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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1999
Commission file number 1-13223
LNR PROPERTY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 65-0777234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
760 NORTHWEST 107TH AVENUE, MIAMI, FLORIDA 33172
(Address of principal executive offices) (Zip Code)
(305) 485-2000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK, PAR VALUE 10(CENT)PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
As of January 28, 2000, 23,515,678 shares of common stock and 10,058,433
shares of Class B common stock (which can be converted into common stock) were
outstanding. Of the total shares outstanding, 22,582,265 shares of common stock
and 160,503 shares of Class B common stock, having a combined aggregate market
value (assuming the Class B shares were converted) on that date of $409,369,824
were held by non-affiliates of the registrant.
<PAGE>
DOCUMENTS INCORPORATED BY PART OF FORM 10-K INTO WHICH
REPORT REFERENCE INTO THIS DOCUMENT IS
INCORPORATED
LNR Property Corporation 1999 Annual Report Parts I, II and IV
To Shareholders*
LNR Property Corporation 2000 Part III
Proxy Statement
* The LNR Property Corporation 1999 Report to Stockholders is incorporated
herein only to the extent specifically stated.
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PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD LOOKING STATEMENTS THAT
ARE SUBJECT TO RISK AND UNCERTAINTY. ALTHOUGH THE COMPANY BELIEVES THE
EXPECTATIONS REFLECTED IN ITS FORWARD LOOKING STATEMENTS ARE REASONABLE, IT IS
POSSIBLE THEY WILL PROVE NOT TO HAVE BEEN CORRECT, PARTICULARLY GIVEN THE
CYCLICAL NATURE OF THE REAL ESTATE MARKET. THE FACTORS, AMONG OTHERS, THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD
LOOKING STATEMENTS INCLUDE: (A) CHANGES IN INTEREST RATES, (B) 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, (C) INTERNATIONAL, NATIONAL OR
REGIONAL BUSINESS CONDITIONS WHICH AFFECT THE ABILITY OF MORTGAGE OBLIGORS TO
PAY PRINCIPAL OR INTEREST WHEN IT IS DUE AND (D) THE CYCLICAL NATURE OF THE
COMMERCIAL REAL ESTATE BUSINESS.
ITEM 1. BUSINESS.
OVERVIEW
LNR Property Corporation ("LNR" and, together with its subsidiaries, the
"Company") is a real estate investment and management company, which structures
and makes real estate and real estate related investments and, through its
expertise in developing and managing properties and working out underperforming
and non-performing commercial loans, seeks to enhance the value of those
investments. The Company has been engaged in the development, ownership and
management of commercial and multi-family residential properties since 1969.
LNR's Chairman, Chief Executive Officer and President have been with the Company
and worked together for more than a decade. Over the last six years, revenues
and EBITDA have increased at compound annual growth rates of 32.9% and 36.5%,
respectively.
LNR was formed by Lennar Corporation ("Lennar") in June 1997 to separate
Lennar's real estate investment and management business from its homebuilding
business. On October 31, 1997, Lennar distributed the stock of LNR to Lennar's
stockholders in a tax-free spin-off (the "Spin-off"). In connection with the
Spin-off, the Company agreed that until 2002, it would not engage in
homebuilding or related activities (other than purchasing securities backed by
residential mortgages and providing financing to homebuilders or land
developers) and Lennar agreed that until 2002, it would not engage in various
activities in which the Company was engaged at the time of the Spin-off (which
is most of the principal activities in which the Company currently is engaged).
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.
The Company's real estate investment activities primarily consist of:
o acquiring, developing, managing and repositioning commercial and
multi-family residential properties,
o acquiring (often in partnership with financial institutions and real
estate funds) and managing portfolios of mortgage loans and other real
estate related assets,
o investing in unrated and non-investment grade rated commercial
mortgage-backed securities ("CMBS") as to which the Company has the
right to be special servicer (i.e., to oversee workouts of
underperforming and non-performing loans) and
o making high yielding real estate related loans and equity investments.
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The Company adjusts its investment focus from time to time to adapt to changes
in markets and phases of the real estate cycle. The Company does not have
specific policies as to the type of real estate related assets it will acquire,
the percentage of assets it will invest in particular types of real estate
related assets or the percentage of the interests in particular entities it will
acquire. Instead, it reviews, at least monthly, the types of real estate related
investment opportunities which may at that time be available, the market factors
which may affect various types of real estate related investments (including the
likelihood of changes in interest rates or availability of investment capital)
and other factors which may affect the attractiveness of particular investment
opportunities.
The Company performs extensive due diligence before making investments in order
to evaluate investment risks and opportunities and see whether it will be able
to use its skills to enhance the value of the investments. For example, before
bidding for a CMBS investment, the Company performs an asset by asset evaluation
of the assets underlying the CMBS, including site visits, analyses of rent
rolls, vacancy rates and tenant strength, and analyses of the real estate
markets in which the properties are located. The Company's formalized
pre-investment procedures allow its senior management to exercise significant
control and discipline over all its investment decisions.
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At November 30, 1999, the Company's assets consisted of :
<TABLE>
<CAPTION>
Type of Asset Book Value Description/Comment
- ----------------------------------------------------------------------------------------------------
(IN MILLIONS)
<S> <C> <C>
Real estate properties $1,108.3 Multi-family apartment buildings, office and
industrial buildings, retail centers, hotels
and land.
Real estate securities 510.9 Unrated and rated tranches of CMBS pools
acquired at significant discounts from face
value, as to which the Company has the right to
be special servicer and can seek to increase
collections of underlying loans.
Real estate loans 152.8 Primarily mortgage loans. Also includes loans
to developers and builders, sometimes with
profit participations.
Partnerships 315.9 o Real estate property partnership investments
of $155.9 million (primarily Lennar Land
Partners, a partnership with Lennar).
o A real estate securities partnership
investment of $90.2 million (Madison Square
Company, LLC, a vehicle that invests primarily
in CMBS).
o Real estate loan partnership investments
of $69.8 million (primarily partnerships
which acquired portfolios of loans and/or
properties at discounts, in both the U.S.
and Japan. Also includes 20 partnership
interests in affordable housing communities).
Cash and other assets 195.1 Cash at November 30, 1999 consisted of $8.6
million of unrestricted cash and $45.7 million
of restricted cash, comprised primarily of
$18.5 million held in trust for asset
acquisitions and $27.2 million representing
funds from municipal bonds to finance
development of affordable housing communities.
Other assets include several small investments
in entities in related businesses, accounts
receivable, interest receivable, deferred costs
and other.
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Total $2,283.0
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</TABLE>
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REAL ESTATE PROPERTIES
COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE
In 1969 Lennar began engaging in the development, ownership and management of
commercial and residential multi-family 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. In most instances, the
Company uses outside management companies to perform day-to-day property
management activities. In those instances, the Company's employees closely
supervise the operation of the commercial properties and the activities of the
outside management companies. At November 30, 1999, the Company's portfolio
included 17 shopping centers with 1.5 million square feet of rentable space, 16
office buildings with 4.2 million square feet of rentable space, nine industrial
properties with 1.8 million square feet of rentable space, approximately 12,400
apartment units (in 71 communities, of which 60 qualify for Low-Income Housing
Tax Credits, as discussed below), a mobile home park and five hotels.
The shopping centers the Company owns and operates include eight small regional
shopping centers (sometimes referred to as "strip centers"), with between 12,000
square feet and 71,000 square feet of rentable store space, as well as parking
areas and public areas, and nine larger shopping centers, with 58,000 square
feet to 409,000 square feet of rentable store space. All of the small regional
centers are located in Florida. Of the larger shopping centers, four are in
Florida, three are in Arizona, one is in California and one is in Louisiana.
The Company's 16 office buildings range from one to 36 stories and have an
aggregate of 4.2 million square feet of rentable office space. Six of the office
buildings are in California, four are in Florida, two are in Georgia, one is in
Utah, one is in Louisiana, one is in Virginia and one is in North Carolina. The
Company's nine industrial properties range from 46,000 square feet to 747,000
square feet of usable floor space. Seven of the industrial properties are in
California, one is in Florida and one is in Texas.
The Company's 71 apartment communities range in size from 40 to 600 units.
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The apartment communities are geographically located as follows:
NUMBER OF
STATE PROPERTIES
- ----- ----------
Washington 17
Oregon 10
Texas 6
Nevada 5
Arizona 4
New Mexico 4
Virginia 4
California 3
Illinois 3
Montana 3
Pennsylvania 3
Colorado 2
Florida 2
Wisconsin 2
Georgia 1
Idaho 1
Maryland 1
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During 1998, the Company entered the business of owning, developing and
syndicating multi-family and senior housing residential rental communities,
which qualify for Low-Income Housing Tax Credits, by acquiring controlling
interests in a group of entities known as the Affordable Housing Group ("AHG").
AHG, as part of LNR, continues to grow and as of November 30, 1999 AHG had
investments in approximately 8,300 residential rental apartments (60
properties), many of which qualify for Low-Income Housing Tax Credits.
Approximately 90% of the rental communities were constructed by AHG or under its
supervision. AHG acquired the other rental communities after they were
completed. At November 30, 1999, the Company's balance sheet included AHG
balances as follows: properties of approximately $260 million, investments in
partnerships of approximately $12 million and approximately $185 million of
property-specific mortgage financing that is non-recourse to the Company. The
Company paid $81 million to purchase the original interests in AHG.
During 1999, the Company syndicated and sold most of the benefit of tax credits
related to eleven AHG properties by placing limited partnership interest in the
entities which own the properties into a new limited liability company and
selling a 90% interest in that limited liability company. The Company realized a
gain of approximately $8 million from the transaction and still retained a 10%
interest in the syndicated properties through the 10% interest retained in the
limited liability company. The Company expects to continue acquiring,
developing, operating and syndicating residential communities which qualify for
Low-Income Housing Tax Credits.
The five hotels owned by the Company have or will have a total of 1,155 rooms.
Two of the hotels, representing 356 rooms, are under development. The other
three are managed by national chains under management contracts which can be
terminated by either party on 30 days' notice.
In addition to the Company's operating properties, the Company owns a
substantial amount of commercially zoned land, 1.7 million square feet of which
is leased to others under long-term ground leases and 809 acres of which is to
be used for specific projects or sold.
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The Company maintains a program of liability, property loss and damage and other
insurance which covers all the Company's properties and which the Company
believes is adequate to protect it against all reasonably foreseeable material
insurable risks.
The Company's financing strategy with regard to its real estate portfolio
normally is to obtain financing secured by specific assets when they are
acquired. This type of financing usually is short- or intermediate-term.
However, the Company sometimes seeks more permanent financing in cases where the
market for an asset makes long-term debt an attractive option and the loan can
be assumed or prepaid.
LENNAR LAND PARTNERS
Before the Spin-off, Lennar and the Company transferred to a general
partnership, which is 50% owned by the Company and 50% owned by Lennar, parcels
of land or interests in land and other assets which had a total book value on
Lennar's books at October 31, 1997 of approximately $372.4 million. In 1999,
certain assets and liabilities of this land partnership were contributed at net
book value to a second general partnership and Lennar and the Company each
received 50% general partnership interests in the second partnership. The two
partnerships are collectively referred to as Lennar Land Partners ("LLP"). The
land was acquired by Lennar primarily to be used for residential home
development. The parcels of land or interests in land contributed by the Company
had been contributed to the Company by Lennar so the Company could contribute
them to LLP and receive a 50% interest in LLP. From November 1, 1997 through
November 30, 1999, LLP had land sale revenues of $450.5 million, of which $203.2
million was from sales to Lennar. During that period, LLP obtained control of
approximately 9,600 additional homesites, primarily through partnership
arrangements. At November 30, 1999, LLP's land consisted of approximately 21,145
potential home sites in 28 communities, of which 16 communities with 13,570
potential home sites are in Florida, two communities with 486 potential home
sites are in Arizona, five communities with 2,340 potential home sites are in
Texas and five communities with 4,749 potential home sites are in California.
Approximately 9% of the land was developed and ready to be built upon, 40% of
the land was in various stages of development and 51% of the land was totally
undeveloped.
When Lennar contributed land to the Company and to LLP in 1997, Lennar retained
options to purchase up to approximately 22% of the contributed land at prices it
established. Through November 1999, almost all the options relative to the
originally contributed land had either been exercised or terminated. On November
30, 1999, Lennar obtained options to purchase up to an additional 6,300
homesites at prices it established, subject to agreement by the Company. The
remaining land is available for sale to independent homebuilders or to Lennar at
prices determined from time to time, which, as is discussed below, the Company
must approve.
LLP has an agreement with Lennar under which Lennar, for a fee, administers all
day-to-day activities of LLP, including overseeing planning and development of
properties and overseeing sales of land to Lennar and other builders.
LLP 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. LNR's by-laws require that all significant decisions relating to LLP
be approved by a Board of Directors committee consisting entirely of directors
who have no relationship with Lennar.
Lennar may, but is under no obligation to, offer additional properties to LLP.
Lennar is free to acquire properties for itself without any consideration of
whether those properties might have been appropriate for LLP. The Company is, in
effect, able to veto any proposals that LLP acquire properties proposed by
Lennar. Arrangements with regard to particular properties might include, (i)
options to Lennar to purchase all or portions of properties, (ii) rights of
first refusal for Lennar to acquire lots if other builders propose to acquire
them, or (iii) 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
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 LLP or options relating to them. If it did, Lennar could, if it
wanted to do so, veto acquisitions by the Company.
LLP has a $125 million revolving line of credit, and a $100 million term loan,
each of which matures in 2001. If LLP defaults under those credit facilities,
the lenders have the right to require the Company, together with Lennar, to
purchase LLP's obligations to the lenders, or a portion of them. However, if the
default is failure to meet financial covenants, the lenders must give Lennar and
the Company the opportunity to cure the default. Many of LLP's assets are
subject to non-recourse mortgage loans. The revolving line of credit is
available to supplement financing which is available with regard to specific
properties. As of November 30, 1999, there was $0.1 million outstanding under
the revolving line of credit, and $43.2 million outstanding under the term loan.
REAL ESTATE SECURITIES
INVESTMENTS IN CMBS
As a further use of its loan and real estate workout capabilities, the Company
acquires unrated and non-investment grade rated subordinated CMBS and provides
"special servicing" for the mortgage pools to which they relate. Fitch IBCA,
Inc., which rates special servicers of CMBS on the basis of management team,
organizational structure, operating history, workout and asset disposition
experience and strategies, information systems, investor reporting capabilities
and financial resources, has given the Company Fitch's highest rating. At
November 30, 1999, the Company was entitled to be the special servicer with
regard to 55 securitized commercial mortgage pools and had investments in
unrated junior CMBS related to 52 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
asset portfolios. Because the holders of the unrated CMBS receive everything
that is collected after the more senior levels of CMBS have been paid in full,
the Company and other holders of unrated CMBS are the principal beneficiaries of
increased collections. Therefore, ownership of the unrated CMBS gives the
Company an opportunity to profit from its special servicing in addition to
receiving fees for being special servicer. The Company has not purchased unrated
CMBS unless it has had 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. The ratings of the subordinated CMBS are sometimes upgraded
by the rating agencies if the performance of the pool exceeds initial
expectations. This increases their market values and gives the Company an
opportunity to achieve gains on the 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, are a means for the Company to profit from its workout skills.
Particularly in periods of falling interest rates, there often are prepayments
of mortgages underlying CMBS. Because the Company usually purchases CMBS at
significant discounts from their face amounts, prepayments tend to increase the
Company's yield as a percentage of its investment.
The Company is currently financing its purchases of CMBS through cash flow from
operations and borrowings under medium-term and short-term revolving credit
lines, repurchase lines and medium-term financing provided by sellers or
underwriters of the CMBS.
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MADISON SQUARE COMPANY LLC
In early April 1999, the Company entered into a venture, Madison Square Company,
LLC ("Madison"), to acquire approximately $2.2 billion of high-yielding real
estate related assets. The original partners included an affiliate of Credit
Suisse First Boston ("CSFB") and a company controlled by real estate investor
Peter Bren. The original partners have total equity commitments of $440 million,
$125 million of which is provided by the Company. On November 4, 1999, the
venture admitted a new partner, a major life insurance company, whose $50
million commitment brought the total equity commitments to $490 million.
CSFB has provided a credit facility to fund up to $1.76 billion of financing to
the venture, which is non-recourse to the partners.
At November 30, 1999, the Company's investment in the venture was approximately
$90 million, representing a 25.8% ownership interest. The Company maintains a
significant ongoing role in the venture, for which it earns fees, both as the
special servicer for the purchased CMBS transactions and as the provider of
management services. The Company also has an effective veto on Madison's
investments.
REAL ESTATE LOANS
COMMERCIAL REAL ESTATE LENDING
The Company holds mortgage loans made with regard to commercial properties or
properties being developed as residential communities, which are generally made
to the developers and builders themselves. At November 30, 1999, the Company
held 13 mortgage loans with a total outstanding principal balance of $143.0
million and seven loans to developers and builders with a total outstanding
principal balance of $17.2 million. The states in which the properties securing
the Company's mortgage loans were located were as follows:
(IN THOUSANDS)
State Principal Amount of Loans
--------------------- --------------------------
Nevada $ 46,525
California 44,941
Massachusetts 43,200
Texas 21,000
Florida 3,559
Other 1,000
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Total $ 160,225
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The mortgage loans are primarily first mortgage loans secured by commercial real
estate. Some of the mortgage loans are structured junior loan participations in
high-quality short- to medium-term variable rate first mortgage real estate
loans. The mortgage loans on residential communities, which are made to the
developers or builders, are usually subordinate to construction loans, and often
provide the Company, in addition to interest income, participations in profits
after the developers or builders have achieved specified financial targets. The
types of loans and collateral held by the Company at November 30, 1999, were as
follows:
(IN THOUSANDS)
Type of Loan Principal Amount of Loans
---------------------------- -------------------------
Mortgage loans
Convention center $ 45,000
Mixed use 43,200
Office buildings 38,101
Multi-family 11,977
Industrial park 2,290
Residential land 1,071
Shopping center and other 1,347
Developer and builder loans 17,239
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Total $ 160,225
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The Company identifies opportunities to make commercial and residential
development loans through relationships with other real estate companies and
developers and brokers.
The Company evaluates possible loans with in-house personnel, who perform site
visits and do market, demographic and financial analyses with regard to the
collateral for the loans. The Company applies guidelines, which change from time
to time depending on the type of property and market conditions, relating to
loan-to-value ratio, debt coverage and other financial ratios. In most instances
the guidelines the Company has applied have been similar to those applied in
evaluating commercial mortgages for inclusion in mortgage securitizations
(although the Company has not to date securitized any of the commercial loans it
originated for its own account). Sometimes the Company has made subordinated
loans to which it applies other guidelines, but which bear interest at rates
which are higher than those on senior commercial mortgage loans, and some of
which provide the Company participations in profits from the underlying
properties.
PORTFOLIOS OF COMMERCIAL MORTGAGE LOANS
In the early 1990's, the Company began acquiring, directly and through
partnerships, portfolios of commercial mortgage loans and related pools of owned
real estate assets in the United States. 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. Its
second transaction of this type was a partnership portfolio acquisition in 1993
which included a portfolio of real estate assets with a face amount of more than
$2 billion, in what the Company believes is one of the largest real estate
portfolio acquisitions ever to take place in the United States. Since 1993, the
Company has formed 10 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. The
Company's partners in these additional partnerships included affiliates of
Blackrock Group, Lehman Brothers Inc., Morgan Stanley Dean Witter and Westbrook
Partners. Involvement of these partners both gave the Company access to
investment opportunities it might not otherwise have had and reduced the amount
the Company had to invest to acquire interests in large portfolios.
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In each of these partnerships, one of the Company's subsidiaries 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 sales proceeds once the partners have
recovered their capital and achieved specified returns. The Company's original
investments ranged from 15% to 50% of the partnerships' capital and totaled $165
million, out of a total of $684 million invested in the partnerships. By
November 30, 1999, the partnerships had distributed a total of $1.3 billion to
the partners, of which $391 million had been distributed to the Company. The
Company also received management and asset disposition fees totaling
approximately $58.2 million. As the U.S. real estate markets strengthened in the
late 1990's, substantially fewer large real estate portfolios became available
at what the Company viewed as attractive prices. The Company has not
participated in a partnership which acquired a portfolio of underperforming real
estate assets in the United States since August 1996 (although the Company has
participated in several partnerships which acquired portfolios of
underperforming and non-performing commercial mortgage loans in Japan).
Currently, the partnerships the Company formed are engaged primarily in
enhancing and disposing of assets in the portfolios they acquired, as well as
collecting sums paid with regard to portfolio assets.
The portfolio loans consist primarily, but not entirely, of fixed-rate first
mortgage loans secured by office and industrial buildings, shopping centers and
multi-family residential properties. They are not covered by credit insurance.
The Company's principal activity with respect to distressed portfolios is to
manage the workout of 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. 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.
Debt financing for partnerships' acquisitions of real estate related asset
portfolios has usually been on a non-recourse basis and with no guaranties by
the Company or any other of the partners. In some cases, the lender must be
repaid in full before a partnership can make cash distributions to the Company
and its partners. The Company's financing strategy with regard to real estate
related asset portfolios in which it invests directly is to seek financing with
maturities which match the underlying loans. This type of financing usually
gives lenders recourse to those of the Company's subsidiaries which acquire
particular asset portfolios.
During 1998, the Company entered into several partnerships to acquire portfolios
of non-performing commercial mortgage loans in Japan, where it has an office to
oversee its loan workout and real estate asset management operations. The
Company has now invested in 15 portfolios of non-performing loans in Japan. As
of November 30, 1999, the total investment in these partnerships was $49.6
million. At this point, there can be no assurance that these new investments
will achieve the same level of results as the distressed U.S. portfolio business
has.
MARKET RISK ON FINANCIAL INSTRUMENTS
The primary market risk to which the Company has exposure is interest rate risk.
Changes in interest rates can affect the Company's net income and cash flows,
the value of its CMBS and other interest earning assets held for sale and the
level of realized gains from sales of assets. As changes in market conditions
occur, interest rates can either increase or decrease. As interest rates move,
interest expense from the variable component of the Company's debt balances will
move in the same direction. With respect to its CMBS and a portion of its
mortgage loan portfolios, changes in interest rates generally do not affect the
Company's interest income as these investments are predominately fixed rate.
However, the fair value of the portion of the Company's CMBS portfolio that is
available-for-sale will move inversely to changes in interest rates. Changes in
the market value of these investments do not affect the Company's consolidated
earnings as mark-to-market adjustments are not reflected in the Company's net
income until particular assets are sold.
The Company's objective in managing its exposure to interest rate changes is to
limit the impact of interest rate changes on earnings and cash flows. The
Company may use a variety of financial instruments to reduce its interest rate
risk. On the debt side, from time to time, the Company uses interest rate swap
agreements whereby the Company exchanges its variable interest on certain debt
balances for another party's obligation to pay fixed interest. This allows the
Company to
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reduce the effects (positive or negative) of interest rate changes on
operations. These agreements are entered into for specific property-level
financings and are generally matched with the debt relative to term and
principal amount. These financial instruments carry a number of risks, including
a risk of non-performance on the part of the counterparty and a risk that the
financial instrument will not function as expected. In addition, a significant
portion of the Company's debt is not subject to interest rate fluctuations
because it bears interest at a fixed rate. On the asset side, the Company
periodically sells treasury securities short to hedge a portion of its
available-for-sale CMBS portfolio. At November 30, 1999, the Company was
obligated to deliver $62.5 million of securities it had sold short. This offsets
the impact of interest rate movements on the market value of a portion of the
Company's CMBS portfolio. Additionally, all of the Company's variable rate
mortgage loans held for investment are collateral for variable rate debt, which
also minimizes the impact of interest rate movements on such assets.
The following table presents certain information on the Company's assets and
liabilities which are sensitive to interest rate changes at November 30, 1999:
<TABLE>
<CAPTION>
BOOK
2000 2001 2002 2003 2004 THEREAFTER TOTAL(1) VALUE FAIR VALUE
---- ---- ---- ---- ---- ---------- ------- ------ ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets
Interest earning cash and
cash equivalents $104,269 - - - - - 104,269 104,269 104,269
Available-for-sale
investment securities (1) 41,454 14,471 17,638 10,808 5,804 418,199 508,374 343,092 343,092
Weighted average interest
rate (3) 7.2% 7.0% 7.0% 6.9% 6.9% 6.9%
Mortgage loans held for
sale (1) 61,721 5,433 4,515 - - - 71,669 60,201 70,764
Weighted average interest
rate (3) 11.2% 11.7% 11.9% - - -
Variable rate mortgage
loans held for
investment (1) 8,000 - 56,200 11,040 - - 75,240 75,240 75,240
Weighted average interest
rate (3) 12.0% 11.9% 11.9% 11.7% - -
Rate Sensitive Liabilities
Variable rate mortgage
loans and other debts
payable (1) 352,554 184,521 216,761 111,307 45,337 52,173 962,653 962,653 962,653
Weighted average interest
rate (3) 7.9% 7.8% 7.6% 7.3% 7.2% 7.1%
Off balance sheet financial
instruments
Variable-to-fixed interest
rate swap agreements (2) 61,172 - 16,000 - 14,000 19,900 111,072 - 1,514
Weighted average interest
rate (3) 6.4% - 6.9% - 5.7% 6.5%
</TABLE>
- -----------------
(1) Estimated future cash flows (carrying amounts plus estimated discounts)
using expected maturities.
(2) Notional principal amounts at scheduled maturities.
(3) Weighted average interest rates represent stated rates.
13
<PAGE>
In addition to the assets shown above, the Company has fixed rate investments in
CMBS and mortgage loans which it intends and has the ability to hold until
maturity. The Company's investment in CMBS which is classified as
held-to-maturity has a book value of $167.8 million at November 30, 1999. This
investment has stated maturities through 2032 and is expected to return
principal of $10.9 million in 2000; $47.3 million in 2001; $11.2 million in
2002; $6.0 million in 2004 and $428.2 million, thereafter. The Company's
investment in fixed rate loans which are held for investment have a book value
of $17.4 million at November 30, 1999 and is expected to return principal
amounts of $2.1 million in 2000; $0.8 million in 2001; $2.9 million in 2002;
$16.3 million in 2003; $0.3 million in 2004 and $0.4 million, thereafter. These
fixed rate investments are held to maturity and the future cash flows are not
expected to be negatively affected by changes in market interest rates.
The following table presents certain information on the Company's assets and
liabilities which are sensitive to interest rate changes at November 30, 1998:
<TABLE>
<CAPTION>
BOOK
1999 2000 2001 2002 2003 THEREAFTER TOTAL (1) VALUE FAIR VALUE
---- ---- ---- ---- ---- ---------- --------- ------ ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets
Interest earning cash and
cash equivalents $ 84,681 - - - - - 84,681 84,681 84,681
Available-for-sale
investment securities (1) 11,100 35,898 67,369 10,808 10,000 274,028 409,203 300,171 300,171
Weighted average interest
rate (3) 7.7% 7.9% 8.3% 7.5% 7.5% 7.4%
Mortgage loans held for
sale (1) 16,751 54,575 10,497 4,828 - - 86,651 75,729 84,588
Weighted average interest
rate (3) 10.8% 10.2% 11.8% 12.0% - -
Rate Sensitive Liabilities
Variable rate mortgage
loans and other debts
payable (1) 278,622 189,714 128,226 19,085 575 43,851 660,073 660,073 660,073
Weighted average interest
rate (3) 6.8% 6.7% 6.7% 6.5% 6.4% 6.4%
Off balance sheet financial
instruments
Variable-to-fixed interest
rate swap agreements (2) 20,600 7,951 - 16,000 - 21,000 65,551 - (325)
Weighted average interest
rate (3) 6.7% 6.4% - 6.9% - 7.8%
</TABLE>
- -----------------
(1) Estimated future cash flows (carrying amounts plus estimated discounts)
using expected maturities.
(2) Notional principal amounts at scheduled maturities.
(3) Weighted average interest rates represent stated rates.
COMPETITION
In virtually all aspects of its activities, the Company competes with a variety
of real estate development companies, real estate investment trusts, investment
firms, investment funds and others. The principal area of competition is for the
purchase of real estate assets and securities at prices which the Company
believes will enable it to achieve its desired returns. As the real estate
industry improved over most of the past several years, the Company encountered
increased competition in several of the markets in which it competes, including
its efforts to purchase certain types of real estate and CMBS, as well as real
estate lending. The Company believes that its access to investment opportunities
through its relationships and presence in markets across the country, its
ability to quickly underwrite and evaluate those opportunities and its expertise
in real estate workout and management helped the Company to compete effectively
in the purchase of those types of assets. In addition, its experience in adding
value to real estate and its top rating as a special
14
<PAGE>
servicer to CMBS transactions often attract firms which have access to
attractive investment opportunities but who do not have the Company's skills.
While the fundamentals of the real estate market remained strong, liquidity
concerns created turmoil in the market place during the fourth quarter of 1998
causing a sharp decline in the market prices of real estate related securities.
This caused a number of firms to record significant losses, and led to at least
one major CMBS investor to file under Chapter 11 of the Bankruptcy Code. Since
that time, market prices of real estate securities have stabilized. The Company
was not materially affected by the decline in prices of real estate related
securities because:
o The Company usually acquires real estate related securities for their
long-term yields and to benefit from increases in the values of the
underlying assets (both of which have remained strong), not as short-term
investments. Therefore, temporary fluctuations in market prices of
securities do not affect the Company's net income while it holds the
securities.
o The Company does not originate mortgages for securitization and therefore
was not required to sell them at a loss when the securitization market
weakened.
o The Company had not recognized "gain on sale" non-cash income from retained
residuals of securitized asset pools.
o The Company remained liquid primarily as a result of a diversified debt
structure, longer debt maturities and limited mark-to-market provisions.
Based on the above, the Company believes it was at a competitive advantage and
was able to use the market weakness as an opportunity to make strategic
investments.
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. Most often these facilities compete for tenants or other users based
on their locations, the facilities provided and the pricing of the leases or
room rates. As general economic conditions have improved in 1998 and 1999,
occupancies generally increased in many of the Company's markets, which helped
to reduce the effects of competition on existing properties and has allowed for,
in certain instances, new development.
The Company is not a significant national competitor with regard to any of the
properties it owns.
INVESTMENT COMPANY ACT
The Company intends to conduct its business at all times so as not to become
regulated as an investment company under the Investment Company Act of 1940.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act exempts,
among others, entities that are "primarily engaged in the business of purchasing
or otherwise acquiring mortgages and other liens on and interests in real
estate" ("Qualifying Interests"). Under the current interpretation of the staff
of the Securities and Exchange Commission, to qualify for this exemption, the
entity must maintain at least 55% of its assets in Qualifying Interests, and
maintain an additional 25% in Qualifying Interests or other real estate-related
assets. The Company's investments in real estate and mortgage loans generally
constitute Qualifying Interests and the Company believes its investments in
subordinated CMBS constitute Qualifying Interests when it has the right, as
special servicer, to foreclose upon properties which secure loans that back the
CMBS and to take the other actions a servicer may take in connection with
defaulted loans. Analysis of the Company's assets at November 30, 1999 indicated
that (a) more than 55% of its assets were Qualifying Interests, and (b) more
than 80% of its assets were Qualifying Interests and other real estate-related
assets indicating that it qualifies for this exemption. If, however, due to a
change in the Company's assets, or a change in the value of particular assets,
the Company was to become an investment company which is not exempt from the
Investment Company Act, either the Company would have to restructure its assets
so it would not be subject to the Investment Company Act, or the
15
<PAGE>
Company would have to change materially the way it conducts its activities.
Either of these changes could require the Company to sell substantial portions
of its assets at a time it might not otherwise want to do so, and the Company
could incur significant losses as a result. Further, in order to avoid becoming
subject to the requirements of the Investment Company Act, the Company may be
required at times to forego investments it would like to make or otherwise to
act in a manner other than that which its management believes would maximize its
earnings.
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 sometimes is required to comply with
a number of federal and state laws designed to protect debtors against
overbearing loan collection techniques. However, most 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 November 30, 1999, the Company had 482 full time and 10 part time employees,
of whom 10 were senior management, 58 were corporate staff, 269 were engaged in
asset acquisitions, loan workouts and rehabilitation and disposition of
properties and 155 were hotel personnel.
None of the Company's employees is represented by a union. The Company believes
its relationships with its employees are good.
ITEM 2. PROPERTIES.
For information about properties owned by the Company for use in its commercial
activities, see Item 1.
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 consist of approximately 17,000 square feet. The Company
has additional offices in various office buildings owned by the Company and it
leases offices in seven other facilities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not subject to any legal proceedings other than suits in the
ordinary course of its business, most of which are covered by insurance. LNR
believes these suits will not, in aggregate, have a material adverse effect upon
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
16
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The information required by Item 5 is incorporated by reference from page 53 of
the Company's 1999 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is incorporated by reference on page 25 of
the Company's 1999 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is incorporated by reference from pages 26
through 34 of the Company's 1999 Annual Report to Stockholders.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by Item 7a is included in Item 1 above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is incorporated by reference from pages 35
through 53 of the Company's 1999 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about the Company's directors is incorporated by reference to the
definitive proxy statement, which will be filed with the Securities and Exchange
Commission not later than March 29, 2000 (120 days after the end of the
Company's fiscal year). The following individuals were LNR's executive officers
at the date of this report:
Name/Position Age Year of Election
- ------------- --- ----------------
Stuart A. Miller
Chairman of the Board and Director 42 1997
Steven J. Saiontz
Chief Executive Officer and Director 41 1997
Jeffrey P. Krasnoff
President and Director 44 1997
Shelly Rubin
Vice President and Chief Financial Officer 37 1997
Robert Cherry
Vice President 37 1997
Steven I. Engel
Vice President 53 1997
Mark A. Griffith
Vice President 43 1997
David G. Levin
Vice President 44 1997
Ronald E. Schrager
Vice President 38 1997
David O. Team
Vice President 39 1997
Steven N. Bjerke
Corporate Controller 38 2000
Margaret A. Jordan
Treasurer and Secretary 48 1997
18
<PAGE>
Stuart A. Miller is the Company's Chairman of the Board. Mr. Miller became the
Chairman of the Board of LNR when the Company was formed in June 1997. Mr.
Miller has been the President and Chief Executive Officer of Lennar since April
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 division (the predecessor to a substantial
portion of the Company's business) from April 1995 to April 1997. Mr. Miller is
currently a Director of Lennar. He is the son of Leonard Miller (co-founder and
Chairman of the Board of Lennar) and the brother-in-law of Steven J. Saiontz.
Steven J. Saiontz is the Company's Chief Executive Officer. Mr. Saiontz became
LNR's Chief Executive Officer and a Director when the Company 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. Mr. Saiontz is
currently a Director of Lennar. He is the brother-in-law of Stuart A. Miller and
the son-in-law of Leonard Miller.
Jeffrey P. Krasnoff is the Company's President. Mr. Krasnoff became LNR's
President when the Company was formed in June 1997 and became a Director in
December 1997. From 1987 until June 1997, he was 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 a substantial portion of the Company's business).
Shelly Rubin is a Vice President and the Chief Financial Officer of LNR. She
became a Vice President and Chief Financial Officer when the Company 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 to a substantial portion of the Company's business). From 1991 until
May 1994, Ms. Rubin was employed by Burger King Corporation as the controller
for its real estate division.
Robert Cherry is a Vice President of LNR, responsible for sourcing and
evaluating new investment opportunities. From March 1995 until October 1997, Mr.
Cherry had similar responsibilities for LNR and Lennar's real estate investment
and management division (the predecessor to a substantial portion of the
Company's business). From March 1994 until February 1995, he was a vice
president of G. Soros Realty Advisors/Quantum North America Realty Fund. Prior
to that he held analyst positions with various entities including Moody's
Investor Service and Sullivan & Cromwell.
Steven I. Engel is a Vice President of LNR, responsible for managing the Japan
office. From 1992 until 1997, Mr. Engel primarily was responsible for the
special servicing of the CMBS portfolio for LNR and Lennar's real estate
investment and management division (the predecessor to a substantial portion of
the Company's business). From 1987 to 1992, Mr. Engel was a real estate
developer and attorney.
Mark A. Griffith is a Vice President, responsible for managing LNR's Eastern
Regional Division. From February 1990 until October 1997, Mr. Griffith had
similar responsibilities for Lennar's real estate investment and management
division (the predecessor to a substantial portion of the Company's business).
David G. Levin is a Vice President, responsible for sourcing and evaluating new
investment opportunities. From February 1992 until early 1997, Mr. Levin was
responsible for managing the Miami Division of Lennar's real estate investment
and management division (the predecessor to a substantial portion of the
Company's business), which was at that time primarily focused on partnerships
with the Morgan Stanley Real Estate Fund. Prior to that he had various positions
with commercial real estate firms including managing director of Bear Stearns
Real Estate Group.
19
<PAGE>
Ronald E. Schrager is a Vice President, responsible for managing the Miami
Division of LNR, which is primarily focused on CMBS/special servicing. Since
August 1992, he held several positions in Lennar's real estate investment and
management division (the predecessor to a substantial portion of the Company's
business), managing various areas. Prior to that he served as a vice president
of Chemical Bank's Real Estate Finance Group.
David O. Team is a Vice President, responsible for the Company's Western
Regional Division. From April 1996 until October 1997, Mr. Team had similar
responsibilities for Lennar's real estate investment and management division
(the predecessor to a substantial portion of the Company's business). From 1994
to 1996, Mr. Team was the owner and president of Windward Realty Group, a real
estate development firm. From 1992 to 1993, he was a senior vice president with
American Real Estate Group.
Steven N. Bjerke is the Company's Controller. He assumed this position in
January 2000. Mr. Bjerke joined LNR in April 1999 as Vice President of Strategic
Planning. From February 1990 to March 1999, Mr. Bjerke was employed by Ryder
System, Inc., where he held various positions in the accounting and finance
functions, most recently as group director of planning for Ryder's truck leasing
and rental division.
Margaret A. Jordan is the Company's Treasurer and Secretary. She became the
Secretary of LNR in January 2000. Ms. Jordan has been the Treasurer of LNR since
joining the Company in September 1997. From February 1993 to August 1997, Ms.
Jordan worked as an independent contractor and financial consultant to real
estate businesses. From June 1987 to January 1993, Ms. Jordan was employed by
Atlantic Gulf Communities Corporation, serving as assistant treasurer and then
senior vice president and treasurer.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated by reference from pages 8
through 12 of the Company's 2000 Proxy Statement, which will be filed with the
Securities and Exchange Commission not later than March 29, 2000 (120 days after
the end of the Company's fiscal year).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated by reference from pages 4
through 5 of the Company's 2000 Proxy Statement, which will be filed with the
Securities and Exchange Commission not later than March 29, 2000 (120 days after
the end of the Company's fiscal year).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated by reference from pages 9
through 10 of the Company's 2000 Proxy Statement, which will be filed with the
Securities and Exchange Commission not later than March 29, 2000 (120 days after
the end of the Company's fiscal year).
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. Financial Statements
Items A through E are incorporated by reference from
pages 35 through 53 of the Company's 1999 Annual Report
to Stockholders.
Combined financial statements of Lennar Land Partners
and Lennar Land Partners II as of November 30, 1999 and
1998 and for the years ended November 30, 1999 and 1998
and the period October 31, 1997 (Inception) to
November 30, 1997. F-1
2. Consolidated Financial Statement Schedules
Report of Independent Auditors F-13
Schedule II - Valuation and Qualifying Accounts F-14
Schedule III - Real Estate and Accumulated Depreciation F-15
Schedule IV - Mortgage Loans on Real Estate F-16
(B) 1. Report on Form 8-K
NONE
(C) 1. Index to Exhibits
3.1 Certificate of Incorporation and amendment.*
3.2 By-laws.*
10.1 Separation and Distribution Agreement between the Company and
Lennar Corporation, dated June 10, 1997.*
10.2 LNR Property Corporation Employee Stock Ownership/401(k)
Plan.*
10.3 Shared Facilities Agreement between LNR Property Corporation
and Lennar Corporation.*
21
<PAGE>
10.4 Partnership Agreement by and between Lennar Land Partners Sub,
Inc. and LNR Land Partners Sub, Inc.*
10.5 Revolving Credit Agreement dated as of December 5, 1997, among
LNR Property Corporation and certain subsidiaries and Bank of
America National Trust and Savings Association, as lender and
agent.*
10.6 Master Repurchase Agreement dated as of December 8, 1997,
between LNR Sands Holdings, Inc. and Goldman Sachs Mortgage
Company.*
10.7 Reverse Repurchase Agreement dated as of October 21, 1997,
between DLJ Mortgage Capital, Inc. and LNR Property
Corporation, Lennar Capital Services, Inc., Nevada Securities
Holdings, Inc., Lennar Securities Holdings, Inc., Lennar MBS,
Inc. and LFS Asset Corp.*
10.8 Amended and Restated Credit Agreement dated as of October 31,
1997, between Lennar Capital Services, Inc. and Lennar MBS,
Inc. as borrowers and Nationsbank of Texas, N.A. as lender.*
10.9 Credit Agreement among Lennar Land Partners as borrower, and
the First National Bank of Chicago, et al.*
10.10 Revolving Credit Agreement dated as of November 6, 1997, by
and between Lennar Capital Services, Inc. and The Bank of New
York.*
10.11 Reverse Repurchase Agreement dated as of June 7, 1996, between
CS First Boston (Hong Kong) Limited and Lennar Financial
Services, Lennar MBS, Inc., Lennar Securities Holdings, Inc.,
and LFS Asset Corp.*
10.12 Credit Agreement dated as of May 15, 1998, between LNR Florida
Funding, Inc., and German American Capital Corporation.*
10.13 Amended and Restated Credit Agreement dated as of October 4,
1999, by and between LNR Florida Funding, Inc., and German
American Capital Corporation.
10.14 LNR Property Corporation Savings Plan.
10.15 Partnership Agreement by and between Lennar Land Partners Sub
II, Inc. and LNR Land Partners Sub II, Inc.
11.1 Statement Regarding Computation of Earnings Per Share.
13.1 Pages 25 through 53 of the 1999 Annual Report to Stockholders.
21.1 List of subsidiaries.
27.1 Financial Data Schedule.
- ----------------------
* Previously filed.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LNR PROPERTY CORPORATION
/s/ STEVEN J. SAIONTZ February 25, 2000
- ---------------------------------------
Steven J. Saiontz
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Signature and Title Date
------------------- ----
/s/ STUART A. MILLER February 25, 2000
- ---------------------------------------
Stuart A. Miller
Chairman of the Board and Director
/s/ STEVEN J. SAIONTZ February 25, 2000
- ---------------------------------------
Steven J. Saiontz
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ JEFFREY P. KRASNOFF February 25, 2000
- ---------------------------------------
Jeffrey P. Krasnoff
President and Director
/s/ SHELLY RUBIN February 25, 2000
- ---------------------------------------
Shelly Rubin
Vice President and Chief
Financial Officer (Principal
Financial Officer)
/s/ STEVEN N. BJERKE February 25, 2000
- ---------------------------------------
Steven N. Bjerke
Corporate Controller (Principal
Accounting Officer)
/s/ LEONARD MILLER February 25, 2000
- ---------------------------------------
Leonard Miller
Director
23
<PAGE>
/s/ SUE M. COBB February 25, 2000
- ---------------------------------------
Sue M. Cobb
Director
/s/ CARLOS M. DE LA CRUZ February 25, 2000
- ---------------------------------------
Carlos M. de la Cruz
Director
/s/ BRIAN L. BILZIN February 25, 2000
- ---------------------------------------
Brian L. Bilzin
Director
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of Lennar Land Partners and Lennar Land Partners II:
We have audited the accompanying combined balance sheets of Lennar Land Partners
and Lennar Land Partners II, all of which are under common ownership and common
management, (collectively, the "Partnerships") as of November 30, 1999 and 1998,
and the related combined statements of operations, cash flows and partners'
capital for the years ended November 30, 1999 and 1998 and the period from
inception (October 31, 1997) to November 30, 1997. These combined financial
statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these combined 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Lennar Land Partners
and Lennar Land Partners II at November 30, 1999 and 1998, and the combined
results of their operations and their combined cash flows for the years ended
November 30, 1999 and 1998 and the period from inception (October 31, 1997) to
November 30, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
January 11, 2000
F-1
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
COMBINED BALANCE SHEETS
NOVEMBER 30, 1999 AND 1998
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents $ 48,141,744 15,375,848
Restricted cash 90,000,000 --
Land held for development and sale 271,802,950 237,453,597
Operating properties and equipment, net 17,635,188 17,411,365
Investments in partnerships 25,498,018 53,099,206
Other assets 20,627,032 16,015,903
------------ ------------
$473,704,932 339,355,919
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and other liabilities $ 24,074,551 39,102,399
Due to affiliate 555,064 1,108,192
Negative goodwill -- 1,351,112
Mortgage notes and other debts payable 219,209,559 98,488,166
------------ ------------
Total liabilities 243,839,174 140,049,869
Partners' capital 229,865,758 199,306,050
------------ ------------
$473,704,932 339,355,919
============ ============
See accompanying notes to combined financial statements.
F-2
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998 AND THE PERIOD
FROM INCEPTION (OCTOBER 31, 1997) TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ---------
<S> <C> <C> <C>
REVENUES
Land sales:
Affiliate lot sales $109,327,044 90,716,843 3,176,176
Third party lot sales 91,212,830 94,197,102 4,031,488
Third party acreage sales 17,965,220 39,454,724 424,682
------------ ----------- ---------
Total land sales 218,505,094 224,368,669 7,632,346
Equity in earnings of partnerships 18,160,134 29,190,882 779,758
Club operations 3,027,448 2,158,698 143,900
Amortization of negative goodwill 1,351,112 9,502,911 232,131
Other 10,409,582 5,305,849 358,698
------------ ----------- ---------
Total revenues 251,453,370 270,527,009 9,146,833
------------ ----------- ---------
COSTS AND EXPENSES
Cost of land sales:
Affiliate lot sales 77,415,895 66,426,824 2,547,610
Third party lot sales 77,552,825 68,606,945 3,513,643
Third party acreage sales 11,265,515 25,383,793 403,649
------------ ----------- ---------
Total cost of land sales 166,234,235 160,417,562 6,464,902
Selling, general and administrative 13,012,117 12,534,503 1,460,440
Management fees paid to affiliate 6,000,000 6,000,000 500,000
Club operations 3,061,932 2,333,494 162,715
------------ ----------- ---------
Total costs and expenses 188,308,284 181,285,559 8,588,057
------------ ----------- ---------
NET INCOME $ 63,145,086 89,241,450 558,776
============ =========== =========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998 AND THE PERIOD
FROM INCEPTION (OCTOBER 31, 1997) TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 63,145,086 89,241,450 558,776
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, net (970,692) (7,763,691) (143,824)
Equity in earnings of partnerships (18,160,134) (29,190,882) (779,758)
Changes in assets and liabilities:
Decrease in land held for development and sale 56,675,913 72,240,180 1,229,125
(Increase) decrease in other assets 2,271,709 (5,876,994) (4,229,306)
Increase (decrease) in accounts payable and other liabilities (17,620,010) 18,590,441 3,610,303
Increase (decrease) in due to affiliate (553,128) (7,816,078) 8,924,270
------------- ------------- -------------
Net cash provided by operating activities 84,788,744 129,424,426 9,169,586
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of operating properties and equipment (1,460,753) (464,637) (90,578)
Investments in partnerships (50,847,716) (27,789,507) --
Distributions from partnerships 49,055,656 39,314,754 5,000,000
------------- ------------- -------------
Net cash provided by (used in) investing activities (3,252,813) 11,060,610 4,909,422
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under revolving note payable (9,070,153) 3,356,498 5,821,411
Mortgage notes and other debts payable:
Proceeds from borrowings 117,643,531 4,448,103 100,151,043
Principal payments (34,758,035) (63,131,658) (6,490,608)
Increase in restricted cash (90,000,000) -- --
Partnership formation - cash contributed by partners -- -- 757,015
Contributions received from partners -- 8,900,000 --
Distributions to partners (32,585,378) (84,000,000) (109,000,000)
------------- ------------- -------------
Net cash used in financing activities (48,770,035) (130,427,057) (8,761,139)
------------- ------------- -------------
Net increase in cash and cash equivalents 32,765,896 10,057,979 5,317,869
Cash and cash equivalents at beginning of period 15,375,848 5,317,869 --
------------- ------------- -------------
Cash and cash equivalents at end of period $ 48,141,744 15,375,848 5,317,869
============= ============= =============
Supplemental disclosures of non-cash investing
and financing activities:
Partnership formation - assets contributed by partners $ -- -- 375,751,013
Partnership formation - liabilities assumed by partners $ -- -- 82,145,189
Contribution of land to partnerships $ -- 18,125,732 --
Consolidation of entity previously accounted for under
the equity method - assets and liabilities recorded:
Land held for development and sale $ 83,132,482 -- --
Mortgage notes and other debts payable (39,000,000) -- --
Other, net (2,387,513) -- --
Investments in partnerships (41,744,969) -- --
------------- ------------- -------------
$ -- -- --
============= ============= =============
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
COMBINED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998 AND THE PERIOD
FROM INCEPTION (OCTOBER 31, 1997) TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
LENNAR LAND LNR LAND
PARTNERS SUB, INC. PARTNERS SUB, INC.
AND LENNAR AND LNR
LAND PARTNERS LAND PARTNERS
SUB II, INC. SUB II, INC. TOTAL
------------- ----------- ------------
<S> <C> <C> <C>
Initial capitalization $ 146,802,912 146,802,912 293,605,824
Distributions (54,500,000) (54,500,000) (109,000,000)
Net income 279,388 279,388 558,776
------------- ----------- ------------
Balance at November 30, 1997 92,582,300 92,582,300 185,164,600
Contributions 4,450,000 4,450,000 8,900,000
Distributions (42,000,000) (42,000,000) (84,000,000)
Net income 44,620,725 44,620,725 89,241,450
------------- ----------- ------------
Balance at November 30, 1998 99,653,025 99,653,025 199,306,050
Distributions (16,292,689) (16,292,689) (32,585,378)
Net income 31,572,543 31,572,543 63,145,086
------------- ----------- ------------
Balance at November 30, 1999 $ 114,932,879 114,932,879 229,865,758
============= =========== ============
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF ORGANIZATION AND OPERATIONS
Lennar Land Partners ("LLP") is a Florida general partnership which was formed
at the close of business on October 31, 1997 through the contribution of assets
and related liabilities by Lennar Land Partners Sub, Inc. ("Lennar Sub I"), a
wholly-owned subsidiary of Lennar Corporation ("Lennar"), and LNR Land Partners
Sub, Inc. ("LNR Sub I"), a wholly-owned subsidiary of LNR Property Corporation
("LNR"). All amounts were recorded by LLP at the carrying value of the partners.
Lennar Sub I and LNR Sub I each received 50% partnership interests in LLP.
In July 1999, certain assets and liabilities of LLP were contributed at net book
value to a second general partnership, Lennar Land Partners II ("LLP II").
Lennar, through Lennar Land Partners Sub II, Inc. ("Lennar Sub II"), and LNR,
through LNR Land Partners Sub II, Inc. ("LNR Sub II"), each received 50%
partnership interests in LLP II.
Lennar Sub I is the managing general partner of LLP and Lennar Sub II is the
managing general partner of LLP II.
LLP and LLP II (the "Partnerships") are under common ownership and management
and are engaged in the acquisition, development and sale of land. Additionally,
the Partnerships own and operate recreational facilities in several of the
communities they develop. The Partnerships also invest in partnerships (and
similar entities) which acquire, develop and sell land and, in certain
instances, also build and sell homes.
BASIS OF COMBINATION
The accompanying combined financial statements include the accounts of the
Partnerships, their wholly-owned subsidiaries and partnerships (and similar
entities) in which a controlling interest is held. The Partnerships' investments
in partnerships (and similar entities) in which less than a controlling interest
is held are accounted for by the equity method. All significant intercompany
transactions and balances have been eliminated.
In 1999, the Partnerships obtained a controlling interest in one of its
partnerships which was being accounted for by the equity method. At such time,
the Partnerships began consolidating the assets and liabilities of the entity.
The effect on the Combined Balance Sheets of consolidating this entity is
included in the Combined Statements of Cash Flows under Supplemental Disclosures
of Non-Cash Investing and Financing Activities.
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.
F-6
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues from land sales are recognized when a significant down payment is
received, the earnings process is complete and the collection of any remaining
receivables is reasonably assured.
CASH AND CASH EQUIVALENTS
The Partnerships consider all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
LAND HELD FOR DEVELOPMENT AND SALE
The cost of land held for development and sale includes direct and indirect
costs, capitalized interest and property taxes. The cost of land, major
infrastructure, amenities and other common costs are apportioned among the
parcels within a real estate community. Land is carried at cost, unless the land
within a community is determined to be impaired, in which case the impaired land
will be written down to fair value. Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," requires that long-lived assets be evaluated for
impairment based on undiscounted future cash flows of the assets. Write-downs of
land deemed to be impaired will be recorded as adjustments to the cost basis of
the respective land. As of November 30, 1999 and 1998, there were no assets
considered impaired under the provisions of this statement.
INTEREST AND REAL ESTATE TAXES
Interest and real estate taxes attributable to land and operating properties are
capitalized and added to the cost of those properties as long as the properties
are being actively developed. During 1999, 1998 and 1997, interest costs of
$6,585,214, $10,283,403 and $999,631, respectively, were incurred and
$6,328,383, $10,283,403 and $999,631, respectively, were capitalized.
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 estimated useful life for
operating properties is 39 years and for equipment is 2 to 20 years.
F-7
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEGATIVE GOODWILL
At the formation of LLP, certain assets and the related negative goodwill were
contributed. The negative goodwill was amortized over the lives of the assets
acquired that gave rise to the negative goodwill. No negative goodwill remained
at November 30, 1999.
INCOME TAXES
No provision for income taxes has been included in the combined financial
statements for the Partnerships since the payment of such taxes is the
obligation of the partners.
2. LAND HELD FOR DEVELOPMENT AND SALE
Land held for development and sale consists of individual lots and land parcels
for sale to homebuilders, including Lennar. These properties are located in
Florida, California, Texas and Arizona. Land parcels are in various stages of
development as of November 30, 1999 and 1998.
3. OPERATING PROPERTIES AND EQUIPMENT
Operating properties and equipment at November 30, 1999 and 1998 consisted of
the following:
1999 1998
------------ ------------
Community recreational facilities $ 14,823,419 14,805,335
Sales center 1,890,549 726,526
------------ ------------
Total land and buildings 16,713,968 15,531,861
Furniture, fixtures and equipment 3,259,254 2,991,823
------------ ------------
19,973,222 18,523,684
Accumulated depreciation (2,338,034) (1,112,319)
------------ ------------
$ 17,635,188 17,411,365
============ ============
F-8
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS IN PARTNERSHIPS
Summarized financial information on a combined 100% basis related to the
Partnerships' significant partnerships and similar entities accounted for by the
equity method as of November 30, 1999 and 1998 and for the years ended November
30, 1999 and 1998 and the period from inception (October 31, 1997) to November
30, 1997 was as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C> <C>
ASSETS:
Cash $ 4,583,899 38,027,581
Real estate inventories 126,322,905 176,012,698
Other assets 2,595,562 5,812,413
------------ ------------
$133,502,366 219,852,692
============ ============
LIABILITIES AND EQUITY:
Accounts payable and other liabilities $ 29,861,086 41,388,747
Notes and mortgages payable 39,174,379 71,842,534
Equity of:
The Partnerships 25,832,402 53,790,256
Others 38,634,499 52,831,155
------------ ------------
$133,502,366 219,852,692
============ ============
1999 1998 1997
------------ ------------ ------------
Revenues $210,032,897 206,294,488 5,082,352
Costs and expenses 171,286,026 140,533,692 3,498,977
------------ ------------ ------------
Earnings of partnerships $ 38,746,871 65,760,796 1,583,375
============ ============ ============
The Partnerships' share of earnings $ 18,160,134 29,190,882 779,758
============ ============ ============
</TABLE>
At November 30, 1999 and 1998, the Partnerships' equity interests in these
partnerships ranged from 33% to 50%. These partnerships are primarily involved
in the acquisition, development and sale of residential land. The Partnerships
share in the profits and losses of these partnerships and, when appointed the
manager of the partnerships, receive fees for the management of the assets. The
outstanding debt of these partnerships is not guaranteed by the Partnerships.
However, Lennar and LNR guarantee the debt of one of the partnerships (see Notes
6 and 7).
F-9
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities at November 30, 1999 and 1998 consisted
of the following:
1999 1998
----------- -----------
Accounts payable $12,729,777 7,916,424
Land sales deposits 366,265 17,921,730
Deferred income 880,533 3,235,288
Accrued property taxes 2,791,743 2,876,913
Other liabilities 7,306,233 7,152,044
----------- -----------
$24,074,551 39,102,399
=========== ===========
6. MORTGAGE NOTES AND OTHER DEBTS PAYABLE
Mortgage notes and other debts payable at November 30, 1999 and 1998 consisted
of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Term loan note with a floating interest rate (5.9%
at November 30, 1999), collateralized by cash,
due in 2000 $ 90,000,000 --
Mortgage notes on land, with interest rates ranging
from 0% to 7.3%, secured by certain real estate,
due through 2001 69,798,081 21,296,915
Term loan note with a floating interest rate (6.5%
at November 30, 1999), secured by certain real estate,
due in 2001 43,167,199 68,013,342
Revolving credit note payable with a floating interest
rate (6.5% at November 30, 1999), secured by
certain real estate, due in 2001 107,756 9,177,909
Unsecured note payable, 0% interest, due in 2000 16,136,523 --
------------ ------------
$219,209,559 98,488,166
============ ============
</TABLE>
F-10
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. MORTGAGE NOTES AND OTHER DEBTS PAYABLE (CONTINUED)
In 1999, LLP obtained a $90,000,000 term loan due 2000, which is collateralized
by a $90,000,000 deposit with the financial institution that issued the loan.
This loan is guaranteed by Lennar.
During 1997, LLP entered into two secured credit facilities (together the "Land
Facilities") in the aggregate amount of $225,000,000 which may be used to
refinance existing indebtedness, for working capital, for acquisitions, for
interest payments and for general partnership purposes. In 1999, LLP II became a
co-borrower under these facilities. One facility is structured as a $125,000,000
revolving credit facility (the "revolving credit note") which will mature in
November 2001, subject to a one-year extension at the request of the
Partnerships and with the consent of the lenders. The second facility is a
$100,000,000 term loan facility (the "term loan note") which amortizes in equal
quarterly amounts of $7,000,000 and matures in November 2001. Advances under the
Land Facilities are limited by certain borrowing base calculations, and are
secured by security interests in all real and personal property in the borrowing
base. Both Lennar and LNR guarantee these obligations. The weighted average
interest rate under the Land Facilities is tied to the London Interbank Offered
Rate (LIBOR) and was 6.5% at November 30, 1999 and 1998.
The minimum aggregate principal maturities of mortgage notes and other debts
payable subsequent to November 30, 1999 are as follows: 2000 - $194,921,190 and
2001 - $24,288,369.
7. RELATED PARTY TRANSACTIONS
Lennar is paid a monthly fee for managing the day-to-day operations of the
Partnerships. As manager, Lennar is also entitled to reimbursement for all
out-of-pocket expenses directly incurred in its capacity as manager (the "Direct
Expenses") including, but not limited to, costs and expenses of employees
(salary, bonus and benefits), contractors, agents, professional fees, telephone,
travel, productions and reproductions of documents and postage. In addition to
the Direct Expenses, Lennar will share some of its employees, contractors,
agents, facilities and equipment and other expenses with the Partnerships (the
"Indirect Expenses"). The reimbursement for the Indirect Expenses is $500,000
per month which is reflected as management fees paid to affiliate in the
combined statements of operations. The Partnerships reimbursed Lennar
$1,534,164, $1,683,251 and $153,905 for Direct Expenses in 1999, 1998 and 1997,
respectively, and $6,000,000, $6,000,000 and $500,000 for Indirect Expenses in
1999, 1998 and 1997, respectively.
The Partnerships, in the ordinary course of business, sell land to Lennar.
During 1999, these land sales amounted to $109,327,044 in revenues and generated
gains totaling $31,911,149. During 1998, these land sales amounted to
$90,716,843 in revenues and generated gains totaling $24,290,019. During 1997,
these land sales amounted to $3,176,176 in revenues and generated gains totaling
$628,566.
F-11
<PAGE>
LENNAR LAND PARTNERS
AND LENNAR LAND PARTNERS II
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
At November 30, 1999, Lennar and LNR guaranteed $186,674,955 of the
Partnerships' debt and $24,793,345 of the debt of one of the Partnerships'
partnerships. During 1999 and 1998, the Partnerships paid the partners guarantee
fees totaling $283,721 and $632,004, respectively. During 1999, the Partnerships
entered into a transaction with Lennar that was accounted for under generally
accepted accounting principles as a nonmonetary exchange of similar assets. The
net assets received in the transaction were recorded by the Partnerships at the
net book value of the assets given up of $42,173,384.
Lennar funds the deficits of the community recreational facilities of the
Partnerships' non-master planned communities. During 1999, 1998 and 1997, the
Partnerships received deficit funding from Lennar of $521,198, $1,144,890 and
$115,993, respectively.
At November 30, 1999 and 1998, the Partnerships owed Lennar $555,064 and
$1,108,192, respectively, for advances, Indirect Expenses and Direct Expenses.
8. COMMITMENTS AND CONTINGENT LIABILITIES
The Partnerships are subject to the usual obligations associated with entering
into contracts for the purchase, development and sale of real estate in the
routine conduct of its business.
Through an arrangement with Lennar as managing partner, the Partnerships are
committed, under various letters of credits, to perform certain development
activities and provide certain guarantees in the normal course of business.
Outstanding letters of credit under this arrangement totaled $34,300,000 at
November 30, 1999.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Of LNR Property Corporation:
We have audited the consolidated financial statements of LNR Property
Corporation (the "Company") as of November 30, 1999 and 1998, and for each of
the three years in the period ended November 30, 1999, and have issued our
report thereon dated January 20, 2000; such report is included elsewhere in this
Form 10-K. Our audits also included the financial statement schedules of LNR
Property Corporation, listed in Item 14. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic 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
January 20, 2000
F-13
<PAGE>
LNR PROPERTY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
ADDITIONS
---------------------
CHARGED CHARGED
TO COSTS (CREDITED)
BEGINNING AND TO OTHER ENDING
DESCRIPTION BALANCE EXPENSES ACCOUNTS (DEDUCTIONS) BALANCE
- ----------- ----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended November 30, 1999
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts and notes
receivable $ 117,000 662,000 153,000 (335,000) 597,000
=========== ======= ======== =========== ===========
Deferred income and unamortized discounts $ 6,451,000 -- -- (1,091,000)(A) 5,360,000
=========== ======= ======== =========== ===========
Loan loss reserve $ 2,948,000 -- -- (910,000) 2,038,000
=========== ======= ======== =========== ===========
Year ended November 30, 1998
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts and notes
receivable $ 703,000 278,000 -- (864,000) 117,000
=========== ======= ======== =========== ===========
Deferred income and unamortized discounts $ 6,706,000 -- 773,000 (1,028,000)(A) 6,451,000
=========== ======= ======== =========== ===========
Loan loss reserve $ 2,038,000 910,000 -- -- 2,948,000
=========== ======= ======== =========== ===========
Year ended November 30, 1997
Allowances deducted from assets to which they
apply:
Allowances for doubtful accounts and notes
receivable $ 938,000 467,000 (702,000) -- 703,000
=========== ======= ======== =========== ===========
Deferred income and unamortized discounts $10,851,000 -- 235,000 (4,380,000)(B) 6,706,000
=========== ======= ======== =========== ===========
Loan loss reserve $ 2,071,000 -- -- (33,000) 2,038,000
=========== ======= ======== =========== ===========
Valuation allowance $ 2,908,000 -- -- (2,908,000)(B) --
=========== ======= ======== =========== ===========
</TABLE>
Notes:
(A) Includes amortization of discounts.
(B) Includes transfers to Lennar Corporation of approximately $4.2 million and
amortization of discount and other.
F-14
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (D)(E)
YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST SUBSEQUENT TO
TO COMPANY ACQUISITION
--------------------------- --------------------------
BUILDING AND IMPROVE- CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS MENTS COSTS
- ----------- ------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Rental
office
property -
GA $ -- 5,237,000 20,020,000 26,726,000 2,525,000
Other
miscellaneous
properties
which are
individually
less than 5%
of total 567,001,000 186,121,000 297,740,000 465,810,000 9,503,000
------------- ----------- ----------- ----------- ----------
$ 567,001,000 191,358,000 317,760,000 492,536,000 12,028,000
============= =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT
AT WHICH DATE OF
CARRIED AT ACCUMULATED COMPLETION OF DATE
CLOSE OF PERIOD DEPRECIATION (B) CONSTRUCTION ACQUIRED
----------------------------------------- ---------------- ------------- --------
DESCRIPTION LAND(A) BUILDINGS(A) TOTAL (C)
- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Rental
office
property -
GA 5,237,000 49,271,000 54,508,000 1,423,000 1999 1996
Other
miscellaneous
properties
which are
individually
less than 5%
of total 186,121,000 773,053,000 959,174,000 40,716,000 Various Various
----------- ----------- ------------- ----------
191,358,000 822,324,000 1,013,682,000 42,139,000
=========== =========== ============= ==========
</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 30 years.
(C) The aggregate gross cost of the listed property for Federal income tax
purposes was $865,609,000 at November 30, 1999.
(D) The listed real estate includes operating properties completed or under
construction.
(E) Reference is made to Notes 1, 6 and 8 of the consolidated financial
statements.
(F) The changes in the total cost of real estate properties and accumulated
depreciation for the three years ended November 30, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
Cost: 1999 1998 1997
----------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $ 746,748 257,376 234,010
Additions, at cost 446,922 501,075 76,921
Cost of real estate sold (169,642) (27,187) (55,381)
Transfers (10,346) 15,484 1,826
----------- ------- -------
Balance at end of year $ 1,013,682 746,748 257,376
=========== ======= =======
Accumulated depreciation:
Balance at beginning of year $ 39,943 31,904 31,971
Depreciation and amortization charged against earnings 24,637 12,283 5,195
Depreciation on real estate sold (22,441) (4,244) (5,262)
----------- ------- -------
Balance at end of year $ 42,139 39,943 31,904
=========== ======= =======
</TABLE>
F-15
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OF LOANS
SUBJECT TO
CARRYING DELINQUENT
FINAL PERIODIC FACE AMOUNT OF PRINCIPAL
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF MORTGAGES OR
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES (A)(B)(C) INTEREST
- ------------------------------------- ------------ --------- --------------- ------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
First mortgage notes secured
by real estate and other:
Convention center - NV Libor + 300 2000 Interest Only $ 45,000,000 45,000,000
Mixed use - MA Libor + 650 2002 Interest Only 35,200,000 35,200,000
Office building - TX Libor + 625 2002 Interest Only 21,000,000 21,000,000
Office building - CA 7.50% 2003 Varying Payment 16,480,000 13,035,000
Multi-family - CA Libor + 625 2003 Interest Only 11,040,000 11,040,000
Mixed use - MA Libor + 600 2000 Interest Only 8,000,000 8,000,000
Other 5.89%-15.00% 2000-2011 Various 6,266,000 4,351,000
------------- ----------- ----------
142,986,000 137,626,000 --
Second mortgage notes secured by real
estate:
Residential Development - CA 12.00% 2002 Varying Payment 7,109,000 7,109,000
Residential Development - CA 10.00% 2001 Varying Payment 2,670,000 2,670,000
Residential Development - CA 12.00% 2001 Varying Payment 2,326,000 2,326,000
Industrial Development - CA 25.00% 2000 Varying Payment 1,680,000 1,680,000
Residential Development - NV 20.00% 2000 Varying Payment 1,525,000 1,525,000
Residential Development - CA 12.00% 2001 Varying Payment 1,330,000 1,330,000
Residential Development - CA 20.00% 2000 Varying Payment 599,000 599,000
------------- ----------- ----------
17,239,000 17,239,000 --
------------- ----------- ----------
160,225,000 154,865,000
Loan Loss Reserve (2,038,000)
------------- ----------- ----------
$ 160,225,000 152,827,000 --
============= =========== ==========
</TABLE>
Notes:
(A) For Federal income tax purposes, the aggregate basis of the listed
mortgages was $160,284,000 at November 30, 1999.
(B) Carrying amounts are net of unamortized discounts.
(C) The changes in the carrying amounts of mortgages for the years ended
November 30, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year $ 97,855,000 86,849,000 64,441,000
Additions (deductions):
New mortgage loans, net 83,901,000 137,242,000 67,319,000
Collections of principal (30,885,000) (126,432,000) (20,085,000)
Transfers to Lennar Corporation -- -- (24,918,000)
Amortization of discount 1,091,000 1,106,000 92,000
Change in loan loss reserve 910,000 (910,000) --
Other (45,000) -- --
------------- ------------- -------------
Balance at end of year $ 152,827,000 97,855,000 86,849,000
============= ============= =============
</TABLE>
F-16
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.13 Amended and Restated Credit Agreement dated as of October 4, 1999,
between LNR Florida Funding, Inc., and German American Capital
Corporation.
10.14 LNR Property Corporation Savings Plan.
10.15 Partnership Agreement by and between Lennar Land Partners Sub II, Inc.
and LNR Land Partners Sub II, Inc.
11.1 Statement Regarding Computation of Earnings Per Share.
13.1 Pages 25 through 53 of the 1999 Annual Report to Stockholders.
21.1 List of subsidiaries.
27.1 Financial Data Schedule.
EXHIBIT 10.13
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 4, 1999
Between
LNR FLORIDA FUNDING, INC.,
as Borrower,
and
GERMAN AMERICAN CAPITAL CORPORATION,
as Lender
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION PAGE
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS........................................................................1
SECTION 1.01. Certain Defined Terms....................................................................1
SECTION 1.02. Computation of Time Periods.............................................................29
SECTION 1.03. Accounting Terms........................................................................29
ARTICLE II AMOUNT AND TERMS OF THE ADVANCES......................................................................30
SECTION 2.01. The Advances............................................................................30
SECTION 2.02. Making the Advances.....................................................................30
SECTION 2.03. Repayment of Advances...................................................................31
SECTION 2.04. Prepayments.............................................................................32
SECTION 2.05. Interest................................................................................34
SECTION 2.06. Increased Costs, Etc....................................................................35
SECTION 2.07. Payments and Computations...............................................................36
SECTION 2.08. Taxes...................................................................................37
SECTION 2.09. Use of Proceeds.........................................................................38
SECTION 2.10. Late Charge.............................................................................38
SECTION 2.11. Security for the Advances...............................................................38
SECTION 2.12. The Note................................................................................39
ARTICLE III CONDITIONS OF LENDING................................................................................39
SECTION 3.01. Conditions Precedent to Initial Advance.................................................39
SECTION 3.02. Conditions Precedent to Each Advance....................................................41
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................42
SECTION 4.01. Representations and Warranties of Borrower..............................................42
ARTICLE V COVENANTS OF THE BORROWER..............................................................................45
SECTION 5.01. [Reserved]..............................................................................45
SECTION 5.02. Affirmative Covenants...................................................................45
SECTION 5.03. Negative Covenants......................................................................47
SECTION 5.04. Reporting Requirements..................................................................48
ARTICLE VI EVENTS OF DEFAULT.....................................................................................50
SECTION 6.01. Events of Default.......................................................................50
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII SECONDARY MARKET; SERVICING..........................................................................52
SECTION 7.01. Participations..........................................................................52
SECTION 7.02. Servicing...............................................................................52
ARTICLE VIII PARTIAL RELEASE OF COLLATERAL.......................................................................53
SECTION 8.01. Partial Release of Collateral...........................................................53
ARTICLE IX MISCELLANEOUS.........................................................................................53
SECTION 9.01. Amendments, Etc.........................................................................53
SECTION 9.02. Notices, Etc............................................................................53
SECTION 9.03. No Waiver; Remedies.....................................................................54
SECTION 9.04. Costs, Expenses.........................................................................54
SECTION 9.05. Right of Set-off........................................................................55
SECTION 9.06. Binding Effect..........................................................................56
SECTION 9.07. Execution in Counterparts...............................................................56
SECTION 9.08. Jurisdiction, Etc.......................................................................56
SECTION 9.09. Governing Law...........................................................................56
SECTION 9.10. Waiver of Jury Trial....................................................................56
SECTION 9.11. Confidentiality.........................................................................57
SECTION 9.12. Recourse Limitation.....................................................................57
SECTION 9.13. Amendment of Existing Agreement.........................................................58
SCHEDULES
Schedule A - Domestic and Eurodollar Lending Offices
Schedule B - Disclosure Schedule
Schedule C - Reunderwritten Net Cash Flow Methodology
Schedule D - Mortgage File
Schedule E - Mortgage Loan Advances Maturity Dates for Current Mortgage Loan Advances
EXHIBITS
Exhibit A - Form of Amended and Restated Promissory Note
Exhibit B - List of Appraisers
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Mortgage Loan Schedule
Exhibit E - Form of Monthly Asset Report
Exhibit F - Form of Amended and Restated Custodial Agreement
Exhibit G - Form of Notice of Borrowing
Exhibit H - Form of Collateral Assignment of Mortgage and Note
Exhibit I - Form of Collateral Assignment of Participation
Exhibit J - Intentionally Omitted
Exhibit K - Form of Request for Partial Release
</TABLE>
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT ("AGREEMENT"), dated as of
October 4, 1999, between LNR FLORIDA FUNDING, INC., a Florida corporation
("BORROWER") and GERMAN AMERICAN CAPITAL CORPORATION, a Maryland corporation
(together with its successors and assigns, "LENDER").
PRELIMINARY STATEMENTS:
(1) Borrower is in the business of purchasing, originating and
servicing multi-family residential and commercial mortgage loans.
(2) Borrower and Lender are parties to a Credit Agreement, dated as of
May 15, 1998, as amended by an Amendment to Credit Agreement, dated as of
January 13, 1999 (as amended, the "EXISTING CREDIT AGREEMENT"), pursuant to
which Borrower has requested that Lender make Advances to Borrower from time to
time in an aggregate amount outstanding at any time of not more than Two Hundred
Twenty Million and 00/100 Dollars ($220,000,000) in order to provide funds to
the Borrower to make or acquire mortgage loans. The Lender has indicated its
willingness to agree to lend such amount on the terms and conditions of this
Agreement.
(3) The Borrower and the Lender desire to amend and restate the
Existing Credit Agreement (a) to provide for the continuing financing pursuant
to this Agreement of mortgage loans, (b) to incorporate the financing of junior
debt instruments secured by mortgage loans or junior participations in mortgage
loans and (c) to amend the provisions of the Loan Documents as otherwise
provided herein and therein. The Lender has indicated its willingness to amend
and restate the Existing Credit Agreement and to agree to continue to lend the
amount provided for herein on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"A NOTE" means the senior promissory note or other evidence of
senior indebtedness of a borrower under a mortgage loan secured by a
Multi family Property or Commercial Property, including any amendments
or modifications, or any renewal or substitution notes.
"ADVANCE" has the meaning specified in SECTION 2.01. Each
Advance shall be either a Mortgage Loan Advance or a B Note Advance.
<PAGE>
2
"ADVANCE AMOUNT" means the principal amount of any Advance.
"ADVANCE RATE" means as follows:
(a) with respect to a Mortgage Loan Advance, ninety percent
(90%); and
(b) with respect to a B Note Advance, seventy five percent
(75%); provided that, notwithstanding the foregoing, (1) the Advance
Rate may be increased as determined by Lender in its sole discretion to
equal the maximum percentage which would cause the sum of (a) the
outstanding principal amount of the A Note and (b) the product of such
percentage and the outstanding principal amount of the B Note to equal
70% of the Property Value directly or indirectly securing such A Note
and B Note (except if the maximum percentage determined pursuant to the
foregoing would exceed 85.0%, then the Advance Rate increase determined
pursuant to this clause (1) shall be capped at 85.0%) or (2) the
Advance Rate may be decreased as determined by Lender in its sole
discretion to equal the percentage which causes the sum of (A) the
outstanding principal amount of the A Note and (B) the product of such
percentage and the outstanding principal amount of the B Note to equal
75% of the Property Value directly or indirectly securing such A Note
and B Note.
"AFFILIATE" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling," "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power to vote 10% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.
"AGREEMENT" has the meaning specified in the recital of parties to this
Agreement.
"APPLICABLE LENDING OFFICE" means Lender's Eurodollar Lending Office
with respect to each Eurodollar Rate Advance and Lender's Domestic Lending
Office with respect to each Base Rate Advance.
"APPLICABLE MARGIN" means, with respect to any Eurodollar Rate Advance,
75 basis points (0.75%) per annum.
"APPRAISAL" means an appraisal of a Mortgaged Property prepared by an
Appraiser in accordance with the Uniform Standards of Appraisal Practice of the
Appraisal Foundation and complying with the requirements of Title 11 of the
Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
otherwise in form and substance acceptable to the Lender, as may be updated by
recertification from time to time.
<PAGE>
3
"APPRAISER" means any Independent appraiser set forth on Exhibit B or
otherwise approved by Lender in writing.
"ASSIGNMENT OF MORTGAGE" means an assignment of Mortgage, in
substantially the form of EXHIBIT H attached hereto, and any separate Assignment
of Rents sufficient under the laws of the jurisdiction in which the applicable
Mortgaged Property is located to effect the transfer of all right, title and
interest of the Borrower in such Mortgage and Assignment of Rents.
"ASSIGNMENT OF RENTS" means, with respect to any Mortgaged Property,
any assignment of leases, rents and profits or similar agreement executed by
Mortgagor, assigning to the mortgagee all of the income, rents and profits
derived from the ownership, operation, leasing or disposition of all or a
portion of such Mortgaged Property, in the form which was duly executed,
acknowledged and delivered, as amended, modified, renewed or extended through
the date hereof and from time to time hereafter.
"AUTHORIZATION" means any authorization, approval, franchise, license,
variance, land use entitlement, sewer and waste water discharge permit, storm
water discharge permit, air pollution authorization to operate, certificate of
occupancy, municipal water and sewer connection permit, and any like or similar
permit now or hereafter required for the construction of any improvements
located on any Mortgaged Property or for the use, occupancy or operation of such
Mortgaged Property and all amendments, modifications, supplements and addenda
thereto.
"B NOTE" means a junior promissory note or other evidence of
subordinate indebtedness of a borrower under a mortgage loan secured by
a Multifamily Property or Commercial Property or a junior participation
in a mortgage loan secured by a Multifamily Property or Commercial
Property, including any amendments or modifications, or any renewal or
substitution notes or participations.
"B NOTE ADVANCE" means an Advance made to the Borrower to
provide funds to acquire one or more B Notes.
"B NOTE ADVANCES MATURITY DATE" means, with respect to any B
Note Advance, the first Business Day in September, 2003.
"B NOTE ADVANCES TERMINATION DATE" means May 31, 2002.
"B NOTE BALLOON PAYMENT DEFAULT CONDITION" means the event
which shall be deemed to have occurred, with respect to any B Note for
which the Lender has determined that the mortgage loan securing such B
Note (i) has become a Defaulted Loan due to the obligor failing to make
a balloon payment and (ii) has Reunderwritten Net Cash Flow equal to or
greater than the Initial Underwritten Net Cash Flow, if the Lender
reasonably determines that the Borrower or an Affiliate of the Borrower
in its capacity as "special servicer" of such mortgage loan, either:
<PAGE>
4
(x) shall not be enforcing all of its material rights and remedies
with respect to such mortgage loan after the Lender shall have
provided written notice of such failure to enforce and a five
(5) Business Day opportunity to commence such enforcement; or
(y) shall not have (I) delivered to the Lender "an asset status
plan" with respect to the remedies it intends to pursue
regarding such mortgage loan within thirty (30) days of the
date the Lender first notified the Borrower in writing that
clauses (i) and (ii) above had occurred or (II) provided to
the Lender a reasonable opportunity to review and comment on
such plan (with Borrower or its Affiliate not having any
obligation to accept such comments).
"B NOTE CURRENT TOTAL EXPOSURE PERCENTAGE" means, with respect to any B
Note as of any date of determination after the date the related B Note Advance
is made, the percentage equal to the quotient of (x) the sum of the outstanding
principal amounts of the A Note and such B Note Advance divided by (y) the
Property Value directly or indirectly securing such A Note and B Note. For
purposes of the proviso to the definition of "Capital Limit", if the amount of
the B Note Advance necessary to cause such percentage to equal 80% would be a
negative number, then the "B Note Advance" shall be deemed to equal zero.
"B NOTE EXTENDED MONTHLY PAYMENT DEFAULT LOAN" means any mortgage loan
securing a B Note for which all of the following are true: (i) such mortgage
loan has become a Defaulted Loan due to the obligor failing to make a monthly
payment (other than a balloon payment), (ii) such failure has continued for
ninety (90) days or more and remains uncured and (iii) such mortgage loan has
Reunderwritten Net Cash Flow equal to or greater than the Initial Underwritten
Net Cash Flow as determined by the Lender.
"B NOTE NON-PAYMENT DEFAULT EVENT" means the event which shall be
deemed to have occurred with respect to any B Note if the Lender determines that
the mortgage loan securing such B Note has become a Defaulted Loan (other than
as a result of the events described in clause (a) of the definition thereof) and
the related B Note Current Total Exposure Percentage exceeds 85%. If a B Note
Non-Payment Default Event occurs, then the Lender shall notify the Borrower in
writing of the event that caused such mortgage loan to become a Defaulted Loan.
"B NOTE PAYMENT DEFAULT EVENT" means the event which shall be deemed to
have occurred with respect to any B Note if the Lender determines that (i) the
mortgage loan securing such B Note has become a Defaulted Loan as a result of
the events described in clause (a) of the definition thereof and (ii) the
related B Note Current Total Exposure Percentage exceeds 85%, and in connection
with the occurrence of any such event, any of the following has also occurred:
(1) the Reunderwritten Net Cash Flow of such mortgage loan is less than the
Initial Underwritten Net Cash Flow of such mortgage loan; or
<PAGE>
5
(2) a B Note Balloon Payment Default Condition has occurred and is
continuing; or
(3) such mortgage loan is a B Note Extended Monthly Payment Default Loan.
Lender agrees to consider in good-faith any written objection from the Borrower
with respect to the Reunderwritten Net Cash Flow being less than the Initial
Underwritten Net Cash Flow.
"B NOTE PERFORMANCE EVENT" means the event which shall be deemed to
have occurred with respect to any B Note if the Lender determines that (i) the
Reunderwritten Net Cash Flow of the mortgage loan securing such B Note is less
than the Initial Underwritten Net Cash Flow and (ii) the related B Note Current
Total Exposure Percentage exceeds 85%. If a B Note Performance Event occurs,
then the Lender shall notify the Borrower in writing of (x) the then current
Property Value and the reasons for and methodology of such Property Value
determination and (y) the Reunderwritten Net Cash Flow and a detailed
calculation thereof. Lender agrees to consider in good-faith any written
objection from the Borrower with respect to a decrease in Reunderwritten Net
Cash Flow delivered within thirty (30) days following the Lender's notice.
"BASE RATE" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall be equal to the lesser of (i) the
maximum non-usurious rate permitted by Law or (ii) the greater of (A) the rate
of interest announced publicly by Deutsche Bank AG, New York Branch, in New
York, from time to time, as its "Prime Rate" and (B) one percent (1%) above the
Federal Funds Rate.
"BASE RATE ADVANCE" means an Advance which bears interest in accordance
with SECTION 2.05(A)(I).
"BORROWER" has the meaning specified in the recital of parties to this
Agreement.
"BORROWER'S ACCOUNT" means an account of Borrower maintained by
Borrower and designated by notice to Lender not less than two (2) days prior to
the Closing Date.
"BORROWING BASE CERTIFICATE" means a certificate in substantially the
form of EXHIBIT C hereto, duly certified by the chief financial officer of
Borrower.
"BORROWING BASE DEFICIENCY" means, at any time, (a) with respect to the
Mortgage Loans, the excess of (i) the aggregate principal amount of Advances
with respect to the Mortgage Loans outstanding at such time over (ii) the
aggregate Capital Limit determined with respect to the Mortgage Loans or (b)
with respect to each B Note, the excess of (I) the principal amount of the B
Note Advance for such B Note outstanding at such time over (II) the Capital
Limit for such B Note.
"BORROWING LIMIT" means, as of any date of determination, the lesser of
(a) Two Hundred Seventy Million and 00/100 Dollars ($270,000,000) minus the
Repurchase Price under the Repurchase Facility (exclusive of the portion of the
Repurchase Price equal to
<PAGE>
6
the sum of the Price Differential as of such date of determination, the Pricing
Rate Breakage and costs incurred pursuant to paragraphs 7(d) and 7(e) of Annex I
thereto) and (b) the Capital Limit.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized by law to close in New York City, and, if the applicable Business
Day relates to any Eurodollar Rate Advances, a Business Day on which commercial
banks are open for international business (including dealings in dollar deposits
in the London interbank market).
"CAPITAL LIMIT" means the following:
(a) with respect to the Mortgage Loans, (a) sum of (i) the
product of (x) the aggregate Loan Value of the Eligible Mortgage Loans
constituting Collateral and (y) the related Advance Rate, plus (ii) all
cash and cash equivalents of Borrower plus (iii) the fair market value
of any nonliquid assets, as determined by Lender in its sole
discretion, as part of Facility Equity, less (b) the Minimum Collateral
Value, or
(b) with respect to each B Note, the principal amount of the B
Note Advance for such B Note as of such date of determination;
PROVIDED, that notwithstanding the foregoing, with respect to any B
Note for which a B Note Performance Event or a B Note Non-Payment
Default Event or a B Note Payment Default Event shall have occurred and
is continuing, then "CAPITAL LIMIT" for such B Note means the amount
(not less than zero) which when inserted into the definition of "B Note
Current Total Exposure Percentage" as the applicable outstanding B Note
Advance causes the B Note Current Total Exposure Percentage to equal
80%.
"CAPITALIZED LEASES" means, with respect to any Person, any leases of
any property by such Person, as lessee, which, in accordance with GAAP, is
required to be accounted for as a capital lease on the balance sheet of such
Person.
"CASH COLLATERAL ACCOUNT" has the meaning specified in SECTION 2.04.
"CHANGE OF CONTROL" means with respect to any Person (i) the sale or
transfer by Persons who are the direct beneficial owners of such Person as of
the Closing Date of more than forty-nine and nine-tenths percent (49.9%) of the
direct or indirect right to distributions from such Person in the aggregate to
Persons who were not direct beneficial owners as of such date or (ii) the sale
or transfer by such direct beneficial owners of such Person as of the Closing
Date of more than forty-nine and nine-tenths percent (49.9%) of the direct or
indirect voting rights in such Person to Persons who were not direct beneficial
owners as of such date.
"CLOSING DATE" means the date on which Borrower shall execute and
deliver this Agreement.
<PAGE>
7
"CMBS" means commercial mortgage backed securities evidencing an
interest in or secured by a pool of Mortgage Loans.
"COLLATERAL" means, collectively, (x) with respect to the B Notes, all
Eligible B Notes, (y) with respect to the Mortgage Loans, all Eligible Mortgage
Loans, any Hedge Agreements entered into by Borrower in connection with any
Mortgage Loans, all Borrower's right, title and interest in and to the related
Mortgage Loan Documents and (z) all other property, whether real, personal or
mixed, tangible or intangible, owned or to be owned or leased or to be leased or
otherwise held or to be held by Borrower or in which Borrower shall have or
shall acquire an interest, to the extent that Borrower's interest therein is now
or hereafter granted, assigned, transferred, mortgaged or pledged to Lender or
in which a security interest is granted to Lender to secure all or any part of
the Obligations.
"COLLATERAL DOCUMENTS" means the Security Agreement, the Assignments of
Mortgage, and any other agreement that creates or purports to create a Lien in
favor of Lender.
"COMMERCIAL PROPERTY" means a fee simple estate in or a ground lease on
a parcel of real property, together with all improvements thereon, which
property is used for commercial purposes other than multifamily residential,
including without limitation congregate care and assisted living facilities,
nursing homes, retail shopping centers, hotels, office buildings, industrial
properties and warehouse facilities, together with any personal property,
fixtures, leases, and other property or rights of the owner pertaining thereto.
"CONSOLIDATED" refers to the consolidation of accounts in accordance
with GAAP.
"CUSTODIAL AGREEMENT" means the Custodial Agreement of even date
herewith, by and among Borrower, Lender and the Custodian, substantially in the
form of EXHIBIT F annexed hereto, as it may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"CUSTODIAN" means LaSalle National Bank, the financial institution
selected to act as Custodian pursuant to the Custodial Agreement, and any other
financial institution subsequently selected by Lender to so act, and reasonably
acceptable to Borrower.
"DEBT" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all Obligations of such Person for the
deferred purchase price of property or services (other than trade payables not
overdue by more than ninety (90) days incurred in the ordinary course of such
Person's business), (c) all Obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all Obligations of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
Obligations of such Person for
<PAGE>
8
lease payments payable by such Person as lessee under Capitalized Leases, (f)
all Obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations of such Person to
purchase, redeem, retire, defease or otherwise make any payment in respect of
any capital stock of or other ownership or profit interest in such Person or any
other Person, valued, in the case of redeemable preferred stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Debt of others referred to in clauses (a) through (g) above
or clause (i) below guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Debt or to advance or supply funds for the
payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the holder of such
Debt against loss, (iii) to supply funds to or in any other manner invest in the
debtor (including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (iv)
otherwise to assure a creditor against loss; and (i) all Debt referred to in
clauses (a) through (h) above of another Person secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Debt.
"DEFAULT" means any Event of Default or any event that would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both.
"DEFAULTED LOAN" means, as of any date of determination, a Mortgage
Loan or mortgage loan securing a B Note for which any one of the following
applies:
(a) as to which the Mortgagor or obligor has failed to make a
monthly payment and such failure has continued for sixty (60) days or
more or has failed to make a balloon payment, if any;
(b) as to which the Mortgagor or obligor has entered into or
consented to a bankruptcy, appointment of a receiver or conservator or
a similar insolvency or similar proceeding, or the Mortgagor or obligor
has become the subject of a decree or order for such a proceeding which
shall have remained in force undischarged or unstayed for a period of
forty-five (45) days;
(c) as to which Borrower shall have received notice of the
foreclosure or proposed foreclosure of any other lien by a third party
on the related Mortgaged Property or mortgaged property;
(d) as to which, in the judgment of Borrower, a payment
default has occurred or is imminent and is not likely to be cured by
the Mortgagor or obligor within 30 days;
(e) as to which the Mortgagor or obligor has failed to make
any payment of ground rents, taxes, assessments, water rates, sewer
rents, municipal
<PAGE>
9
charges or insurance premiums, in either case, in accordance with the
related Mortgage Loan Documents or mortgage loan documents;
(f) as to which the Mortgagor or obligor has defaulted or
failed to perform or observe a term, covenant or condition in the
Mortgage Loan Documents or mortgage loan documents and such default or
failure, is likely to have a material and adverse affect on the value
of the Mortgage Loan or Property Value underlying the B Note, the
related Mortgaged Property or mortgaged property or the priority of the
security interest on such Mortgaged Property or mortgaged property; or
(g) as to which the Mortgagor or obligor admits in writing its
inability to pay its debts generally as they become due, files a
petition to take advantage of any applicable insolvency or
reorganization statute, makes an assignment for the benefit of its
creditors, or voluntarily suspends payment of its obligations.
"DETERMINATION DATE" with respect to each Interest Period, the second
Business Day prior to the Interest Reset Date.
"DISCLOSED LITIGATION" has the meaning specified in SECTION 3.01(B).
"DISCLOSURE SCHEDULE" means the schedule of litigation attached to this
Agreement as SCHEDULE B.
"DOLLARS" and the sign "$" means the lawful money of the United States
of America.
"DOMESTIC LENDING OFFICE" means the office of Lender specified as its
"Domestic Lending Office" on SCHEDULE A hereto or such other office of Lender as
Lender may from time to time specify to Borrower.
"ELIGIBLE B NOTES" means a B Note meeting the following criteria,
except with respect to matters disclosed in writing to, and approved in writing
by, Lender prior to the making of an Advance with respect to the affected B
Note:
(a) FLOATING RATE. The B Note provides for (or in the case of
a B Note in the form of a participation entitles the holder thereof to
receive) interest payments based on a floating rate equal to not less
than the Eurodollar Rate plus 4.50%.
(b) ORIGINATOR. The mortgage loan pursuant to which (or in the
case of a B Note in the form of a participation regarding which) such B
Note was issued, was originated by the Lender or an Affiliate of the
Lender prior to May 31, 2002.
(c) ACQUISITION. The B Note was acquired by the Borrower from
(or in the case of a B Note in the form of a participation issued to
the Borrower by) the Lender or an Affiliate of the Lender.
<PAGE>
10
(d) STRUCTURE. The B Note is subordinate to an A Note, both of
which are secured by a mortgage on the same real property (or in the
case of a B Note in the form of a participation entitles the holder to
receive cash flow in connection with a mortgage secured by the same
real property). The relative rights of the A Note and the B Note with
respect to the real property are governed by a Servicing and
Intercreditor Agreement.
(e) ADDITIONAL CRITERIA. With respect to any B Note approved
by the Lender related to a mortgage loan originated by a Person other
than the Lender or an Affiliate of the Lender, the mortgage loan and
the mortgaged property to which such A Note and B Note relate meet as
of the date of funding of the applicable B Note Advance the criteria in
this Agreement for an "Eligible Mortgage Loan" (other than the criteria
in clauses (h) and (ss) of the definition thereof).
"ELIGIBLE MORTGAGE LOAN" means a Mortgage Loan meeting the following
criteria, except with respect to matters disclosed in writing to, and approved
in writing by, Lender prior to the making of an Advance with respect to the
affected Mortgage Loan:
(a) MORTGAGE LOAN SCHEDULE. The information set forth in the
Mortgage Loan Schedule is true, complete and correct in all material
respects.
(b) ORIGINATION/ACQUISITION OF MORTGAGE LOANS. The
underwriting, origination or acquisition and closing policies and
procedures utilized by Borrower with respect to the Mortgage Loan
conformed, in all material respects, to its customary underwriting and
closing policies and procedures for comparable mortgage loans
originated or acquired (as the case may be) in effect at the time of
the underwriting and origination or acquisition of such Mortgage Loan,
with such exceptions thereto as are believed to be customarily
acceptable to reasonable and prudent commercial mortgage lenders or
acquirors; PROVIDED, HOWEVER, such Mortgage Loans may not qualify for
inclusion in a "real estate mortgage investment conduit."
(c) PAYMENT CURRENT. All payments required to be made with
respect to the Mortgage Loan under the terms of the Mortgage Note or
Mortgage (inclusive of any grace or cure period) up to the Closing Date
have been made.
(d) NO CROSS-COLLATERALIZATION, EQUITY PARTICIPATION, NEGATIVE
AMORTIZATION OR PARTICIPATION INTEREST. The Mortgaged Property is not
security for any obligation other than the Mortgage Loan. Except as set
forth in the Mortgage Loan Schedule, the Mortgage Loan contains no
equity participation by Borrower and is a whole loan and not a
participation certificate; neither the related Mortgage Note nor the
related Mortgage provides for any contingent or additional interest in
the form of participation in the cash flow of the related Mortgaged
Property; the Mortgage Note does not provide for negative amortization.
The indebtedness evidenced by such Mortgage Note is not convertible to
an ownership interest in the Mortgaged Property (other than through
foreclosure of the
<PAGE>
11
Mortgage) or the related Mortgagor. Borrower has no ownership interest
in the related Mortgaged Property or the Mortgagor other than in the
Mortgage Loan which is being collaterally assigned by Borrower
hereunder.
(e) COMPLIANCE WITH APPLICABLE LAWS. As of the date of its
origination, the Mortgage Loan either complied with, or was exempt
from, applicable state or federal laws, regulations and other
requirements pertaining to usury. With respect to Mortgage Loans
originated by Borrower, Borrower has complied in all material respects
with the requirements of any and all other federal, state or local laws
applicable to the origination of the Mortgage Loan, including, without
limitation, truth-in-lending, real estate settlement procedures, equal
credit opportunity and disclosure laws.
(f) PROCEEDS FULLY DISBURSED. The proceeds of the Mortgage
Loan have been fully disbursed, and there is no requirement for future
advances thereunder.
(g) DOCUMENTS VALID. To Borrower's knowledge and based upon an
opinion of counsel to Mortgagor obtained at the closing of its
origination, each of the Mortgage Note, the Mortgage and each other
written agreement in connection therewith is genuine and is the legal,
valid and binding obligation of the Mortgagor, the related indemnitor
or other party executing such document, enforceable in accordance with
its terms. To Borrower's knowledge, there is no valid offset, defense,
abatement, counterclaim or right of rescission in favor of the
Mortgagor or any other obligated Person with respect to the Mortgage
Note, Mortgage or other written agreement relating to the Mortgage
Loan, nor will the operation of any of the terms of the Mortgage Note
or the Mortgage, or the exercise of any right thereunder, render either
the Mortgage or the Mortgage Note unenforceable or subject to any valid
right of rescission, offset, counterclaim or defense, including,
without limitation, the defense of usury, and Borrower has no actual
knowledge that any such right of rescission, offset, counterclaim or
defense has been asserted or is available with respect thereto.
(h) ASSIGNMENT OF MORTGAGE; NOTE ENDORSEMENT. The Assignment
of Mortgage (but for the insertion of the name of the assignee and any
related recording information which is not yet available to the
Borrower) is in recordable form and constitutes the Borrower's legal,
valid and binding assignment to Lender of the Mortgage and the related
Assignment of Leases and Rents. The Borrower's endorsement and delivery
of the Mortgage Note to Lender in accordance with the terms of this
Agreement constitutes the Borrower's legal, valid and binding
assignment to Lender of such Mortgage Note, and together with the
Borrower's execution and delivery of such Assignment of Mortgage to
Lender, legally and validly conveys all right, title and interest of
Borrower in the Mortgage Loan to Lender other than rights to servicing
of the Mortgage Loan.
(i) FIRST LIEN. To Borrower's knowledge based upon the title
insurance policy (or binding commitment therefor) secured with respect
to each
<PAGE>
12
Mortgage Loan, the Mortgage is a valid and enforceable first lien on
the Mortgaged Property (including all buildings and improvements on
such Mortgaged Property and all installations and mechanical,
electrical, plumbing, heating and air conditioning systems located in
or annexed to such buildings, and all additions, alterations and
replacements made at any time prior to the Closing Date of the Mortgage
Loan with respect to the foregoing, but excluding any related personal
property), which Mortgaged Property is free and clear of all
encumbrances and liens having priority over the first lien of such
Mortgage, except for Permitted Encumbrances.
(j) NO MODIFICATION, RELEASE OR SATISFACTION. Neither the
Mortgage nor the Mortgage Note has been impaired, waived, modified,
altered, satisfied, canceled, subordinated or rescinded, and the
Mortgaged Property has not been released from the lien of the Mortgage
and the Mortgagor has not been released from its obligations under the
Mortgage, in whole or in any part, in each such event in a manner which
would materially interfere with the benefits of the security intended
to be provided by the Mortgage. Except for instruments included in the
Mortgage File and which are disclosed to Lender, no instrument has been
executed that would effect any such waiver, modification, alteration,
satisfaction, cancellation, subordination, rescission or release.
(k) NO TAXES OR ASSESSMENTS. Based upon the title insurance
policy (or binding commitment therefor) secured with respect to each
Mortgage Loan, all taxes and governmental assessments, or if payable in
installments, the installment thereof, which became due and owing prior
to the date of origination of the Mortgage Loan in respect of the
Mortgaged Property (excluding any related personal property) and which,
if left unpaid, would be, or might become, a lien on the Mortgaged
Property having priority over the Mortgage, have been paid, or an
escrow of funds in an amount sufficient to cover such taxes and
assessments has been established.
(l) ESCROW DEPOSITS. All escrow deposits and other escrow
payments required under the Mortgage Note, the Mortgage and any other
Mortgage Loan Documents executed in connection with the origination of
the Mortgage Loan to be paid prior to the Closing Date have been paid
to, and are in the possession, or under the control of Borrower or its
agent, or have been applied in accordance with their intended purposes.
(m) NO BUYDOWNS OR THIRD PARTY ADVANCES. Borrower has not,
directly or indirectly, advanced funds to, induced or solicited any
payment from, a Person other than the Mortgagor, or, to Borrower's
knowledge, received any payment from a Person other than the Mortgagor,
for the payment of any amount required under the Mortgage Note or the
Mortgage, except for interest accruing from the date of such Mortgage
Note or the date of disbursement of the proceeds of such Mortgage Loan,
whichever is later, to the date which precedes by 30 days the first due
date under such Mortgage Note. The Mortgage Loan Documents
<PAGE>
13
contain no provision which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan.
(n) NO CONDEMNATION. No proceedings for the total or partial
condemnation of the Mortgaged Property were pending or threatened as of
the date of origination.
(o) NO MECHANICS' LIENS. To Borrower's knowledge based upon
the title insurance policy (or a binding commitment therefor), the
Mortgaged Property (excluding any related personal property) as of the
date of origination was free and clear of any mechanics' and
materialmen's liens or liens in the nature thereof and no rights are
outstanding that, under law, could give rise to any such liens, any of
which liens are or may be prior to, or equal with, the lien of the
Mortgage, except those which are insured against by the lender's title
insurance policy referred to in subparagraph (t) below.
(p) TITLE SURVEY; IMPROVEMENTS. The Mortgage File includes an
as-built survey with respect to the Mortgaged Property which satisfied
the requirements of the title insurance company for its deletion of the
standard general exceptions for encroachments, boundary and other
survey matters and for easements not shown by the public records from
the title insurance policy as required by Borrower's customary
practices in originating commercial loans similar to the Mortgage Loans
included herein. To Borrower's knowledge based upon the survey, except
for encroachments, encumbrances and other matters which do not
materially and adversely affect the value of the Mortgaged Property as
security for the Mortgage Loan, (i) none of the improvements which were
included for the purpose of determining the value of the Mortgaged
Property at the time of the Appraisal lies outside the boundaries and
building restriction lines of the Mortgaged Property, (ii) no
improvements on adjoining properties materially encroach upon the
Mortgaged Property so as to materially and adversely affect the value
of the Mortgaged Property as security for the Mortgage Loan, and (iii)
to Borrower's knowledge (based upon an opinion of counsel obtained from
the Mortgagor, a zoning endorsement to the title insurance policy, an
architect or engineer's certificate, or a letter from the applicable
zoning authority), no improvements located on or forming a part of the
Mortgaged Property are in material violation of any applicable zoning
and building laws or ordinances (except to the extent they may
constitute legal non-conforming uses).
(q) MORTGAGE FILES. The Mortgage File contains the agreements,
instruments and documents listed in SCHEDULE D.
(r) TITLE. Borrower is the sole legal owner and beneficial
holder of the Mortgage Loan or is a participant or a member of a
syndication of such Mortgage Loan, has full right and authority to sell
and assign the Mortgage Loan or its participant or syndicate interest,
and is transferring the Mortgage Loan or its participant or syndicate
interest to Lender free and clear of any and all liens,
<PAGE>
14
encumbrances, pledges, charges or security interests of any nature
encumbering the Mortgage Loan, except Permitted Liens.
(s) COMPLIANCE WITH LAWS. To Borrower's knowledge (based upon
a representation or opinion of counsel obtained from the Mortgagor),
the Mortgagor has obtained all inspections, licenses, permits,
Authorizations, and certificates necessary for compliance in all
material respects with applicable laws and governmental regulations,
including, but not limited to, certificates of occupancy and fire
underwriter certificates. Borrower has no knowledge that the Mortgaged
Property is in material noncompliance with such laws or regulations, is
being used, operated or occupied unlawfully in any material respects or
has failed to have or obtain such inspections, licenses or
certificates, as the case may be.
(t) TITLE INSURANCE. The Mortgaged Property (excluding any
related personal property) is covered by an ALTA lender's title
insurance policy ("Title Policy") or, if an ALTA lender's title
insurance policy is unavailable, another state-approved form of
lender's title insurance policy, issued by a nationally recognized
title insurance company, in an amount not less than the stated original
principal amount of the Mortgage Loan insuring Borrower, and its
successors and assigns, that the related Mortgage is a valid first lien
on the Mortgaged Property, subject only to Permitted Encumbrances (or
if the Title Policy has not been issued, then a binding commitment
therefor has been delivered at closing). Such title insurance policy
(or if not yet issued, the coverage to be provided thereby) is in full
force and effect. Borrower has not taken, or omitted to take, any
action, and, to Borrower's knowledge no other Person has taken, or
omitted to take, any action, that would materially impair the coverage
benefits of the title insurance policy. If available in Borrower's
judgment at a reasonable cost, such title policy includes an
endorsement with respect to zoning and permitted uses as well as the
following endorsements or their equivalents: (1) ALTA 8.1 (commercial
environmental protection), (2) CLTA 100 (comprehensive), (3) CLTA 104
(assignment of beneficial interest) and (4) CLTA 116 (designation of
improvements). As of the date of the Assignment of Mortgage, Borrower
has not made any claim under the title insurance policy.
(u) HAZARD INSURANCE. The related Mortgaged Property is
insured by the types and amounts of coverage required by the Mortgage
(subject to a customary deductible). All premiums due and payable on
such insurance policies prior to the Closing Date have been paid and
nothing has occurred that would materially impair the benefits of
coverage thereunder. The Mortgage obligates the Mortgagor to maintain
all such insurance and, at the Mortgagor's failure to do so, authorizes
the mortgagee to maintain such insurance at the Mortgagor's cost and
expense and to seek reimbursement therefor from the Mortgagor. Any
insurance proceeds in respect of a casualty loss or taking, will be
applied either to the repair or restoration of all or part of the
related Mortgaged Property, or to the payment of the outstanding
principal balance of such Mortgage Loan together with any accrued
interest thereon in accordance with the requirements of the Mortgage.
<PAGE>
15
(v) UCC FINANCING STATEMENTS. One or more Uniform Commercial
Code financing statements covering all furniture, fixtures, equipment
and other personal property (1) which are collateral under the Mortgage
or under a security or similar agreement executed and delivered in
connection with the Mortgage Loan and (2) in which a security interest
can be perfected by the filing of Uniform Commercial Code financing
statement(s) under applicable law have been filed or recorded (or have
been sent for filing or recording) in all Uniform Commercial Code
filing offices in the jurisdiction where the Mortgage Property is
located necessary to the perfection of a security interest in such
furniture, fixtures, equipment and other personal property under
applicable law (unless such security interest is otherwise perfected
under applicable law).
(w) DEFAULT, BREACH AND ACCELERATION. To Borrower's knowledge,
there is no material default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no
event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a non-monetary default,
breach, violation or event of acceleration.
(x) CUSTOMARY PROVISIONS. The Mortgage Loan Documents are on
standard forms customarily acceptable to reasonable and prudent
mortgage lenders and with no material deviations therefrom except as
disclosed to Lender. The Mortgage Note or the Mortgage contain
customary and enforceable provisions such as to render the rights and
remedies of the holder thereof adequate for the practical realization
against the Mortgaged Property of the material benefits of the
security, including, but not limited to, judicial or, if applicable,
nonjudicial foreclosure.
(y) INSPECTION. Borrower inspected the Mortgaged Property or
caused the Mortgaged Property to be inspected in connection with the
origination or acquisition of such Mortgage Loan, and no earlier than
six months prior to the applicable Closing Date.
(z) NO NOTICE OF BANKRUPTCY. Borrower has no actual knowledge
nor has it received any notice that the Mortgagor is a debtor in any
state or federal bankruptcy, reorganization or insolvency proceeding.
(aa) NO GROUND LEASE. Except as disclosed to Lender, the
Mortgage Loan is secured by a fee interest in the Mortgaged Property
and not by any ground lease.
(bb) DEED OF TRUST. With respect to the Mortgage that is a
deed of trust or trust deed, a trustee, duly qualified under applicable
law to serve as such, has either been properly designated and currently
so serves or may be substituted in accordance with applicable law.
Except in connection with a trustee's sale after default by the
Mortgagor or in connection with the release of the Mortgaged Property
following the payment of the Mortgage Loan in full, no fees or expenses
are payable by Borrower or Lender to such trustee.
<PAGE>
16
(cc) TYPE OF MORTGAGED PROPERTY. The Mortgaged Property
consists of a fee simple interest (or if disclosed to Lender, a
leasehold interest) in real property and improvements thereon as set
forth in the schedule attached hereto as EXHIBIT D. The Mortgaged
Property is improved as a commercial Mortgaged Property or a
multifamily Mortgaged Property as set forth on the schedule attached
hereto as EXHIBIT D.
(dd) MORTGAGE ACCELERATION PROVISIONS. The Mortgage contains a
provision for the acceleration of the payment of the unpaid principal
balance of the Mortgage Loan in the event that (1) subject to a
one-time transfer right pursuant to the Mortgage, the Mortgaged
Property is sold or transferred without the prior written consent of
the mortgagee thereunder or (2) the Mortgagor encumbers the Mortgaged
Property without the prior written consent of the mortgagee thereunder.
(ee) NO ADDITIONAL COLLATERAL. The Mortgage Note is not, and
has not been, secured by any collateral except the liens and security
interests evidenced by the Mortgage Loan Documents assigned pursuant to
the Assignment of Mortgage. The Mortgage was not given as collateral or
security for the performance of obligations of any Person other than
Borrower under the Mortgage Note.
(ff) ASSIGNMENT OF LEASES AND RENTS. The Mortgage Loan
Documents contain the provisions of an Assignment of Rents or a
separate Assignment of Rents is part of the Mortgage Loan Documents.
Any Assignment of Leases and Rents creates a valid first priority
perfected present assignment of, or security interest in, the right to
receive all payments due under the related leases, if any, subject only
to the Permitted Encumbrances, to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium or other laws relating to or
affecting the rights of creditors generally and general principles of
equity (regardless of whether considered in a proceeding in equity or
at law); and no Person other than the Mortgagor owns any interest in
the right to receive any payments due under any such leases that is
superior to or of equal priority with the mortgagee's interest therein
except for a Person holding a Permitted Encumbrance.
(gg) ENVIRONMENTAL ASSESSMENT. The related Mortgaged Property
was subject to one or more environmental site assessments (or an update
of a previously conducted assessment) ("ASSESSMENT REPORT"), which was
(were) performed on behalf of Borrower by an environmental professional
independent of Borrower, or as to which the related report was
delivered to Borrower in connection with its origination or acquisition
of such Mortgage Loan; and Borrower, having made no independent inquiry
other than reviewing the resulting Assessment Report(s) and/or
employing an environmental consultant to perform the assessment(s)
referenced herein, has no knowledge of any material and adverse
environmental conditions or circumstance affecting such Mortgaged
Property that was not disclosed in the related Assessment Report(s).
Borrower
<PAGE>
17
has not taken any action with respect to such Mortgage Loan or the
related Mortgaged Property that could subject Lender, or its successors
and assigns in respect of the Mortgage Loan, to any liability under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") or any other applicable federal, state or
local environmental law, and the Borrower has not received any actual
notice of a material violation of CERCLA or any applicable federal,
state or local environmental law with respect to the related Mortgaged
Property that was not disclosed in the related Assessment Report. To
the extent any such condition or circumstance was disclosed, there has
been escrowed an amount of money considered sufficient by Borrower,
based upon the related Assessment Reports, to cure and remedy such
condition or circumstance as recommended in the related Assessment
Report or such condition has been cured and remedied. The related
Mortgage requires the Mortgagor to comply with all applicable federal,
state and local environmental laws and regulations.
(hh) FLOOD ZONE. To Borrower's knowledge based upon the survey
obtained with respect to each Mortgage Loan, if any portion of a
Mortgaged Property was, at the time of the origination of the related
Mortgaged Loan, in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards,
and flood insurance was available, a flood insurance policy meeting any
requirements of the then current guidelines of the Federal Insurance
Administration is in effect with an insurance carrier acceptable to
Borrower, in an amount representing coverage not less than the least of
(1) the outstanding principal balance of such Mortgage Loan, (2) the
full insurable value of such Mortgaged Property, and (3) the maximum
amount of insurance available under the National Flood Insurance Act of
1968, as amended.
(ii) ADVERSE PROCEEDINGS. To Borrower's knowledge, there are
no actions, suits or proceedings before any court, administrative
agency or arbitrator concerning the Mortgage Loan or the Mortgaged
Property that might materially and adversely affect title to the
Mortgage Loan or the validity or enforceability of the related Mortgage
or that might materially and adversely affect the value of the
Mortgaged Property as security for the Mortgage Loan, the use for which
such premises were intended or the marketability of such Mortgaged
Property.
(jj) PROPERTY CONDITION. Based solely on the engineering
report received at the origination of the Mortgage Loan or such other
engineering report reviewed by Borrower, and otherwise to the
Borrower's knowledge (A) the Mortgaged Property is in good repair and
free of structural defects, damage and waste that would materially and
adversely affect the value of such Mortgaged Property other than
matters described in such report for which an escrow of funds or
reserves has been provided or as of the Closing Date has been repaired
or corrected in all material respects, and there is no proceeding
pending for the total or partial condemnation thereof and (B) all
building systems are in good working order subject to ordinary wear and
tear. With respect to Mortgage Loans
<PAGE>
18
originated by Borrower, Borrower inspected the related Mortgaged
Property in connection with the origination of the related Mortgaged
Loan.
(kk) ADDITIONAL FINANCING. Except for Permitted Encumbrances,
the Mortgage Loan does not permit the Mortgagor to obtain additional
financing secured by the Mortgaged Property, the lien of which is
senior to, on a parity with, or subordinate to the Mortgage Loan,
without the consent of the mortgagee.
(ll) ACCESS ROUTES. At the time of origination of the Mortgage
Loan (based upon a representation from Mortgagor and a review of the
survey), the Mortgagor had sufficient rights with respect to ingress
and egress and similar matters identified in the appraisal of the
Mortgaged Property as being critical to the appraised value thereof.
(mm) RECORDATION. The Mortgage is properly recorded (or, if
not recorded, has been submitted for recording), is in form and
substance acceptable for recording and, when properly recorded, will be
sufficient under the laws of the jurisdiction wherein the Mortgaged
Property is located to reflect of record the lien of such Mortgage.
(nn) NO FRAUD. Neither Borrower nor any of its officers or
employees has participated in or condoned any fraud in connection with
the origination, underwriting or servicing of the Mortgage Loan.
Borrower has no knowledge of any fraud committed against it as a lender
with respect to the Mortgage Loan.
(oo) MANAGEMENT AGREEMENT. Borrower has reviewed the
Management Agreement for the related Mortgaged Property (if any) (the
"MANAGEMENT AGREEMENT") and any acknowledgment agreement from the
Manager thereunder, and based on such review and to the knowledge of
Borrower (based solely on a representation of Mortgagor, if any), the
Management Agreement is in full force and effect, and no default, or
event which, with the passage of time or the giving of notice or both,
would constitute a default, has occurred under such Management
Agreement.
(pp) APPRAISAL. The Mortgage File contains an Appraisal of the
Mortgaged Property by an appraiser, who, to the knowledge of Borrower,
had no interest, direct or indirect, in the Mortgaged Property or in
any loan made on the security thereof, whose compensation, under the
terms of the appraiser's engagement, to the knowledge of Borrower, was
not (directly or indirectly) based upon the approval or disapproval of
the Mortgage Loan (other than a reduction of such compensation due to
an early termination of the engagement); and who (1) was MAI certified,
or (2) if Lender expressly approved in writing, after written
disclosure to it, was state-licensed or state-certified if required by
applicable law and was a member of, and had a professional designation
from, a nationally recognized appraisal organization other than MAI. To
the knowledge of Borrower, such Appraisal satisfied Borrower's
customary underwriting and closing requirements and procedures. The
market value used by Borrower in
<PAGE>
19
calculating the loan-to-value ratio of the Mortgage Loan was not
greater than the appraised value as set forth in such Appraisal.
(qq) RECOURSE. The Mortgage Loan Documents contain Borrower's
standard provisions providing for recourse against the Mortgagor for
damages sustained in connection with the Mortgagor's fraud, material
misrepresentation, or misappropriation. The Mortgage Loan Documents
contain provisions pursuant to which the Mortgagor has agreed to
indemnify the mortgagee for damages resulting from violations of
Environmental Laws.
(rr) LEGAL OPINIONS. The Mortgage File for the Mortgage Loan
contains an opinion from counsel in such form as is customarily
acceptable to reasonable and prudent mortgage lenders and with no
material deviations therefrom except as disclosed to Lender.
(ss) MORTGAGE NOTE. When a Mortgage Note is delivered to
Lender or its designee, it will be the only promissory note evidencing
the related Mortgaged Loan that has been manually signed by the
Mortgagor, except for any earlier promissory notes consolidated with
such Mortgage Note, an original of which is included in the related
Mortgage File.
Without limitation of Lender's rights to declare that any Mortgage Loan no
longer constitutes an Eligible Mortgage Loan by reason of any deviation from the
foregoing criteria, to the extent that the Lender has approved in writing a
Mortgage Loan containing any deviation from the foregoing criteria for an
Eligible Mortgage Loan, which has been disclosed to Lender, in connection with
its review of a Mortgage Loan, such Mortgage Loan shall constitute an Eligible
Mortgage Loan hereunder notwithstanding the continued existence of such
deviation.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, any Environmental Permit or
Hazardous Material or arising from alleged injury or threat to health, safety or
the environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory authority or
third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any federal, state, local or foreign statute,
law, ordinance, rule, regulation, code, order, writ, judgment, injunction,
decree or judicial or agency interpretation, policy or guidance relating to
pollution or protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials.
<PAGE>
20
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D of
the Board of Governors of the Federal Reserve System, as in effect from time to
time.
"EURODOLLAR LENDING OFFICE" means the office of Lender specified as its
"Eurodollar Lending Office" opposite its name on SCHEDULE A hereto or such other
office of Lender as Lender may from time to time specify to Borrower.
"EURODOLLAR RATE" means, for any Interest Period, (a) either (i) the
quotation (expressed as percentage per annum) appearing on Telerate Page 3750 as
of 11:00 a.m., New York time, on the relevant Determination Date for such
Interest Period for U.S. Dollar deposits for the relevant Interest Period in the
London interbank market (rounded upward, if necessary, to the nearest one
hundred-thousandth of a percentage point) or, if no such rate appears on
Telerate Page 3750, or (ii) the arithmetic mean (rounded upward, if necessary,
to the nearest one hundred-thousandth of a percentage point) of the rates quoted
at approximately 11:00 a.m., London time, on such Determination Date, by four
(4) major banks in the London interbank market, selected by Lender, to prime
banks in the London interbank market for U.S. Dollar deposits for the relevant
Interest Period commencing on the first day of such Interest Period and in a
principal amount equal to an amount of not less than $1,000,000 that is
representative for a single transaction in such market at such time, PROVIDED
that, if fewer than four such quotations are provided as requested, the rate of
interest that is in effect on such Determination Date will be the Eurodollar
Rate for the immediately preceding Interest Period divided by (b) one (1) minus
the Eurodollar Rate Reserve Percentage. The foregoing notwithstanding, the
Eurodollar Rate for any Stub Interest Period shall be determined on the basis of
a one-month Interest Period commencing on the date of the applicable Advance.
"EURODOLLAR RATE ADVANCE" means any Advance which bears interest in
accordance with SECTION 2.05(A)(II).
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period means the
reserve percentage applicable two (2) Business Days before the first day of such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities (or with respect to any
other category of liabilities that includes deposits by reference to which the
interest rate on Eurodollar Rate Advances is determined) having a term equal to
such Interest Period.
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21
"EVENT OF DEFAULT" has the meaning specified in SECTION 6.01.
"EXCLUDED TAXES" has the meaning specified in SECTION 2.08(A).
"EXCULPATED PARTIES" has the meaning specified in SECTION 9.12.
"FACILITY EQUITY" means (a) the sum of (i) the aggregate Loan Value of
all Mortgage Loans pledged as Collateral, plus (ii) all cash and cash
equivalents of Borrower plus (iii) the fair market value of any nonliquid assets
accepted by Lender in its sole discretion as part of Facility Equity (such fair
market value determination to be made by Lender in its sole discretion) less (b)
the aggregate unpaid principal balance of the Advances.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day for such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
"FISCAL YEAR" means a fiscal year of the Borrower and its Consolidated
Subsidiaries ending on November 30 in any calendar year or such other fiscal
year as the Borrower may select from time to time in accordance with the terms
of this Agreement.
"FLOATING RATE LOAN" means an Eligible Mortgage Loan that bears
interest at a fluctuating rate.
"GAAP" means generally accepted accounting principles consistently
applied and consistent with those applied in the preparation of the financial
statements referred to in SECTION 5.04.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
county, municipality or other political subdivision or branch thereof, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any agency, board,
commission, court, department or officer thereof.
"GUARANTEE" of or by any Person (the "GUARANTOR") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Debt or other obligation of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, and including
any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or other
obligation or to purchase (or to advance or supply funds for the purchase of)
any security for the payment thereof, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such Debt or
other obligation of the payment thereof, (c) to maintain working capital, equity
capital or
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22
any other financial statement condition or liquidity of the primary obligor so
as to enable the primary obligor to pay such Indebtedness or other obligation or
(d) as an account party in respect of any letter of credit or letter of guaranty
issued to support such Debt or obligation; PROVIDED, HOWEVER, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
"GUARANTY" means the Guaranty made by LNR in favor of the Lender with
respect to the B Note Advances, dated as of the date hereof.
"HAZARDOUS MATERIALS" means (a) refined petroleum products, by-products
or breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas and (b) any other chemicals, materials
or substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements to which a Mortgagor is
a party.
"INDEMNIFIED PARTY" has the meaning specified in SECTION 9.04(B).
"INDEPENDENT" means, with respect to any specified Person, such a
Person who (a) does not have any direct financial interest or any material
indirect financial interest in the Borrower or in any of its Affiliates, (b) is
not connected with the Borrower as an officer, employee, promoter, underwriter,
trustee, partner or director and (c) is not controlled by or under common
control with the Borrower.
"INITIAL ADVANCE" has the meaning specified in Section 3.01.
"INITIAL UNDERWRITTEN NET CASH FLOW" means, with respect to any B Note,
the threshold level of underwritten net cash flow of the related Multifamily
Property or Commercial Property mutually agreed to by Borrower and Lender prior
to the making of a B Note Advance hereunder which shall be set forth in the
related Notice of Borrowing.
"INTEREST PAYMENT DATE" means the first (1st) day of each calendar
month while any portion of the Loan remains unpaid; PROVIDED, HOWEVER, that if
such Interest Payment Date is not a Business Day, such Interest Payment Date
shall be the immediately succeeding Business Day.
"INTEREST PERIOD" means, a period commencing on the date of the Initial
Advance hereunder and ending the next succeeding Interest Payment Date and each
successive one month period from and including each Interest Payment Date to but
excluding the next succeeding Interest Payment Date; PROVIDED, however, that
with respect to any Advance that is funded by Lender on a day other than an
Interest Payment Date, the initial Interest Period for such Advance (a "STUB
INTEREST PERIOD") shall be the period commencing on the date of such Advance and
ending on the next succeeding Interest Payment Date; and PROVIDED FURTHER that
no Interest Period shall extend beyond the Maturity Date.
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23
"INTEREST RESET DATE" means the first day of the applicable Interest
Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"KEEPWELL AGREEMENT" means that certain keepwell agreement dated as of
May 15, 1999 by and between Borrower and Lender.
"LAWS" means all present and future laws, statutes, codes, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, determinations,
awards and court orders of any federal, state, municipal or local government,
governmental authority, regulatory agency or authority.
"LENDER" has the meaning specified in the Preliminary Statement.
"LENDER'S ACCOUNT" means an account of the Lender designated in writing
by the Lender to the Borrower.
"LIBOR BREAKAGE" means the amount of losses, costs, charges and damages
which are actually incurred or which would be incurred by Lender (as reasonably
determined by Lender) as a result of any early termination of any arrangement,
or the entry into a new arrangement, with any other member of the London
interbank market for the funding of any portion of any Advance (determined as
though such Lender had funded 100% of such portion in the London interbank
market and calculated as of the date of the applicable repayment or
acceleration).
"LIEN" means any lien, security interest or other charge or encumbrance
of any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"LNR" has the meaning specified in SECTION 4.01(E).
"LOAN DOCUMENTS" means (i) this Agreement, (ii) the Note, (iii) the
Collateral Documents, (iv) the Guaranty and (v) any other written agreement,
document or instrument evidencing, securing or otherwise related to the
Advances, in each case as amended or otherwise modified from time to time.
"LOAN SERVICER" has the meaning specified in SECTION 7.02.
"LOAN VALUE" means, (a) with respect to any Mortgage Loan, an amount
equal to the least of (i) the outstanding principal amount of the applicable
Mortgage Loan, (ii) the purchase price paid by Borrower to acquire the Loan or
(iii) the fair market value of such Mortgage Loan, as determined by Lender in
its sole discretion, and (b) with respect to any other Collateral (other than
any B Note), the fair market value of such Collateral, as determined by Lender
in its sole discretion.
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24
"MARGIN CALL NOTICE" has the meaning specified in SECTION 2.04(B).
"MARGIN STOCK" has the meaning specified in Regulation U.
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance or
properties of Borrower and its Subsidiaries, taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties of Borrower and its Subsidiaries, taken as a whole, (b) the rights
and remedies of the Lender under any Loan Document or (c) the ability of
Borrower to perform its Obligations under any Loan Document to which it is or is
to be a party.
"MINIMUM COLLATERAL VALUE" means an amount equal to Fifteen Million and
00/100 Dollars ($15,000,000.00) (i) PROVIDED, that notwithstanding the
foregoing, commencing on the date the aggregate amount of Mortgage Loan Advances
made by the Lender first exceeds $150,000,000, the "Minimum Collateral Value"
shall thereafter be increased to the greater of (1) Twenty-Two Million and
00/100 Dollars ($22,000,000) and (2) 10% of the aggregate outstanding amount of
Mortgage Loan Advances (but not more than Twenty-Seven Million and 00/100
Dollars ($27,000,000)).
"MORTGAGE" means the mortgage, deed of trust or other instrument
creating a first lien on, or first priority security interest in, one or more
Mortgaged Properties securing a Mortgage Note, together with any rider, addendum
or amendment thereto, as amended from time to time.
"MORTGAGE CONSTANT" means ten percent (10%) per annum with respect to
any Mortgage Loan.
"MORTGAGE FILE" means, with respect to any Eligible Mortgage Loan, the
documents listed on SCHEDULE D attached hereto.
"MORTGAGE LOAN" means a mortgage loan originated or acquired by the
Borrower, or participation or similar interests in such Mortgage Loans, and
secured by a Mortgaged Property, including the related Mortgage Note, Mortgage,
the Borrower's interest in any Hedge Agreements and other Mortgage Loan
Documents, as well as any reserves, escrows or other deposits maintained in
connection with such mortgage loan.
"MORTGAGE LOAN ADVANCE" means an Advance made to the Borrower to
provide funds to make or acquire one or more Mortgage Loans.
"MORTGAGE LOAN ADVANCES MATURITY DATE" means, with respect to any
Mortgage Loan Advance, the date which is the earlier to occur of (i) the
Mortgage Loan Advances Termination Date and (ii) the date which is the first
anniversary of the funding of such Advance; PROVIDED, that notwithstanding the
foregoing, the "Mortgage Loan Advances Maturity Date" with respect to any
Mortgage Loan Advance made prior to the date of this Agreement means the date
set forth on Schedule E attached hereto.
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25
"MORTGAGE LOAN ADVANCES TERMINATION DATE" means June 1, 2000.
"MORTGAGE LOAN DOCUMENTS" means, with respect to any Mortgage Loan, the
related Mortgage Note, Mortgage, Assignment of Rents, Hedge Agreement and any
other agreement, instrument or document evidencing or securing such Mortgage
Loan.
"MORTGAGE NOTE" means, with respect to any Mortgage Loan, the
promissory note or other evidence of indebtedness of the Mortgagor under such
Mortgage Loan, including any amendments or modifications, or any renewal or
substitution notes, as of such date.
"MORTGAGED PROPERTY" means the real property securing a Mortgage Loan,
consisting of either a Multifamily Property or a Commercial Property.
"MORTGAGOR" means the borrower under any Mortgage Loan.
"MULTIFAMILY PROPERTY" means a fee simple estate in or a ground lease
on a parcel of real property, together with all improvements thereon, which
property consists of five (5) or more residential dwelling units, together with
any personal property, fixtures, leases, and other property or rights of the
owner pertaining thereto.
"NET CASH PROCEEDS" means, with respect to any sale, transfer or other
disposition of any Mortgage Loan or B Note, the aggregate amount of cash
received from time to time (whether as initial consideration or through payment
or disposition of deferred consideration) by or on behalf of such Person in
connection with such transaction after deducting therefrom only (without
duplication) (a) reasonable and customary out-of-pocket brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and other similar
fees and commissions, (b) reasonable and customary out-of-pocket closing costs
and (c) the amount of taxes payable in connection with or as a result of such
transaction, in each case to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an Affiliate of such Person and are properly attributable to
such transaction or to the asset that is the subject thereof.
"NON-RENEWAL NOTICE" has the meaning specified in SECTION 2.02(C).
"NOTE" means the amended and restated promissory note of Borrower
payable to the order of the Lender, in substantially the form attached hereto as
EXHIBIT A, evidencing the indebtedness of Borrower to the Lender resulting from
the Advances made by the Lender.
"NOTICE OF BORROWING" has the meaning specified in SECTION 2.02.
"OBLIGATION" means, with respect to any Person, any payment or
performance obligation of such Person of any kind, including, without
limitation, any liability of such Person on any claim, whether or not the right
of any creditor to payment in respect of such claim is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such
<PAGE>
26
claim is discharged, stayed or otherwise affected by any proceeding referred to
in SECTION 6.01(F). Without limiting the generality of the foregoing, the
Obligations of Borrower under the Loan Documents include (a) the obligation to
pay principal, interest, charges, expenses, fees, attorneys' fees and
disbursements, indemnities and other amounts payable by Borrower under any Loan
Document and (b) the obligation of Borrower to reimburse any amount in respect
of any of the foregoing that the Lender, in its sole discretion, may elect to
pay or advance on behalf of Borrower.
"ORGANIZATIONAL DOCUMENTS" means, (i) with respect to any Person that
is a corporation, the certificate of incorporation or charter and by-laws of
such Person, (ii) with respect to any Person that is a partnership, the
partnership agreement and, if a limited partnership, certificate of limited
partnership of such Person, and (iii) with respect to any Person that is a
limited liability company, the articles of organization and the operating
agreement of such Person.
"OTHER TAXES" has the meaning specified in SECTION 2.08(B).
"PERMITTED ENCUMBRANCES" means, collectively and with respect to a
Mortgaged Property encumbered by an Eligible Mortgage Loan or a mortgaged
property to which an A Note and a B Note relate,
(a) Liens for real estate taxes and special assessments not
yet due and payable,
(b) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of
recording of the related mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally or
specifically reflected in the appraisal made in connection with the
origination of the related Eligible Mortgage Loan, none of which
materially interferes with the benefits of the security intended to be
provided by such Mortgage,
(c) exceptions and exclusions specifically referred to in
Borrower's mortgagee title insurance policy, none of which materially
interferes with the benefits of the security intended to be provided by
the related Mortgage or the use, enjoyment, value or marketability of
the related Mortgaged Property in relation to the appraised value of
such Mortgaged Property utilized in connection with the origination of
the related Eligible Mortgage Loan,
(d) other matters to which like properties are commonly
subject which do not, individually or in the aggregate, materially
interfere with the benefits of the security intended to be provided by
the Mortgage thereon, or
(e) other encumbrances and liens specifically approved by
Lender after its due diligence of such Mortgage Loan in connection with
confirming that a Mortgage Loan constitutes an Eligible Mortgage Loan.
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27
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) Liens for taxes, assessments and governmental charges or
levies not yet due and payable; (b) Liens imposed by law, such as landlord's,
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing obligations
that are not overdue for a period of more than 90 days; and (c) pledges or
deposits to secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations.
"PERSON" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"PRICE DIFFERENTIAL" and "PRICING RATE BREAKAGE" have the meanings
specified in the Repurchase Facility.
"PROPERTY VALUE" means, with respect to any Multifamily Property or
Commercial Property securing a B Note (or in the case of a B Note in the form of
a participation, entitling the holder thereof to receive cash flow in connection
with a mortgage secured by a Multifamily Property or Commercial Property), an
amount equal to the market value of such Multifamily Property or Commercial
Property as determined by the Lender in its sole discretion.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"RELEASE PRICE" means, with respect to an Eligible Mortgage Loan or
Eligible B Note, the payment to be made by Borrower in order to effect the
release of such Eligible Mortgage Loan or Eligible B Note from the Liens of the
Loan Documents thereon, which Release Price shall be equal to the sum of (a) the
principal amount of the Advance made with respect to the applicable Mortgage
Loan or B Note minus, as of the dates of release, the amount of principal
prepayments previously made by the Borrower attributable to such Mortgage Loan
or B Note equal to the sum of (x) prepayments from principal collections
pursuant to Sections 2.04(b)(i) and 2.04(b)(ii) and (y) such Advances pro rata
share of all voluntary prepayments pursuant to Section 2.04(a) or prepayments in
connection with a Margin Call Notice pursuant to Section 2.04(b)(iii) and (y)
the applicable Advance Rate, PLUS (b) LIBOR Breakage, if any, and shall be
adjusted by Lender to account for any principal payments made from time to time
by the Borrower in respect of such Mortgage Loan or B Note.
"REPURCHASE FACILITY" means the Master Repurchase Agreement (including
Annex I--Supplemental Terms and Conditions attached thereto), dated as of June
25, 1999, between Deutsche Bank AG, New York Branch and Delaware Securities
Holdings, Inc.
"REPURCHASE PRICE" has the meaning specified in the Repurchase
Facility.
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28
"RESPONSIBLE OFFICER" means the following officers of Borrower or any
officer of Borrower subsequently designated in writing by Borrower as a
"Responsible Officer": (i) President; (ii) Vice-President; (iii) Chief Operating
Officer; (iv) Chief Executive Officer; and (v) Chief Financial Officer.
"REUNDERWRITTEN NET CASH FLOW" means, with respect to any B Note, the
underwritten net cash flow of the related Multifamily Property or Commercial
Property determined by the Lender from time to time pursuant to the methodology
set forth in Schedule C.
"SECURITIZATION" means the creation and issuance of CMBS in a
registered or unregistered offering or offerings.
"SECURITY AGREEMENT" has the meaning specified in SECTION 3.01(D)(VII).
"SERVICING AND INTERCREDITOR AGREEMENT" means (i) prior to a
securitization of an A Note, the related interim servicing and intercreditor
agreement and (ii) after a securitization of an A Note, the related servicing
and intercreditor agreement in each case, by and among German American Capital
Corporation, the Borrower and an Affiliate of Borrower as special servicer.
"SIDE LETTER" means a letter agreement dated May 15, 1998 between
Borrower and Deutsche Morgan Grenfell, Inc., pursuant to which Borrower agreed
to retain Deutsche Morgan Grenfell, Inc. as lead manager in connection with any
Securitization of Mortgage Loans pledged as Collateral hereunder.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay such debts and liabilities as they mature and (d) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"STUB INTEREST PERIOD" has the meaning specified in the definition of
"INTEREST PERIOD."
"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power
<PAGE>
29
upon the occurrence of any contingency), (b) the interest in the capital or
profits of such partnership, joint venture or limited liability company or (c)
the beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person's other Subsidiaries.
"TAXES" has the meaning specified in SECTION 2.08(A).
"TANGIBLE NET WORTH" means, as to any Person and as of determination,
the net worth of such Person at such time, determined in accordance with GAAP,
less the amount of all intangible items, including, without limitation,
goodwill, franchises, licenses, patents, trade marks, trade names, copyrights,
service marks, brand names, write-ups of assets and any unallocated excess costs
of investments in subsidiaries over equity in underlying net assets at dates of
acquisition.
"TERMINATION DATE" means with respect to Mortgage Loan Advances, the
Mortgage Loan Advances Termination Date, and with respect to B Note Advances,
the B Note Advances Termination Date.
"TRANSFER" means, with respect to any item of property, any conveyance,
assignment, sale, mortgaging, encumbrance, pledging, hypothecation, granting of
a security interest in, granting of options with respect to, or other
disposition of (directly or indirectly, voluntarily or involuntarily, by
operation of law or otherwise, and whether or not for consideration or of
record) all or any portion of any legal or beneficial interest in such property.
"TRUST RECEIPT" means, with respect to any Eligible Mortgage Loan or
Eligible B Note, the Trust Receipt issued by the Custodian with respect thereto,
pursuant to the Custodial Agreement and in the form attached thereto, certifying
that the Custodian is holding, on behalf of the Lender as collateral assignee,
the documents described in the Custodial Agreement with respect to such Eligible
Mortgage Loan or Eligible B Note.
"VOTING STOCK" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
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30
ARTICLE II
AMOUNT AND TERMS OF THE ADVANCES
SECTION 2.01. THE ADVANCES. The Lender agrees, on the terms and
conditions hereinafter set forth, to make advances (each, an "ADVANCE") to the
Borrower from time to time on any Business Day during the period from the date
hereof until the applicable Termination Date in an aggregate principal amount
not to exceed the Borrowing Limit. Each Advance shall, unless approved in
advance by Lender, be in a minimum principal amount of $1,000,000 or an integral
multiple of $10,000 in excess thereof. Within the Borrowing Limit in effect from
time to time, the Borrower may borrow under this SECTION 2.01, prepay pursuant
to SECTION 2.04 and reborrow under this SECTION 2.01.
SECTION 2.02. MAKING THE ADVANCES.
(a) Upon satisfaction of the conditions precedent to Lender's
obligations pursuant to this Agreement, the Advances shall be made on notice,
given not later than 11:00 A.M. (New York City time) on the second Business Day
prior to the date of the proposed disbursement of the Advance, by the Borrower
to Lender. Such notice (a "NOTICE OF BORROWING") shall be by telephone,
confirmed immediately in writing, or telex or telecopier, in substantially the
form of EXHIBIT G hereto, specifying therein, among other things, (i) the
requested date of such Advance, (ii) the amount of such Advance and (iii) with
respect to each B Note Advance only, the outstanding principal amounts of the
related A Note and B Note, the Initial Underwritten Net Cash Flow (including a
description of the methodology used to determine such amount) and the Property
Value agreed to by Borrower and Lender. Subject to the satisfaction of the
conditions precedent to Lender's obligations under this Agreement, the Lender
shall, on the date of the proposed Advance, make funds in an amount equal to the
amount of such Advance available to Borrower by crediting Borrower's Account.
(b) Lender and Borrower shall consult one another and cooperate with
respect to the identification of potential Eligible Mortgage Loans for inclusion
as Collateral under this Agreement. In order to obtain formal approval from
Lender of a particular Mortgage Loan as an Eligible Mortgage Loan, Borrower
shall submit to Lender a review package with respect to such Mortgage Loan
containing the following:
(i) an underwriting narrative for the applicable Mortgage Loan
including the indicative debt service coverage ratio and loan-to-value
ratio of the applicable Mortgaged Property;
(ii) the most recent rent roll, to the extent available, for
the applicable Mortgaged Property;
(iii) current and, to the extent available, historical
financial statements for the applicable Mortgaged Property for the
three (3) most recent fiscal years;
(iv) all available financial information with respect to the
applicable Mortgagor;
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31
(v) copies of any Appraisal, engineering report, environmental
assessment or other report prepared by any third party consultants;
(vi) an analysis of any unusual features of the applicable
Mortgage Loan (e.g., that the Mortgagor's interest is a condominium or
a ground lease); and
(vii) such other information as Lender may reasonably request.
In addition, Borrower shall, at the request of Lender provide Lender the
opportunity to conduct a site inspection of the applicable Mortgaged Property.
Lender shall endeavor in good faith to respond in writing within five (5)
Business Days after submission of the information set forth above as to whether
the proposed Mortgage Loan constitutes an Eligible Mortgage Loan under this
Agreement. Borrower shall not submit any Notice of Borrowing requesting an
Advance with respect to any Mortgage Loans until such time as Borrower has
received written confirmation from Lender that such Mortgage Loans constitute
Eligible Mortgage Loans and as to the Loan Value of such Eligible Mortgage
Loans.
(c) EXTENSION OF B NOTE ADVANCES TERMINATION DATE. Upon request of the
Borrower in writing, Lender agrees to consider in good faith a one-time,
one-year extension of the B Note Advances Termination Date and corresponding
dates on which B Note Advances are required to be repaid as provided in SECTION
2.03(A).
SECTION 2.03. REPAYMENT OF ADVANCES.
(a) MATURITY. Subject to the provisions of SECTION 2.04, Borrower shall
repay to Lender the aggregate outstanding principal amount of each Mortgage Loan
Advance outstanding on the Mortgage Loan Advances Maturity Date. Subject to the
provisions of SECTION 2.04, Borrower shall repay to Lender the aggregate
principal amount of all B Note Advances outstanding as of August 31, 2002 in
four equal quarterly installments on the December, 2002, March, 2003, June, 2003
and September, 2003 Interest Payment Dates; PROVIDED that (1) in the event the
Borrower makes a voluntary prepayment or mandatory prepayment of the B Note
Advances pursuant to SECTION 2.04 after August 31, 2002, then the amount of each
remaining quarterly installment shall be reduced by an amount equal to the
quotient of (A) the amount of such voluntary prepayment or mandatory prepayment
divided by (B) the number of remaining quarterly Interest Payment Dates on which
installments are due (including, if such prepayment is made on a date on which
such quarterly installment is due, such date in the number determined pursuant
to this clause (B)) and (2) Borrower shall repay to Lender the aggregate
outstanding principal amount of each B Note Advance outstanding on the B Note
Advances Maturity Date.
(b) ADVANCES REPAID BY ADVANCES. A Mortgage Loan Advance which has a
Mortgage Loan Advances Maturity Date prior to the Mortgage Loan Advances
Termination Date may be repaid by another Mortgage Loan Advance against the same
Mortgage Loans covered by the Mortgage Loan Advance being repaid; PROVIDED that
(i) no Material Adverse Change has occurred with respect to the prior Mortgage
Loan Advance and (ii) all of the conditions precedent to Lender's obligations
pursuant to this Agreement have been satisfied with respect to such subsequent
Advance.
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SECTION 2.04. PREPAYMENTS.
(a) VOLUNTARY. The principal amount of the Advances made by Lender
pursuant to this Agreement may be prepaid in whole or in part at the option of
Borrower, upon not less than five (5) Business Days' notice to Lender.
(b) MANDATORY.
(i) COLLECTIONS OF PRINCIPAL. Borrower shall, on each Interest
Payment Date, prepay an aggregate principal amount of the Advances
outstanding equal to the product of (A) the amount of principal paid by
Mortgagors (in the case of the Mortgage Loans) or by mortgagors on the
underlying mortgage loans in payment of the B Notes (in the case of the
B Notes) during the period commencing on the immediately preceding
Interest Payment Date and ending on the day before such Interest
Payment Date with respect to the Mortgage Loans or B Notes comprising
Collateral for the Obligations of the Borrower under the Loan Documents
and (B) the applicable Advance Rate.
(ii) NET CASH PROCEEDS. Borrower shall, on the date of receipt
of the Net Cash Proceeds by Borrower or any of its Subsidiaries from
the sale, transfer or other disposition of any Collateral, prepay an
aggregate principal amount of the Advances equal to the lesser of (A)
the amount of such Net Cash Proceeds and (B) the outstanding principal
amount of the Advance made with respect to the applicable Mortgage Loan
or B Note sold, transferred or otherwise disposed.
(iii) MARGIN CALL. In the event that on any Business Day prior
to the Termination Date (in the case of the Mortgage Loans) or the B
Note Advances Maturity Date (in the case of the B Notes), Lender,
acting in good faith, shall determine in its sole discretion that:
(A) any Mortgage Loan constituting Collateral
hereunder no longer qualifies as an Eligible Mortgage Loan; or
(B) there has been a reduction in the Loan Values of
any Eligible Mortgage Loans constituting Collateral; or
(C) there has been a B Note Performance Event or a B
Note Non-Payment Default Event or a B Note Payment Default
Event with respect to a B Note constituting Collateral
and, as a result, a Borrowing Base Deficiency then exists, Lender shall deliver
a notice (a "MARGIN CALL Notice") to the Borrower requesting that Borrower cure
such Borrowing Base Deficiency. Each Margin Call Notice shall set forth in
reasonable detail the basis for such Borrowing Base Deficiency, including
identification of those Mortgage Loans no longer constituting Eligible Mortgage
Loans (and the reasons for such determination) and with respect to which the
Lender has reduced the related Loan Value or those B Notes as to which a B Note
Performance Event or a B Note Non-Payment Default Event or a B Note Payment
Default Event has occurred (and the reasons for such determination). Within two
(2) Business Days following receipt of a Margin Call Notice, Borrower shall cure
such Borrowing Base Deficiency by either:
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(x) prepaying an aggregate principal amount of the Advances
equal to the amount of any Borrowing Base Deficiency,
(y) pledging additional Eligible Mortgage Loans to Lender
having an aggregate Loan Value equal to the amount of the applicable
Borrowing Base Deficiency or additional Eligible B Notes to Lender
sufficient to cure the applicable Borrowing Base Deficiency; or
(z) obtaining a release of the applicable Mortgage Loans or B
Notes in accordance with the terms and conditions of ARTICLE VIII by
prepaying the Release Price with respect to such Mortgage Loans or B
Notes.
For purposes of this subsection, if at any time such Mortgage Loan shall
otherwise become a Defaulted Loan, then such Mortgage Loan shall no longer
constitute an Eligible Mortgage Loan.
(iv) CHANGE OF CONTROL. In the event that there is a
Change of Control of Borrower, Lender may (i) by notice to
Borrower declare the Note, all interest thereon, and other
amounts payable under this Agreement and the other Loan
Documents to be due and payable as of the date set forth in
such notice, which date shall be not less than sixty (60) days
after the date of such notice, whereupon Borrower shall prepay
on such date all such amounts without presentment, demand,
protest or further notice of any kind, all of which are hereby
expressly waived by Borrower, and (ii) declare its obligation
to make further Advances to be terminated, whereupon the same
shall forthwith terminate.
(v) BORROWER'S RIGHT TO DISPUTE. Notwithstanding
anything herein to the contrary, the Borrower may dispute any
Margin Call Notice delivered by the Lender stating that a
Borrowing Base Deficiency exists due to either (x) a B Note
Performance Event or (y) a B Note Payment Default Event
relating to a mortgage loan which is a B Note Extended Monthly
Payment Default Loan. Such appeal may be made only if the
Borrower has elected to cure by making a prepayment equal to
the Borrowing Base Deficiency and must be delivered in writing
within thirty (30) days after such prepayment is made. In the
dispute notice, the Borrower shall select an Appraiser who
will be commissioned to deliver an Appraisal with respect to
the related Multifamily Property or Commercial Property
indirectly securing, the applicable B Note(s). The Borrower
and the Lender shall jointly commission the Appraiser and
shall cause the Appraisal to be addressed and delivered by the
Appraiser to both parties. The value set forth in the
Appraisal shall control the determination of whether a
Borrowing Base Deficiency due to a B Note Performance Event
existed. 90% of the value set forth in the Appraisal shall
control the determination of whether a Borrowing Base
Deficiency due to a B Note Payment Default Event relating to a
mortgage loan which is a B Note Extended Monthly Payment
Default Loan existed.
(vi) PAYMENT FOR THE APPRAISAL AFTER A DISPUTE. In
the event based on the entire (or 90% of the, as applicable)
appraised value set forth in the Appraisal, a Borrowing Base
Deficiency did exist and the "B Note Current Total Exposure
Percentage" is equal to or greater than 90%, then the Borrower
shall pay for the cost of obtaining the Appraisal. In the
event based on the entire (or 90% of the, as applicable)
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34
appraised value, a Borrowing Base Deficiency did exist and the
"B Note Current Total Exposure Percentage" is greater than 85%
and less than 90%, then the Borrower and the Lender shall each
pay one-half of the cost of obtaining the Appraisal. In the
event based on the entire (or 90% of the, as applicable)
appraised value, a Borrowing Base Deficiency did not exist and
the "B Note Current Total Exposure Percentage" is equal to or
less than 85%, then the Lender shall (1) pay for the cost of
obtaining the Appraisal and (2) promptly (and in any event
within three (3) Business Days) reimburse the Borrower for the
amount of Advances prepaid by the Borrower to cure such
proposed Borrowing Base Deficiency together with any interest
thereon earned by the Lender and any related LIBOR Breakage.
In the event based on the entire (or 90% of the, as
applicable) appraised value, a Borrowing Base Deficiency did
exist and the "B Note Current Total Exposure Percentage" is
greater than 85% but lower than such percentage as determined
by the Lender's Property Value, then the Lender shall promptly
(and in any event within three (3) Business Days) reimburse
the Borrower for a portion of the amount of Advances prepaid
by the Borrower to cure such proposed Borrowing Base
Deficiency, together with any interest thereon earned by the
Lender and any related LIBOR breakage, reflecting the positive
difference between "B Note Current Total Exposure Percentage"
using the Lender's Property Value and such appraised value (or
90% portion thereof, as applicable).
All prepayments under this SUBSECTION (B) shall be made together with accrued
interest to the date of such prepayment on the principal amount prepaid. If any
payment required to be made under this SECTION 2.04(B) (or any prepayment as a
result of an acceleration following the occurrence of an Event of Default) on
account of Eurodollar Rate Advances would be made other than on the last day of
the applicable Interest Period therefor, the Borrower shall concurrently with
such prepayment, reimburse the Lender for any LIBOR Breakage; PROVIDED, HOWEVER,
that in lieu of paying such LIBOR Breakage, the Borrower shall have the option
to make such prepayment into an account of the Lender (the "CASH COLLATERAL
ACCOUNT") in which event such funds shall be held by the Lender in the Cash
Collateral Account as additional security for the Advances and shall not be
applied to the repayment of the applicable Advance until the last day of the
applicable Interest Period. In such event the Borrower shall execute and deliver
such documents as the Lender shall reasonably request in order to establish,
perfect and evidence the Lender's interests in the Cash Collateral Account.
SECTION 2.05. INTEREST.
(a) SCHEDULED INTEREST. Borrower shall pay interest on the unpaid
principal amount of each Advance owing to the Lender from the date of such
Advance until such principal amount shall be paid in full, at the following
rates per annum:
(i) BASE RATE ADVANCES. For periods, if any, during which this
Agreement provides that such Advance shall accrue interest based upon
the Base Rate, a rate per annum equal at all times to the Base Rate in
effect from time to time; payable in arrears monthly on each Interest
Payment Date during such periods and on the date such Base Rate Advance
shall be converted or paid in full.
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35
(ii) EURODOLLAR RATE ADVANCES. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of (A)
the Eurodollar Rate for such Interest Period for such Advance PLUS (B)
the Applicable Margin, payable in arrears monthly on each Interest
Payment Date.
Except as expressly provided in SECTION 2.06, interest on all outstanding
Advances shall accrue and be payable in accordance with CLAUSE (II) of this
SECTION 2.05(A).
(b) DEFAULT INTEREST. Upon the occurrence and during the continuance of
an Event of Default, Borrower shall pay interest on (i) the unpaid principal
amount of each Advance owing to the Lender, payable in arrears on each Interest
Payment Date and on demand, at a rate per annum equal at all times to the lesser
of (x) the maximum non-usurious rate permitted by law or (y) five percent (5%)
per annum above the rate per annum required to be paid on such Advance pursuant
to CLAUSE (A)(I) OR (A)(II) above and (ii) to the fullest extent permitted by
law, the amount of any interest, fee or other amount payable hereunder that is
not paid when due, from the date such amount shall be due until such amount
shall be paid in full, payable in arrears on the date such amount shall be paid
in full and on demand, at a rate per annum equal at all times to the lesser of
(x) the maximum non-usurious rate permitted by law or (y) five percent (5%) per
annum above the rate per annum required to be paid on the applicable Advances.
(c) NOTICE OF INTEREST RATE. Lender (or a Loan Servicer on behalf of
Lender) shall, prior to the commencement of each Interest Period, determine and
provide Borrower with a statement of the Eurodollar Rate applicable for the
related Interest Period and the applicable interest rate for the related
Interest Period. After determining the applicable interest rate, Lender (or a
Loan Servicer on behalf of Lender) shall calculate the aggregate interest
payment payable on the outstanding Advances on the relevant Interest Payment
Date and shall, as soon as practicable, notify Borrower of such rates and the
amount of the applicable interest installments. The determination of the
interest rate payable on the outstanding Advances and the calculation of each
interest installment by Lender (or a Loan Servicer on behalf of Lender) shall,
in the absence of manifest error, be presumptive evidence of the amount due;
PROVIDED, HOWEVER, that any error in the determination of such interest rates
and the calculation of each interest installment made by Lender (or a Loan
Servicer on behalf of Lender) shall not relieve Borrower from its obligations
hereunder.
SECTION 2.06. INCREASED COSTS, ETC.
(a) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to Lender of agreeing to make or of making, funding or maintaining any
Eurodollar Rate Advance (excluding for purposes of this SECTION 2.06 any such
increased costs resulting from (i) Taxes or Other Taxes (as to which SECTION
2.08 shall govern) and (ii) changes in the basis of taxation of overall net
income or overall gross income by the United States or by the foreign
jurisdiction or state under the laws of which Lender is organized or has its
Applicable Lending Office or any political subdivision thereof), then Borrower
shall from time to time, upon notice thereof and demand by Lender therefor, pay
to Lender additional
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36
amounts sufficient to compensate Lender for such increased cost. A certificate
as to the amount of such increased cost, submitted to Borrower by Lender, shall
be presumptive evidence of the amount due.
(b) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or expected to be maintained by Lender or any
corporation controlling Lender as a result of or based upon the existence of
Lender's commitment to lend hereunder and other commitments of such type, then,
upon demand by Lender, Borrower shall pay to Lender, from time to time as
specified by Lender, additional amounts sufficient to compensate Lender in the
light of such circumstances, to the extent that Lender reasonably determines
such increase in capital to be allocable to the existence of Lender's commitment
to lend hereunder. A certificate as to such amounts submitted to Borrower by
Lender shall be presumptive evidence of the amount due.
(c) If, Lender notifies Borrower that the Eurodollar Rate for any
Interest Period will not adequately reflect the cost to Lender of making,
funding or maintaining any Advance as a Eurodollar Rate Advance for such
Interest Period, (i) such Advance will automatically, on the last day of the
then existing Interest Period therefor, convert from a Eurodollar Rate Advance
into a Base Rate Advance and (ii) the obligation of Lender to make or maintain
Eurodollar Rate Advances shall be suspended until Lender shall notify Borrower
that it has determined that the circumstances causing such suspension no longer
exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for Lender or its Eurodollar Lending
Office to perform its obligations hereunder to fund or maintain any Eurodollar
Rate Advances hereunder, then, on notice thereof and demand therefor by Lender
to Borrower (i) such Advances will automatically, upon such demand, convert into
Base Rate Advances and (ii) the obligation of the Lender to make or maintain
Eurodollar Rate Advances shall be suspended until Lender shall notify Borrower
that it has determined that the circumstances causing such suspension no longer
exist.
SECTION 2.07. PAYMENTS AND COMPUTATIONS.
(a) Borrower shall make each payment hereunder and under the Note,
irrespective of any right of counterclaim or set-off, not later than 3:00 P.M.
(New York City time) on each Interest Payment Date in U.S. dollars to Lender at
the Lender's Account in same day funds.
(b) Borrower hereby authorizes Lender, if and to the extent payment
owed to Lender is not made when due hereunder or under the Note, to charge from
time to time against any or all of Borrower's accounts with Lender any amount so
due.
(c) All computations of interest and fees shall be made by Lender (or
any Loan Servicer on behalf of Lender) on the basis of a year of 360 days, in
each case for the actual
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37
number of days (including the first day but excluding the last day) occurring in
the period for which such interest, fees or commissions are payable. Each
determination by Lender (or any Loan Servicer on behalf of Lender) of an
interest rate or fee hereunder shall be presumptive evidence of the amount due.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
SECTION 2.08. TAXES.
(a) Any and all payments by Borrower hereunder or under the Note shall
be made, in accordance with SECTION 2.07, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, EXCLUDING
taxes that are imposed on Lender's overall net income by the United States and
taxes that are imposed on the Lender's overall net income (and franchise taxes
imposed in lieu thereof) by the local, state or foreign jurisdiction under the
laws of which Lender is organized or any political subdivision thereof and taxes
that are imposed on Lender's overall net income (and franchise taxes imposed in
lieu thereof) by the local, state or foreign jurisdiction of Lender's Applicable
Lending Office or any political subdivision thereof (all such excluded taxes
being hereafter referred to as "EXCLUDED TAXES" and all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities in respect of
payments hereunder or under the Note being hereinafter referred to as "TAXES").
If Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under the Note to Lender (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this SECTION
2.08) Lender receives an amount equal to the sum it would have received had no
such deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Note or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or the Note other than Excluded Taxes (hereinafter referred to as
"OTHER TAXES").
(c) Borrower shall indemnify Lender for and hold it harmless against
the full amount of Taxes and Other Taxes, and for the full amount of taxes of
any kind imposed by any jurisdiction on amounts payable by Borrower to Lender
under this SECTION 2.08, imposed on or paid by Lender and any liability
(including penalties, additions to tax, interest and expenses) arising therefrom
or with respect thereto (other than penalties, additions to tax, interest and
expenses resulting from a delay caused by Lender). This indemnification shall be
made within thirty (30) days from the date Lender makes written demand therefor.
(d) Within thirty (30) days after the date of any payment of Taxes,
Borrower shall furnish to Lender, at its address referred to in SECTION 9.02,
the original or a certified copy
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38
of a receipt evidencing such payment. In the case of any payment hereunder or
under the Note by or on behalf of Borrower through an account or branch outside
the United States or by or on behalf of Borrower by a payor that is not a United
States person, if Borrower determines that no Taxes are payable in respect
thereof, Borrower shall furnish, or shall cause such payor to furnish, to the
Lender, at such address, an opinion of counsel acceptable to Lender stating that
such payment is exempt from Taxes. For purposes of this SUBSECTION (D) and
SUBSECTION (E), the terms "UNITED STATES" and "UNITED STATES PERSON" shall have
the meanings specified in SECTION 7701 of the Internal Revenue Code.
(e) Lender shall, on or prior to the date of its execution and delivery
of this Agreement, and from time to time thereafter as requested in writing by
Borrower (but only so long thereafter as Lender remains lawfully able to do so),
provide Borrower with two original Internal Revenue Service forms 1001 or 4224,
as appropriate, or any successor or other form prescribed by the Internal
Revenue Service, certifying that Lender is exempt from or entitled to a reduced
rate of United States withholding tax on payments pursuant to this Agreement or
the Note. If any form or document referred to in this SUBSECTION (E) requires
the disclosure of information, other than information necessary to compute the
tax payable and information required on the date hereof by Internal Revenue
Service form 1001 or 4224 that Lender reasonably considers to be confidential,
Lender shall give notice thereof to Borrower and shall not be obligated to
include in such form or document such confidential information, so long as
Borrower is still able to satisfy Internal Revenue Service requirements to
enable it not to withhold tax on payments or, if not able to satisfy such
requirements, Borrower will be entitled to withhold tax on such payments
hereunder.
(f) For any period with respect to which Lender has failed to provide
Borrower with the appropriate form described in SUBSECTION (E) above (OTHER THAN
if such failure is due to a change in law occurring after the date on which a
form originally was required to be provided or if such form otherwise is not
required under SUBSECTION (E) above), Lender shall not be entitled to
indemnification under SUBSECTION (A) or (C) with respect to Taxes imposed by the
United States by reason of such failure; PROVIDED, HOWEVER, that should Lender
become subject to Taxes because of its failure to deliver a form required
hereunder, Borrower shall take such steps as Lender shall reasonably request to
assist Lender to recover such Taxes.
SECTION 2.09. USE OF PROCEEDS. The proceeds of the Loan shall be
available (and Borrower agrees that it shall use such proceeds) solely to fund
or acquire Eligible Mortgage Loans or Eligible B Notes.
SECTION 2.10. LATE CHARGE. In the event that any installment of
interest or principal shall become overdue for a period in excess of five (5)
days, a "late charge" in an amount equal to five percent (5%) of the amount so
overdue may be charged to Borrower by Lender for the purpose of defraying the
expenses incident to handling such delinquent payments. Such late charge shall
be in addition to, and not in lieu of, any other remedy the Lender may have and
is in addition to Lender's right to collect reasonable fees and charges of any
agents or attorneys which Lender may employ in connection with any Default.
SECTION 2.11. SECURITY FOR THE ADVANCES. Subject to SECTION 9.12 the
Advances shall constitute one general obligation of Borrower to Lender and
Borrower's
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obligations hereunder and under the other Loan Documents shall be secured by the
Collateral Documents and the security interests and Liens granted therein.
SECTION 2.12. THE NOTE. Borrower's obligation to pay the principal of
and interest on the Advances shall be evidenced by the Note, duly executed and
delivered by Borrower on the Closing Date. The Note shall be payable as to
principal, interest and all other amounts due under the Loan Documents, as
specified in this agreement, the Note, and the other Loan Documents.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation
of Lender to make an Advance on or after the date of this Agreement (an "Initial
Advance") is subject to the satisfaction of the following conditions precedent
before or concurrently with the Closing Date:
(a) Before giving effect to the transactions contemplated by this
Agreement, there shall have occurred no Material Adverse Change since May 31,
1999.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting Borrower or any of its Subsidiaries pending or threatened
before any court, governmental agency or arbitrator that (i) would be reasonably
likely to have a Material Adverse Effect other than the matters described on the
Disclosure Schedule (the "DISCLOSED LITIGATION") or (ii) purports to affect the
legality, validity or enforceability of this Agreement, the Note, any other Loan
Document or the consummation of the transactions contemplated hereby.
(c) Borrower shall have paid all accrued expenses of Lender which
Borrower is required to pay under the Loan Documents (including the accrued,
reasonable fees and expenses of counsel to Lender).
(d) Lender shall have received on or before the Closing Date the
following, each dated such day (unless otherwise specified), in form and
substance satisfactory to Lender (unless otherwise specified):
(i) The Note payable to the order of Lender.
(ii) Certified copies of the resolutions of the Board of
Directors of Borrower approving this Agreement, the Note and each other
Loan Document to which it is or is to be a party, and of all documents
evidencing other necessary action and governmental and other third
party approvals and consents, if any, with respect to the Advances,
this Agreement, the Note and each other Loan Document.
(iii) A copy of the organizational Documents of Borrower,
together with each amendment thereto, and, in the case of the
certificate of incorporation of
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40
Borrower, certified (as of the Closing Date) by the Secretary of State
of the jurisdiction of its formation or incorporation as being a true
and correct copy thereof.
(iv) A copy of a certificate of the Secretary of State of the
jurisdiction of its formation, dated reasonably near the Closing Date,
certifying that (A) Borrower has paid all franchise taxes to the date
of such certificate and (B) Borrower is duly incorporated or formed and
in good standing under the laws of the State of the jurisdiction of its
organization.
(v) A certificate of Borrower, signed on behalf of the
Borrower by a duly authorized officer of Borrower, dated the Closing
Date (the statements made in which certificate shall be true on and as
of the Closing Date), certifying as to (A) the truth in all material
respects of the representations and warranties contained in the Loan
Documents as though made on and as of the Closing Date and (B) the
absence of any event occurring and continuing, or resulting from any
Advance, that constitutes a Default.
(vi) A certificate of the Secretary or an Assistant Secretary
of an authorized officer of Borrower certifying the names and true
signatures of the officers of Borrower authorized to sign this
Agreement, the Note and each other Loan Document to which they are or
are to be parties and the other documents to be delivered hereunder and
thereunder.
(vii) An amended and restated security agreement in form and
substance satisfactory to Lender pledging to Lender and granting Lender
a security interest in all of Borrower's right, title and interest in
the Collateral described therein (such agreement, as amended,
supplemented or otherwise modified from time to time in accordance with
its terms, the "SECURITY AGREEMENT"), duly executed by Borrower,
together with:
(A) acknowledgment copies of proper financing
statements, delivered for filing on or before the Closing Date
under the Uniform Commercial Code of the State of Florida, as
well as any other jurisdictions deemed necessary or desirable
by Lender, covering the Collateral described in the Security
Agreement,
(B) completed requests for information, dated on or
before the Closing Date, listing all effective financing
statements filed in the jurisdictions referred to in clause
(A) above that name Borrower as debtor, together with copies
of such other financing statements, and
(C) evidence of the completion of all other
recordings and filings of or with respect to the Security
Agreement that Lender may deem necessary or desirable in order
to perfect and protect the Liens created thereby.
(viii) An Omnibus Amendment of even date herewith duly
executed by Borrower, Lender and LNR.
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(ix) A favorable opinion of (A) Bilzin Sumberg Dunn Price &
Axelrod LLP with respect to the valid existence, due authorization and
execution of the Loan Documents by Borrower and (B) Bilzin Sumberg Dunn
Price & Axelrod LLP, special counsel for Borrower, with respect to the
enforceability of the Loan Documents, in each case, in form
satisfactory to Lender.
(e) Prior to the Mortgage Loan Advances Termination Date and for so
long as any Mortgage Loan Advances remain outstanding, Borrower shall have
Facility Equity in an amount equal to or greater than the Minimum Collateral
Value.
SECTION 3.02. CONDITIONS PRECEDENT TO EACH ADVANCE. The obligation of
Lender to make each Advance (including the Initial Advance), shall be subject to
the satisfaction of the following further conditions precedent before or
concurrently with the date of such Advance:
(a) the following statements shall be true and Lender shall have
received a certificate signed by a duly authorized officer of a member of
Borrower, dated the date of such Advance, stating that (and each of the giving
of the applicable Notice of Borrowing and the acceptance by Borrower of the
proceeds of such Advance shall constitute a representation and warranty by
Borrower that both on the date of such Notice of Borrower and on the date of
such Advance such statements are true):
(i) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of such date,
before and after giving effect to such Advance and to the application
of the proceeds therefrom, as though made on and as of such date and
each Mortgage Loan, in respect in which such Advance is made, is an
Eligible Mortgage Loan, subject to any exceptions approved in advance
by Lender;
(ii) no event has occurred and is continuing, or would result
from such Advance or from the application of the proceeds therefrom,
that constitutes a Default;
(iii) the funding of such Advance would not exceed the
Borrowing Limit (based upon the Loan Values and Property Values at the
time of Borrower's request for such Advance) or violate any of the
limitations set forth in SECTION 2.02;
(iv) no Borrowing Base Deficiency (based upon the Loan Values
and Property Values at the time of Borrower's request for such Advance)
exists or would result from such Advance or from the application of the
proceeds therefrom; and
(v) the information relating to the Mortgage Loans contained
in the schedule attached hereto as EXHIBIT D shall be attached to such
certificate and such certificate shall state that said information is
true and correct.
(b) Lender shall have received on or before the date of the proposed
Advance, the following, each dated such day (unless otherwise specified), in
form and substance satisfactory to Lender (unless otherwise specified):
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42
(i) a Notice of Borrowing;
(ii) with respect to each Mortgage Loan Advance only, a
Borrowing Base Certificate and duly executed Assignments of Mortgage
and endorsements to each Mortgage Note prepared in blank and the
Mortgage File for each Mortgage Loan added to the Collateral since the
date of the last Advance; and
(iii) with respect to each B Note Advance only, either (1) if
such B Note is a promissory note, the B Notes together with
endorsements to each B Note prepared in blank or (2) if such B Note is
a junior participation in a mortgage loan, a collateral assignment of
such participation agreement in substantially the form of Exhibit I
attached hereto.
(c) Lender shall have received such other approvals, opinions or
documents as Lender may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants as follows:
(a) Borrower (i) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its formation, (ii) is
duly qualified and in good standing in each other jurisdiction in which it owns
or leases property or in which the conduct of its business requires it to so
qualify or be licensed except where the failure to so qualify or be licensed
would not have a Material Adverse Effect and (iii) has all requisite power and
authority to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted.
(b) The execution, delivery and performance by Borrower of this
Agreement, the Note and each other Loan Document to which it is or is to be a
party, and the consummation of the transactions contemplated hereby, are within
Borrower's powers, have been duly authorized by all necessary corporate action,
and do not (i) contravene Borrower's Organizational Documents, (ii) violate any
law (including, without limitation, the Securities Exchange Act of 1934 and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime
Control Act of 1970), rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting Borrower or any of the Mortgaged Properties (in the case of the
Mortgage Loans) or mortgaged properties (in the case of the B Notes) or (iv)
except for the Liens created under the Loan Documents, result in or require the
creation or imposition of any Lien upon or with respect to any of the properties
of Borrower. Borrower is not in violation of any such law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or in breach
of any such contract, loan agreement, indenture, mortgage, deed of trust, lease
<PAGE>
43
or other instrument, the violation or breach of which is reasonably likely to
have a Material Adverse Effect.
(c) Except as already made or obtained, no Authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority or
regulatory body or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by Borrower of this Agreement, the
Note or any other Loan Document to which it is or is to be a party, or for the
consummation of the transactions contemplated hereby, (ii) the grant by Borrower
of the Liens granted by it pursuant to the Collateral Documents, (iii) the
perfection or maintenance of the Liens created by the Collateral Documents
(including the first priority nature thereof), or (iv) the exercise by Lender of
its rights under the Loan Documents or the remedies in respect of the Collateral
pursuant to the Collateral Documents, except for items (iii) and (iv) above for
which a blanket UCC-1 Financing Statement and recording of the Assignment of
Mortgage is required.
(d) This Agreement has been, and the Note and each other Loan Document
when delivered hereunder will have been, duly executed and delivered by
Borrower. This Agreement is, and the Note and each other Loan Document when
delivered hereunder will be, the legal, valid and binding obligation of
Borrower, enforceable against the Borrower in accordance with its terms.
(e) The unaudited Consolidated balance sheet of LNR Property
Corporation ("LNR") and its Subsidiaries as at May 31, 1999, and the related
Consolidated statement of income and Consolidated statement of cash flows of LNR
and its Subsidiaries for the six month period then ended, fairly represent in
all material respects the Consolidated financial condition of LNR and its
Subsidiaries as at such date and the Consolidated results of the operations of
LNR and its Subsidiaries for the period ended on such date, all in accordance
with GAAP (subject to year-end audit adjustments), and since May 31, 1999, there
has been no Material Adverse Change.
(f) No information, exhibit or report furnished by Borrower to Lender
in connection with the negotiation of the Loan Documents or pursuant to the
terms of the Loan Documents contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements made therein
not misleading.
(g) Except for any Disclosed Litigation, there is no action, suit,
investigation, litigation or proceeding affecting Borrower, including any
Environmental Action, pending or threatened before any court, governmental
agency or arbitrator that (i) would be reasonably likely to have a Material
Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Agreement, the Note or any other Loan Document or the
consummation of the transactions contemplated hereby.
(h) No proceeds of the Advances will be used to acquire any equity
security of a class that is registered pursuant to SECTION 12 of the Securities
Exchange Act of 1934, as amended.
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44
(i) Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying Margin Stock, and no proceeds of the Advances
will be used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock.
(j) Borrower is not and will not be an "employee benefit plan" as
defined in SECTION 3(3) of ERISA, which is subject to Title I of ERISA, and the
assets of Borrower do not and will not constitute "plan assets" of one or more
such plans for purposes of Title I of ERISA.
(k) Borrower is not and will not be a "governmental plan" within the
meaning of SECTION 3(32) of ERISA and transactions by or with the Borrower are
not and will not be subject to state statutes applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.
(l) Borrower is not (i) an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended, (ii) a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of either a "holding company"
or a "subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (iii) subject to any other Law that purports
to restrict or regulate its ability to borrow money.
(m) Borrower is not a party to any indenture, loan or credit agreement
or any lease or other agreement or instrument or subject to any charter or
corporate restriction that would be reasonably likely to have a Material Adverse
Effect.
(n) When recorded or filed with the appropriate governmental offices,
and when and as the related Mortgage Loan Documents have been delivered to the
Custodian, the Collateral Documents create a valid and perfected first priority
lien on and security interest in the Collateral, securing the payment of the
Secured Obligations. Borrower is the legal and beneficial owner of the
Collateral free and clear of any Lien, except for the liens and security
interests created or permitted under the Loan Documents.
(o) Borrower has filed, has caused to be filed or has been included in
all tax returns (federal, state, local and foreign) required to be filed and has
paid all taxes shown thereon to be due, together with applicable interest and
penalties, for which the failure to file or pay would have a Material Adverse
Effect.
(p) Borrower is Solvent.
(q) The location of Borrower's principal place of business and chief
executive office is at the respective addresses set forth in SECTION 9.02.
(r) Borrower is not a "foreign person" within the meaning ofss.
1445(f)(3) of the Code.
(s) Borrower is not a party to any collective bargaining agreements.
<PAGE>
45
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. [RESERVED]
SECTION 5.02. AFFIRMATIVE COVENANTS. So long as any Advance shall
remain unpaid or the Lender shall have any commitment hereunder, Borrower will:
(a) COMPLIANCE WITH LAWS. ETC. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA and the Racketeer Influenced and Corrupt Organizations
Chapter of the Organized Crime Control Act of 1970, where the failure to so
comply would be reasonably likely to result in a Material Adverse Effect.
(b) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its property and (ii) all lawful claims that, if unpaid, might by law
become a Lien upon its property unless the failure to pay or discharge same
would not have a Material Adverse Effect; PROVIDED, HOWEVER, that neither
Borrower nor any of its Subsidiaries shall be required to pay or discharge any
such tax, assessment, charge or claim that is being contested in good faith and
by proper proceedings and as to which appropriate reserves are being maintained,
unless and until any Lien resulting therefrom attaches to its property and
becomes enforceable against its other creditors.
(c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each of its
Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, in all material respects, with all applicable
Environmental Laws, the failure to comply with which would be reasonably likely
to result in a Material Adverse Effect.
(d) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which Borrower or such Subsidiary operates, the
failure to comply with which would reasonably likely result in a Material
Adverse Effect.
(e) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its existence,
legal structure, legal name, rights (charter and statutory), permits, licenses,
approvals, privileges and franchises; PROVIDED, HOWEVER, that neither Borrower
nor any of its Subsidiaries shall be required to preserve any right, permit,
license, approval, privilege or franchise if Borrower or such Subsidiary shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Borrower or such Subsidiary, as the case may be, and that
the loss thereof is not disadvantageous in any material respect to Borrower,
such Subsidiary or Lender.
(f) VISITATION RIGHTS. From time to time, upon reasonable notice and
during normal business hours, permit Lender or any agents or representatives
thereof, to examine and
<PAGE>
46
make copies of and abstracts from the records and books of account of, and visit
the offices of, Borrower and any of its Subsidiaries, and to discuss the
affairs, finances and accounts of Borrower and any of its Subsidiaries with any
of their officers or directors and with their independent certified public
accountants.
(g) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to keep,
proper books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of Borrower and
each such Subsidiary in accordance with generally accepted accounting principles
in effect from time to time.
(h) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the Loan
Documents with any of their Affiliates on terms that are fair and reasonable and
no less favorable to Borrower or such Subsidiary than it would obtain in a
comparable arm's-length transaction with a Person not an Affiliate; PROVIDED,
HOWEVER, Borrower or its Subsidiaries may enter into such a transaction with
Affiliates so long as such transaction would not result in a Material Adverse
Effect.
(i) ERISA. Deliver to Lender such certifications or other evidence from
time to time, as reasonably requested by the Lender, that (1) Borrower is not an
"employee benefit plan" as defined in SECTION 3(3) of ERISA, which is subject to
Title I of ERISA, or a "governmental plan" within the meaning of SECTION 3(32)
of ERISA; (2) Borrower is not subject to state statutes regulating investments
and fiduciary obligations with respect to governmental plans; and (3) one or
more of the following circumstances is true:
(i) equity interests in Borrower are publicly offered
securities, within the meaning of 29 C.F.R.ss. 2510.3-101(b)(2);
(ii) less than 25 percent of each outstanding class of equity
interests in Borrower are held by "benefit plan investors" within the
meaning of 29 C.F.R.ss.2510.3-101(f)(2); or
(iii) Borrower qualifies as an "operating company" or a "real
estate operating company" within the meaning of 29 C.F.R. ss.
2510.3-101(c) or (e) or an investment company registered under The
Investment Company Act of 1940.
(j) SERVICING OF MORTGAGE LOANS. Borrower, either directly or through
one or more of its Affiliates, shall make all reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans
comprising Collateral, shall provide reasonable advance notice to Mortgagors of
required principal and/or interest payments and shall otherwise service and
administer such Mortgage Loans in accordance with applicable law and customary
and usual servicing practices consistent with the higher of (i) those that a
prudent institutional commercial and multifamily mortgage investor or lender
would use in servicing mortgage loans like the Mortgage Loans for its own
account and (ii) the care, skill, prudence and diligence with which Borrower and
its Affiliates service and administer commercial and multifamily mortgage loans
generally.
<PAGE>
47
SECTION 5.03. NEGATIVE COVENANTS. So long as any Advance shall remain
unpaid, or Lender shall have any remaining Commitment hereunder, Borrower will
not, at any time:
(a) LIENS, ETC. Create, incur, assume or suffer to exist, or permit any
of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or
with respect to the Mortgage Loans or B Notes that are Collateral hereunder or
any interests therein or rights thereunder or any of its properties of any
character (including, without limitation, accounts) whether now owned or
hereafter acquired, or sign or file or suffer to exist, under the Uniform
Commercial Code of any jurisdiction, a financing statement that names Borrower
as debtor, or sign or suffer to exist, any security agreement authorizing any
secured party thereunder to file such financing statement, or assign any
accounts or other right to receive income, EXCLUDING, HOWEVER, from the
operation of the foregoing restrictions the following:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens;
(iii) Liens existing on the date hereof and described on
SCHEDULE B hereto;
(iv) Liens, deposits or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
money), leases (permitted under the terms of this Agreement), public or
statutory obligations, surety, stay, appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the
ordinary course of business;
(v) judgment and other similar liens arising in connection
with court proceedings, provided the execution or other enforcement of
such liens is effectively stayed and the claims secured thereby are
being actively and contested in good faith and by appropriate
proceeding;
(vi) easements, rights of way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with
the Borrower's occupation, use and enjoyment of the property or assets
encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto; and
(vii) the replacement, extension or renewal of any Lien
permitted by clauses (ii) and (iii) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby.
(b) LEASE OBLIGATIONS. Create, incur, assume or suffer to exist, any
obligations as lessee (i) for the rental or hire of real or personal property in
connection with any sale and leaseback transaction, or (ii) for the rental or
hire of other real or personal property of any kind under leases or agreements
to lease, including Capitalized Leases having an original term of one year or
more, other than leases of equipment or office space entered into in the
<PAGE>
48
ordinary course of business provided that the total annual monetary obligations
under any such leases shall not exceed $1,000,000 in aggregate.
(c) ACCOUNTING CHANGES. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or reporting
practices, except as required or permitted by GAAP as reasonably determined by
Borrower.
(d) MERGERS, ETC. Merge into or consolidate with any Person or permit
any Person to merge into it, or permit any of its Subsidiaries to do so, except
that (i) any Subsidiary of Borrower may merge into or consolidate with any other
Subsidiary of Borrower provided that, in the case of any such merger or
consolidation, the Person formed by such merger or consolidation shall be a
Subsidiary of Borrower and (ii) Borrower may merge into or consolidate with LNR
or any of its Subsidiaries; PROVIDED, HOWEVER, that any such permitted merger
shall be subject to the following condition: if Borrower is not the surviving
entity, then the surviving entity must assume all of the obligations of Borrower
in and to the Loan Documents.
(e) NEGATIVE PLEDGE. Enter into or suffer to exist any agreement
prohibiting the creation or assumption of any Lien upon any of its property or
assets unless such agreement shall exempt from such prohibitions Liens in favor
of Lender.
(f) ERISA. Engage in any transaction which would cause any obligation,
or action taken or to be taken, hereunder (or the exercise by the Lender of any
of its rights under the Note, this Agreement and the Loan Documents) to be a
non-exempt (under a statutory or administrative class exemption) prohibited
transaction under ERISA.
(g) FISCAL YEAR. Change its Fiscal Year.
(h) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on, or contemplated to be carried on, at the date hereof.
(i) SERVICING. Enter into any servicing agreement or otherwise transfer
servicing rights with respect to the Mortgage Loans or B Notes with any Person
that is not an Affiliate of Borrower, other than in accordance with the
Servicing and Intercreditor Agreement or with the written consent of the Lender.
SECTION 5.04. REPORTING REQUIREMENTS. So long as any Advance shall
remain unpaid or the Lender shall have any remaining commitment hereunder,
Borrower will furnish to Lender:
(a) DEFAULT NOTICE. As soon as possible and in any event within five
(5) days after the occurrence of each Default or any event, development or
occurrence reasonably likely to have a Material Adverse Effect continuing on the
date of such statement, a statement of Borrower setting forth details of such
Default and the action that Borrower has taken and proposes to take with respect
thereto.
(b) QUARTERLY FINANCIAL. As soon as available and in any event within
45 days after the end of each of the first three quarters of each Fiscal Year, a
Consolidated balance sheet
<PAGE>
49
of Borrower and its Subsidiaries as of the end of such quarter and Consolidated
statement of income of Borrower and its Subsidiaries for the period commencing
at the end of the previous fiscal quarter and ending with the end of such fiscal
quarter and a Consolidated statement of income of Borrower and its Subsidiaries
for the period commencing at the end of the previous Fiscal Year and ending with
the end of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding Fiscal Year,
all in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of Borrower as having been prepared
in accordance with GAAP, together with a certificate of said officer stating
that no Default has occurred and is continuing or, if a Default has occurred and
is continuing, a statement as to the nature thereof and the action that Borrower
has taken and proposes to take with respect thereto.
(c) ANNUAL FINANCIAL. As soon as available and in any event within one
hundred twenty (120) days after the end of each Fiscal Year, a copy of the
annual unaudited Consolidated balance sheet of Borrower and its Subsidiaries as
of the end of such Fiscal Year and a Consolidated statement of income of
Borrower and its Subsidiaries for such Fiscal Year, together with a certificate
of the chief financial officer of Borrower stating that no Default has occurred
and is continuing or, if a default has occurred and is continuing, a statement
as to the nature thereof and the action that Borrower has taken and proposes to
take with respect thereto.
(d) LITIGATION. Promptly after the commencement thereof, notice of all
actions, suits, investigations, litigation and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting Borrower or any of its Subsidiaries of the type
described in SECTION 4.01(G), and promptly after the occurrence thereof, notice
of any material adverse change in the status or the financial effect on Borrower
or any of its Subsidiaries of the Disclosed Litigation from that described on
the Disclosure Schedule.
(e) BORROWING BASE CERTIFICATE. As soon as available and in any event
within (a) fifteen (15) days after the end of each month and (ii) five (5) days
after any prepayment, sale, transfer or other disposition of any Mortgage Loans
or B Notes, a Borrowing Base Certificate, as at the end of the previous month
(or the previous week, if furnished more often than monthly), certified by a
Responsible Officer of Borrower.
(f) MONTHLY ASSET REPORTS. As soon as available and in any event within
fifteen (15) days after the end of each calendar month, a cash flow report in
form reasonably acceptable to the Lender setting forth with respect to each
Mortgage Loan and B Note the information set forth on EXHIBIT E attached hereto.
(g) OTHER INFORMATION. Such other information respecting the business,
condition (financial or otherwise), operations, performance, properties or
prospects of Borrower as Lender may from time to time reasonably request.
<PAGE>
50
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events
("EVENTS OF DEFAULT") shall occur and be continuing:
(a) (i) Borrower shall fail to pay the outstanding principal of the
Advances on the Maturity Date, (ii) Borrower shall fail to make any required
payment or pledge any additional collateral as required pursuant to SECTION
2.04(B)(III) within the two (2) Business Day period provided in such Section or
(iii) Borrower shall fail to pay any other required payment of principal or any
payment of interest on any Advance, or any other payment under any Loan
Document, in each case under this clause (iii), within five (5) Business Day(s)
after the same becomes due and payable; or
(b) any representation or warranty made by Borrower (or any of its
officers) under or in connection with any Loan Document shall prove to have been
incorrect in any material respect when made; or
(c) Borrower shall fail to perform or observe any term, covenant or
agreement contained in SECTION 5.02(E) or SECTION 5.03; or
(d) Borrower shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or observed
if such failure shall remain unremedied for thirty (30) days after the earlier
of the date on which (A) a Responsible Officer of Borrower becomes aware of such
failure or (B) written notice thereof shall have been given to Borrower by the
Lender; or
(e) Borrower, or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect of
any Debt that is outstanding in a principal amount of at least $1,000,000 either
individually or in the aggregate (but excluding Debt outstanding hereunder) of
such party, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt; or any other event shall
occur or condition shall exist under any agreement or instrument relating to any
such Debt, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Debt or otherwise to cause, or
to permit the holder thereof to cause, such Debt to mature; or any such Debt
shall be declared to be due and payable or required to be prepaid or redeemed
(other than by a regularly scheduled required prepayment or redemption),
purchased or defeased, or an offer to prepay, redeem, purchase or defease such
Debt shall be required to be made (other than by a regularly scheduled required
offer), in each case prior to the stated maturity thereof; PROVIDED, HOWEVER,
that if such failure or default shall be cured by Borrower and any acceleration
of the related Debt rescinded, such event shall no longer constitute an Event of
Default hereunder; or
(f) Borrower or any of its Subsidiaries shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall
<PAGE>
51
make a general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against Borrower or any of it Subsidiaries seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of any such proceeding
instituted against it (but not instituted by it) that is being diligently
contested by it in good faith, either such proceeding shall remain undismissed
or unstayed for a period of sixty (60) days or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or any substantial part of its property) shall occur; or
Borrower or any of its Subsidiaries shall take any corporate action to authorize
any of the actions set forth above in this SUBSECTION (F); PROVIDED, HOWEVER,
that to the extent any of the foregoing relates to a Subsidiary, no Event of
Default shall be deemed to have occurred unless it is reasonably likely to cause
a Material Adverse Effect; or
(g) any judgment or order for the payment of money in excess of
$1,000,000 shall be rendered against Borrower or any of its Subsidiaries and
either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of ten (10)
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; PROVIDED,
HOWEVER, that to the extent any judgment or order is rendered against a
Subsidiary, no Event of Default shall be deemed to have occurred unless it also
has a Material Adverse Effect; or
(h) any non-monetary judgment or order shall be rendered against
Borrower or any of its Subsidiaries that is reasonably likely to have a Material
Adverse Effect, and there shall be any period of thirty (30) consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(i) any provision of any Loan Document after delivery thereof pursuant
to SECTION 3.01 or 3.02 shall for any reason cease to be valid and binding on or
enforceable against Borrower, or Borrower shall so state in writing;
(j) any Collateral Document after delivery thereof pursuant to SECTION
3.01 or 3.02 shall for any reason (other than pursuant to the terms thereof)
cease to create a valid and perfected first priority lien on and security
interest in the Collateral purported to be covered thereby and the same shall
result in a Borrowing Base Deficiency (determined assuming a zero Loan Value for
the applicable Collateral) unless such Borrowing Base Deficiency shall be cured
by Borrower within five (5) Business Days after notice of such event; or
(k) LNR shall fail to perform or observe any term, covenant or
agreement contained in the Guaranty;
then, and in any such event, Lender may declare its obligation to make Advances
to be terminated, whereupon the same shall forthwith terminate, and (ii) may, by
written notice to Borrower, declare the Note, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Note,
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52
all such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by Borrower; PROVIDED, HOWEVER, that in the
event of an actual or deemed entry of an order for relief with respect to
Borrower under the Federal Bankruptcy Code, (x) the obligation of Lender to make
Advances shall automatically be terminated and (y) the Note, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment. demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower.
ARTICLE VII
SECONDARY MARKET; SERVICING
SECTION 7.01. PARTICIPATIONS.
(a) Lender may sell participations to one or more Persons (other than
its Affiliates) in or to all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of the Note held
by it); PROVIDED, HOWEVER, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations and (iii)
Lender shall remain the holder of any such Note for all purposes of this
Agreement.
(b) Lender may, in connection with any participation or proposed
participation pursuant to this SECTION 7.01, disclose to the participant or
proposed participant any information relating to Borrower furnished to Lender by
or on behalf of Borrower; PROVIDED, HOWEVER, that, prior to any such disclosure,
the participant or proposed participant shall agree to preserve the
confidentiality of any information received by it from Lender.
(c) Notwithstanding any other provision set forth in this Agreement,
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 7.02. SERVICING. On or after the Closing Date, Lender shall
have the right to transfer the servicing of the Loan and administration of the
Loan Documents to a loan servicer designated by Lender in its sole discretion
(together with any servicer appointed by Lender "LOAN SERVICER"). From and after
the engagement of the Loan Servicer (a) the Loan Servicer shall have such right
to exercise all rights of Lender and enforce all obligations of Borrower
pursuant to the provisions of this Agreement, the Note and the other Loan
Documents; (b) Borrower shall deliver to the Loan Servicer duplicate originals
of all notices and other instruments which Borrower may deliver pursuant to this
Agreement, the Note and the other Loan Documents (and no delivery of such
notices or other instruments by Borrower shall be of any force or effect unless
delivered to Lender and Loan Servicer as provided above); and (c) Lender shall
deliver to Borrower written notice of such transfer with a copy of the agreement
with the Loan Servicer at least three (3) days prior to such transfer.
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53
ARTICLE VIII
PARTIAL RELEASE OF COLLATERAL
SECTION 8.01. PARTIAL RELEASE OF COLLATERAL. Borrower shall be entitled
to a partial release of the applicable Mortgage Loan or B Note and release of
Lender's security interests and liens thereon (a "PARTIAL RELEASE") subject to
the following terms and conditions:
(a) Borrower shall have delivered to the Lender a written request for a
Partial Release in the form of EXHIBIT K which request shall include (A) the
proposed effective date of the Partial Release and (B) documents effecting the
Partial Release in form and substance satisfactory to Lender;
(b) No Default or Event of Default shall have occurred and be
continuing;
(c) Lender shall have received, simultaneously with the Partial
Release, prepayment in full of the Release Price with respect to the Mortgage
Loans or B Notes subject to the requested Partial Release (reduced by
application of any amounts applied pursuant to SECTION 2.04), and payment of all
reasonable costs and expenses, including, without limitation, legal fees and
disbursements, incurred by Lender in effecting the Partial Release; and
(d) Lender shall have received, simultaneously with the Partial
Release, a certificate signed by a duly authorized officer of Borrower, dated
the date of the Partial Release, stating that (A) all of the conditions set
forth in this SECTION 8.01 have been satisfied and (B) the Partial Release of
the applicable Mortgage Loan or B Note complies with all of the terms and
provisions of this Agreement.
Provided the conditions precedent to such Partial Release set forth in this
SECTION 8.01 have been satisfied, Lender shall, simultaneously with such
payment, execute and deliver to Borrower all documents provided by Borrower and
required to effect the Partial Release and deliver to Borrower all Mortgage Loan
Documents or B Note and related documents, as the case may be, in its
possession.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement or the Notes or any other Loan Document, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed (or, in the case of the Collateral
Documents, consented to) by Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 9.02. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered,
if to Borrower, at its address at c/o LNR
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54
Property Corporation, 760 Northwest 107th Avenue, Miami, Florida 33172,
Attention: Ms. Shelly Rubin, Chief Financial Officer, and if to the Lender, at
its address at 31 West 52nd Street, New York, New York 10019, Attention: Mr. Ian
McColough; or as to each other party, at such other address as shall be
designated by such party in a written notice to Borrower and Lender. All such
notices and communications shall, when mailed, telegraphed, telecopied or
telexed, be effective three (3) days after deposited in the mails, when
delivered to the telegraph company, transmitted by telecopier or confirmed by
telex answerback, one day after delivered to a reputable overnight courier or
otherwise upon receipt, respectively, except that notices and communications to
Lender pursuant to ARTICLE II, III OR VII shall not be effective until received
by Lender. Delivery by telecopier of an executed counterpart of any amendment or
waiver of any provision of this Agreement or the Note or of any Exhibit hereto
to be executed and delivered hereunder shall be effective as delivery of a
manually executed counterpart thereof.
SECTION 9.03. NO WAIVER; REMEDIES. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder or under any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
SECTION 9.04. COSTS, EXPENSES.
(a) The Borrower agrees to pay on demand (i) all reasonable
out-of-pocket costs and expenses of the Lender in connection with the
preparation, execution, delivery, administration, modification and amendment of
the Loan Documents (including, without limitation, (A) all out-of-pocket due
diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
for Lender with respect thereto, with respect to advising Lender as to its
rights and responsibilities, or the perfection, protection or preservation of
rights or interests, under the Loan Documents, with respect to negotiations with
Borrower or with other creditors of Borrower or any of its Subsidiaries arising
out of any Default or any events or circumstances that may give rise to a
Default and with respect to presenting claims in or otherwise participating in
or monitoring any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto); PROVIDED,
HOWEVER, that (i) such reasonable fees of counsel for Lender in connection with
the establishment of the facility contemplated by this Agreement shall not
exceed $50,000; and (ii) all out-of-pocket costs and expenses of Lender in
connection with the enforcement of the Loan Documents, whether in any action,
suit or litigation, any bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally (including, without limitation, the
reasonable fees and expenses of counsel for the Lender and with respect
thereto).
(b) Borrower agrees to indemnify and hold harmless Lender, the Loan
Servicer and each of their respective Affiliates and their officers, directors,
employees, agents and advisors (each, an "INDEMNIFIED PARTY") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation or proceeding or
preparation of a defense in
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55
connection therewith) (i) the Advances, the actual or proposed use of the
proceeds of the Advances, the Loan Documents or any of the transactions
contemplated thereby, including, without limitation, any acquisition or proposed
acquisition or (ii) the actual or alleged presence of Hazardous Materials on any
Mortgaged Property or any Environmental Action relating in any way to any
Mortgaged Property, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this SECTION 9.04(B) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by Borrower, its directors, shareholders or creditors or
an Indemnified Party or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are consummated. Borrower
also agrees not to assert any claim against Lender or any of its Affiliates, or
any of their respective officers, directors, employees, attorneys and agents, on
any theory of liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to the Loan, the actual or proposed
use of the proceeds of the Advances, the Loan Documents or any of the
transactions contemplated thereby.
(c) Without limitation to the provisions of SECTION 2.04(A), if any
payment of principal of any Eurodollar Rate Advance is made by the Borrower
other than on the last day of the applicable Interest Period, as a result of an
acceleration of the maturity of the Notes pursuant to SECTION 6.01 or for any
other reason, Borrower shall, upon demand by the Lender, pay to the Lender an
amount sufficient to compensate the Lender for any LIBOR Breakage with respect
to such payment.
(d) If Borrower fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of Borrower by Lender, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of
Borrower hereunder or under any other Loan Document, the agreements and
obligations of Borrower contained in this SECTION 9.04 shall survive the payment
in full of principal, interest and all other amounts payable hereunder and under
any of the other Loan Documents.
SECTION 9.05. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default the Lender and each of its respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Lender or such Affiliate to or
for the credit or the account of Borrower against any and all of the Obligations
of Borrower then owing whether now or hereafter existing under this Agreement
and the Note. Lender agrees promptly to notify Borrower after any such set-off
and application; PROVIDED, HOWEVER, that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of Lender
and its Affiliates under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that Lender
and its Affiliates may have.
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56
SECTION 9.06. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by Borrower and Lender and thereafter shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower shall not have the right
to assign its rights hereunder or any interest herein without the prior written
consent of Lender.
SECTION 9.07. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 9.08. JURISDICTION, ETC.
(a) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or any of the other Loan
Documents to which it is a party, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in any such New York State court or, to the extent permitted by
law, in such federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this Agreement
or any of the other Loan Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other Loan
Documents to which it is a party in any New York State or federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 9.09. GOVERNING LAW. This Agreement and the Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 9.10. WAIVER OF JURY TRIAL. To the maximum extent permitted by
law, each of Borrower and Lender irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of the Loan Documents, the Advances
or the actions of Lender in the negotiation, administration, performance or
enforcement thereof.
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57
SECTION 9.11. CONFIDENTIALITY. Borrower and Lender acknowledge and
agree on behalf of themselves and each of their respective Affiliates,
directors, officers, members, employees and agents that the existence, terms and
conditions of the facility contemplated by this Agreement are confidential and
shall not be disclosed by either party without the prior written consent of the
other party except to the extent required (a) by applicable laws or (b) in
connection with any litigation to which the applicable Person is a party.
Without limiting the foregoing, Borrower shall not advertise, publish or promote
the existence of this facility or the identity of the Lender or any of its
Affiliates to loan customers of Borrower as a source of ultimate funding for
loans or otherwise.
SECTION 9.12. RECOURSE LIMITATION.
(a) Notwithstanding anything to the contrary contained in this
Agreement or in any other Loan Document (but subject to the provisions of this
SECTION 9.12), Lender shall not enforce the liability and obligation of Borrower
to perform and observe the obligations contained in this Agreement or in the
Note by any action or proceeding to collect damages or wherein a money judgment
or any deficiency judgment or order or any judgment establishing any personal
obligation or liability shall be sought against Borrower or any principal,
director, officer, employee, beneficiary, shareholder, partner, member, trustee,
agent or affiliate of Borrower or any person owning, directly or indirectly, any
legal or beneficial interest in Borrower, or any successors or assigns of any of
the foregoing (collectively, the "EXCULPATED PARTIES"). Lender may bring any
appropriate action or proceeding to enable Lender to enforce and realize upon
the Collateral Documents, and the interest in the Mortgage Loans, B Notes and
other Collateral given to Lender pursuant to the Collateral Documents; PROVIDED,
HOWEVER, subject to the provisions of this SECTION 9.12, that any judgment in
any action or proceeding shall be enforceable against Borrower only to the
extent of Borrower's interest in the Mortgage Loans, B Notes and any other
Collateral given to Lender in connection with the Note. Lender agrees that it
shall not, except as otherwise provided below, sue for or demand any deficiency
judgment against Borrower or any of the Exculpated Parties in any action or
proceeding, under or by reason of or under or in connection with this Agreement,
the Note, or the other Loan Documents.
(b) The provisions of subsection (a) above shall not (i) constitute a
waiver, release or impairment of the Obligations; (ii) impair the right of
Lender to name Borrower as a party defendant in any action or suit for under
Collateral Documents; (c) affect the validity or enforceability of any
indemnity, guaranty, master lease or similar instrument made in connection with
the Loan Documents; (d) impair the right of Lender to obtain the appointment of
a receiver; or (e) impair the enforcement of any Assignment of Mortgage and
Assignment of Rents executed in connection herewith.
(c) Notwithstanding the provisions of subsection (a) to the contrary,
Borrower shall be personally liable to Lender for the losses Lender incurs due
to: (a) fraud or intentional misrepresentation by Borrower or any other person
or entity in connection with the execution and the delivery of this Agreement,
the Note, or the other Loan Documents; (b) Borrower's misapplication or
misappropriation of principal payments received by Borrower with respect to any
Mortgage Loan or B Note; or (c) criminal acts perpetrated by it.
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58
SECTION 9.13. AMENDMENT OF EXISTING AGREEMENT. This Agreement in all
respects amends, restates, replaces and supercedes the prior existing agreement
executed as of May 15, 1998 between the same parties.
* * *
[SIGNATURES ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
LNR FLORIDA FUNDING, INC.
By:
------------------------------------
Name:
Title:
LENDER:
GERMAN AMERICAN CAPITAL CORPORATION
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
<PAGE>
GUARANTY
from
LNR PROPERTY CORPORATION
as Guarantor,
in favor of
GERMAN AMERICAN CAPITAL CORPORATION,
as Lender
DATED AS OF OCTOBER 4, 1999
<PAGE>
GUARANTY
THIS GUARANTY (this "GUARANTY"), made as of the 4th day of October,
1999, by LNR PROPERTY CORPORATION, a Delaware corporation, having an address at
760 Northwest 107th Avenue, Miami, Florida 33172 (the "GUARANTOR"), in favor
GERMAN AMERICAN CAPITAL CORPORATION, a Maryland corporation, having an address
at 31 West 52nd Street, 23rd Floor, New York, New York 10019 ("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, LNR FLORIDA FUNDING, INC., a Florida corporation ("BORROWER"),
and Lender have entered into that certain Amended and Restated Credit Agreement,
dated of even date hereof (as the same may be amended, modified or supplemented
from time to time, the "AGREEMENT"; capitalized terms not otherwise defined
herein shall have the meaning ascribed to such terms in the Agreement) pursuant
to which Lender agreed to finance Mortgage Loans and B Notes for Borrower and
Borrower agreed to pledge Mortgage Loans and B Notes to Lender as security for
Advances, all in accordance with the terms and conditions of the Agreement;
WHEREAS, as a condition to entering into the Agreement with Borrower,
Lender has required that the Guarantor guarantee payment and performance of the
Guaranteed Obligations (as hereafter defined); and
WHEREAS, Borrower is indirectly controlled by the Guarantor, and the
Guarantor will derive substantial economic benefit from Lender financing
Mortgage Loans and B Notes for Borrower, and, therefore, the Guarantor has
agreed to guaranty payment to Lender and performance of the Guaranteed
Obligations.
NOW, THEREFORE, to induce Lender to make Advances pursuant to the
Agreement and in consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby covenants and agrees for the benefit of
Lender, as follows:
1. Guaranteed Obligations.
(a) The Guarantor absolutely and unconditionally guarantees to
Lender the punctual and complete payment and performance when due (whether at
the stated maturity, by acceleration or otherwise), of all obligations of
Borrower under the Agreement and any other document executed in connection
therewith with respect to B Notes and B Note Advances, including, without
limitation, payment of the aggregate outstanding principal amount of each B Note
Advance for the applicable B Notes that are pledged to Lender from time to time
pursuant to the Agreement. (The obligations described in this CLAUSE (A) are
referred to herein as the "GUARANTEED OBLIGATIONS"). It is specifically
understood and agreed that the Guaranteed Obligations do not include, and this
Guaranty does not cover in any way nor does Guarantor have any payment or
performance obligations hereunder with respect to, any and all of the Mortgage
Loan Advances or any and all obligations of Borrower under the Agreement and/or
any other documents executed in connection therewith with respect to the
Mortgage Loan Advances or Mortgage Loans.
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<PAGE>
(b) INTENTIONALLY OMITTED.
(c) If Borrower shall fail to (i) pay when due the outstanding
principal amount of each B Note Advance for the applicable B Notes that are
pledged to Lender or (ii) pay or perform when due (including any applicable
grace, notice and/or cure periods) any of the other Guaranteed Obligations,
Lender may, subject only to the express limitations set forth in this Guaranty,
call upon the Guarantor to pay the unpaid amount or perform the unsatisfied
Guaranteed Obligation. The Guarantor shall, upon demand, immediately pay such
unpaid amount to Lender or perform such unsatisfied condition.
2. REINSTATEMENT OF OBLIGATIONS. If at any time all or any part of any
payment made by the Guarantor or received by Lender from the Guarantor under or
with respect to this Guaranty is or must be rescinded or returned for any reason
whatsoever (including but not limited to, the insolvency, bankruptcy or
reorganization of the Guarantor or Borrower), then the obligations of the
Guarantor hereunder shall, to the extent of the payment rescinded or returned,
be deemed to have continued in existence notwithstanding such previous payment
made by the Guarantor, or receipt of payment by Lender, and the obligations of
the Guarantor hereunder shall continue to be effective or be reinstated, as the
case may be, as to such payment, all as though such previous payment by the
Guarantor had never been made.
3. GUARANTY ABSOLUTE. The Agreement shall conclusively be deemed to
have been entered into by Lender and any B Note Advances thereunder shall be
made in reliance upon this Guaranty and all dealings and documents executed
hereafter between Lender and Borrower related to the Guaranteed Obligations
shall likewise be conclusively presumed to have been undertaken or consummated
in reliance upon this Guaranty. This Guaranty shall, subject to the terms
hereof, be construed as a continuing, absolute and unconditional guaranty of
payment and guaranty of performance of obligations. The liability of the
Guarantor under this Guaranty shall be absolute and unconditional irrespective
of (a) any lack of genuineness, regularity, legality, validity or enforceability
of the Agreement or any part thereof, (b) any change in the time, manner or
place of payment of any amount payable under the Agreement, or in any other term
of the Agreement, including, but not limited to, any increase or decrease in the
Base Rate or Eurodollar Rate, or any other amendment or waiver or consent to
departure from the Agreement including, without limiting the generality of the
foregoing, the waiver of any default thereunder or the making of any arrangement
with, or the accepting of any compromise or settlement from, Borrower or any
other person or entity liable in respect of any amount payable under the
Agreement, unless Lender expressly agrees in writing any of the foregoing
applies to this Guaranty (c) any exchange, release or non-perfection of any
interest of Lender in any B Notes, or any release or amendment or waiver of or
consent to departure from any other guaranty securing the obligations of
Borrower under the Agreement, (d) any act, omission, circumstance or occurrence
that might otherwise vary the risk of the Guarantor or be deemed a legal or
equitable discharge of the Guarantor or which might otherwise constitute a
defense available to Borrower or the Guarantor or (e) any dealings or
transactions between Lender, Borrower or any other person or entity liable in
respect of the payment to Lender of the aggregate outstanding principal amount
of each B Note Advance or the payment or performance of any of the other
obligations of Borrower under the Agreement or any other document executed in
connection therewith.
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<PAGE>
Without limiting the generality of the foregoing and subject to the
terms hereof the Guarantor's liability under this Guaranty shall, subject to the
terms hereof, be absolute and unconditional irrespective of any right of set-off
or counterclaim which Borrower or the Guarantor may from time to time have in
respect of any moneys or liabilities owing by, or any claims against, Lender and
the Guarantor irrevocably waives any defense or claim based upon any such right
of set-off or counterclaim. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any part of the aggregate
outstanding principal amount of each B Note Advance or any other amount paid to
Lender with respect to the Guaranteed Obligations is rescinded or must otherwise
be returned by Lender upon the insolvency, bankruptcy or reorganization of
Borrower, all as though such payment had not been made.
4. WAIVER. The Guarantor hereby waives protest, promptness, diligence,
notice of acceptance, demand for payment and notice of default or non-payment in
respect of the Agreement and waives all other notices of every kind and
description with respect to any of the B Note Advances now or hereafter provided
by any statute or rule of law, except as expressly provided herein. The
Guarantor hereby waives any requirement that Lender protect, secure, perfect or
insure any security interest or lien or any property subject thereto or exhaust
any right or take any action against Borrower, against the Guarantor hereunder
or any other person, entity or any collateral. The Guarantor hereby waives, to
the fullest extent permitted by applicable law, the benefit of any statute of
limitations which may affect its liability hereunder or the enforcement hereof.
Any payment by Borrower or other circumstance that operates to toll any statute
of limitations as to Borrower shall operate to toll the statute of limitations
as to the Guarantor.
5. NATURE OF GUARANTY. This Guaranty is a guaranty of payment and
performance of obligations and not of collection, is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in the future,
including (a) interest and other Guaranteed Obligations arising or accruing
after bankruptcy of Borrower or the Guarantor or any sale or other disposition
of any B Notes or any other collateral, and (b) any Guaranteed Obligations that
survive the repayment by Borrower of all B Note Advances Purchased Securities
and the termination of Lender's obligation to finance any further B Notes with
Borrower. This Guaranty and any security for this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any payment or
performance of any Guaranteed Obligations is rescinded or must otherwise be
returned by Lender or any other person upon the bankruptcy, insolvency or
reorganization of Borrower or the Guarantor or otherwise, all as though such
payment or performance had not occurred. The Guarantor shall have no authority
to revoke this Guaranty, but if any such revocation shall be deemed to have
occurred by operation of law or otherwise, the provisions of this Guaranty shall
continue to apply notwithstanding such revocation.
6. OBLIGATIONS INDEPENDENT. The obligations of the Guarantor under this
Guaranty are independent of the obligations of Borrower under the Agreement
(such obligations, including the Borrower's obligations in respect of the
Guaranteed Obligations, being referred to in this Guaranty as the "OTHER
OBLIGATIONS") and any security or collateral therefor, and the enforceability of
any security for this Guaranty is likewise independent of any such Other
Obligations and any other security or collateral. Lender may bring action
against the Guarantor and otherwise enforce this Guaranty without bringing
action against Borrower or any other party
3
<PAGE>
or joining in any action against the Guarantor, and otherwise independently of
any other remedy at law or in equity that may be available to Lender at any time
with respect to any Other Obligations, security or collateral. The Guarantor
waives any right to require Lender at any time to proceed against Borrower or
any other party, or otherwise enforce, proceed against or exhaust any Other
Obligations or pursue any other remedy in Lender's power.
7. FULL RECOURSE. Notwithstanding any provisions of the Agreement or
any other document executed in connection therewith to the contrary, all of the
terms and provisions of this Guaranty are recourse obligations of the Guarantor
and not restricted by any limitation on personal liability.
8. SURVIVAL. To the fullest extent permitted by law, this Guaranty
shall be deemed to be continuing in nature and shall remain in full force and
effect and shall survive the exercise of any remedy by Lender under the
Agreement or any other document executed in connection therewith.
9. WAIVER OF SUBROGATION. Until such time as the aggregate outstanding
principal amount of each B Note Advance has been paid for all B Notes, all other
Guaranteed Obligations of Borrower under the Agreement and other documents
executed in connection therewith have been satisfied and Lender has no further
obligation to finance B Notes with Borrower, the Guarantor hereby irrevocably
waives all rights of subrogation and any other claims that it may now or
hereafter acquire against Borrower or any insider that arise from the existence,
payment, performance or enforcement of the Guarantor's obligations under this
Guaranty, including, without limitation, any right of reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of Lender against Borrower or any insider, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from Borrower
or any insider, directly or indirectly, in cash or other property or by set-off
or in any other manner, payment or security on account of such claim, remedy or
right. If any amount shall be paid to the Guarantor in violation of the
foregoing at any time prior to Lender being paid the aggregate outstanding
principal amount of each B Note Advance for all B Notes, all other Guaranteed
Obligations of Borrower under the Agreement and other documents executed in
connection therewith being satisfied and Lender having no obligation to finance
any further B Notes with Borrower, such amount shall be held in trust for the
benefit of Lender and shall forthwith be paid to Lender to be credited and
applied to all amounts payable under this Guaranty or to be held as collateral
for any amounts payable under this Guaranty thereafter arising. The Guarantor
acknowledges that it has and will receive direct and indirect benefits from the
arrangements contemplated by the Agreement and that the waiver set forth in this
SECTION 9 is knowingly made in contemplation of such benefits.
10. RESERVATION OF RIGHTS. Nothing contained in this Guaranty shall
prevent or in any way diminish or interfere with any rights or remedies,
including, without limitation, the right to contribution, which Lender may have
against Borrower, under any applicable federal, state or local laws, all such
rights being hereby expressly reserved.
11. RIGHTS CUMULATIVE; PARENTS. Lender's rights under this Guaranty
shall be in addition to all rights of Lender under the Agreement and any other
document executed in
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connection therewith. TO THE EXTENT THAT PAYMENTS ARE MADE HEREUNDER BY THE
GUARANTOR WITH RESPECT TO OBLIGATIONS AND LIABILITIES FOR WHICH BORROWER IS NOT
LIABLE UNDER THE AGREEMENT OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION
THEREWITH, SUCH PAYMENTS MADE BY THE GUARANTOR UNDER THIS GUARANTY SHALL NOT
REDUCE IN ANY RESPECT BORROWER'S OBLIGATIONS AND LIABILITIES UNDER THE AGREEMENT
OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH.
12. NO LIMITATION ON LIABILITY. The Guarantor hereby consents and
agrees that Lender may at any time and from time to time without further consent
from the Guarantor do or consent to any of the following events, and the
liability of the Guarantor under this Guaranty shall be unconditional and
absolute and shall in no way be impaired or limited by any of the following
events, whether occurring with or without notice to the Guarantor or with or
without consideration: (i) grant extensions of time for performance required by
the Agreement; (ii) sell, assign or transfer in any manner any B Notes or any
security for the payment of the aggregate outstanding principal amount of each B
Note Advance or performance of Borrower's other obligations under the Agreement
or any other document executed in connection therewith; (iii) a change in the
composition of Borrower, including, without limitation, the withdrawal or
removal of the Guarantor from any current or future position of ownership,
management or control of Borrower; (iv) the waiver of any inaccuracy of the
representations and warranties made by the Guarantor herein or by Borrower in
the Agreement or any document executed in connection therewith; (v) the release
of Borrower or of any other person or entity from performance or observance of
any of the agreements, covenants, terms or conditions contained in the Agreement
or any document executed in connection therewith by operation of law, Lender's
voluntary act or otherwise; (vi) release or substitute in whole or in part of
any security for the payment of the aggregate outstanding principal amount of
each B Note Advance or the other obligations of Borrower under the Agreement or
any other document executed in connection therewith; (vii) Lender's failure to
perfect, protect, secure or insure any lien or security interest given as
security for the payment of the aggregate outstanding principal amount of each B
Note Advance or the other obligations of Borrower under the Agreement or any
other documents executed in connection therewith; (viii) modify the terms of the
Agreement or any document executed in connection therewith; or (ix) take or fail
to take any action of any type whatsoever. No such action which Lender shall
take or fail to take in connection with the Agreement or any document executed
in connection therewith or any collateral for the repayment of the aggregate
outstanding principal amount of each B Note Advance, nor any course or dealing
with Borrower or any other person, shall limit, impair or release the
Guarantor's obligations hereunder, affect this Guaranty in any way or afford the
Guarantor any recourse against Lender. Nothing contained in this Section shall
be construed to require Lender to take or refrain from taking any action
referred to herein.
13. ENFORCEMENT. This Guaranty is subject to enforcement at law or in
equity, including actions for damages or specific performance.
14. ATTORNEYS' FEES. In the event it is necessary for Lender to retain
the services of an attorney or any other consultants in order to enforce this
Guaranty, or any portion thereof, the Guarantor agrees to pay to Lender any and
all costs and expenses, including, without limitation,
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reasonable attorneys' fees, costs and disbursements, incurred by Lender as a
result thereof and such costs, fees and expenses shall be included as a
Guaranteed Obligation.
15. SUCCESSIVE ACTION. A separate right of action hereunder shall arise
each time Lender acquires knowledge of any matter indemnified or guaranteed by
the Guarantor under this Guaranty. Separate and successive actions may be
brought hereunder to enforce any of the provisions hereof at any time and from
time to time. No action hereunder shall preclude any subsequent action, and the
Guarantor hereby waives and covenants not to assert any defense in the nature of
splitting of causes of action or merger of judgments.
16. RELIANCE. Lender would not enter into the Agreement without the
Guarantor entering into this Guaranty. Accordingly, the Guarantor intentionally
and unconditionally enters into the covenants and agreements as set forth above
and understands that, in reliance upon and in consideration of such covenants
and agreements, the Agreement shall be executed and, as part and parcel thereof,
specific monetary and other obligations have been, are being and shall be
entered into which would not be made or entered into but for such reliance.
17. WAIVER BY THE GUARANTOR. The Guarantor covenants and agrees that,
upon the commencement of a voluntary or involuntary bankruptcy proceeding by or
against Borrower, the Guarantor shall not seek in Borrower's bankruptcy
proceeding a supplemental stay or other relief, whether injunctive or otherwise,
pursuant to 11 U.S.C. ss. 105 or any other provision of the Bankruptcy Reform
Act of 1978, as amended, or pursuant to any other debtor relief law (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, which may be or become applicable, to stay,
interdict, condition, reduce or inhibit the ability of Lender to enforce any
rights of Lender against the Guarantor.
18. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and
warrants to Lender that as of the date hereof:
(a) ORGANIZATION. The Guarantor (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (ii) is duly qualified and in good standing in
each other jurisdiction in which it owns or leases property or in which the
conduct of its business requires it to so qualify or be licensed except where
the failure to so qualify or be licensed would not have a Material Adverse
Effect and (iii) has all requisite power and authority to own or lease and
operate its properties and to carry on its business as now conducted.
(b) AUTHORIZATION. The execution, delivery and performance by
the Guarantor of this Guaranty and the consummation of the transaction
contemplated hereby, are within the Guarantor's powers, have been duly
authorized by all necessary corporate action, and do not (i) contravene the
Guarantor's by-laws or certificate of incorporation or (ii) violate any law
(including, without limitation, the Securities Exchange Act of 1934 and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime
Control Act of 1970), rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award,
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(c) APPROVAL. Except as already made or obtained, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority or regulatory body or any other third party is
required for (i) the due execution, delivery, recordation, filing or performance
by the Guarantor of this Guaranty or any other document related hereto or (ii)
the exercise by Lender of its rights hereunder.
(d) EXECUTION. This Guaranty has been, and each other document
related hereto, when delivered hereunder will have been, duly executed and
delivered by the Guarantor. This Guaranty is, and each document related hereto,
when delivered hereunder will be, the legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms,
except as may be limited or otherwise affected by bankruptcy, insolvency,
reorganization, liquidation, receivership, moratorium or other laws relating or
affecting creditor's rights generally, or by general principles of equity.
(e) NO CONFLICT. The execution and delivery by the Guarantor
of this Guaranty and the Guarantor's performance of its obligations hereunder,
(i) will not be in conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under, or result in the creation or
imposition of any lien of any nature whatsoever upon any of the property or
assets of the Guarantor pursuant to, any indenture or material agreement or
instrument and (ii) will not conflict with or result in the breach of, or
constitute a default under, any contract, loan agreement, indenture, mortgage,
deed of trust, lease or other instrument binding on or affecting the Guarantor,
which is reasonably likely to have a Material Adverse Effect.
(f) LITIGATION. There are no actions, suits or proceedings at
law or in equity by or before any governmental authority or other agency now
pending and served or, to the best knowledge of the Guarantor, threatened
against the Guarantor, which actions, suits or proceedings, if determined
against the Guarantor, are reasonably likely to result in a Material Adverse
Effect.
(g) AGREEMENTS. The Guarantor is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party or by
which the Guarantor is bound which is reasonably likely to have a Material
Adverse Effect. The Guarantor is not a party to any agreement or instrument or
subject to any restriction which is reasonably likely to have a Material Adverse
Effect.
(h) FINANCIAL CONDITION. The unaudited Consolidated balance
sheet of the Guarantor and its Subsidiaries as at May 31, 1999, and the related
Consolidated statement of income and Consolidated statement of cash flows of the
Guarantor and its Subsidiaries for the six-month period then ended, fairly
represent in all material respects the Consolidated financial condition of the
Guarantor and its Subsidiaries as at such date and the Consolidated results of
the operations of the Guarantor and its Subsidiaries for the period ended on
such date, all in accordance with GAAP (subject to year-end adjustments), and
have been delivered to Lender, and since May 31, 1999, no event which would
result in a Material Adverse Effect has occurred.
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(i) MISLEADING OR UNTRUE INFORMATION. No information, exhibit
or report furnished by the Guarantor to Lender pursuant to the terms of this
Guaranty taken as a whole contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements made therein
in light of the circumstances under which they were made not misleading.
(j) REGULATION U. The Guarantor is not primarily engaged in
the business of' extending credit for the purpose of purchasing or carrying
Margin Stock.
(k) CERTAIN REGULATIONS. The Guarantor is not (i) an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended or (ii) a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(l) PLACE OF BUSINESS. The location of the Guarantor's principal place of
business and chief executive office, as of the date hereof, is at 760 Northwest
107th Avenue, Miami, Florida 33172.
(m) TAXES. The Guarantor has filed, has caused to be filed, or
has been included in all Federal tax returns (and all other material tax
returns, state, local and foreign) required to be filed and has paid all taxes
shown thereon to be due, together with applicable interest and penalties other
than taxes being contested in good faith by the Guarantor, in each case where
the failure to file or pay would be reasonably likely to cause a Material
Adverse Effect.
(n) FOREIGN STATUS. The Guarantor is not a "foreign person"
within the meaning ofss.1445(f)(3) of the Code.
(o) GOVERNMENTAL REGULATIONS. The Guarantor is in compliance
with all applicable statutes, laws, ordinances, rules, orders and regulations of
any Governmental Authority in all jurisdictions in which it is presently doing
business, and the Guarantor has all licenses and permits necessary thereunder
for the conduct of its business, other than those the non-compliance with or not
obtaining of which could not (individually or in the aggregate) be reasonably
likely to have a Material Adverse Effect.
(p) NO BANKRUPTCY FILING. The Guarantor is not contemplating
either the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of its assets or
property. To the best knowledge of the Guarantor, no Person is contemplating the
filing of any such petition against it.
(q) FULL AND ACCURATE DISCLOSURE. No statement of fact made by
or on behalf of the Guarantor in this Guaranty contains any untrue statement of
a material fact or omits to state any material fact necessary to make statements
contained herein not misleading.
19. NEGATIVE COVENANTS OF THE GUARANTOR. On and as of the date of this
Guaranty, the Guarantor covenants that it will not and will not permit any of
its Subsidiaries to:
(a) MERGERS, ETC. Merge into or consolidate with any Person or
permit any Person to merge into it, or permit any of its Subsidiaries to do so,
except that (i) any Subsidiary
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of the Guarantor may merge into or consolidate with any other Subsidiary or
Affiliate of the Guarantor provided that, in the case of any such merger or
consolidation, the Person formed by such merger or consolidation shall be a
Subsidiary or Affiliate of the Guarantor, (ii) any Subsidiary of the Guarantor
may merge into or consolidate with any other Person provided that such merger or
consolidation is not reasonably likely to have a Material Adverse Effect or
(iii) the Guarantor may merge into or consolidate with any of its Subsidiaries;
provided, however, that any such permitted merger shall be subject to the
following condition: if the Guarantor is not the surviving entity, then the
surviving entity must assume all of the obligations of the Guarantor hereunder.
(b) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on, or contemplated to be carried on, at the date hereof, if the result
of such change would be reasonably likely to cause a Material Adverse Effect.
(c) INVESTMENT COMPANY ACT OF 1940. Become an "investment
company" registered under the Investment Company Act of 1940.
(d) VOLUNTARY BANKRUPTCY. Commence or join voluntarily in any
proceeding seeking to adjudicate it a bankrupt or insolvent, or seek
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any laws relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property; PROVIDED, HOWEVER,
as to any Subsidiary, any of the foregoing is reasonably likely to cause a
Material Adverse Effect.
(e) ACCOUNTING CHANGES. Make or permit any change in
accounting policies or reporting practices, except as required or permitted by
GAAP.
(f) FISCAL YEAR. Change its Fiscal Year.
(g) CHARTER AMENDMENTS. Amend its by-laws or certificate of
incorporation without the consent of Lender other than such changes which could
not be reasonably likely to have a Material Adverse Effect.
20. AFFIRMATIVE COVENANTS OF THE GUARANTOR. On and as of the date of
this Guaranty, the Guarantor covenants that it will, and will cause its
Subsidiaries to:
(a) DOCUMENTATION OF REPRESENTATIONS. Provide Lender with
copies of such documentation as Lender may reasonably request evidencing the
truthfulness of the representations set forth in PARAGRAPH 18.
(b) COMPLIANCE WITH LAWS, ETC. Comply with all applicable
laws, rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970, in each case,
where the failure to so comply could be reasonably likely to result in a
Material Adverse Effect.
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(c) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each
of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if unpaid
or undischarged, might by law become a lien upon its property unless the failure
to pay or discharge same would not have a Material Adverse Effect; PROVIDED,
HOWEVER, that neither the Guarantor nor any of its Subsidiaries shall be
required to pay or discharge any such tax, assessment, charge or claim that is
being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any lien resulting
therefrom attaches to its property and becomes enforceable against Guarantor or
any Subsidiaries by its other creditors.
(d) PRESERVATION OF EXISTENCE, ETC. Except as otherwise
permitted under PARAGRAPH 19(A), preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, its existence, legal structure, rights
(charter and statutory), permits, licenses, approvals, privileges and
franchises; PROVIDED, HOWEVER, that neither the Guarantor nor any of its
Subsidiaries shall be required to preserve or maintain any right, permit,
license, approval, privilege or franchise, or in the case of any Subsidiary its
existence or legal structure, if the Guarantor or such Subsidiary shall
determine that the preservation or maintenance thereof is no longer desirable in
the conduct of the business of the Guarantor or such Subsidiary, as the case may
be, and that the loss thereof is not reasonably likely to cause a Material
Adverse Effect.
(e) INSPECTION RIGHTS. From time to time, upon reasonable
notice and during normal business hours, permit Lender or any agents or
representatives thereof, to examine and make copies of and abstracts from the
records and books of account of, and visit the offices of, the Guarantor and any
of its Subsidiaries, and to discuss the affairs, finances and accounts of the
Guarantor and any of its Subsidiaries with any of its officers or directors and
with its independent certified public accountants.
(f) KEEPING OF BOOKS. Maintain and implement administrative
and operating procedures and keep proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of the Guarantor and any of its Subsidiaries in accordance
with GAAP.
(g) SECURITIES EXCHANGE FILINGS. Promptly file with the
appropriate national securities exchange or other appropriate Governmental
Authority all proxy statements, financial statements, registration statements
and all regular, periodic and special reports that the Guarantor is required by
law to file with the Securities and Exchange Commission or any Governmental
Authority that may be substituted therefor, or with any national securities
exchange, which failure to file is reasonably likely to have a Material Adverse
Effect.
(h) FURTHER ASSURANCES. Without expense or cost to Lender,
from time to time hereafter, execute, acknowledge, file, record, do and deliver
all and any further acts, and other instruments as Lender may from time to time
reasonably require in order to carry out more effectively the purposes of this
Guaranty or for carrying out the intention of or facilitating the performance of
the terms of this Guaranty.
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(i) TRANSACTIONS WITH AFFILIATES. Conduct, and cause each of
its Subsidiaries to conduct, all transactions with any of their Affiliates on
terms that are fair and reasonable and no less favorable to the Guarantor or
such Subsidiary than it would obtain in a comparable arm's-length transaction
with a Person not an Affiliate; provided, HOWEVER, the Guarantor or its
Subsidiaries may enter into any such transaction with Affiliates so long as such
transaction would not be reasonably likely to result in a Material Adverse
Effect.
21. FINANCIAL COVENANTS OF THE GUARANTOR. Guarantor shall not permit
with respect to itself any of the following to be breached, as determined
quarterly on a Consolidated basis in conformity with GAAP as set forth in or
based upon the financial statements of the Guarantor delivered pursuant to
Section 22 hereof:
(i) MINIMUM NET WORTH. Net Worth to be less than
$500,000,000;
(ii) INDEBTEDNESS TO EQUITY. The ratio of Indebtedness to
Net Worth to exceed 3.5 to 1; or
(iii) EBITDA TO INTEREST EXPENSE. The ratio of EBITDA to
Interest Expense to be less than 1.5 to 1.
22. REPORTING REQUIREMENTS OF THE GUARANTOR.
(a) DEFAULT NOTICE. As soon as possible and in any event
within five (5) days after the occurrence of each default under this Guaranty or
any event, development or occurrence reasonably likely to have a Material
Adverse Effect continuing on the date of such statement, a statement of the
Guarantor setting forth details of such default and the action that the
Guarantor has taken and proposes to take with respect thereto.
(b) QUARTERLY FINANCIAL. As soon as available and in any event
within sixty (60) days after the end of each of the first three quarters of each
Fiscal Year, an unaudited Consolidated balance sheet of the Guarantor and its
Subsidiaries as of the end of such quarter and Consolidated statement of income
of the Guarantor and its Subsidiaries for the period commencing at the end of
the previous fiscal quarter and ending with the end of such fiscal quarter and a
Consolidated statement of income of the Guarantor and its Subsidiaries for the
period commencing at the end of the previous Fiscal Year and ending with the end
of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding Fiscal Year,
all in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Guarantor as having been
prepared in accordance with GAAP, together with a certificate of said officer
stating that no default under this Guaranty or Material Adverse Effect has
occurred and is continuing or, if a default or Material Adverse Effect has
occurred and is continuing, a statement as to the nature thereof and the action
that the Guarantor has taken and proposes to take with respect thereto.
Notwithstanding the foregoing, provided that the Guarantor files a Form 10-Q
with the Securities & Exchange Commission ("SEC") and provides a copy of same to
Lender within five (5) Business Days of the filing of such report with the SEC,
such report shall satisfy the conditions of the this subparagraph (b), provided
that the Guarantor provides to Lender with such report a certificate of an
officer of the Guarantor stating that no default under this Guaranty or Material
Adverse Effect has occurred and is continuing or, if a default or Material
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Adverse Effect has occurred and is continuing, a statement as to the nature
thereof and the action that the Guarantor has taken and proposes to take with
respect thereto.
(c) ANNUAL FINANCIAL. As soon as available and in any event
within one hundred twenty (120) days after the end of each Fiscal Year, a copy
of the annual unaudited Consolidated balance sheet of the Guarantor and its
Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of
income and a Consolidated statement of cash flows of the Guarantor and its
Subsidiaries for such Fiscal Year, together with a certificate of the chief
financial officer of the Guarantor stating that no default under this Guaranty
or Material Adverse Effect has occurred and is continuing or, if a default or
Material Adverse Effect has occurred and is continuing, a statement as to the
nature thereof and the action that the Guarantor has taken and proposes to take
with respect thereto. Notwithstanding the foregoing, provided that the Guarantor
files a Form 10-K with the SEC and provides a copy of same to Lender within five
(5) Business Days of the filing of such report with the SEC, such report shall
satisfy the conditions of this subparagraph (c), provided that the Guarantor
provides to Lender with such report a certificate of an officer of the Guarantor
stating that no default under this Guaranty or Material Adverse Effect has
occurred and is continuing or, if a default or Material Adverse Effect has
occurred and is continuing, a statement as to the nature thereof and the action
that the Guarantor has taken and proposes to take with respect thereto.
(d) LITIGATION. Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigation and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Guarantor or any of its
Subsidiaries which could if determined adversely result in a Material Adverse
Effect and, promptly after the occurrence thereof, notice of any material
adverse change in the status or the financial effect on the Guarantor and its
Subsidiaries, taken as a whole, of the disclosed litigation described on EXHIBIT
A hereto.
(e) SECURITIES AND EXCHANGE COMMISSION REPORTS. Promptly after
the sending or filing thereof, copies of all proxy statements, financial
statements and reports that the Guarantor sends to all of its stockholders, and
copies of all regular, periodic and special reports, and all registration
statements, that the Guarantor or any of its Subsidiaries files with the
Securities and Exchange Commission or any Governmental Authority that may be
substituted therefor, or with any national securities exchange.
(f) OTHER REPORTS. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other category of holders of
the securities generally of the Guarantor pursuant to the terms of any
indenture, loan or credit or similar agreement and not otherwise required to be
furnished to Lender pursuant to any other clause of this PARAGRAPH 22.
(g) OTHER INFORMATION. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Guarantor as Lender may from time to time
reasonably request.
23. GOVERNING LAW. This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of New York.
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24. REMEDIES. The obligations of the Guarantor under this Guaranty are
independent of the Borrower's obligations under the Agreement or any other
document executed in connection therewith, and a separate action or actions may
be brought and prosecuted against the Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against Borrower or whether
Borrower is joined in any such action or actions. Any one or more successive
and/or concurrent actions may be brought hereon against the Guarantor either in
the same action, if any, brought against Borrower or in separate actions, as
often as Lender, in its sole discretion, may deem advisable.
25. CERTIFIED STATEMENT. The Guarantor agrees it will, at any time and.
from time to time, within ten (10) days following the reasonable request of
Lender, execute and deliver to Lender a statement certifying that this Guaranty
is unmodified and in full force and effect (or if modified, that the same is in
full force and effect as modified and stating such modifications).
26. NOTICES. Unless otherwise provided herein, all notices and other
communications provided for hereunder shall be in writing (including telegraphic
facsimile or telex communication) and such notices and other communications
shall, when mailed, telegraphed, communicated by facsimile transmission or
telexed, be effective when received at the address for notices for the party to
whom such notice or communications is to be given as follows: if to Lender:
German American Capital Corporation, 31 West 52nd Street, New York, New York
10019, Attention: Ian McColough, Telephone: (212) 469-5695, Telecopy: (212)
469-8518; with a copy to Deutsche Bank AG, New York Branch, 31 West 52nd Street,
New York, New York 10019; Attention: Marianne Maffuccia, Esq., Telephone: (212)
469-8481, Telecopy: (212) 469-8173; with a copy to Latham & Watkins, 885 Third
Avenue, New York, New York 10022, Attention: Brian Krisberg, Esq., Telephone:
(212) 906-1209, Telecopy: (212) 751-4864; and if to the Guarantor, LNR Property
Corporation, 760 Northwest 107th Avenue, Miami, Florida 33172, Attention: Mr.
Robert Cherry, Telephone: (305) 229-6446, Telecopy: (305) 226-7691; with a copy
to Bilzin Sumberg Dunn Price & Axelrod LLP, 2500 First Union Financial Center,
200 South Biscayne Boulevard, Miami, Florida 33131, Attention: Alan D. Axelrod,
Esq., Telephone: (305) 350-2369, Telecopy: (305) 374-7593; PROVIDED, HOWEVER,
that a facsimile transmission shall be deemed to be received when transmitted so
long as the transmitting machine has provided an electronic confirmation of such
transmission, and provided further, however, that all financial statements
delivered shall be hand delivered or sent by first-class mail to Lender at such
address.
27. CONTINUING AGREEMENT; SUCCESSORS AND ASSIGNS. This Guaranty is a
continuing obligation of the Guarantor and shall (i) remain in full force and
effect until (A) the payment in full of the aggregate outstanding principal
amount of each B Note Advance for all B Notes, (B) the payment and performance
by Borrower of all of the Guaranteed Obligations and (C) such time as Lender has
no obligation to finance any further B Notes for Borrower, (ii) be binding upon
the Guarantor and its permitted successors and assigns and (iii) inure to the
benefit of and be enforceable by Lender and its successors, transferees and
assigns or by any person to whom Lender's interest in the Agreement and any
document executed in connection therewith may be assigned.
28. CERTAIN NOTICES. Lender shall endeavor to give notice to the
Guarantor of any amendment or modification of the Agreement or any other
document executed in connection
13
<PAGE>
therewith; PROVIDED, HOWEVER, that failure to provide any such notice shall in
no manner adversely affect the rights and remedies of Lender hereunder or under
the Agreement or any other document executed in connection herewith or therewith
or in any manner limit the waivers made by the Guarantor under Section 4.
29. WAIVERS AND AMENDMENTS. No supplement to, modification or amendment
of, or waiver, consent or approval under, any provision of this Guaranty shall
be effective unless in writing and signed by Lender, and any waiver, consent or
approval shall be effective only in the specific instance and for the specific
purpose for which given.
30. WAIVER OF JURY TRIAL. Lender and the Guarantor waive trial by jury
in any action or other proceeding (including counterclaims), whether at law or
equity, brought by Lender or the Guarantor against the other on matters arising
out of or in any way related to or connected with this Guaranty, the Agreement
or any other documents executed in connection therewith, any of the B Note
Advances, or any other transaction contemplated by, or the relationship between
Lender, the Guarantor and/or Borrower or any action or inaction by any party
under the Agreement or any document executed in connection therewith.
31. DEFINITIONS. The following terms shall for the purposes of this
Guaranty have the following meaning:
"AFFILIATE" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling," "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote ten percent (10%) or more of the Voting Stock of such Person or to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of Voting Stock, by contract or
otherwise;
"CODE" means the Internal Revenue Code of 1986, as amended,
and as it may be further amended from time to time, any successor
statutes thereto, and applicable U.S. Department of Treasury
regulations issued pursuant thereto in temporary or final form;
"CONSOLIDATED" refers to the consolidation of accounts in
accordance with GAAP;
"EBITDA" means with respect to Guarantor and its Subsidiaries
for any period, Consolidated net income of Guarantor and its
Subsidiaries for such period determined in accordance with GAAP plus,
without duplication and to the extent reflected as a charge in the
statement of such Consolidated net income for such period, the sum of
(a) total income tax expense, (b) total interest expense, (c) total
depreciation and amortization expense and (d) amortization of
intangibles (including, but not limited to, goodwill) and any
organization costs;
"FISCAL YEAR" means a fiscal year of the Guarantor and its
Consolidated Subsidiaries ending on November 30 in any calendar year or
such other fiscal year as the Guarantor may select from time to time
and promptly advise Lender in writing thereof;
14
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of
1974, as the same may be amended or modified from time to time;
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which
are in effect at the relevant time;
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state, county, municipality or other political subdivision or branch
thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government,
including any agency, board, commission, court, department or officer
thereof;
"INDEBTEDNESS" means at any time the indebtedness of Guarantor
and its Subsidiaries at such time determined on a Consolidated basis in
accordance with GAAP;
"INTEREST EXPENSE" means for any period, total interest
expense of Guarantor and its Subsidiaries for such period as determined
on a Consolidated basis in accordance with GAAP;
"LEGAL REQUIREMENTS" means all governmental statutes, laws,
rules, orders, regulations, ordinances, judgments, decrees and
injunctions of Governmental Authorities affecting the Guarantor;
"LIEN" means any mortgage, lien, encumbrance, charge or other
security interest, whether arising under contract, by operation of law,
judicial process or otherwise;
"MARGIN STOCK" shall have the meaning specified in Regulation
U;
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Guarantor and its
Subsidiaries taken as a whole, (b) the rights and remedies of Lender
under this Guaranty or any Loan Document to which it is a party or (c)
the ability of the Guarantor to perform its obligations under this
Guaranty;
"NET WORTH" means the amount which would be included under
stockholders' equity on a consolidated balance sheet of Guarantor and
its Subsidiaries determined on a consolidated basis in accordance with
GAAP;
"PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, estate, trust, unincorporated
association, any federal, state, county or municipal government or any
bureau, department or agency thereof and any fiduciary acting in such
capacity on behalf of any of the foregoing;
15
<PAGE>
"REGULATION U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System, as in effect from time to
time;
"SUBSIDIARY" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than fifty percent (50%) of (a) the issued and
outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such
partnership, joint venture or limited liability company or (c) the
beneficial interest in such trust or estate, is at the time directly or
indirectly owned or controlled by such Person, by such Person and one
or more of its other Subsidiaries or by one or more of such Person's
other Subsidiaries; and
"VOTING STOCK" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the
happening of such a contingency.
16
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as a
sealed instrument as of the day and year first above written.
LNR PROPERTY CORPORATION,
a Delaware corporation
By:
------------------------------
Name: Mark A. Griffith
Title: Vice President
17
<PAGE>
EXHIBIT A
DISCLOSED LITIGATION
None.
EXHIBIT 10.14
LNR PROPERTY CORPORATION SAVINGS PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C> <C>
SECTION 1.........................................................................................................2
1.1 Accounts........................................................................................2
1.2 Acquired Company................................................................................3
1.3 Actual Contribution Percentage..................................................................3
1.4 Actual Deferral Percentage......................................................................3
1.5 Anniversary Date................................................................................3
1.6 Board...........................................................................................3
1.7 Capital Accumulation Contribution...............................................................3
1.7 Code............................................................................................3
1.8 Company.........................................................................................3
1.9 Company Stock...................................................................................4
1.10 Compensation....................................................................................4
1.11 Deferred Retirement Date........................................................................4
1.12 Disability......................................................................................4
1.13 Early Retirement Date...........................................................................4
1.14 Effective Date..................................................................................4
1.15 Eligible Employee...............................................................................4
1.16 Employee........................................................................................5
1.17 Employer........................................................................................5
1.18 Enrollment Date.................................................................................5
1.19 ERISA...........................................................................................5
1.20 Financial Hardship..............................................................................5
1.21 Highly Compensated Employee.....................................................................5
1.22 415 Compensation................................................................................6
1.23 Hour of Service.................................................................................7
1.24 Independent Advisor.............................................................................7
1.25 Investment Manager..............................................................................8
1.26 Matching Contribution...........................................................................8
1.27 Nonvested.......................................................................................8
1.28 Non-Highly Compensated Employee.................................................................8
1.29 Normal Retirement Age...........................................................................8
1.30 Normal Retirement Date..........................................................................8
1.31 One-Year Break-In-Service.......................................................................8
1.32 Participant.....................................................................................9
1.33 Plan............................................................................................9
1.34 Plan Year.......................................................................................9
1.35 Predecessor Plan...............................................................................10
1.37 Salary Deferral Agreement......................................................................10
1.38 Salary Deferral Contribution...................................................................10
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1.39 Termination of Employment......................................................................10
1.40 Trust..........................................................................................10
1.41 Trustees.......................................................................................10
1.42 Valuation Date.................................................................................11
1.43 Year-of-Service................................................................................11
SECTION 2........................................................................................................12
2.1 Commencement of Participation..................................................................12
2.2 Obligation of Participant......................................................................12
2.3 Termination of Participation...................................................................12
SECTION 3........................................................................................................14
3.1 Salary Deferral................................................................................14
3.2 Matching and Voluntary Contributions...........................................................16
3.3 Profit Sharing Contribution....................................................................18
3.4 Rollover Contribution..........................................................................19
3.5 Annual Limitation on Contributions.............................................................19
SECTION 4........................................................................................................21
4.1 Matching and Profit Sharing Accounts...........................................................21
4.2 Salary Deferral, Voluntary Contribution and Rollover Accounts..................................22
SECTION 5........................................................................................................23
5.1 Forfeitures....................................................................................23
5.2 Allocation.....................................................................................23
5.3 Restoration of Benefits........................................................................23
SECTION 6........................................................................................................24
6.1 Investment Funds...............................................................................24
6.2 Investment Performance.........................................................................25
6.3 Independent Appraiser..........................................................................25
SECTION 7........................................................................................................26
7.1 Distributions During Employment................................................................26
7.2 Distributions Upon Separation from Service.....................................................29
7.3 Distributees Right to Demand Company Stock.....................................................35
7.4 Incompetence of Distributee....................................................................35
7.5 Location of Participant or Beneficiary Unknown.................................................35
7.6 Put Option.....................................................................................36
7.7 Restrictions...................................................................................36
SECTION 8........................................................................................................37
8.1 Amendment......................................................................................37
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
8.2 Termination, Partial Termination, or Complete Discontinuance of Contributions..................37
8.3 Permissible Reversions.........................................................................38
SECTION 9........................................................................................................39
SECTION 10.......................................................................................................41
10.1 Application of Top-Heavy Provisions............................................................41
10.2 Key Employees..................................................................................44
10.3 Non-Key Employee...............................................................................45
10.4 Additional Rules...............................................................................45
10.5 Vesting Requirements...........................................................................45
10.6 Minimum Benefit................................................................................46
10.7 Ceiling on Includible Compensation.............................................................46
SECTION 11.......................................................................................................47
11.1 Limitation of Rights; Employment Relationship..................................................47
11.2 Merger; Transfer of Assets.....................................................................47
11.3 Prohibition Against Assignment.................................................................47
11.4 Applicable Law; Severability...................................................................48
11.5 Reliance Upon Copy of Plan.....................................................................48
11.6 Gender and Number; Captions or Headings........................................................48
SECTION 12.......................................................................................................50
12.1 Appointment of Committee.......................................................................50
12.2 Committee Organization.........................................................................50
12.3 Committee Meetings.............................................................................50
12.4 Committee Functions and Powers.................................................................52
12.5 Committee Actions Conclusive...................................................................51
12.6 Committee Appointment of Agents................................................................52
12.7 Reliance on Opinions, Etc......................................................................52
12.8 Records and Accounts...........................................................................52
12.9 Payment of Expense.............................................................................52
12.10 Liability of the Administrative Committee......................................................53
SECTION 13.......................................................................................................54
13.1 The Trust Agreement............................................................................54
13.2 No Diversion of Corpus or Income...............................................................54
</TABLE>
3
<PAGE>
PREAMBLE
The following are the provisions of the LNR PROPERTY SAVINGS PLAN (the
"Plan") as it is hereinafter set forth, and as it may hereinafter from time to
time be amended by the LNR PROPERTY CORPORATION, a corporation formed under the
laws of Delaware (the "Employer").
Employer was established in 1997, as a result of a reorganization of
Lennar Corporation. Pursuant to the reorganization, Employer was created and its
stock distributed to Lennar Corporation shareholders.
The Plan is based upon the LENNAR CORPORATION EMPLOYEE STOCK OWNERSHIP
PLAN (the "Predecessor Plan") which was originally adopted effective November 1,
1983 and subsequently amended and restated effective December 1, 1989 and again
on December 31, 1994. Assets and liabilities shall be transferred from the
Predecessor Plan to the Plan for all Participants in the Plan who have account
balances in the Predecessor Plan. Any Participant in this Plan on the Effective
Date, who was a participant in the Predecessor Plan as of the date immediately
preceding the Effective Date, shall be immediately eligible to participate in
the Plan and shall be credited with all Years of Service and all 1997 Hours of
Service earned at Lennar Corporation.
The Employer adopted the Plan, effective November 1, 1997, in
connection with the reorganization of Lennar Corporation and the Employer.
The Employer now desires to amend the Plan to terminate the ESOP
component of the Plan, change the vesting schedule and permit employees to
immediately access employer contributions upon termination of employment. In
order to accomplish this result, the Employer does hereby adopt the restated LNR
PROPERTY CORPORATION SAVINGS PLAN, effective January 1, 1999.
<PAGE>
SECTION 1.
DEFINITIONS
1.1 ACCOUNTS
(a) MATCHING ACCOUNT
The account of a Participant which is credited with matching
contributions made pursuant to Section 3.2(a).
(b) CAPITAL ACCUMULATION ACCOUNT
The account of a Participant which is credited with Capital
Accumulation Contributions made pursuant to Section 3.3.
Effective as of April 1, 1999, the Capital Accumulation
Account of a Participant also contains amounts transferred
from a Participant's ESOP Account.
(c) ROLLOVER ACCOUNT
The account of a Participant which is credited with rollover
deposits made pursuant to Section 3.4.
(d) SALARY DEFERRAL ACCOUNT
The account of a Participant which is credited with Salary
Deferral Contributions made pursuant to Section 3.1(a).
(e) VOLUNTARY CONTRIBUTION ACCOUNT
The account of a Participant which is credited with Voluntary
Contributions made pursuant to Section 3.2(b).
(f) ESOP ACCOUNT
The account of a Participant credited with ESOP contributions.
Effective as of April 1, 1999, all amounts in a Participant's
ESOP Account shall be transferred to the Participant's Capital
Accumulation Account.
2
<PAGE>
1.2 ACQUIRED COMPANY
A business the Company acquires through the purchase and/or exchange of
assets, equity or a combination of both.
1.3 ACTUAL CONTRIBUTION PERCENTAGE
The ratio of:
(a) the sum of Matching Contributions and Voluntary Contributions;
to
(b) Compensation for the Plan Year, for each Eligible Employee.
1.4 ACTUAL DEFERRAL PERCENTAGE
The ratio of:
(a) Salary Deferral Contributions; to
(b) Compensation for the Plan Year, for each Eligible Employee.
1.5 ANNIVERSARY DATE
The last day of each Plan Year.
1.6 BOARD
The Board of Directors of the Company.
1.7 CAPITAL ACCUMULATION CONTRIBUTION
The contribution described in Section 3.3.
1.8 CODE
The Internal Revenue Code of 1986, as amended.
1.9 COMPANY
LNR Property Corporation, a Delaware corporation, or any successor to
it in ownership of all or substantially all of its operating assets
which adopts and continues the Plan by operation of law or with the
approval of the Board.
3
<PAGE>
1.10 COMPANY STOCK
Common stock of the Company.
1.11 COMPENSATION
The total wages or salary paid within the Plan Year by the Employer to
a Participant as reported to the Internal Revenue Service on Form W-2
plus any contributions elected pursuant to Section 3.1. Compensation
may not exceed $150,000 per year, or such higher amount to which such
amount shall be adjusted annually in accordance with regulations
prescribed by the Secretary of the Treasury pursuant to Code Section
415(d) to reflect increases in the cost-of-living.
1.12 DEFERRED RETIREMENT DATE
The actual retirement date of a Participant who has already attained
his Normal Retirement Age.
1.13 DISABILITY
A mental or physical condition which is total and permanent and
prevents a Participant from performing the Participants usual duties as
an Employee. The Administrative Committee, based on medical evidence
deemed by it to be competent, shall be the sole judge of the Disability
of a Participant, and its determinations shall be final and conclusive.
1.14 EARLY RETIREMENT DATE
Any date on which the Participant retires prior to the date such
Participant attains age sixty-five (65) which is on or after the later
of:
(a) the day the Participant attains age sixty (60), or
(b) the day the Participant completes twenty-five (25)
Years-of-Service.
1.15 EFFECTIVE DATE
November 1, 1997.
1.16 ELIGIBLE EMPLOYEE
An Employee who may participate in the Plan because he has attained the
age of 21.
4
<PAGE>
1.17 EMPLOYEE
Any individual, including any officer, employed by the Employer,
whether paid a regular weekly, bi-weekly, semimonthly, monthly, or
annual rate of salary, or paid on an hourly basis only for performance
as a managerial, administrative, technical, professional or clerical
employee, or paid in whole or in part on a commission basis (but not
including any other individual employed on an hourly or piecework
basis), and who is employed in the United States, or if employed
abroad, is a citizen of the United States and is covered under an
agreement entered into by the Employer under Section 3121(l) of the
Code. The term Employee shall not include a member of the Board who is
active only in that capacity, or any individual covered by a collective
bargaining agreement between the Employer and a union (except as may be
provided in such collective bargaining agreement), or any individual
who is an independent contractor or a leased employee under Section
414(n) of the Code.
1.18 EMPLOYER
The Company and all other entities which are part of a controlled
group, as defined at Code Sections 414(b) and 414(c), of which the
Company is part.
1.19 ENROLLMENT DATE
Enrollment Date means January 1 or July l of each Plan Year.
1.20 ERISA
The Employee Retirement Income Security Act of 1974, as amended.
1.21 FINANCIAL HARDSHIP
An immediate and heavy financial need of a Participant as described in
Treasury Regulation 1.404(k)-l(d)(2).
1.22 HIGHLY COMPENSATED EMPLOYEE
Any Eligible Employee who:
(a) Performs service for the Employer during the Plan Year and
who, during the prior Plan Year received Compensation from the
Employer in excess of $80,000 (as adjusted pursuant to Code
Section 415(d));
5
<PAGE>
(b) Is a 5% owner at any time during the prior Plan Year or Plan
Year; or
(c) Separated from service (or was deemed to have separated) prior
to the Plan Year, performs no service for the Employer during
the Plan Year, and was a Highly Compensated Employee for
either the Plan Year he terminated employment or any Plan Year
ending on or after his 55th Birthday.
The determination of Highly Compensated Employees may be made by the
Committee on the basis of the "top-paid group" election in accordance
with such regulations, notices or other guidance issued under Section
414(q) of the Code.
1.23 415 COMPENSATION
A Participants wages, salaries, fees for professional service and other
amounts of personal services actually rendered in the course of
employment with an Employer maintaining the Plan (including, but not
limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums,
tips and bonuses and in the case of a Participant who is an Employee
within the meaning of Code Section 401(c)(1) and the regulations
thereunder, the Participant's earned income (as described in Code
Section 401(c)(2) and the regulations thereunder) paid or accrued
during the "limitation year" it shall exclude:
(a) Contributions made by the Employer to a plan of deferred
compensation to the extent that, before the application of the
Code Section 415 limitations to the Plan, the contributions
are not includible in the gross income of the Employee for the
taxable year in which contributed,
(b) Employer contributions made on behalf of an Employee to a
simplified employee pension plan described in Code Section
408(k) to the extent such contributions are deductible by the
Employee under Code Section 219(a);
(c) Any distributions from a plan of deferred compensation
regardless of whether such amounts are includible in the gross
income of the Employee when distributed except any amounts
received by an Employee pursuant to an unfunded nonqualified
plan of the Employees Employer to the extent such amounts are
includible in the gross income of the Employee;
(d) Amounts realized from the exercise of a nonqualified stock
option or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(e) Amounts realized from the sale, exchange or other dispositions
of stock required
6
<PAGE>
under a qualified stock option;
(f) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent
that the premiums are not includible in the gross income of
the Employee).
However, notwithstanding the foregoing, for Plan Years beginning after
December 31, 1997, the term "415 Compensation" shall include any
elective deferral as defined in Section 402(g)(3) of the Code, and any
amount which is contributed or deferred by the Company at the election
of the Participant and is not includible in the gross income of the
Participant by reason of Section 125 of the Code.
1.24 HOUR OF SERVICE
"Hour of Service" means:
(a) Each hour for which an Employee is paid or entitled to payment
by the Company for the performance of duties;
(b) Each hour for which an Employee is paid or entitled to payment
by the Company for reasons such as vacation, sickness or
disability, other than for the performance of duties. These
hours shall be credited to the Employee for the computation
period or periods in which payment is actually made for
amounts payable to the Employee; and
(c) Each hour for which back pay (irrespective of mitigation of
damages) has been either awarded or agreed to by the Company.
These hours shall be credited to the Employee for the
computation period or periods to which the award or agreement
pertains, rather than the computation period in which the
award, agreement or payment is made.
In applying this definition, any ambiguity shall be resolved consistent
with the rules set out at Department of Labor Reg. ss.ss. 2530.200b-2
(b) and (c).
1.25 INDEPENDENT ADVISOR
Any person, firm or corporation which has been appointed by the
Administrative Committee pursuant to Section 12.4(k) to provide advice
with respect to investment of the funds in any or in all of the
Investment Funds described in Section 6.1.
An independent advisor must be one of the following:
7
<PAGE>
(a) Registered as an investment advisor under the Investment
Advisors Act of 1940;
(b) A bank, defined under ERISA, or
(c) An insurance company qualified under the laws of more than one
state to manage, acquire or dispose of any asset of a Plan.
1.26 INVESTMENT MANAGER
Any person, firm or corporation which satisfies the requirements of
Section 3(38) of ERISA.
1.27 MATCHING CONTRIBUTION
The contribution described in Section 3.2(a).
1.28 NONVESTED
When a Participant is not vested in any portion of the Matching
Contributions and/or Capital Accumulation Contributions allocated to
his Accounts.
1.29 NON-HIGHLY COMPENSATED EMPLOYEE
Any Eligible Employee who is not a Highly Compensated Employee under
Plan Section 1.25.
1.30 NORMAL RETIREMENT AGE
For all Participants who were participants in the Predecessor Plan on
November 30, 1989, a Participants 65th birthday. For all other
Participants, the later of (a) age sixty-five (65), or (b) the fifth
(5th) anniversary of the date on which a Participant commenced
participation.
1.31 NORMAL RETIREMENT DATE
The first day of the calendar month in which a Participant attains
Normal Retirement Age and retires.
1.32 ONE-YEAR BREAK-IN-SERVICE
The twelve month period following an Anniversary Date in which the
Participant does not complete more than five hundred (500) Hours of
Service. Notwithstanding the foregoing, solely for the purpose of
determining whether a Participant has incurred a One-Year
Break-
8
<PAGE>
In-Service, Hours of Service shall be recognized for "a maternity leave
of absence."
A "maternity leave of absence" shall mean an absence from work for any
period by reason of the Employee's pregnancy, birth of the Employee's
child, placement of a child with the Employee in connection with the
adoption of such child, or any absence for the purpose of caring for
such child for a period immediately following such birth or placement.
For this purpose, Hours of Service shall be credited for the
computation period in which absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a
One-Year Break-in-Service, or, in any other case, in the immediately
following computation period. The Hours of Service credited for a
maternity leave of absence shall be those that normally would have been
credited but for such absence, or, in any case in which the
Administrative Committee is unable to determine such hours normally
credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for any single maternity or leave of
absence shall not exceed 501.
1.33 PARTICIPANT
Any Eligible Employee who has commenced participation in the Plan in
accordance with the provisions of Section 2 of the Plan.
1.34 PLAN
LNR Property Corporation Savings Plan.
1.35 PLAN YEAR
Plan Year means a twelve (12) month period commencing each January 1.
In 1997, the Plan will have a short plan year from the Effective Date
through December 31, 1997.
The short plan year
(a) is an additional computation period in computing Employees
eligibility,
(b) is an additional computation period in computing
Year-of-Service,
(c) is an additional year of participation in computing Normal
Retirement Age.
The percentage of Compensation for the short plan year ended December
31, 1997 will be the same for each Participant. The Contribution made
hereunder shall be made as of the last day of December, 1997 and shall
be made only for those Participants who are Employees as
9
<PAGE>
of such date.
1.36 PREDECESSOR PLAN
The Plan maintained by Lennar Corporation as of the effective date of
the Plan.
1.37 SALARY DEFERRAL AGREEMENT
A written agreement between a Participant and the Company which
provides that the Participant's Compensation will be reduced by a whole
percentage amount of such Compensation, not less than 1% nor more than
15%, and the Company will contribute an equivalent amount not less
frequently than monthly to the Participant's Salary Deferral Account. A
Participant may elect at any time to increase or decrease the amount by
which his Compensation is to be reduced. He may also revoke his current
Salary Deferral Agreement or, if he has already revoked such an
agreement, enter into a new Salary Deferral Agreement at any time. The
elections described above must be made on a written form prescribed or
approved by the Administrative Committee and will be effective as of
first payroll period of the calendar month following the calendar month
in which the election is submitted.
1.38 SALARY DEFERRAL CONTRIBUTION
The contribution described in Section 3.1(a).
1.39 TERMINATION OF EMPLOYMENT
(a) The discharge of an Employee by his Employer, whether or not
for cause and whether or not justified,
(b) a statement made by an Employee to the Employer that he is
quitting followed by the Employee's failure to report to work,
or
(c) the unexplained failure of an Employee to report to work when
expected to report.
1.40 TRUST
LNR Property Corporation Savings Plan Trust, created by the Trust
Agreement entered into pursuant to Section 13 between the Company and
the Trustees.
1.41 TRUSTEES
The persons and/or bank or trust company which are named as Trustees in
the Trust
10
<PAGE>
Agreement.
1.42 VALUATION DATE
The date the Trustee values the assets held in the Funds described in
Section 6.1. Such dates shall be any day on which the New York Stock
Exchange or any successor to its business is open for trading, or any
such other date as may be designated by the Administrative Committee.
1.43 YEAR-OF-SERVICE
A computation period during which an Employee has completed at least
1000 Hours of Service. For vesting purposes, the computation period
shall be a Plan Year.
In determining Years-of-Service for any participant in the Predecessor
Plan, see the Preamble to the Plan. In determining Years-of-Service in
Section 1.13(b), 4.1 and accumulated hours of service in Section 1.15,
service performed for an Acquired Company prior to its acquisition may,
at the Board's sole discretion, be counted as service performed for the
Company. In no case shall the Board exercise its discretion to
discriminate in favor highly compensated employees, as defined in Code
Section 414(q), of the Acquired Company.
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SECTION 2
PARTICIPATION
2.1 COMMENCEMENT OF PARTICIPATION
An Employee shall become a Participant in the Plan on the next January
1 or July 1 after he first becomes an Eligible Employee.
2.2 OBLIGATION OF PARTICIPANT
When an Employee becomes eligible to participate, and thereafter from
time to time, the Administrative Committee may require the Employee to
furnish such information and fill out, sign and file such forms and
documents as may be reasonably required for the administration of the
Plan, including beneficiary designation forms, evidence of age and
marital status, Salary Deferral Agreements, etc. If a Participant does
not comply with any such reasonable requirements and if such
non-compliance makes it impossible or unreasonably burdensome with
respect to such Participant to administer the Plan, neither the
Administrative Committee, the Employer, the Trustees, nor any other
person, shall be obligated to administer the Plan for such Participant
until such information is properly furnished, and no such person shall
incur liability to such Participant or his beneficiary to the extent
that any intended Plan benefit has not been obtained or is not
available because of the Participant's or beneficiary's failure to
furnish such information and fill out, sign and file such documents.
2.3 TERMINATION OF PARTICIPATION
(a) Participation in the Plan continues until a Participant's
Normal, Early or Deferred Retirement Date, death, Disability,
or a One-Year-Break-In-Service following Termination of
Employment.
(b) REEMPLOYMENT
(I) VESTED EMPLOYEE
If a re-employed Employee had a non-forfeitable right
to a portion of his accrued benefit at the time he
terminated employment, then such Employee shall
commence participation in the Plan immediately upon
re-employment.
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(II) NONVESTED EMPLOYEE
If a re-employed Employee had only a forfeitable
right to his accrued benefit at the time he
terminated employment, then only if his number of
consecutive One-Year-Breaks-In-Service is less than
five (5) will he be allowed to commence participation
in the Plan immediately upon reemployment. Otherwise
he shall be treated as a new Employee for purposes of
eligibility to participate.
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SECTION 3.
CONTRIBUTIONS
3.1 SALARY DEFERRAL
(a) CONTRIBUTION:
The Company will contribute to a Participant's Salary Deferral
Account the amount by which his Compensation was reduced
pursuant to his Salary Deferral Agreement with the Company.
Such contribution shall be made no later than the fifteenth
business day of the month following the month in which such
amounts would otherwise have been payable to the Participant
in cash. Such contribution for any Participant shall be
limited under Code Section 402(g) for the Participant's
taxable year.
(b) LIMITATION:
(I) Salary Deferral contributions for any Plan Year must
satisfy at least one of the following tests found in
Code Section 401(k)(3):
(A) The average of the Actual Deferral
Percentages for all Highly Compensated
Employees does not exceed the product of
1.25 and the average of the Actual Deferral
Percentages of all Non-Highly Compensated
Employees for the preceding Plan Year; or
(B) The excess of the average of the Actual
Deferral Percentages for Highly Compensated
Employees over the average of the Actual
Deferral Percentages for Non-Highly
Compensated Employees for the preceding Plan
Year is not more than 2 percentage points,
and the average of the Actual Deferral
Percentages for the Highly Compensated
Employees does not exceed twice the average
of the Actual Deferral Percentages for the
Non-Highly Compensated Employees for the
preceding Plan Year.
Notwithstanding the foregoing, the Committee may elect to
determine the permissible Actual Deferral Percentage for
Highly Compensated Employees for any plan year beginning on or
after January 1, 1997 on the basis of the Actual Deferral
Percentage of the group of Non-Highly Compensated Employees
for the current Plan Year rather than the preceding Plan Year,
in accordance with such regulations,
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notices or other guidance issued under Section 401(k) of the
Code.
For purposes of determining the Actual Deferral Percentage,
any plans which are treated as one plan for purposes of
section 410(b) shall be treated as one plan. If a Highly
Compensated Employee participates in two or more plans of an
Employer, all deferrals under those plans shall be aggregated
for purposes of determining the Actual Deferral Percentage of
such Highly Compensated Employee.
(c) DISTRIBUTION OF EXCESS SALARY DEFERRAL CONTRIBUTIONS:
(I) REDUCING THE EXCESS.
If the average of the Actual Deferral Percentage for
the Highly-Compensated Employees exceeds the Section
3.1(b) limits, then the Actual Deferral Percentage of
the Highly Compensated Employee with the highest
Actual Deferral Percentage is reduced to the extent
required to:
(A) Enable the arrangement to satisfy the
Section 3.1(b) limit; or
(B) Cause such member's Actual Deferral
Percentage to equal the Percentage of the
member with the next highest Actual Deferral
Percentage.
This process must be repeated until one of the
Section 3.1(b) limits is satisfied.
(II) AMOUNT TO DISTRIBUTE
Once the process described above is completed, the
total dollar amount of excess deferrals shall be
determined. This amount shall be distributed in
accordance with a leveling procedure under which the
dollar amount of Salary Deferrals of the Highly
Compensated Employee with the highest dollar amount
of Salary Deferrals shall be reduced to the extent
required to distribute the total amount of excess
deferrals or, if it results in a lower reduction, to
the extent required to cause such Highly Compensated
Employee's dollar amount of Salary Deferrals to equal
the dollar amount of Salary Deferrals of the Highly
Compensated Employee with the next highest dollar
amount of Salary Deferrals. This distribution
procedure shall be repeated until all excess
deferrals have been distributed.
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(III) DISTRIBUTION
The amount determined in 3.1(c)(I) and (II) above
shall be distributed to the Participant within two
and one-half months after the close of the Plan Year,
but in no case shall any distributions occur more
than twelve months after the close of the Plan Year.
3.2 MATCHING AND VOLUNTARY CONTRIBUTIONS
(a) MATCHING CONTRIBUTIONS
The Company at its sole discretion may, but shall not be
obligated to, contribute to the Participant's Matching
Accounts. The Company may advise the Participants at the
beginning of each Plan Year, within a range of amounts, the
contribution it intends to make to the Plan for the year. The
actual amount of the contribution, if any, shall be determined
by the Board after the end of the Plan Year, which shall be
made without regard to the range of the intended contribution
established at the beginning of the Plan Year. Such
contribution shall be contingent upon the Participant having
made a contribution during the Plan Year to his Salary
Deferral Account. The amount of the Matching Contribution will
be a percentage of the Participant's Salary Deferral
Contribution. The same percentage will be used for each
Participant who qualifies to receive a Matching Contribution
for that Plan Year.
(b) VOLUNTARY CONTRIBUTIONS
A Participant may, in addition to amounts elected pursuant to
Section 3.1(a), designate that a percentage of his
Compensation for the Plan Year be credited to his Voluntary
Contribution Account as non-deductible contributions.
(c) ANNUAL LIMIT ON THE AGGREGATION OF MATCHING AND VOLUNTARY
CONTRIBUTIONS
Pursuant to Code Section 401 (m)(2), the average of the Actual
Contribution Percentages for the Highly Compensated Employees
shall not exceed the greater of (I) or (II) as follows:
(I) The average of the Actual Contribution Percentages
for the Non-Highly Compensated Employees for the
preceding Plan Year multiplied by one and one-quarter
(1.25); or
(II) The average of the Actual Contribution Percentages
for the Non-Highly Compensated Employees for the
preceding Plan Year multiplied by two (2);
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subject, however, to the additional limitation that
the average of the Actual Contribution Percentages
for the Highly Compensated Employees may not exceed
the average of the Actual Contribution Percentages
for the Non-Highly Compensated Employees for the
preceding Plan Year by more than two (2) percentage
points.
The limitation of this Section 3.2(c) shall be applied for
each Plan Year. The limit in Section 3.2(c)(II) shall be
adjusted in accordance with Treasury Regulation ss. 1.401(m)-2
to avoid duplicate use of the limit for any Highly Compensated
Employee in violation of Code Section 401(m)(9).
Notwithstanding the foregoing, the Committee may elect to
determine the permissible Actual Contribution Percentage for
Highly Compensated Employees for any Plan Year beginning on or
after January 1, 1997 on the basis of the Actual Contribution
Percentage of the group of Non-Highly Compensated Employees
for the current Plan Year rather than the preceding Plan Year,
in accordance with such regulations, notices or other guidance
issued under Section 401(m) of the Code.
(d) REALLOCATING CONTRIBUTIONS OVER THE ANNUAL LIMIT:
(I) METHOD OF REALLOCATION
Pursuant to Treasury Regulation Section
1.401(m)-l(e)(2), if the average of the Actual
Contribution Percentages for the Highly Compensated
Employees exceeds the Section 3.2(c) limit, then the
Actual Contribution Percentage of the Highly
Compensated Employee with the highest Actual
Contribution Percentage is reduced to the extent
required to:
(A) Enable the arrangement to satisfy the
Section 3.2(c) limit; or
(B) Cause such Employee's Actual Contribution
Percentage to equal the Percentage of the
Highly Compensated Employee with the next
highest Actual Contribution Percentage.
This process must be repeated until the Section
3.2(c) limit is satisfied.
(II) AMOUNT TO REALLOCATE
Once the leveling procedure has been completed, the
total dollar amount of excess aggregate contributions
shall be determined. This amount shall be distributed
in accordance with a leveling procedure under which
the dollar amount of an Employee's Matching and
Voluntary Contributions of the
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Highly Compensated Employee with the highest dollar
amount of Matching and Voluntary Contributions shall
be reduced to the extent required to distribute the
total amount of excess aggregate contributions or, if
it results in a lower reduction, to the extent
required to cause such Highly Compensated Employee's
dollar amount of Matching and Voluntary Contributions
to equal the dollar amount of Matching and Voluntary
Contributions of the Highly Compensated Employee with
the next highest dollar amount of Matching and
Voluntary Contributions. This distribution procedure
shall be repeated until all excess aggregate
contributions have been distributed. In no case shall
the amount of excess aggregate contributions with
respect to any Highly Compensated Employee exceed the
Matching and Voluntary Contributions made on behalf
of such Employee in any Plan Year.
(e) REALLOCATION OF EXCESS OVER ANNUAL LIMIT
The Trustees shall reduce the Employee's Voluntary and
Matching Contributions for the Plan Year in the following
order until the amount to be reallocated, determined in
Section 3.2(d)(II) above, is satisfied.
(I) The Trustees shall refund the sum of the
contributions made by the Participant to his
Voluntary Contribution Account during the Plan Year
under Section 3.2(b) above and any earnings thereon.
(II) The Participant shall forfeit any Matching
Contributions made by the Company under Section
3.2(a) during the Plan Year and any earnings thereon.
Such forfeiture shall be reallocated pursuant to
Section 5.2 and such reallocation shall take place by
the end of the Plan Year immediately following the
Plan Year in which the excess Matching Contributions
were made.
3.3 CAPITAL ACCUMULATION CONTRIBUTION
Following the end of each Plan Year, and within the period of time for
filing the federal income tax return for the fiscal year of the Company
ending with or within such Plan Year, the Company, at its sole
discretion may, but shall not be obligated to, contribute to the
Capital Accumulation Account of each Participant employed by the
Company as of the last day of the Plan Year. Such Capital Accumulation
Contribution made by the Company shall be allocated to the Capital
Accumulation Account of each Participant employed by the Company as of
the last day of the Plan Year in the same proportion that each such
Participant's Compensation for the Plan Year bears to the Compensation
of all such Participants for the Plan Year.
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3.4 ROLLOVER CONTRIBUTION
A Participant, or an Employee who the Administrative Committee
reasonably believes will become a Participant, may elect to deposit, or
have deposited on his behalf, the lump sum distribution received from:
(a) the trust of a qualified plan under Code Section 401(a); or
(b) an Individual Retirement Account described in Code Section
408(d)(3)(A)(ii), but only if the lump sum distribution
received represents the entire amount in the Individual
Retirement Account.
Such deposits shall be maintained in the Participant's Rollover Account
and shall be subject to the other provisions of this Plan.
3.5 ANNUAL LIMITATION ON CONTRIBUTIONS
(a) LIMIT
In no event shall the aggregate of a Participant's Salary
Deferral, Matching, Capital Accumulation and Voluntary
Contributions and any Forfeitures allocated to him under Plan
Section 5.2(b) for any Plan Year exceed the lesser of:
(I) $30,000, as adjusted under Code Section 415(c)(1)(A),
or
(II) 25% of the Participant's 415 Compensation.
(b) REALLOCATING EXCESS CONTRIBUTIONS
If the limitation in Section 3.5(a) is exceeded, the excess
contribution for the Plan Year shall be reallocated from the
following accounts, in the following order until the limit is
met.
(I) The sum of the contributions made by the Participant
to his Voluntary Contribution Account during the Plan
Year under Section 3.2(b) above and any earnings
thereon shall be distributed to the Participant
within two and one-half months after the close of the
Plan Year, but in no case shall any distributions
occur more than twelve months after the close of the
Plan Year.
(II) The amount contributed to the Participant's Salary
Deferral Account during
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the Plan Year plus any earnings thereon shall be
distributed to the Participant within two and
one-half months after the close of the Plan Year, but
in no case shall any distributions occur more than
twelve months after the close of the Plan Year.
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SECTION 4.
VESTING
4.1 MATCHING AND CAPITAL ACCUMULATION ACCOUNTS
(a) VESTING SCHEDULE
Effective for Participants employed by an Employer maintaining
the Plan or and after January 1, 1999, a Participant's
Matching Account and Capital Accumulation Account shall vest
in accordance with the following schedule.
YEARS OF SERVICE THE NONFORFEITABLE
PERCENTAGE IS
Less than 1 -0-
1 20
2 40
3 60
4 80
5 or more 100
Each non-vested Participant shall lose Years-of-Service
credited to him if his consecutive One-Year-Breaks-in-Service
following his Termination of Employment equal or exceed five.
Notwithstanding the foregoing, Participants employed on
December 31, 1998 by an Employer maintaining the Plan shall be
fully vested in all amounts allocated to their Capital
Accumulation Account as of January 1, 1999 and in all amounts
allocated to their ESOP Account.
(b) EXCEPTIONS
A Participant's rights in his Matching Account and Capital
Accumulation Account will Fully Vest upon the earlier of:
(I) Normal Retirement Age;
(II) Early Retirement Date;
(III) Death; and
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(IV) Disability.
His rights will also Fully Vest if the Plan were to be
terminated or all Employer contributions were permanently
discontinued.
4.2 SALARY DEFERRAL, VOLUNTARY CONTRIBUTION AND ROLLOVER ACCOUNTS
A Participant's Salary Deferral, Voluntary Contribution, and Rollover
Accounts shall Fully Vest immediately upon contribution and shall not
be subject to forfeiture for any reason.
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SECTION 5.
FORFEITURES
5.1 FORFEITURES
Following his Termination of Employment, a Participant will forfeit the
nonvested portion of his Accounts upon the occurrence of the earlier of
(a) five One-Year-Breaks In-Service, or (b) the distribution of his
entire vested portion of his Accounts.
Such distribution in (b) above shall be deemed to have occurred if the
vested portion of the terminated Participant's Account is equal to
zero. The Administrative Committee may in its sole discretion request
that the Trustees sell any forfeited shares of Company Stock prior to
the allocation of forfeiture under 5.2 below.
5.2 ALLOCATION
(a) For any Plan Year, amounts forfeited in Section 5.1 above,
including any earnings or losses incurred subsequent to the
date of Forfeiture, shall first be applied to reduce the
Company's contributions under Sections 3.1 and 3.3(a). The
Administrative Committee shall determine by how much each
Company contribution noted above will be reduced.
(b) Any forfeitures remaining after the application of Section
5.2(a) above shall be contributed to the Capital Accumulation
Accounts of those Participants who were Employees as of the
last day of the Plan Year. Such contribution shall be made in
the proportion that the Compensation of each such Participant
bears to the Compensation of all such persons for the Plan
Year.
5.3 RESTORATION OF BENEFITS
The Company shall restore a re-employed Employee's benefits which were
forfeited under Section 5.1 if the Employee incurred less than five
consecutive One-Year-Breaks In-Service prior to re-employment.
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SECTION 6
INVESTMENT IN FUNDS
6.1 INVESTMENT FUNDS
(a) COMPANY COMMON STOCK FUND
The Company Common Stock Fund shall be invested by the
Trustees primarily in common stock of the Company. Such
investments will be made in such manner, at such prices, in
such amounts, and at such times as the Trustees may in their
sole discretion determine. Without limiting the foregoing, the
Trustees may purchase common stock of the Company in the open
market, by the exercise of any stock rights which may be
acquired by the Trustees based upon the open market value;
provided, however, that the Company may, at its option,
deliver shares of common unissued shares in lieu of cash
contributions, with such common stock being valued at its
closing price (as reported in the Wall Street Journal) on the
date of the contributions.
(b) PARTICIPANT DIRECTED ACCOUNTS
Notwithstanding any other provisions hereof the Administrative
Committee may at any time determine that the Plan will permit
each Participant (and the Beneficiary of a Participant, if
applicable) to invest all of the funds in his Matching, Salary
Deferral, Capital Accumulation, Voluntary Contribution or
Rollover Accounts in a range of options, including the Company
Common Stock Fund described above, beginning at the time
specified by the Administrative Committee. Provided, however,
that such investments shall not include "collectibles" as
defined in IRS Section 408(m). After the effective date of
such action the Participant may, from time to time, instruct
the Administrative Committee, or other person designated by
the Administrative Committee to purchase and/or sell assets of
the type permitted for his Accounts. Notwithstanding the
preceding, the Administrative Committee may establish
reasonable rules limiting the investment discretion and
investment timing of a Participant, and similar matters.
Neither the Employer nor the Administrative Committee will be
held liable for the Participant's investment choice, so long
as the investment is made pursuant to this Section 6.1.
Notwithstanding the foregoing, effective January 1, 1999, any
amounts in a Participant's Capital Accumulation Account
invested in the common stock of Lennar Corporation may remain
invested in such stock, however, no new amounts may be
allocated or transferred to investment in Lennar Corporation
common stock.
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(c) VOTING AND TENDER RIGHTS
The Trustee will vote all Company Stock held in the Accounts
of Participants as directed by the Participant for whom the
accounts are held. The Trustee will vote and/or tender all
stock held for the accounts of Participants from whom no
instructions are received and all Company Stock which is not
credited to Participant's Accounts, pro rata to the manner in
which shares for which instructions were received voted and/or
were tendered. Employees shall be named fiduciaries of the
plan to the extent that they exercise rights pursuant to this
section.
6.2 INVESTMENT PERFORMANCE
(a) EFFECT ON INVESTMENT FUNDS
Income or losses from the investments in each Investment Fund
above shall correspondingly increase or decrease the same
Investment Fund.
(b) ADJUSTMENT OF ACCOUNTS
The Administrative Committee shall adjust, as of each
Valuation Date, the balance of each Participant's Matching,
Salary Deferral, Capital Accumulation, Voluntary Contribution
and Rollover Accounts to reflect the current fair market value
of the assets in which such Accounts are invested. Such
accounts may be adjusted more frequently than each Valuation
Date but in no case shall be adjusted any less frequently.
6.3 INDEPENDENT APPRAISER
In the event that the trust shall hold any securities issued by the
employer which are not readily tradable on an established securities
market, all valuations of such securities shall be performed by an
independent appraiser meeting the requirements prescribed in
regulations issued pursuant to section 170(a)(1) of the Code.
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SECTION 7.
DISTRIBUTIONS
7.1 DISTRIBUTIONS DURING EMPLOYMENT
(a) WITHDRAWALS
(I) ESOP ACCOUNT
A Participant may at any time after January 1, 1999
and prior to April 1, 1999 elect in the manner
established by the Administrative Committee to
withdraw from his ESOP Account any vested benefits.
The valuation date of the benefits attributed to the
contribution shall be the day preceding the date of
distribution.
(II) VOLUNTARY CONTRIBUTIONS ACCOUNT
A Participant may withdraw the benefits in his
Voluntary Contribution Account, at any time except
that the withdrawal amount cannot be less than $500
unless the Participant withdraws his total account
balance. Distribution shall be made as soon as
practicable following receipt of the request for
distribution. The valuation date of the benefits to
be withdrawn shall be the date immediately preceding
the day of distribution.
(III) SALARY DEFERRAL ACCOUNT
(A) WITHDRAWAL
A Participant may withdraw Salary Deferral
Contributions or Rollover Contributions to
meet the need created by a Financial
Hardship. Such withdrawal shall be
consistent with Treasury Regulation
1.401(k)-l(d)(2) and such other regulations
as the Secretary of the Treasury may
prescribe.
(B) DETERMINATION OF HARDSHIP
(i) The determination of whether a
Financial Hardship exists shall be
made by the Administrative
Committee, in its absolute
discretion and on a
nondiscriminatory basis. The
Participant shall complete and
submit to the Administrative
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Committee a Financial Hardship
withdrawal form on which he shall
state the reason for the need, the
amount necessary to satisfy the
Financial Hardship, and that funds
are not reasonably available from
other sources.
(ii) Pursuant to Treasury Regulation
1.401(k)-l(d)(2)(ii)(B), a
Financial Hardship is deemed to
occur if it cannot be relieved:
a) Through reimbursement or compensation by insurance or
otherwise;
b) By reasonable liquidation of the
Employee's assets, to the extent
such liquidation would not itself
cause an immediate heavy financial
need;
c) By cessation of Salary Deferral
Contributions under Section 3.1(a)
of the Plan; or
d) By other distributions or
non-taxable (at the time of the
loan) loans from Plans maintained
by the Employer or by any other
Employer, or by borrowing from
commercial sources on reasonable
commercial terms.
(iii) Pursuant to Treasury Regulation
1.401(k)-l(d)(2)(iii)(A), a distribution
will be deemed to be made on account of a
Financial Hardship if it is for:
a) Medical Expenses as described in
Section 213 (d) of the Code
incurred by the Employee, the
Employees spouse or any dependents
of the Employee;
b) Purchase (excluding mortgage
payments) of a principal residence
of the Employee;
c) Payment of tuition for the next
semester or quarter of
post-secondary education for the
Employee, his or her spouse,
children, or dependents; or
d) The need to prevent the eviction of
the Employee from his principal
residence or foreclosure on the
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mortgage of the Employee's
principal residence.
(C) RESTRICTIONS ON WITHDRAWALS
(i) No investment income related to the
Salary Deferral Contributions may
be withdrawn.
(ii) The withdrawn amount cannot exceed
the sum of the amounts credited to
the Participant's Salary Deferral
Account and Rollover Account.
(iii) No amount shall be withdrawn from
the Participant's Salary Deferral
Account while there are amounts
credited to the Participant's
Voluntary Contribution Account
which may be distributed.
(D) EFFECT OF DISTRIBUTION
In the event of such a withdrawal by a
Participant, the Participant will not be
permitted to make Salary Deferral and
Voluntary Contributions until the next
Enrollment Date following the one-year
anniversary of such withdrawal.
(b) LOANS
(I) A Participant or former Participant may apply for a
loan from his Salary Deferral, Matching, Capital
Accumulation, Rollover or Voluntary Contribution
Accounts by making a request to the Administrative
Committee specifying the amount requested, the
proposed use of the loan proceeds, and the proposed
method of repayment. The Administrative Committee
shall determine whether the loan should be approved,
the amount of such loan, the repayment terms, the
rate of interest to be charged, and all other loan
terms. The minimum amount of any loan shall be
$1,000. The loan shall be secured by, and cannot
exceed, 50% of the Participants nonforfeitable
accrued benefit in his Salary Deferral, Matching,
Capital Accumulation, Rollover and Voluntary
Contribution Accounts at the time the loan is entered
into. The loans interest rate shall be in accordance
with rates normally charged by banks for similar
loans. The loan shall provide for level amortization
with payments to be made not less frequently than
quarterly over a period not to exceed five (5) years.
However, loans used to acquire any dwelling unit
which, within a reasonable time, is used (determined
at the time the loan is made) as a principal
residence of the
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Participant shall provide for periodic repayment over
a reasonable period of time that may exceed five (5)
years.
(II) LIMIT
Loans made pursuant to this Section 7.1(b) (when
added to the outstanding balance of all other loans
made by the Plan to the Participant) shall be limited
at the time the loan is entered into to the lesser
of:
(A) $50,000 reduced by the excess (if any) of
the highest outstanding balance of loans
from the Plan to the Participant during the
one year period ending on the day before the
date on which such loan is made, over the
outstanding balance of loans from the Plan
to the Participant on the date on which such
loan was made, or
(B) one-half (1/2) of the Participant's
non-forfeitable accrued benefit in his
Salary Deferral, Matching, Capital
Accumulation, Rollover and Voluntary
Contribution Accounts.
7.2 DISTRIBUTIONS UPON SEPARATION FROM SERVICE
(a) RETIREMENT
(I) Upon a Participant's Normal or Early Retirement Date
he shall receive his benefits in a lump sum no later
than the later of:
(A) Sixty (60) days following the last day of
the month in which he attains his Normal or
Early Retirement Date; or
(B) Sixty (60) days after the earliest date on
which the amount of such benefits can be
ascertained.
Distributions of benefits other than Company Stock
shall be valued as of the Valuation Date immediately
preceding his Normal or Early Retirement Date.
In no event shall such distribution commence later
than April 1 of the calendar year following the
calendar year in which the Participant attains age
seventy-and one-half (70 1/2) except if the
Participant attained age 70 1/2 before January 1,
1988, in which case the distribution may commence
April 1 of the calendar year following the calendar
year in which the employee retires.
(II) SPECIAL PROVISION FOR A PARTICIPANT WHO ATTAINS AGE
70 1/2 AFTER DECEMBER 31,
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1987 AND RETIRES AFTER AGE 70 1/2
In addition to the required distribution of the total
amount in the Participants Accounts as of age 70 1/2
under Section 7.2(a)(I), additional benefits which
are contributed to his Accounts for Plan Years after
age 70 1/2 must be distributed no later than the
later of:
(A) Sixty (60) days after the Anniversary Date
of the Plan Year within which the
Contributions were made, or
(B) Sixty (60) days after the earliest date on
which the amount of such benefits can be
ascertained.
However, for Plan Years beginning after December 31,
1996: (A) the distribution of the Accounts of any
Participant who is a 5% owner (as defined in section
416(i) of the Code) and who attains age 70 1/2 in a
Plan Year must commence not later than April 1 of the
next Plan Year (even if he has not terminated
Service) and must be made in accordance with the
regulations under section 401(a)(9) of the Code,
including Section 1.401(a)(9)-2 of the regulations
thereunder; and (B) distribution of the Accounts of
any other Participant who has attained age 70 1/2 may
be made upon the election of the Participant.
(b) DISABILITY
The Administrative Committee shall distribute the benefits
payable to a Participant upon sustaining Disability no later
than the later of sixty (60) days following the last day of
the month in which Disability is determined by the
Administrative Committee under Section 1.12 or sixty (60) days
after the earliest date on which the amount of such benefits
can be ascertained. Distributions of benefits other than
Company Stock shall be valued as of the Valuation Date
immediately preceding the date of distribution. Such benefits
shall be paid in a lump sum.
(c) DEATH BENEFITS
(I) Unless otherwise elected as provided below, upon the
death of a Participant while in the employ of the
Company his surviving spouse shall be entitled to
receive benefits equal to the total amount in the
deceased Participant's Accounts. Such benefits shall
be paid in a lump sum, no later than the later of
sixty (60) days following the last day of the month
in which the Administrative Committee determines such
Participant's death or sixty (60) days after the
earliest date on which the amount of such benefits
can be
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ascertained. Distributions of benefits other than
Company Stock shall be valued as of the Valuation
Date immediately preceding the date of distribution.
The Committee may require such proof of death and
such evidence of the right of any person to receive
payment of a deceased Participant's interest in the
Trust Fund as the Committee may deem desirable.
(II) The benefits described in Section 7.2(c)(I) may be
paid to the Participant's designated beneficiary and
not to the Participants surviving spouse only if (1)
the Participant elected that a designated beneficiary
other than his surviving spouse receive such
benefits, and (2) the Participant's spouse consented
to such election in writing. Such spouse's consent
must acknowledge the effect of such election and be
witnessed by a Plan representative or a notary
public. Such consent shall not be required if it is
established to the satisfaction of the Administrative
Committee that the consent cannot be obtained because
there is no spouse, the spouse cannot be located or
other circumstances that may be prescribed by
Treasury regulations. The election by the Participant
and consented to by the Participant's spouse may be
revoked by the Participant in writing without the
consent of the spouse, but may not be otherwise
amended without the spouse's consent. Any new
election must comply with the requirements of this
paragraph. A former spouse's waiver shall not be
binding on a new spouse.
(III) ABSENCE OF VALID DESIGNATION OF BENEFICIARIES
Except as provided in Sections 7.2(c)(I) and (II),
if, on the death of a Participant, former
Participant, or beneficiary, there is no valid
designation of beneficiary on file with the Company,
the Administrative Committee shall designate as the
beneficiary, in the following order of priority: the
surviving spouse; surviving children, including
adopted children, in equal shares; surviving parents,
in equal shares; or the Participant's estate. The
Administrative Committee's determination of this
matter shall be binding.
(d) TERMINATION OF EMPLOYMENT
(I) GENERAL
Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect,
at the time and in the manner prescribed by the
Administrative Committee, to have any portion of an
Eligible Rollover Distribution paid
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directly to an Eligible Retirement Plan specified by
the distributee in a direct rollover.
(A) DEFINITIONS
(i) ELIGIBLE ROLLOVER DISTRIBUTION
An eligible rollover distribution is any
distribution of all or any portion of the
balance to the credit of the distributee,
except that an eligible rollover
distribution does not include: any
distribution that is one of a series of
substantially equal periodic payments (not
less frequently than annually) made for the
life (or life expectancy) of the distributee
or the joint lives (or joint life
expectancies) of the distributee and the
distributees designated beneficiary, or for
a specified period of ten years or more; any
distribution to the extent such distribution
is required under section 401(a)(9) of the
Code; and the portion of any distribution
that is not includible in gross income
(determined without regard to the exclusion
for net unrealized appreciation with respect
to employer securities).
(ii) ELIGIBLE RETIREMENT PLAN
An eligible retirement plan is an individual
retirement account described in section
408(a) of the Code, an individual retirement
annuity described in section 408(b) of the
Code, an annuity plan described in section
403(a) of the Code, or a qualified trust
described in section 401 (a) of the Code,
that accepts the distributees eligible
rollover distribution. However, in the case
of an eligible rollover distribution to the
surviving spouse, an eligible retirement
plan is an individual retirement account or
individual retirement annuity.
(iii) DISTRIBUTEES
A distributee includes an Employee or former
Employee. In addition, the Employee's or
former Employee's surviving spouse and the
Employee's or former Employee's spouse or
former spouse who is the alternate payee
under a qualified domestic relations order,
as defined in section 414(p) of the
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Code, are distributees with regard to the
interest of the spouse or former spouse.
(iv) DIRECT ROLLOVER
A direct rollover is a payment by the Plan
to the eligible retirement plan specified by
the distributee.
(II) PAYMENT OF VESTED BENEFITS
(A) A Participant who incurs a Termination of Employment
may elect to receive such vested accrued benefits in
a lump sum prior to his Early Retirement or Normal
Retirement Dates. Such election must be made within
60 days of termination. Upon receipt of such
election, the Trustee shall distribute the
Participant's vested accrued benefits no later than
the later of:
(i) Sixty (60) days after the next Valuation
Date following the date he incurred his
Termination of Employment; or
(ii) Sixty (60) days after the earliest date on
which the amount of such benefits can be
ascertained.
(B) EXCEPTIONS
(i) DEATH AND DISABILITY
For purposes of Section
7.2(d)(II)(A) above, if a
Participant who incurs a Termination
of Employment becomes disabled or
dies prior to the applicable
distribution date above, then his
account balances shall be
distributed in accordance with
Sections 7.2(b) or (c), whichever is
applicable, as if he were an
Employee on the date of disability
or death.
(ii) HARDSHIP
a) WITHDRAWAL
A Participant may withdraw his vested
accrued benefits prior to the date noted in
Section 7.2(d)(II)(A) to meet the need
created by a Financial Hardship.
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b) DETERMINATION OF HARDSHIP
The determination of whether a Financial
Hardship exists shall be made by the
Administrative Committee, in its absolute
discretion and on a nondiscriminatory basis.
The Participant shall complete and submit to
the Administrative Committee a Financial
Hardship withdrawal form on which he shall
state the reason for the need, the amount
necessary to satisfy the Financial Hardship,
and that funds are not reasonably available
from other sources.
A Financial Hardship shall be deemed to
occur if it cannot be relieved:
(i) Through reimbursement or
compensation by insurance or
otherwise;
(ii) By reasonable liquidation of the
Employee's assets, to the extent
such liquidation would not itself
cause an immediate heavy financial
need;
(iii) By other distributions or non-
taxable (at the time of the loan)
loans from Plans maintained by the
Employer or by any other Employer,
or by borrowing from commercial
sources on reasonable commercial
terms.
A distribution will be deemed to be made on
account of a Financial Hardship if it is
for:
(i) Medical Expenses as described in
Section 213 (d) of the Code
incurred by the Employee, the
Employee's spouse or any dependents
of the Employee;
(ii) Payment of tuition for the or next
semester or quarter of
post-secondary education for the
Employee, his or her spouse,
children, or
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dependents; or
(iii) The need to prevent the eviction of
the Employee from his principal
residence or foreclosure on the
mortgage of the Employee's
principal residence.
c) Vested accrued benefits shall be
distributed no later than the later
of
(i) Sixty (60) days after the last day
of the month in which the
Administrative Committee has
determined that a Financial
Hardship exists; or
(ii) Sixty (60) days after the earliest
date on which the amount of such
benefits can be ascertained.
d) Distributions of benefits shall be
valued as of the Valuation Date
immediately preceding the date of
distribution.
7.3 DISTRIBUTEES RIGHT TO DEMAND COMPANY STOCK
A Participant, or his beneficiary, entitled to a distribution from his
Capital Accumulation Account shall have the right to demand that the
distribution of any contribution to his Capital Accumulation Account
prior to January 1, 1999, be in the form of Company Stock.
7.4 INCOMPETENCE OF DISTRIBUTEE
If the Administrative Committee receives evidence that a person
entitled to receive any distribution under the Plan is physically or
mentally incompetent or incompetent by reason of age to receive such
distribution and give valid release therefor, such distribution may be
made to the guardian, committee, or other representative of such person
duly appointed by a court of competent jurisdiction. If a person or
institution other than a guardian, committee or other representative of
such person who has been duly appointed by a court of competent
jurisdiction is then maintaining or has custody of such incompetent
person, the distribution may be made to such other person or
institution and the release to such other person or institution shall
be a valid and complete discharge for the distribution.
7.5 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
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<PAGE>
In the event that all, of any portion that the distribution payable to
a Participant or his beneficiary under Section 7.2 remains unpaid
solely by reason of the inability of the Administrator to ascertain the
whereabouts of such Participant or his beneficiary after sending a
registered letter, return receipt requested, to the last known address,
and further diligent effort, an Individual Retirement Account, as
defined in Code Section 408, shall be established in the persons name
and the distribution shall be deposited therein.
7.6 PUT OPTION
The Company shall provide a "put option" to any Participant (or
Beneficiary) who receives a distribution of Company Stock which is not
readily tradable on an established market. The put option shall permit
the Participant (or Beneficiary) to sell such Company Stock to the
Company at any time during two option periods, at the then fair market
value. The first put option period shall be for at least 60 days
beginning on the date of distribution. The second put option period
shall be for at least 60 days beginning after the new determination of
fair market value (and notice to the Participant thereof) in the
following Plan Year. The Company may allow the Trust to purchase shares
of Company Stock tendered to the Company under a put option. The
payment for any Company Stock sold under a put option shall be made
within 30 days if the shares were distributed as part of an installment
distribution. If the shares were distributed in a lump sum
distribution, payment shall commence within 30 days and may be made in
a lump sum or in substantially equal, annual installments over a period
not exceeding five years, with adequate security provided and interest
payable at a reasonable rate on any unpaid installment balance.
7.7 RESTRICTIONS
Shares of Company Stock held or distributed by the Trust may include
such legend restrictions on transferability as the Company may
reasonably require in order to assure compliance with applicable
Federal and state securities laws. Except as otherwise provided in this
Section 7, no shares of Company Stock held or distributed by the
Trustee may be subject to a put, call or other option, or buy-sell or
similar arrangement. The provisions of this Section 7.7 are
nonterminable and shall continue to be applicable to Company Stock even
if the Plan ceases to be an employee stock ownership plan under Section
4975(e)(7) of the Code.
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<PAGE>
SECTION 8.
AMENDMENT AND TERMINATION
8.1 AMENDMENT
The Company reserves the right to amend the Plan at any time and from
time to time, in whole or in part, including, without limitation,
retroactive amendments necessary or advisable to qualify the Plan and
Trust under the provision of Section 401(a) of the Internal Revenue
Code, or any successor or similar statute hereafter enacted. However,
except as set forth in Section 8.3, no such amendment shall (1) cause
any part of the assets of the Plan and Trust to revert to or be
recoverable by the Company or be used for or diverted to purposes other
than the exclusive benefit of Participants, former Participants, and
beneficiaries; (2) deprive any Participant, former Participant, or
beneficiary of any benefit already vested; (3) alter, change, or modify
the duties, powers, or liabilities of the Trustees without its written
consent; or (4) permit any part of the assets of the Plan and the Trust
to be used to pay premiums or contributions of the Company under any
other plan maintained by the Company for the benefit of its Employees.
No amendment to the vesting schedule shall deprive a Participant of his
unenforceable rights to benefits accrued to the date of the amendment.
Further, if an amendment to the vesting schedule of the Plan reduces
the vesting percentage of a Participant with at least 3 Years of
Service, the Participant may elect, within a reasonable period after
the adoption of the amendment, to have his nonforfeitable percentage
computed under the Plan without regard to the amendment. The period
during which the election may be made shall commence with the date the
amendment is adopted and shall end on the latest of (1) 60 days after
the amendment is adopted, (2) 60 days after the amendment becomes
effective, (3) 60 days after the Participant is issued written notice
of the amendment by the Company or by the Administrative Committee.
8.2 TERMINATION, PARTIAL TERMINATION, OR COMPLETE DISCONTINUANCE OF
CONTRIBUTIONS
Although the Company has established the Plan with the intention and
expectation that it will make contributions indefinitely, nevertheless
the Company shall not be under any obligation or liability to continue
its contributions or to maintain the Plan for any given length of time.
The Company may in its sole and absolute discretion discontinue
contributions or terminate the Plan in whole or in part in accordance
with its provisions at any time without any liability for the
discontinuance or termination. If the Plan shall be terminated or
partially terminated or if contributions of the Company shall be
completely discontinued, the rights of all affected Participants in
their Accounts shall become 100% vested and nonforfeitable
notwithstanding any other provisions of the Plan. However, the Trust
shall continue until all Participant's Accounts have been completely
distributed to or
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<PAGE>
for the benefit of the Participants in accordance with the Plan.
8.3 PERMISSIBLE REVERSIONS
(a) Notwithstanding any other provision of the Plan:
(I) No Participant nor beneficiary shall have any right
or claim to any assets of the Trust or to any benefit
under the Plan before the Internal Revenue Service
determines that the Plan and Trust qualify under the
provisions of Code Section 401(a), or any statute of
similar import, other than any vested rights or
benefits accrued represented by any assets
transferred from a predecessor plan as defined in
Internal Revenue Code Section 411, to the extent
vested upon transfer to this Plan and Trust from such
predecessor plan. Upon the distribution to the
Participants of any vested amounts or benefits
transferred from a predecessor plan and the return of
any remaining contributions to the Company following
the denial of initial qualification of the Plan and
Trust under the provisions of Code Section 401 (a)
the Trust provided for in this Plan shall be
terminated and the Trustees shall be discharged from
all obligations hereunder.
(II) To the extent the Company's contributions are made by
reason of a mistake of fact, they may be returned to
the Company within one year from the date of
contribution.
(III) If the Company's contributions are conditioned on
their deductibility for federal income tax purposes,
to the extent the deduction is disallowed they may be
returned to the Company within one year from the date
of the disallowance.
(b) The amounts that may be returned to the Company under Sections
8.3(a)(ii) and 8.3(a)(iii) above shall be the excess of the
amounts contributed over the amounts that would have been
contributed had there not been a mistake of fact or mistake in
determining the deduction, as applicable. No earnings on the
mistaken or nondeductible contributions may be returned to the
Company and losses sustained by the Trust after the date of
contribution shall proportionately reduce the amount that may
be returned to the Company.
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<PAGE>
SECTION 9.
CLAIMS
Distributions of Accounts under the Plan will normally be made without
a Participant (or beneficiary) having to file a claim for benefits.
However, a Participant (or beneficiary) who does not receive a
distribution to which he believes he is entitled may present a claim to
the Administrative Committee for any unpaid benefits. All questions and
claims regarding benefits under the Plan shall be acted upon by the
Administrative Committee.
Each Participant (or beneficiary) who wishes to file a claim for
benefit with the Administrative Committee shall do so in writing,
addressed to the Committee or to the Company. If the claim for benefits
is wholly or partially denied, the Committee shall notify the
Participant (or beneficiary) in writing of such denial of benefits
within ninety (90) days after the Committee initially received the
benefit claim.
Any notice of a denial of benefits shall advise the Participant (or
beneficiary) of:
(a) the specific reason or reasons for the denial;
(b) the specific provisions of the Plan on which the denial is
based;
(c) any additional material or information necessary for the
Participant (or beneficiary) to perfect his claim and an
explanation of why such material or information is necessary;
and
(d) the steps which the Participant (or beneficiary) must take to
have his claim for benefits reviewed.
Each Participant (or beneficiary) whose claim for benefits has been
denied shall have the opportunity to file a written request for a full
and fair review of this claim by the Administrative Committee, to
review all documents pertinent to his claim and to submit a written
statement regarding issues relative to his claim. Such written request
for review of his claim must be filed by the Participant (or
beneficiary) within sixty (60) days after receipt of written
notification of the denial of his claim. The Committee shall schedule
an opportunity for a full and fair hearing of the issue within the next
thirty (30) days. The decision of the Committee will be made within
thirty (30) days thereafter and shall be communicated in writing to the
claimant. Such written notice shall set forth the specific reasons and
specific Plan provisions on which the Committee based its decision.
All notices by the Administrative Committee denying a claim for
benefits, and all decisions
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<PAGE>
on requests for a review of the denial of a claim for the benefits,
shall be written in a manner calculated to be understood by the
Participant (or beneficiary) filing claim for requesting the review.
40
<PAGE>
SECTION 10.
TOP HEAVY PROVISION
10.1 APPLICATION OF TOP-HEAVY PROVISIONS
If the sum of the Present Value of Accrued Benefits of Participants who
are "Key Employees" for such Plan Year and the Aggregate Accounts of
all the Key Employees under this Plan and of an Aggregation Group,
exceed sixty percent of the sum of the Present Value of Accrued Benefit
and Aggregate Accounts of all Participants under this Plan and all
plans of an Aggregation Group, then the following provisions under this
Section shall apply for such Plan Year.
The date for determining the applicability of this Section
(determination date) is the last day of the preceding Plan Year.
(a) If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan
Year, such Participant's Present Value of Accrued Benefit
and/or Aggregate Account Balance shall not be taken in account
for purposes of determining whether this Plan is a Top Heavy
Plan (or whether any Aggregation Group which includes this
Plan is a Top Heavy Group). In addition, if a Participant or
Former Participant has not received any Compensation from any
Employer maintaining the Plan (other than benefits under the
Plan) at any time during the five year period ending on the
Determination Date, the Aggregate Account and/or Present Value
of Accrued Benefit for such Participant or Former Participant
shall not be taken into account for the purposes of
determining whether this Plan is a Top Heavy Plan.
(b) SUPER TOP HEAVY
This Plan shall be a Super Top Heavy Plan for any Plan Year in
which, as of the Determination Date, the sum of Present Value
of Accrued Benefits of Key Employees in the Aggregate Accounts
of Key Employees under this Plan and all Plans of the
Aggregation Group, exceeds ninety percent (90%) of the sum of
the Present Value of Accrued Benefits in the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and
all plans of the Aggregate Group.
(c) AGGREGATE ACCOUNT
Participant's Aggregate Account as of the Determination Date
is the sum of:
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(I) Participant's Account balance as of the most recent
valuation occurring within a twelve (12) month period
ending on the Determination Date;
(II) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the
amount of any contributions actually made after the
valuation date but on or before the Determination
Date, except for the first Plan Year when such
adjustment shall also reflect the amount of any
contributions made after the Determination Date that
are allocated as of a date in that first Plan Year;
(III) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four
(4) preceding Plan Years. However, in the case of
distributions made after the valuation date and prior
to the Determination Date, such distributions are not
included as distributions for top heavy purposes to
the extent that such distributions' are already
Included in the Participant's Aggregate Account
balance as of the valuation date. Notwithstanding
anything herein to the contrary, all distributions
and distributions under a terminated plan which if it
had not been terminated would have been required to
be included in an Aggregation Group, will be counted;
(IV) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax
deductible qualified deductible employee
contributions shall not be considered to be a part of
the Participant's Aggregate Account balance;
(V) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the
Employee and made from a plan maintained by one
employer to a plan maintained by another employer),
if this Plan provides the rollovers or plan-to-plan
transfers, it shall always consider such rollover or
plan-to-plan transfer as a distribution for the
purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers,
it shall not consider such rollovers or plan-to-plan
transfers as part of the Participant's Aggregate
Account balance; and
(VI) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee
or made to a plan maintained by the same employer),
if this Plan provides the rollover or plan-to-plan
transfer, it shall not be counted as a distribution
for purposes of this Section. If this Plan is the
plan accepting such rollover or plan-to-plan
transfer, it shall consider such rollover or
plan-to-plan transfer as part of the Participant's
Aggregate Account balance, irrespective of the date
on which such rollover or plan-to-
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<PAGE>
plan transfer is accepted.
(d) AGGREGATION GROUP
"Aggregation Group" means either a Required Aggregation Group
or a Permissive Aggregation Group as hereinafter determined.
(I) REQUIRED AGGREGATION GROUP:
In determining a Required Aggregation Group
hereunder, each plan of the Employer in which a Key
Employee is a participant, and each other plan of the
Employer which enables any plan in which a Key
Employee participates to meet the requirements of
Code Sections 401(a)(4) or 410, will be required to
be aggregated. Such group shall be known as a
Required Aggregation Group. In the case of a Required
Aggregation Group, each plan in the group will be
considered a Top Heavy Plan if the Required
Aggregation Group is a Top Heavy Group. No plan in
the Required Aggregation Group will be considered a
Top Heavy Plan if the Required Aggregation Group is
not a Top Heavy Group.
(II) PERMISSIVE AGGREGATION GROUP:
The Employer may also include any other plan not
required to be included in the Required Aggregation
Group, Provided the resulting group, taken as a
whole, would continue to satisfy the provisions of
Code Sections 401(a)(4) and 410. Such group shall be
known as a Permissive Aggregation Group. In the case
of a Permissive Aggregation Group, only a plan that
is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive
Aggregation Group is a Top Heavy Group. No plan in
the Permissive Aggregation Group will be considered a
Top Heavy Plan if the Permissive Aggregation Group is
not a Top Heavy Group.
(III) Only those plans of the Employer in which the
Determination Dates fall within the same calendar
year shall be aggregated in order to determine
whether such plans are Top Heavy Plans.
(e) DETERMINATION DATE
"Determination Date" means (a) the last day of the preceding
Plan Year, or (b) in the case of the first Plan Year, the last
day of such Plan Year.
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(f) PRESENT VALUE OF ACCRUED BENEFIT
In the case of a defined benefit plan, a Participant's Present
Value of Accrued Benefit shall be as determined under the
provisions of the applicable defined benefit plan.
(g) TOP HEAVY GROUP
"Top Heavy Group" means an Aggregation Group in which, as of
the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included in
the group, and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum
determined for all Participants.
(h) TOP HEAVY PLAN YEAR
"Top Heavy Plan" Year means that, for a particular Plan Year,
the Plan is a Top Heavy Plan.
10.2 KEY EMPLOYEES
For purposes of this Section, the term "Key Employee" means any
Employee or former Employee (and his beneficiaries) who, at any time
during the Plan Year or any of the preceding four Plan Years, is:
(a) An officer of the Employer and has annual compensation (as
defined in Code Section 414(q)(7)) greater than 50% of the
amount in effect under Code Section 415(b)(1)(A) for any such
Plan Year;
(b) One of ten employees having annual compensation (as defined in
Code Section 414(q)(7)) greater than $30,000 (or such amount
adjusted in accordance with Code Section 415(c)(1)(A) as in
effect for the calendar year in which the Determination Date
falls) and owning (or considered as owning within the meaning
of Code Section 318) the largest interests in an Employer;
(c) A five percent owner of the Employer; and
(d) A one percent owner of the Employer who has annual
compensation (as defined in
44
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Section 414(q)(7)) more than $150,000.
A five percent owner means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than five percent
of the outstanding stock of an Employer or stock possessing more than
five percent of the total combined voting power of all stock of an
Employer. A one percent owner means any person who owns (or is
considered as owning within the meaning of Code Section 318) more than
one percent of the outstanding stock of an Employer or stock possessing
more than one percent of the total combined voting power of all stock
of an Employer. If an Employee ceases to be a Key Employee, such
Employee's Account balances shall be disregarded under the top heavy
plan computation for any Plan Year following the last Plan Year for
which the Employee was treated as a Key Employee. The Account Balances
of an Employee who has not performed any service for an Employer at any
time during the five year period ending on the Determination Date are
excluded from the calculation to determine top heaviness. For purposes
of clause (a) above no more than the lesser of (i) fifty Employees, or
(ii) the greater of three Employees or ten percent of all Employees,
are to be treated as Key Employees. For purposes of clause (b) above,
if two Employees have the same interest in an Employer, the Employee
having greater annual compensation from an Employer shall be treated as
having a larger interest. For purposes of determining the number of
officers taken into account under clause (a), Employees described in
Code Section 414(q)(8) shall be excluded.
10.3 NON-KEY EMPLOYEE
Any employee or former employee (and his beneficiaries) who is not a
Key Employee.
10.4 ADDITIONAL RULES
In determining the sum of the account balances under a defined
contribution plan, Employer contributions and Employee contributions
shall be taken into account. The account balance in a defined
contribution plan will include any amount distributed to a Participant
within the five year period ending on the Determination Date.
10.5 VESTING REQUIREMENTS
If this Plan is determined to be top-heavy in any Plan Year under the
provisions of paragraph 10.1 or 10.3, then a Participant's right to the
contributions allocated to his Accounts shall vest in accordance with
the following schedule:
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YEARS OF SERVICE VESTING PERCENTAGE
---------------- ------------------
Less than 1 0
1 20
2 40
3 or more 100
For this purpose, the term "Year of Service" shall be as defined in
Section 1. Once the above schedule applies to a Participant, it will
continue to apply to him, whether or not the Plan is top-heavy in any
subsequent years, for as long as he remains a Participant.
10.6 MINIMUM BENEFIT
If this Plan is determined to be top-heavy in any Plan Year under the
provisions of paragraph 10.1 or 10.3, then the contribution for such
Plan Year to be allocated to each Participant who is not a Key Employee
in such Plan Year shall not be less than three percent of such
Participants compensation (as defined in Code 414(q)(7)) or such lesser
percentage as may be made with respect to Key Employees in such Plan
Year. Amounts contributed under Plan Section 3.2(a) shall be taken into
consideration in determining the lesser percentage for Key Employers
noted in the immediately preceding sentence.
10.7 CEILING ON INCLUDIBLE COMPENSATION
If this Plan is determined to be top-heavy in any Plan Year under the
provision of paragraph 10.1 or 10.3, then only the first $200,000 of a
Participant's compensation (as defined in Code Section 414(q)(7)) may
be taken into account in determining the amount of the allocation to
such Participant's Account for the Plan Year. The $200,000 limit shall
automatically be adjusted for the Plan Years beginning after 1985 to
the extent permitted by the Internal Revenue Service.
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SECTION 11.
MISCELLANEOUS
11.1 LIMITATION OF RIGHTS; EMPLOYMENT RELATIONSHIP
Neither the establishment of the Plan and the Trust nor any
modifications of them, nor the creation of any fund or account, nor the
payment of any benefits, shall be construed as modifying or affecting
in any way the terms of employment of any Employee.
11.2 MERGER; TRANSFER OF ASSETS
(a) If the Company merges or consolidates with or into a
corporation, or if substantially all the assets of the Company
are transferred to a corporation, the Plan shall terminate on
the effective date of the merger, consolidation, or transfer.
However, if the surviving corporation resulting from the
merger or consolidation, or the corporation to which the
assets have been transferred, adopts this Plan, the Plan shall
continue and the successor corporation shall succeed to all
rights, powers, and duties of the Company under the Plan, and
the employment of any Employee who is continued in the
successor corporations employ shall not be deemed to have been
terminated for any purpose under the Plan.
(b) This Plan shall not be merged or consolidated with any other
employee benefit plan, nor shall there by any transfer of
assets or liabilities from this Plan to any other plan,
unless, immediately after the merger, consolidation, or
transfer, each Participants benefits, if the other plan were
then to terminate, are at least equal to the benefits to which
the Participant would have been entitled had this Plan been
terminated immediately before the merger, consolidation, or
transfer.
11.3 PROHIBITION AGAINST ASSIGNMENT
(a) Except as provided below, the benefits provided by this Plan
may not be assigned or alienated. Neither the Company nor the
Trustees shall recognize any transfer, mortgage, pledge,
hypothecation, order, or assignment by any Participant or
beneficiary of all or part of his interest under the Plan, and
the interest shall not be subject in any manner to transfer by
operation of law and shall be exempt from the claims of
creditors or other claimants from all orders, decrees, levies,
garnishment, and/or executions, and other legal or equitable
process or proceedings against the Participant or beneficiary
to the fullest extent that may be permitted by law.
(b) This provision shall not apply to the extent a Participant or
beneficiary is indebted to
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the Plan, for any reason, under any provision of this
Agreement. At the time a distribution is to be made to or for
a Participant's or beneficiary's benefit, such proportion of
the amount distributed as shall equal such indebtedness, shall
be paid by the Trustees to the Trustees or the Administrative
Committee, at the direction of the Administrative Committee,
to apply against or discharge such indebtedness. Prior to
making a payment, however, the Participant or beneficiary must
be given written notice by the Administrative Committee that
such indebtedness is to be so paid in whole or part from his
account. If the Participant or beneficiary does not agree that
the indebtedness is a valid claim against his vested Accounts,
he shall be entitled to a review of the validity of the claim
in accordance with procedures provided in Section 9.
(c) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those
other domestic relations orders permitted to be so treated by
the Administrative Committee under the Code. The
Administrative Committee shall establish a written procedure
to determine the qualified status of domestic relations orders
and to administer distributions under such qualified orders.
Further, to the extent provided under a "qualified domestic
relations order", a former spouse of a Participant shall be
treated as the spouse or surviving spouse for all purposes
under the Plan.
11.4 APPLICABLE LAW; SEVERABILITY
This Plan shall be construed, administered, and governed in all
respects in accordance with ERISA and the laws of the State of Florida,
provided, however, that if any provision is susceptible of more than
one interpretation, it shall be interpreted in a manner consistent with
the Plans "being a qualified employees" cash or deferred profit sharing
plan within the meaning of the Internal Revenue Code. If any provision
of this instrument shall be held by a court of competent jurisdiction
to be invalid or unenforceable, the remaining provisions of the Plan
shall continue to be fully effective.
11.5 RELIANCE UPON COPY OF PLAN
Any person dealing with the Trustees may rely upon copies of the Plan
and the Trust Agreement, and any amendments thereto, certified by the
Administrative Committee to be true and correct copies.
11.6 GENDER AND NUMBER; CAPTIONS OR HEADINGS
Wherever appropriate to the meaning or interpretation of this Plan, the
masculine gender shall include the feminine, and the singular number
shall include the plural and vice versa. Captions or headings are
inserted and intended for organizational format and convenience
48
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of reference only; they are not to be given independent substantive
meaning or effect.
49
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SECTION 12.
ADMINISTRATIVE COMMITTEE
12.1 APPOINTMENT OF COMMITTEE
The Board shall appoint the Administrative Committee (the "Committee")
the members of which shall serve at the pleasure of the Board, without
bond, unless a bond shall be requested by the Board or secured
voluntarily by a member. Any member of the Committee who is not an
officer or employee of an Employer may be compensated for services as a
member of the Committee. The Committee members may, but need not be,
Participants under the Plan. Vacancies arising shall be filled in the
same manner as appointments. Any member of the Committee may resign by
delivering a written resignation to the Board and to the Secretary of
the Committee and such resignation will become effective upon such
delivery or at any later date specified therein.
12.2 COMMITTEE ORGANIZATION
The members of the Committee shall elect from their number a Chairman
and shall appoint a Secretary, who need not be a member of the
Committee. The Chairman and the Secretary shall serve without bond and
without compensation at the pleasure of the Committee.
12.3 COMMITTEE MEETINGS
The Committee shall hold meetings upon such notice, at such time, and
at such place as it may determine. A majority of the members of the
Committee shall constitute a quorum for the transaction of business.
All resolutions of actions taken by the Committee shall be by vote of a
majority of those present at a meeting, or, if they act without a
meeting, by unanimous written consent of the members of the Committee.
12.4 COMMITTEE FUNCTIONS AND POWERS
The Committee shall be the administrator of the Plan, and its duties
shall include, without limitation, powers with respect to the
administration of the Trust as may be conferred upon it by the Trust
Agreement and by the Plan. The Committee shall have the power to take
all action and to make all decisions that shall be necessary or proper
in order to carry out the provisions of the Plan and, without limiting
the generality of the foregoing, the Committee shall have the following
powers:
(a) to make (and enforce by suspension or forfeiture) such rules
and regulations as it shall deem necessary or proper for the
efficient administration of the Plan;
50
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(b) to interpret or construe the Plan;
(c) to decide questions concerning the Plan and the eligibility of
any Employee to participate therein and the right of any
person to receive benefits thereunder;
(d) to decide any dispute arising under the Plan;
(e) to compute the amount of benefits which shall be payable to
any person in accordance with the provisions of the Plan;
(f) to authorize all disbursements by the Trustees;
(g) to recommend to the Board and to the respective boards of
directors of the other Employers the amounts of the Employer
contributions and payments for expenses to be made from time
to time under the provisions of the Plan;
(h) to prescribe and require the use of such forms as it shall
deem necessary or desirable in connections with the
administration of the Plan;
(i) to fix the criteria to be followed in determining the market
value of any security or property held in the Trust Fund or
the amount of any unliquidated charge, expense, or obligation
of the Trust Fund;
(j) to establish and monitor policy of proxy voting by the
Trustees for stock held for the plan consistent with
regulations and rulings of the U.S. Department of Labor;
(k) to appoint one (1) or more Independent Advisors and dismiss
and replace any of these, as it deems warranted;
(l) to supply any omissions in the Plan;
(m) to reconcile and correct any errors or inconsistencies in the
Plan; and
(n) to make equitable adjustments for any mistakes or errors made
in the administration of the Plan.
12.5 COMMITTEE ACTIONS CONCLUSIVE
All actions and decisions taken by the Committee shall be final and
conclusive and binding on all persons having any interest in the Plan
or Trust Fund or in any benefits payable thereunder.
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12.6 COMMITTEE APPOINTMENT OF AGENTS
The Committee may employ or engage such accountants, counsel, other
experts, and other persons as it deem necessary in connections with the
administration of the Plan.
12.7 RELIANCE ON OPINIONS, ETC.
The Committee and each member thereof and each person to whom it may
delegate any power or duty in connection with administering the Plan
shall be entitled to rely conclusively upon, and shall be fully
protected in any action taken by them or any of them in good faith
reliance upon any valuation, certificate, opinion, or report which
shall be furnished to them or any of them by the Trustees or by any
accountant, counsel, other expert, or other person who shall be
employed or engaged by the Trustees or the Committee.
12.8 RECORDS AND ACCOUNTS
The Committee shall keep or cause to be kept all data, records and
documents pertaining to the administration of the Plan, and the
Secretary of the Committee may execute all documents necessary to carry
out the provisions of the Plan. To enable the Committee to perform its
functions, the Employer shall supply full and timely information to the
Committee on all matters relating to the salaries of Participants,
their retirement, death, termination of employment, and such other
pertinent facts as the Committee may require. The Committee shall
advise the Trustees of such of the foregoing facts as may be pertinent
to the Trustees' administration of the Trust Fund and shall give proper
instruction to the Trustees for carrying out the purposes of the Plan.
12.9 PAYMENT OF EXPENSE
(a) Subject to the provisions of paragraph (b) of this Section
12.9, expenses in connection with the administration of the
Plan and Trust including commissions, taxes or other expenses
relating to the purchase and maintenance of property held as a
part of any Investment Fund, expenses payable to any member of
the Committee pursuant to Section 12.1, expenses of the
Committee or any member thereof, expenses of the Trustees and
of any accountant or other person who shall be employed by the
Committee or Trustees in the administration thereof, shall be
paid by the Plan. To the extent such expenses are not paid by
the Plan, they may be paid by the Company.
(b) In the event of permanent discontinuance of contributions or
termination any further payment of expenses which arise or
have arisen in connection with the
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administration of the Plan and Trust Agreement shall be paid
by the Plan unless paid by the Employer.
12.10 LIABILITY OF THE ADMINISTRATIVE COMMITTEE
No member of the Administrative Committee shall incur liability for any
action taken or not taken in good faith reliance on advice of counsel,
who may be counsel for the Company or taken or not taken in good faith
reliance on a determination as to a matter of fact which has been
represented or certified by a person reasonably believed to have
knowledge of the fact so represented or certified, or taken or not
taken in good faith reliance on a recommendation or opinion expressed
by a person reasonably believed to be qualified or expert as to any
matter where it is reasonable or customary to seek or rely on such
recommendations or opinions. Nor shall any Administrative Committee
member be liable for the wrongful or negligent conduct of any other
Administrative Committee member or any person having fiduciary
responsibilities with respect to the Plan unless he (i) knowingly
participates in or undertakes to conceal an act or omission of such
other person knowing the act or omission is a breach of fiduciary duty,
(ii) by failing to act solely in the interests of participants and
beneficiaries or to exercise the care, skill, prudence and diligence
under the circumstances prevailing from time to time that a prudent man
acting in a like capacity and familiar with such matters would
exercise, has enabled the other fiduciary to commit a breach of his
obligation, or (iii) he has knowledge of a breach by the other
fiduciary and does not make reasonable efforts under the circumstances
to remedy it. Except as otherwise affirmatively required by the Act, no
Administrative Committee member shall be required to post a bond. The
Company shall jointly and severally indemnify the Administrative
Committee members and hold them harmless from loss, liability and
expense in respect of the Plan, including the legal cost of defending
claims and amounts paid in satisfaction or settlement thereof provided
only that no indemnification is intended that would be void as against
public policy under the Act.
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SECTION 13.
TRUST AGREEMENT
13.1 THE TRUST AGREEMENT
All contributions under the Plan shall be made to the Trust Fund held
by the Trustees under a separate Trust Agreement known as the "SBS
Trust Company Trust Agreement" (the "Trust Agreement"). The Trustees
are to hold, invest, and distribute the Trust's assets, and maintain
records of the Trust Fund in accordance with the terms and provisions
of the Trust Agreement except that they may delegate such
responsibility to an Investment Manager. The Trust Agreement shall be
deemed to form a part of the Plan, and any and all rights or benefits
which may accrue to any person under the Plan shall be subject to all
the terms and provisions of the Trust Agreement. If there is any
conflict between the terms of the Plan and the terms of the Trust
Agreement, the terms of the Plan shall control.
13.2 NO DIVERSION OF CORPUS OR INCOME
In no event shall any portion of the corpus or income of the Trust Fund
be used for or diverted to purposes other than the exclusive benefit of
Participants and their Beneficiaries.
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IN WITNESS WHEREOF, the Company has caused this Plan as revised and
amended to be executed and have affixed their seals this _________ day of
_____________, 19___.
COMPANY:
By:_________________________________
55
EXHIBIT 10.15
PART NERSHIP AGREEMENT
BY AND BETWEEN
LENNAR LAND PARTNERS SUB II, INC.
AND
LNR LAND PARTNERS SUB II, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C> <C> <C>
ARTICLE I Organizational Matters.........................................................................1
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...................................................................................2
ARTICLE III Capital Contributions........................................................................5
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...............................................................7
3.7 Capital Accounts.......................................................................7
ARTICLE IV Allocations and Distributions................................................................10
4.1 Allocations for Capital Account Purposes..............................................10
4.2 Allocations for Tax Purposes..........................................................11
4.3 Distributions.........................................................................12
ARTICLE V Governance and Management of Business.........................................................12
5.1 Executive Committee...................................................................12
5.2 Management Agreement..................................................................15
5.3 Indemnification.......................................................................15
5.4 Insurance.............................................................................15
5.5 Annual Business Plan..................................................................16
5.6 Reimbursement of Partners.............................................................16
5.7 Outside Activities....................................................................17
TABLE OF CONTENTS
PAGE
----
5.8 Dealings With Partnership.............................................................17
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
5.9 Partnership Funds.....................................................................17
5.10 Title to Partnership Assets...........................................................17
ARTICLE VI Books, Records, Accounting and Reports.......................................................18
6.1 Records and Accounting................................................................18
6.2 Fiscal Year...........................................................................18
6.3 Financial Statements and Financial Information........................................18
6.4 Other Information.....................................................................19
6.5 Reimbursement.........................................................................19
ARTICLE VII Tax Matters.................................................................................19
7.1 Recognition of Partnership............................................................19
7.2 Preparation of Tax Returns............................................................19
7.3 Accounting Methods: Tax Elections.....................................................19
7.4 Tax Controversies.....................................................................20
7.5 Withholding...........................................................................20
7.6 Reimbursement.........................................................................20
ARTICLE VIII Transfer of Interests......................................................................20
8.1 Restrictions on Transfer..............................................................20
8.2 Permissible Transfers.................................................................20
8.3 Right of First Refusal................................................................21
ARTICLE IX Admission of Partners........................................................................21
9.1 Admission of Additional Partners......................................................21
9.2 Interest of New Partner...............................................................21
ARTICLE X Dissolution and Liquidation...................................................................22
10.1 Dissolution...........................................................................22
10.2 Effect of Dissolution.................................................................22
10.3 Liquidation...........................................................................22
TABLE OF CONTENTS
PAGE
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10.4 Distribution in Kind..................................................................23
10.5 Reasonable Time for Winding Up........................................................23
10.6 Waiver of Partition...................................................................23
10.7 Voluntary Termination.................................................................23
ARTICLE XI General Provisions...........................................................................23
11.1 Indemnification by Partners...........................................................23
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
11.2 Contribution by Partners..............................................................23
11.3 Notices...............................................................................24
11.4 Amendments............................................................................24
11.5 Titles and Captions...................................................................24
11.6 Binding Effect........................................................................24
11.7 Integration...........................................................................25
11.8 Creditors.............................................................................25
11.9 Counterparts..........................................................................25
11.10 Applicable Law........................................................................25
11.11 Survival..............................................................................25
</TABLE>
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iv
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v
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EXHIBITS
A. Schedule of Original Properties, Fair Market Values and Option Prices
B. Management Agreement
C. Business Plan and Budget for the Partnership's fiscal year 1999
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PARTNERSHIP AGREEMENT
This is a PARTNERSHIP AGREEMENT (the "Agreement") dated as of June 28,
1999, by and among LENNAR LAND PARTNERS SUB II, INC., a Nevada corporation (the
"Managing General Partner"), and LNR LAND PARTNERS SUB II, INC., a Nevada
corporation (the "General Partner") and together with the Managing General
Partner, the "Partners"), and, only with respect to Section 8.1, LENNAR
CORPORATION, a Nevada corporation ("Lennar") and LNR Property Corporation, a
Nevada corporation ("LNR").
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 LNR.
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 II."
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 my 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,
<PAGE>
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..
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 it registration statement pursuant to Section
620.8105 of the Florida Act in which the name of the Partnership and the
location and complete add 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.
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"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 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 (it
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 LNR Land Partners Sub II, Inc., a Nevada
corporation and a wholly-owned subsidiary of LNR, or any successor to such
Person admitted as a Partner of the Partnership, in its capacity as a Partner of
the Partnership.
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"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.
"LNR" means LNR Property Corporation, a Delaware corporation.
"MANAGEMENT AGREEMENT" means the management agreement, dated as of 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.
"MANAGING GENERAL PARTNER" means Lennar Land Partners Sub II, Inc., a
Nevada 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 net 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.
4
<PAGE>
"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 regulation my 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 (a 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.
ARTICLE III
CAPITAL CONTRIBUTIONS
1.8 INITIAL CAPITAL CONTRIBUTIONS. The Aggregate Net Fair Market
Value on the date of this Agreement of the Capital Contribution made by each
Partners is and the initial Percentage Interest of each Partner is 50%.
1.9 VOLUNTARY CONTRIBUTIONS. A Partner may with the consent of the
Executive Committee (but not without it) make voluntary contributions of capital
to the Partnership.
1.10 REQUIRED ADDITIONAL CAPITAL CONTRIBUTIONS.
(1) 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
5
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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.
(2) 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.
(3) 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.
1.11 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.
1.12 INTEREST. No interest will be paid by the Partnership on
Capital Contributions or on balances in Partners' Capital Accounts.
1.13 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
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Partnership's benefit, (a) will not be considered Capital Contributions, and (b)
will be on terms (including terms as to interest and repayment) which am
approved by the Executive Committee.
1.14 CAPITAL ACCOUNTS.
(1) 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.
(2) 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 exception:
(1) 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.
(2) 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
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Federal income tax purposes resulting from such a disposition and will be
allocated among the Partners pursuant to Section 4.1.
(3) 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 allowed among the Partners pursuant to
Section 4.1.
(4) 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 the 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).
(5) 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.
(3) 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.
(4) (1) 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
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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.
(1) 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
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.
(2) 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.
(5) 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.
(6) 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).
(7) 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, of 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.
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ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
1.15 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES.
(1) 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.
(2) 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 chargeback" and "partner
minimum gain chargeback" within the meaning of those Regulations and is to be
interpreted consistently with those Regulations.
(3) 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.
(4) 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.
1.16 ALLOCATIONS FOR TAX PURPOSES.
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(1) 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.
(2) 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:
(1) 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.
(2) 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).
(3) 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.
(4) Any credits of the Partnership will be allocated to the Partners in
accordance with their respective Percentage Interests.
(5) 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.
(6) 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,
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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.
1.17 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
1.18 EXECUTIVE COMMITTEE. The Partnership will be governed by an
Executive Committee as follows:
(1) 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.
(2) 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.
(3) Each of the following matters will require the unanimous vote of
the Executive Committee (based upon one vote per Partner):
(1) The acquisition by the Partnership of any real property,
other than the acquisition by the Partnership of the Original Properties.
(2) 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 options dated on or before October 31, 1997
relating to portions of the Original Properties.
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(3) The adoption of an annual Business Plan.
(4) Approval of a Master Plan relating to property owned by the
Partnership.
(5) 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.
(6) Any borrowing from, or loan to, any person (including, but
not limited to, a Partner or an Affiliate of a Partner).
(7) Any amendment to the Management Agreement.
(8) Any decision by the Executive Committee to require the
Partners to make Additional Capital Contributions as contemplated by Section
3.3.
(9) Any agreement with a Partner or an Affiliate of a Partner,
other than one described in clauses (i) through (vii).
(10) The institution of legal proceedings against anyone.
(11) 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.
(4) 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.
(5) 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
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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.
(6) 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.
(7) 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.
(8) LIMITATION OF LIABILITIES AND OBLIGATIONS.
(1) 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.
(2) 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.
(3) 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
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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.
1.19 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 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.
1.20 INDEMNIFICATION. The Partnership shall indemnify each member
of the Executive Committee, the Manager and each employee, director or officer
of the Manager as follows:
(1) 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 lawful.
(2) 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.
1.21 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.
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1.22 ANNUAL BUSINESS PLAN. Attached to this Agreement as Exhibit C
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, 1997. 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 am 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:
(1) the Manager will continue all property development projects
and marketing programs which were in process at the end of the prior fiscal
year,
(2) the Partnership will not begin any new property development
projects,
(3) 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;
(4) 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 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;
(5) 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
(6) 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.
1.23 REIMBURSEMENT OF PARTNERS.
(1) 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.
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(2) 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.
1.24 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 of 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.
1.25 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.
1.26 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, money market funds or
other short or long term investments which the Manager deems appropriate for the
Partnership.
1.27 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 my 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.
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ARTICLE VI
BOOKS, RECORDS, ACCOUNTING AND REPORTS
1.28 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
Partners 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.
1.29 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.
1.30 FINANCIAL STATEMENTS AND FINANCIAL INFORMATION.
(1) 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.
(2) 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.
(3) As soon as practicable, but not later than the 25th day, after the
end of 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.
(4) 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.
(5) 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
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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 work papers relating to the Partnership and to make comfort
reviews or other reviews regarding the Partnership.
1.31 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.
1.32 REIMBURSEMENT. The Partnership will pay all costs relating to
matters described in this Article VI.
ARTICLE VII
TAX MATTERS
1.33 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.
1.34 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.
1.35 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
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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.
1.36 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.
1.37 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.
1.38 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
1.39 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
LNR may, without the prior written consent of the other of them, transfer any
interest in the Managing General Partner or the General Partner.
1.40 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
20
<PAGE>
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.
1.41 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 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
1.42 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.
1.43 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.
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ARTICLE X
DISSOLUTION AND LIQUIDATION
1.44 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:
(1) the unanimous approval of all the Partners;
(2) an election to dissolve the Partnership by a Partner as
provided in Section 1.4;
(3) the bankruptcy or insolvency of the Partnership; or
(4) the sale or disposition of all or substantially all of the
assets of the Partnership.
1.45 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.
1.46 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:
(1) to the payment of all costs and expenses of the liquidation;
(2) 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
(3) 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.
22
<PAGE>
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.
1.47 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 my 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 deem 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.
1.48 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.
1.49 WAIVER OF PARTITION. Each Partner waives any right to
partition of the Partnership property.
1.50 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.
ARTICLE XI
GENERAL PROVISIONS
1.51 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.
23
<PAGE>
1.52 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.
1.53 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 Partners Sub II, Inc.
Lennar Land Partners Sub II, Inc.
c/o Lennar Corporation
700 N.W. 107th Avenue
Miami, Florida 33172
Attention: President
Facsimile No.: (305) 226-7691
If to LNR Land Partners Sub II, Inc.
LNR Land Partners Sub II, Inc.
c/o LNR Property Corporation
760 N.W. 107th Avenue
Miami, Florida 33172
Attention: President
Facsimile No.: (305) 226-7691
1.54 AMENDMENTS. This Agreement may be amended at any time with the
written consent of all Partners.
1.55 TITLES AND CAPTIONS. This 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.
24
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1.56 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.
1.57 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.
1.58 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.
1.59 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.
1.60 APPLICABLE LAW. This Agreement will be governed by and
construed in accordance with the substantive laws of the State of Florida.
1.61 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 PARTNERS SUB II, INC. LNR LAND PARTNERS SUB II, INC.
By: /s/ DAVID B. MCCAIN By: /s/ SHELLY RUBIN
--------------------------------- ----------------------------------
Name: DAVID B. MCCAIN Name: SHELLY RUBIN
------------------------------- --------------------------------
Title: VICE PRESIDENT Title: VICE PRESIDENT
------------------------------ -------------------------------
Address: Address:
700 Northwest 107th Avenue 760 Northwest 107th Avenue
Miami, Florida 33172 Miami, Florida 33172
Facsimile No.: Facsimile No.:
25
<PAGE>
LENNAR CORPORATION LNR PROPERTY CORPORATION
By: /s/ DAVID B. MCCAIN By: /s/ SHELLY RUBIN
--------------------------------- ----------------------------------
Name: DAVID B. MCCAIN Name: SHELLY RUBIN
------------------------------- --------------------------------
Title: VICE PRESIDENT Title: VICE PRESIDENT
------------------------------ -------------------------------
Address: Address:
700 Northwest 107th Avenue 760 Northwest 107th Avenue
Miami, Florida 33172 Miami, Florida 33172
Facsimile No.: Facsimile No.:
26
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Basic earnings per share are computed by dividing earnings available to common
shares by the weighted average number of common shares outstanding during the
period.
Diluted earnings per share are computed by dividing the earnings available to
common shares by the weighted average number of common shares, common equivalent
shares and common shares assumed converted from potentially dilutive securities
outstanding during the period.
For purposes of computing diluted earnings per share, common equivalent shares
include the average number of common shares issuable upon the exercise of all
employee stock options, if dilutive, less the common shares which could have
been purchased at the average market price during the period with the assumed
proceeds, including the "windfall" tax benefits, from the exercise of the
options, awards and subscriptions.
EXHIBIT 13.1
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock currently is listed on the New York Stock Exchange
under the symbol LNR. The following table sets forth the range of the high and
low closing prices reported on the New York Stock Exchange composite tape for
each period indicated.
HIGH LOW
-------------------------------------
1999
-------------------------------------
First Quarter $22 1/2 $16 7/8
Second Quarter $20 5/8 $18 1/16
Third Quarter $23 15/16 $18 9/16
Fourth Quarter $20 3/8 $17 5/8
1998
-------------------------------------
First Quarter $26 11/16 $21 1/4
Second Quarter $29 7/8 $24 1/4
Third Quarter $26 1/8 $15 1/2
Fourth Quarter $19 1/2 $12 1/2
At January 28, 2000, there were approximately 4,100 stockholders of record of
the Company's common stock. During each of the four quarters in 1999 and 1998,
the Company declared and paid cash dividends of $.0125 per common share and
$.01125 per Class B common share.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains selected consolidated financial information about
the Company. The selected financial data should be read in conjunction with the
consolidated financial statements, the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997 1996 1995
-------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS (1)
Revenues
Real estate properties $ 194,527 148,205 76,371 63,565 67,214
Real estate securities 107,315 58,273 39,540 25,194 15,358
Real estate loans 46,158 44,279 51,572 74,677 50,243
-------------- ----------- ---------- ---------- ----------
Total revenues $ 348,000 250,757 167,483 163,436 132,815
============== =========== ========== ========== ==========
EBITDA (2) $ 235,635 179,286 126,282 114,013 91,662
Interest expense 83,909 53,850 26,584 20,513 14,692
Net earnings 95,560 73,323 44,218 47,255 40,508
Per share amounts
Net earnings - basic $ 2.68 2.04 1.22 - -
Net earnings - diluted 2.63 2.02 1.22 - -
Cash dividends 0.05 0.05 0.0125 (3) - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
November 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION (1)
Total assets $ 2,283,001 1,743,805 1,023,337 752,968 652,400
Assets by business segment
Real estate properties 1,264,191 985,678 424,610 304,279 280,862
Real estate securities 628,750 443,564 319,517 263,842 163,292
Real estate loans 272,648 206,449 178,395 153,426 161,652
Total debt 1,403,401 1,017,199 391,171 354,406 252,256
Parent Company investment - - - 367,048 370,903
Stockholders' equity 710,332 618,979 569,088 - -
Stockholders' equity per share 20.18 17.39 15.75 - -
Shares outstanding
Common stock 25,142 24,852 25,144 - -
Class B common stock 10,058 10,748 10,984 - -
------------ ------------ ------------ ----------- ----------
Total 35,200 35,600 36,128 - -
============ ============ ============ =========== ==========
</TABLE>
- ------------
(1) LNR Property Corporation was formed in June 1997 and spun-off from Lennar
Corporation on October 31, 1997. The above information has been prepared
and presented to reflect the Company as a separate consolidated group for
the periods presented. Results of operations for periods prior to October
31, 1997 and historical cost bases of assets and liabilities have been
extracted from Lennar Corporation's financial statements.
(2) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and cash interest received on CMBS in excess of interest
income recognized.
(3) 1997 dividends reflect only the dividend declared and paid in the fourth
quarter.
ITEM 7. 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
THOSE ANTICIPATED BY 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) INTERNATIONAL, 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.
<PAGE>
OVERVIEW
LNR Property Corporation (the "Company") is engaged primarily in (i) acquiring,
developing, managing and repositioning commercial and multi-family residential
real estate properties, (ii) acquiring (often in partnership with financial
institutions or real estate funds) and managing portfolios of mortgage loans and
other real estate related assets, (iii) investing in unrated and non-investment
grade rated commercial mortgage-backed securities ("CMBS") as to which the
Company has the right to be special servicer, and (iv) making high yielding real
estate related loans and equity investments. For the following discussion, these
businesses are grouped as follows: (a) real estate properties, (b) real estate
securities and (c) real estate loans.
Prior to October 31, 1997, Lennar Corporation (the "Parent Company" or "Lennar")
transferred its real estate investment and management business to the Company.
On October 31, 1997, Lennar effected a spin-off of the Company (the "Spin-off")
to Lennar's stockholders by distributing to Lennar's stockholders one share of
the Company's stock for each share of Lennar stock they held.
The combined results of operations for the periods prior to November 1, 1997,
were 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
results of operations include revenues and expenses that were not historically
recorded as part of those businesses, but were primarily associated with them.
Management believes the assumptions underlying the Company's results of
operations are reasonable. However, those results may not reflect the results of
operations 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.
During 1998, the Company entered the business of owning, developing and
syndicating multi-family and senior housing residential rental communities,
which qualify for Low-Income Housing Tax Credits, by acquiring from Pacific
Harbor Capital, Inc., a wholly-owned subsidiary of PacifiCorp, controlling
interests in a group of entities, as well as certain direct partnership
interests, known as the Affordable Housing Group ("AHG"). As of November 30,
1999, AHG had ownership interests in approximately 8,300 multi-family and senior
housing rental communities (60 properties), many of which qualify for Low-Income
Housing Tax Credits under Federal tax laws. These tax credits can be used to
increase the Company's after-tax income or may be sold to others.
<PAGE>
The following is a summary of the Company's results of operations for the years
ended November 30, 1999, 1998 and 1997 after allocating among the core business
segments certain non-corporate general and administrative expenses. The
Company's business segment reporting has been modified effective with the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information" on
November 30, 1999. Prior year numbers have been restated to conform to the
modified business segment reporting.
(IN THOUSANDS) 1999 1998 1997
--------- --------- ---------
Revenues
Real estate properties $ 194,527 148,205 76,371
Real estate securities 107,315 58,273 39,540
Real estate loans 46,158 44,279 51,572
--------- --------- ---------
Total revenues 348,000 250,757 167,483
--------- --------- ---------
Operating expenses
Real estate properties 100,772 66,049 45,024
Real estate securities 8,183 3,476 1,619
Real estate loans 7,638 8,139 3,671
Corporate and other 16,598 11,697 18,097
--------- --------- ---------
Total operating expenses 133,191 89,361 68,411
--------- --------- ---------
Operating earnings
Real estate properties 93,755 82,156 31,347
Real estate securities 99,132 54,797 37,921
Real estate loans 38,520 36,140 47,901
Corporate and other (16,598) (11,697) (18,097)
--------- --------- ---------
Total operating earnings 214,809 161,396 99,072
--------- --------- ---------
Interest expense 83,909 53,850 26,584
Income tax expense 35,340 34,223 28,270
--------- --------- ---------
Net earnings $ 95,560 73,323 44,218
========= ========= =========
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1999 COMPARED TO YEAR ENDED NOVEMBER 30, 1998
Net earnings for the year ended November 30, 1999 were $95.6 million, or $2.68
per share ($2.63 per share diluted), a 30% increase over prior year net earnings
of $73.3 million, or $2.04 per share ($2.02 per share diluted). The increase in
earnings was primarily due to (i) higher gains on sales of real estate
properties, (ii) an increase in interest income and servicing fees derived from
the Company's growing CMBS portfolio, which continues to perform above original
expectations, (iii) increased net operating income from a larger portfolio of
stabilized properties and (iv) a lower effective tax rate due to the AHG
acquisition. These increases were partially offset by (i) lower earnings from
Lennar Land Partners ("LLP") due to fewer land sales in the fourth quarter of
1999, (ii) an increase in depreciation expense due to the growth of the
Company's real estate portfolio and (iii) an increase in interest expense due to
increased borrowing levels to finance purchases of real estate, CMBS and loans.
Operating earnings were generated from the Company's three main business lines
in the following proportions: 40% from real estate properties, 43% from real
estate securities and 17% from real estate loans. This compares with 47%, 32%
and 21%, respectively, for the prior year. The shift in these percentages from
1998 to 1999 is primarily the result of higher earnings from the Company's
growing CMBS portfolio.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Net earnings for the year ended November 30, 1998 were $73.3 million, or $2.04
per share ($2.02 per share diluted), a 66% increase over prior year net earnings
of $44.2 million, or $1.22 per share ($1.22 per share diluted). The increase in
earnings was primarily due to (i) an increase in the equity in earnings from LLP
which contributed $44.6 million to operating earnings in 1998, (ii) an increase
in interest income and servicing fees derived from the Company's growing CMBS
portfolio, (iii) higher gains on sales of real estate properties and (iv) a
lower effective tax rate due to the AHG acquisition. These increases were
partially offset by (i) lower earnings from older partnership investments which
were winding down and (ii) an increase in interest expense due to increased
borrowing levels to finance purchases of real estate, CMBS and the AHG
acquisition.
Operating earnings were generated from the Company's three main business lines
in the following proportions: 47% from real estate properties, 32% from real
estate securities and 21% from real estate loans. This compares with 27%, 32%
and 41%, respectively, for the prior year. The shift in these percentages from
1997 to 1998 is primarily the result of higher gains on property sales,
including the Company's share of joint venture gains and lower earnings from
older partnership investments in non-performing real estate loans.
<PAGE>
REAL ESTATE PROPERTIES
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Rental income $ 95,391 73,200 56,334
Gains on sales of real estate 67,187 26,818 18,076
Equity in earnings of partnerships 31,281 47,822 1,558
Management fees 668 365 403
---------- ---------- ----------
Total revenues 194,527 148,205 76,371
---------- ---------- ----------
Cost of rental operations 53,881 45,285 35,767
Other operating expenses 16,685 8,106 2,955
Minority interests 2,813 (356) 242
Depreciation 27,393 13,014 6,060
---------- ---------- ----------
Total operating expenses 100,772 66,049 45,024
---------- ---------- ----------
Operating earnings $ 93,755 82,156 31,347
========== ========== ==========
Balance sheet data:
Operating properties and equipment, net $ 982,230 712,419 228,598
Land held for investment 126,047 140,048 83,297
Investments in and advances to
partnerships 155,914 133,211 112,715
---------- ---------- ----------
Total segment assets $1,264,191 985,678 424,610
========== ========== ==========
</TABLE>
Real estate properties include apartments, office buildings, shopping centers,
hotels, industrial facilities and land that the Company acquires and develops,
redevelops or repositions. It also includes the Company's 50% interest in LLP, a
partnership engaged in the acquisition, development and sale of land. Total
revenues from real estate properties include rental income from operating
properties, gains on sales of those properties, equity in earnings of
partnerships that own and operate real estate properties and fees earned from
managing those partnerships. Operating expenses include the direct costs of
operating the real estate properties, the related depreciation and the overhead
associated with managing the properties and partnerships.
YEAR ENDED NOVEMBER 30, 1999 COMPARED TO YEAR ENDED NOVEMBER 30, 1998
Overall, operating earnings from real estate properties increased to $93.8
million for the year ended November 30, 1999 from $82.2 million in 1998.
Earnings were higher primarily due to higher gains on sales of real estate and
increased net operating income from stabilized properties, offset to some degree
by greater depreciation expense and other operating expenses. Continued strength
in the real estate economy in 1999 contributed to strong demand for, and high
prices achieved from, the sale of the Company's real estate properties.
Total rental income increased to $95.4 million for the year ended November 30,
1999 from $73.2 million in 1998. In 1999 and 1998, respectively, rental income
consisted of $42.7 million and $29.2 million from commercial properties (office,
retail and industrial), $14.1 million and $19.9 million from market-rate
multi-family residential properties, $20.7 million and $10.6 million from
low-income multi-family residential communities, and $17.9 million and $13.5
million from hotels and other properties. The increases were primarily due to
continued acquisitions of real estate properties and the inclusion of the AHG
properties for a full year in 1999. Overall average occupancy and rental rates
were similar in the two years for stabilized operating properties. Cost of
rental operations increased to $53.9 million for the year ended November 30,
1999 from $45.3 million in 1998 due to the inclusion of the AHG properties for a
full year in 1999 and acquisitions of other new properties.
<PAGE>
Net rental income increased by $13.6 million, or 49%, for the year ended
November 30, 1999 over the prior year. Of this increase, 68% was due to net
rental income increases from stabilized market-rate properties and the rest of
the increase was due to the affordable housing business.
The net book value of operating properties and equipment at November 30, 1999
and the net operating income for the year then ended with regard to various
types of property owned by the Company, were as follows:
<TABLE>
<CAPTION>
Net
Operating NOI as a %
Net Book Occupancy Income of Net Book
(IN THOUSANDS, EXCEPT PERCENTAGES) Value Rate (NOI) (1) Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Stabilized operating properties
Commercial $ 245,138 92% $ 34,110 14%
Multi-family 2,703 99% 387 14%
Hotel and other 33,347 64% 3,579 11%
-------------- -------------- --------------
281,188 38,076 14%
Under development or repositioning
Commercial 186,582 3,913
Multi-family 195,613 647
Hotel 47,785 -
-------------- --------------
429,980 4,560
-------------- --------------
Total market-rate operating properties 711,168 42,636
AHG multi-family properties
Stabilized (2) 158,075 96% 10,024 6%
Development 102,300 -
-------------- --------------
Total AHG multi-family properties 260,375 10,024
Furniture, fixtures and equipment 10,687 -
-------------- --------------
Total operating properties and equipment, net $ 982,230 $ 52,660
============== ==============
</TABLE>
- -------------------
(1) Annualized NOI for purposes of this schedule is rental income less cost of
rental operations before commissions, repairs and maintenance and
non-operating expenses.
(2) NOI and NOI as a percentage of net book value excludes the annualized
effect of tax credits and other related tax deductions; if included, NOI
and NOI as a percentage of net book value would have been $23,625 and 15%,
respectively, on a pre-tax basis.
As of November 30, 1999, approximately 40% of the Company's market-rate
operating properties, based on net book value, had reached stabilized occupancy
levels and were yielding in total 14% on net book cost. The decrease in NOI as a
percentage of net book value from 18% in 1998 to 14% in 1999 is primarily due to
the sale of four older, more mature stabilized multi-family properties in 1999,
which are discussed below, and the acquisition of several commercial properties
in 1999 where the Company believes it can further improve operating income. The
anticipated improvements in the earnings of the unstabilized market-rate
operating properties are not expected to be recognized until future periods.
Pre-tax operating margins for the AHG communities, which qualify for Low-Income
Housing Tax Credits, are generally lower than for market-rate rentals. However,
the Company receives its desired yield from these investments after adding in
the impact of lower income taxes as a result of the tax credits and other
related tax deductions.
During the year, the Company completed several real estate sales resulting in
gains of $67.2 million, compared with $26.8 million during 1998. The most
significant sale involved a $61 million cash sale of four stabilized
multi-family communities in Florida, consisting of 1,520 apartments.
<PAGE>
Although the Company sold real estate with carrying values of $182.5 million
during 1999 ($72.2 million of which relates to the syndication of certain AHG
communities), the total book value of operating properties and equipment and
land held for investment increased by $255.8 million during the year, primarily
as a result of approximately $483.4 million in acquisitions and property
development expenditures. A majority of those acquisitions were for operating
properties which were being developed or where the Company believed it could
improve net operating earnings and/or ultimate sales value, although there can
be no assurance that it will be successful.
Equity in earnings of partnerships decreased to $31.3 million for the year ended
November 30, 1999 from $47.8 million in 1998. The decrease was primarily due to
lower equity in earnings of real estate property partnerships, primarily LLP, as
a result of decreased sales of the partnerships' underlying real estate. The
Company's equity in LLP earnings was $31.6 million for the year ended 1999,
compared with $44.6 million in 1998.
Other operating expenses, which represent an allocation of salary, professional
and other administrative expenses, increased to $16.7 million for the year ended
November 30, 1999, compared to $8.1 million in 1998. These increases were due to
additional personnel and administrative costs necessary to support the growth in
the Company's real estate property portfolio.
Depreciation expense increased to $27.4 million for the year ended November 30,
1999 from $13.0 million in 1998. This increase was due to growth in the
operating property portfolio, with approximately 35% of the increase resulting
from the affordable housing business.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Overall, operating earnings from real estate properties increased to $82.2
million for the year ended November 30, 1998 from $31.3 million in 1997.
Earnings were higher primarily due to gains on sales of real estate properties,
higher equity in earnings of real estate partnerships and increases in net
rental income. The strong real estate economy and liquid capital markets,
particularly during the first three quarters of 1998, contributed to the strong
demand for, and high prices achieved from, the Company's real estate properties.
Total rental income increased to $73.2 million for the year ended November 30,
1998 from $56.3 million in 1997. In 1998 and 1997, respectively, rental income
consisted of $29.2 million and $27.0 million from commercial properties (office,
retail and industrial), $19.9 million and $19.5 million from market-rate
multi-family residential properties, $10.6 million and zero from low-income
multi-family residential communities, and $13.5 million and $9.8 million from
hotels and other properties. The increases were primarily due to acquisitions of
new properties in the latter part of 1997 and during 1998 and the AHG
acquisition. Overall average occupancy and rental rates were similar in the two
years for stabilized operating properties. Cost of rental operations increased
to $45.3 million for the year ended November 30, 1998 from $35.8 million in 1997
due to the AHG acquisition and acquisitions of other new properties. Net rental
income increased by 36% over the prior year as the net rental income increases
from newly acquired, developed or repositioned properties more than offset the
net rental income from the properties sold.
Results for the year ended November 30, 1998 include $4.9 million of net rental
income from operations on the AHG properties that closed during the year.
Pre-tax operating margins for properties, such as the AHG properties, that
qualify for Low-Income Housing Tax Credits are generally lower than for
market-rate rentals. However, the Company receives its desired yield from these
investments after adding in the impact of lower income taxes as a result of the
tax credits and other related tax deductions.
<PAGE>
The net book value of operating properties and equipment at November 30, 1998
and the net operating income for the year then ended with regard to various
types of property owned by the Company, were as follows:
<TABLE>
<CAPTION>
Net
Operating NOI as a %
Net Book Occupancy Income of Net Book
(IN THOUSANDS, EXCEPT PERCENTAGES) Value Rate (NOI) (1) Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Stabilized operating properties
Commercial $ 128,361 99% $ 19,317 15%
Multi-family 28,164 92% 7,586 27%
Hotel and other 32,815 71% 6,249 19%
-------------- -------------- --------------
189,340 33,152 18%
Under development or repositioning
Commercial 144,653 2,688
Multi-family 111,811 5,509
Hotel 31,872 -
-------------- --------------
288,336 8,197
-------------- --------------
Total market-rate operating properties 477,676 41,349
AHG multi-family properties
Stabilized (2) 174,120 96% 8,220 5%
Development 55,009 -
-------------- --------------
Total AHG multi-family properties 229,129 8,220
Furniture, fixtures and equipment 5,614 -
-------------- --------------
Total operating properties and equipment, net $ 712,419 $ 49,569
============== ==============
</TABLE>
- ---------------------
(1) Annualized NOI for purposes of this schedule is rental income less cost of
rental operations before commissions, repairs and maintenance and
non-operating expenses.
(2) NOI and NOI as a percentage of net book value excludes the annualized
effect of tax credits and other related tax deductions; if included, NOI
and NOI as a percentage of net book value would have been $20,591 and 12%,
respectively, on a pre-tax basis.
As of November 30, 1998, approximately 40% of the Company's market-rate
operating properties, based on net book value, had reached stabilized occupancy
levels and were yielding in total 18% on net book cost.
Although the Company sold real estate with carrying values of $48.4 million
during fiscal 1998, the total book value of operating properties and equipment
and land held for investment increased by $540.6 million over the prior year,
primarily as a result of the AHG acquisition and other asset additions. The AHG
acquisition and subsequent capital spending increased operating properties by
approximately $229.3 million. A majority of the other asset purchases were
operating properties which are being developed or where the Company believes it
can improve net operating earnings and cash flows as well as ultimate sales
value, although there can be no assurance that it will be successful.
Equity in earnings of partnerships increased to $47.8 million for the year ended
November 30, 1998 from $1.6 million in 1997. This increase was almost entirely
attributable to the results of LLP, which contributed $44.6 million to equity in
earnings in 1998.
Other operating expenses increased to $8.1 million for 1998 from $3.0 million
for 1997 primarily due to the increase in personnel and administrative costs
associated with increasing the real estate portfolio, which grew 132% during
1998.
<PAGE>
Depreciation expense increased to $13.0 million for the year ended November 30,
1998 from $6.1 million in 1997. This increase is directly attributable to the
increase in the Company's operating property portfolio, 47% of which is related
to the acquisition of the affordable housing business.
REAL ESTATE SECURITIES
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest income $ 87,590 56,160 29,919
Equity in earnings (losses) of partnerships 4,077 (5,450) --
Gains on sales of investment securities 6,056 1,386 5,359
Management and servicing fees 9,592 6,177 4,262
-------- -------- --------
Total revenues 107,315 58,273 39,540
-------- -------- --------
Operating expenses 7,502 3,476 1,619
Minority interest 681 -- --
-------- -------- --------
Total operating expenses 8,183 3,476 1,619
-------- -------- --------
Operating earnings $ 99,132 54,797 37,921
======== ======== ========
Balance sheet data:
Investment securities $510,920 434,157 304,660
Investments in and advances to partnerships 90,148 -- --
Other investments 27,682 9,407 14,857
-------- -------- --------
Total segment assets $628,750 443,564 319,517
======== ======== ========
</TABLE>
Real estate securities include unrated and non-investment grade rated
subordinated CMBS which are collateralized by pools of mortgage loans on
commercial and multi-family residential real estate properties. It also includes
the Company's investment in a partnership that invests in CMBS, as well as
several small investments in entities in related businesses. Total revenues from
real estate securities include interest income, equity in the earnings of the
partnership that owns real estate securities, gains on sales of those
securities, servicing fees from acting as special servicer for CMBS transactions
and fees earned from managing the partnership. Operating expenses include the
overhead associated with managing the investments and partnership and costs of
the special servicing responsibilities.
YEAR ENDED NOVEMBER 30, 1999 COMPARED TO YEAR ENDED NOVEMBER 30, 1998
Overall operating earnings from real estate securities increased to $99.1
million for the year ended November 30, 1999 from $54.8 million in 1998.
Earnings were higher primarily due to the growth of the Company's CMBS portfolio
to a book value of $510.9 million (face amount of $1.2 billion) at November 30,
1999 from a book value of $434.2 million (face amount of $1.0 billion) at
November 30, 1998 and greater recognition of earnings due to actual CMBS
performance exceeding original expectations.
<PAGE>
In recording CMBS interest income, the Company records interest received plus
the amortization of the difference between the carrying value and the face
amount of the securities to achieve a level yield. To date, this has resulted in
less recognition of interest income than interest received. The excess interest
received is applied to reduce the Company's investment. The Company's initial
and ongoing estimates of its returns on CMBS investments are based on a number
of assumptions that are subject to certain business and economic conditions, the
most significant of which is the timing and magnitude of credit losses on the
underlying mortgages.
Actual loss experience to date, particularly for older transactions (3 to 6
years in age) is significantly lower than originally underwritten by the
Company. Therefore, changes to original estimated yields have resulted, and the
Company believes should continue to result, in improved earnings from these
transactions. The Company believes these improvements resulted from (i) its
having conservatively underwritten these transactions, (ii) its loan workout and
real estate expertise and (iii) a strong real estate economy. However, the
positive experience on these older transactions will not necessarily translate
into yield improvements on newer investments.
During the year ended November 30, 1999, the Company acquired $421.0 million
face amount of CMBS for $192.8 million, increasing the book value of its
portfolio to $510.9 million from $434.2 million at November 30, 1998. The
following is a summary of the CMBS portfolio held by the Company at November 30,
1999:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average % of Average Average
Face Interest Face Cash Book
Amount Rate Book Value Amount Yield (1) Yield (2)
-------------- ------------ --------------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
BB rated or above $240,053 7.22% $185,071 77.1% 9.5% 12.4%
B rated 268,321 6.62% 159,520 59.5% 11.1% 12.4%
Unrated 712,298 7.32% 167,828 23.6% 29.9% 23.7%
Unrealized losses on
securities and other - (1,499)
-------------- ---------------
Total CMBS
portfolio (3) $1,220,672 7.20% $510,920 41.9% 16.7% 16.1%
============== ===============
</TABLE>
- --------------------
(1) Cash yield is determined by annualizing the actual cash received during the
month of November 1999, and dividing the result by the book value at
November 30, 1999.
(2) Book yield is determined by annualizing the interest income for the month
of November 1999, and dividing the result by the book value at November 30,
1999.
(3) This table excludes CMBS owned through non-consolidated partnerships.
Equity in earnings of partnerships primarily represents the Company's
participation in a venture, Madison Square Company LLC ("Madison"), which was
formed in April 1999. The Company's investment in Madison continued to increase
as the venture grew its CMBS portfolio throughout 1999. Since formation, the
venture has acquired approximately $1.7 billion of assets. The Company's
investment in the venture as of the end of the year was approximately $90
million out of a total commitment by the Company of $125 million. In addition to
its investment in the venture the Company also maintains a significant ongoing
role in the venture, for which it earns fees, both as the special servicer for
the purchased CMBS transactions and as the provider of management services for
the venture. Madison contributed approximately $6.6 million of equity in
earnings of partnerships to the real estate securities line of business for the
year ended November 30, 1999.
<PAGE>
The $6.1 million of gains on sales of investment securities in 1999 represents
the sale of 200,000 shares of common stock in Bank United Corporation ("BNKU").
Early in 1999, the Company received approximately 617,000 shares of BNKU stock
in the form of a distribution from one of its partnerships. At November 30,
1999, the Company had a remaining investment of approximately 417,000 shares of
BNKU stock which had a market value in excess of book cost on that date of
approximately $13.2 million.
Management and servicing fees increased to $9.6 million from $6.2 million in
1998. These fees increased because of an increased number of CMBS mortgage pools
(55 at November 30, 1999 versus 44 at November 30, 1998) for which the Company
acts as special servicer.
Operating expenses increased to $7.5 million in 1999 from $3.5 million for the
year ended November 30, 1998 primarily due to increases in personnel and
out-of-pocket expenses directly related to the growth of the CMBS business.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Overall operating earnings from real estate securities increased to $54.8
million for the year ended November 30, 1998 from $37.9 million in 1997.
Earnings were higher primarily due to the growth of the Company's CMBS portfolio
and greater recognition of earnings due to actual CMBS performance exceeding
original expectations.
During the twelve months ended November 30, 1998, the Company purchased $308.0
million face amount of securities for approximately $159.8 million, increasing
the book value of its portfolio to $434.2 million from $304.7 million at
November 30, 1997. The following is a summary of the CMBS portfolio held by the
Company at November 30, 1998:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average % of Average Average
Face Interest Face Cash Book
Amount Rate Book Value Amount Yield (1) Yield (2)
-------------- ------------ --------------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
BB rated or above $ 120,275 8.40% $ 103,134 85.7% 9.9% 13.7%
B rated 219,927 7.26% 156,191 71.0% 10.2% 13.0%
Unrated 644,115 6.86% 158,606 24.6% 29.0% 23.2%
Unrealized gains on
securities and other - 16,226
------------- ---------------
Total CMBS
portfolio $ 984,317 7.11% $ 434,157 44.1% 17.3% 17.0%
============= ===============
</TABLE>
- -----------------
(1) Cash yield is determined by annualizing the actual cash received during the
month ended November 30, 1998, and dividing the result by the book value at
November 30, 1998.
(2) Book yield is determined by annualizing the interest income for the month of
November 30, 1998, and dividing the result by the book value at November 30,
1998.
Equity in losses of partnerships of $5.5 million represents an adjustment in
basis of one of the Company's non-CMBS investments.
Gains on sales of investment securities decreased from the prior year. In 1997
the Company recognized $5.4 million in gains from sales of CMBS primarily as a
result of a Re-REMIC securitization transaction. The Re-REMIC transaction was
the securitization of the cash flows from pre-existing CMBS bonds. The Company
had no comparable transaction in 1998.
<PAGE>
Management and servicing fees increased to $6.2 million from $4.3 million in
1997. These fees increased because of an increased number of CMBS mortgage pools
(44 at November 30, 1998 versus 36 at November 30, 1997) for which the Company
acts as special servicer.
Operating expenses increased to $3.5 million in 1998 from $1.6 million for the
year ended November 30, 1997 primarily due to increases in personnel and
out-of-pocket expenses related to the growth of the CMBS business.
REAL ESTATE LOANS
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest income $ 18,874 20,690 11,527
Equity in earnings of partnerships 21,700 19,976 28,591
Management fees 5,080 2,718 8,720
Other income 504 895 2,734
-------- -------- --------
Total revenues 46,158 44,279 51,572
-------- -------- --------
Operating expenses 5,492 5,961 3,671
Minority interest 2,146 2,178 --
-------- -------- --------
Total operating expenses 7,638 8,139 3,671
-------- -------- --------
Operating earnings $ 38,520 36,140 47,901
======== ======== ========
Balance sheet data:
Mortgage loans, net $152,827 97,855 86,849
Investments in and advances to partnerships 69,830 61,279 46,644
Other investments 49,991 47,315 44,902
-------- -------- --------
Total segment assets $272,648 206,449 178,395
======== ======== ========
</TABLE>
Real estate loans include the Company's domestic and foreign discount loan
portfolio investments, owned primarily through partnerships, and related loan
workout operations, as well as its direct lending activities in unique
high yielding situations. Total revenues include interest income, equity in
earnings of partnerships and management fees earned from those partnerships.
Operating expenses include the overhead associated with servicing the loans and
managing the partnerships.
YEAR ENDED NOVEMBER 30, 1999 COMPARED TO YEAR ENDED NOVEMBER 30, 1998
Operating earnings from real estate loans increased to $38.5 million for the
year ended November 30, 1999 from $36.1 million in 1998.
Interest income declined to $18.9 million for the year ended November 30, 1999
from $20.7 million in 1998. The decrease was primarily due to the inclusion in
1998 of approximately $3.0 million of interest income on a $105 million
participation in a $255 million first mortgage loan collateralized by a hotel
portfolio that the Company had acquired late in the third quarter and
subsequently sold at par in the fourth quarter of 1998. Additionally, during the
fourth quarter, the Company began investing in structured junior loan
participations in high-quality short- to medium-term variable rate first
mortgage real estate loans. As of November 30, 1999, the Company had four of
these investments funded with a net book value of $75.2 million. These
investments contributed just under $1.0 million to earnings in the fourth
quarter of 1999 and are expected to have a more significant impact on earnings
in 2000.
<PAGE>
For the year ended November 30, 1999 equity in earnings of partnerships
increased to $21.7 million from $20.0 million in 1998. Most of the increase is
related to domestic discount loan portfolio resolutions. The Company anticipates
that the earnings from the domestic discount loan portfolios will be much less
significant in future periods as the majority of the assets remaining in the
partnerships were resolved in 1999.
As of the end of the year, the Company had invested in 15 portfolios of
non-performing real estate loans in Japan through partnerships with a total net
investment of approximately $49.6 million at November 30, 1999. As a result of
its loan workout activities, the Company has received cash equity distributions
from its Japan investments of approximately $29.6 million during 1999, bringing
the inception-to-date distributions (including return of capital) to
approximately $32.7 million. The majority of the funds were utilized to invest
in additional Japan portfolios.
At this point, there can be no assurance that the Company's investments in
non-performing real estate loans in Japan will achieve the same level of results
as the distressed U.S. portfolio business has.
Management fees increased to $5.1 million for the year ended November 30, 1999
from $2.7 million in 1998, due to increased disposition fees on the domestic
loan portfolio resolutions.
Operating expenses decreased to $5.5 million for the year ended November 30,
1999 from $6.0 million in 1998, primarily due to the decrease in expenses
associated with managing the diminishing domestic discount loan portfolios,
offset somewhat by the increased general and administrative expenses to support
the Japan operations.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Operating earnings from real estate loans decreased to $36.1 million for the
year ended November 30, 1998 from $47.9 million in 1997.
Interest income grew to $20.7 million for the year ended November 30, 1998 from
$11.5 million in 1997. The increase was primarily due to new investments in
mortgage loans as the average balance of mortgage loans outstanding increased
over 1997. Interest income for 1998 included approximately $3.0 million in
interest income and fees on the $105 million participation in a $255 million
first mortgage loan collateralized by a hotel portfolio that was purchased in
the third quarter and sold at par during the fourth quarter.
For the year ended November 30, 1998, equity in earnings of partnerships
decreased to $20.0 million from $28.6 million in 1997. Overall, the Company's
earnings from the domestic discount loan portfolios declined as the assets in
the partnerships have been resolved and sold or paid down.
During 1998, the Company entered into several partnerships to acquire portfolios
of non-performing commercial mortgage loans in Japan, where it has opened an
office to oversee its loan workout and real estate asset management operations.
As of November 30, 1998, the total investment in these partnerships was $28.1
million.
Management fees decreased to $2.7 million in 1998 from $8.7 million in 1997 due
to a reduction in assets and earnings from distressed U.S. portfolio
partnerships. These fees are typically based on the amount of assets managed,
the performance of assets or partnerships, or both and may continue to decline
as the distressed U.S. portfolios mature.
<PAGE>
CORPORATE, OTHER, INTEREST AND INCOME TAX EXPENSES
YEAR ENDED NOVEMBER 30, 1999 COMPARED TO YEAR ENDED NOVEMBER 30, 1998
Corporate and other operating expenses increased to $16.6 million in 1999 from
$11.7 million in 1998 primarily due to overall Company growth.
Interest expense increased to $83.9 million in 1999 from $53.9 million in 1998.
This increase was primarily attributable to the Company's increased borrowing
levels. The Company's mortgage notes and other debts payable increased to $1,403
million at November 30, 1999 from $1,017 million at November 30, 1998, as the
Company increased its investments in all three of its core business lines. The
increase in interest expense was also due to an increase in interest rates on
new debt, and to some extent, an increase in the indices on variable rate debt
due to rising interest rates. See further detail below under "Financial
Condition, Liquidity and Capital Resources."
Income tax expense increased to $35.3 million in 1999 from $34.2 million in 1998
due to an increase in operating earnings. However, the effective tax rate
decreased to 27.0% in 1999 from 31.8% in 1998 as a direct result of tax credits
and other related tax deductions from the affordable housing business acquired
during 1998.
YEAR ENDED NOVEMBER 30, 1998 COMPARED TO YEAR ENDED NOVEMBER 30, 1997
Corporate and other operating expenses decreased to $11.7 million in 1998 from
$18.1 million in 1997 primarily due to Spin-off expenses of approximately $6.2
million incurred during 1997.
Interest expense increased to $53.9 million in 1998 from $26.6 million in 1997.
This increase was primarily attributable to increased borrowing levels. The
Company's debt increased to $1,017 million from $391 million in 1997 as it
increased investments in all three of its core business lines.
Income tax expense increased to $34.2 million in 1998 from $28.3 million in 1997
due to an increase in operating earnings. However, the effective tax rate
decreased to 31.8% in 1998 from 39.0% in 1997 as a direct result of tax credits
and other related tax deductions from the affordable housing business acquired
during 1998.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $14.6 million of cash in 1999 compared with $31.9
million in 1998. The decrease in cash flow from operating activities during 1999
is primarily due to an increase in restricted cash of $63.7 million, resulting
from funds held in trust for asset purchases and development, and a decrease in
cash flow from net earnings of $16.6 million, after adjusting for the effects of
non-cash items, whose contribution to cash flow is reflected in cash from
investing activities below. These decreases in cash flow from operating
activities were offset to some extent by $26.9 million of cash flow provided
from a decrease in mortgage loans held for sale, primarily as a result of higher
principal payments received in 1999, and an increase in accounts payable and
accrued liabilities of $34.1 million.
The Company used $368.5 million in investing activities in 1999 compared with
$460.8 million in 1998. Although the Company increased its investment in
operating properties and equipment by $136.9 million, in partnerships by $76.3
million, and in loans held for investment by $70.7 million, these increases were
offset primarily by (1) $134.9 million more in cash provided by sales of
operating properties, land and AHG interests, (2) a $69.6 million decline in
purchases of land, (3) $41.4 million more in proceeds from principal collections
on and sales of investment securities, (4) a $32.3 million decline in new
purchases of CMBS without seller financing and (5) $80.5 million of cash used in
the prior year for the acquisition of AHG.
Financing activities provided $334.1 million of cash in 1999 compared with
$423.3 million in 1998. The overall decrease in cash flow provided by financing
activities was primarily due to pay-downs under repurchase agreements and
revolving credit lines and mortgage notes and other debts payable of $261.6
million, offset by $159.7 million of new borrowing activity under the Company's
mortgage notes and other debts payable.
The Company has various secured revolving lines of credit with an aggregate
commitment of $345.0 million of which $252.9 million was outstanding at November
30, 1999. The lines are collateralized by CMBS and mortgage loans. The lines
mature through September 2003. The Company also has a $200 million unsecured
revolving credit agreement which, if the one-year extension option is exercised,
expires on December 31, 2001. At November 30, 1999, approximately $2.0 million
was outstanding under this line.
The Company has entered into two reverse repurchase obligation facilities
("repos") through which it finances selected CMBS. The first facility had $106.5
million outstanding at November 30, 1999 and is required to be reduced to $79.9
million at December 2001, $53.3 million at December 2002, $26.6 million at June
2003 and paid in full in December 2003. The second facility had a total
commitment of $50.0 million, of which $16.8 million was outstanding at November
30, 1999. This facility matures in June 2000 but at that time gets converted to
a revolving line of credit available to finance mortgage loans, with a maturity
date of September 2003.
Additionally, the Company has received seller financing in the form of term
repos for five specific CMBS transactions. These agreements had an outstanding
balance of $89.0 million at November 30, 1999 and expire through February 2002.
Each of these repo agreements contain provisions which may require the Company
to repay amounts or post additional collateral prior to the scheduled maturity
dates if the market value of the bonds which collateralize them significantly
decline.
Approximately 61% of the Company's existing indebtedness bears interest at
variable rates. However, most of the Company's investments generate interest or
rental income at essentially fixed rates. Therefore, a material increase in
interest rates could increase the Company's interest expense without a
corresponding increase in income.
<PAGE>
During the first quarter of 1999, the Company issued $100 million of long-term
unsecured senior subordinated notes, bringing the Company's total unsecured
senior subordinated notes to $300 million, or 21% of the Company's total
outstanding debt balance. The $100 million notes bear interest at a fixed rate
of 10.5% and have a 10-year term. The Company used the proceeds from the
issuance to pay down short-term floating rate debt and for general corporate
purposes.
The Company has scheduled maturities on existing debt of $247.3 million in 2000,
assuming extensions which are exercisable solely at the Company's option.
Subsequent to year end, the Company obtained commitments to extend the
maturities of $37.9 million of this debt through September 2003. The Company's
ability to make scheduled debt payments of principal or interest on, or to
refinance, this indebtedness depends on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive and other
factors beyond the Company's control. The Company believes its availability
under existing credit facilities, operating cash flow, unencumbered assets, and
its ability to obtain new borrowings and/or raise new capital, should provide
the funds necessary to enable it to meet its working capital requirements, debt
service and maturities, and short- and long-term needs based upon currently
anticipated levels of growth.
In December 1999, the Company's Board of Directors authorized the repurchase of
up to an additional 3,500,000 shares of its common stock. These shares were in
addition to the 1998 authorization to repurchase 2,000,000 shares. For the years
ended November 30, 1999 and 1998, the Company purchased and retired 500,000 and
550,900 shares, respectively, under these programs. During the quarter ended
February 29, 2000, the Company purchased and retired an additional 1,893,200
shares, bringing the inception-to-date total under the Company's buy-back
program to 2,944,100 shares.
<PAGE>
YEAR 2000
The Company has successfully transitioned into the Year 2000 ("Y2K"). It did not
encounter significant problems due to the fact that many computer programs had
been written with date fields using two digits, instead of four and then might
have treated the year "00" as being earlier than the year "99."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards regarding derivative instruments
and hedging activities. SFAS No. 133 requires that all derivative instruments be
recorded as either an asset or liability on the balance sheet at their fair
value, and that changes in the fair value be recognized currently in earnings
unless specified criteria are met. This statement was effective for fiscal
quarters of fiscal years beginning after June 15, 1999. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" extended the effective date to all
fiscal quarters of fiscal years beginning after June 15, 2000. Management is
still in the process of assessing the impact of implementing SFAS No. 133 on the
Company's results of operations and financial position.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of LNR Property Corporation:
We have audited the accompanying consolidated balance sheets of LNR Property
Corporation and subsidiaries (the "Company") as of November 30, 1999 and 1998
and the related consolidated statements of earnings, comprehensive earnings,
cash flows and Parent Company investment and stockholders' equity for each of
the three years in the period ended November 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LNR Property
Corporation and subsidiaries at November 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended November 30, 1999, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, effective
December 1, 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
January 20, 2000
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of November 30,
-------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998
---------- ----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 8,587 28,417
Restricted cash 95,682 56,264
Investment securities 510,920 434,157
Mortgage loans, net 152,827 97,855
Operating properties and equipment, net 982,230 712,419
Land held for investment 126,047 140,048
Investments in and advances to partnerships 315,892 194,490
Deferred income taxes 7,936 12,401
Other assets 82,880 67,754
---------- ----------
Total assets $2,283,001 1,743,805
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 39,780 16,173
Accrued expenses and other liabilities 91,562 56,894
Mortgage notes and other debts payable 1,403,401 1,017,199
---------- ----------
Total liabilities 1,534,743 1,090,266
---------- ----------
Minority interests 37,926 34,560
---------- ----------
Commitments and contingent liabilities (Note 14)
Stockholders' equity
Common stock, $.10 par value, 150,000 shares authorized, 25,142 and 24,852 shares
issued and outstanding in 1999 and 1998, respectively 2,514 2,485
Class B common stock, $.10 par value, 40,000 shares authorized, 10,058 and 10,748
shares issued and outstanding in 1999 and 1998, respectively 1,006 1,075
Additional paid-in capital 529,042 536,259
Retained earnings 163,974 71,452
Accumulated other comprehensive earnings 13,796 7,708
---------- ----------
Total stockholders' equity 710,332 618,979
---------- ----------
Total liabilities and stockholders' equity $2,283,001 1,743,805
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended November 30,
----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
Rental income $ 95,391 73,200 56,334
Equity in earnings of partnerships 57,058 62,348 30,149
Interest income 106,464 76,850 41,446
Gains on sales of:
Real estate 67,187 26,818 18,076
Investment securities 6,056 1,386 5,359
Management and servicing fees 15,340 9,260 13,385
Other, net 504 895 2,734
-------- -------- --------
Total revenues 348,000 250,757 167,483
-------- -------- --------
Costs and expenses
Cost of rental operations 53,881 45,285 35,767
General and administrative 46,277 29,240 26,342
Depreciation 27,393 13,014 6,060
Minority interests 5,640 1,822 242
-------- -------- --------
Total costs and expenses 133,191 89,361 68,411
-------- -------- --------
Operating earnings 214,809 161,396 99,072
Interest expense 83,909 53,850 26,584
-------- -------- --------
Earnings before income taxes 130,900 107,546 72,488
Income taxes 35,340 34,223 28,270
-------- -------- --------
Net earnings $ 95,560 73,323 44,218
======== ======== ========
Net earnings per share:
Basic $ 2.68 2.04 1.22
======== ======== ========
Diluted $ 2.63 2.02 1.22
======== ======== ========
Weighted average common and common equivalent shares outstanding:
Basic 35,626 36,006 36,128
======== ======== ========
Diluted 36,279 36,343 36,298
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
Years Ended November 30,
----------------------------------------
(IN THOUSANDS) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net earnings $ 95,560 73,323 44,218
Other comprehensive earnings, net of tax:
Unrealized gain (loss) on available-for-sale securities, net and other 10,551 (12,877) 12,657
Less: reclassification adjustment for (gains) losses included in
net earnings (4,463) 28 --
--------- --------- ---------
Other comprehensive earnings 6,088 (12,849) 12,657
--------- --------- ---------
Comprehensive earnings $ 101,648 60,474 56,875
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARENT COMPANY INVESTMENT
AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended November 30,
---------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
PARENT COMPANY INVESTMENT
Beginning balance $ -- -- 367,048
Net earnings through October 31, 1997 -- -- 43,848
Advances from Parent Company -- -- 145,617
Change in unrealized gain on available-for-sale securities, net -- -- 10,874
Spin-off of LNR from Lennar Corporation -- -- (567,387)
--------- --------- ---------
Balance at November 30 -- -- --
--------- --------- ---------
COMMON STOCK
Beginning balance 2,485 2,515 --
Spin-off of LNR from Lennar Corporation -- -- 3,613
Purchase and retirement of treasury stock (50) (55) --
Stock option exercises 9 2 --
Stock issued by employee stock ownership plan 1 -- --
Conversion of common stock (to) from Class B common stock 69 23 (1,098)
--------- --------- ---------
Balance at November 30 2,514 2,485 2,515
--------- --------- ---------
CLASS B COMMON STOCK
Beginning balance 1,075 1,098 --
Conversion of common stock to (from) Class B common stock (69) (23) 1,098
--------- --------- ---------
Balance at November 30 1,006 1,075 1,098
--------- --------- ---------
ADDITIONAL PAID-IN CAPITAL
Beginning balance 536,259 544,548 --
Spin-off of LNR from Lennar Corporation -- -- 545,000
Purchase and retirement of treasury stock (7,515) (8,299) --
Stock option exercises 135 10 --
Stock issued by employee stock ownership plan 163 -- --
Cash dividends - common stock -- -- (452)
--------- --------- ---------
Balance at November 30 529,042 536,259 544,548
--------- --------- ---------
RETAINED EARNINGS
Beginning balance 71,452 370 --
Net earnings (for 1997 - November 1 through November 30) 95,560 73,323 370
Purchase and retirement of treasury stock (1,310) (495) --
Cash dividends - common stock (1,268) (1,260) --
Cash dividends - Class B common stock (460) (486) --
--------- --------- ---------
Balance at November 30 163,974 71,452 370
--------- --------- ---------
ACCUMULATED OTHER COMPREHENSIVE EARNINGS
Beginning balance 7,708 20,557 --
Spin-off of LNR from Lennar Corporation -- -- 18,774
Change in accumulated other comprehensive earnings, net
(for 1997 - November 1 through November 30) 6,088 (12,849) 1,783
--------- --------- ---------
Balance at November 30 13,796 7,708 20,557
--------- --------- ---------
Total Parent Company investment and stockholders' equity $ 710,332 618,979 569,088
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended November 30,
---------------------------------------
(IN THOUSANDS) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 95,560 73,323 44,218
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation 27,393 13,014 6,060
Minority interests 5,640 1,822 242
Amortization of discount on mortgage loans, CMBS and other (24,232) (6,932) (91)
Gains on sales of real estate (67,187) (26,818) (18,076)
Equity in earnings of partnerships (57,058) (62,348) (30,149)
Gains on sales of investment securities (6,056) (1,386) (5,359)
Changes in assets and liabilities:
(Increase) decrease in restricted cash (39,647) 24,076 (10,182)
Increase in other assets and deferred taxes (1,292) (3,311) (39,897)
(Increase) decrease in mortgage loans held for sale 15,950 (10,967) (14,910)
Increase in accounts payable and accrued liabilities 65,486 31,392 11,882
--------- --------- ---------
Net cash provided by (used in) operating activities 14,557 31,865 (56,262)
--------- --------- ---------
Cash flows from investing activities:
Operating properties and equipment
Additions (453,279) (316,425) (79,830)
Sales 123,081 45,153 71,664
Land held for investment
Additions (30,124) (99,695) (21,435)
Sales 50,579 31,825 10,733
Investments in and advances to partnerships (125,594) (49,256) (5,342)
Proceeds from the sale of partnership interest 8,023 -- --
Distributions from partnerships 95,593 93,583 79,693
Purchases of other investments -- -- (21,857)
Purchase of mortgage loans held for investment (76,740) (6,076) (349)
Proceeds from mortgage loans held for investment 7,774 6,336 1,116
Purchase of investment securities (73,762) (106,041) (96,386)
Proceeds from principal collections on and sales of investment securities 49,832 8,387 110,714
Interest received on CMBS in excess of income recognized 17,834 11,906 21,241
Acquisition of AHG, net of cash acquired -- (80,538) --
Syndication of AHG properties 38,260 -- --
--------- --------- ---------
Net cash provided by (used in) investing activities (368,523) (460,841) 69,962
--------- --------- ---------
Cash flows from financing activities:
Proceeds from stock option exercises 145 -- --
Purchase and retirement of treasury stock (8,875) (8,849) --
Payment of dividends (1,728) (1,746) (452)
Net (repayments) borrowings under repurchase agreements and revolving credit lines (50,559) 130,838 240
Mortgage notes and other debts payable
Proceeds from borrowings 482,613 322,902 35,377
Principal payments (87,460) (7,285) (17,101)
Repayment of unsecured note payable to Lennar Corporation -- (12,526) --
--------- --------- ---------
Net cash provided by financing activities 334,136 423,334 18,064
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (19,830) (5,642) 31,764
Cash and cash equivalents at beginning of year 28,417 34,059 2,295
--------- --------- ---------
Cash and cash equivalents at end of year $ 8,587 28,417 34,059
========= ========= =========
CONTINUED
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Years Ended November 30,
---------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 83,494 48,611 25,341
Cash paid for taxes $ 21,286 29,349 3,660
Supplemental disclosures of non-cash investing and financing activities:
Purchases of investment securities financed by seller $ 119,136 53,412 50,280
Purchase of a mortgage loan financed by revolving credit line $ -- -- 33,092
Investment in partnership $ 20,788 -- --
Spin-off of LNR from Lennar Corporation:
Increase in Lennar Corporation's investment due to transfer of assets
and liabilities from Lennar Corporation, prior to Spin-off $ -- -- 156,491
Supplemental disclosure of non-cash transfers:
Transfer of land held for investment to operating properties $ 24,564 15,484 --
Transfer of operating properties to land held for investment $ 20,871 -- --
Transfer of operating properties to investment in partnership $ 17,962 -- --
Transfer of Lennar Corporation's investment to additional paid-in capital $ -- -- 545,000
Purchase of interests in the Affordable Housing Group:
Restricted cash and other assets $ -- 26,246 --
Operating properties -- 187,626 --
Investments in and advances to partnerships -- 10,749 --
Accounts payable, accrued expenses and other liabilities -- (5,465) --
Mortgage notes and other debts payable -- (138,618) --
--------- --------- ---------
Cash paid $ -- 80,538 --
========= ========= =========
Syndication of AHG properties:
Proceeds from sale of partnership interests $ 38,260 -- --
Basis in partnership interests (30,033) -- --
--------- --------- ---------
Net gain reflected in gains on sales of real estate $ 8,227 -- --
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
1. SUMMARY OF ORGANIZATION, BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
LNR Property Corporation ("LNR") and subsidiaries (collectively the
"Company"), a Delaware corporation, was formed in June 1997. The Company
operates a real estate investment and management business which engages
principally in (i) acquiring, developing, managing and repositioning commercial
and multi-family residential real estate properties, (ii) acquiring (often in
partnership with financial institutions and real estate funds) and managing
portfolios of mortgage loans and other real estate related assets, (iii)
investing in unrated and non-investment grade rated commercial mortgage-backed
securities ("CMBS") as to which the Company has the right to be the special
servicer (i.e., to oversee workouts of underperforming and non-performing loans)
and (iv) making high yielding real estate related loans and equity investments.
SPIN-OFF TRANSACTION
Prior to October 31, 1997, Lennar Corporation (the "Parent Company" or
"Lennar") transferred its real estate investment and management business to the
Company. On October 31, 1997, Lennar effected a spin-off of the Company to
Lennar's stockholders (the "Spin-off") by distributing to Lennar's stockholders
one share of LNR stock for each share of Lennar stock they held.
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. The assets, liabilities and
results of operations of entities (both corporations and partnerships) in which
the Company has a controlling interest have been consolidated. The ownership
interests of noncontrolling owners in such entities are reflected as minority
interests. The Company's investments in partnerships (and similar entities) in
which less than a controlling interest is held are accounted for by the equity
method (when significant influence can be exerted by the Company), or the cost
method. All significant intercompany transactions and balances have been
eliminated.
For the period prior to the Spin-off, the operating results of the Company
are presented as if the Company had been a separate combined group. Expenses
which related both to the businesses operated by the Company and the businesses
retained by Lennar 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 consolidated 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 Lennar during the periods to which those
financial statements relate.
The Company began accumulating retained earnings immediately following the
Spin-off on October 31, 1997.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
NET EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" beginning in the first quarter
of 1998. The statement requires that earnings per share be calculated and
presented on a basic and diluted basis. Net earnings per share for 1997 have
been restated to conform with SFAS No. 128.
Basic net earnings per share is computed by dividing the Company's net
earnings by the weighted average number of shares outstanding during the period.
Diluted net earnings per share is computed by dividing the Company's net
earnings by the weighted average number of shares outstanding and the dilutive
impact of common stock equivalents, primarily stock options, during the period.
The dilutive impact of common stock equivalents is determined by applying the
treasury stock method.
COMPREHENSIVE EARNINGS
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" beginning in the first quarter of 1999. This statement
establishes standards for reporting and display of comprehensive earnings in a
full set of general-purpose financial statements. This statement requires that
an entity classify all components of other comprehensive earnings by their
nature in a financial statement that is displayed with the same prominence as
other financial statements. Other comprehensive earnings for the Company
primarily includes unrealized gains and losses on marketable securities
classified as available-for-sale and the change in cumulative translation
adjustment resulting from the changes in exchange rates and the effect of those
changes upon translation of the Company's foreign investments reported in
stockholders' equity. Comprehensive earnings are presented separately in the
Company's consolidated statements of comprehensive earnings, net of taxes. The
change in accumulated other comprehensive earnings is reflected in the
consolidated statements of Parent Company investment and stockholders' equity.
BUSINESS SEGMENTS
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" on November 30, 1999. This
statement establishes standards for reporting information about a company's
operating segments and related disclosures about its products, services,
geographic areas of operations and major customers. Adoption of this statement
did not impact the Company's results of operations or financial position. See
Note 15 which provides further information.
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. Due to the
short maturity period of cash equivalents, the carrying amount of these
instruments approximates fair value.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
INVESTMENT SECURITIES
Investment securities, which consist principally of CMBS, are accounted for
in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This standard requires that 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, 1999 and 1998, no
securities were held for trading purposes.
Securities classified as available-for-sale are recorded at fair value in
the consolidated balance sheet, with unrealized holding gains or losses, net of
tax effects, reported in stockholders' equity as a component of accumulated
other comprehensive earnings. 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, NET
Mortgage loans held for sale are recorded at the lower of cost or market,
estimated on a discounted cash flow basis using market interest rates. 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. These discounts are amortized
utilizing a methodology that results in a level yield.
The Company provides an allowance for credit losses for loans considered to
be impaired based upon the Company's historical loss experience, the fair value
of collateral and other factors.
OPERATING PROPERTIES AND EQUIPMENT, NET AND LAND HELD FOR INVESTMENT
Operating properties and equipment and land held for investment are
recorded at cost. Depreciation for operating properties and equipment 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 30 years and for equipment is 2 to 5 years.
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in
the first quarter of 1997. 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 operating properties and
land holdings would be considered long-lived assets under this pronouncement.
Adopting this statement did not have any material effect on the Company's
financial position, results of operations or cash flows.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
DERIVATIVE FINANCIAL INSTRUMENTS
From time to time, the Company enters into interest rate swap agreements to
manage its costs and hedge against risks associated with changing interest rates
on specific debt instruments and recognizes interest differentials as
adjustments to interest expense as the differentials occur. Additionally, the
Company periodically utilizes treasury securities as a hedge to offset the
impact of interest rate movements on the market value of a portion of its
available-for-sale CMBS portfolio. Derivative financial instruments are not
leveraged or held for trading purposes.
FOREIGN CURRENCY
The Company's foreign equity investments with a functional currency other
than U.S. dollars are translated into U.S. dollars at exchange rates in effect
at the end of each reporting period. Foreign entity revenue and expenses are
translated into U.S. dollars at the average rates that prevailed during the
period. The resulting net translation gains and losses are reported as foreign
currency translation adjustments in stockholders' equity as a component of
accumulated other comprehensive earnings.
REVENUE RECOGNITION
Interest income is comprised of interest received plus amortization of the
discount between the carrying value of each investment security or mortgage loan
held for investment 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 they are earned and
realization is reasonably assured.
The Company applies the provisions of SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
in accounting for sales of investment securities and other financial assets.
This statement requires that transfers of financial and servicing assets be
recognized as sales when control has been surrendered.
INCOME TAXES
Income taxes are accounted for in accordance with 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.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
STOCK OPTION PLAN
At November 30, 1999 and 1998, the Company had one stock option plan, which
is described in Note 12. The Company grants stock options to certain employees
for fixed numbers of shares with exercise prices not less than the fair value of
the shares at the dates of grant. The Company accounts for the stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company applies the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
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 June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards regarding derivative
instruments and hedging activities. SFAS No. 133 requires that all derivative
instruments be recorded as either an asset or liability on the balance sheet at
their fair value, and that changes in the fair value be recognized currently in
earnings unless specified criteria are met. This statement was effective for
fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" extended the effective date to all
fiscal quarters of fiscal years beginning after June 15, 2000. Management is
still in the process of assessing the impact of implementing SFAS No. 133 on the
Company's results of operations and financial position.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
2. ACQUISITION
On February 18, 1998, the Company entered into an agreement to purchase
from Pacific Harbor Capital, Inc., a wholly-owned subsidiary of PacifiCorp,
controlling interests in a group of entities as well as certain direct
partnership interests, known as the Affordable Housing Group ("AHG"), which own
multi-family and senior housing rental communities, many of which qualify for
Low-Income Housing Tax Credits under Section 42 of the Internal Revenue Code.
On May 1, 1998, the Company completed the purchase of certain interests
representing 36 of the properties. In June and September 1998, the Company
completed the purchase of the remaining interests representing four and two
properties, respectively. The aggregate amount of consideration was $81 million,
plus the assumption of approximately $45 million of future equity commitments,
and was financed primarily utilizing the Company's unsecured revolving credit
facility. The acquisition has been accounted for under the purchase method of
accounting and the cost of the acquisition has been allocated on the basis of
the estimated fair value of the assets acquired and liabilities assumed. There
was no goodwill associated with the transaction. For the year ended November 30,
1998, the consolidated results of operations include the operations associated
with the Company's interests in the 42 properties since their respective
acquisition dates. Revenues and net earnings on an unaudited pro forma basis
would have increased by $7.5 million and $2.6 million, respectively, during 1998
had the acquisition occurred on December 1, 1997. The pro forma earnings per
share would have been $2.11 per share ($2.09 per share diluted) in 1998.
3. RESTRICTED CASH
<TABLE>
<CAPTION>
November 30,
-------------------
(IN THOUSANDS) 1999 1998
------- -------
<S> <C> <C>
Short-term investment securities $49,991 47,315
Funds held in trust for asset purchases and development 45,271 7,582
Tenant security deposits 420 1,367
------- -------
$95,682 56,264
======= =======
</TABLE>
The majority of the short-term investment securities at November 30, 1999
and 1998 are collateral for a letter of credit, which provides credit
enhancement to $277.3 million of tax-exempt bonds. The bonds are secured by five
high-rise Class A apartment buildings in New York City. The Company receives
interest on the short-term investment as well as 600 basis points per year for
providing the credit enhancement.
Funds held in trust for asset purchases and development primarily represent
monies resulting from exchange transactions under Section 1031 of the Internal
Revenue Code and funding from municipal bonds used to finance the development of
affordable housing communities.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
4. INVESTMENT SECURITIES
Investment securities consist of investments in rated and unrated portions
of various issues of CMBS. The Company classifies its CMBS as available-for-sale
or held-to-maturity. Most rated CMBS are classified as available-for-sale. Most
unrated CMBS are classified as held-to-maturity, as the Company has the ability
and intent to hold these securities until 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.
Each security is, in effect, subordinate to other securities of classes with
earlier maturities. The principal repayments on a particular class 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. The Company has already begun to receive
principal payments from some of its securities and has stated maturities on the
others through 2040. The Company's investment securities have weighted average
coupon rates ranging from 5.00% to 11.38%.
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 has the right to select itself as
special servicer for the entire securitization. As special servicer, the Company
impacts the performance of the securitization by using its loan workout and
asset management expertise to resolve non-performing loans.
The Company's investment securities consisted of the following:
November 30,
---------------------
(IN THOUSANDS) 1999 1998
-------- --------
Available-for-sale $343,092 300,171
Held-to-maturity 167,828 133,986
-------- --------
$510,920 434,157
======== ========
The Company periodically sells treasury securities short to hedge a portion
of its available-for-sale CMBS portfolio. At November 30, 1999, the Company was
obligated to deliver $62.5 million of securities it had sold short. This offsets
the impact of interest rate movements on the market value of a portion of the
Company's available-for-sale CMBS portfolio.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
5. MORTGAGE LOANS, NET
November 30,
------------------------
(IN THOUSANDS) 1999 1998
--------- ---------
Mortgage loans $ 160,225 107,254
Allowance for losses (2,038) (2,948)
Unamortized discounts (5,360) (6,451)
--------- ---------
$ 152,827 97,855
========= =========
At November 30, 1999 and 1998, the balance of mortgage loans classified as
held for sale were $60.2 million and $75.7 million, respectively, and classified
as held for investment were $92.6 million and $22.2 million, respectively.
6. OPERATING PROPERTIES AND EQUIPMENT, NET
<TABLE>
<CAPTION>
November 30,
----------------------------
(IN THOUSANDS) 1999 1998
----------- -----------
<S> <C> <C>
Rental apartments $ 471,220 391,742
Office buildings 329,780 198,885
Retail centers 69,400 47,279
Hotels 85,894 67,833
Industrial buildings 44,026 24,535
Other 13,362 16,474
----------- -----------
Total land and buildings 1,013,682 746,748
Furniture, fixtures and equipment 17,812 10,358
----------- -----------
1,031,494 757,106
Accumulated depreciation (49,264) (44,687)
----------- -----------
$ 982,230 712,419
=========== ===========
</TABLE>
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 subsequent to November 30,
1999 are as follows (in thousands): 2000 - $49,619; 2001 - $44,423; 2002 -
$40,472; 2003 - $34,610; 2004 - $29,992 and thereafter - $198,738.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
7. 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 at
November 30, 1999 and 1998 follows:
November 30,
-------------------------
(IN THOUSANDS) 1999 1998
---------- ----------
ASSETS
Cash $ 200,970 92,070
Portfolio investments 2,547,235 781,680
Other assets 93,124 45,703
---------- ----------
$2,841,329 919,453
========== ==========
LIABILITIES AND EQUITY
Accounts payable and other liabilities $ 66,458 89,339
Notes and mortgages payable 1,668,886 204,854
Equity of:
The Company 328,768 199,328
Others 777,217 425,932
---------- ----------
$2,841,329 919,453
========== ==========
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 $12.9 million and $4.8 million at November 30, 1999 and 1998,
respectively, primarily due to unrealized earnings and purchase discounts in
1999 and purchase discounts in 1998. Portfolio investments consist primarily of
CMBS, commercial and multi-family residential real estate, mortgage loans
collateralized by commercial and multi-family residential real estate and other
investments.
Years Ended November 30,
----------------------------------
(IN THOUSANDS) 1999 1998 1997
-------- -------- --------
Revenues $545,219 410,938 213,238
Costs and expenses 313,818 246,285 125,693
-------- -------- --------
Earnings of partnerships $231,401 164,653 87,545
======== ======== ========
The Company's share of earnings $ 57,058 62,348 30,149
======== ======== ========
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
In connection with the Spin-off, Lennar transferred parcels of land to the
Company and the Company transferred these parcels to a general partnership in
exchange for a 50% partnership interest in this partnership. In 1999, certain
assets and liabilities of this land partnership were contributed at net book
value to a second general partnership and Lennar and the Company each received
50% general partnership interests in the second partnership. The two
partnerships are collectively referred to as Lennar Land Partners. At November
30, 1999 and 1998, the Company's investment in Lennar Land Partners was $114.9
million and $99.7 million, respectively. Lennar Land Partners is engaged in the
acquisition, development and sale of land. LNR and Lennar have equal say on all
major decisions with respect to Lennar Land Partners. LNR's by-laws require that
a committee of LNR directors who have no relationship with Lennar approve all
significant decisions with respect to Lennar Land Partners. Lennar manages the
day-to-day activities of Lennar Land Partners under a management agreement. A
portion of the outstanding debt of Lennar Land Partners and the debt of one
second tier partnership within Lennar Land Partners, amounting to $49.8 million
at November 30, 1999, is guaranteed by the Company and Lennar.
At November 30, 1999 and 1998, the Company's equity interests in all other
significant partnerships ranged from 10% to 50%. These partnerships are involved
in the acquisition and management of portfolios of real estate loans, properties
and CMBS. The Company shares in the profits and losses of these partnerships
and, in many instances, receives fees for the management, servicing and
disposition of the assets.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
8. MORTGAGE NOTES AND OTHER DEBTS PAYABLE
<TABLE>
<CAPTION>
November 30,
--------------------------------
(IN THOUSANDS) 1999 1998
------------ -------------
<S> <C> <C>
SECURED DEBT WITHOUT RECOURSE TO THE COMPANY
Mortgage notes on operating properties and land with fixed interest rates
from 5.0% to 11.3% at November 30, 1999, due through January 2046 $ 124,400 131,387
Mortgage notes on operating properties and land with floating interest
rates (4.5% to 10.4% at November 30, 1999), due through November 2033 313,018 109,259
Mortgage warehouse facility with a floating interest rate of 7.2%
at November 30, 1999, secured by mortgage loans, due June 2000 96,455 78,950
Repurchase agreements with floating interest rates (7.7% to 8.0% at
November 30, 1999), secured by CMBS, due through February 2002 72,956 --
Term loans with floating interest rates (6.7% to 7.3% at November 30,
1999), secured by CMBS, due through October 2002 39,232 4,016
SECURED DEBT WITH RECOURSE TO THE COMPANY
Mortgage notes on operating properties and land with fixed interest rates
from 7.4% to 8.1% at November 30, 1999, due through March 2004 18,469 26,574
Mortgage notes on operating properties and land with floating interest
rates (7.6% to 9.1% at November 30, 1999), due through February 2004 143,288 74,172
Mortgage warehouse facility with a floating interest rate of 7.2% at
November 30, 1999, secured by mortgage loans, due September 2003 56,430 --
Repurchase agreements with floating interest rates (7.5% to 8.1% at
November 30, 1999), secured by CMBS, due through December 2003 139,274 215,676
Revolving credit lines with floating interest rates (7.5% to 8.0% at
November 30, 1999), secured by CMBS and mortgage loans, due through
November 2001 100,000 83,000
UNSECURED DEBT WITH RECOURSE TO THE COMPANY
Revolving credit line with a floating interest rate of 7.7% at November
30, 1999, due December 2000 2,000 95,000
Senior subordinated debt with a fixed interest rate of 9.4%, due March
2008 199,255 199,165
Senior subordinated debt with a fixed interest rate of 10.5%, due January
2009 98,624 --
------------ -------------
$ 1,403,401 1,017,199
============ =============
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
Information concerning the Company's more significant debt instruments is
as follows:
REPURCHASE AGREEMENTS ("REPOS") AND TERM LOANS
The Company, through certain subsidiaries, has entered into two reverse
repurchase obligation facilities through which it finances selected CMBS. The
first facility had $106.5 million outstanding at November 30, 1999 and is
required to be reduced to $79.9 million at December 2001, $53.3 million at
December 2002, $26.6 million at June 2003 and paid in full in December 2003. The
second facility had a total commitment of $50.0 million, of which $16.8 million
was outstanding at November 30, 1999 and matures in June 2000. Interest on these
two facilities is variable, corresponds to the rating assigned to the CMBS and
is based on a range of LIBOR plus 75 - LIBOR plus 150.
The Company, through certain subsidiaries, received seller financing in
the form of term repurchase agreements for five specific CMBS transactions.
These agreements had an outstanding balance of $89.0 million at November 30,
1999 and expire through February 2002. The interest on these term repurchase
agreements is variable and ranges from LIBOR plus 90 - LIBOR plus 165. The
Company has guaranteed the obligations of its subsidiaries under three of these
agreements and all of the agreements are collateralized by CMBS.
The Company, through certain subsidiaries, also received seller financing
in the form of term loans for three specific CMBS transactions. These agreements
had an outstanding balance of $39.2 million at November 30, 1999 and expire
through October 2002. Interest on these term loans is variable and ranges from
LIBOR plus 25 - LIBOR plus 87.5.
The Company expects to refinance or extend these facilities on
substantially the same terms as the existing agreements. If the Company is not
able to fully replace these repos and/or term loans, it can repay them using
availability under other existing facilities, cash flow generated from
operations or asset sales.
SECURED BANK LINES
The Company, through certain subsidiaries, has four secured revolving
credit lines, including a mortgage warehouse facility, with an aggregate
commitment of $345.0 million of which $252.9 million was outstanding at November
30, 1999. Interest is variable and is based on a range of LIBOR plus 75 - LIBOR
plus 150. The lines are collateralized by CMBS and mortgage loans. The lines
mature through September 2003 and are expected to be refinanced or extended on
substantially the same terms as the existing lines. The agreements contain
certain financial tests and restrictive covenants, none of which are currently
expected to restrict the Company's activities. The Company has guaranteed the
obligations of its subsidiaries under certain of these agreements, representing
$249.0 million of the $345.0 million commitment.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
UNSECURED REVOLVING CREDIT NOTES PAYABLE
The Company and certain of its subsidiaries have a $200 million unsecured
revolving credit agreement which, if the one-year extension option is exercised,
expires on December 31, 2001. At November 30, 1999, $2.0 million was
outstanding. Interest is calculated using a range of LIBOR plus 110 - LIBOR plus
175, which varies based on the Company's leverage and debt ratings. Interest is
currently at LIBOR plus 125. The agreement contains certain financial tests and
restrictive covenants, none of which are currently expected to restrict the
Company's activities.
UNSECURED SENIOR SUBORDINATED NOTES
On March 19, 1998, the Company issued $200 million principal amount of
unsecured senior subordinated notes due March 15, 2008. The notes were issued at
a discount and had an effective interest rate of 9.445%. At November 30, 1999,
the discount on the notes was $745,000. The stated interest rate is fixed at
9.375% and is payable semi-annually. The subordinated notes contain certain
financial tests and restrictive covenants, none of which are currently expected
to restrict the Company's activities.
On January 20, 1999, the Company issued an additional $100 million
principal amount of unsecured senior subordinated notes due January 15, 2009.
The notes were issued at a discount and had an effective interest rate of
10.75%. At November 30, 1999, the discount on the notes was $1,376,000. The
stated interest rate is fixed at 10.5% and is payable semi-annually. The
subordinated notes also contain substantially the same financial tests and
restrictive covenants as the $200 million of unsecured senior subordinated
notes.
At November 30, 1999, the Company had eight interest rate swap agreements
outstanding with a total notional amount of $111.1 million, which will mature
through 2013. These agreements fixed the variable rates to a weighted average
rate of approximately 6.4%. The effect of the interest rate swap agreements on
interest incurred during 1999 and on the average cost of borrowings was
approximately a decrease of $1.0 million and 0.08% for the year ended November
30, 1999.
The aggregate principal maturities of mortgage notes and other debts
payable subsequent to November 30, 1999, assuming extensions which are
exercisable solely at the Company's option, are as follows (in thousands): 2000
- - $247,296; 2001 - $151,986; 2002 - $283,023; 2003 - $164,011; 2004 - $95,162
and thereafter - $461,923. All of the notes secured by land contain collateral
release provisions.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
9. MINORITY INTERESTS
Minority interests relate to the third party ownership interests in
entities (both corporations and partnerships) in which the Company has a
controlling interest. For financial reporting purposes the entities' assets,
liabilities and earnings are consolidated with those of the Company, and the
third parties' interests in the entities are included in the Company's
consolidated financial statements as minority interests. The primary component
of minority interests at November 30, 1999 and 1998, representing $21.2 million
and $20.0 million, respectively, relates to the Company's interest in a
partnership which provides credit enhancement to $49.4 million in 1999 and $46.8
million in 1998 of a $277.3 million issue of tax-exempt bonds collateralized by
commercial real estate. See Note 3.
10. INCOME TAXES
The provisions for income taxes consisted of the following for the years
ended November 30, 1999, 1998 and 1997:
Years Ended November 30,
------------------------------------
(IN THOUSANDS) 1999 1998 1997
-------- -------- --------
CURRENT
Federal $ 40,632 22,205 43,802
Federal Low-Income
Housing Tax Credits (14,097) (8,058) --
State 4,887 2,497 6,467
-------- -------- --------
31,422 16,644 50,269
-------- -------- --------
DEFERRED
Federal 2,109 15,774 (18,432)
State 1,809 1,805 (3,567)
-------- -------- --------
3,918 17,579 (21,999)
-------- -------- --------
Total expense $ 35,340 34,223 28,270
======== ======== ========
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
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 at November 30, 1999 and 1998 are as follows:
November 30,
-------------------
(IN THOUSANDS) 1999 1998
------- -------
DEFERRED TAX ASSETS
Reserves and accruals $23,414 15,401
Investment securities income 41,378 25,524
Investments in partnerships 8,105 9,423
Acquisition adjustments 5,112 5,112
Tax credit carryforwards 1,607 709
Depreciation 3,331 --
Other -- 325
------- -------
Total deferred tax assets 82,947 56,494
------- -------
DEFERRED TAX LIABILITIES
Capitalized expenses 1,404 1,403
Deferred income 52,096 18,723
Acquisition adjustments 16,574 16,575
Unrealized gain on
available-for-sale securities 4,890 6,638
Depreciation -- 754
Other 47 --
------- -------
Total deferred tax liabilities 75,011 44,093
------- -------
Net deferred tax asset $ 7,936 12,401
======= =======
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 for the
years ended November 30, 1999, 1998 and 1997 follows:
% of Pre-tax Income
------------------------------
1999 1998 1997
------ ------ ------
Federal statutory rate 35.0 35.0 35.0
Low-Income Housing Tax
Credits (11.3) (8.2) --
State income taxes, net of
federal income tax benefit 3.3 4.0 4.0
Permanent differences and other, net -- 1.0 --
------ ------ ------
Effective rate 27.0 31.8 39.0
====== ====== ======
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
The Company was included in the consolidated federal income tax returns of
Lennar through the date of the Spin-off. The Company's provision for federal and
state income taxes in the accompanying consolidated statement of earnings for
the periods prior to the Spin-off have been calculated based on the Company's
income and temporary differences as if it filed a separate return. For the post
Spin-off period, the provision for income taxes has been based on the
stand-alone operations of the Company.
11. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of financial instruments held by the Company at November 30, 1999 and 1998,
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 might have a material effect on the estimated fair
value amounts. The table excludes cash and cash equivalents, restricted cash and
accounts payable, which had fair values approximating their carrying values.
<TABLE>
<CAPTION>
November 30,
------------------------------------------------------
1999 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
(IN THOUSANDS) Amount Value Amount Value
-------- ------- -------- -------
ASSETS
<S> <C> <C> <C> <C>
Mortgage loans $ 152,827 166,567 97,855 111,231
Investment securities available-for-sale 343,092 343,092 300,171 300,171
Investment securities held-to-maturity 167,828 229,423 133,986 184,840
LIABILITIES
Mortgage notes and other debts payable $1,403,401 1,377,016 1,017,199 1,007,069
</TABLE>
The following methods and assumptions were used by the Company in
estimating fair values:
Mortgage 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.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
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
based on the acquisition price paid. The Company believes, however, that for
instruments which do not have quoted market prices, higher fair values would be
derived, for both 1999 and 1998, if the valuation was based on discounted
expected future cash flows. The gross unrealized gains and losses for
available-for-sale securities were (in thousands): $18,641 and $19,347 for 1999
and $29,402 and $12,381 for 1998, respectively. These unrealized gains and
losses are included in the carrying amounts above. The gross unrealized gains
and losses for held-to-maturity securities were (in thousands): $61,595 and $0
for 1999 and $50,854 and $0 for 1998, respectively.
Mortgage 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.
12. CAPITAL STOCK
PREFERRED STOCK
The Company has 500,000 shares of authorized preferred stock, $10 par
value. At November 30, 1999 and 1998, no shares of preferred stock were issued
or outstanding. The preferred stock may be issued in series with any rights,
powers and preferences which may be authorized by the Company's Board of
Directors.
COMMON STOCK
The Company has two classes of common stock. The common stockholders have
one vote for each share owned in matters requiring stockholder approval and
during the years ended 1999 and 1998 received quarterly dividends of $.0125 per
share. Class B common stockholders have ten votes for each share owned and
during the years ended 1999 and 1998 received quarterly dividends of $.01125 per
share. Class B common stock can be converted into common stock at any time.
Common stock cannot be converted into Class B common stock. As of November 30,
1999, Mr. Leonard Miller, a member of the Board of Directors, owned or
controlled 9.9 million shares of Class B common stock, which represented
approximately 79% of the voting power.
During 1998, the Company's Board of Directors approved a stock repurchase
plan authorizing the Company to buy back up to 2,000,000 shares of its common
stock. On December 7, 1999, the Company's Board of Directors authorized the
Company to buy back up to an additional 3,500,000 shares. During the years ended
November 30, 1999 and 1998, the Company purchased and retired 500,000 shares and
550,900 shares, respectively, under this program. During the quarter ended
February 29, 2000, the Company purchased and retired an additional 1,893,200
shares, bringing the inception-to-date total under the Company's buy-back
program to 2,944,100 shares.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
STOCK OPTION PLAN
In connection with the Spin-off, the Company adopted the 1997 Stock Option
Plan (the "1997 Plan"). The 1997 Plan provides for the granting of options to
certain officers, employees and directors of the Company to purchase shares at
prices not less than market value on the date of the grant. Options granted
under the 1997 Plan will expire not more than 10 years after the date of grant,
except that options granted to a key employee who is a 10% stockholder will
expire not more than five years after the date of grant. The exercise price of
each stock option granted under the 1997 Plan will be 100% of the fair market
value of the common stock on the date the stock option is granted, except in the
case of a key employee who is a 10% stockholder, in which case the option price
may not be less than 110% of the fair market value of the common stock on the
date the stock option is granted, and except as to stock options granted to
replace Lennar stock options held by Lennar employees who became employees of
the Company as a result of the Spin-off.
In December 1998, the Company provided employees with the opportunity to
surrender some or all of their stock options in exchange for 70% of the number
of options surrendered. Of the approximately 1,556,000 employee options
outstanding in December 1998, 481,000 options which were exercisable at $24.73
per share were surrendered, in exchange for 336,700 shares at $17.31 per share.
A summary of the Company's stock option activity under the 1997 Plan for
the years ended November 30, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
------------------------ ------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,555,661 $ 20.19 1,478,647 $ 20.06 -- $ --
Assumed at Spin-off -- $ -- -- $ -- 409,647 $ 7.64
Granted 464,240 $ 18.09 86,000 $ 22.35 1,069,000 $ 24.82
Forfeited (487,300) $ 24.63 (8,000) $ 26.04 -- $ --
Exercised (11,798) $ 12.29 (986) $ 11.97 -- $ --
--------- --------- ---------
Outstanding, end of year 1,520,803 $ 18.19 1,555,661 $ 20.19 1,478,647 $ 20.06
Exercisable, end of year 348,619 $ 15.74 217,129 $ 15.77 61,203 $ 6.59
Weighted average fair value of
options granted during the
year under SFAS No. 123 $ 8.79 $ 7.93 $ 14.78
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
The following table summarizes information about fixed stock options
outstanding at November 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ----------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Outstanding at Average
Exercise November 30, Contractual Exercise November 30, Exercise
Prices 1999 Life Price 1999 Price
- --------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
$3.98-$9.92 303,023 2.67 $5.45 134,740 $5.16
$11.97-$13.73 58,435 4.52 $12.67 14,517 $12.65
$15.31-$20.28 505,345 7.53 $17.80 46,762 $16.99
$22.59-$29.13 654,000 7.11 $24.87 152,600 $25.00
</TABLE>
The Company has elected to account for its employee stock options under
Accounting Principles Board ("APB") Opinion No. 25 and related Interpretations.
No compensation expense is recorded under APB 25 because the exercise price of
the Company's employee common stock options equaled the market price for the
underlying common stock on the grant date.
Under the terms of the Lennar 1991 Stock Option Plan (the "Lennar Option
Plan"), participants in the Lennar Option Plan who exercise their options after
the Spin-off (and who did not amend the terms of their options prior to the
Spin-off to provide otherwise) will receive upon exercise of Lennar stock
options both shares of Lennar common stock and LNR common stock. In connection
with the Spin-off, the Company agreed to deliver shares of its common stock to
participants in the Lennar Option Plan who exercise options and are entitled to
LNR common stock. There were Lennar stock options outstanding at the time of the
Spin-off which could entitle the holders to purchase up to 615,600 shares of LNR
common stock. Of these options, 79,475 and 22,000 had been exercised during the
years ended November 30, 1999 and 1998, respectively. The Company does not
receive any portion of the exercise price of the Lennar stock options.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
SFAS No. 123 requires "as adjusted" information regarding net earnings and
net earnings per share to be disclosed for new options granted after fiscal year
1996. The Company determined this information using the fair value method of
that statement. The fair value of these options was determined at the date of
grant using the Black-Scholes option-pricing model. The significant weighted
average assumptions used for the years ended November 30, 1999, 1998 and 1997
were as follows:
Years Ended November 30,
---------------------------------
1999 1998 1997
------- ------- -------
Dividend yield 0.20% 0.20% 0.20%
Volatility rate 0.50 0.45 0.45
Risk-free interest rate 5.69% 5.50% 5.50%
Expected option life (years) 2-7 2-7 2-7
The estimated fair value of the options is recognized in expense over the
options' vesting period for "as adjusted" disclosures. The net earnings per
share "as adjusted" for the effects of SFAS No. 123 is not indicative of the
effects on reported net earnings/loss for future years. For purposes of these
calculations, the Company has excluded shares subject to options which are held
by participants in the Lennar Option Plan, who are not employees and do not
otherwise receive compensation from the Company. The Company's reported "as
adjusted" information for the years ended November 30, 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Years Ended November 30,
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Net earnings $ 95,560 73,323 44,218
Net earnings "As adjusted" $ 94,407 71,782 43,042
Net earnings per share as reported - basic $ 2.68 2.04 1.22
Net earnings per share "As adjusted"- basic $ 2.65 1.99 1.19
Net earnings per share as reported - diluted $ 2.63 2.02 1.22
Net earnings per share "As adjusted" - diluted $ 2.60 1.98 1.19
</TABLE>
In management's opinion, existing stock option valuation models do not
provide a reliable single measure of the fair value of employee stock options
that have vesting provisions and are not transferable. In addition,
option-pricing models require the input of highly subjective assumptions,
including expected stock price volatility.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
SAVINGS PLAN
The LNR Property Corporation Savings Plan (the "Savings Plan") allows
employees to participate and make contributions to the Savings Plan which are
invested on their behalf and the Company may also make contributions for the
benefit of employees. The Company records as compensation expense its
contributions to the Savings Plan. Amounts contributed by the Company to the
Savings Plan during 1999, 1998 and 1997 were immaterial.
RESTRICTIONS ON PAYMENTS OF DIVIDENDS
Other than as necessary to maintain the financial ratios and net worth
requirements under certain revolving credit agreements, there are no
restrictions on the payment of dividends on common stock by the Company. 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. One of the Company's major subsidiaries
is also restricted on the payment of dividends to its parent company, LNR
Property Corporation, under certain revolving credit and loan agreements.
13. RELATED PARTY TRANSACTIONS
A member of the LNR Board of Directors has voting control of both LNR and
Lennar.
The Company leases office space to Lennar and its subsidiaries, and during
the years ended November 30, 1999 and 1998 recorded $1.2 million and $1.0
million, respectively, in rental revenue. Prior to the Spin-off, for the period
December 1, 1996 through October 31, 1997, the Company provided a portion of
Lennar's facilities on a rent-free basis.
Lennar provided data processing services to the Company under an agreement
to perform such services. The agreement expired in late 1999 and was not
renewed. Costs for these services aggregated $196,000 and $204,000 for the years
ended November 30, 1999 and 1998, respectively, and $16,000 for the one month
ended November 30, 1997.
During the period December 1, 1996 through October 31, 1997, Lennar
provided various general and administrative services to the Company including:
data processing, treasury, legal, human resources, payroll, accounting, risk
management and others. Costs for these services were designed to approximate the
actual costs incurred by Lennar to render these services. Management believes
the methods used to determine these costs were reasonable, however, such costs
may not have been the same as those which would have been incurred if the
Company had operated as an independent entity during that period. Charges for
these costs are included in general and administrative expenses and amounted to
$3.3 million for the period December 1, 1996 through October 31, 1997.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
14. 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, results of operations or cash flows 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 Company is committed, under various letters of credit or other
agreements, to provide certain guarantees. Outstanding letters of credit and
guarantees under these arrangements totaled approximately $78.1 million and
$61.3 million at November 30, 1999 and 1998, respectively. Additionally, the
Company has guaranteed a portion of the outstanding debt of Lennar Land Partners
and the debt of one second tier partnership within Lennar Land Partners,
amounting to $49.8 million at November 30, 1999. See Note 7.
The Company leases certain premises and equipment under various
non-cancelable operating leases with terms expiring through 2003, exclusive of
renewal option periods. The annual aggregate minimum rental commitments under
these leases are summarized as follows (in thousands): 2000 - $704; 2001 - $458;
2002 - $364; and 2003 - $135.
15. SEGMENT REPORTING
During 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments and related disclosures about products and
services, geographical areas and major customers. Management assesses Company
performance and allocates capital principally on the basis of three lines of
business: (1) real estate properties, (2) real estate securities and (3) real
estate loans.
Real estate properties include apartments, office buildings, shopping
centers, hotels, industrial facilities and land that the Company acquires,
develops, redevelops or repositions. The Company's primary source of earnings
from real estate properties is its rental revenue and gains on sales of those
properties that have reached optimal value. Additionally, the Company recognizes
equity in earnings of partnerships that own, manage and sell real estate
properties and in some cases, earns fees from managing those partnerships.
Operating expenses include the direct costs of operating the real estate
properties, the related depreciation and the overhead associated with managing
the properties and partnerships.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
Real estate securities include unrated and non-investment grade rated
subordinated CMBS which are collateralized by pools of mortgage loans on
commercial and multi-family residential real estate properties. The Company
performs "special servicing" for the loans underlying such investments. Special
servicing is the business of managing and working out the problem assets in a
pool of commercial mortgage loans or other assets. The Company's primary source
of earnings from real estate securities is the interest income earned on its
investments in these CMBS. Additionally, the Company recognizes equity in
earnings of partnerships that own CMBS. The Company also earns special servicing
fees with respect to the mortgage loans underlying the Company's CMBS, as well
as the CMBS owned by the partnerships and earns management fees for managing the
partnerships. Operating expenses include the overhead associated with managing
the investments and partnerships and costs of the servicing responsibilities.
Real estate loans include domestic and foreign discount loan portfolio
investments, owned primarily through partnerships, and related loan workout
operations, as well as direct lending activities in unique high yielding
situations. The Company's primary source of earnings from real estate loans
include interest income on loan investments, equity in earnings of partnerships
and management fees earned from those partnerships. Operating expenses include
the overhead associated with servicing the loans and managing the partnerships.
Revenues, expenses and assets are accounted for in accordance with the
accounting policies set forth in Note 1. Revenues and non-overhead expenses for
each business line are those that relate directly to those operations. Overhead
expenses, such as administrative expenses, are allocated directly to each
business line based on management's best estimates of the resources utilized in
the management and operations of each business line. Total assets are those
assets directly used in the Company's operations in each line of business.
Corporate assets consist principally of cash and cash equivalents and other
assets. There are no significant transfers between business lines.
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
The following tables detail the Company's financial performance by these
three lines of business for the years ended November 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
For the Year Ended November 30, 1999
-----------------------------------------------------------------------
Real Estate Real Estate Real Estate Corporate
(IN THOUSANDS) Properties Securities Loans and Other Total
<S> <C> <C> <C> <C> <C>
Rental income $ 95,391 -- -- -- 95,391
Equity in earnings of
partnerships 31,281 4,077 21,700 -- 57,058
Interest income -- 87,590 18,874 -- 106,464
Gains on sales 67,187 6,056 -- -- 73,243
Management and
servicing fees 668 9,592 5,080 -- 15,340
Other, net -- -- 504 -- 504
---------- ---------- ---------- ---------- ----------
Total revenues 194,527 107,315 46,158 -- 348,000
Cost of rental
operations 53,881 -- -- -- 53,881
Other operating
expenses 16,685 7,502 5,492 16,598 46,277
Depreciation 27,393 -- -- -- 27,393
Minority interests 2,813 681 2,146 -- 5,640
---------- ---------- ---------- ---------- ----------
Total costs and
expenses 100,772 8,183 7,638 16,598 133,191
---------- ---------- ---------- ---------- ----------
Operating earnings/(loss) $ 93,755 99,132 38,520 (16,598) 214,809
========== ========== ========== ========== ==========
Total assets $1,264,191 628,750 272,648 117,412 2,283,001
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
For the Year Ended November 30, 1998
---------------------------------------------------------------------
Real Estate Real Estate Real Estate Corporate
(IN THOUSANDS) Properties Securities Loans and Other Total
<S> <C> <C> <C> <C> <C>
Rental income $ 73,200 -- -- -- 73,200
Equity in earnings
(losses) of partnerships 47,822 (5,450) 19,976 -- 62,348
Interest income -- 56,160 20,690 -- 76,850
Gains on sales 26,818 1,386 -- -- 28,204
Management and servicing fees 365 6,177 2,718 -- 9,260
Other, net -- -- 895 -- 895
--------- --------- --------- --------- ---------
Total revenues 148,205 58,273 44,279 -- 250,757
Cost of rental operations 45,285 -- -- -- 45,285
Other operating expenses 8,106 3,476 5,961 11,697 29,240
Depreciation 13,014 -- -- -- 13,014
Minority interests (356) -- 2,178 -- 1,822
--------- --------- --------- --------- ---------
Total costs and
expenses 66,049 3,476 8,139 11,697 89,361
--------- --------- --------- --------- ---------
Operating earnings/(loss) $ 82,156 54,797 36,140 (11,697) 161,396
========= ========= ========= ========= =========
Total assets $ 985,678 443,564 206,449 108,114 1,743,805
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended November 30, 1997
-------------------------------------------------------------------
Real Estate Real Estate Real Estate Corporate
(IN THOUSANDS) Properties Securities Loans and Other Total
<S> <C> <C>
Rental income $ 56,334 -- -- -- 56,334
Equity in earnings of
partnerships 1,558 -- 28,591 -- 30,149
Interest income -- 29,919 11,527 -- 41,446
Gains on sales 18,076 5,359 -- -- 23,435
Management and servicing
fees 403 4,262 8,720 -- 13,385
Other, net -- -- 2,734 -- 2,734
--------- --------- --------- --------- ---------
Total revenues 76,371 39,540 51,572 -- 167,483
Cost of rental operations 35,767 -- -- -- 35,767
Other operating expenses 2,955 1,619 3,671 18,097 26,342
Depreciation 6,060 -- -- -- 6,060
Minority interests 242 -- -- -- 242
--------- --------- --------- --------- ---------
Total costs and
expenses 45,024 1,619 3,671 18,097 68,411
--------- --------- --------- --------- ---------
Operating earnings/(loss) $ 31,347 37,921 47,901 (18,097) 99,072
========= ========= ========= ========= =========
Total assets $ 424,610 319,517 178,395 100,815 1,023,337
========= ========= ========= ========= =========
</TABLE>
<PAGE>
LNR PROPERTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999, 1998 AND 1997
All of the Company's operations and long-lived assets are geographically
located within the United States, with the exception of its equity investments
in portfolios of Japanese non-performing real estate loans, amounting to $49.6
million, $28.1 million and zero at November 30, 1999, 1998 and 1997,
respectively.
16. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) First Second Third Fourth
-------- ------ ------ ------
<S> <C> <C> <C> <C>
1999
Revenues $ 76,192 97,887 85,121 88,800
Operating earnings $ 46,667 65,911 50,201 52,030
Earnings before income taxes $ 27,192 45,529 29,364 28,815
Net earnings $ 20,403 32,687 21,436 21,034
Net earnings per share - basic $ 0.57 0.92 0.60 0.59
Net earnings per share - diluted $ 0.57 0.90 0.59 0.58
1998
Revenues $ 51,838 54,901 69,163 74,855
Operating earnings $ 34,304 35,784 43,818 47,490
Earnings before income taxes $ 27,246 25,859 26,541 27,900
Net earnings $ 16,620 16,954 19,098 20,651
Net earnings per share - basic $ 0.46 0.47 0.53 0.58
Net earnings per share - diluted $ 0.46 0.46 0.52 0.57
</TABLE>
Quarterly and year to date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.
EXHIBIT 21.1
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
101 Marietta Street Associates Delaware
-------------------------------------------------- ------------------------
16th Street Partners, LLC Florida
-------------------------------------------------- ------------------------
91 Housing Investor, LLC Delaware
-------------------------------------------------- ------------------------
91 Housing Partners, LLC Arizona
-------------------------------------------------- ------------------------
Alexandria LP, Inc. Virginia
-------------------------------------------------- ------------------------
Alexandria LP-II, Inc. Virginia
- ---- -------------------------------------------------- ------------------------
American Pacific Properties, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
Antelope Housing, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
Apollo Japan Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
Apple Tree Village Partners LP California
- ---- -------------------------------------------------- ------------------------
Arbor Lake Club, Ltd. Florida
- ---- -------------------------------------------------- ------------------------
Aspen AMPAC Housing, LLC Colorado
- ---- -------------------------------------------------- ------------------------
Atlantic Holdings, Inc. Louisiana
- ---- -------------------------------------------------- ------------------------
Auburn North Associates LP Washington
- ---- -------------------------------------------------- ------------------------
Aurora LP, Inc. Colorado
- ---- -------------------------------------------------- ------------------------
Bert L. Smokler & Company Delaware
- ---- -------------------------------------------------- ------------------------
Bitterroot Housing LP Montana
- ---- -------------------------------------------------- ------------------------
Burlington Sqyare LP Washington
- ---- -------------------------------------------------- ------------------------
Calibre Altoona Associates LP Pennsylvania
- ---- -------------------------------------------------- ------------------------
Calibre Boalsburg Association LP Pennsylvania
- ---- -------------------------------------------------- ------------------------
Canyon Rim Terrace LP New Mexico
- ---- -------------------------------------------------- ------------------------
Capitol Way Associates LP Washington
- ---- -------------------------------------------------- ------------------------
Cascade Crossing, LLC Oregon
- ---- -------------------------------------------------- ------------------------
Cedar River Court Apartments LP Washington
- ---- -------------------------------------------------- ------------------------
Chillum Heights Elderly Housing LP Maryland
- ---- -------------------------------------------------- ------------------------
Colossal Investments GP Delaware
- ---- -------------------------------------------------- ------------------------
Colossal Investments, Inc Delaware
- ---- -------------------------------------------------- ------------------------
Comerciantes Partners LP New Mexico
- ---- -------------------------------------------------- ------------------------
Commencement Place LP Washington
- ---- -------------------------------------------------- ------------------------
1 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
Conservatory Place LP Washington
- ---- -------------------------------------------------- ------------------------
Country View Apartments Oregon
- ---- -------------------------------------------------- ------------------------
Covey Run Apartments LP Oregon
- ---- -------------------------------------------------- ------------------------
DCA Homes, Inc. Florida
- ---- -------------------------------------------------- ------------------------
DCA Management Corporation Florida
- ---- -------------------------------------------------- ------------------------
Delaware Securities Holdings, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
DEVCO Associates Joint Venture Florida
- ---- -------------------------------------------------- ------------------------
Devco Shopping Centers, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Diamond Pacific Housing LLC Nevada
- ---- -------------------------------------------------- ------------------------
Doral Park JV Florida
- ---- -------------------------------------------------- ------------------------
Dreyfus Interstate Development Corp. Delaware
- ---- -------------------------------------------------- ------------------------
DSHI Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
East Lake Village, LLC Oregon
- ---- -------------------------------------------------- ------------------------
East Wenatchee Housing LP Washington
- ---- -------------------------------------------------- ------------------------
Emerald Housing LP Oregon
- ---- -------------------------------------------------- ------------------------
Englewood Garden LP Washington
- ---- -------------------------------------------------- ------------------------
Essex Affordable LP Wisconsin
- ---- -------------------------------------------------- ------------------------
Everett LP, Inc. Massachusetts
- ---- -------------------------------------------------- ------------------------
Fairfield Arrowhead LP Delaware
- ---- -------------------------------------------------- ------------------------
Fairfield Avondale LP Arizona
- ---- -------------------------------------------------- ------------------------
Fairfield Caprock LP Georgia
- ---- -------------------------------------------------- ------------------------
Fairfield West Oaks Apartments LP Texas
- ---- -------------------------------------------------- ------------------------
Fairfield Westchase Apartments LP Texas
- ---- -------------------------------------------------- ------------------------
Fenix Redevelopment Partnership, Ltd Colorado
- ---- -------------------------------------------------- ------------------------
Glendale Housing LP Wisconsin
- ---- -------------------------------------------------- ------------------------
Glisan Housing Partners, LLC Oregon
- ---- -------------------------------------------------- ------------------------
Gowe Court Apartments LP Washington
- ---- -------------------------------------------------- ------------------------
Green River Court Apartments LP Washington
- ---- -------------------------------------------------- ------------------------
H. Miller & Sons of Florida, Inc. Florida
- ---- -------------------------------------------------- ------------------------
2 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
H. Miller & Sons, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Harbor Equity LP Oregon
- ---- -------------------------------------------------- ------------------------
Harbor Equity Limited Partnership No. II Oregon
- ---- -------------------------------------------------- ------------------------
Hastings Park Apartments LP California
- ---- -------------------------------------------------- ------------------------
Henderson Housing Partners, LLC Nevada
- ---- -------------------------------------------------- ------------------------
Hibiya Investments (GP) Delaware
- ---- -------------------------------------------------- ------------------------
Hibiya Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
Highlands Legacy LP Delaware
- ---- -------------------------------------------------- ------------------------
Hillwell Investments General Partnership Delaware
- ---- -------------------------------------------------- ------------------------
Hillwell Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
HMS Realty, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Houston LP, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Houston LP-II, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Houston LP-III, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Imperial Japan Investments GP Delaware
- ---- -------------------------------------------------- ------------------------
Imperial Japan Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
J-Rep, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
L/Cleve Holdings LP Florida
- ---- -------------------------------------------------- ------------------------
Lake Placid, LLC Delaware
- ---- -------------------------------------------------- ------------------------
Lake Wood Ranch LP Idaho
- ---- -------------------------------------------------- ------------------------
Las Vegas Housing Partners LP Nevada
- ---- -------------------------------------------------- ------------------------
Legacy LP, Inc. Colorado
- ---- -------------------------------------------------- ------------------------
Legend Oaks LP California
- ---- -------------------------------------------------- ------------------------
Leisure Colony Management Corp. Florida
- ---- -------------------------------------------------- ------------------------
Leisure Communities Management, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Len Acquisition Corporation, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Affiliate Purchaser Corporation Florida
- ---- -------------------------------------------------- ------------------------
Lennar Atlantic Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Atlantic Partners LP Delaware
- ---- -------------------------------------------------- ------------------------
Lennar Beverly Holdings, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
3 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
Lennar Bressi Carlsbad, LLC California
- ---- -------------------------------------------------- ------------------------
Lennar California Partners, Inc. California
- ---- -------------------------------------------------- ------------------------
Lennar Capital Corporation Florida
- ---- -------------------------------------------------- ------------------------
Lennar Capital Services, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Central FL-III QA LP Florida
- ---- -------------------------------------------------- ------------------------
Lennar Central FL-III, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Central Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Central Partners LP Delaware
- ---- -------------------------------------------------- ------------------------
Lennar CGA Holdings, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
Lennar Commercial Properties, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Communications, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Corporate Center, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Florida Partners I, LP Delaware
- ---- -------------------------------------------------- ------------------------
Lennar Funding Corporation Florida
- ---- -------------------------------------------------- ------------------------
Lennar Gateway Center Holdings, Inc. Massachusetts
- ---- -------------------------------------------------- ------------------------
Lennar Georgia Partners, Inc. Georgia
- ---- -------------------------------------------------- ------------------------
Lennar Huntington Beach, Inc. California
- ---- -------------------------------------------------- ------------------------
Lennar Huntington Beach, LLC Delaware
- ---- -------------------------------------------------- ------------------------
Lennar Kearny Holdings, Inc. California
- ---- -------------------------------------------------- ------------------------
Lennar Kearny Partners, LP California
- ---- -------------------------------------------------- ------------------------
Lennar L.W. Assets, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Land Partners Florida
- ---- -------------------------------------------------- ------------------------
Lennar Legend Oaks Holdings, Inc. Colorado
- ---- -------------------------------------------------- ------------------------
Lennar LW Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar LW Nevada Assets, (GP) Nevada
- ---- -------------------------------------------------- ------------------------
Lennar LW Nevada Assets, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
Lennar Mare Island, LLC California
- ---- -------------------------------------------------- ------------------------
Lennar Marietta Holdings, Inc. Georgia
- ---- -------------------------------------------------- ------------------------
Lennar Mayfair Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
4 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
Lennar Mayfair LP Delaware
- ---- -------------------------------------------------- ------------------------
Lennar MBS, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
Lennar Mortgage Holdings Corporation Florida
- ---- -------------------------------------------------- ------------------------
Lennar Mortgage Holdings I, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Mote Ranch LP Florida
- ---- -------------------------------------------------- ------------------------
Lennar Nevada Partners Nevada
- ---- -------------------------------------------------- ------------------------
Lennar Nevada Partners, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
Lennar Northeast Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Oaktree LP Texas
- ---- -------------------------------------------------- ------------------------
Lennar Park Center III Holdings, Inc. Virginia
- ---- -------------------------------------------------- ------------------------
Lennar Park JV, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Partners of Los Angeles, Inc. California
- ---- -------------------------------------------------- ------------------------
Lennar Partners, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Real Estate Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Rockland, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Rolling Ridge, Inc. California
- ---- -------------------------------------------------- ------------------------
Lennar Seaboard Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Securities Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar Texas Properties, Inc. Texas
- ---- -------------------------------------------------- ------------------------
Lennar Transamerica Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar U.S. Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar U.S. Partners LP Delaware
- ---- -------------------------------------------------- ------------------------
Lennar Western Holdings, Inc. (formerly Nevada
Financial Holdings Corporation) Nevada
- ---- -------------------------------------------------- ------------------------
Lennar Wilshire Holdings, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
Lennar Wilshire Partners, LP Nevada
- ---- -------------------------------------------------- ------------------------
Lennar-Corry, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Lennar/Rosen LP Massachusetts
- ---- -------------------------------------------------- ------------------------
LFH SUB I, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LFS Asset Corp. Nevada
- ---- -------------------------------------------------- ------------------------
5 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
LNR 16th Street, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR 99 Fund I IM, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR 99 Fund I MM, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LRN 99 Fund I, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Affordable Housing, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Affordable Housing Invetments Nevada
- ---- -------------------------------------------------- ------------------------
LNR Alexandria Holdings, Inc. Virginia
- ---- -------------------------------------------------- ------------------------
LNR Alexandria LP Delaware
- ---- -------------------------------------------------- ------------------------
LNR Altoona Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Anaheim Housing Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Ahaheim Housing Limited, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Anderson Farms Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Apache Junction Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Apache Junction Limited, Inc. Arizona
- ---- -------------------------------------------------- ------------------------
LNR Apache Pines Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Apache Pines Limited, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
LNR Apple Tree Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Apple Tree Village Limited, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Arbor Millennium Holdings, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Arbor Millhouse, LLC Louisiana
- ---- -------------------------------------------------- ------------------------
LNR Arrowhead Ranch Holdings, Inc. Arizona
- ---- -------------------------------------------------- ------------------------
LNR Ashworth Woods Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Aspen Affordable Housing, LLC Colorado
- ---- -------------------------------------------------- ------------------------
LNR Aspen Limited, Inc. Colorado
- ---- -------------------------------------------------- ------------------------
LNR Auburn Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Austin Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Avondale Holdings, Inc Arizona
- ---- -------------------------------------------------- ------------------------
LNR Bentonville Limited, Inc. Arkansas
- ---- -------------------------------------------------- ------------------------
LNR Boalsburg II Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
6 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
LNR Boalsburg II Limited, Inc. Pennsylvania
- ---- -------------------------------------------------- ------------------------
LNR Boardwalk Limited, Inc. Washington
- ---- -------------------------------------------------- ------------------------
LNR Bressi Ranch, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Brickell Bayview Corporation Florida
- ---- -------------------------------------------------- ------------------------
LNR Burlington Square Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR California Investments, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Candlewood Holdings, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
LNR Canyon Rim Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Canyon Rim Limited, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR Capital Mortgage Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Caprock GP, LLC Georgia
- ---- -------------------------------------------------- ------------------------
LNR Caprock Holdings, Inc. Georgia
- ---- -------------------------------------------------- ------------------------
LNR Cedar River Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Certificates Corp Delaware
- ---- -------------------------------------------------- ------------------------
LNR Clayton Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Clayton Meadows Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Colorado Highlands Holdings, Inc. Colorado
- ---- -------------------------------------------------- ------------------------
LNR Commencement Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Conservatory Place Limited, Inc. Washington
- ---- -------------------------------------------------- ------------------------
LNR Country Village Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Covey Run Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Covey Run Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Deer Creek Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR DSHI Interhold, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR East Wenatchee Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Eastlake Village Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Englewood Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Essex Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Essex Limited, Inc. Wisconsin
- ---- -------------------------------------------------- ------------------------
7 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
LNR Executive Tower, Inc. Colorado
- ---- -------------------------------------------------- ------------------------
LNR Federal Way Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Fenix Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Florida Funding, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Foundation, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Glisan Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Gowe Court Limited, Inc. Washington
- ---- -------------------------------------------------- ------------------------
LNR Hamilton Holdings, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Harbor Bay, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund GP IV, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund GP IX, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund GP V, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund GP VIII, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund LP Oregon
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund LP No. II Oregon
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund LP No. III Oregon
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund LP No. IV Oregon
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund Limited Partnership No. IX Florida
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund Limited Partnership No. V Oregon
- ---- -------------------------------------------------- ------------------------
LNR Harbor Fund Limited Partnership No. VIII Florida
- ---- -------------------------------------------------- ------------------------
LNR Hastings Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Hawthorne, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Henderson Cottages investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Henderson Cottages Limited, Inc. Kentucky
- ---- -------------------------------------------------- ------------------------
LNR Heron Millennium Holdings, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Houston Partner, Inc. Texas
- ---- -------------------------------------------------- ------------------------
LNR Investment Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Island Club Limited, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR Kearny Mesa, Inc. California
- ---- -------------------------------------------------- ------------------------
8 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
LNR Lafayette Holdings, Inc. Louisiana
- ---- -------------------------------------------------- ------------------------
LNR Lafayette Limited Partnership Delaware
- ---- -------------------------------------------------- ------------------------
LNR Lafayette LP, Inc. Louisiana
- ---- -------------------------------------------------- ------------------------
LNR Lake Placid Holdings, Inc. New York
- ---- -------------------------------------------------- ------------------------
LNR Lake Wood Ranch II Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Land Partners Sub, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR Land Partners Sub II, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
LNR LLC Investor, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR LLC Manager, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR LP Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Madison Holdings, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
LNR Madison Square, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR Mare Island, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Meeker Court Limited, Inc. Washington
- ---- -------------------------------------------------- ------------------------
LNR Memphis Holdings, Inc. Tennessee
- ---- -------------------------------------------------- ------------------------
LNR Memphis Limited Partnership Tennessee
- ---- -------------------------------------------------- ------------------------
LNR Memphis LP, Inc. Tennessee
- ---- -------------------------------------------------- ------------------------
LNR Millennium Manager, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Mojave Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Newport Plaza, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Oak Point, Inc. Massachusetts
- ---- -------------------------------------------------- ------------------------
LNR Orange Tree Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Orange Tree Village Limited, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Orlando Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Paredes Developers, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Paredes Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Park Court Limited, Inc. Washington
- ---- -------------------------------------------------- ------------------------
LNR Park Crest Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Parkview Millennium Holdings, LLC Delaware
- ---- -------------------------------------------------- ------------------------
9 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
LNR Partners Japan I, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR Partners Japan, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR Philadelphia Place I, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Philadelphia Place II, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Philadelphia Place III, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Philadelphia Place IV, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Phoenix LP, Inc. Arizona
- ---- -------------------------------------------------- ------------------------
LNR Phoenix LP-II, Inc. Arizona
- ---- -------------------------------------------------- ------------------------
LNR Phoenix LP-III, Inc. Arizona
- ---- -------------------------------------------------- ------------------------
LNR Property Corporation Delaware
- ---- -------------------------------------------------- ------------------------
LNR Qyayside Place Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LNR Quincy Crossing Holdings, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Racine Street Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Racine Street Limited, Inc. Washington
- ---- -------------------------------------------------- ------------------------
LNR Redhill Manager, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Redhill, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Related Venture, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
LNR Renaissance Manager, Inc. Georgia
- ---- -------------------------------------------------- ------------------------
LNR Renaissance Square, LLC Georgia
- ---- -------------------------------------------------- ------------------------
LNR Rocky Mountain Partners, Inc. Utah
- ---- -------------------------------------------------- ------------------------
LNR San Diego Spectrum I, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Sands Holdings, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
LNR Sante Fe Investor II, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Sante Fe Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Santa Teresa Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Seaview, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Shelf I, Inc. (formerly Friendswood
Development Company) Florida
- ---- -------------------------------------------------- ------------------------
LNR South Forty Limited, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
LNR Spring Wood Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
10 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
LNR Spring Wood Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Stewart Pines Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Stewart Pines Limited, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
LNR Sunflower Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Surrey I, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Surrey Row Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Titus Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Town Center Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Trails at The Park Limited, Inc. Texas
- ---- -------------------------------------------------- ------------------------
LNR Tri-Court Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Van Buren Holdings, Inc. Arizona
- ---- -------------------------------------------------- ------------------------
LNR Verandah Holdings, Inc. Texas
- ---- -------------------------------------------------- ------------------------
LNR Verandah Limited Partnership Texas
- ---- -------------------------------------------------- ------------------------
LNR Verandah LP, Inc. Texas
- ---- -------------------------------------------------- ------------------------
LNR Village Green Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Vista Ridge Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR West Oaks Holdings, Inc. Texas
- ---- -------------------------------------------------- ------------------------
LNR Westchase Holdings, Inc. Texas
- ---- -------------------------------------------------- ------------------------
LNR Western Properties, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Wiedemann Park Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Willamette Court Limited, Inc. Washington
- ---- -------------------------------------------------- ------------------------
LNR Willow Tree Investor, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR Willow Tree Limited, Inc. California
- ---- -------------------------------------------------- ------------------------
LNR Windhaven Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR Woodspring Limited, Inc. Oregon
- ---- -------------------------------------------------- ------------------------
LNR-Lennar Brannan Street, LLC California
- ---- -------------------------------------------------- ------------------------
LNR/BSC Mortgage Holdings, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR/BSC Oak Point Equity Investors, LLC Delaware
- ---- -------------------------------------------------- ------------------------
LNR/CREC Brickell Bayview Limited Partnership Florida
- ---- -------------------------------------------------- ------------------------
11 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
LNVP Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
LSC Associates Florida
- ---- -------------------------------------------------- ------------------------
LW Real Estate Investments, L.P. Delaware
- ---- -------------------------------------------------- ------------------------
Magnum Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
Majestic Investments GP Delaware
- ---- -------------------------------------------------- ------------------------
Majestic Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
Mammoth investments (GP) Delaware
- ---- -------------------------------------------------- ------------------------
Mammoth Investments, Inc Delaware
- ---- -------------------------------------------------- ------------------------
Max Housing Partners, LLC Oregon
- ---- -------------------------------------------------- ------------------------
Meeker Court Apartments Limited Partnership Washington
- ---- -------------------------------------------------- ------------------------
Meridian Court Apartments Limited Partnership Washington
- ---- -------------------------------------------------- ------------------------
Midwest Management Company, Inc. Michigan
- ---- -------------------------------------------------- ------------------------
Miller's Plantation Development Company Florida
- ---- -------------------------------------------------- ------------------------
Mita Investments GP Delaware
- ---- -------------------------------------------------- ------------------------
Mita Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
MLS Associates, GP Delaware
- ---- -------------------------------------------------- ------------------------
Mojave Housing Limited Partnership Nevada
- ---- -------------------------------------------------- ------------------------
Montgomery Farms Sr Citizens Residence LP Illinois
- ---- -------------------------------------------------- ------------------------
Morris Glen Limited Partnership Virginia
- ---- -------------------------------------------------- ------------------------
MS West Limited Partnership Delaware
- ---- -------------------------------------------------- ------------------------
MSWH Sub I, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Nevada Financial Holdings (GP) Nevada
- ---- -------------------------------------------------- ------------------------
Nevada Securities Holdings, GP Nevada
- ---- -------------------------------------------------- ------------------------
Nevada Securities Holdings, Inc. Nevada
- ---- -------------------------------------------------- ------------------------
Oak Point Associates, LLC Delaware
- ---- -------------------------------------------------- ------------------------
Oak Point Homes, LLC Delaware
- ---- -------------------------------------------------- ------------------------
Orchard Hills Limited Partnership Washington
- ---- -------------------------------------------------- ------------------------
Otemachi Investments GP Delaware
- ---- -------------------------------------------------- ------------------------
Otemachi Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
12 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
Pacific/Chartwell Management Partners, LP Texas
- ---- -------------------------------------------------- ------------------------
Pacific/Chartwelll, LLC Texas
- ---- -------------------------------------------------- ------------------------
Paredes Housing Developers LP Texas
- ---- -------------------------------------------------- ------------------------
Paredes Housing Limited Partnership Texas
- ---- -------------------------------------------------- ------------------------
Park Center III Limited Partnership Delaware
- ---- -------------------------------------------------- ------------------------
Park Court Apartments Limited Partnership Washington
- ---- -------------------------------------------------- ------------------------
Park Crest Terrace Limited Partnership Pennsylvania
- ---- -------------------------------------------------- ------------------------
Parkview Apartments Limited Partnership Illinois
- ---- -------------------------------------------------- ------------------------
Parkview Associates, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Parkview at Pembroke Pointe, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Parkview Partnership, Ltd Florida
- ---- -------------------------------------------------- ------------------------
Parkwood Place Limited Partnership Texas
- ---- -------------------------------------------------- ------------------------
Prado Apartments Limited Florida
- ---- -------------------------------------------------- ------------------------
Racine Street Associates Limited Partnership Washington
- ---- -------------------------------------------------- ------------------------
Regal Investments GP Delaware
- ---- -------------------------------------------------- ------------------------
Regal Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
Rollingcrest II, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
Rollingcrest Inc, Delaware
- ---- -------------------------------------------------- ------------------------
Rosemont Creste Limited Partnership Florida
- ---- -------------------------------------------------- ------------------------
Salado 230 LLC Delaware
- ---- -------------------------------------------------- ------------------------
Salado 240 LLC Delaware
- ---- -------------------------------------------------- ------------------------
Salado Limited Partnership Delaware
- ---- -------------------------------------------------- ------------------------
San Antonio Housing Partners LP Texas
- ---- -------------------------------------------------- ------------------------
Santa Rosa Housing Partners LP California
- ---- -------------------------------------------------- ------------------------
Santa Teresa Terrace LP California
- ---- -------------------------------------------------- ------------------------
Searight Park Limited., a Texas LP Nevada
- ---- -------------------------------------------------- ------------------------
Senior Cottages of Apache Junction LP Arizona
- ---- -------------------------------------------------- ------------------------
South Dade Utilities, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Springs Development Corporation Florida
- ---- -------------------------------------------------- ------------------------
13 of 14
<PAGE>
LNR PROPERTY CORPORATION
LIST OF SUBSIDIARIES
==== ================================================== ========================
CORPORATION STATE OF INCORPORATION
==== ================================================== ========================
Stewart Pines Limited Partnership Texas
- ---- -------------------------------------------------- ------------------------
STT Developer Limited Partnership New Mexico
- ---- -------------------------------------------------- ------------------------
Surrey Row Limited Partnership Texas
- ---- -------------------------------------------------- ------------------------
Talladega Manufacturing, Inc. Alabama
- ---- -------------------------------------------------- ------------------------
The Turtle Run Venture Florida
- ---- -------------------------------------------------- ------------------------
Titus Court Apartments Limited Partnership Washington
- ---- -------------------------------------------------- ------------------------
Town Center Developers, LLC Illinois
- ---- -------------------------------------------------- ------------------------
Town Center Limited Partnership Illinois
- ---- -------------------------------------------------- ------------------------
Universal American Realty Corporation Delaware
- ---- -------------------------------------------------- ------------------------
University Mall Associates, Ltd. Florida
- ---- -------------------------------------------------- ------------------------
University Self Storage, Ltd. Florida
- ---- -------------------------------------------------- ------------------------
Village Green Apartments Limited Partnerhsip Missouri
- ---- -------------------------------------------------- ------------------------
Virginia Gardens Associates Limited Partnership Virginia
- ---- -------------------------------------------------- ------------------------
Vista del Lago Apartments, Inc. Florida
- ---- -------------------------------------------------- ------------------------
Vista Ridge Housing Developers, LLC Colorado
- ---- -------------------------------------------------- ------------------------
Vista Ridge Housing Limited Partnership Virginia
- ---- -------------------------------------------------- ------------------------
Warmington CDC Associates, LP California
- ---- -------------------------------------------------- ------------------------
Watercrown Investments General Partnership Delaware
- ---- -------------------------------------------------- ------------------------
Watercrown Investments, Inc. Delaware
- ---- -------------------------------------------------- ------------------------
West Coast Mortgage Holdings, Inc. Florida
- ---- -------------------------------------------------- ------------------------
West Coast Mortgage Limited Partnership Delaware
- ---- -------------------------------------------------- ------------------------
Western Funding Holdings Corporation Nevada
- ---- -------------------------------------------------- ------------------------
Wiedemann Park Apartments LP Oregon
- ---- -------------------------------------------------- ------------------------
Willamette Court Apartments LP Washington
- ---- -------------------------------------------------- ------------------------
Wilson Park Housing Partners LP Texas
- ---- -------------------------------------------------- ------------------------
Woodspring Limited Partnership Oregon
==== ================================================== ========================
14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the 10-K
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-1-1998
<PERIOD-END> NOV-30-1999
<CASH> 104,269
<SECURITIES> 510,920
<RECEIVABLES> 152,827
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,031,494
<DEPRECIATION> 49,264
<TOTAL-ASSETS> 2,283,001
<CURRENT-LIABILITIES> 0
<BONDS> 1,403,401
0
0
<COMMON> 3,520
<OTHER-SE> 706,812
<TOTAL-LIABILITY-AND-EQUITY> 2,283,001
<SALES> 0
<TOTAL-REVENUES> 348,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 133,191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,909
<INCOME-PRETAX> 130,900
<INCOME-TAX> 35,340
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,560
<EPS-BASIC> 2.68
<EPS-DILUTED> 2.63
</TABLE>
