owning as a passive
investor, without any involvement in operations or management, an interest of
less than 10% in a publicly traded operating company which is engaged in one or
more of the activities described in the first sentence of this Paragraph, (y)
acquiring commercial paper or other short-term debt instruments of entities
engaged in one or more of the businesses described in the first sentence of this
Paragraph for investment, and without any intention of becoming involved in the
operations or management of the issuer of the commercial paper or other debt
instruments or (z) owning an interest in , and managing, Lennar Land Partners, a
partnership to be formed by a Partnership Agreement between a subsidiary of
Lennar and a subsidiary of LPC.
4.2 LPC AGREEMENT NOT TO COMPETE. From the Distribution Date until
December 1, 2002, LPC will not, and will cause its subsidiaries not to, engage
directly or indirectly in (i) building or selling single family detached or
attached homes or condominium units in residential buildings of five or fewer
stories, (ii) developing properties primarily as the sites of homes or
condominium units of the type described in clause (i), other than properties
included in portfolios acquired by LPC or partnerships in which it is a partner
and which Lennar elects not to acquire from LPC or the partnerships for the
prices LPC or the partnerships paid for them (allocating purchase prices to
assets acquired as parts of pools using the relative sales price method of cost
allocation) or to develop under arrangements with LPC or
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the partnerships, (iii) providing first mortgage financing for the purchase of
homes or condominium units of the type described in clause (i), or (iv)
providing first mortgage re-financing of loans secured by homes or condominium
units of the type described in clause (i). Nothing in this Paragraph will,
however, prevent LPC or any of its subsidiaries from (s) developing properties
acquired upon default of mortgages or acquired as incidental portions of
portfolios of real estate assets for reasonable periods after foreclosure or
acquisition until there can be orderly dispositions of the properties, (t)
selling as condominium units apartments in residential multi-family buildings
which are acquired by LPC or its subsidiaries and which, at the time LPC or its
subsidiaries acquired the buildings or acquired mortgage loans secured by the
buildings, were being operated as rental buildings, (u) acquiring securities
backed by pools of residential mortgages, (v) providing financing to
homebuilders or land developers, acquiring the homebuilders or land developers
or their properties upon default with regard to the financing, and overseeing
the operations of the homebuilders or land developers and development of their
properties for reasonable periods after default until there can be orderly
dispositions of the defaulting homebuilders or land developers or their
properties, (w) acquiring as a passive investor without any involvement in
operations or management, an interest of less than 10% in a publicly traded
operating company which is engaged in one or more of the activities described in
the first sentence of this Paragraph, (x) acquiring an entity or an interest in
an entity which, at the time it is acquired by LPC or a subsidiary, is engaged
in one or more of the activities described in the first sentence of this
Paragraph as an incidental (but not as a principal) part of its activities, (y)
acquiring commercial paper or other debt instruments of entities engaged in one
or more of the businesses described in the first sentence of this Paragraph for
investment, and without any intention of becoming involved in the operations or
management of the issuer of the commercial paper or other debt instruments or
(z) owning an interest in Lennar Land Partners.
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4.3 ACTIVITIES OF LENNAR LAND PARTNERS. No action taken by Lennar Land
Partners in accordance with the Partnership Agreement by which it is formed will
be a breach of the obligations of either Lennar or LPC under this Article.
4.4 CONSENTS TO PROHIBITED ACTIVITIES. Either Lennar or LPC may consent
to the other of them engaging, in a specific instance with regard to a specific
property or other asset, in an activity which would otherwise be prohibited by
the applicable one of Paragraph 4.1 or 4.2 if (i) the party engaging in the
activity (the "Acting Party") has offered to sell that property or other asset
to the other party (the "consenting party") for the lesser of the price paid by
the Acting Party for the property or other asset or the fair market value of the
property or other asset and (ii) the Board of Directors of the consenting party
has, by resolution, (x) determined that the consenting party does not want to
acquire the property or other asset for the price offered by the Acting Party,
(y) determined that the Acting Party's engaging in the activity with regard to
the property or other asset will not materially adversely affect any activities
in which the consenting party is engaged, and (z) approved the consenting
party's consenting to the Acting Party's engaging in the activity with regard to
the property or other asset.
4.5 CURING VIOLATIONS. If Lennar or LPC violates the applicable one of
Paragraph 4.1 or 4.2 with regard to a specific property or asset, (i) the other
of them may not institute any action or proceeding seeking injunctive relief,
damages or any other type of relief because of the violation until at least 90
days after it has given notice of the violation to the violating party, and (ii)
the violating party will be relieved of all liability with regard to the
violation if the violating party either (x) discontinues the violation within
the 90 day period, or (y) within the 90 day period offers to sell the property
or other asset to the other party for the lesser of the amount the violating
party paid for the property or other asset or the fair market value of the
property or other asset and, if that offer is not accepted within 30 days after
it is made, the violating party disposes of the property or other asset, or
discontinues the violation, within 120 days after the end of the 30 day period.
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ARTICLE V
INTERCOMPANY INDEBTEDNESS
5.1 ELIMINATION OF INTERCOMPANY INDEBTEDNESS. Effective at 11:59 P.M.
on the day before the Distribution Date, all indebtedness of any of the Lennar
Companies to any of the LPC Companies, and all indebtedness of any of the LPC
Companies to any of the Lennar Companies, will be eliminated. This elimination
(a) will be effected by dividends to Lennar by all the Lennar Companies and all
the LPC Companies of all the indebtedness to them which is to be eliminated and
contributions of that indebtedness by Lennar to the capital of the respective
Lennar Companies and LPC Companies which are the obligors with regard to that
indebtedness, and (b) will be evidenced by a document executed by Lennar.
5.2 EXCHANGE OF RELEASES. On the Distribution Date, (i) Lennar will
deliver to LPC a document in which Lennar, for itself and each of its
subsidiaries other than the LPC Companies, releases each of the LPC Companies
from any and all liabilities or obligations which any of the LPC Companies has
or may have on the Distribution Date, or ever had prior to the Distribution
Date, to Lennar or any of its subsidiaries other than the LPC Companies, and any
and all claims which Lennar or any of its subsidiaries other than the LPC
Companies has or may have on the Distribution Date, or ever had prior to the
Distribution Date, against any of the LPC Companies, arising out of obligations
or occurrences which arose or occurred on or before the Distribution Date (other
than obligations under this Agreement, the Assumption Agreement, under documents
by which Lennar transfers stock of LPC Companies or assets to LPC or its
subsidiaries prior to the Distribution or under any other documents described in
this Agreement which are to be executed in connection with the Distribution),
whether known or unknown and whether liquidated in amount or contingent, and
(ii) LPC will deliver to Lennar a document in which LPC, for itself and each of
its subsidiaries, releases Lennar and each of its subsidiaries other than the
LPC Companies from any and all liabilities or obligations which Lennar or
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any of its subsidiaries has or may have on the Distribution Date, or ever had
prior to the Distribution Date, to any of the LPC Companies, and any and all
claims which any of the LPC Companies has or may have on the Distribution Date,
or ever had prior to the Distribution Date, against Lennar or any of its
subsidiaries other than the LPC Companies, arising out of obligations or
occurrences which arose or occurred on or before the Distribution Date (other
than obligations under this Agreement, under the Assumption Agreement or under
any other documents described in this Agreement which are to be executed in
connection with the Distribution), whether known or unknown and whether
liquidated in amount or contingent.
5.3 AGREEMENT NOT TO SUE. (a) Lennar agrees that it will not bring, and
it will take all steps necessary to prevent each of its subsidiaries from
bringing, any claim, action or proceeding against any of the LPC Companies
relating to any sum which is the subject of the release delivered by Lennar in
accordance with Paragraph 5.2 or which subsequently becomes due because of
anything which occurred on or before the Distribution Date (other than a sum
which becomes due under or with regard to this Agreement or any other document
executed in connection with the Distribution).
(b) LPC agrees that it will not bring, and it will take all steps
necessary to prevent each of its subsidiaries from bringing, any claim, action
or proceeding against Lennar or any of its subsidiaries other than the LPC
Companies relating to any sum which is the subject of the release delivered by
LPC in accordance with Paragraph 5.2 or which subsequently becomes due because
of anything which occurred on or before the Distribution Date (other than a sum
which becomes due under or with regard to this Agreement or any other document
executed in connection with the Distribution).
5.4 NO REPRESENTATIONS REGARDING TRANSFERRED ASSETS OR LIABILITIES. LPC
agrees and acknowledges on behalf of itself and each of the other LPC Companies
that none of Lennar or any of its subsidiaries has in this Agreement, in any
other agreement or instrument or otherwise, made or will make any representation
or warranty whatsoever as to the assets, business or liabilities transferred or
assumed
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as described in the preamble to this Agreement or as contemplated by this
Agreement, or as to any consents or approvals required in connection with the
consummation of those transfers, the Distribution or any other aspects of the
transactions contemplated by this Agreement, it being agreed and understood that
LPC and each of the other LPC Companies will receive all of its assets from
Lennar or a subsidiary on an "as is, where is" basis and will bear the economic
and legal risk that conveyance of such assets might prove to be insufficient or
might subject LPC or other LPC Companies to liabilities, or that the title to
any assets received from Lennar or a subsidiary (or owned by an LPC Company when
it was transferred to LPC) was other than good and marketable and free from
encumbrances (whether or not LPC knew this was the case).
ARTICLE VI
INDEMNIFICATIONS
6.1 INDEMNIFICATION BY LENNAR. Lennar agrees to indemnify LPC and each
of its subsidiaries and their respective successors and assigns and the officers
and directors of each of them against, and to hold each of them harmless from,
any liabilities, claims or expenses, including reasonable attorneys fees and
expenses of investigation, (collectively, "Losses") relating to, arising out of
or resulting from, (i) the Homebuilding Business, whether as a result of any
condition which exists or is created, any event which occurred or occurs, or any
action which was or is taken, whether before, on or after the Distribution Date,
(ii) any obligation of Lennar or any of its subsidiaries existing at the
Effective Time of the Merger for borrowed money incurred before the Distribution
Date which is not assumed by LPC in the Assumption Agreement, (iii) any
registration statement, proxy statement, or any press release or other document
issued by Lennar, relating to, or otherwise in connection with, the Merger,
except with regard to Losses relating to information provided by LPC in writing
for inclusion in the registration
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statement or proxy statement or (iv) any breach of any of the covenants of
Lennar set forth in Paragraph 5.1.
6.2 INDEMNIFICATION BY LPC. LPC agrees to indemnify Lennar and each of
its subsidiaries (other than the LPC Companies), their respective successors and
assigns, and the officers and directors of any of them against, and agrees to
hold each of them harmless from, any Losses relating to, arising out of or
resulting from (i) the Commercial Asset Management Business, whether as a result
of any condition which exists or is created, any event which occurred or occurs,
any action which was or is taken, or any obligation (including, but not limited
to, obligations to employees) which was or is incurred, either before, on or
after the Distribution Date, (ii) any of the obligations assumed by LPC or any
LPC Company in the Assumption Agreement, (iii) the Distribution, (iv) the Form
10 Information Statement, (v) any press release or other document issued by LPC
relating to, or otherwise in connection with, the Distribution, (vi) any
liabilities or obligations, actual or contingent, of any nature whatsoever of
Lennar or any of its past or current subsidiaries or affiliates existing or
alleged to exist on or prior to the Distribution Date that did not arise
exclusively or primarily in the conduct of the Homebuilding Business, except
that the indemnification with regard to any Loss arising solely because of
corporate financing by Lennar or other corporate activities by Lennar which do
not specifically relate to any aspect of the operations of Lennar or its
subsidiaries will be limited to 71.5% of the amount of the Loss, (vii) any
liabilities or obligations actual or contingent, of any nature whatsoever of
Lennar or any of its past or current subsidiaries or affiliates existing or
alleged to exist on or prior to the Distribution Date arising out of or relating
to any business or line of business which is or at any time was treated on the
consolidated financial statements of Lennar and its subsidiaries as a
discontinued operation or a discontinued line of business or any business or
line of business (as those terms are used in accordance with GAAP) which was
divested by Lennar or any of its current or former subsidiaries prior to the
Distribution Date, or (viii) a breach of the covenants of LPC contained in
Paragraph 5.1 or 6.7.
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6.3 THIRD PARTY CLAIMS. If any claim is made against Lennar or any of
its subsidiaries (other than a LPC Company), or any of their officers or
directors, for which Lennar, the subsidiary or its officer or director intends
to seek indemnification under Paragraph 6.2, or any claim is made against any of
the LPC Companies, or any of their officers or directors, for which the LPC
Company or its officer or director intends to seek indemnification under
Paragraph 6.1, the corporation or individual which intends to seek
indemnification (the "Indemnified Party") will promptly, and in any event within
10 days after it is notified of the claim, notify the one of Lennar or LPC from
which indemnification will be sought (the "Indemnifying Party") of the claim. If
the Indemnifying Party acknowledges that it will be liable to indemnify the
Indemnified Party with regard to the claim, the Indemnifying Party will have the
right to control the defense of the claim. Delay in notifying an Indemnifying
Party of a claim will not affect the Indemnifying Party's obligation to
indemnify with regard to the claim, except to the extent the delay in notifying
the Indemnifying Party adversely effects the Indemnifying Party's ability to
defend against or settle the claim. An Indemnified Party may participate in the
defense of a claim against it with its own counsel, but at its own expense
(including the costs of its counsel). Under no circumstances will a party be
entitled to indemnification against the costs of settling a claim unless (i) the
Indemnifying Party has approved the settlement of the claim, or (ii) the
Indemnifying Party has denied it has an obligation to indemnify the party
against which the claim was brought with regard to the subject matter of the
claim, but it is ultimately determined that the Indemnifying Party did indeed
have such an obligation.
6.4 INSURANCE COVERAGE. In determining the amount which Lennar is
required to pay to LPC under Paragraph 6.1, or which LPC is required to pay to
Lennar under Paragraph 6.2, as a result of a Loss, the amount for which Lennar
or a subsidiary, or LPC or a subsidiary, is entitled to be indemnified will be
net of any insurance proceeds recovered or recoverable by the company being
indemnified with respect to the Loss and net of any deductible amount under any
policy under which the
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company being indemnified made a recovery with respect to the Loss, or would
have made a recovery under the policies in effect with respect to the Loss if
the Loss had exceeded the deductible amount.
6.5 CONTRIBUTION. If the indemnity provided for in Paragraph 6.1
through 6.4 is not available in any instance for any reason, Lennar and LPC each
will contribute on an equitable basis in respect of the Loss for which that
indemnity is not available.
6.6 LPC INDEMNIFICATION FOR DISTRIBUTION TAX COSTS. (a) If, other than
because of actions taken by Lennar after completion of the Merger, regardless of
whether Lennar obtained the Ruling, it is ultimately determined that the
Distribution did not qualify for Tax-Free Status, and as a result Lennar incurs
any Spin-Off Tax Liabilities as a result of the Distribution, LPC will pay to
Lennar an amount such that the amount received by Lennar, net of any taxes
payable with the respect to the payments from LPC, is equal to the Tax Cost of
the Distribution.
(b) For purposes of this Paragraph 6.6, the following terms will
have the meanings set forth below:
"Tax Cost" means (i) the Aggregate Spin-off Tax Liabilities; (ii)
all accounting, legal and other professional fees, and court costs incurred in
connection with any settlement, final determination, judgement or other
determination with respect to such Aggregate Spin-off Tax Liabilities, and (iii)
all costs, expenses and damages associated with stockholder litigation or
controversies, and any amount paid by Lennar or any of its subsidiaries in
respect of the tax liability of shareholders, whether paid to shareholders or to
the Internal Revenue Service or any other taxing authority payable by Lennar or
any of its affiliates, in each case resulting from the absence of Tax-Free
Status for the Distribution.
"Taxing Jurisdiction" means the United States and every other
government or governmental unit having jurisdiction to tax Lennar or LPC.
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"Spin-off Tax Liabilities," with respect to any Taxing
Jurisdiction, means all taxes, interest and penalties actually paid to such
Taxing Jurisdiction that would not have been paid if the Distribution qualified
for Tax-Free Status.
"Aggregate Spin-off Tax Liabilities" means the sum of the Spin-off
Tax Liabilities with respect to each Taxing Jurisdiction.
"Tax-Free Status" means the qualification of the Distribution (i)
as a transaction described in Section 355 (a)(1) of the Code, (ii) as a
transaction in which the stock which is distributed is qualified property for
purposes of Section 355(c)(2) of the Code, and (iii) as a transaction in which
Lennar recognizes no income or gain other than intercompany items or excess loss
accounts taken into account pursuant to the Treasury Regulations promulgated
pursuant to Section 1502 of the Code.
(c) Except as otherwise required by law, in filing its tax returns
for the year in which the Distribution Date falls, Lennar will treat the
Distribution as not resulting in recognition of gain to Lennar. If Lennar
becomes aware during an examination of its Federal corporate income tax return,
or any state income, franchise or similar tax return, for the taxable year in
which the Distribution Date falls that the agent conducting the examination is
seriously considering asserting that the Distribution did not qualify for
Tax-Free Status and therefore (or for any other reason) Lennar and its
subsidiaries may incur Spin-Off Tax Liabilities, Lennar will (i) promptly notify
LPC of this fact, (ii) to the extent reasonably practicable, segregate the issue
of whether the Distribution qualified for Tax-Free Status from other issues
being examined, (iii) permit LPC to control the tax examination in so far as it
relates to that issue and any administrative or judicial appeals relating to the
issue (including whether to settle the issue or to appeal from an adverse
determination with regard to the issue) and (iv) cooperate with LPC in all
reasonable respects in LPC's efforts to establish that the Distribution
qualified for Tax-Free Status and because of that (or for any other reason)
Lennar and its subsidiaries are not required to recognize income or gain because
of the Distribution.
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6.7 RETURN OF HOMEBUILDING ASSETS. If after the Distribution Date it is
determined that (i) at the Effective Time of the Merger the Lennar Companies do
not have all the assets (other than cash) necessary for their conduct of the
Homebuilding Business in a manner consistent with past practice, as it is
currently being conducted at the Distribution Date and as Lennar contemplates it
will be conducted after the Distribution Date (except to the extent the
Homebuilding Business will in the future include the operations of Pacific
Greystone), and (ii) some of the assets necessary for the Lennar Companies'
conduct of the Homebuilding Business in that manner were transferred to or
otherwise held by LPC Companies on or prior to the Distribution Date, the LPC
Companies to which the assets were transferred or which hold the assets will
transfer them to Lennar without consideration.
ARTICLE VII
TRANSACTIONS BETWEEN COMPANIES
7.1 TERMS OF TRANSACTIONS BETWEEN COMPANIES. All transactions between
Lennar or any other of the Lennar Companies and LPC or any other of the LPC
Companies after the Distribution Date will be on the following terms:
(a) Any transactions or relationships which are the subject of a
Shared Facilities Agreement executed by Lennar and LPC will be on the terms
provided in the Shared Facilities Agreement.
(b) Any transactions or arrangements (including any loan
transactions) entered into after the Distribution Date between any of the Lennar
Companies and any of the LPC Companies will be on substantially the same terms
as those which would prevail in a transaction between unaffiliated persons. If a
transaction takes place under an agreement which, at the time it was executed,
was on terms which would have prevailed in an agreement between unrelated
persons, the transaction will be deemed to be on terms which would have
prevailed in transactions between unrelated persons even if at the time
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the transaction takes place, the terms in the agreement are not the same as
those which would have prevailed in a separate transaction agreed to at the time
of the transaction.
(c) If the Distribution Date is before the Merger Date under the
Merger Agreement (or such earlier date as the Merger Agreement terminates), none
of the Lennar Companies will engage in any transactions with any of the LPC
Companies between the Distribution Date and the Merger Date (or the earlier
termination of the Merger Agreement) without the prior consent of Pacific
Greystone Corporation, which will not be unreasonably withheld or delayed.
7.2 APPROVAL OF TRANSACTIONS BETWEEN COMPANIES. (a) No Lennar Company
may enter into any transaction or related series of transactions with one or
more LPC Companies which will involve a payment or loan to or from the LPC
Company or Companies of more than $5 million in the aggregate unless Lennar or
another Lennar Company receives a certified copy of a resolution of the Board of
Directors of LPC in which that Board of Directors determines that the
transaction or loan meets the requirements of Paragraph 7.1.
(b) No LPC Company may enter into any transaction or related series
of related transactions with one or more Lennar Companies which will involve a
payment or loan to or from the Lennar Company or Companies of more than $5
million in the aggregate unless LPC or another LPC Company receives a certified
copy of a resolution of the Board of Directors of Lennar in which that Board of
Directors determines that the transaction or loan meets the requirements of
Paragraph 7.1.
7.3 TRANSACTIONS WITH LAND PARTNERSHIP. A transaction between a Lennar
Company or a LPC Company and Lennar Land Partners will not be deemed to be a
transaction between a Lennar Company and a LPC Company, and therefore will not
be subject to Paragraph 7.1 or Paragraph 7.2.
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ARTICLE VIII
TAX SHARING
8.1 PREPARATION OF TAX RETURNS; RESPONSIBILITIES FOR TAXES. (a) Lennar
will be responsible for the preparation of all consolidated combined or unitary
Tax Returns ("Consolidated Tax Returns"), and other Tax Returns relating to
Federal, state and other corporate income taxes and other Income Taxes ("Income
Taxes") which include the income of Lennar and/or any of its subsidiaries (other
than the LPC Companies) or the assets or income of the Homebuilding Businesses,
with regard to all periods ending on or before the Distribution Date
("Pre-Closing Periods") and for the payment of all Taxes shown on those Tax
Returns to be due. LPC and its subsidiaries will be responsible for filing all
other Tax Returns relating to them or their assets or the Commercial Asset
Management business which are required to be filed after the Distribution Date
and for the payment of all Taxes shown on those Tax Returns to be due. "Tax
Return" means any return, filing, questionnaire or other document required to be
filed, including requests for extensions of time, filings made with estimated
tax payments, claims for refund and amended returns that may be filed, for any
period with any taxing authority (whether domestic or foreign) in connection
with any Tax or Taxes (whether or not a payment is required to be made with
respect to such filing). "Taxes" means all forms of taxation, whenever created
or imposed, and whether of the United States or elsewhere, and whether imposed
by a local, municipal, governmental, state, federation or other body, and
without limiting the generality of the foregoing, shall include income, sales,
use, ad valorem, gross receipts, value added, franchise, transfer, recording,
withholding, payroll, employment, excise, occupation, premium and property
taxes, together with any related interest, penalties and additions to any such
tax, or additional amounts imposed by any taxing authority (domestic or foreign)
upon Lennar, the LPC Companies or any of their respective subsidiaries,
divisions, assets or branches.
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(b) LPC hereby assumes and agrees to pay to Lennar on or prior to
the due date for each payment due following the Distribution Date its share of
the "Pre-Distribution Tax Liability" for any Pre-Closing Period beginning on or
after the December 1, 1996 for which Tax Returns have not yet been filed. LPC's
share of the "Pre-Distribution Tax Liability" for each Pre-Closing Period shall
be the sum of
(i) that portion of the total tax liability shown on each of
Lennar's Income Tax Returns (including estimated payment Tax Returns) for such
Pre-Closing Period, as filed (each, a "Company Pre-Distribution Return"), as
would be allocated to the LPC Companies on a net basis (taking into account any
Tax Benefits of any LPC Companies) under the basic method under Treas. Reg.
ss.1.1552-1(a)(2) if: (p) Lennar and LPC were separately incorporated members of
the same consolidated group for such Pre-Closing Period; (q) Lennar owned and
operated the Homebuilding Business during such Pre-Closing Period; and (r) LPC
owned and operated the Commercial Assets Management Business during such
Pre-Closing Period;
(ii) reduced by the sum of (x) all amounts paid by LPC after
the Distribution Date with respect to such Pre-Closing Tax Liability, and (y) an
amount equal to LPC's share of all estimated Income Tax payments remitted on
LPC's behalf to the relevant taxing authority on or prior to the Distribution
Date with respect to such Pre-Closing Period. LPC's share of all estimated
income tax payments remitted by Lennar to the taxing authority on or prior to
the Distribution Date with respect to such Pre-Closing Period shall be equal to
such percentage of such payments as the LPC Companies' net income (taking into
account any Tax benefits) bears to Lennar's overall consolidated net income. If
the calculations made herein indicate that LPC has either overpaid or underpaid
its share of any such Pre-Distribution Tax Liability, then at the time that the
relevant Company Pre-Distribution Return is filed, Lennar shall pay LPC the
amount of any such overpayment or LPC shall pay Lennar the amount of any such
underpayment, the amount of such overpayment or underpayment, as the case may
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be, to be equal to the difference between the amounts calculated pursuant to
paragraphs (i) and (ii) of this subparagraph. All calculations and
determinations required to be made pursuant to this subparagraph shall be made
in good faith by LPC and shall be subject to Lennar's approval, which approval
shall not be withheld unless Lennar in good faith reasonably disputes any such
calculation or determination, in which case any payments shall nevertheless be
made in accordance with LPC's calculations and determinations, subject to
subsequent adjustment in accordance with the provisions of subparagraph (f)
below.
(c) Whenever a party hereto (hereinafter an "Indemnitee") is
notified in writing by any taxing authority of the existence of an issue which
could increase the liability for any Tax of the other party hereto or any
affiliate (hereinafter an "Indemnity Issue"), the Indemnitee shall promptly give
notice to such other party (hereinafter an "Indemnitor") of such Indemnity
Issue. The Indemnitor and its representatives, at the Indemnitor's expense,
shall be entitled to participate (i) in all conferences, meetings or proceedings
with any taxing authority, the subject matter of which is or includes an
Indemnity Issue and (ii) in all appearances before any court, the subject matter
of which is or includes an Indemnity Issue, the Responsible Party (as defined
below) for any Tax Return with respect to which there is an increase or decrease
in liability for any Tax or with respect to which a payment is required
hereunder shall have the right to decide as between the parties hereto how such
matter is to be dealt with and finally resolved with the appropriate taxing
authority and shall control all audits and similar proceedings. The Responsible
Party agrees to cooperate in the settlement of any Indemnity Issue with the
other party and to take such other party's interests into account. If the
Indemnitor is not the Responsible Party, such cooperation may include permitting
the Indemnitor, at the Indemnitor's sole expense, to litigate or otherwise
resolve any Indemnity Issue. Notwithstanding the foregoing, if the Responsible
Party is not the Indemnitor, the Responsible Party shall not enter into a final
settlement with the relevant taxing authority with respect to any matter
involving an Indemnity Issue without first
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presenting the proposed settlement to the Indemnitor, who shall provide the
Responsible Party with written consent to such settlement within ten days of
receipt (which consent may not unreasonably be withheld), whereupon (or if the
Indemnitor fails to respond to such settlement in writing within such ten day
period) the Responsible Party may enter into such settlement with the relevant
taxing authority; PROVIDED, HOWEVER, that the Indemnitor may withhold its
consent to the proposed settlement by notifying the Responsible Party in writing
within such ten day period that the Indemnitor does not consent to the proposed
settlement. If the Indemnitor provides the Responsible Party with written
notification withholding consent in accordance with the immediately preceding
sentence, then:
(1) The Indemnitor shall fully indemnify and hold harmless the
Responsible Party from and against any and all liabilities for Taxes and other
costs and expenses (including, without limitation, reasonable attorneys' and
accountants' fees) over and above the payments that the Responsible Party would
have been liable for if the Responsible Party had entered into the proposed
settlement; and
(2) The Responsible Party shall, in its sole discretion:
(a) enter into a closing agreement or other final resolution with
respect to such matter with the relevant taxing authority with respect to
all issues other than Indemnity Issues and shall allow the Indemnitor to
continue to defend the Indemnity Issues in proceedings with the relevant
taxing authority; or
(b) settle all issues with respect to such matter with the relevant
taxing authority and/or pay any additional liability for Taxes as provided
for in such settlement, provided that such settlement shall permit the
Indemnitor to file a claim for refund with respect to any Indemnity Issues;
or
(c) pay to the Indemnitor any additional liability for Taxes as
provided for in such settlement to the extent that such liability relates to
issues other than Indemnity Issues, whereupon the Indemnitor shall assume
control over and responsibility for any proceeding related
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to such matter and shall be fully liable for and shall fully indemnify
and hold the Responsible Party harmless from and against any and all
liability for Taxes with respect to such matter.
For purposes of this Agreement, "Responsible Party" shall mean (x) with respect
to a Tax Return that relates solely to the operations of the Homebuilding
Business, Lennar, and (y) with respect to a Tax Return that relates solely to
the operations of the Commercial Asset Management Business, LPC. With respect to
all Tax Returns other than those described in clauses (x) and (y), above, Lennar
and LPC shall attempt to separate the Indemnity Issues in controversy with
respect to such Tax Return into Indemnity Issues for which Lennar shall be the
Responsible Party and Indemnity Issues for which LPC shall be the Responsible
Party. If Lennar and LPC do not succeed in separating such Indemnity Issues,
Lennar and LPC shall jointly act as Responsible Party with respect to such Tax
Returns. Neither Lennar nor LPC shall take any action with respect to such Tax
Return without the other's written consent, which consent shall not be
unreasonably withheld, and Lennar and LPC shall agree as to any settlement or
compromise of Indemnity Issues on such Tax Return. If Lennar and LPC cannot
agree as to any action to be taken with respect to any Indemnity Issue on such
Tax Return, the parties shall take such action as shall be determined pursuant
to subparagraph (f) with respect to such Indemnity Issue. Notwithstanding the
foregoing, if the settlement of any Indemnity Issue would materially increase
the other party's liability for Taxes, the Responsible Party shall not enter
into a final settlement without the consent of the other party, which consent
shall not be unreasonably withheld. The right to participate referred to in this
subsection shall include the submission and content of documentation, protests,
memoranda of fact and law and briefs, the conduct of oral arguments or
presentations, the selection of witnesses and the negotiation of stipulations of
fact.
(d) (x) if as a result of any audit, amendment or other change in a
Tax Return with respect to any period ending on or before the Distribution Date,
any Tax Benefit or Tax Detriment is changed (a "Change"), then:
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(i) If in connection with any such Change, the amount of the
Tax Detriments generated by or attributable to the Commercial Assets Management
Business with respect to the taxable period to which such return relates ("LPC
Business Tax Detriments") exceeds the amount of Tax Benefits generated by or
attributable to the Commercial Assets Management Business with respect to such
taxable period ("LPC Business Tax Benefits"), LPC hereby assumes and agrees to
pay to Lennar an amount equal to the product of (x) the amount by which LPC
Business Tax Detriments exceed LPC Business Tax Benefits and (y) the actual
marginal Tax rate applicable with respect to the relevant Tax Return, with
appropriate adjustment to account for Tax credits generated by or attributable
to LPC Businesses included in such calculation and an amount equal to all
interest payable with respect thereto, which interest shall be calculated at the
rate the taxing jurisdiction imposes upon tax deficiencies (the "Deficiency
Rate") for the relevant periods.
(ii) If in connection with any such Change, the LPC Business
Tax Benefits exceed the LPC Business Tax Detriments, Lennar shall pay or cause
to be paid to LPC the product of (x) the amount by which LPC Business Tax
Benefits exceed LPC Business Tax Detriments and (y) the actual marginal Tax rate
applicable with respect to the relevant Tax Return, with appropriate adjustment
to account for Tax credits generated by or attributable to LPC Businesses
included in such calculation plus a payment equal to any interest received by
Lennar, with respect to such amount.
(y) Lennar will pay and be responsible for, or benefit from,
as the case may be, any Tax Benefits or Tax Detriments arising as a result of
any changes to Tax Items generated by or attributable to the Homebuilding
Businesses. Any Tax Benefits or Tax Detriments arising with respect to items of
Lennar Land Partners will be allocated between Lennar and LPC in accordance with
the Partnership Agreement by which Lennar Land Partners is formed.
(z) "Tax Benefit" means any item of loss, deduction or credit
or any other Tax Item which decreases Taxes paid or payable. "Tax Detriment"
means any item of income, gain
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or recapture of credit or any other Tax Item which increases Taxes paid or
payable. "Tax Item" means any item of income, gain, loss, deduction, credit or
recapture of credit or any other item which increases or decreases Taxes paid or
payable, including an adjustment under Code Section 481 resulting from a change
in accounting method.
(e) Each of the Lennar Companies and each of the LPC Companies
will be responsible for the conduct after the Distribution Date of all
examinations of separate tax returns filed by it, whether before or after the
Distribution Date, and will pay all additional Taxes, interest and penalties,
and will be entitled to all refunds, with regard to Taxes to which to those
returns relate.
(f) Any disputes between the parties relating to this
Paragraph 8.1 that cannot be resolved by good faith effort by the parties shall
be resolved by a "Big Six" public accounting firm or a law firm satisfactory to
LPC and Lennar, whose determination shall be final and binding on all parties
and whose fees and expenses shall be shared by LPC and Lennar in accordance with
the final allocation of the Tax liability in dispute.
(g) Unless it is apparent that Taxes are required to be paid
at a different rate, it will be assumed that all Taxes are payable, or were
paid, in the case of Income Taxes, at the highest applicable marginal rate, and
in the case of other Taxes, at the highest applicable rate.
8.2 COOPERATION REGARDING TAXES. Lennar and LPC each will, and will
cause its subsidiaries and their respective personnel to, cooperate fully with
the other of them in connection with the preparation of tax returns and in
connection with any examinations of any tax returns filed by either of them or
any of their subsidiaries.
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ARTICLE IX
ACCESS TO INFORMATION
9.1 ACCESS TO LENNAR INFORMATION. Lennar will give LPC and its
representatives access after the Distribution Date during normal business hours
to the books and records of Lennar relating to the conduct of the Commercial
Asset Management Business before the Distribution Date, and to personnel of
Lennar who are knowledgeable about those books and records or otherwise are
knowledgeable about the conduct of the Commercial Asset Management Business
before the Distribution Date, in order to permit LPC to prepare financial
statements and tax returns, in connection with audits of tax returns and for all
other purposes related to the business or activities of LPC and its
subsidiaries.
9.2 ACCESS TO LPC INFORMATION. LPC will give Lennar and its
representatives access after the Distribution Date during normal business hours
to the books and records of LPC and to personnel of LPC who are knowledgeable
about those books and records or otherwise are knowledgeable about the conduct
of the Commercial Asset Management Business before the Distribution Date, in
order to permit Lennar to prepare financial statements and tax returns, in
connection with audits of tax returns, and for all other purposes related to the
business or activities of Lennar and its subsidiaries.
ARTICLE X
LENNAR NET WORTH
10.1 ASSURANCE OF MINIMUM NET WORTH. If within 30 days after the
Effective Time Balance Sheet described in Section 5.7 of the Merger Agreement
becomes final, the surviving corporation under the Merger Agreement (the
"Surviving Corporation"), as successor to Lennar delivers to LPC a notice (a
"Notice of Deficiency") stating that the Lennar Net Worth reflected on the final
Effective Time Balance Sheet was less than the Minimum Lennar Net Worth (as
defined in the Merger Agreement) and setting forth the amount of such difference
(the "Net Worth Deficiency"), accompanied by a copy of the
26
<PAGE>
final Effective Time Balance Sheet, within 10 days after LPC receives the Notice
of Deficiency, LPC will pay the Surviving Corporation (as successor to Lennar),
as an adjustment of the equity contributed by Lennar to LPC, a sum such that the
amount received by the Surviving Corporation, net of any taxes payable by the
Surviving Corporation with respect to such payment from LPC, is equal to the Net
Worth Deficiency plus interest on the Net Worth Deficiency at the rate of 10%
per annum from the Effective Time to the date of payment. LPC will have no right
to dispute the final Effective Time Balance Sheet or the Net Worth Deficiency
stated in the Notice of Deficiency if the Minimum Lennar Net Worth is determined
pursuant to the Merger Agreement.
10.2 CONTRIBUTION OF EXCESS NET WORTH. If within 30 days after the
Effective Time Balance Sheet becomes final, LPC delivers to the Surviving
Corporation a notice (a "Notice of Excess") stating that the Lennar Net Worth
reflected on the final Effective Time Balance Sheet was more than the Minimum
Lennar Net Worth and setting forth the amount of such excess (the "Net Worth
Excess"), accompanied by a copy of the final Effective Time Balance Sheet,
within 10 days after the Surviving Corporation receives the Notice of Excess,
the Surviving Corporation (as successor to Lennar) will pay LPC, as an
adjustment of the equity contributed by Lennar to LPC, a sum equal to the Net
Worth Excess plus interest on the Net Worth Excess at the rate of 10% per annum
from the Effective Time to the date of payment. Lennar will have no right to
dispute the final Effective Time Balance Sheet or the Net Worth Excess stated in
the Notice of Excess if the Minimum Lennar Net Worth is determined pursuant to
the Merger Agreement.
ARTICLE XI
FURTHER ASSURANCES
11.1 TRANSFER DOCUMENTS. Lennar and LPC each will execute, and each
will cause its subsidiaries to execute, any documents (which, at the request of
Pacific Greystone Corporation, will be
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in form and substance satisfactory to Pacific Greystone Corporation) which may
reasonably be requested by the other of them in order to perfect the transfer of
the Commercial Asset Management Business to LPC and its subsidiaries and to
perfect transfers prior to the Distribution Date of assets used in the
Homebuilding Business from subsidiaries of LPC to Lennar or its subsidiaries
which are engaged in the Homebuilding Business.
11.2 ADDITIONAL AGREEMENTS. To the extent either Lennar or LPC deems it
necessary or helpful, Lennar and LPC will agree upon and execute prior to the
Distribution Date (i) an Employee Matters Agreement, relating to benefits after
the Distribution Date of employees of Lennar and its subsidiaries who become
employees of LPC Companies and other matters relating to those employees, (ii) a
Shared Facilities Agreement, relating to the provision of administrative
services and access to computer or other facilities by Lennar Companies to LPC
Companies or by LPC Companies to Lennar Companies, and payment for those
services and facilities, and (iii) a Tax Sharing Agreement setting forth in
greater detail the tax sharing arrangement described in Paragraph 8.1.
ARTICLE XII
GENERAL
12.1 EXPENSES. Lennar and LPC each will pay 50% of the expenses
(including but not limited to transfer taxes) in connection with the
transactions which are the subject of this Agreement, including legal fees.
12.2 PRESS RELEASES. Lennar and LPC will consult with each other before
issuing at any time after Distribution Date any press releases, or otherwise
making any public statements after the Distribution Date, with respect to this
Agreement or the transactions which are the subject of it, except that nothing
in this Paragraph will prevent either Lennar or LPC from making any statement
when or as required by law or by the rules of any securities exchange on which
its securities are listed.
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12.3 ENTIRE AGREEMENT. This Agreement and the documents required to be
delivered in accordance with this Agreement contain the entire agreement between
Lennar and LPC relating to the transactions which are the subject of this
Agreement and those other documents, all prior negotiations, understandings and
agreements between Lennar and LPC regarding those transactions are superseded by
this Agreement and those other documents, and there are no representations,
warranties, understandings or agreements concerning the transactions which are
the subject of this Agreement or those other documents other than those
expressly set forth in this Agreement or those other documents. Without limiting
the foregoing, all agreements between any of the Lennar Companies, on the one
hand, and any of the LPC Companies, on the other hand, will terminate, except to
the extent this Agreement, the Merger Agreement or the Partnership Agreement
relating to Lennar Land Partners contemplates that particular agreements will be
in effect after the Distribution Date.
12.4 SURVIVAL OF AGREEMENT. This Agreement and the obligations of the
parties under it will survive the Distribution and the Merger. Upon consummation
of the Merger, all the rights and obligations of Lennar under this Agreement
will become rights and obligations of the Surviving Corporation.
12.5 CAPTIONS. The captions of the Articles and Paragraphs of this
Agreement are for reference only, and do not affect the meaning or
interpretation of this Agreement.
12.6 PROHIBITION AGAINST ASSIGNMENT. Neither this Agreement nor any
right of any party under it may be assigned by operation of law or otherwise.
12.7 MODIFICATION OR AMENDMENT. Subject to the provisions of applicable
law, Lennar and LPC may modify or amend this Agreement by written agreement
executed and delivered by duly authorized officers of the respective parties.
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12.8 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
confer upon any person or entity other than Lennar and LPC any rights or
remedies hereunder, except to the extent there are indemnification obligations
which state they are for the benefit of other persons.
12.9 NOTICES AND OTHER COMMUNICATIONS. Any notice or other
communication under this Agreement must be in writing and will be deemed given
when delivered in person or sent by facsimile (with proof of receipt at the
number to which it is required to be sent), or on the third business day after
the day on which mailed by First Class Mail from within the United States of
America, to Lennar or LPC, as the case may be, at its principal office or at the
general facsimile number at that principal office, to the attention of its Chief
Financial Officer.
12.10 GOVERNING LAW. This Agreement will be governed by, and construed
under, the laws of the State of Delaware applicable to agreements made and to be
performed in that state.
12.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, some of which may bear the signatures of only some of the parties
to this Agreement. Each of those counterparts will be deemed an original copy of
this Agreement, but all of them together will be one and the same Agreement.
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IN WITNESS WHEREOF, Lennar and LPC have executed this Agreement,
intending to be legally bound by it, on the day shown on the first page of this
Agreement.
LENNAR CORPORATION
By: /s/ LEONARD MILLER
------------------
Title: President
LPC, INC.
By: /s/ STUART A. MILLER
--------------------
Title: President
31
EXHIBIT 10.2
R&W DRAFT
6/2/97
PARTNERSHIP AGREEMENT
BY AND BETWEEN
LENNAR LAND PARTNERS SUB, INC.
AND
LPC LAND PARTNERS SUB, INC.
<PAGE>
PARTNERSHIP AGREEMENT
BY AND BETWEEN
LENNAR LAND PARTNERS SUB, INC.
AND
LPC LAND PARTNERS SUB, INC.
TABLE OF CONTENTS
PAGE
----
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 FORMATION ........................................ 1
1.2 NAME ............................................. 1
1.3 PRINCIPAL OFFICE ................................. 1
1.4 TERM ............................................. 1
1.5 PURPOSE .......................................... 2
1.6 POWERS ........................................... 2
1.7 STATUTORY FILINGS ................................ 2
ARTICLE II
DEFINITIONS
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 INITIAL CAPITAL CONTRIBUTIONS .................... 5
3.2 VOLUNTARY CONTRIBUTIONS .......................... 5
3.3 REQUIRED ADDITIONAL CAPITAL CONTRIBUTIONS ........ 5
3.4 NO WITHDRAWAL .................................... 6
3.5 INTEREST ......................................... 6
3.6 LOANS TO THE PARTNERSHIP ......................... 6
3.7 CAPITAL ACCOUNTS ................................. 6
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES ......... 8
4.2 ALLOCATIONS FOR TAX PURPOSES ..................... 9
4.3 DISTRIBUTIONS .................................... 10
ii
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PAGE
----
ARTICLE V
GOVERNANCE AND MANAGEMENT OF BUSINESS
5.1 EXECUTIVE COMMITTEE ............................. 10
5.2 MANAGEMENT AGREEMENT ............................ 12
5.3 INDEMNIFICATION ................................. 13
5.4 INSURANCE ....................................... 13
5.5 ANNUAL BUSINESS PLAN ............................ 13
5.6 REIMBURSEMENT OF PARTNERS ....................... 14
5.7 OUTSIDE ACTIVITIES .............................. 14
5.8 DEALINGS WITH PARTNERSHIP ....................... 14
5.9 PARTNERSHIP FUNDS ............................... 14
5.10 TITLE TO PARTNERSHIP ASSETS ..................... 15
ARTICLE VI
BOOKS, RECORDS, ACCOUNTING AND REPORTS
6.1 RECORDS AND ACCOUNTING .......................... 15
6.2 FISCAL YEAR ..................................... 15
6.3 FINANCIAL STATEMENTS AND FINANCIAL INFORMATION .. 15
6.4 OTHER INFORMATION ............................... 16
6.5 REIMBURSEMENT ................................... 16
ARTICLE VII
TAX MATTERS
7.1 RECOGNITION OF PARTNERSHIP ...................... 16
7.2 PREPARATION OF TAX RETURNS ...................... 16
7.3 ACCOUNTING METHODS; TAX ELECTIONS ............... 16
7.4 TAX CONTROVERSIES ............................... 17
7.5 WITHHOLDING ..................................... 17
7.6 REIMBURSEMENT ................................... 17
ARTICLE VIII
TRANSFER OF INTERESTS
8.1 RESTRICTIONS ON TRANSFER ........................ 17
8.2 PERMISSIBLE TRANSFERS ........................... 17
8.3 RIGHT OF FIRST REFUSAL .......................... 17
ARTICLE IX
ADMISSION OF PARTNERS
iii
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PAGE
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9.1 ADMISSION OF ADDITIONAL PARTNERS ................ 18
9.2 INTEREST OF NEW PARTNER ......................... 18
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1 DISSOLUTION ..................................... 18
10.2 EFFECT OF DISSOLUTION ........................... 18
10.3 LIQUIDATION ..................................... 19
10.4 DISTRIBUTION IN KIND ............................ 19
10.5 REASONABLE TIME FOR WINDING UP .................. 19
10.6 WAIVER OF PARTITION ............................. 19
10.7 VOLUNTARY TERMINATION ........................... 19
ARTICLE XI
GENERAL PROVISIONS
11.1 INDEMNIFICATION ................................. 20
11.2 CONTRIBUTION BY PARTNERS ........................ 20
11.3 NOTICES ......................................... 20
11.4 AMENDMENTS ...................................... 20
11.5 TITLES AND CAPTIONS ............................. 21
11.6 BINDING EFFECT .................................. 21
11.7 INTEGRATION ..................................... 21
11.8 CREDITORS ....................................... 21
11.9 COUNTERPARTS .................................... 21
11.10 APPLICABLE LAW .................................. 21
11.11 SURVIVAL ........................................ 21
iv
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PAGE
----
EXHIBITS
A. Schedule of Original Properties, Fair Market Values and Option
Prices
B. Management Agreement
C. Schedule of Initial Capital Contributions and Percentage
Interests
D. Business Plan and Budget for the Partnership's fiscal year[s]
1997 [through 1998]
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DRAFT DATED
June 2, 1997
PARTNERSHIP AGREEMENT
This is a PARTNERSHIP AGREEMENT (the "AGREEMENT"), dated as of
__________, 1997, by and among LENNAR LAND PARTNER, INC., a Delaware corporation
(the "MANAGING GENERAL PARTNER"), and LPC LAND PARTNER, INC., a Delaware
corporation (the "GENERAL PARTNER" and together with the Managing General
Partner, the "PARTNERS"), and, only with respect to Section 8.1, LENNAR
CORPORATION, a Delaware corporation ("LENNAR") and LPC, INC., a Delaware
corporation ("LPC").
RECITALS
A. The Partners desire to form a general partnership under the laws of
the State of Florida for the purposes and on the terms and conditions stated in
this Agreement.
B. The Managing General Partner was formed solely for the purpose of
participating in the partnership created by this Agreement, and is a wholly
owned subsidiary of Lennar.
C. The General Partner was formed solely for the purpose of
participating in the partnership created by this Agreement, and is a wholly
owned subsidiary of LPC.
All capitalized terms used in this Agreement which are not otherwise
defined are defined in Article II.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 FORMATION. By signing this Agreement, the Managing General Partner
and the General Partner form a general partnership (the "PARTNERSHIP") under the
laws of the State of Florida.
1.2 NAME. The name of the Partnership is "Lennar Land Partners."
1.3 PRINCIPAL OFFICE. The principal business address of the Partnership
will be 700 Northwest 107th Avenue, Miami, Florida 33172, or such other place as
the Executive Committee may from time to time provide. The Partnership may
maintain offices at such other place or places as the Executive Committee deems
advisable.
1.4 TERM. The Partnership will begin on the date of this Agreement and
will continue until one or more of the Partners gives written notice to the
Partnership and to the other Partner(s) of an election to terminate the
Partnership, which any Partner may do at any time after November 30, 2002, but
not before then. Beginning 60 days after a Partner elects to terminate the
Partnership, the Partnership will cease acquiring assets and will engage in no
activities other than (i) fulfilling agreements in effect at the end of the 60
day period, (ii) disposing of assets in the ordinary course, and (iii) when an
event described in any of paragraphs 10.1 (a) through (d) occurs, dissolving and
liquidating the Partnership as described in Article X.
<PAGE>
1.5 PURPOSE. The purposes of the Partnership will be to acquire, own,
invest in, hold, develop, improve and sell land and to engage in all activities
which are incidental or necessary to the foregoing.
1.6 POWERS. The Partnership is empowered to do any and all things
necessary, appropriate, or convenient for the furtherance and accomplishment of
its purposes, and for the protection and benefit of the Partnership and its
properties.
[1.7 STATUTORY FILINGS. The Partnership shall execute and file with the
Florida Department of State a registration statement pursuant to Section
620.8105 of the Florida Act in which the name of the Partnership and the
location and complete address of the Partnership's principal office in Miami,
Florida, as set forth above, is set forth and in which an agent of the
Partnership for service of process is designated.]
ARTICLE II
DEFINITIONS
The following definitions will, unless otherwise clearly indicated to
the contrary, apply to the terms used in this Agreement.
"ADJUSTED ASSET" means any Partnership asset, the Carrying Value of
which has been adjusted pursuant to Section 3.7(c) or (d).
"AFFILIATE" means any Person that directly or indirectly controls, is
controlled by, or is under common control with, the Person in question. As used
in the definition of "Affiliate," the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise. The Partnership will not be deemed an
Affiliate of any Partner.
"AGREEMENT" means this Partnership Agreement, as it may be amended,
supplemented or restated from time to time.
"BUSINESS DAY" means Monday through Friday of each week, except that a
day on which state chartered banks in the State of Florida are not required to
be open for general business will not be regarded as a Business Day.
"BUSINESS PLAN" means the annual Business Plan for the Partnership
contemplated by Section 5.5.
"CAPITAL ACCOUNT" means the capital account maintained for a Partner
pursuant to Section 3.7.
"CAPITAL CONTRIBUTION" means any cash or Contributed Asset that a
Partner contributes to the Partnership pursuant to Sections 3.1, 3.2 or 9.2.
"CARRYING VALUE" means (a) with respect to a Contributed Asset, the
Fair Market Value of the asset reduced (but not below zero) by all depreciation,
cost recovery and amortization deductions charged to the Partners' Capital
Accounts pursuant to Section 3.7(a) with respect to the
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asset, and (b) with respect to any other asset, the adjusted basis of the asset
for Federal income tax purposes, as of the time of determination. The Carrying
Value of any asset will be adjusted from time to time in accordance with
Sections 3.7(c) and (d), and to reflect costs or proceeds of dispositions,
acquisitions or improvements relating to the asset, as deemed appropriate by the
Executive Committee.
"CODE" means the Internal Revenue Code of 1986, as amended (and any
successor to it). Any reference in this Agreement to a specific section of the
Code will be deemed to include a reference to any corresponding provision of any
future law.
"CONTRIBUTED ASSET" means the interest in a property or other asset (at
the time of contribution to the Partnership), other than cash, contributed to
the Partnership by a Partner, including the Original Properties.
"EXECUTIVE COMMITTEE" means the committee which governs the Partnership
pursuant to Section 5.1.
"FAIR MARKET VALUE" of any Contributed Asset (other than the Original
Properties, which have the Fair Market Values shown on Exhibit A) means the
gross fair market value of that asset (I.E., without regard to any liabilities
assumed by the Partnership or to which that asset is subject) as determined by
the Executive Committee. The Executive Committee shall, in its discretion, use
such method as it deems reasonable and appropriate to allocate the Fair Market
Value of any group of Contributed Assets (other than the Original Properties)
transferred to the Partnership in a single or integrated transaction among each
separate asset. The Fair Market Value of any Contributed Asset will reflect any
adjustments made pursuant to Section 3.7(c).
"FLORIDA ACT" means the Florida Revised Uniform Partnership Act of
1995, Florida Statutes ss.620.81001 to ss.620.8908, as it may be amended from
time to time, and any successor to such Act.
"GENERAL PARTNER" means LPC Land Partner, Inc., a Delaware corporation
and a wholly-owned subsidiary of LPC, or any successor to such Person admitted
as a Partner of the Partnership, in its capacity as a Partner of the
Partnership.
"LENNAR" means Lennar Corporation, a Delaware corporation.
"LIQUIDATION DATE" means the earlier of the date upon which (i) the
Partnership is terminated under Section 708(b)(1) of the Code or (ii) the
Partnership ceases to be a going concern.
"LPC" means LPC, Inc., a Delaware corporation.
"MANAGEMENT AGREEMENT" means the management agreement, dated [the date
hereof], between the Partnership and the Manager, pursuant to which the Manager
will conduct the day-to-day activities of the Partnership.
"MANAGER" means Lennar in its capacity as manager under the Management
Agreement or, if the Management Agreement terminates, the manager under a
successor agreement. If there is no management agreement, the Managing General
Partner will be the Manager.
3
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"MANAGING GENERAL PARTNER" means Lennar Land Partner, Inc., a Delaware
corporation and a wholly-owned subsidiary of Lennar, or any successor to such
Person admitted as a Partner of the Partnership, in its capacity as a Partner of
the Partnership.
"MASTER PLAN" means [a subdivision plan, zoning plan or other plan
required to be filed with any governmental authority relating to the manner in
which a property can be developed.]
"NET FAIR MARKET VALUE" means (a) in the case of any Contributed Asset,
the Fair Market Value of the Contributed Asset reduced by any indebtedness or
liabilities assumed by the Partnership, or to which the Contributed Asset is
subject, when the Contributed Asset is contributed to the Partnership and (b) in
the case of any asset distributed to a Partner pursuant to Section 4.3 or
distributed in liquidation of the Partnership pursuant to Sections 10.3 and
10.4, the Fair Market Value of the asset at the time it is distributed reduced
by any indebtedness assumed by the Partner, or to which the asset is subject,
when it is distributed.
"ORIGINAL PROPERTIES" mean the assets described on Exhibit A.
"PARTNER" means the Managing General Partner, the General Partner and
any Person admitted as a general partner pursuant to Article VII or IX of this
Agreement.
"PARTNER MINIMUM GAIN" has the meaning set forth in Regulation Section
1.704-2(i).
"PARTNERSHIP" means the general partnership created pursuant to this
Agreement.
"PARTNERSHIP INTEREST" means the interest of a Partner in the
Partnership under this Agreement and the Florida Act.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulation
Section 1.704- 2(d).
"PERCENTAGE INTEREST" of a Partner at a point in time means the
quotient of that Partner's Capital Account at that point in time divided by the
total Capital Accounts of all the Partners at that point in time.
"PERSON" means an individual or a corporation, partnership, limited
liability company, trust, estate, unincorporated organization, association or
other entity.
"REGULATIONS" mean the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"UNREALIZED GAIN" attributable to a Partnership asset means, as of any
date, the excess, if any, of the fair market value of the asset (as determined
under Section 3.7(d)) on that date over the Carrying Value of the asset on that
date (prior to any adjustment to be made pursuant to Section 3.7(d) as of that
date).
"UNREALIZED LOSS" attributable to a Partnership asset means, as of any
date, the excess, if any, of the Carrying Value of the asset on that date (prior
to any adjustment to be made pursuant to Section 3.7(d) on that date) over the
fair market value of the asset (as determined under Section 3.7(d)) on that
date.
4
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ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 INITIAL CAPITAL CONTRIBUTIONS. The aggregate Net Fair Market Value
on the date of this Agreement of the Capital Contribution made by each Partner
is $_____________ and the initial Percentage Interest of each Partner is 50%.
3.2 VOLUNTARY CONTRIBUTIONS. A Partner may with the consent of the
Executive Committee (but not without it) make voluntary contributions of capital
to the Partnership.
3.3 REQUIRED ADDITIONAL CAPITAL CONTRIBUTIONS. (a) If at any time the
Managing General Partner requests that the Executive Committee require the
Partners to make additional capital contributions to the Partnership in a
specified aggregate amount (the requested aggregate amount being a "Requested
Additional Capital Contribution") and the Executive Committee approves the
request, each Partner will be required to contribute to the Partnership a
portion of the aggregate amount approved by the Executive Committee (the
"Additional Capital Contribution"), whether or not it is the same as the
Requested Additional Capital Contribution) equal to the Partner's Percentage
Interest (the portion of an Additional Capital Contribution which a Partner is
required to contribute being the "Partner's Additional Contribution"). The
Executive Committee may reject a request for a Requested Additional Capital
Contribution, may approve Additional Capital Contributions in an aggregate
amount which is greater or less than the Requested Additional Capital
Contribution, and may cause the Partnership to borrow some or all of the funds
which would have been provided by the Requested Additional Capital Contribution
instead of asking the Partners to contribute those funds.
(b) Each Partner will make any Partner's Additional Contribution it is
required to make within 20 business days after the day on which the Executive
Committee approves the Additional Capital Contribution of which the Partner's
Additional Contribution is a part, by wire transfer to a bank account of the
Partnership specified by the Executive Committee.
(c) If any Partner (the "Non-Contributing Partner") fails to make any
Partner's Additional Contribution when it is due, the Partner which made its
required Partner's Additional Contribution (the "Contributing Partner") will
have the option to (i) bring an action at law or in equity, in the Partner's own
name or on behalf of the Partnership, to enforce the obligation of the
Non-Contributing Partner to make the required Partner's Additional Contribution
(provided that the liability of the Non-Contributing Partner will be limited to
its own assets, and no shareholder, officer or director of the Non-Contributing
Partner will have any liability as a result of a failure of the NonContributing
Partner to make the required Partner's Additional Contribution), or (ii) pay
into the Partnership a sum equal to the Partner's Additional Contribution which
the Non-Contributing Partner failed to make, which payment will be treated as
(x) a capital contribution by the Non-Contributing Partner and (y) a loan from
the Contributing Partner to the Non-Contributing Partner, which is (A) payable
on demand by the Contributing Partner, (b) will bear interest from the date the
sum is paid into the Partnership until the date it is repaid at 20% per annum
(or such lower rate as is the maximum rate permitted by law), (C) will be
secured by a lien on the Non-Contributing Partner's Partnership Interest, and
(D) will be automatically repaid (whether or not the Contributing Partner has
demanded payment) by the Partnership's paying to the Contributing Partner all
sums which otherwise would be paid to the Non-Contributing Partner, to be
applied first against interest, and then against principal, until the loan and
all interest on it has been repaid in full.
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3.4 NO WITHDRAWAL. No Partner will be entitled to withdraw any part of
its Capital Contribution or Capital Account or to receive any distribution from
the Partnership without the consent of the Executive Committee.
3.5 INTEREST. No interest will be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
3.6 LOANS TO THE PARTNERSHIP. No Partner may lend to the Partnership or
advance money for the Partnership's benefit without the approval of the
Executive Committee. Except as otherwise provided in Section 3.3, loans by a
Partner to the Partnership, or advances by a Partner for the Partnership's
benefit, (a) will not be considered Capital Contributions, and (b) will be on
terms (including terms as to interest and repayment) which are approved by the
Executive Committee.
3.7 CAPITAL ACCOUNTS. (a) The Partnership will maintain a separate
Capital Account for each Partner. A Partner's Capital Account will be: (i)
increased by (A) the cash amount or Net Fair Market Value of all Capital
Contributions made by the Partner and (B) all items of Partnership income and
gain allocated to the Partner pursuant to Section 4.1, and (ii) decreased by (A)
the cash amount or Net Fair Market Value of all distributions of cash or assets
made by the Partnership to the Partner and (B) all items of Partnership
deduction and loss allocated to the Partner pursuant to Section 4.1.
(b) For the purpose of computing the amount of any item of income,
gain, loss or deduction to be reflected in a Partner's Capital Account, the
determination, recognition and classification of each item will be the same as
its determination, recognition and classification for Federal income tax
purposes (including any method of depreciation, cost recovery or amortization
used for this purpose), subject to the following exceptions:
(i) In accordance with Section 704 of the Code, any deduction for
depreciation, cost recovery or amortization attributable to a Contributed Asset
will be determined as if the adjusted basis of the asset on the date it was
contributed to the Partnership were equal to the Fair Market Value of the asset
("BOOK DEPRECIATION"). Upon an adjustment pursuant to Section 3.7(c) or (d) to
the Carrying Value of any Partnership asset subject to depreciation, cost
recovery or amortization, any further deductions for the Book Depreciation with
regard to the asset immediately after the adjustment will be determined as if
the adjusted basis of the asset immediately after the adjustment were equal to
the Carrying Value of the asset immediately following the adjustment. For any
period, Book Depreciation attributable to any asset will be the amount that
bears the same relationship to the Fair Market Value (in the case of Contributed
Asset) or Carrying Value (immediately following any adjustment referred to in
the preceding sentence), as the case may be, of the asset at the beginning of
the period that the Federal income tax depreciation, cost recovery or
amortization deduction with respect to the asset for the period bears to the
adjusted basis of the asset at the beginning of the period; PROVIDED that if an
asset has a zero adjusted basis, the Book Depreciation may be determined under
any reasonable method selected by the Managing General Partner. For all purposes
of this Section 3.7, Book Depreciation will be in lieu of any Federal income tax
depreciation, cost recovery or amortization deductions with respect to
Partnership Assets and will be allocated among the Partners pursuant to Section
4.1.
(ii) Any income, gain or loss resulting from the taxable disposition of
any Partnership asset will be determined as if the adjusted basis of the asset
at the date of the disposition were equal in amount to the Carrying Value of the
asset at that date. For all purposes of this Section 3.7, the income, gain or
loss computed in that manner will be in lieu of any income, gain or loss for
Federal
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income tax purposes resulting from such a disposition and will be allocated
among the Partners pursuant to Section 4.1.
(iii) Any expenditures of the Partnership described, or treated under,
Regulation Section 1.704-1(b)(2)(iv)(i) as described in Section 705(a)(2)(B) of
the Code and not otherwise taken into account in computing any item of income,
gain, deduction or loss for Federal income tax purposes will be treated as an
item of deduction and allocated among the Partners pursuant to Section 4.1.
(iv) To the extent an adjustment to the adjusted basis of any
Partnership asset under Section 734(b) of the Code or Section 743(b) of the Code
is required by Regulation Section 1.704- 1(b)(2)(iv)(m) to be taken into account
in determining Capital Accounts, the amount of the adjustment to the Capital
Account of each of the Partners will be treated as an item of gain (if the
adjustment increases the basis of the Partnership asset) or loss (if the
adjustment decreases its basis), and that gain or loss will be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Regulation;
PROVIDED that no adjustment pursuant to this Section 3.7(b)(iv) will be made to
the extent that the Managing General Partner determines that an adjustment to
Capital Accounts pursuant to Section 3.7(c) or (d) is necessary or appropriate
in connection with a transaction that would otherwise result in an adjustment
pursuant to this Section 3.7(b)(iv).
(v) Any income of the Partnership that is exempt from Federal income
tax, or any expense of the Partnership that is not deductible or available as a
credit for Federal income tax purposes, will be treated as an item of income or
expense and allocated among the Partners pursuant to Section 4.1.
(c) If there is a termination of the Partnership under Section
708(b)(1)(B) of the Code, to the extent provided in applicable Regulations, the
Partnership assets will be deemed to have been distributed in liquidation of the
Partnership to the remaining Partners (including the transferee of the
Partnership Interest) and deemed contributed by those Partners and transferees
in reconstitution of the Partnership. Those deemed distributions and deemed
contributions will be made in accordance with all provisions of this Agreement
relating to Capital Accounts. In addition, in such event, the Carrying Values of
the Partnership properties will be adjusted immediately prior to the deemed
distribution pursuant to Section 3.7(d)(ii) (and those adjusted Carrying Values
will constitute the Fair Market Values of the assets upon the deemed
contribution to the reconstituted Partnership). The Capital Accounts of the
reconstituted Partnership will be maintained in accordance with the principles
of this Section 3.7.
(d) (i) Upon the admission of additional Partners pursuant to Article
IX, the Capital Accounts of all Partners and the Carrying Values of all
Partnership assets will, immediately prior to the admission of the additional
Partners, be adjusted upwards or downwards to reflect any Unrealized Gain or
Unrealized Loss attributable to those assets (as if that Unrealized Gain or
Unrealized Loss had been recognized upon an actual sale of each such asset,
immediately prior to such admission, and had been allocated to the Partners at
that time pursuant to Section 4.1). In determining such Unrealized Gain or
Unrealized Loss, the Executive Committee will determine the aggregate gross fair
market value of Partnership using any reasonable method of valuation which it
deems appropriate and shall adjust the Carrying Value of the Partnership's
assets to reflect that fair market value.
(ii) Immediately prior to a distribution (whether in connection with a
Liquidation of the Partnership or otherwise) of Partnership property (other than
a DE MINIMIS distribution, as determined by the Managing General Partner), the
Capital Accounts of all Partners and the Carrying Values of all
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Partnership assets shall, be adjusted upwards or downwards to reflect any
Unrealized Gain or Unrealized Loss attributable to those assets (as if the
Unrealized Gain or Unrealized Loss had been recognized upon an actual sale of
each asset immediately prior to the distribution, and had been allocated to the
Partners at that time pursuant to Section 4.1). In determining such Unrealized
Gain or Unrealized Loss, the Managing General Partner shall determine the
aggregate gross fair market value of the Partnership using any reasonable method
of valuation which it deems appropriate.
(iii) Notwithstanding anything to the contrary in this Section 3.7(d),
all or any portion of any adjustment pursuant to Section 3.7(d)(i) or (ii) will
be made only if, and to the extent that, the Managing General Partner reasonably
determines that the adjustment is necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership.
(e) The determination of the amount of any liability for purposes of
this Section 3.7 (including, without limitation, in connection with the
computation of Net Fair Market Value, Unrealized Gain and Unrealized Loss) will
be made in accordance with Section 752(c) of the Code and any other applicable
provisions of the Code and Regulations.
(f) If all or a portion of a Partnership Interest is transferred in
accordance with the terms of this Agreement, the transferee will succeed to the
Capital Account of the transferor in accordance with Regulation Section
1.704-1(b)(2)(iv)(1).
(g) It is the intention of the Partners that Capital Accounts will be
determined in a manner so that the allocations in this Agreement will have, or
be deemed to have, substantial economic effect under Section 704(b) of the Code
and Regulations thereunder. If the Managing General Partner determines that it
is prudent to modify the manner in which Capital Accounts, or any debits or
credits (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property or that are
assumed by the Partnership or the Partners or their Affiliates), are computed in
order to comply with such Regulations, the Managing General Partner shall make
that modification. The Managing General Partner may also make any modifications
to this Agreement which are necessary so unanticipated events will not cause
this Agreement to fail to comply with those Regulations.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. (a) For purposes of
maintaining the Capital Accounts, except as otherwise provided in this Section
4.1, each item of Partnership income, gain, loss and deduction will be allocated
to the Partners in proportion to their respective Percentage Interests,
determined as of the end of each fiscal year or other applicable period and
before taking into account the allocations under this Section 4.1.
(b) Notwithstanding anything to the contrary in this Agreement, if
there is a net decrease in Partnership Minimum Gain or Partner Minimum Gain for
any fiscal year, each Partner will be specially allocated items of Partnership
income and gain for that fiscal year (and, if necessary, for each subsequent
fiscal year) equal to that Partner's share of the net decrease in Partnership
Minimum Gain and Partner Minimum Gain for that fiscal year to the extent
required in Regulation Sections 1.704-2(f) and 1.704-2(i)(4). This Section
4.1(b) is intended to constitute a "minimum gain
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chargeback" and "partner minimum gain chargeback" within the meaning of those
Regulations and is to be interpreted consistently with those Regulations.
(c) The Managing General Partner is authorized to adopt any convention
or combination of conventions (including, without limitation, a semi-monthly or
full-month convention) likely to be upheld under Section 706 of the Code
regarding the allocation of items of Partnership income, gain, loss and
deduction with respect to a transferred Partnership Interest or a newly issued
Partnership Interest.
(d) Except as otherwise provided in Section 4.1(b), if Federal income
tax principles dealing with the deduction, apportionment or allocation of tax
items between or among commonly controlled taxpayers apply to any transaction
between the Partnership and a Partner, any items of Partnership income, gain,
loss or deduction with regard to that transaction shall be allocated by the
Managing General Partner, and correlative adjustments to Capital Accounts will
be deemed to have been made by the Managing General Partner, such that each
Partner will be in the same net after-tax position it would have been in (to the
fullest extent practicable and taking into account net after-tax disparities, if
any, remaining from prior taxable years), and have the same Capital Account
balance that it would have had (to the fullest extent practicable and taking
into account Capital Account disparities, if any, remaining from prior taxable
years) if those Federal income tax principles had not applied.
4.2 ALLOCATIONS FOR TAX PURPOSES. (a) For Federal, state and local
income tax purposes, except as otherwise provided in this Section 4.2, each item
of Partnership income, gain, loss and deduction shall be allocated to the
Partners consistent with the allocations of income, gain, loss and deduction
described in Section 4.1.
(b) In the case of a Contributed Asset or Adjusted Asset, items of
income, gain, and loss and depreciation, cost recovery and amortization
deductions, attributable to the Contributed Asset or Adjusted Asset will be
allocated for Federal income tax purposes among the Partners as follows:
(i) In the case of a Contributed Asset, deductions for depreciation,
cost recovery or amortization attributable to the asset and gain or loss upon
the sale or other disposition of the assets will be allocated to the Partners in
accordance with Regulation Section 1.704-3, using methods permitted by that
Regulation selected by the Managing General Partner.
(ii) In the case of an Adjusted Asset which was not originally a
Contributed Asset, such items will be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the Code to take into
account the Unrealized Gain or Unrealized Loss attributable to the Adjusted
Asset and the allocations of that Unrealized Gain or Unrealized Loss pursuant to
Section 3.7(d)(i). In the case of an Adjusted Asset which was originally a
Contributed Asset, such items shall be allocated among the Partners in a manner
consistent with Section 4.2(b)(i).
(c) All items of income, gain, loss, deduction, credit and basis
allocation recognized by the Partnership for Federal income tax purposes and
allocated to the Partners in accordance with the provisions of this Section 4.2
will be determined without regard to any election under Section 754 of the Code
that may be made by the Partnership; PROVIDED that those allocations, once made,
will be adjusted, as necessary or appropriate, to take into account the
adjustments permitted by Sections 734 and 743 of the Code and, where
appropriate, to provide only Partners recognizing gain on Partnership
distributions covered by Section 734 of the Code with the Federal income tax
benefits attributable to the increased basis in Partnership assets resulting
from any election under Section 754 of the Code.
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(d) Any credits of the Partnership will be allocated to the Partners in
accordance with their respective Percentage Interests.
(e) Allocations pursuant to this Section 4.2 are solely for Federal,
state and local tax purposes and will not affect, or in any way be taken into
account in computing, any Partner's Capital Account or share of income, gain,
loss and deduction described in Section 4.1 or distributions pursuant to any
provision of this Agreement.
(f) The Partners are aware of the income and other tax consequences of
the allocations made by this Article IV and agree to report their shares of
items of Partnership income, gain, loss, deduction and credit in accordance with
this Article IV; subject, however, to any adjustments required as a result of an
audit of the Partnership or a Partner by a taxing authority.
4.3 DISTRIBUTIONS. The Executive Committee may from time to time cause
the Partnership to distribute cash or other property to the Partners in
accordance with their respective Percentage Interests.
ARTICLE V
GOVERNANCE AND MANAGEMENT OF BUSINESS
5.1 EXECUTIVE COMMITTEE. The Partnership will be governed by an
Executive Committee as follows:
(a) The Executive Committee will consist of not more than [three]
members designated by each Partner. The members of the Executive Committee
designated by a Partner (the Partner's "Representatives") will act as
representatives of that Partner, and in voting or otherwise acting in their
capacity as members of the Executive Committee, the Representatives of a Partner
will have no obligation to consider what may be in the best interests of any
other Partner and will have no fiduciary or other obligations to any other
Partner. All the members of the Executive Committee designated by a Partner
will, together, have one vote, which they will cast as determined by the Partner
(or by those representatives in accordance with authority granted to them by the
Partner). Except as provided in subsection (c) of this Section, all actions of
the Executive Committee will be by majority vote (based upon one vote per
Partner). Each Partner will have the power to remove and replace any member of
the Executive Committee designated by that Partner.
(b) The business and affairs of the Partnership will be managed by or
under the direction of the Executive Committee, except (i) as specifically
provided in this Agreement or in the Management Agreement, and (ii) that, except
as provided in subsection (c) of this Section, the Executive Committee may
delegate authority to the Managing General Partner or its designees to manage
the affairs of the Partnership.
(c) Each of the following matters will require the unanimous vote of
the Executive Committee (based upon one vote per Partner):
(i) The acquisition by the Partnership of any real property, other
than the acquisition by the Partnership of the Original Properties.
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(ii) The sale of any real property to a Partner or an Affiliate of
a Partner, other than upon exercise by that Partner or its Affiliate of
an option, or under a purchase agreement, which had been approved by
the Executive Committee, or upon exercise of the option dated
_________________ , 1997 relating to portions of the Original
Properties.
(iii) The adoption of an annual Business Plan.
(iv) Approval of a Master Plan relating to property owned by the
Partnership.
(v) Any transaction or related series of transactions involving the
expenditure by the Partnership of more than $50,000, unless the
transaction or series of transactions was contemplated by a Business
Plan adopted by the Executive Committee as contemplated in clause
(iii), in which case the transaction or related series of transactions
must be separately approved only if it exceeds the greater of $50,000
or 110% of the budgeted amount.
(vi) Any borrowing from, or loan to, any person (including, but not
limited to, a Partner or an Affiliate of a Partner).
(vii) Any amendment to the Management Agreement.
(viii) Any decision by the Executive Committee to require the
Partners to make Additional Capital Contributions as contemplated by
Section 3.3.
(ix) Any agreement with a Partner or an Affiliate of a Partner,
other than one described in clauses (i) through (vii).
(x) The institution of legal proceedings against anyone.
(xi) The selection of the Partnership's auditors.
If any Partner binds the Partnership to any undertaking or liability not
authorized as provided in this Agreement, that Partner will indemnify the
Partnership and each of the other Partners against, and hold each of them
harmless from, any loss, liability or expense (including reasonable attorneys'
fees) incurred by the Partnership or the other Partner as a result of the
unauthorized action.
(d) QUORUM. No meeting of the Executive Committee will be validly
convened unless at least one member appointed by each Partner is present. The
Executive Committee may act without a meeting by written consent executed on
behalf of each Partner by at least one member appointed by that Partner.
(e) MEETINGS. Meetings of the Executive Committee will be held at such
place as may be determined by the Managing General Partner. Meetings may be
called by any member of the Executive Committee on at least five days' prior
written notice to each member. Decisions made by the Executive Committee at any
meeting will be valid even if the required notice is not given if there was a
quorum present at the meeting or if all Partners waived the requirement of
notice, whether before or after the meeting.
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(f) CONFERENCE TELEPHONE. Meetings of the Executive Committee may be
held by conference telephone or similar communications equipment by means of
which all members participating in a meeting can hear each other member.
(g) MINUTES. Minutes of each meeting of the Executive Committee will be
kept by the Manager (or, if the Manager does not do that, by the Managing
General Partner) and copies will be sent to each member.
(h) LIMITATION OF LIABILITIES AND OBLIGATIONS. (i) No Partner, no
Affiliate, stockholder, officer, director, employee or agent, of any Partner,
and no Representative of any Partner will be liable to the Partnership, any
other Partner or any Affiliate of any Partner for any breach of any alleged duty
to the Partnership or to any other Partner in connection with the management of
the business and affairs of the Partnership, or the exercise of any voting
rights as a member of the Executive Committee, except to the extent such a
breach is found to have involved a knowing violation of law, or, in the case of
an individual only, an improper personal benefit.
(ii) Each Partner, through its Representatives, will be entitled to act
with regard to the business and affairs of the Partnership in the manner it
believes in its sole discretion is in the Partner's best interests, and will be
entitled to cause its Representatives to vote for or against any matter
submitted to a vote or for consent pursuant to this Agreement in the Partner's
sole discretion as it deems to be in its best interests. Subject to clause (i),
no Partner, nor any Affiliate, stockholder, officer, director, employee or
agent, including any Representative, of any Partner will be liable to the
Partnership or any other Partner or any Affiliate of any other Partner for any
such conduct. Without limiting the foregoing, each Representative of a Partner
on the Executive Committee is entitled to manage the business and affairs of the
Partnership, and exercise his or her voting rights on the Executive Committee,
in interest of the Partner for which such person is a Representative, even if
such conduct is not in the interest of the other Partners, or the Partnership as
a whole, and, subject to clause (i), no such Representative shall be liable to
the Partnership, or any other Partner or any Affiliate of any Partner, for any
such act or omission.
(iii) To the extent the provisions of this Section 5.1 eliminate or
reduce any duties and liabilities of any person otherwise existing at law or in
equity, the Partners have expressly agreed to eliminate or reduce those
obligations. To the extent that, but for these provisions, any person would have
duties (including fiduciary duties) to the Partnership, the Partners or any
Affiliate of any Partner, or could be liable for failing to perform those
duties, the person is entitled to rely on the provisions of this Section 5.1,
and, except as provided in clause (i), will not be liable to the Partnership,
any Partner or any Affiliate of any Partner for acts or omissions in good faith
reliance on the provisions of this Section 5.1.
5.2 MANAGEMENT AGREEMENT. The Partnership will enter into the
Management Agreement with the Manager. Pursuant to the Management Agreement, the
Manager will conduct the day-to-day activities of the Partnership, including but
not limited to, overseeing planning and development of properties, overseeing
sales of portions of properties to Lennar and its Affiliates upon exercise of
options or otherwise, and the marketing and sale of portions of properties to
other builders. The Manager will be compensated as provided in of the Management
Agreement. Unless otherwise specifically directed by the Executive Committee or
provided in Section 5.1, the Manager will be authorized, without further
approval of the Executive Committee, to conduct the day-to-day operations and
business of the Partnership in accordance with the applicable Business Plan and
Budget or as otherwise provided in Section 5.5.
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5.3 INDEMNIFICATION. The Partnership shall indemnify each member of the
Executive Committee, the Manager and each employee, director or officer of the
Manager as follows:
(a) OBLIGATION TO INDEMNIFY. To the extent permitted by law, the
Partnership will indemnify each Partner, each person who at any time is or was a
member of the Executive Committee, the Manager and each person who at any time
is or was an employee, director or officer of the Manager (each, an "INDEMNIFIED
PERSON") against, and will hold each Indemnified Person harmless from, any
liability, loss, damage, or reasonable expense (including reasonable attorneys'
fees and other costs of investigation and defense and any amounts expended in
the settlement of any claims) incurred in connection with or resulting from a
claim, action, suit, investigation, or proceeding (other than one brought by the
Partnership on its own behalf) by reason of the Indemnified Person's being or
having been a Partner, a member of the Executive Committee, the Manager or an
employee, director or officer of the Manager, except in instances in which the
Indemnified Person is found not to have acted in good faith or to have acted in
a manner opposed to the best interests of the Partnership and, in addition, with
respect to any criminal action or proceeding, except in instances in which the
Indemnified Person had reasonable grounds to believe that conduct was unlawful.
(b) SOURCE OF INDEMNIFICATION. Any indemnification pursuant to this
Section 5.3 will be recoverable only from the assets of the Partnership and not
from the assets of the Partners.
5.4 INSURANCE. The Partnership may purchase insurance insuring the
Manager and any Person who is or was a member of the Executive Committee, an
officer, employee, or agent of the Partnership, or an employee, director or
officer of the Manager against any liability asserted against that Person
because that Person served in that capacity or because of any action or omission
by that Person in that capacity, whether or not the Partnership would have the
power to indemnify the Person against the applicable liability under the
provisions of this Agreement.
5.5 ANNUAL BUSINESS PLAN. Attached to this Agreement as Exhibit D is
the Business Plan for the period from the inception of the Partnership to the
end of the Partnership's fiscal year ending November 30, 1998. Not later than
two months before the end of each fiscal year of the Partnership, the Manager
will submit to the Executive Committee a proposed Business Plan for the next
succeeding Partnership fiscal year, which will include a schedule for
development of particular properties, a property development budget, and, if
applicable, a property acquisition budget and such other schedules and details
as are reasonably necessary to enable the Partners fully to understand, and to
evaluate, the proposed Business Plan. If the Executive Committee does not
approve a Business Plan for a fiscal year prior to the beginning of the fiscal
year, until the Executive Committee approves the Business Plan and Budget for
the fiscal year:
(i) the Manager will continue all property development projects and
marketing programs which were in process at the end of the prior fiscal year,
(ii) the Partnership will not begin any new property development
projects,
(iii) any items or portions of the Business Plan and amounts of
expenses provided therein which have been approved by the Executive Committee
shall become operative immediately and the Partnership shall be entitled to
expend funds in accordance with those operative portions;
(iv) the Partnership will be entitled to expend, in respect of
noncapital, recurring expenses in any quarter of the then-current fiscal year,
an amount equal to the budgeted amount for the corresponding quarter of the
immediately preceding fiscal year, as set forth on the immediately preceding
fiscal year's Business Plan, after giving effect to any dispositions or other
material changes
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to the Partnership property or its operations during the prior fiscal year;
provided, however, that if any contract approved by the Executive Committee
provides for an automatic increase in costs thereunder after the beginning of
the then current fiscal year, then the Partnership shall be entitled to expend
the amount of such increase;
(v) the Partnership shall be entitled to expend funds in respect of
debt service on the Partnership's financing (including the expense of curing any
defaults); and
(vi) the Manager will cause the Partnership to conduct its other
activities in a manner consistent with the way in which they were conducted
during the prior fiscal year, except to the extent of differences because of
prior contractual obligations of the Partnership.
5.6 REIMBURSEMENT OF PARTNERS. (a) Each Partner shall be reimbursed by
the Partnership as a cost of the Partnership for all expenses, disbursements and
advances incurred or made in connection with the organization of the Partnership
and the qualification of the Partnership to do business.
(b) Each Partner shall be reimbursed on a monthly basis, or such other
basis as the Executive Committee may determine, for all direct out-of-pocket
expenses the Partner incurs on behalf of the Partnership (including amounts paid
to other Persons to perform services to the Partnership). Except to the extent
provided in the Management Agreement, no Partner will be reimbursed for time
spent by its employees on matters relating to the Partnership.
5.7 OUTSIDE ACTIVITIES. Any Partner or Affiliate of a Partner may have
business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities which
conflict with or are in direct competition with the Partnership. Without
limiting what is said in the preceding sentence, any Partner or any Affiliate of
a Partner (including Lennar, even though it is the Manager) may acquire
properties for its own account without considering whether those properties
would be suitable for the Partnership, and if a Partner or an Affiliate of a
Partner (including Lennar in its role as Manager) proposes to the Executive
Committee that the Partnership acquire a property on particular terms but the
Executive Committee does not approve the acquisition of the property, the
Partner who proposed that the Partnership acquire the property, or any other
Partner, may acquire all or any portion of the property for its own account on
the same terms as those on which it was proposed that the Partnership acquire
the property or on any other terms, even if the other terms are more favorable
to the buyer than the terms proposed to the Partnership.
5.8 DEALINGS WITH PARTNERSHIP. Subject to the approval requirements of
Section 5.1, any Partner or any Affiliate of a Partner (including Lennar, even
though it is the Manager) may acquire properties or other assets, or interests
in them, from, sell properties or other assets, or interests in them, to, borrow
or lend money from or to, and enter into option agreements or other agreements
with, the Partnership on any terms which are approved by the Executive
Committee. Neither the Partnership nor any of the Partners will have any rights
by virtue of this Agreement or the partnership relationship created by it to
participate in any business ventures of any other Partners or Affiliates of
other Partners or any revenues, profits or losses from any such business
ventures.
5.9 PARTNERSHIP FUNDS. Until funds of the Partnership are used in
connection with Partnership activities or distributed to the Partners, the funds
shall be deposited in the Partnership's name in such bank accounts as the
Manager determines or may be invested in commercial paper,
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money market funds or other short or long term investments which the Manager
deems appropriate for the Partnership.
5.10 TITLE TO PARTNERSHIP ASSETS. All Partnership assets, whether real,
personal or mixed, tangible or intangible, will be owned by the Partnership as
an entity, and no Partner individually (or collectively with other Partners)
will have any ownership interest in any Partnership assets. Title to Partnership
assets may be held in the name of the Partnership or one or more nominees, as
the Manager may determine. All Partnership assets will be recorded on the books
of the Partnership as being owned by the Partnership irrespective of the name in
which legal title to such Partnership assets is held.
ARTICLE VI
BOOKS, RECORDS, ACCOUNTING AND REPORTS
6.1 RECORDS AND ACCOUNTING. Complete and accurate books of account of
the Partnership will be kept at the Partnership's principal place of business
and will be open to inspection by any of the Partners or their authorized
representatives at any reasonable times during business hours. The books of the
Partnership will be maintained, for financial reporting purposes, on an accrual
basis in accordance with generally accepted accounting principles. All decisions
as to accounting matters, except as specifically provided to the contrary in
this Agreement, will be made by the Manager.
6.2 FISCAL YEAR. The fiscal year of the Partnership will end on
November 30 of each year or such other date as may be required to be used for
Federal income tax purposes.
6.3 FINANCIAL STATEMENTS AND FINANCIAL INFORMATION. (a) As soon as
practicable, but in no event later than 60 days, after the close of each fiscal
year, the Manager will cause financial statements of the Partnership for the
fiscal year, prepared in accordance with generally accepted accounting
principles, including a balance sheet, a statement of income, a statement of
Partners' equity and a cash flow statement, audited by a firm of independent
public accountants selected by the Manager and approved by the Executive
Committee, to be given to each Partner.
(b) As soon as practicable, but in no event later than the fifteenth
day, after the end of each month, the Manager will cause a flash report
regarding the net income, cash flow and other material operating results of the
Partnership during the month, to be given to each Partner.
(c) As soon as practicable, but not later than the 25th day, after the
end of each month, the Manager will cause financial statements and other
relevant financial information about the Partnership during and at the end of
the month, to be given to each Partner.
(d) As soon as practicable, but in no event later than 30 days, after
the close of each fiscal quarter, except the last quarter of each fiscal year,
the Manager will cause quarterly financial information about the Partnership,
including any financial information which any Partner requires for any filing it
is required to make with the Securities and Exchange Commission, any stock
exchange or securities quotation system, or any other governmental or
self-regulatory organization, to be given to each Partner.
15
<PAGE>
(e) The Partnership will, and will cause the Manager to, cooperate in
all ways with each of the Partners in enabling the Partner to make all filings
it is required to make generally, or in connection with offerings of its
securities or other transactions, with the Securities and Exchange Commission,
any stock exchange or securities quotation system, or any other governmental
agency or self-regulatory organization, including causing financial information
to be prepared in sufficient detail to enable the Partner to comply with
applicable Securities and Exchange Commission or other governmental regulations
and including permitting auditors for the Partner to review the audit workpapers
relating to the Partnership and to make comfort reviews or other reviews
regarding the Partnership.
6.4 OTHER INFORMATION. The Manager may release to the public such
information concerning the operations of the Partnership as is customary in the
industry or required by law or regulation of any regulatory body.
6.5 REIMBURSEMENT. The Partnership will pay all costs relating to
matters described in this Article VI.
ARTICLE VII
TAX MATTERS
7.1 RECOGNITION OF PARTNERSHIP. The Partners recognize that this
Agreement creates a partnership for U.S. Federal income tax purposes, and the
Partners shall not elect to be excluded from the application of Subchapter K of
Chapter I of Subtitle A of the Code, or any similar state statute.
7.2 PREPARATION OF TAX RETURNS. The Managing General Partner shall
arrange for the preparation and timely filing of all returns of Partnership
income, gains, deductions, losses and other items necessary for Federal and
state income or other tax purposes and shall use all reasonable efforts to
furnish to each Partner within 75 days after the close of each taxable year the
tax information reasonably required by the Partners for Federal and state income
tax reporting purposes. Each Partner shall provide to the Manager, when and as
requested, all information concerning the affairs of the Partner which is
reasonably required to permit the preparation of such returns. The Partnership
will not file any federal or state income tax return until it has been approved
by the Executive Committee.
7.3 ACCOUNTING METHODS; TAX ELECTIONS. The classification, realization
and recognition of income, gains, losses and deductions and other items with
regard to the Partnership will be on the accrual method of accounting for
Federal income tax purposes; PROVIDED that the Managing General Partner may
change the method of accounting used for Federal income tax purposes if the
Managing General Partner determines that such a change would be possible and
desirable. The taxable year of the Partnership will be the same as the
Partnership's fiscal year, unless the Managing General Partner determines
otherwise. The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a 60-month period as provided in Section 709 of the
Code. The Managing General Partner may make or revoke (if made) the election
under Section 754 of the Code. Except as specifically provided in this
Agreement, the Managing General Partner may determine whether the Partnership
should make any other available tax elections or select any other appropriate
tax accounting methods or conventions.
16
<PAGE>
7.4 TAX CONTROVERSIES. The Managing General Partner is designated the
"Tax Matters Partner" (as defined in Section 6231 of the Code) and is authorized
to represent the Partnership (at the Partnership's expense) in connection with
all examinations of the Partnership's affairs by tax authorities and all
resulting administrative and judicial proceedings, and to expend Partnership
funds for costs of professional services and other costs incurred in connection
with those examinations and proceedings. Any Partner may participate in any such
examination or proceeding at the Partner's expense. Each Partner shall cooperate
with the Managing General Partner in connection with all tax examinations and
resulting administrative or judicial proceedings. The Managing General Partner
may not agree to any settlement or adjustment to any tax item in connection with
any examination by any tax authority or legal proceeding without the consent of
the Executive Committee.
7.5 WITHHOLDING. Notwithstanding any other provision of this Agreement,
the Managing General Partner is authorized to cause the Partnership to comply
with any Federal, state, local or foreign withholding requirement with respect
to any payment or distribution by the Partnership to any Partner or other
Person. Any amount withheld from a payment or distribution to a Partner and paid
over to a tax authority will, for the purposes of this Agreement, be treated as
having been paid or distributed to the Partner. Any amount withheld from any
payment or distribution by any Person to the Partnership will be treated as a
distribution to the Partners allocated among them in accordance with Section 4.3
or Article X, as the case may be.
7.6 REIMBURSEMENT. The Managing General Partner will be reimbursed for
all out-of-pocket costs relating to matters described in Sections 7.2 through
7.5.
ARTICLE VIII
TRANSFER OF INTERESTS
8.1 RESTRICTIONS ON TRANSFER. Except as otherwise provided in this
Article VIII, no Partner may directly or indirectly assign, transfer,
hypothecate, or otherwise dispose of all or any portion of its Partnership
Interests (including, without limitation, any right to receive distributions or
allocations of profits or losses in respect of such Partnership Interests),
whether voluntarily, by operation of law or otherwise (a "TRANSFER" for purposes
of this Article VIII), and any attempt to do so will be null and void and will
not bind, or be recognized by, the Partnership. In addition, neither Lennar nor
LPC may, without the prior written consent of the other of them, transfer any
interest in the Managing General Partner or the General Partner.
8.2 PERMISSIBLE TRANSFERS. Notwithstanding the provisions of Section
8.1, at any time after November 30, 2002, a Partner may, upon compliance with
Section 8.3, transfer all, but not less than all, of the Partner's Partnership
Interests to a Person on terms permitted by Section 8.3, provided that (i) the
transferee agrees in writing (in a form approved by the other Partner) to be
bound as a party to this Agreement and (ii) the Partnership receives a written
opinion from its counsel that the transferee's acquisition of the Partnership
Interest will not cause the termination of the Partnership or loss of
partnership status under the Code or cause the Partnership to be deemed to be
other than a U.S. partnership for purposes of the Code.
8.3 RIGHT OF FIRST REFUSAL. If a Partner (the "DISPOSING PARTNER")
proposes to transfer all, but not less than all, of its Partnership Interests to
any Person, the Disposing Partner may give the other Partner (the "NOTIFIED
PARTNER") a written notice (a "NOTICE OF INTENTION") stating that the Disposing
Partner intends to sell its Partnership Interests, identifying the Person to
whom the
17
<PAGE>
Partnership Interests are to be sold and stating the price and other terms of
the proposed sale. The Notified Partner may then, by a notice to the Disposing
Partner given within 30 days after the day on which the Notice of Intention was
given, elect to purchase the Partnership Interests of the Disposing Partner for
the price and on the terms specified in the Notice of Intention. If the Notified
Partner gives that notice, the closing of the purchase will take place at the
Partnership's principal office (or another place agreed upon by the Disposing
Partner and the Notified Partner) at a time and on a date specified in the
notice, which is not fewer than 10 nor more than 30 days after the day on which
the notice is given. If the Notified Partner does not give that notice, the
Disposing Partner may within 90 days after the end of the 30 day period, sell
the Disposing Partner's Partnership Interests to the Person identified in the
Notice of Intention for a price, and on other terms, which are not more
favorable to the buyer than those stated in the Notice of Intention.
ARTICLE IX
ADMISSION OF PARTNERS
9.1 ADMISSION OF ADDITIONAL PARTNERS. The Partners may by unanimous
written consent (but not otherwise), admit new Partners to the Partnership from
time to time. Each new Partner will be admitted when the new Partner executes
this Agreement or an appropriate supplement to it in which the new Partner
agrees to be bound by the terms and provisions of this Agreement as they may be
modified by that supplement. Admission of a new Partner will not cause
dissolution of the Partnership.
9.2 INTEREST OF NEW PARTNER. A newly admitted Partner's Capital
Contribution and share of the Partnership's profits and losses will be set forth
in the written consents of the Partners described in Section 9.1.
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1 DISSOLUTION. Except as otherwise provided in this Agreement, the
business of the Partnership will be continued by the Partners pursuant to this
Agreement, notwithstanding the occurrence of any event which would result in the
dissolution of a Partnership under the laws of the State of Florida, and no
Partner will be released or relieved of any duty or obligation under this
Agreement by reason of any such event. The Partnership will dissolve, and its
affairs will be wound up, upon:
(a) the unanimous approval of all the Partners;
(b) an election to dissolve the Partnership by a Partner as provided in
Section 1.4;
(c) the bankruptcy or insolvency of the Partnership; or
(d) the sale or disposition of all or substantially all of the assets
of the Partnership.
10.2 EFFECT OF DISSOLUTION. Upon dissolution of the Partnership in
accordance with Section 10.1, the Partnership will conduct only activities
necessary to wind up its affairs.
18
<PAGE>
10.3 LIQUIDATION. Upon dissolution of the Partnership pursuant to
Section 10.1, as expeditiously as possible, the Executive Committee shall
appoint a special liquidator (which may be a Partner and may be the Manager) to
wind up the affairs of the Partnership, liquidate the assets of the Partnership
in accordance with a plan prepared by the liquidator and approved by the
Executive Committee, and apply and distribute the proceeds of such liquidation
in the following order of priority, unless otherwise required by mandatory
provisions of applicable law:
(a) to the payment of all costs and expenses of the liquidation;
(b) to creditors of the Partnership, including Partners, in order of
priority provided by law, and the creation of a reserve of cash or other assets
of the Partnership for contingent liabilities in an amount, if any, determined
by the liquidator to be appropriate for that purpose; and
(c) to the Partners in accordance with the positive balances in their
respective Capital Accounts, after taking into account all adjustments to
Capital Accounts for all periods.
If upon liquidation of the Partnership any Partner has a deficit
balance in its Capital Account, that Partner shall promptly contribute the
amount of the deficit to the Partnership for payment or distribution in
accordance with the preceding sentence.
10.4 DISTRIBUTION IN KIND. If upon dissolution of the Partnership, the
liquidator determines that an immediate sale of part or all of the Partnership's
assets would be impractical or would cause undue loss to the Partners, the
liquidator may defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (other than those to
Partners) and may distribute to the Partners, in lieu of cash, as tenants in
common and in accordance with the provisions of Section 10.3(b), undivided
interests in the Partnership assets which the liquidator deems not suitable for
liquidation. Any such distributions in kind will be subject to such conditions
relating to the disposition and management of particular assets as the
liquidator deems reasonable and equitable and to any options and any agreements
governing the operation of those assets which are in effect when they are
distributed in kind. The liquidator shall determine the fair market value of any
asset distributed in kind using such reasonable method of valuation as it deems
appropriate.
10.5 REASONABLE TIME FOR WINDING UP. A reasonable time will be allowed
for the orderly winding up of the business and affairs of the Partnership and
the liquidation of its assets pursuant to Section 10.3 in order to minimize any
losses otherwise attendant upon such winding up.
10.6 WAIVER OF PARTITION. Each Partner waives any right to partition of
the Partnership property.
10.7 VOLUNTARY TERMINATION. Notwithstanding anything contained in this
Article X to the contrary, if either Partner desires to terminate the
Partnership pursuant to Section 1.4, that Partner (the "TERMINATING PARTNER")
will give written notice to the other Partner (the "RECEIVING PARTNER") of its
intention to terminate. The Receiving Partner will then have 30 days either to
(i) agree in writing to a termination of the Partnership in accordance with
Sections 10.1 through 10.5, or (ii) propose a price at which the Receiving
Partner would be willing to purchase the Partnership Interests of the
Terminating Partner. If the Receiving Partner proposes a purchase price, the
Terminating Partner may (i) accept the proposed purchase price and sell its
Partnership Interests to the Receiving Partner for the proposed purchase price,
or (ii) reject the proposed purchase price and buy the Receiving Partner's
Partnership Interests for the proposed purchase price.
19
<PAGE>
ARTICLE XI
GENERAL PROVISIONS
11.1 INDEMNIFICATION BY PARTNERS. Each Partner will indemnify the
Partnership and each of the other Partners against, and hold each of them
harmless from, any expense or liability resulting from or arising out of any
gross negligence or wilful misconduct on the part of the indemnifying Partner to
the extent the amount is not covered by insurance carried by the Partnership.
11.2 CONTRIBUTION BY PARTNERS. If any Partner (the "Paying Partner")
makes any payment as a result of a liability of the Partnership, or incurs any
costs or expenses on behalf of the Partnership, and the Paying Partner is not
promptly reimbursed by the Partnership for the amount paid, or the costs or
expenses incurred, by the Paying Partner, each other Partner will make a payment
to the Paying Partner, promptly after being requested to do so by the Paying
Partner, equal to (i) the amount paid, or the costs or expenses incurred, by the
Paying Partner, times (ii) the other Partner's Percentage Interest, so that,
after the payments by all the other Partners, each Partner (including the Paying
Partner) will have borne a portion of the total amount paid by all the Partners
as a result of the liability of the Partnership, or the total costs or expenses
incurred by all the Partners on behalf of the Partnership, equal to the
Partner's Percentage Interest.
11.3 NOTICES. Any notice, report or other communication required or
permitted to be given to a Partner under this Agreement must be in writing and
will be deemed given or made when delivered in person or sent by facsimile
transmission, or on the third day after the day when mailed by first class mail
from within the United States of America, to the Partner at the following
address (or at the most recent address specified to the sender by the addressee
in the manner provided in this Section):
If to Lennar Land Partner, Inc.
Lennar Land Partner, Inc.
c/o Lennar Corporation
700 N.W. 107th Avenue
Miami, Florida 33172
Attention: President
Facsimile No.: (305) 226-7691
If to LPC Land Partner, Inc.
LPC Land Partner, Inc.
c/o LPC, Inc.
700 N.W. 107th Avenue
Miami, Florida 33172
Attention: President
Facsimile No.:
11.4 AMENDMENTS. This Agreement may be amended at any time with the
written consent of all Partners.
20
<PAGE>
11.5 TITLES AND CAPTIONS. The article and section titles or captions in
this Agreement are for convenience only, and are not intended to affect the
terms or the interpretation of this Agreement.
11.6 BINDING EFFECT. This Agreement will be binding upon and inure to
the benefit of the parties to this Agreement and their respective successors and
permitted assigns, except to the extent of any contrary provision in this
Agreement.
11.7 INTEGRATION. This Agreement constitutes the entire agreement among
the parties relating to the subject matter of this Agreement and supersedes all
prior agreements and understandings relating to that subject matter.
11.8 CREDITORS. None of the provisions of this Agreement will be for
the benefit of or enforceable by any creditors of the Partnership or of any
Partner.
11.9 COUNTERPARTS. The parties may execute this Agreement in two or
more counterparts, each of which will be an original, but all of which will
constitute one and the same document.
11.10 APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the substantive laws of the State of Florida.
11.11 SURVIVAL. All indemnities and reimbursement obligations in this
Agreement will survive dissolution and liquidation of the Partnership until
expiration of the longest applicable statute of limitations (including
extensions and waivers) with respect to any matter for which a party would be
entitled to be indemnified or reimbursed, as the case may be.
IN WITNESS WHEREOF, the undersigned have executed this Agreement or
caused it to be executed on their behalf, as of the date shown on the first page
of this Agreement.
LENNAR LAND PARTNER, INC. LPC LAND PARTNER, INC.
By: _____________________________ By: __________________________
Name: Name:
Title: Title:
Address: Address:
700 Northwest 107th Avenue 700 Northwest 107th Avenue
Miami, Florida 33172 Miami, Florida 33172
Facsimile No.: Facsimile No.:
21
<PAGE>
LENNAR CORPORATION LPC, INC.
By: _____________________________ By: _____________________________
Name: Name:
Title: Title:
Address: Address:
700 Northwest 107th Avenue 700 Northwest 107th Avenue
Miami, Florida 33172 Miami, Florida 33172
Facsimile No.: Facsimile No.:
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of LNR Property Corporation for the six-month period
ended May 31, 1997 and the Consolidated Statement of Operations for the
six-month period ended May 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 9,015
<SECURITIES> 0
<RECEIVABLES> 72,577
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 212,825
<DEPRECIATION> 0
<TOTAL-ASSETS> 793,092
<CURRENT-LIABILITIES> 0
<BONDS> 369,965
0
0
<COMMON> 0
<OTHER-SE> 384,143
<TOTAL-LIABILITY-AND-EQUITY> 793,092
<SALES> 0
<TOTAL-REVENUES> 101,104
<CGS> 0
<TOTAL-COSTS> 44,788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,201
<INCOME-PRETAX> 43,115
<INCOME-TAX> 16,815
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,300
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
