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 December 31, 1996 Commission file no. 0-16111
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(Exact name of registrant as specified in its charter)
Illinois 36-3314827
(State of organization) (IRS Employer Identification No.)
900 North Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/915-1987
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each Class which registered
- ------------------- -----------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
AND ASSIGNEE INTERESTS THEREIN
(Title of Class)
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 X
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.
Documents incorporated by reference: None
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings. . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . 11
PART II
Item 5. Market for the Partnership's Limited
Partnership Interests and Related
Security Holder Matters. . . . . . . . . . . 11
Item 6. Selected Financial Data. . . . . . . . . . . 12
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. . . . . . . . . . 18
Item 8. Financial Statements and
Supplementary Data . . . . . . . . . . . . . 27
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . 74
PART III
Item 10. Directors and Executive Officers
of the Partnership . . . . . . . . . . . . . 74
Item 11. Executive Compensation . . . . . . . . . . . 77
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . 79
Item 13. Certain Relationships and
Related Transactions . . . . . . . . . . . . 80
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . 80
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 84
i
PART I
ITEM 1. BUSINESS
Unless otherwise indicated, all references to "Notes" are to Notes to
Consolidated Financial Statements contained in this report. Capitalized
terms used herein, but not defined, have the same meanings as used in the
Notes.
The registrant, Carlyle Real Estate Limited Partnership-XV (the
"Partnership"), is a limited partnership formed in August of 1984 and
currently governed by the Revised Uniform Limited Partnership Act of the
State of Illinois to invest in income-producing commercial and residential
real property. On July 5, 1985, the Partnership commenced an offering to
the public of $250,000,000 (subject to increase by up to $250,000,000) in
Limited Partnership Interests and assigned interests therein ("Interests")
pursuant to a Registration Statement on Form S-11 under the Securities Act
of 1933 (No. 2-95382). A total of 443,711.76 Interests were sold to the
public at $1,000 per Interest. The offering closed on July 31, 1986.
Subsequent to admittance to the Partnership, no holder of Interests
(hereinafter, a "Holder" or "Holders of Interests") has made any additional
capital contribution. The Holders of Interests of the Partnership share in
their portion of the benefits of ownership of the Partnership's real
property investments according to the number of Interests held.
The Partnership is engaged solely in the business of the acquisition,
operation and sale and disposition of equity real estate investments. Such
equity investments are held by fee title, leasehold estates and/or through
joint venture partnership interests. The Partnership's real property
investments are located throughout the nation and it has no real estate
investments located outside of the United States. A presentation of
information about industry segments, geographic regions, raw materials or
seasonality is not applicable and would not be material to an understanding
of the Partnership's business taken as a whole. Pursuant to the
Partnership Agreement, the Partnership is required to terminate no later
than December 31, 2035. The Partnership is self-liquidating in nature. At
sale of a particular property, the net proceeds, if any, are generally
distributed or reinvested in existing properties rather than invested in
acquiring additional properties. As discussed further in Item 7, the
Partnership currently expects to conduct an orderly liquidation of the
remaining assets in the portfolio as quickly as practicable and to wind up
its affairs not later than December 31, 1999, barring any unforeseen
economic developments.
The Partnership has made the real property investments set forth in
the following table:
<TABLE>
<CAPTION>
SALE OR DISPOSITION
DATE OR IF OWNED
AT DECEMBER 31, 1996,
NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED
AND LOCATION (f) SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP (b)
- ---------------------- ---------- -------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
1. 900 Third Avenue
Building
New York,
New York . . . . . 517,000 8/20/84 9% fee ownership of land and
sq.ft. improvements
n.r.a. (through joint venture
partnerships) (c)
2. Piper Jaffray Tower
Minneapolis,
Minnesota. . . . . 723,755 12/27/84 6% fee ownership of land and
sq.ft. improvements (through joint
n.r.a. venture partnerships) (c)
3. RiverEdge Place
Building
Fulton County
(Atlanta),
Georgia. . . . . . 235,762 6/10/85 3% fee ownership of land and
sq.ft. improvements
n.r.a.
4. Wells Fargo Center -
IBM Tower
Los Angeles,
California . . . . 1,100,000 6/28/85 18% fee ownership of land and
sq.ft. (h) improvements (through a
n.r.a. joint venture partnership)
(c)
5. Villa Solana
Apartments
Laguna Hills,
California . . . . 272 units 8/30/85 3/23/94 fee ownership of land and
improvements (through a
joint venture partnership)
(c)(d)
6. Eastridge Mall
Casper, Wyoming. . 477,019 9/10/85 6/30/95 fee ownership of land and
sq.ft. improvements (through a
g.l.a. joint venture partnership)
(c)(d)
SALE OR DISPOSITION
DATE OR IF OWNED
AT DECEMBER 31, 1996,
NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED
AND LOCATION (f) SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP (b)
- ---------------------- ---------- -------- ---------------------- ---------------------
7. Woodland Hills
Apartments
DeKalb County
(Atlanta),
Georgia. . . . . . 228 units 9/30/85 5/22/96 fee ownership of land and
improvements (d)
8. Park at Countryside
Apartments
Port Orange
(Daytona Beach),
Florida. . . . . . 120 units 11/27/85 5/5/94 fee ownership of land and
improvements (through a
joint venture partnership)
(c)(j)
9. 160 Spear Street
Building
San Francisco,
California . . . . 267,000 11/27/85 1/25/96 fee ownership of improve-
sq.ft. ments and ground leasehold
n.r.a. interest in land (through a
joint venture partnership)
(c)(j)
10. 21900 Burbank
Boulevard
Building
Los Angeles
(Woodland Hills),
California. . . . 87,000 11/29/85 3/21/96 fee ownership of land and
sq.ft. improvements (j)
n.r.a.
11. 300 East Lombard
Building
Baltimore,
Maryland . . . . . 232,000 11/29/85 9/30/91 fee ownership of improve-
sq.ft. ments and ground leasehold
n.r.a. interest in land (through
joint venture partnerships)
12. Boatmen's Center
Kansas City,
Missouri . . . . . 285,000 12/16/85 8/31/89 fee ownership of land and
sq.ft. improvements (through a
n.r.a. joint venture partnership)
(c)(e)
SALE OR DISPOSITION
DATE OR IF OWNED
AT DECEMBER 31, 1996,
NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED
AND LOCATION (f) SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP (b)
- ---------------------- ---------- -------- ---------------------- ---------------------
13. 125 Broad Street
Building
New York,
New York . . . . . 1,336,000 12/31/85 11/15/94 fee ownership of improve-
sq.ft. ments and ground leasehold
n.r.a. interest in land (through
joint venture partnerships)
(c)(i)
14. Owings Mills
Shopping Center
Owings Mills
(Baltimore County),
Maryland . . . . . 325,000 12/31/85 6/30/93 fee ownership of land and
sq.ft. improvements (through joint
g.l.a. venture partnerships)
(c)(d)
15. 260 Franklin
Street Building
Boston,
Massachusetts. . . 348,901 5/21/86 8% fee ownership of land and
sq.ft. improvements (through a
n.r.a. joint venture partnership)
(c)(g)
16. 9701 Wilshire
Building
Beverly Hills,
California . . . . 98,721 6/17/86 10/6/94 fee ownership of land and
sq.ft. improvements (d)
n.r.a.
17. California Plaza
Walnut Creek,
California . . . . 368,290 6/30/86 7% fee ownership of land and
sq.ft. improvements (through joint
n.r.a. venture partnerships)
(c)(g)
18. Dunwoody Crossing
Apartments
(Phase I, II,
and III)
DeKalb County
(Atlanta),
Georgia. . . . . . 810 units 9/18/86 5/7/96 fee ownership of land and
improvements (through joint
venture partnerships)
(c)(d)
SALE OR DISPOSITION
DATE OR IF OWNED
AT DECEMBER 31, 1996,
NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED
AND LOCATION (f) SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP (b)
- ---------------------- ---------- -------- ---------------------- ---------------------
19. NewPark Mall
Newark
(Alameda County),
California . . . . 423,748 12/2/86 5% fee ownership of land and
sq.ft. improvements (through joint
g.l.a. venture partnerships) (c)
20. Springbrook Shopping
Center
Bloomingdale
(Chicago),
Illinois . . . . . 189,651 7/5/89 3% fee ownership of land and
sq.ft. improvements
g.l.a.
21. Erie-McClurg
Parking Facility
Chicago, Illinois. 1,073 spaces 7/21/89 9/25/92 fee ownership of land and
improvements
- ----------------
<FN>
(a) The computation of this percentage for properties held at December
31, 1996 does not include amounts invested from sources other than the
original net proceeds of the public offering as described above and in Item
7.
(b) Reference is made to the Notes and to Schedule III filed with this
annual report for the current outstanding principal balances and a
description of the long-term mortgage indebtedness secured by the
Partnership's real property investments.
(c) Reference is made to the Notes for a description of the joint
venture partnership or partnerships through which the Partnership made this
real property investment.
(d) Reference is made to the Notes for a description of the sale of
the Partnership's interest in this property.
(e) Reference is made to the Notes for a description of the amount
still due to the Partnership regarding a 1990 settlement reached with the
former venture partners.
(f) Reference is made to Item 8 - Schedule III filed with this annual
report for further information concerning the real estate taxes and
depreciation.
(g) Reference is made to Item 6 - Selected Financial Data for
additional operating and lease expiration data concerning this
investment property.
(h) Reference is made to the Notes for a description of the
reorganization and restructuring of the Partnership's interest in this
investment property.
(i) The Partnership's interest in this property was assigned to an
affiliate of the Partnership's unaffiliated venture partner in November
1994. Reference is made to the Notes for a description of the sale of the
Partnership's interest in this investment property.
(j) Reference is made to the Notes for a description of the
disposition of this investment property.
</TABLE>
The Partnership's real property investments are subject to competition
from similar types of properties (including in certain areas properties
owned by affiliates of the General Partners or properties owned by venture
partners or their affiliates) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing
tenants. Additionally, the Partnership is in competition for new tenants
in markets where significant vacancies are present. Reference is made to
Item 7 below for a discussion of competitive conditions and future
renovation and capital improvement plans of the Partnership and certain of
its significant investment properties. Approximate occupancy levels for
the properties are in the table in Item 2 below to which reference is
hereby made. The Partnership maintains the suitability and competitiveness
of its properties in its markets primarily on the basis of effective rents,
tenant allowances and service provided to tenants. In the opinion of the
Corporate General Partner of the Partnership, all of the investment
properties held at December 31, 1996 are adequately insured. Although
there is earthquake insurance coverage for a portion of the value of the
Partnership's investment properties, the Corporate General Partner does not
believe that such coverage for the entire replacement cost of the
investment properties is available on economic terms.
In November 1994, effective as of October 31, 1994, JMB/125 Broad
Building Associates, L.P. ("JMB/125"), an Illinois limited partnership,
made an agreement with its venture partners in the 125 Broad Street Company
("125 Broad") to settle their dispute regarding 125 Broad and its property.
Pursuant to the agreement, JMB/125 assigned its approximate 48.25% interest
in 125 Broad, which owned the 125 Broad Street Building and a leasehold
interest in the underlying land located in New York, New York to an
affiliate of the venture partners and released the venture partners from
any claims of JMB/125 related to 125 Broad. The Partnership owns
indirectly an approximate 60% limited partnership interest in JMB/125. An
affiliate of the Partnership owns indirectly substantially all of the
remaining interest in JMB/125. In return for the assignment, JMB/125
received an unsecured promissory note in the principal amount of $5 million
bearing simple interest at 4.5% per annum with all principal and accrued
interest due at maturity in October 1999, subject to mandatory prepayments
of principal and interest or acceleration of the maturity date under
certain circumstances. In addition, JMB/125 received a release from any
claims of certain affiliates of the venture partners and generally was to
be indemnified against any liability as a general partner of 125 Broad.
JMB/125 was also relieved of any obligation to contribute cash to 125 Broad
in the amount of its deficit capital account balance. The venture partners
subsequently filed a pre-arranged bankruptcy plan for reorganization of 125
Broad under Chapter 11 of the Bankruptcy Code in order to facilitate 125
Broad's transfer of the office building to the mortgage lender in
satisfaction of the mortgage debt and other claims. In January 1995, the
plan for reorganization was approved by the bankruptcy court, was
consummated, and the bankruptcy case was concluded. In October 1995, the
makers of the $5 million promissory note payable to JMB/125 filed for
protection from creditors under Chapter 11 of the Bankruptcy Code.
Pursuant to the bankruptcy reorganization of the makers of the note,
JMB/125, as an unsecured creditor, received limited partnership interests
and a convertible note interest in a reorganized entity that has majority
or controlling interests in six office buildings in New York, New York and
Boston, Massachusetts. The assigned value, as of the bankruptcy
confirmation date, of the interests and note received by JMB/125 was
approximately $400,000. The convertible note was fully reserved due to the
uncertainty of the realizable value of the note. Reference is made to Item
7 and to the Notes for a further discussion of this property.
In January 1996, title to the 160 Spear Street investment property
transferred to the lender in full satisfaction of the loan secured by the
property. In March 1996, the lender realized upon its security and took
title to the 21900 Burbank building in full satisfaction of the loan
secured by the property. In May 1996, the Partnership sold the Woodland
Hills apartment complex to an unaffiliated third party. In May 1996, the
Partnership sold (through the Villages Northeast venture) the Dunwoody
Crossing apartment complex to the unaffiliated venture partner. The
mortgage note secured by the Springbrook Shopping Center investment
property was in default as of December 31, 1996. In January 1997, the
lender realized upon its mortgage security interest and took title to the
property. Reference is made to the Notes for a further description of the
above transactions.
Reference is made to the Notes for a schedule of minimum lease
payments to be received in each of the next five years, and in the
aggregate thereafter, under leases in effect at the Partnership's
consolidated properties as of December 31, 1996.
The Partnership has no employees other than personnel performing on-
site duties at some of its properties, none of whom are officers or
directors of the Corporate General Partner of the Partnership.
The terms of transactions between the Partnership, the General
Partners and their affiliates are set forth in Item 11 below to which
reference is hereby made for a description of such terms and transactions.
ITEM 2. PROPERTIES
The Partnership owns or owned directly or through joint venture
partnerships the properties or interests in the properties referred to
under Item 1 above to which reference is hereby made for a description of
said properties.
The following is a listing of principal businesses or occupations
carried on in and approximate occupancy levels by quarter during fiscal
years 1996 and 1995 for the Partnership's investment properties owned
during 1996:
<TABLE>
<CAPTION>
1995 1996
------------------------- -------------------------
At At At At At At At At
Principal Business 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
------------------ ---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. 900 Third Avenue Building
New York, New York . . . Legal Services/
Detective Agency/
Insurance 94% 96% 96% 97% 97% 98% 98% 98%
2. Piper Jaffray Tower
Minneapolis, Minnesota . Legal/Advertising/
Financial Services 97% 97% 98% 98% 98% 98% 98% 98%
3. RiverEdge Place
Fulton County (Atlanta),
Georgia. . . . . . . . . Banking 88% 88% 88% 89% 90% 91% 90% 96%
4. Wells Fargo Center
- IBM Tower
Los Angeles,
California . . . . . . . Business Informa-
tion Systems/
School District/
Legal Services 96% 96% 96% 95% 95% 97% 92% 92%
5. Woodland Hills Apartments
DeKalb County (Atlanta),
Georgia. . . . . . . . . Apartments 99% 99% 99% 100% 97% N/A N/A N/A
6. 160 Spear Street Building
San Francisco,
California . . . . . . . Public Utility/
Government/
Insurance 89% 77% 76% 56% N/A N/A N/A N/A
7. 21900 Burbank Boulevard
Building
Los Angeles
(Woodland Hills),
California . . . . . . . Insurance/
Financial Services 96% 94% 96% 96% N/A N/A N/A N/A
8. 260 Franklin Street
Building
Boston, Massachusetts. . Financial Services 99% 99% 99% 99% 96% 95% 96% 96%
9. California Plaza
Walnut Creek,
California . . . . . . . Manufacturing/
Public Utility 95% 94% 93% 90% 91% 89% 89% 90%
1995 1996
------------------------- -------------------------
At At At At At At At At
Principal Business 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
------------------ ---- ---- ---- ----- ---- ---- ----- -----
10. Dunwoody Crossing
(Phase I, II and III)
Apartments
DeKalb County (Atlanta),
Georgia. . . . . . . . . Apartments 93% 93% 93% 91% 90% N/A N/A N/A
11. NewPark Mall
Newark (Alameda County),
California . . . . . . . Retail 80% 80% 80% 80% 79% 79% 77% 78%
12. Springbrook
Shopping Center
Bloomingdale (Chicago),
Illinois . . . . . . . . Retail 72% 72% 70% 66% 69% 55% 53% 53%
<FN>
- --------------------
Reference is made to Item 6, Item 7 and to the Notes for further information regarding property occupancy,
competitive conditions and tenant leases at the Partnership's investment properties.
An "N/A" indicates that the property, or Partnership's interest in the property was sold or disposed of and
was not owned by the Partnership at the end of the quarter.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not subject to any material pending legal
proceedings. Reference is made to the Notes for a discussion of certain
litigation involving the Partnership related to the 900 Third Avenue
investment property.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security Holders during
the 1996 and 1995.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS
AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1996, there were 41,033 record Holders of the
443,623.94862 Interests outstanding in the Partnership. There is no public
market for Interests, and it is not anticipated that a public market for
Interests will develop. Upon request, the Corporate General Partner may
provide information relating to a prospective transfer of Interests to an
investor desiring to transfer his Interests. The price to be paid for the
Interests, as well as any other economic aspect of the transaction, will be
subject to negotiation by the investor. There are certain conditions and
restrictions on the transfer of Interests, including, among other things,
the requirement that the substitution of a transferee of Interests as a
Limited Partner of the Partnership be subject to the written consent of the
Corporate General Partner, which may be granted or withheld in its sole and
absolute discretion. The rights of a transferee of Interests who does not
become a substituted Limited Partner will be limited to the rights to
receive his share of profits or losses and cash distributions from the
Partnership, and such transferee will not be entitled to vote such
Interests or have other rights of a Limited Partner. No transfer will be
effective until the first day of the next succeeding calendar quarter after
the requisite transfer form satisfactory to the Corporate General Partner
has been received by the Corporate General Partner. The transferee
consequently will not be entitled to receive any cash distributions or any
allocable share of profits or losses for tax purposes until such next
succeeding calendar quarter. Profits or losses from operations of the
Partnership for a calendar year in which a transfer occurs will be
allocated between the transferor and the transferee based upon the number
of quarterly periods in which each was recognized as the Holder of the
Interests, without regard to the results of the Partnership's operations
during particular quarterly periods and without regard to whether cash
distributions were made to the transferor or transferee. Profits or losses
arising from the sale or other disposition of Partnership properties will
be allocated to the recognized Holder of the Interests as of the last day
of the quarter in which the Partnership recognized such profits or losses.
Cash distributions to a Holder of Interests arising from the sale or other
disposition of Partnership properties will be distributed to the recognized
Holder of the Interests as of the last day of the quarterly period with
respect to which such distribution is made.
Reference is made to the Notes for a discussion of the provisions of
the Partnership Agreement relating to cash distributions. Reference is
made to Item 6 below for a discussion of cash distributions made to the
Holders of Interests. The cash flows generated by most of the
Partnership's investment properties are segregated or restricted as to
their use pursuant to or as a result of the mortgage loans secured by such
investment properties as more fully discussed in the Notes.
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<CAPTION>
1996 1995 1994 1993 1992
------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total income. . . . . . . $ 28,496,327 45,415,094 53,107,469 55,288,244 64,499,133
============ ============ =========== =========== ===========
Operating earnings
(loss) . . . . . . . . . $(54,263,298) (15,974,642) (16,770,041) (27,390,383) (37,863,307)
Partnership's share of
earnings (loss) from
operations of uncon-
solidated ventures . . . 5,056,608 (6,484,175) (15,190,416) (31,617,778) (24,576,481)
Venture partners' share
of (earnings) loss from
ventures' operations . . (85,091) 2,528,102 2,235,151 2,866,514 3,678,862
------------ ------------ ----------- ----------- -----------
Net operating
earnings (loss). . . . . (49,291,781) (19,930,715) (29,725,306) (56,141,647) (58,760,926)
Gain on sale or disposi-
tion of investment
properties (net of
venture partner's share
of $204,139 in 1996
and $823,609 in 1994)
and manager's incentive
fee of $1,730,016
in 1996. . . . . . . . . 12,230,126 6,785,025 3,597,347 -- 506,446
Gain on sale or disposi-
tion of interests
in unconsolidated
ventures . . . . . . . . 435,060 856,751 31,743,006 2,856,567 --
------------ ------------ ----------- ----------- -----------
Earnings (loss) before
extraordinary items
and cumulative effect
of an accounting
change . . . . . . . . . (36,626,595) (12,288,939) 5,615,047 (53,285,080) (58,254,480)
Extraordinary items . . . 35,222,847 -- -- -- --
Cumulative effect of
an accounting change . . (30,000,000) -- -- -- --
------------ ------------ ----------- ----------- -----------
Net earnings (loss) . . . $(31,403,748) (12,288,939) 5,615,047 (53,285,080) (58,254,480)
============ ============ =========== =========== ===========
1996 1995 1994 1993 1992
------------- ------------- ----------- ------------ ------------
Net earnings (loss)
per Interest:
Net operating loss. . . $ (106.67) (43.12) (64.31) (121.46) (127.13)
Net gain on sale
or disposition
of investment
properties . . . . . . 27.29 17.05 8.03 -- 1.13
Gain on sale or
disposition of
interests in uncon-
solidated ventures . . .97 -- 70.83 6.37 --
Extraordinary item. . . 78.61 -- -- -- --
Cumulative effect of
an accounting change . (64.92) -- -- -- --
------------ ------------ ----------- ----------- -----------
Net earnings (loss) . . . $ (64.72) (26.07) 14.55 (115.09) (126.00)
============ ============ =========== =========== ===========
Total assets. . . . . . . $174,989,293 301,007,974 327,662,913 371,886,177 414,132,574
Long-term debt. . . . . . $100,932,989 108,528,346 246,148,319 237,811,558 305,589,971
Cash distributions
per Interest (b) . . . . $ 26.37 8.09 5.00 .55 .50
============ ============ =========== =========== ===========
<FN>
- -------------
(a) The above selected financial data should be read in conjunction with the consolidated financial
statements and the related notes appearing elsewhere in this annual report.
(b) Cash distributions from the Partnership are generally not equal to Partnership income (loss) for
financial reporting or Federal income tax purposes. Each Partner's taxable income (loss) from the Partnership in
each year is equal to his allocable share of the taxable income (loss) of the Partnership, without regard to the
cash generated or distributed by the Partnership. Accordingly, cash distributions to the Holders of Interests
since the inception of the Partnership have not resulted in taxable income to such Holders of Interests and have
therefore represented a return of capital.
</TABLE>
<TABLE>
SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1996
<CAPTION>
Property
- --------
California Plaza a) The occupancy rate of net rentable square feet ("NRF") and average base rent per square
foot as of December 31 for each of the last five years were as follows:
Avg. Annual
NRF Base Rent Per
December 31, Occupancy Rate Square Foot (1)
------------ -------------- ---------------
<S> <C> <C> <C> <C>
1992 . . . . . 92% $18.43
1993 . . . . . 95% 17.80
1994 . . . . . 95% 17.79
1995 . . . . . 90% 16.97
1996 . . . . . 90% 13.21
<FN>
(1) Average annual base rent per square foot is based on NRF occupied as of December 31
of each year.
</TABLE>
<TABLE>
<CAPTION>
Base Rent Scheduled Lease Lease
b) Significant Tenants Square Feet Per Annum Expiration Date Renewal Option(s)
------------------- ----------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Maxis 38,492 $ 545,047 11/2002 N/A
Liquid Air 54,974 $2,045,814 01/2001 N/A
(1) In June 1995, the venture entered into a seven year direct lease with Maxis for an
approximately 38,500 square foot space formerly occupied by Liquid Air. In addition, Liquid Air guaranteed the
obligations under the Maxis lease up to $1,500,000 through its original expiration date of January 2001. Liquid
Air paid the venture $3,740,000, of which $2,745,058 relates to future lost rents. Reference is made to the Notes
for a further description of the above transaction.
</TABLE>
<TABLE>
<CAPTION>
c) The following table sets forth certain information with respect to the expiration of
leases for the next ten years at Cal Plaza:
Annualized Percent of
Number of Approx. Total Base Rent Total 1996
Year Ending Expiring NRF of Expiring of Expiring Base Rent
December 31, Leases Leases (1) Leases Expiring
------------ --------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997 13 54,810 $ 654,915 15.0%
1998 10 53,331 548,208 12.5%
1999 11 55,364 618,426 14.1%
2000 1 3,314 42,156 1%
2001 4 67,501 1,946,154 44.4%
2002 2 44,927 641,098 14.6%
2003 -- -- -- --
2004 2 13,060 184,920 4.2%
2005 -- -- -- --
2006 1 14,298 73,778 1.7%
<FN>
(1) Excludes leases that expire in 1997 for which renewal leases or leases with
replacement tenants have been executed as of March 21, 1997.
</TABLE>
<TABLE>
<CAPTION>
Property
- --------
260 Franklin a) The occupancy rate of net rentable square feet ("NRF") and average base rent per square
foot as of December 31 for each of the last five years were as follows:
Avg. Annual
NRF Base Rent Per
December 31, Occupancy Rate Square Foot (1)
------------ -------------- ---------------
<S> <C> <C> <C> <C>
1992 . . . . . 96% $27.29
1993 . . . . . 99% 27.50
1994 . . . . . 99% 27.80
1995 . . . . . 99% 27.20
1996 . . . . . 96% 26.93
<FN>
(1) Average annual base rent per square foot is based on NRF occupied as of December 31
of each year.
</TABLE>
<TABLE>
<CAPTION>
Base Rent Scheduled Lease Lease
b) Significant Tenants Square Feet Per Annum Expiration Date Renewal Option(s)
------------------- ----------- --------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Properties,
Inc. 173,781 $4,276,312 03/2005 N/A
</TABLE>
<TABLE>
<CAPTION>
c) The following table sets forth certain information with respect to the expiration of
leases for the next ten years at 260 Franklin:
Annualized Percent of
Number of Approx. Total Base Rent Total 1996
Year Ending Expiring NRF of Expiring of Expiring Base Rent
December 31, Leases Leases (1) Leases Expiring
------------ --------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997 2 3,007 $ 70,533 .78%
1998 2 3,985 97,604 1.1%
1999 4 13,749 336,829 3.7%
2000 8 62,399 2,631,626 29.1%
2001 4 20,756 731,582 8.1%
2002 -- -- -- --
2003 1 2,000 64,000 .71%
2004 1 14,134 415,822 4.6%
2005 1 173,781 4,276,312 47.3%
2006 1 21,589 616,921 6.8%
<FN>
(1) Excludes leases that expire in 1997 for which renewal leases or leases with
replacement tenants have been executed as of March 21, 1997.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the public offering of Interests as described in Item
1, the Partnership had approximately $385,000,000 (after deducting selling
expenses and other offering costs) with which to make investments in
income-producing commercial and residential real property, to pay legal
fees and other costs (including acquisition fees) related to such
investments and to satisfy working capital requirements. A portion of the
proceeds was utilized to acquire the properties described in Item 1 above.
During 1996 some of the Holders of Interests in the Partnership
received from an unaffiliated third party unsolicited offers to purchase up
to 21,591 Interests in the Partnership at between $40 and $50 per Interest.
The Partnership recommended against acceptance of these offers on the basis
that, among other things, the offer price was inadequate. In June 1996
such offers expired. As of the date of this report, the Partnership is
aware that 6,544.7301 Interests have been purchased by such unaffiliated
third parties either pursuant to such tender offers or through negotiated
purchases. The Partnership has recently received requests from another
unaffiliated third party for the list of Holders of Interest. It is
possible that other offers for Interests may be made by unaffiliated third
parties in the future, although there is no assurance that any other third
party will commence an offer for Interests, the terms of any such offer or
whether any such offer, if made, will be consummated, amended or withdrawn.
The board of directors of JMB Realty Corporation ("JMB"), the corporate
general partner of the Partnership, has established a special committee
(the "Special Committee") consisting of certain directors of JMB to deal
with all matters relating to tender offers for Interests in the
Partnership, including any and all responses to such tender offers. The
Special Committee has retained independent counsel to advise it in
connection with any potential tender offer for Interests and has retained
Lehman Brothers Inc. as financial advisor to assist the Special Committee
in evaluating and responding to any additional potential tender offers for
Interests.
At December 31, 1996, the Partnership and its consolidated ventures
had cash and cash equivalents of approximately $20,664,000. Such funds and
certain escrowed amounts (which are restricted as to their use) are
available for the payment of the Partnership's share of leasing costs and
capital improvements for its investment properties as well as for future
distributions to partners, working capital requirements, including the
Partnership's share of potential future deficits, capital improvements, and
financing or loan restructuring costs at certain of the Partnership's
investment properties as discussed below and in the Notes. Anticipated
deficits for 1997, including those for expected tenant improvement and
other lease inducement costs, at the 260 Franklin office building are
expected to be paid out of the joint venture's restricted reserve account.
The joint venture that owns the 260 Franklin office building is seeking a
further extension to its mortgage loan as discussed below. The Partnership
currently has adequate cash and cash equivalents to maintain the operations
of the Partnership. However, the Partnership has taken steps to preserve
its working capital by suspending operating distributions (except for
certain withholding requirements) to the Holders of Interests and the
General Partners effective as of the first quarter of 1992. In addition,
the General Partners and their affiliates have previously deferred
management and leasing fees payable to them in an aggregate amount of
$2,186,007 (approximately $5 per Interest) through December 31, 1996,
pursuant to debt modifications at the 260 Franklin and Piper Jaffray
properties. An affiliate of the General Partners has deferred (through
reimbursements made directly to the Partnership) $675,876 (included in the
aggregate amount above) for the Partnership's proportionate share of
property management and leasing fees paid by affiliated joint venture
partnerships or their underlying ventures, as the case may be. These
reimbursements include the proportionate share of property management fees
of one unconsolidated entity, which is not included in the consolidated
financial statements. Effective October 1, 1993, the Partnership and its
consolidated ventures began paying property management and leasing fees on
a current basis other than for the 260 Franklin office building. Reference
is made to the Notes relating to this deferral and subsequent partial
payment of distributions, fees and reimbursements.
The Partnership and its consolidated ventures have currently budgeted
in 1997 approximately $2,804,000 for tenant improvements and other capital
expenditures. The Partnership's share of such items and its share of such
similar items for its unconsolidated ventures in 1997 is currently budgeted
to be approximately $3,477,000. Actual amounts expended in 1997 may vary
depending on a number of factors including actual leasing activity, results
of property operations, liquidity considerations and other market
conditions over the course of the year. The source of capital for such
items and for both short-term and long-term future liquidity requirements
is expected to be primarily through net cash generated by the Partnership's
investment properties, and through the sale or refinancing of such
investments, as well as cash and certain escrowed accounts currently held.
However, most of the Partnership's investment properties are either
restricted as to their use of excess cash flow by escrow agreements
negotiated pursuant to loan modifications or are currently experiencing
deficits. In such regard, reference is made to the Partnership's property
specific discussions below and also to the Partnership's disclosure of
certain property lease expirations in Item 6.
PIPER JAFFRAY TOWER
The Minneapolis office market has rebounded over the last couple
years. Vacancy rates for Class A buildings (competitive market for the
property) have dropped to the low single digit level. Consequently, net
effective rental rates have risen, although not to a level achieved prior
to the real estate depression experienced in the late 1980's through the
early 1990's.
A major law firm tenant, Popham Haik (103,782 square feet with a lease
expiration date of January 31, 2003) informed the joint venture that as a
result of recent attorney and staff downsizing, they no longer need all of
their space and they would like the joint venture to consider taking back a
significant portion of their space. The joint venture has analyzed the
tenants request and determined that based upon its inability to pay the
full amount of rent, a modification of the lease is necessary. In this
regard, the joint venture has reached an agreement in principle with the
tenant to amend the terms of its lease. Under the terms of the agreement,
the joint venture will take back approximately 56,000 square feet of
Popham's leased space leaving it with approximately 47,000 square feet.
Popham's rent on the remaining square footage will increase to a market
rate effective on the date of the give-back. There will be no adjustment
to the lease expiration date on the remaining space. The underlying lender
has approved the terms of this agreement. However, there are no assurances
that this agreement will be finalized on these or any terms. In the
meantime, the manager is in final lease negotiations with a tenant to
occupy approximately 12,000 square feet of Popham's give-back space at
rental rates in excess of Popham's original rental rate. There are no
assurances that this lease will be finalized on these or any terms.
In addition, Piper Jaffray (310,111 square feet with a lease
expiration date of March 31, 2000) has requested that the joint venture
submit a proposal for early renewal of its lease. Piper Jaffray has
requested that in return for such early renewal, it would like an immediate
reduction in the existing rental rate which exceeds current market rental
rates. The joint venture has made a proposal to extend the terms of
Piper's lease for a period of nine years. Under the proposal, Piper's
current rent would be reduced for the last lease year with an extension
period rent equal to the joint venture's estimate of market rental rates at
the time which would be less than Piper's current rental rate. Any
modification or early renewal of this lease would require the approval of
the underlying lender. The joint venture has not received an official
response from the tenant. During the fourth quarter, Piper Jaffray
exercised an option to lease approximately 24,000 square feet of space
under lease expiring December 31, 1997. The rental rate will be at market
which is currently being negotiated. The lease expiration date will be
coterminous with its existing lease termination date of March 31, 2000.
Under the terms of a modification agreement with the lender, the
lender is essentially entitled to all operating cash flow. In addition to
fixed interest on the mortgage notes secured by the Piper Jaffray Tower,
contingent interest is payable in annual installments on April 1 computed
at 50% of gross receipts, as defined, for each fiscal year in excess of
$15,200,000. No such contingent interest was due for 1994, 1995 or 1996.
In addition, to the extent the investment property generates cash flow
after payment of the fixed interest on the mortgage, contingent interest,
if any, leasing and capital costs, and 25% of the ground rent, such amount
will be paid to the lender as a reduction of the principal balance of the
mortgage loan. The excess cash flow payments remitted to the lender for
1994 and 1995 totalled $353,251 and $464,178, respectively. During 1996,
excess cash flow generated under this agreement was $741,627 which is
expected to be remitted to the lender during the second quarter of 1997.
On a monthly basis, the venture deposits the property management fee into
an escrow account to be used (including interest earned thereon) for future
leasing costs to the extent cash flow is not sufficient to cover such
items. To date, no escrow funds have been required to be used for leasing
costs. At December 31, 1996, the balance of such escrow account totalled
approximately $3,934,000. The manager of the property (which was an
affiliate of the Corporate General Partner through November 1994) has
agreed to defer receipt of its management fee until a later date. As of
December 31, 1996, the manager has deferred approximately $3,216,000
($1,839,000 of which represents deferred fees due to affiliates through
November 1994, of which $919,500 is the Partnership's share) of management
fees.
In addition, upon sale or refinancing, the lender is entitled to
prepayment fees as well as a significant level of proceeds in excess of the
then unpaid principal balance prior to the joint venture's receipt of
proceeds. While the modification provides the joint venture with an
opportunity to retain an ownership position in the property, under the
current terms of the modified debt, there must be a significant additional
improvement in current market and property operating conditions resulting
in a significant increase in the value of the property before the joint
venture can share in sale or refinancing proceeds. The joint venture
anticipates exploring refinancing alternatives during 1997. Such
refinancing would only be possible if the underlying lender would accept a
discount and would also likely require additional capital contributions
from the Partnership and its affiliated partner. There are no assurances
that a refinancing can be achieved. The Partnership will not commit
additional capital to this property unless, among other things, it believes
that upon sale of the property, the Partnership will receive a return of
such funds and a reasonable rate of return thereon.
160 SPEAR STREET BUILDING
In January 1996, the Partnership, through the joint venture,
transferred title to the lender in full satisfaction of the loan secured by
the property. Reference is made to the Notes for a description of such
transfer.
125 BROAD STREET BUILDING
On November 15, 1994, effective as of October 31, 1994, JMB/125 and
certain affiliates of Olympia & York Developments, Ltd. ("O&Y") reached an
agreement to settle their dispute regarding 125 Broad and its property.
Under the terms of the agreement, JMB/125 assigned its interest in 125
Broad to an affiliate of O&Y and released its venture partners (the "O&Y
partners") from any claims related to 125 Broad. In return, JMB/125
received an unsecured promissory note in the principal amount of $5 million
bearing simple interest at 4.5% per annum with all principal and accrued
interest due at maturity in October 1999, subject to mandatory prepayments
of principal and interest or acceleration of the maturity date under
certain circumstances. As of December 31, 1994, the note had been fully
reserved by JMB/125. In addition, JMB/125 received a release from any
claims of certain O&Y affiliates and generally was to be indemnified
against any liability as a general partner of 125 Broad. JMB/125 was also
relieved of any obligation to contribute cash to 125 Broad in the amount of
its deficit capital account balance. Affiliates of O&Y subsequently filed
a pre-arranged bankruptcy plan for reorganization of 125 Broad under
Chapter 11 of the Bankruptcy Code in order to facilitate 125 Broad's
transfer of the office building to the mortgage lender in satisfaction of
the mortgage debt and other claims. In January 1995, the plan for
reorganization was approved by the bankruptcy court, was consummated, and
the bankruptcy was concluded. In October 1995, the makers of the $5
million promissory note payable to JMB/125 filed for protection from
creditors under Chapter 11 of the Bankruptcy Code. Pursuant to the
bankruptcy reorganization of the makers of the note, JMB/125, as an
unsecured creditor, received limited partnership interests and a
convertible note interest in a reorganized entity that has majority or
controlling interests in six office buildings in New York, New York and
Boston, Massachusetts. The assigned value, as of the bankruptcy
confirmation date, of the interests and note received by JMB/125 was
approximately $400,000. The convertible note was fully reserved due to the
uncertainty of the realizable value of the note.
260 FRANKLIN STREET BUILDING
The office market in the Financial District of Boston remains
competitive due to new office building developments and layoffs, cutbacks
and consolidations by financial service companies. The effective rental
rates achieved upon re-leasing have been substantially below the rates
which were received under the previous leases for the same space. The
property is currently expected to operate at a deficit for 1997 and for
several years thereafter. In December 1991, 260 Franklin, the affiliated
joint venture, reached an agreement with the lender to modify the long-term
mortgage note secured by the 260 Franklin Street Building. The loan
modification required that the affiliated joint venture establish an escrow
account for excess cash flow from the property's operations (computed
without a deduction for property management fees and leasing commissions)
to be used to cover the cost of capital and tenant improvements and lease
inducements, which are the primary components of the anticipated operating
deficits noted above, with the balance, if any, of such escrowed funds
available at the scheduled or accelerated maturity to be used for the
payment of principal and interest due to the lender. Beginning January 1,
1992, 260 Franklin began escrowing the payment of property management fees
and lease commissions owed to an affiliate of the Corporate General Partner
pursuant to the terms of the debt modification, which is more fully
described in the Notes, and accordingly, such fees and commissions remained
unpaid. In addition, as the long-term mortgage loan in the original
principal amount of approximately $75,000,000 plus accrued and deferred
interest, matured January 1, 1996, 260 Franklin as of such date began
submitting the net operating cash flow of the property to the lender while
seeking an extension or refinancing of the loan. 260 Franklin also began
investigating market conditions to determine whether conditions were
favorable for selling the property. However, it was determined that
conditions were not favorable and the property continues to be held as
investment property. The joint venture reached an agreement with the
lender for an extension of the mortgage loan through January 1, 1997. In
addition to substantially the same terms as were in effect prior to such
extension, the agreement requires that the property submit net operating
cash flow of the property to the lender. The joint venture is currently
seeking a further extension of the mortgage loan through January 1, 1998.
However, there can be no assurance that the joint venture will be able to
obtain a further extension of the loan. If 260 Franklin is unable to
extend the mortgage loan to the property, the Partnership may decide not to
commit any significant additional funds. This may result in 260 Franklin
and the Partnership no longer having an ownership interest in the property.
In such event, 260 Franklin and the Partnership would recognize a net gain
for financial reporting and Federal income tax purposes with no
distributable proceeds.
900 THIRD AVENUE BUILDING
In 1994, JMB/900 Third Avenue Associates, on behalf of the property
joint venture, successfully completed an extension to December 1, 2001 of
its mortgage loan, which was scheduled to mature on December 1, 1994. In
addition, net cash flow after debt service and capital (as defined) will be
paid into an escrow account controlled by the lender to be used by the
property joint venture for the payment of property taxes and for releasing
costs associated with leases which expire in 1999 and 2000 (approximately
240,000 square feet of space). To date, no escrow funds have been required
to be used for leasing costs. The remaining proceeds in this escrow
(including interest earned thereon), if any, will be released to the
property joint venture once 90% of such leased space has been renewed or
released. The agreement provides, however, that the joint venture can
repay itself, out of the first available net cash flow, certain costs
incurred and deposits made by the joint venture in connection with the loan
extension (approximately $3,229,000). As of the date of this report, all
of the amounts advanced by the joint venture have been repaid to the joint
venture (of which the Partnership's share is approximately $2,000,000).
The escrow balance at December 31, 1996 is approximately $193,000.
Occupancy of this building increased to 98% at the end of 1996. The
midtown Manhattan market remains competitive. The manager has signed
leases or is in final lease negotiations with tenants to occupy virtually
all the remaining vacant space in the building. During 1997, leases
covering approximately 21,000 square feet of space or approximately 2% of
the building's leasable square footage, expire. Tenants occupying
approximately one-half of such space are expected to renew.
JMB/900 is currently involved in litigation. Current discussions
involve a settlement whereby JMB/900 would purchase all the unaffiliated
venture partner interests in the property. There are no assurances that a
settlement will be finalized on this or any terms. The Partnership will
not commit additional capital to this property unless, among other things,
it believes that upon sale of the property, the Partnership will receive a
return of such funds and a reasonable rate of return thereon.
WELLS FARGO CENTER
The Wells Fargo Center ("South Tower") operates in the downtown Los
Angeles office market, which has become extremely competitive over the last
several years with the addition of several new buildings that has resulted
in a vacancy rate of approximately 25% in the marketplace. The Partnership
expects that the competitive market conditions and the continued recession
in Southern California will have an adverse affect on the building through
lower effective rental rates achieved on re-leasing of existing space which
expires or is given back over the next several years. In addition, new
leases are expected to require expenditures for lease commissions and
tenant improvements prior to occupancy. This anticipated decline in rental
rates, the anticipated increase in re-leasing time and the costs upon
releasing will result in a decrease in cash flow from operations over the
near term.
During 1996, the Partnership, the joint venture partner, and the
lenders reached an agreement to modify the mortgage note and the promissory
note and to restructure the joint venture. Since the terms of the
agreement make it unlikely that the Partnership would recover any
incremental investment, the Partnership has decided not to commit any
significant additional amounts to the property. Reference is made to the
Notes for a further description of these events.
RIVEREDGE PLACE BUILDING
The Partnership ceased making debt service payments effective July 1,
1992, and continues to seek to restructure the mortgage note which matured
January 1, 1996 (with a principal balance of $18,166,294 and accrued
interest of approximately $11,300,000 at December 31, 1996). The property
has generated approximately $5,285,000 and $3,980,000 of cash flow as of
December 31, 1996 and December 31, 1995, respectively, since the
Partnership ceased making monthly debt service payments. Such cash flow
will likely be remitted to the lender and therefore these amounts are
included in other restricted securities in the consolidated financial
statements. If the Partnership's attempt for mortgage note restructuring
is not successful, the Partnership would likely decide, based upon current
market conditions and other considerations relating to the property and the
Partnership's portfolio, not to commit significant additional amounts to
the property. This would result in the Partnership no longer having an
ownership interest in the property and would result in a net gain for
financial reporting and Federal income tax purposes without any
corresponding distributable proceeds. The mortgage note has been
classified as a current liability in the accompanying consolidated
financial statements at December 31, 1996 and 1995. The RiverEdge Place
Building was approximately 96% occupied at the end of 1996. Due to the
current status of the mortgage note negotiations the property has been
classified as held for sale or disposition as of December 31, 1996, and
therefore, will not be subject to continued depreciation.
21900 BURBANK BUILDING
In March 1996, the lender realized upon its security and took title to
the property in full satisfaction of the loan secured by the property.
Reference is made to the Notes for a further description of such transfer.
NEWPARK ASSOCIATES
As a result of the acquisition by Federated Department Stores
("Federated") of the company which owns the Emporium Capwell store at
NewPark Mall, Federated, which also owns the Macy's store at NewPark,
approached the NewPark joint venture regarding a sale of the Emporium
Capwell building. Simultaneously with its negotiations to acquire the
Emporium Capwell building, the NewPark joint venture is negotiating to sell
the building to a national retail store owner. The NewPark joint venture
expects to receive net proceeds from the transactions if they are closed as
currently contemplated. However, there is no assurance that the
transactions will be closed or, if so, will be on the terms currently
contemplated.
CALIFORNIA PLAZA
The Partnership modified the loan secured by the property on December
22, 1993. As more fully discussed in the Notes, the loan modification
reduced the pay rate of monthly interest only payments to 8% per annum,
effective February 1993, extended the loan maturity date to January 1,
2000, and requires the net cash flow of the property to be escrowed (as
defined) with a portion to be used to fund a reserve account. The venture
also funded $500,000 into the reserve account as required by the
modification agreement. This reserve account (including interest earned
thereon) is to be used to fund future costs, including tenant improvements,
leasing commissions and capital improvements, approved by the lender (none
used as of December 31, 1996). The property has been classified as held
for sale or disposition as of December 31, 1996, and therefore, will not be
subject to continued depreciation.
SPRINGBROOK SHOPPING CENTER
The Springbrook Shopping Center was approximately 53% occupied at the
end of 1996 and operated at a deficit for the year 1996. The Partnership
decided not to commit significant additional amounts to the property and
ceased making monthly debt service payments in June 1996. Accordingly, the
mortgage loan with a scheduled maturity of April 1997 and a principal
balance of $10,932,588 has been classified as a current liability at
December 31, 1996 and the property was classified as held for sale or
disposition as of April 1, 1996. The property was no longer subject to
depreciation. Also, commencing in June 1996, all net cash flow from the
property was being escrowed with the lender. Principal and interest
payments in arrears as of December 31, 1996 were approximately $323,000.
As a result of the non-payment of debt service the lender realized upon its
security and took title in 1997 to the property in full satisfaction of the
loan secured by the property.
WOODLAND HILLS APARTMENTS
On May 22, 1996, the Partnership sold the Woodland Hills apartment
complex to an unaffiliated third party for $12,225,000 (before selling
costs and retirement of indebtedness of approximately $8,175,000).
Reference is made to the Notes for a further description of such event.
VILLAGES NORTHEAST
On May 7, 1996, the Partnership, through the joint venture, sold the
Dunwoody Crossing Phases I, II and III apartment complex to an unaffiliated
third party for $47,000,000 (before selling costs and retirement of
indebtedness of approximately $30,900,000). Reference is made to the Notes
for a further description of such event.
GENERAL
Certain of the Partnership's investments have been made through joint
ventures. There are certain risks associated with the Partnership's
investments made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
Although the Partnership expects to distribute sales proceeds from the
disposition of certain of the Partnership's remaining assets, aggregate
distributions of sale and refinancing proceeds received by Holders of
Interest over the entire term of the Partnership will be substantially less
than one-fourth of their original investment. However, in connection with
sales or other dispositions (including transfers to lenders) of properties
(or interests therein) owned by the Partnership or its joint ventures, the
Holders of Interests will be allocated gain for Federal income tax
purposes, regardless of whether any proceeds are distributable from such
sales or other dispositions.
As a result of the real estate market conditions discussed above, the
Partnership continues to conserve its working capital. All expenditures
are carefully analyzed and certain capital projects are deferred when
appropriate. The Partnership has also sought or is seeking additional loan
modifications where appropriate. By conserving working capital, the
Partnership will be in a better position to meet the future needs of its
properties since the availability of outside sources of capital may be
limited given the portfolio's current debt levels. Due to these factors,
the Partnership has held its remaining investment properties longer than
originally anticipated in an effort to maximize the return of their
investment to the Holders of Interests. However, after reviewing the
remaining properties and the competitive marketplaces in which they
operate, the General Partners of the Partnership expect to be able to
conduct an orderly liquidation of its remaining investment portfolio as
quickly as practicable. In such regard, certain of the Partnership's
investment properties were classified as held for sale or disposition
during 1996 as discussed above. The affairs of the Partnership are
expected to be wound up no later than 1999 (sooner if the properties are
sold in the near term), barring unforeseen economic developments.
RESULTS OF OPERATIONS
Significant fluctuations in the accompanying consolidated financial
statements are due to the respective lenders obtaining legal title to the
160 Spear Street and 21900 Burbank Buildings and the sale of the Dunwoody
Crossing and Woodland Hills apartment complexes in 1996.
The increase in cash and cash equivalents at December 31, 1996 as
compared to December 31, 1995 is primarily due to the retention and
investment of sales proceeds from the May 1996 sale of Woodland Hills
apartments as discussed above.
The increase in other restricted securities at December 31, 1996 as
compared to December 31, 1995 is due to the segregation of cash flow from
the RiverEdge Place office building. Such restricted amounts are
anticipated to be remitted to the property's lender.
The decrease in escrow deposits and restricted securities at December
31, 1996 as compared to December 31, 1995 is primarily due to payments of
tenants improvements and mortgage interest at the California Plaza and 260
Franklin Street properties. The balance at December 31, 1996 consists
solely of these two properties' escrow reserves.
The decrease in venture partners' deficits in ventures at December 31,
1996 as compared to December 31, 1995 and the decrease in venture partners'
share of ventures' operations for the twelve months ended December 31, 1996
as compared to the twelve months ended December 31, 1995 and 1994 are
primarily due to the Partnership's provisions for value impairment of
$17,400,000 related to the 260 Franklin Street Building during 1996.
The increase in interest income for the year ended December 31, 1996
as compared to the same periods in 1995 and 1994 is primarily due to a
higher average invested cash balance and higher effective yields being
earned on invested funds held by the Partnership during 1996.
The increases in professional services for the year ended December 31,
1996 as compared to the years ended December 31, 1995 and 1994 are
primarily due to outsourcing costs and tender offer matters as discussed
above and in the Notes.
The provision for value impairment in 1996 relates to reductions in
the carrying values of the Cal Plaza property ($7,200,000), 260 Franklin
Street Building ($17,400,000), and Springbrook Shopping Center
($1,400,000).
The restructuring fees in 1996 and the increase in Partnership's share
of income (loss) from operations of unconsolidated ventures for the year
ended December 31, 1996 as compared to the years ended 1995 and 1994 is due
to the restructuring of the Partnership's note payable to Wells Fargo and
investment in the Wells Fargo Center South Tower venture as more fully
described in Notes. During 1996, the Partnership recognized income from
restructuring of $10,664,944.
The gain on sale or disposition of investment properties of
$12,230,126 for the year ended December 31, 1996 relates to the recognition
of gain from the sale of the Woodland Hills and Dunwoody apartment
complexes of $1,749,814 and $10,480,312, respectively, in 1996.
The gain on sale of interest in unconsolidated ventures for the year
ended December 31, 1996 relates to the recognition of $435,060 of deferred
gain from the sale of JMB/Owing's interest in the Owings Mills Limited
Partnership in June 1993.
The gain on sale or disposition of investment properties for the year
ended December 31, 1995 relates to the $6,275,248 of gain from the sale of
the Partnership's 90% interest in the Eastridge Development Company,
Limited Partnership on June 30, 1995, and $509,777 on the sale of an
outparcel at Springbrook Mall in November of 1995.
The gain on sale of interest in unconsolidated ventures for the year
ended December 31, 1995 relates to the recognition of $856,751 of gain from
the sale of JMB/Owing's interest in the Owings Mills Limited Partnership in
June 1993.
The gain on sale of interest in unconsolidated ventures in 1994 is due
to the assignment of JMB/125's interest in the 125 Broad investment
property to an affiliate of the Partnership's unaffiliated venture partner
in November 1994.
The extraordinary items - prepayment penalties and deferred mortgage
expenses results from the costs incurred and the write-off of deferred
mortgage fees on the early extinguishment of debt of the Woodland Hills and
Dunwoody Crossing mortgage notes payable in 1996.
The extraordinary item - gain on forgiveness of indebtedness of
$35,780,656 represents the 1996 retirement of the mortgage notes of the 160
Spear Street ($31,158,453) and 21900 Burbank Buildings ($4,622,203) in full
satisfaction upon transfer of title to the properties to the respective
lenders.
The cumulative effect of an accounting change of $30,000,000
represents provisions in 1996 to record value impairment on the 160 Spear
Street ($26,000,000) and 21900 Burbank Buildings ($4,000,000) in compliance
with SFAS 121.
INFLATION
Due to the decrease in the level of inflation in recent years,
inflation generally has not had a material effect on rental income or
property operating expenses. Inflation is not expected to significantly
impact future operations due to the expected liquidation of the Partnership
by 1999.
However, to the extent that inflation in future periods would have an
adverse impact on property operating expenses, the effect would generally
be offset by amounts recovered from tenants as many of the long-term leases
at the Partnership's commercial properties have escalation clauses covering
increases in the cost of operating and maintaining the properties as well
as real estate taxes. Therefore, there should be little effect on net
operating earnings if the properties remain substantially occupied. In
addition, substantially all of the leases at the Partnership's shopping
center investment contain provisions which entitle the property owner to
participate in gross receipts of tenants above fixed minimum amounts.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
INDEX
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Operations, years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Partners' Capital Accounts (Deficits),
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows, years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
SCHEDULE
--------
Consolidated Real Estate and Accumulated Depreciation III
Schedules not filed:
All schedules other than the one indicated in the index have been
omitted as the required information is inapplicable or the information is
presented in the consolidated or combined financial statements or related
notes.
INDEPENDENT AUDITORS' REPORT
The Partners
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV:
We have audited the consolidated financial statements of Carlyle Real
Estate Limited Partnership - XV (a limited partnership) and Consolidated
Ventures as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the General Partners of the Partnership. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by the General Partners of the
Partnership, 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
Carlyle Real Estate Limited Partnership - XV and Consolidated Ventures at
December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in the Notes to the consolidated financial statements, in
1996, the Partnership and its consolidated ventures changed their method of
accounting for long-lived assets and long-lived assets to be disposed of to
conform with Statement of Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
------
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 20,664,264 15,045,385
Interest, rents and other receivables . . . . . . . . . . . . . . . 657,212 1,451,221
Escrow deposits and restricted securities . . . . . . . . . . . . . 5,091,039 10,972,207
Other restricted securities . . . . . . . . . . . . . . . . . . . . 5,285,807 3,980,279
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . 31,698,322 31,449,092
------------ ------------
Investment properties, at cost - Schedule III:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,501,887 26,487,675
Buildings and improvements . . . . . . . . . . . . . . . . . . . . 75,941,178 308,349,093
------------ ------------
81,443,065 334,836,768
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . (31,766,188) (104,766,634)
------------ ------------
Total properties held for investment,
net of accumulated depreciation . . . . . . . . . . . . . 49,676,877 230,070,134
Properties held for sale or disposition. . . . . . . . . . . . . . 68,999,370 --
------------ ------------
Total investment properties . . . . . . . . . . . . . . . . 118,676,247 230,070,134
------------ ------------
Investment in unconsolidated ventures,
at equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,354,958 22,432,665
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 2,704,645 3,852,745
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . 4,555,121 4,902,626
Venture partners' deficits in ventures. . . . . . . . . . . . . . . . -- 8,300,712
------------ ------------
$174,989,293 301,007,974
============ ============
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
1996 1995
------------ -----------
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . $118,969,238 179,862,967
Current portion of notes payable. . . . . . . . . . . . . . . . . . 70,701 70,701
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 2,155,764 2,494,207
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . 2,186,007 2,186,007
Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . 12,787,206 13,583,612
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . 773,149 486,906
Other current liabilities . . . . . . . . . . . . . . . . . . . . . 521,652 521,652
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 137,463,717 199,206,052
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,032 219,733
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 457,730 557,062
Investment in unconsolidated ventures, at equity. . . . . . . . . . . 14,107,122 22,080,422
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,515,927 2,007,580
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000 330,000
Long-term debt, less current portion. . . . . . . . . . . . . . . . . 100,932,989 108,528,346
------------ ------------
Commitments and contingencies
Total liabilities . . . . . . . . . . . . . . . . . . . . . 254,956,517 332,929,195
Venture partners' subordinated equity in ventures . . . . . . . . . . 608,114 5,439,926
Partners' capital accounts (deficits):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . (20,028,625) (17,335,834)
Cumulative cash distributions . . . . . . . . . . . . . . . . . (1,020,769) (908,722)
------------ ------------
(21,029,394) (18,224,556)
------------ ------------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
1996 1995
------------ -----------
Limited partners:
Capital contributions, net of offering costs. . . . . . . . . . 384,978,681 384,978,681
Cumulative net losses . . . . . . . . . . . . . . . . . . . . . (402,819,621) (374,108,664)
Cumulative cash distributions . . . . . . . . . . . . . . . . . (41,705,004) (30,006,608)
------------ ------------
(59,545,944) (19,136,591)
------------ ------------
Total partners' capital accounts (deficits) . . . . . . . . (80,575,338) (37,361,147)
------------ ------------
$174,989,293 301,007,974
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . $ 26,916,089 44,199,560 52,221,396
Interest income . . . . . . . . . . . . . . . . . 1,580,238 1,215,534 886,073
------------ ----------- -----------
28,496,327 45,415,094 53,107,469
------------ ----------- -----------
Expenses:
Mortgage and other interest . . . . . . . . . . . 23,796,808 29,972,319 33,160,181
Depreciation. . . . . . . . . . . . . . . . . . . 5,413,953 10,440,946 11,490,889
Property operating expenses . . . . . . . . . . . 13,420,306 18,442,109 22,832,962
Professional services . . . . . . . . . . . . . . 901,930 595,234 644,763
Amortization of deferred expenses . . . . . . . . 877,359 1,123,917 1,138,527
General and administrative. . . . . . . . . . . . 759,295 815,211 610,188
Provisions for value impairment . . . . . . . . . 26,000,000 -- --
Restructuring fees. . . . . . . . . . . . . . . . 11,589,974 -- --
------------ ----------- -----------
82,759,625 61,389,736 69,877,510
------------ ----------- -----------
Operating earnings (loss) . . . . . . . . (54,263,298) (15,974,642) (16,770,041)
Partnership's share of income (loss) from
operations of unconsolidated ventures
(including income from restructuring
of $10,664,944 in 1996) . . . . . . . . . . . . . 5,056,608 (6,484,175) (15,190,416)
Venture partners' share of ventures' operations . . (85,091) 2,528,102 2,235,151
------------ ----------- -----------
Net operating earnings (loss) . . . . . . (49,291,781) (19,930,715) (29,725,306)
Gain on sale or disposition of investment
properties, net of venture partner's share
of gain of $204,139 in 1996 and $823,609 in
1994 and manager's incentive fee of $1,730,016
in 1996 . . . . . . . . . . . . . . . . . . . . . 12,230,126 6,785,025 3,597,347
Gain on sale of interests in unconsolidated
ventures. . . . . . . . . . . . . . . . . . . . . 435,060 856,751 31,743,006
------------ ----------- -----------
Net earnings (loss) before extra-
ordinary items and cumulative
effect of an accounting change. . . . . (36,626,595) (12,288,939) 5,615,047
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
1996 1995 1994
------------- ------------ ------------
Extraordinary items:
Prepayment penalties and deferred mortgage
expense on retirement of long-term debt,
net of venture partner's share of
$175,004. . . . . . . . . . . . . . . . . . . . (557,809) -- --
Gain on forgiveness of indebtedness . . . . . . . 35,780,656 -- --
Cumulative effect of an accounting change . . . . . (30,000,000) -- --
------------ ----------- -----------
Net earnings (loss) . . . . . . . . . . . $(31,403,748) (12,288,939) 5,615,047
============ =========== ===========
Net earnings (loss) per limited
partnership interest:
Net operating loss. . . . . . . . . . $ (106.67) (43.12) (64.31)
Net gain on sale or disposition of
investment property . . . . . . . . 27.29 17.05 8.03
Gain on sale or disposition of
interests in unconsolidated
ventures. . . . . . . . . . . . . . .97 -- 70.83
Extraordinary items . . . . . . . . . 78.61 -- --
Cumulative effect of an accounting
change. . . . . . . . . . . . . . . (64.92) -- --
------------ ----------- -----------
$ (64.72) (26.07) 14.55
============ =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
GENERAL PARTNERS LIMITED PARTNERS
----------------------------------------------------- ---------------------------------------------------
CONTRI-
BUTIONS
NET OF NET
CONTRI- NET CASH OFFERING EARNINGS CASH
BUTIONS LOSS DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL
------- ---------- ------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
(deficit)
Decem-
ber 31,
1993 . . .$20,000 (15,779,416) (600,866) (16,360,282) 384,978,681 (368,991,190) (24,198,450) (8,210,959)
Net earnings
(loss) . . -- (835,608) -- (835,608) -- 6,450,655 -- 6,450,655
Cash distri-
butions
($5.00 per
limited
partnership
interest). -- -- (272,001) (272,001) -- -- (2,218,523) (2,218,523)
------- ----------- --------- ----------- ----------- ------------ ------------ -----------
Balance
(deficit)
Decem-
ber 31,
1994 . . . 20,000 (16,615,024) (872,867) (17,467,891) 384,978,681 (362,540,535) (26,416,973) (3,978,827)
Net earnings
(loss) . . -- (720,810) -- (720,810) -- (11,568,129) -- (11,568,129)
Cash distri-
butions
($8.09 per
limited
partnership
interest). -- -- (35,855) (35,855) -- -- (3,589,635) (3,589,635)
------- ----------- --------- ----------- ----------- ------------ ------------ -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICITS) - CONTINUED
GENERAL PARTNERS LIMITED PARTNERS
----------------------------------------------------- ---------------------------------------------------
CONTRI-
BUTIONS
NET OF
CONTRI- NET CASH OFFERING NET CASH
BUTIONS LOSS DISTRIBUTIONS TOTAL COSTS LOSS DISTRIBUTIONS TOTAL
------- ---------- ------------- ----------- ----------- ----------- ------------- -----------
Balance
(deficit)
Decem-
ber 31,
1995 . . . 20,000 (17,335,834) (908,722) (18,224,556) 384,978,681 (374,108,664) (30,006,608) (19,136,591)
Net earnings
(loss) . . -- (2,692,791) -- (2,692,791) -- (28,710,957) -- (28,710,957)
Cash distri-
butions
($26.37 per
limited
partnership
interest). -- -- (112,047) (112,047) -- -- (11,698,396) (11,698,396)
------- ----------- --------- ----------- ----------- ------------ ------------ -----------
Balance
(deficit)
Decem-
ber 31,
1996 . . .$20,000 (20,028,625) (1,020,769) (21,029,394) 384,978,681 (402,819,621) (41,705,004) (59,545,944)
======= =========== ========= =========== =========== ============ ============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . $(31,403,748) (12,288,939) 5,615,047
Items not requiring (providing) cash or
cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . 5,413,953 10,440,946 11,490,889
Amortization of deferred expenses . . . . . . . 877,359 1,123,917 1,138,527
Restructuring fee . . . . . . . . . . . . . . . 11,589,974 -- --
Long-term debt - deferred accrued interest. . . 3,138,667 3,236,199 2,727,421
Partnership's share of (income) loss from
operations of unconsolidated ventures . . . . (5,056,608) 6,484,175 15,190,416
Venture partners' share of ventures'
operations, gain on sale or
disposition of investment properties and
extraordinary items . . . . . . . . . . . . . 114,226 (2,528,102) (1,411,542)
Provisions for value impairment . . . . . . . . 26,000,000 -- --
Total gain on sale or disposition of
investment properties . . . . . . . . . . . . (12,434,265) (6,785,025) (4,420,956)
Total gain on sale of interests in uncon-
solidated ventures. . . . . . . . . . . . . . (435,060) (856,751) (31,743,006)
Extraordinary items including venture
partner's share . . . . . . . . . . . . . . . (35,047,843) -- --
Cumulative effect of an accounting change . . . 30,000,000 -- --
Changes in:
Interest, rents and other receivables . . . . . 326,701 86,144 (463,724)
Current portion of notes receivable . . . . . . -- 11,967 22,106
Escrow deposits and restricted securities . . . 5,881,168 (3,420,945) (1,399,833)
Other restricted securities . . . . . . . . . . (1,520,685) (1,144,284) (2,835,995)
Accrued rents receivable, net . . . . . . . . . 146,353 455,115 1,231,693
Accounts payable. . . . . . . . . . . . . . . . (238,943) 441,144 762,407
Amounts due to affiliates . . . . . . . . . . . -- 449,811 (4,674,514)
Accrued interest payable. . . . . . . . . . . . 6,901,461 6,220,119 2,202,159
Accrued real estate taxes . . . . . . . . . . . 312,963 (167,328) (174,105)
Other current liabilities . . . . . . . . . . . -- 30,000 --
Deferred income . . . . . . . . . . . . . . . . (491,653) 2,499,232 --
Tenant security deposits. . . . . . . . . . . . (54,507) (4,102) (329,670)
Other liabilities . . . . . . . . . . . . . . . -- (30,000) --
------------ ----------- -----------
Net cash provided by (used in)
operating activities. . . . . . . . . . 4,019,513 4,253,293 (7,072,680)
------------ ----------- -----------
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
----------- ----------- -----------
Cash flows from investing activities:
Net sales and maturities (purchases) of
short-term investments. . . . . . . . . . . . . -- 10,564,988 (397,694)
Additions to investment properties. . . . . . . . (2,011,678) (872,103) (1,279,820)
Partnership's distributions from
unconsolidated ventures . . . . . . . . . . . . 3,349,635 6,525,990 7,505,575
Partnership's contributions to
unconsolidated ventures . . . . . . . . . . . . (753,560) (525,000) (2,792,572)
Cash proceeds from sale of investment
properties. . . . . . . . . . . . . . . . . . . 17,695,317 1,594,727 3,580,504
Payment of deferred expenses. . . . . . . . . . . (331,019) (992,616) (886,493)
------------ ----------- -----------
Net cash provided by (used in)
investing activities. . . . . . . . . . 17,948,695 16,295,986 5,729,500
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from restructuring and refinancing of
long-term debt. . . . . . . . . . . . . . . . . 650,000 -- 1,134,189
Principal payments on long-term debt. . . . . . . (172,147) (2,786,783) (878,524)
Principal payments on notes payable . . . . . . . (70,701) (70,701) (70,701)
Venture partners' contributions to venture. . . . -- 135,000 249,450
Distributions to venture partners . . . . . . . . (4,946,038) -- (776,717)
Distributions to general partners . . . . . . . . (112,047) (35,855) (272,001)
Distributions to limited partners . . . . . . . . (11,698,396) (3,589,635) (2,218,523)
------------ ----------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . (16,349,329) (6,347,974) (2,832,827)
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . 5,618,879 14,201,305 (4,176,007)
Cash and cash equivalents,
beginning of year. . . . . . . . . . . . 15,045,385 844,080 5,020,087
------------ ----------- -----------
Cash and cash equivalents,
end of year. . . . . . . . . . . . . . . $ 20,664,264 15,045,385 844,080
============ =========== ===========
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
----------- ----------- -----------
Supplemental disclosure of cash flow
information:
Cash paid for mortgage and other interest . . . . $13,756,680 20,516,001 28,230,601
=========== =========== ===========
Non-cash investing and financing activities:
Non-cash gain recognized on sale of
interests in ventures . . . . . . . . . . . . $ 435,060 7,641,776 31,743,006
=========== =========== ===========
Gross proceeds from restructuring and
refinancing of long-term debt . . . . . . . . $18,084,557 -- --
Accrued interest. . . . . . . . . . . . . . . . (5,844,583) -- --
Restructuring fee . . . . . . . . . . . . . . . (11,589,974) -- --
----------- ----------- -----------
Proceeds received on restructuring and
refinancing of long-term debt . . . . . $ 650,000 -- --
=========== =========== ===========
Sale of investment properties:
Total sale proceeds, net of selling
expenses. . . . . . . . . . . . . . . . . . $58,491,798 24,998,719 33,604,213
Prepayment penalties. . . . . . . . . . . . . (516,683) -- --
Payment of mortgages payable and
accrued interest. . . . . . . . . . . . . . (38,549,782) (23,403,992) (30,023,709)
Incentive fee to manager of
investment property . . . . . . . . . . . . (1,730,016) -- --
----------- ----------- -----------
Cash proceeds from sale of investment
properties, net of selling expenses . . $17,695,317 1,594,727 3,580,504
=========== =========== ===========
Disposition of investment properties:
Balance due on long-term debt cancelled . $50,853,648 -- 3,100,000
Accrued interest expense on accelerated
long-term debt . . . . . . . . . . . . 1,853,284 -- 970,317
Reduction of investment property, net. . . (16,419,175) -- (2,023,953)
Reduction of other assets and liabilities. (507,101) -- 101,499
----------- ----------- -----------
Non-cash gain recognized due to lenders
realizing upon security. . . . . . . . . $35,780,656 -- 2,147,863
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
OPERATIONS AND BASIS OF ACCOUNTING
GENERAL
The Partnership holds (either directly or through joint ventures) an
equity investment portfolio of United States real estate. Business
activities consist of rentals to a wide variety of commercial and retail
companies, and the ultimate sale or disposition of such real estate.
The accompanying consolidated financial statements include the
accounts of the Partnership and its majority-owned ventures, Eastridge
Development Company ("Eastridge") (sold June 30, 1995); Daytona Park
Associates ("Park") (prior to the transfer of title in May 1994); JMB/160
Spear Street Associates ("160 Spear") (prior to the transfer of title in
January 1996); Villa Solana Associates ("Villa Solana") (sold March 23,
1994); 260 Franklin Street Associates ("260 Franklin"); C-C California
Plaza Partnership ("Cal Plaza"); Villages Northeast Associates ("Villages
Northeast") and VNE Partners, Ltd. ("VNE Partners") (prior to the sale in
May 1996). The effect of all transactions between the Partnership and the
consolidated ventures has been eliminated.
The equity method of accounting has been applied in the accompanying
consolidated financial statements with respect to the Partnership's
interests in JMB/Piper Jaffray Tower Associates ("JMB/Piper") and JMB/Piper
Jaffray Tower Associates II ("JMB/Piper II"); 900 Third Avenue Associates
("JMB/900"); Maguire/Thomas Partners - South Tower LLC (Formerly
Maguire/Thomas Partners-South Tower) ("South Tower"); JMB/Owings Mills
Associates ("JMB/Owings") (sold June 30, 1993); JMB/NewPark Associates,
("JMB/NewPark"); Carlyle-XV Associates, L.P., which owns an interest in
JMB/125 Broad Building Associates, L.P. ("JMB/125"). In November 1994, the
Partnership through its indirect ownership of JMB/125 assigned its interest
in the 125 Broad Street Building.
Due to the restructuring of the Partnership's interest in Maguire
Thomas Partners - South Tower, LLC, as discussed below the Partnership, has
suspended loss recognition relative to its respective real estate
investment and has reversed those previously recognized losses that the
Partnership is no longer obligated to fund, which is reflected as income
from restructuring.
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of certain ventures as described
above. Such GAAP and consolidation adjustments are not recorded on the
records of the Partnership. The net effect of these items is summarized as
follows for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ------------------------------
TAX BASIS TAX BASIS
GAAP BASIS (UNAUDITED) GAAP BASIS (UNAUDITED)
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Total assets. . . . . . . . . . . . $174,989,293 114,575,206 301,007,974 140,521,835
Partners' capital accounts
(deficit):
General partners. . . . . . . . (21,029,394) (17,916,234) (18,224,556) (19,752,047)
Limited partners. . . . . . . . (59,545,944) 23,388,007 (19,136,591) 14,370,390
Net earnings (loss):
General partners. . . . . . . . (2,692,791) 1,947,860 (720,810) 431,034
Limited partners. . . . . . . . (28,710,957) 20,716,015 (11,568,129) (3,026,118)
Net earnings (loss) per
limited partnership
interest. . . . . . . . . . . . . (64.72) 46.70 (26.07) (6.82)
============ ============ =========== ===========
</TABLE>
The net earnings (loss) per limited partnership interest ("Interest")
is based upon the limited partnership interests outstanding at the end of
each period. Deficit capital accounts will result, through the duration of
the Partnership, in the recognition of net gain for financial reporting and
Federal income tax purposes.
The preparation of financial statements in accordance with GAAP
requires the General Partners to make estimates and assumptions that affect
the reported or disclosed amount of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated
according to the classifications specified in the pronouncement.
Partnership distributions from unconsolidated ventures are considered cash
flow from operating activities only to the extent of the Partnership's
cumulative share of net earnings. In addition, the Partnership records
amounts held in U.S. Government obligations and other securities at cost
which approximates market. For the purposes of these statements, the
Partnership's policy is to consider all such amounts held with original
maturities of three months or less (approximately $20,600,000 and
$13,000,000 at December 31, 1995 and 1996, respectively) as cash
equivalents, which includes investments in an institutional mutual fund
which holds U.S. Government obligations, with any remaining amounts
(generally with maturities of one year or less) reflected as short-term
investments being held to maturity.
Escrow deposits and restricted securities primarily represent cash and
investments restricted as to their use by the Partnership.
Deferred expenses are comprised principally of deferred financing fees
which are amortized over the related debt term and deferred leasing fees
which are amortized over the related lease term.
Although certain leases of the Partnership provide for tenant
occupancy during periods for which no rent is due and/or increases in
minimum lease payments over the term of the lease, the Partnership accrues
prorated rental income for the full period of occupancy on a straight-line
basis.
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" (as amended), requires certain
large reporting entities to disclose the SFAS 107 value of all financial
assets and liabilities for which it is practicable to estimate. Value is
defined in the Statement as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. The Partnership believes the carrying amount
of its current assets and liabilities (excluding current portion of long-
term debt) approximates SFAS 107 value due to the relatively short maturity
of these instruments. There is no quoted market value available for any of
the Partnership's other instruments. As the debt secured by the RiverEdge
Place Building, 260 Franklin Street, and Springbrook shopping center
investment properties has been classified by the Partnership as a current
liability at December 31, 1996 as a result of defaults, and because the
resolution of such defaults is uncertain, the Partnership considers the
disclosure of the SFAS 107 value of such debt to be impracticable. The
remaining debt has been calculated to have a SFAS 107 value approximating
the carrying value by discounting the scheduled loan payments to maturity.
Due to restrictions on transferability and prepayment, and the inability to
obtain comparable financing due to previously modified debt terms or other
property specific competitive conditions, the Partnership would be unable
to refinance these properties to obtain such calculated debt amounts
reported. The Partnership has no other significant financial instruments.
No provision for State or Federal income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership. However, in certain instances, the Partnership has been
required under applicable law to remit directly to the tax authorities
amounts representing withholding from distributions paid to partners.
The Partnership has acquired, either directly or through joint
ventures, interests in four apartment complexes, twelve office buildings,
four shopping centers and one parking facility. The Partnership's
aggregate cash investment, excluding certain related acquisition costs, was
$299,637,926. During 1989, the Partnership disposed of its interest in the
investment property owned by CBC Investment Company ("Boatmen's"). During
1991, the Partnership sold 62% of its interest in Harbor and in 1993 sold
its remaining 38% interest in Harbor. In September 1992, the Partnership
sold the Erie-McClurg Parking Facility. In June 1993, the Partnership sold
(through JMB/Owings) its interest in Owings Mills Shopping Center. In
March 1994, the Partnership, through Villa Solana Associates, sold the
Villa Solana Apartments. In May 1994, the lender realized upon its
security interest in the Park at Countryside Apartments. In October 1994,
the Partnership sold the 9701 Wilshire Office Building. In November 1994,
the Partnership assigned its interest in the JMB/125 venture to an
affiliate of its unaffiliated venture partner. In June 1995, the
Partnership sold its interest in Eastridge Mall. In January 1996, the
lender realized upon its security interest in the 160 Spear Street
Building. In March 1996, the lender realized upon its security interest in
the 21900 Burbank Boulevard Building. In May 1996, the Partnership sold
the Woodland Hills apartment complex. Also, in May 1996, the Partnership,
through Villages Northeast and VNE Partners, Ltd., sold the Dunwoody
Crossing Phases I, II and III apartment complex. All of the remaining
properties owned at December 31, 1996 were completed and operating, except
for the Springbrook Shopping Center which the lender took title in 1997.
The cost of the investment properties represents the total cost to the
Partnership or its ventures plus miscellaneous acquisition costs reduced
for provisions for value impairment where applicable. Depreciation on the
operating properties has been provided over the estimated useful lives of
5-30 years using the straight-line method.
Statement of Financial Accounting Standards No. 121 ("SFAS 121")
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" was issued in March 1995. The Partnership
adopted SFAS 121 as required in the first quarter of 1996. SFAS 121
requires that the Partnership record an impairment loss on its properties
to be held for investment whenever their carrying value cannot be fully
recovered through estimated undiscounted future cash flows from their
operations and sale. The amount of the impairment loss to be recognized
would be the difference between the property's carrying value and the
property's estimated fair value. The Partnership's policy is to consider a
property to be held for sale or disposition when the Partnership has
committed to a plan to sell or dispose of such property and active
marketing activity has commenced or is expected to commence in the near
term or the Partnership has concluded that it may dispose of the property
by no longer funding operating deficits or debt service requirements of the
property thus allowing the lender to realize upon its security. In
addition, the $30,000,000 impairment loss on the 21900 Burbank and 160
Spear Street investment properties, which were categorized as held for sale
or disposition at January 1, 1996 upon adoption of SFAS 121, has been
reflected in the accompanying consolidated financial statements as the
cumulative effect of an accounting change as provided by SFAS 121. In
accordance with SFAS 121, any properties identified as "held for sale or
disposition" are no longer depreciated. Adjustments for impairment loss
for such properties (subsequent to the date of adoption of SFAS 121) are
made in each period as necessary to report these properties at the lower of
carrying value or estimated fair value less costs to sell. In certain
situations, such estimated fair value could be less than the existing non-
recourse debt which is secured by the property. There can be no assurance
that any estimated fair value of these properties would ultimately be
obtained by the Partnership in any future sale or disposition transaction.
Under the prior accounting policy, provisions for value impairment
were recorded with respect to investment properties whenever the estimated
future cash flows from a property's operations and projected sale were less
than the property's carrying value. The amount of any such impairment loss
recognized by the Partnership was limited to the excess, if any, of the
property's carrying value over the outstanding balance of the property's
non-recourse indebtedness. An impairment loss under SFAS 121 is determined
without regard to the nature or the balance of such non-recourse
indebtedness. Upon the disposition of a property with the related
extinguishment of the long-term debt for which an impairment loss has been
recognized under SFAS 121, the Partnership would recognize, at a minimum, a
net gain for financial reporting purposes (comprised of gain on
extinguishment of debt and gain or loss on the sale or disposition of
property) for financial reporting purposes to the extent of any excess of
the then outstanding balance of the property's non-recourse indebtedness
over the then carrying value of the property, including the effect of any
reduction for impairment loss under SFAS 121.
In addition, upon the disposition of any impaired property, the
Partnership will generally recognize more net gain for financial reporting
purposes under SFAS 121 than it would have under the Partnership's prior
impairment policy, without regard to the amount, if any, of cash proceeds
received by the Partnership in connection with the disposition. Although
implementation of this accounting statement could significantly impact the
Partnership's reported earnings, there would be no impact on cash flows.
Further, any such impairment loss is not recognized for Federal income tax
purposes.
The results of operations for consolidated properties classified as
held for sale or disposition as of December 31, 1996 or sold or disposed of
during the past three years were ($14,827,272), ($6,218,135) and
($7,564,270), respectively, for the years ended December 31, 1996, 1995 and
1994. In addition, the accompanying consolidated financial statements
includes ($938,514), ($3,072,568) and ($11,264,668), respectively, of the
Partnership's share of property operations of ($959,426), ($6,489,816) and
($36,287,037) of unconsolidated properties held for sale or disposition as
of December 31, 1996, 1995 and 1994, or sold or disposed of in the past
three years.
The borrowings of the Partnership and its ventures consist of separate
non-recourse mortgage loans secured by the investment properties and
individually are not obligations of the entire investment portfolio.
However, for any particular investment property that is incurring deficits
or for which the existing financing has matured, the Partnership or its
ventures may seek a modification or refinancing of existing indebtedness
and, in the absence of a satisfactory debt modification or refinancing, may
decide, in light of the then existing and expected future market conditions
for such investment property, not to commit additional funds to such
investment property. This would likely result in the Partnership no longer
having an ownership interest in such property and would generally result in
net gain to the Partnership for financial reporting and Federal income tax
purposes with no corresponding distributable proceeds.
Certain mortgage loans secured by the Partnership's investment
properties are the subject of discussions with lenders for debt
modifications or restructuring, including the mortgage loans related to 260
Franklin Street Building and RiverEdge Place.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated
over their estimated useful lives.
VENTURE AGREEMENTS - GENERAL
The Partnership (or Carlyle-XV Associates, L.P., in which the
Partnership holds a limited partnership interest) had entered into eight
joint venture agreements (JMB/Piper, JMB/Piper II, JMB/900, JMB/Owings,
JMB/125, 260 Franklin, Villages Northeast and JMB/NewPark) with Carlyle
Real Estate Limited Partnership-XIV ("Carlyle-XIV") or Carlyle Real Estate
Limited Partnership-XVI (or Carlyle-XVI Associates, L.P., in which Carlyle
Real Estate Limited Partnership-XVI holds a limited partnership interest)
("Carlyle-XVI")), partnerships sponsored by the Corporate General Partner,
and eight joint venture agreements with unaffiliated venture partners.
Pursuant to such agreements, the Partnership made initial capital
contributions of approximately $247,300,000 (before legal and other
acquisition costs and its share of operating deficits as discussed below).
The terms of these affiliated partnerships provide, in general, that the
benefits of ownership, including tax effects, net cash receipts and sale
and refinancing proceeds, are allocated between or distributed to, as the
case may be, the Partnership and the affiliated partner in proportion to
their respective capital contributions to the affiliated venture.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership. Under certain
circumstances, either pursuant to the venture agreements or due to the
Partnership's obligations as a general partner, the Partnership may be
required to contribute additional amounts to the venture.
The terms of the 260 Franklin venture have been described, in general,
above. The terms of the Eastridge, Park, 160 Spear, Villa Solana, Cal
Plaza and VNE Partners ventures can be described in general, as follows:
In most instances, these properties were acquired (as completed) for a
fixed purchase price; however, certain properties were developed by the
ventures and in those instances, the contributions of the Partnership are
generally fixed. The joint venture partner was required to contribute any
excess of cost over the aggregate amount available from Partnership
contributions and financing. To the extent such funds exceed the aggregate
costs, the venture partner was entitled to retain such excesses. The
venture properties have been financed under various long-term debt
arrangements as described in the Notes.
The Partnership generally has a cumulative preferred interest in net
cash receipts (as defined) from the properties. Such preferential interest
relates to a negotiated rate of return on contributions made by the
Partnership. After the Partnership receives its preferential return, the
venture partner is generally entitled to a non-cumulative return on its
interest in the venture; additional net cash receipts are generally shared
in a ratio relating to the various ownership interests of the Partnership
and its venture partners. During 1996, 1995 and 1994, one, two and five,
respectively, of the ventures' properties produced net cash receipts. The
Partnership also has preferred positions (related to the Partnership's cash
investment in the ventures) with respect to distribution of net sale or
refinancing proceeds from the ventures.
In general, operating profits and losses are shared in the same ratio
as net cash receipts; however, if there are no net cash receipts, sub-
stantially all profits or losses are allocated to the Partnership. In
addition, generally amounts equal to certain expenses paid from capital
contributions by the Partnership or venture partners are allocated to the
contributing partner or partners.
INVESTMENT PROPERTIES
RIVEREDGE PLACE BUILDING
The RiverEdge Place Building (formerly the First American Bank
Building) was originally 100% leased to an affiliate of the major tenant,
First American Bank, under a long-term over-lease executed in connection
with the purchase of the property. As the bank and its affiliate were
experiencing significant financial difficulties, on June 23, 1992, the
Partnership accepted $9,325,000 for the buy-out of the Bank's over-lease
obligations. The Partnership took this course of action due to the First
American Bank's deteriorating financial condition and the Federal Deposit
Insurance Corporation's ability to assume control of the Bank and to
terminate the over-lease obligation. The $9,325,000 buy-out was
concurrently remitted to the lender to reduce the mortgage note secured by
the RiverEdge Place Building. The Partnership is actively pursuing
replacement tenants for the building's vacant space.
The Partnership ceased making monthly debt service payments effective
July 1, 1992 and continues to seek to restructure the mortgage note (with a
principal balance of $18,166,294 and accrued interest of approximately
$11,300,000 at December 31, 1996). The property has generated
approximately $5,285,000 and $3,980,000 of cash flow as of December 31,
1996 and 1995, respectively, since the Partnership ceased making monthly
debt service payments. Such cash flow will likely be remitted to the
lender and therefore these amounts are included in other restricted
securities in the consolidated financial statements. If the Partnership's
attempt for the mortgage note restructuring is not successful, the
Partnership would likely decide, based upon current market conditions and
other considerations relating to the property and the Partnership's
portfolio, not to commit significant additional amounts to the property.
This would result in the Partnership no longer having an ownership interest
in the property and would result in the recognition of a net gain for
financial statement and Federal income tax purposes without any
corresponding distributable proceeds. The mortgage note has been
classified as a current liability in the accompanying consolidated
financial statements at December 31, 1996 and 1995. The RiverEdge Place
Building was approximately 96% occupied at the end of 1996. Due to the
current status of the mortgage note negotiations, the property was
classified as held for sale or disposition as of December 31, 1996, and
therefore, will not be subject to continued depreciation.
21900 BURBANK BOULEVARD BUILDING
In March 1996, the lender realized upon its security and took title to
the property in full satisfaction of the loan secured by the property.
The Partnership approached the lender during 1995 regarding a
modification of the loan (scheduled to mature December 1, 1996) due to the
anticipated repair and re-leasing costs expected to be incurred at the
property. The lender was not willing to provide such a modification and
notified the Partnership of its default under certain provisions of the
loan agreement. The Partnership decided not to commit additional amounts
to the property and ceased making debt service payments commencing with the
November 1995 payment. As a result, the lender realized upon its security
interest in the property in 1996. This resulted in the Partnership no
longer having an ownership interest in the property.
The property was classified as held for sale or disposition as of
January 1, 1996, and therefore, was not subject to continued depreciation.
The accompanying consolidated financial statements for 1996 include
$4,000,000 as a cumulative effect of an accounting change to record value
impairment and $4,622,203 of extraordinary gain on extinguishment of debt
upon the lender taking title to the property in March 1996. The
Partnership also had a gain for Federal income tax purposes of
approximately $1,324,000. The Partnership's mortgage note had been
classified at December 31, 1995 as a current liability in the accompanying
consolidated financial statements.
The 21900 Burbank Building sustained some damage as a result of the
earthquakes that occurred in Southern California on January 17, 1994. On
February 22, 1995, the City Council of the City of Los Angeles passed an
ordinance relating to the repair of welded steel moment frame buildings in
an area of the city that includes the 21900 Burbank Building. The
Partnership was unable to make a complete determination of the requirements
to comply with the ordinance at the time of the issuance of the
Partnership's 1994 consolidated financial statements. It was estimated at
that time that the cost of compliance with the ordinance could be
approximately $1 million which was reflected as property operating expenses
in the 1994 consolidated financial statements.
During April 1995, the Partnership received notice from the City which
required submission of a report indicating the number of welded connections
damaged and proposed repair procedures. Based upon the findings and cost
estimates of independent structural engineers, it was estimated that the
cost of making the necessary repairs would be approximately $100,000. No
amounts were paid prior to the lender taking title to the property.
Accordingly, property operating expenses recorded in 1994 of $1 million
have been reversed in the Partnership's 1995 consolidated financial
statements.
SPRINGBROOK SHOPPING CENTER
The Springbrook Shopping Center was approximately 53% occupied at the
end of 1996 and operated at a deficit for the year. The Partnership
decided not to commit significant additional amounts to the property and
ceased making monthly debt service payments in June 1996. Accordingly, the
mortgage loan with a scheduled maturity of April 1997 and a principal
balance of $10,932,588 has been classified as a current liability at
December 31, 1996 and the property was classified as held for sale or
disposition as of April 1, 1996. The property will no longer be subject to
continued depreciation. Also, commencing in June 1996, all net cash flow
from the property was being escrowed with the lender. Principal and
interest payments in arrears as of December 31, 1996 were approximately
$323,000. As a result of the non-payment of debt service, the lender
realized upon its security and took title in January 1997, to the property
in full satisfaction of the loan secured by the property. The Partnership
expects to recognize a gain for financial reporting purposes and a loss for
Federal income tax purposes in 1997.
The Partnership finalized in November 1995 the sale of an outparcel to
a major bank which resulted in sales proceeds of approximately $924,000 and
a net gain for financial reporting purposes of $509,777.
WOODLAND HILLS APARTMENTS
On May 22, 1996, the Partnership sold the Woodland Hills apartment
complex to an unaffiliated third party for $12,225,000 less selling costs
of approximately $282,000. A portion of the sales proceeds was utilized to
retire the mortgage debt with an outstanding balance of approximately
$8,175,000. As a result of the sale, the Partnership recognized a gain of
$1,749,814 for financial reporting purposes and recognized a gain of
approximately $7,300,000 for Federal income tax purposes in 1996.
In February 1991, the Partnership had entered into an agreement with
the seller of Woodland Hills Apartments. Under the terms of the agreement,
the seller canceled its wrap-around mortgage note receivable from the
Partnership and assumed management of the property. The obligations to
make payments on the two underlying mortgage loans were assumed by the
Partnership. The mortgage note receivable originally wrapped around and
was subordinate to a first and a second mortgage loan in the principal
amounts of $6,800,000 and $1,256,667, respectively. The first mortgage
loan required monthly payments of interest only in arrears at the rate of
12.8% per annum through June 1, 1994. The first and second mortgage loans
secured by the Woodland Hills Apartments matured November 1, 1994 and June
1, 1994, respectively. On November 2, 1994, the Partnership refinanced the
first and second mortgage loans with the lender of the second mortgage
loan. The new non-recourse first mortgage loan in the amount of $8,175,000
required monthly payments of interest only at a rate of 4% above the
lender's commercial paper rate (approximately 6.05% at December 31, 1995)
and had a scheduled maturity of October 1, 1997.
Effective February 1, 1991, the seller/manager agreed to guarantee a
level of cash flow from the property equal to the underlying debt service
in return for a subordinated level of cash flow (payable as an incentive
management fee) from operations and sale or refinancing of the property.
As a result of the sale of the property in May 1996, the Partnership
is obligated to pay an incentive management fee of approximately
$1,730,000, of which approximately $365,000 is unpaid and is included in
accounts payable at December 31, 1996. The Partnership has reduced its
recognized gain by the incentive fee.
As the Partnership had committed to a plan to sell the property, the
property was classified as held for sale or disposition as of January 1,
1996, and therefore, was not subject to continued depreciation.
BOATMEN'S
During 1989 the joint venture defaulted on the mortgage loan secured
by the property, and the lender obtained title to the property. As a
result, the Partnership has no further ownership interest in the property.
During 1990, the Partnership accepted non-interest bearing promissory
notes totalling $2,325,000 as settlement for certain claims against the
joint venture partner. As of December 31, 1996, the Partnership has
received cash payments totalling $1,910,937 and scheduled payments are
delinquent in the amount of $414,063. To preserve its legal rights, the
Partnership issued notices of default in 1993 as no amounts have been
collected since such date. The Partnership has recognized revenue on the
settlement to the extent of the cash collected. There is no assurance that
the remaining delinquent amounts will be collected.
PARK
In November 1991, Park modified the mortgage note secured by Park at
Countryside Apartments effective January 1, 1990. In October 1993, the
joint venture ceased making the required debt service payments, and after
discussions with the lender, the venture was unable to secure an additional
modification to the loan. On May 5, 1994, the lender realized upon its
mortgage security and took title to the property. The Partnership
recognized a gain on disposition in 1994 of $1,418,043 (net of the venture
partner's share of $729,820) for financial reporting purposes. In
addition, the Partnership recognized a gain in 1994 of $801,665 (net of
venture partner's share of $54,737) for Federal income tax purposes, with
no corresponding distributable proceeds.
CALIFORNIA PLAZA
Effective March 1, 1993, the joint venture ceased making the scheduled
debt service payments on the mortgage loan secured by the property which
was scheduled to mature on January 1, 1997. Subsequently, the Partnership
made partial debt service payments based on net cash flow of the property
through December 1993 when an agreement was reached with the lender to
modify the loan by reducing the pay rate. The loan modification reduced
the monthly payments to $384,505, effective with the March 1, 1993 payment.
The maturity date was extended, as a result of this modification, to
January 1, 2000 when the unpaid balance of principal and interest is due
(including the difference between the accrual rate of 10.375% and pay rate
of 8% per annum). Additionally, the joint venture entered into a cash
management agreement which requires monthly net cash flow to be escrowed
(as defined). The excess (of approximately $7,207,000) of the monthly cash
flow paid from March 1993 to December 1996 above the 8% interest pay rate
has been put into escrow for the future payment of insurance premiums, real
estate taxes, and to fund a reserve account to be used to cover future
costs, including tenant improvements, lease commissions, and capital
improvements, approved by the lender. A portion of such funds are reserved
for the payment of deferred interest and principal on the mortgage loan.
Payments are made from the reserve amounts (none paid at December 31, 1996)
if the reserve balance exceeds $2,120,000 at any time. The joint venture
also was required to fund $500,000 into the reserve account in connection
with the loan modification.
In June 1995, $3,740,000 was received from a tenant as a lease
termination fee. The venture remitted $2,112,200 to the lender to reduce
the principal balance on the mortgage loan and an additional $628,700 was
placed into the reserve account.
The property was classified as held for sale or disposition as of
December 31, 1996, and therefore, will not be subject to continued
depreciation. The Partnership recorded a provision for value impairment of
$7,200,000 as of January 1, 1996 to reflect the then estimated fair value
of the property based upon an analysis of discounted cash flows of the
property over the expected holding period.
In June 1995, the venture entered into a seven year direct lease with
Maxis Inc. for approximately 38,500 square feet of space on the sixth floor
of the building previously occupied by a major tenant (Liquid Air). Liquid
Air paid the venture $3,740,000 (of which $2,745,058 relates to future lost
rents and of which the unamortized amount of $2,007,580 is included in
deferred income and other current liabilities in the accompanying
consolidated financial statements as of December 31, 1996) as a lease
amendment fee in June 1995 and guaranteed the obligations under the Maxis
lease up to $1,500,000 through its original expiration date of January
2001. Liquid Air will remain obligated for lease payments on approximately
55,000 square feet on the third and seventh floors under its original lease
terms. It is currently attempting to sub-lease a portion of this space.
The $3,740,000 amendment fee was applied as follows (i) $2,112,200 was
remitted to the lender to reduce the principal balance on the mortgage
loan, (ii) $999,100 was placed into escrow and was used to pay for leasing
costs associated with the Maxis lease, and (iii) $628,700 was placed into
the existing reserve account.
In 1995, the venture received approximately $1,410,000 in full
settlement proceeds from a lawsuit filed against Dillingham, the general
contractor of the property, and several of the subcontractors ($150,000 was
received in 1994). The funds will generally be used for necessary building
repairs. As of December 31, 1996, approximately $800,000 of the proceeds
have been spent on necessary repairs with the remaining balance of
approximately $756,000 included in accounts payable at December 31, 1996.
Pursuant to the terms of a tenant lease at Cal Plaza, promissory notes
(for certain sub-leasing costs) aggregating $707,009 were issued by the Cal
Plaza joint venture to a tenant of the investment property. Commencing on
July 1, 1990 and on each July 1st thereafter until the notes are paid in
full, one tenth of the original principal balance together with 12% annual
interest on the outstanding balance of the notes shall be payable. As the
result of a settlement agreement between the Partnership and its joint
venture partner, the joint venture partner is obligated to pay 40% of the
amounts owed under the promissory notes and the Partnership is obligated to
pay 60% of such amounts. During July 1994, June 1995 and June 1996,
$70,701 of principal was paid and $51,820, $43,336 and $34,948 of interest,
respectively, was paid to the tenant from cash flow generated from
operations of the property. As of December 31, 1996, the outstanding
balance of the notes was $219,733.
160 SPEAR STREET BUILDING
Tenant leases comprising approximately 69% of the building expired in
1995. Lease renewals and new leases were likely to be at rental rates less
than the rates on existing leases due to rental concessions and other
factors. In addition, new leases were expected to require expenditures for
lease commissions and tenant improvements prior to occupancy. As a result,
the Partnership decided not to commit any additional funds for anticipated
re-leasing costs since the recovery of such amounts would be remote.
During 1992, the venture reached an agreement with the mortgage lender
to modify and extend the mortgage notes secured by the 160 Spear Street
investment property, which was scheduled to mature on December 10, 1992.
The maturity of the notes were extended to February 10, 1999.
Additionally, the venture was required to escrow net cash flow (as defined)
thirty days following each quarter end which could have been withdrawn for
expenditures approved by the lender, by the lender upon default of the
notes or by the venture on February 10, 1997 when the escrow agreement was
scheduled to terminate. At December 31, 1995, $210,136 had been placed in
the escrow account, and $170,985 had been withdrawn for expenditures
approved by the lender.
The venture approached the lender for an additional loan modification
due to anticipated re-leasing costs which were expected to be incurred at
the property. However, the lender indicated that it was not willing to
provide an additional modification. The venture ceased making its monthly
debt service payments effective June 1, 1995 and in July 1995, reached an
agreement whereby all cash flow from the property was deposited in a
lockbox controlled by the lender until title was transferred. On January
25, 1996, the lender concluded proceedings to realize upon its security and
took title to the property.
The property was classified as held for sale or disposition as of
January 1, 1996, and therefore, was not subject to continued depreciation.
The accompanying consolidated financial statements include $26,000,000 as
the cumulative effect of an accounting change to record value impairment as
the carrying value of the property was reduced to its estimated fair value
based upon the application of an appropriate capitalization rate to the net
operating income of the property. In addition, the Partnership recognized
$31,158,453 of extraordinary gain on extinguishment of debt for financial
reporting and a gain of approximately $9,450,000 for Federal income tax
purposes with no corresponding distributable proceeds in 1996. The
mortgage notes with a balance totaling $39,184,844 have been classified at
December 31, 1995 as a current liability in the accompanying consolidated
financial statements.
PIPER JAFFRAY TOWER
In 1984, the Partnership acquired, through JMB/Piper, with Carlyle-
XIV, an interest in a 42-story office building known as the Piper Jaffray
Tower in Minneapolis, Minnesota with the developer and certain limited
partners. In April 1986, JMB/Piper II, a joint venture partnership between
the Partnership and Carlyle-XIV, acquired the developer's interest in the
OB Joint Venture. JMB/Piper holds its interest in the property through
three existing joint ventures (OB Joint Venture, OB Joint Venture II and
222 South Ninth Street Limited Partnership, together "Piper"). The terms
of the JMB/Piper and JMB/Piper II venture agreements generally provide that
JMB/Piper's and JMB Piper II's respective shares of Piper's annual cash
flow, sale or refinancing proceeds and profits and losses will be
distributed or allocated to the Partnership in proportion to its 50% share
of capital contributions.
JMB/Piper invested approximately $19,915,000 for its 71% interest in
Piper. JMB/Piper is obligated to loan amounts to Piper to fund operating
deficits (as defined). The loans bear interest at a rate of not more than
14.36% per annum, provide for payments of interest only from net cash flow,
if any, and are repayable from net sale or refinancing proceeds. Such
loans and accrued interest were approximately $95,764,000 and $84,489,000
at December 31, 1996 and 1995, respectively.
The property is subject to a mortgage loan in the principal amount of
$100,000,000 of which approximately $96,868,300 is outstanding as of
December 31, 1996. Under the terms of a modification agreement with the
lender, in addition to fixed interest on the mortgage notes secured by the
Piper Jaffray Tower, contingent interest is payable in annual installments
on April 1 computed at 50% of gross receipts, as defined, for each fiscal
year in excess of $15,200,000. No such contingent interest was due for
1994, 1995 or 1996. In addition, to the extent the investment property
generates cash flow after payment of the fixed interest on the mortgage,
contingent interest, if any, leasing and capital costs, and 25% of the
ground rent, such amount will be paid to the lender as a reduction of the
principal balance of the mortgage loan. The excess cash flow payments
remitted to the lender for 1994 and 1995 totalled $353,251 and $464,178,
respectively. During 1996, excess cash flow generated under this agreement
was $741,627 which is expected to be remitted to the lender during the
second quarter of 1997. On a monthly basis, the venture deposits the
property management fee into an escrow account to be used (including
interest earned thereon) for future leasing costs to the extent cash flow
is not sufficient to cover such items. To date, no escrow funds have been
required to be used for leasing costs. The escrow balance as of December
31, 1996 is approximately $3,993,000. The manager of the property (which
was an affiliate of the Corporate General Partner through November 1994)
has agreed to defer receipt of its management fee until a later date. As
of December 31, 1996, the manager has deferred approximately $3,216,000
($1,839,000 of which represents deferred fees due to affiliates through
November 1994) of management fees. If upon sale or refinancing as
discussed below, there are funds remaining in this escrow after payment of
amounts owed to the lender, such funds will be paid to the manager to the
extent of its deferred and unpaid management fees. Any remaining unpaid
management fees would be payable out of the venture's share of sale or
refinancing proceeds. Additionally, pursuant to the terms of the loan
modification, effective January 1992, OB Joint Venture, as majority owner
of the underlying land, began deferring receipt of its share of land rent.
These deferrals will be payable from net sale or refinancing proceeds, if
any.
Furthermore, repayment of the loan is subject to a prepayment fee
ranging from 6% to 1% through the maturity date as well as an amount that
will provide the lender with an internal rate of return from 12.75% to
13.59% out of proceeds from the sale or refinancing of the property. After
the prepayment fees, the lender participates in any remaining sale or
refinancing proceeds. For financial reporting purposes, through December
31, 1995, additional interest expense had been accrued at a rate of 13.59%
per annum. Under the current terms of the modified debt, there must be a
significant improvement in the current market and property operating
conditions resulting in a significant increase in the value of the property
in order for JMB/Piper to share in any future net sale or refinancing
proceeds. Therefore, during 1996, interest expense of $10,250,000 was
recognized at the loans stated payment rate. Total indebtedness including
interest under the mortgage loan is approximately $119,111,070 and
$120,429,415 at December 31, 1996 and 1995, respectively. JMB/Piper
anticipates exploring refinancing alternatives during 1997. Such
refinancing would only be possible if the underlying lender would accept a
discount and would also likely require additional capital contributions
from JMB/Piper. There are no assurances that a refinancing can be
achieved. The Partnership will not commit additional capital to this
property unless, among other things, it believes that upon sale of the
property, the Partnership will receive a return of such funds and a
reasonable rate of return thereon.
The Piper venture agreements provide that any net cash flow, as
defined, will be used to pay principal and interest on the operating
deficit loans (as described above) with any excess generally distributable
71% to JMB/Piper and 29% to the venture partners, subject to certain
adjustments (as defined). In general, operating profits or losses are
allocated in relation to the economic interests of the joint venture
partners. Accordingly, operating profits (excluding depreciation and
amortization) were allocated 71% to the JMB/Piper and 29% to the venture
partners during 1996, 1995 and 1994.
The Piper venture agreements further provide that, in general, upon
any sale or refinancing of the property, the principal and any accrued
interest outstanding on any operating deficit loans will be repaid. Any
remaining proceeds will be distributable 71% to JMB/Piper and 29% to the
joint venture partners, subject to certain adjustments, as defined.
During the fourth quarter 1991, Larkin, Hoffman, Daly & Lindgren, Ltd.
(23,344 square feet) approached the joint venture indicating it was
experiencing financial difficulties and desired to give back a portion or
all of its leased space. Larkin's lease was scheduled to expire in January
2005 and provided for annual rental payments which were significantly
higher than current market rental rates. Larkin was also a limited partner
with partial interests in the building and the land under the building. On
January 15, 1992, the joint venture agreed to terminate Larkin's lease in
return for its partial interest in the land under the building and a
$1,011,798 note receivable. The note receivable provides for monthly
payments of principal and interest at 8% per annum with full repayment over
ten years. Larkin may prepay all or a portion of the note at any time. As
of the date of this report, all amounts due under the note have been
received. The balance of the note receivable as of December 31, 1996 is
$621,744.
JMB/900
In 1984, the Partnership acquired, through JMB/900 with C-XIV, an
interest in an existing joint venture ("Progress Partners") which owns a
36-story office building known as the 900 Third Avenue Building in New
York, New York. The partners of Progress Partners were the developer of
the property ("PPI") and an original affiliate of PPI ("JRA") and JMB/900.
In 1986, PPI transferred a portion of its interest to another partnership
("PC-900") in which it and a major tenant of the building (Central National
Bank) were partners. In 1987, the bank failed and the Federal Deposit
Insurance Corporation ("FDIC") assumed its position as a limited partner in
PC-900. The current partners of Progress Partners are JMB/900 and PPI, JRA
and PC-900 (together "Venture Partners").
The terms of the JMB/900 venture agreement generally provide that
JMB/900's share of Progress Partners' cash flow, sale or refinancing
proceeds and profits and losses will be distributed or allocated to the
Partnership in proportion to its 66-2/3% share of capital contributions.
JMB/900 has made capital contributions to Progress Partners and
certain payments to an affiliate of the developer, in the aggregate amount
of $18,270,000, subject to the obligation to make additional capital
contributions as described below.
JMB/900 has also made a loan to PPI in the amount of $20,000,000 which
is secured by the Venture Partners' interest in Progress Partners. The
loan bears interest at the rate of 16.4% per annum and is payable in
monthly installments of interest only until maturity on the earlier of the
sale or refinancing of the property or August 2004. For financial
reporting purposes, the loan is classified as an additional investment in
Progress Partners and any related interest received would be accounted for
as distributions (none in 1994, 1995 and 1996). To the extent that JMB/900
has not received annual distributions equal to the interest payable on such
loan, the deficiency becomes a cumulative preferred return payable out of
future net cash flow or net sale or refinancing proceeds.
The Progress Partners venture agreement provides that the venture is
required to pay the Venture Partners a stated return of $3,285,000 per
annum payable quarterly. Generally, JMB/900 is required to contribute
funds to the venture, to the extent net cash flow is not sufficient, to
enable the venture to make this payment. As a result of the lawsuit
discussed below, such amounts have not been contributed by JMB/900 to pay
the Venture Partners, and consequently, interest has not been received by
JMB/900 on the $20,000,000 loan discussed above. Under the terms of the
Progress Partners' venture agreement, the Venture Partners are generally
entitled to receive a non-cumulative preferred return of net cash flow (net
after the $3,285,000 per annum stated return payable to the Venture
Partners discussed above) of approximately $3,414,000 per annum, with any
remaining net cash flow distributable 49% to JMB/900 and 51% to the venture
partners.
The Progress Partners venture agreement further provides that net sale
or refinancing proceeds are distributable to JMB/900 and the Venture
Partners, on a pro rata basis, in an amount equal to the sum of any
deficiencies in the receipt of their respective cumulative preferred
returns of net cash flow plus certain contributions to the venture made by
JMB/900 to pay for the Venture Partner stated return. Next, proceeds will
be distributable to the Venture Partners in an amount equal to $20,000,000.
JMB/900 is entitled to receive the next $21,000,000 and the Venture
Partners will receive the next $42,700,000. Any remaining net proceeds are
to be distributed 49% to JMB/900 and 51% to the Venture Partners. As
discussed above, the $20,000,000 loan to the Venture Partners matures upon
sale or refinancing (under certain conditions) of the property.
Consequently, the $20,000,000 distribution level to the Venture Partners
would be used to pay off the $20,000,000 loan from JMB/900. Furthermore,
to the extent that JMB/900 has not received annual distributions equal to
the interest payable on the $20,000,000 loan discussed above, JMB/900's
preferred return deficiency is increased by the amounts not received.
Operating profits, in general, are allocated 49% to JMB/900 and 51% to
the venture partners. Operating losses, in general, are allocated 90% to
JMB/900 and 10% to the Venture Partners.
As a result of certain defaults by PPI, an affiliate of the General
Partners assumed management responsibility for the 900 Third Avenue
Building as of August 1987 for a fee computed as a percentage of certain
revenues. In December 1994, the affiliated property manager entered into a
sub-management contract with an unaffiliated third party. Pursuant to the
sub-management agreement, the unaffiliated property manager is managing the
property.
Through December 31, 1991, it was necessary for JMB/900 to contribute
approximately $4,364,000 ($1,457,000 of which was contributed by the
Partnership) to pay past due property real estate taxes and to pay certain
costs, including litigation settlement costs, which were the responsibility
of one of the Venture Partners under the terms of the joint venture
agreement to the extent such funds were not available from the investment
property. In July 1989, JMB/900 filed a lawsuit in Federal court against
the former manager and the Venture Partners to recover the amounts
contributed and to recover for certain other joint venture obligations on
which the Venture Partners had defaulted. This lawsuit was dismissed on
jurisdictional grounds. Subsequently, however, the FDIC filed a complaint,
since amended, in a lawsuit against PPI, JRA, JMB/900, and other
unaffiliated defendants, which has enabled JMB/900 to refile its previously
asserted claims against the Venture Partners as part of that lawsuit in
Federal court. There is no assurance that JMB/900 will recover the amounts
of its claims as a result of the litigation. Due to the uncertainty, no
amounts in addition to the amounts advanced to date, noted above, have been
recorded in the financial statements.
During the fourth quarter of 1996, The State of Maryland Deposit
Insurance Fund Corporation (the "MDIFC") commenced an action against PPI
and JRA to collect on a certain note receivable by foreclosing its security
interest in PPI and JRA's interest in Progress Partners. The trial court
in that action has entered summary judgment in favor of MDIFC for in excess
of $6 million. The MDIFC has made known its intent to schedule an
immediate sale of PPI and JRA's interest at which the MDIFC expects to be
the successful purchaser. In anticipation of succeeding PPI and JRA, the
MDIFC has been discussing with JMB/900 a purchase by JMB/900
of all of the interests that would be acquired by MDIFC if it were the
successful purchaser. There are no assurances that a purchase agreement
with the MDIFC will be reached or that the MDIFC will be the successful
purchaser at the sale.
Concurrent with the lawsuit filed by the MDIFC, the FDIC has filed two
additional lawsuits against JMB/900, PPI, JRA, and other non-affiliated
defendants, in an attempt, among other things, to obtain a legal resolution
of competing claims made as to the interests in PC-900 and to challenge the
consent given by JMB/900 in 1990 to allow the MDIFC, in the event it
acquired PPI and JRA's interest through foreclosure, to become a partner of
Progress Partners. JMB/900 has been discussing a settlement with the FDIC
in which JMB/900 would purchase the interest of the FDIC and/or PC-900 in
Progress Partners. If a settlement is not achieved and the FDIC pursues
these actions, JMB/900 intends to vigorously defend itself.
The Partnership will not commit additional capital to this property
unless, among other things, it believes that upon sale of the property, the
Partnership will receive a return of such funds and a reasonable rate of
return thereon.
In 1994, JMB/900, on behalf of Progress Partners, successfully
completed an extension to December 1, 2001 of its mortgage loan, which
matured on December 1, 1994. Pursuant to the loan extension, net cash flow
(as defined) after debt service and capital and after repayment of
approximately $3,229,000 to JMB/900 representing costs associated with and
deposits made by the joint venture in connection with the loan extension
will be paid into an escrow account controlled by the lender to be used,
including interest earned thereon, by the joint venture for releasing costs
associated with leases which expire in 1999 and 2000 (approximately 240,000
square feet of space). The remaining proceeds in this escrow plus interest
earned thereon, if any, will be released to the joint venture once 90% of
such leased space has been renewed or released. To date, no escrow funds
have been deposited into the account for leasing costs. As of July 1996,
all amounts advanced by JMB/900 have been repaid to it (of which the
Partnership's share is approximately $2,000,000). The escrow balance at
December 31, 1996 is approximately $193,000.
SOUTH TOWER
In June 1985, the Partnership acquired an interest in a joint venture
partnership ("South Tower") which owns a 44-story office building in Los
Angeles, California. The joint venture partners of the Partnership
included Carlyle Real Estate Limited Partnership-XIV ("Affiliated
Partner"), one of the sellers of the interests in South Tower, and another
unaffiliated venture partner.
The Partnership and the Affiliated Partner purchased their interests
for $61,592,000. In addition, the Partnership and the Affiliated Partner
made capital contributions to South Tower totaling $48,400,000 for general
working capital requirements and certain other obligations of South Tower.
The Partnership's share of the purchase price, capital contributions (net
of additional financing) and interest thereon totaled $53,179,000.
The terms of the original South Tower agreement generally provided
that the Partnership and Affiliated Partner's aggregate share of the South
Tower's annual cash flow, net sale or refinancing proceeds, and profits and
losses be distributed or allocated to the Partnership and the Affiliated
Partner in proportion to their aggregate capital contributions.
Annual cash flow was to be distributed 80% to the Partnership and
Affiliated Partner and 20% to another partner until the Partnership and the
Affiliated Partner have received, in the aggregate, a cumulative preferred
return of $8,050,000 per annum. The remaining cash flow was to be
distributable 49.99% to the Partnership and the Affiliated Partner, and the
balance to the other joint venture partners. Additional contributions to
South Tower were contributed 49.99% by the Partnership and the Affiliated
Partner until all partners had contributed $10,000,000 in aggregate.
Operating profits and losses, in general, were to be allocated 49.99%
to the Partnership and the Affiliated Partner and the balance to the other
joint venture partners. Substantially all depreciation and certain
expenses paid from the Partnership's and Affiliated Partner's capital
contributions were to be allocated to the Partnership and Affiliated
Partner. In addition, operating profits, up to the amount of any annual
cash flow distribution, were allocated to all partners in proportion to
such distributions of annual cash flow.
In general, upon sale or refinancing of the property, net sale or
refinancing proceeds would be distributed 80% to the Partnership and the
Affiliated Partner and 20% to another partner until the Partnership and the
Affiliated Partner have received the amount of any deficiency in their
preferred return described above plus an amount equal to their "Disposition
Preference" (which, in general, begins at $120,000,000 and increases
annually by $8,000,000 to a maximum of $200,000,000). Any remaining net
sale or refinancing proceeds would be distributed 49.99% to the Partnership
and the Affiliated Partner and the remainder to the other partners.
The office building is being managed by an affiliate of one of the
venture partners under a long-term agreement pursuant to which the
affiliate is entitled to receive a monthly management fee of 2-1/2% of
gross project income, a tenant improvement fee of 10% of the cost of tenant
improvements, and commissions on new leases.
The mortgage note secured by the property (with a balance of
approximately $187,483,000 and accrued interest of approximately $1,562,000
as of December 31, 1996), matured December 1, 1994. The Partnership and
the joint venture had been in discussions with the lender regarding an
extension of the mortgage note. The venture continued to make interest
payments to the lender under the original terms of the mortgage note and
was required to escrow all available cash flow. In the fourth quarter of
1996 the joint venture and the lender reached an agreement to modify the
mortgage note. The agreement provides that the mortgage note secured by
the property be extended to September, 2003 at an interest rate of 10% with
all excess cash flow being escrowed for future tenant improvements and
principal payments. In addition, upon sale or refinancing of the property
subsequent to September 1, 1999, the mortgage loan requires payment of
participation interest (as defined) of any excess proceeds. The mortgage
lender received a $2,000,000 extension fee paid by the venture partners in
their ownership percentages (of which the Partnership's share was
$650,000).
The promissory note secured by the Partnership's interest in the joint
venture matured December 1, 1994. The Partnership had been in discussion
with the lender regarding an extension of the promissory note. The
Partnership had ceased making debt service payments on the promissory note,
and therefore, the promissory note had been classified as a current
liability in the accompanying consolidated financial statements at December
31, 1995. In the fourth quarter of 1996, the Partnership reached an
agreement with the lender to modify the promissory note (with a principal
balance of $22,750,000 and accrued interest of approximately $5,800,000
prior to modification). The Partnership's amended and restated promissory
note has an adjusted balance of approximately $40,830,000 consisting of the
original principal loan balance, unpaid accrued interest, the Partnership's
share of the extension fee and a restructuring fee of approximately
$11,600,000. The promissory note is due September 2003 and accrues
interest at 17% per annum. The loan requires payments of cash flow
distributed by the venture from either property operations or sales
proceeds as well as a portion of the property management fee paid to the
venture partner. The loan is secured solely by the Partnership's interest
in the property.
In conjunction with the note modifications, the joint venture was
converted to a limited liability company with members' interests in the
same ratio as the prior venture ownership interests. The conversion of the
Partnership's interest to a member's interest in a limited liability
company eliminates any potential additional obligation of the Partnership
in the future to provide additional funds under the previous joint venture
agreement. As a result, previously recognized losses of $10,620,944 have
been reversed.
At maturity of the loan, it is not anticipated that further
modifications or extensions can be obtained. This would likely result in
the Partnership no longer having an ownership interest in the property, and
in such event would result in a gain for Federal income tax purposes with
no corresponding distributable proceeds. Since the terms of the agreement
make it unlikely that the Partnership would recover any incremental
investment, the Partnership has decided not to commit any significant
additional amounts to the property.
JMB/125
In December 1985, the Partnership, through the JMB/125 joint venture
partnership, acquired an interest in an existing joint venture partnership
("125 Broad") which owned a 40-story office building, together with a
leasehold interest in the underlying land, located at 125 Broad Street in
New York, New York. In addition to JMB/125, the other partners (the "O&Y
partners") of 125 Broad include O&Y 25 Realty Company L.P., Olympia & York
Broad Street Holding Company L.P. (USA) and certain other affiliates of
Olympia & York Development, Ltd. ("O&Y").
In November 1994, the Partnership through its indirect ownership of
JMB/125 assigned its interest in the 125 Broad Street Building to the
venture partners as described below.
JMB/125 was a joint venture between Carlyle-XV Associates, L.P. (in
which the Partnership holds a 99% limited partnership interest), Carlyle-
XVI Associates, L.P. and Carlyle Advisors, Inc. The Partnership held
indirectly through Carlyle-XV Associates, L.P., an approximate 60% limited
partnership interest in JMB/125. The general partner in each of JMB/125
and Carlyle-XV Associates, L.P. is an affiliate of the Partnership. For
financial reporting purposes, profits and losses of JMB/125 are generally
allocated 60% to the Partnership. The terms of the JMB/125 venture
agreement generally provide that JMB/125's share of 125 Broad's annual cash
flow and sale or refinancing proceeds would be distributed or allocated to
the Partnership in proportion to its indirect approximate 60% share of
capital contributions to JMB/125.
JMB/125 acquired an approximately 48.25% interest in 125 Broad for a
purchase price of $16,000,000, subject to a first mortgage loan. The first
mortgage loan (in the principal amount of $277,410,516) bore interest at a
rate of 10-1/8% per annum payable in semi-annual interest only payments and
was to mature on December 27, 1995. JMB/125 also contributed $14,055,500
to 125 Broad to be used for working capital purposes and to pay an
affiliate of O&Y for its assumption of JMB/125's share of the obligations
incurred by 125 Broad under the "takeover space" agreement described below.
In addition, JMB/125 contributed $24,222,042, plus interest thereon of
approximately $1,089,992 on June 30, 1986 for working capital purposes.
Thus, JMB/125's original cash investment (exclusive of acquisition costs)
was $55,367,534, of which the Partnership's share was approximately
$33,220,000. The land underlying the office building is subject to a
ground lease which had a term through June 2067 and provides for annual
rental payments of $1,075,000.
The partnership agreement of 125 Broad, as amended, provided that the
O&Y partners were obligated to make advances to pay operating deficits
incurred by 125 Broad from the earlier of 1991 or the achievement of a 95%
occupancy rate of the office building through 1995. In addition, from
closing through 1995, the O&Y partners were required to make capital
contributions to 125 Broad for the cost of tenant improvements and leasing
expenses up to certain specified amounts and to make advances to 125 Broad
to the extent such costs exceeded such specified amounts and such costs are
not paid for by the working capital provided by JMB/125 or the cash flow of
125 Broad. The amount of all costs for such tenant improvements and
leasing expenses over the specified amounts and the advances for operating
deficits from the earlier of the achievement of a 95% occupancy rate of the
office building or 1991 were treated by 125 Broad as non-recourse loans
bearing interest, payable monthly, at the floating prime rate of an
institutional lender. Due to a major tenant vacating in 1991 and the O&Y
affiliates' default under the "takeover space" agreement, the property
operated at a deficit in 1994 and was expected to operate at a deficit for
the next several years. Such deficits were required to be funded by
additional loans from the O&Y partners, although as discussed below the O&Y
partners were in default of such funding obligation since June 1992. The
outstanding principal balance and any accrued and unpaid interest of such
loans were to be payable from 125 Broad's annual cash flow or net sale or
refinancing proceeds, as described below. Any unpaid principal of such
loans and any accrued and unpaid interest thereon were to be due and
payable on December 31, 2000. JMB/125 and the O&Y partners were obligated
to make capital contributions, in proportion to their respective interests
in 125 Broad, in amounts sufficient to enable 125 Broad to pay any excess
expenditures not covered by the capital contributions or advances of the
O&Y partners described above.
Due to the O&Y partners' previous failure to advance necessary funds
to 125 Broad as required under the joint venture agreement, 125 Broad in
June 1992 defaulted on its mortgage loan by failing to pay approximately
$4,722,000 of the semi-annual interest payment due on the loan. As a
result of this default, the loan agreement provided for a default interest
rate of 13-1/8% per annum on the unpaid principal amount. In addition,
during 1992 affiliates of O&Y defaulted on a "takeover space" agreement
with Johnson & Higgins, Inc. ("J&H"), one of the major tenants at the 125
Broad Street Building, whereby such affiliates of O&Y agreed to assume
certain lease obligations of J&H at another office building in
consideration of J&H's leasing space in the 125 Broad Street Building. As
a result of this default, J&H offset rent payable to 125 Broad for its
lease at the 125 Broad Street Building in the amount of approximately
$43,500,000 through the date of JMB/125's assignment of its interest in 125
Broad, and it was expected that J&H would continue to offset amounts due
under its lease corresponding to amounts by which the affiliates of O&Y
were in default under the "takeover space" agreement. As a result of the
O&Y affiliates' default under the "takeover space" agreement and the
continuing defaults of the O&Y partners to advance funds to cover operating
deficits, as of the date of assignment, the arrearage under the mortgage
loan had increased to approximately $69,447,000. Approximately $26,700,000
was remitted to the lender in October 1993 in connection with the early
termination of the Salomon Brothers lease, and was applied towards mortgage
principal for financial reporting purposes. Due to their obligations
relating to the "takeover space" agreement, the affiliates of O&Y were
obligated for the payment of the rent receivable associated with the J&H
lease at the 125 Broad Street Building. Based on the continuing defaults
of the O&Y partners, 125 Broad provided loss reserves for the entire rent
offset by J&H, $14,900,000, $19,300,000 and $9,300,000 in 1994, 1993 and
1992, respectively, and also reserved approximately $32,600,000 in 1992 of
accrued rents receivable relating to such J&H lease, since the ultimate
collectability of such amounts depended upon the O&Y partners' and the O&Y
affiliates' performance of their obligations. The Partnership's share of
such losses was approximately $4,300,000, $5,587,000 and $12,159,000 for
the years ended December 31, 1994, 1993 and 1992, respectively, and was
included in the Partnership's share of loss from operations of
unconsolidated venture.
On November 15, 1994, effective as of October 31, 1994, JMB/125 and
certain affiliates of O&Y reached an agreement to settle their disputes
regarding 125 Broad and its property. Under the terms of the agreement,
JMB/125 assigned its interest in 125 Broad to an affiliate of O&Y and
released the O&Y partners from any claims related to 125 Broad. In return,
JMB/125 received an unsecured promissory note in the principal amount of $5
million bearing simple interest at 4.5% per annum with all principal and
accrued interest due at maturity in October 1999, subject to mandatory
prepayments of principal and interest or acceleration of the maturity date
under certain circumstances. As of December 31, 1994, the note has been
fully reserved for by JMB/125. In addition, JMB/125 received a release
from any claims of certain O&Y affiliates and will generally be indemnified
against any liability as a general partner of 125 Broad. JMB/125 was also
relieved of any obligation to contribute cash to 125 Broad in the amount of
its deficit capital account balance. Affiliates of O&Y subsequently filed
a prearranged bankruptcy plan for reorganization of 125 Broad under Chapter
11 of the Bankruptcy Code in order to facilitate 125 Broad's transfer of
the office building to the mortgage lender in satisfaction of the mortgage
debt and other claims. In January 1995, the plan for reorganization was
approved by the bankruptcy court, was consummated, and the bankruptcy case
was concluded. As a result of the assignment of its interest, JMB/125 no
longer has an ownership interest in the office building and recognized in
1994 gains of $53,412,105 and $49,616,240 for financial reporting and
Federal income tax purposes, respectively. The Partnership's share of such
gains was $31,743,006 and $26,678,693 for financial reporting and Federal
income tax purposes, respectively. In October 1995, the makers of the $5
million promissory note payable to JMB/125 filed for protection from
creditors under Chapter 11 of the Bankruptcy Code. Pursuant to the
bankruptcy reorganization of the makers of the note, JMB/125, as an
unsecured creditor, received limited partnership interests and a
convertible note interest in a reorganized entity that has majority or
controlling interests in six office buildings in New York, New York and
Boston, Massachusetts. The assigned value, as of the bankruptcy
confirmation date, of the interests and note received by JMB/125 was
approximately $400,000. The convertible note was fully reserved due to the
uncertainty of the realizable value of the note.
JMB/NEWPARK
In December 1986, the Partnership, through the JMB/NewPark joint
venture partnership, acquired an interest in an existing joint venture
partnership ("NewPark Associates") with the developer which owns an
interest in an existing enclosed regional shopping center in Newark,
California known as NewPark Mall. JMB/NewPark invested $32,500,000 for its
50% interest in NewPark Associates. In December 1995, the developer
transferred its interest in NewPark Associates to a new venturer which is
affiliated with the developer.
The NewPark Mall secures a mortgage note payable in the principal
amount of $50,620,219 that was originally due on November 1, 1995. Monthly
payments of interest only of $369,106 were due through November 30, 1993.
Commencing on December 1, 1993 through October 30, 1995, principal and
interest were due in monthly payments of $416,351 with a final balloon
payment due November 1, 1995. In October 1995, JMB/NewPark was granted a
loan extension until December 15, 1995. Interest on the note payable
accrued at 8.75% per annum. On December 21, 1995, NewPark Associates
obtained a new mortgage loan with an institutional lender. The new
mortgage loan in the principal amount of $60,000,000 is due on December 31,
2000. The loan provides for monthly interest-only payments of $357,500.
Interest on the non-recourse loan accrues at 7.15% per annum.
A portion of the proceeds from the note payable was used to pay the
outstanding balance, including accrued interest, under the previous
mortgage note payable. The Partnership's share of net refinancing proceeds
(after payment of the previous mortgage note payable and costs and fees
relating to the refinancing) was $4,815,000.
The NewPark Associates partnership agreement provides that JMB/NewPark
and the joint venture partner are each entitled to receive 50% of profits
and losses, net cash flow and net sale or refinancing proceeds of NewPark
Associates and are each obligated to advance 50% of any additional funds
required under the terms of the NewPark Associates partnership agreement.
In December 1995, the joint venture partner sold and assigned its interest
in NewPark Associates to a third party, who was admitted as the new venture
partner.
As a result of the acquisition by Federated Department Stores
("Federated") of the company which owns the Emporium Capwell store at
NewPark Mall, Federated, which also owns the Macy's store at NewPark Mall
has approached the NewPark joint venture regarding a sale of the Emporium
Capwell building. Simultaneously with its negotiations to acquire the
Emporium Capwell building, the NewPark joint venture is negotiating to sell
the building to a national retail store owner. The NewPark joint venture
expects to receive net proceeds from the transactions if they are closed as
currently contemplated. However, there is no assurance that the
transactions will be closed or, if so, will be on the terms currently
contemplated.
In response to uncertainty concerning the NewPark joint venture's
ability to recover the net carrying value of the NewPark Mall investment
property through future operations or sale and since the NewPark joint
venture has shortened its intended holding period for this investment to
not later than 1999, the NewPark joint venture, in accordance with SFAS
121, recorded a provision for value impairment at June 30, 1996 in the
amount of $8,600,000 of which the Partnership's share is $3,780,000. Such
provision was recorded to reduce the venture's carrying value of the
investment property to the then estimated fair market value of the property
based upon an analysis of discounted estimated future cash flows over the
projected holding period.
The portion of the shopping center owned by NewPark Associates was
managed by the former joint venture partner under a long-term agreement
pursuant to which it was obligated to manage the property and collect all
receipts from operations of the property. In December 1995, the former
joint venture partner assigned its interest in the management agreement to
the new venture partner. The manager is paid a management fee equal to 4%
of the fixed and percentage rent. An amendment to the management agreement
provides that the new manager will pay to an affiliate of the General
Partner of the Partnership an annual consulting fee in the amount of
$100,000 in consideration for assisting NewPark Associates and the new
venture partner in the evaluation of property budgets, and leasing and
long-term strategies for NewPark Mall. Such consulting fee is paid out of
the management fee noted above.
260 FRANKLIN
In May 1986, the Partnership, through the 260 Franklin joint venture
partnership, acquired an interest in an office building in Boston,
Massachusetts known as the 260 Franklin Street Building.
The property is currently subject to a first mortgage loan in the
original principal amount of approximately $75,000,000. 260 Franklin's
original cash investment (exclusive of acquisition costs) was approximately
$35,000,000 of which the Partnership's share was approximately $24,500,000.
An affiliate of the General Partner managed the property until
December 1994 for a fee computed at 3% of the property's gross receipts.
Beginning January 1, 1992, 260 Franklin Street is escrowing the payment of
property management fees and leasing commissions to the affiliate pursuant
to the terms of the debt modification described below. In December 1994,
the affiliated property manager sold substantially all of its assets and
assigned its interest in its management contracts to an unaffiliated third
party. The property is currently managed by the purchaser of the
affiliate's assets on the same terms provided in the property management
agreement, with the payment of the management fees guaranteed by JMB in
1995. Beginning in January 1996, the unaffiliated property manager was
paid management fees by the property. Reference is made to the Notes to
the Financial Statements of 260 Franklin Street Associates.
The long-term mortgage loan in the original principal amount of
approximately $75,000,000 plus accrued and deferred interest matured
January 1, 1996. 260 Franklin, as of such date, began submitting the net
operating cash flow of the property to the lender while seeking an
extension or refinancing of the loan. Concurrent with such lender
negotiations, 260 Franklin also began investigating market conditions to
determine whether conditions were favorable for selling the property.
However, it was determined that conditions were not favorable and the
property continues to be held as investment property. The joint venture
reached an agreement with the lender for an extension of the mortgage loan
through January 1, 1997. In addition to substantially the same terms as
were in effect prior to such extension, the agreement requires that the
property submit net operating cash flow of the property to the lender. The
joint venture is currently seeking a further extension of the mortgage loan
through January 1, 1998. However, there can be no assurance that the joint
venture will be able to obtain a further extension of the loan. If 260
Franklin is unable to extend the mortgage loan to the property, the
Partnership may decide not to commit any significant additional funds.
This may result in 260 Franklin and the Partnership no longer having an
ownership interest in the property. This would result in 260 Franklin and
the Partnership recognizing a gain for financial reporting and Federal
income tax purposes with no distributable proceeds.
The office market in the Financial District of Boston remains
competitive due to the new office building developments and lay-offs,
cutbacks and consolidations by financial service companies. The effective
rental rates achieved upon re-leasing have been substantially below the
rates which were received under the previous leases for the same space.
Therefore, the Partnership and 260 Franklin venture recorded a provision
for value impairment of $17,400,000 as of January 1, 1996 to reflect the
then estimated fair value of the property based upon the use of an
appropriate capitalization rate applied to the property's net operating
income. As a result of the uncertainty of the Partnership recovering the
deficit capital account from further operation or sale, such provision has
all been allocated to the Partnership. This has resulted in the
elimination of the venture partner's deficit balance.
The long-term mortgage note secured by the 260 Franklin Street
Building, as modified in December 1991, provided for monthly payments of
interest only based upon the then outstanding balance at a rate of 8% per
annum. Upon maturity, 260 Franklin was obligated to pay an amount
sufficient to provide the lender with an 11% per annum yield on the
mortgage note from January 1, 1991. In addition, upon maturity, 260
Franklin was obligated to pay to the lender a residual interest amount
equal to 60% of the highest amount, if any, of (i) net sales proceeds, (ii)
net refinancing proceeds, or (iii) net appraisal value, as defined. 260
Franklin has been required to (i) escrow excess cash flow from operations
(computed without a deduction for property management fees and leasing
commissions), beginning in 1991, to cover future cash flow deficits, (ii)
make an initial contribution to the escrow account of $250,000, of which
the Partnership's share was $175,000, and (iii) make annual escrow
contributions, through January 1995, of $150,000, of which the
Partnership's share is $105,000. The escrow account ($2,428,695 at
December 31, 1996 including accrued interest) was to be used to cover the
cost of capital and tenant improvements and lease inducements
(approximately $3,551,000 used as of December 31, 1996) as defined, with
the balance, if any, of such escrowed funds available at the scheduled or
accelerated maturity to be used for the payment of principal and interest
due to the lender as described above.
VILLAGES NORTHEAST
The first mortgage loan secured by the Dunwoody Crossing Phase I and
III Apartments was scheduled to mature in October 1994. The joint venture
owning the property negotiated an extension of the mortgage loan until
November 15, 1997. Based upon the pending maturity of the loan, the
Partnership began marketing the property for sale. Accordingly, the
property was classified as held for sale or disposition as of January 1,
1996 and therefore had not been subject to continued depreciation.
On May 7, 1996, the Partnership sold (through the Villages Northeast
venture) the Dunwoody apartment complex to the unaffiliated venture
partner, pursuant to such venture partner's right of first refusal, for
$47,000,000 less brokerage commissions, transfer taxes and legal fees of
approximately $470,000. Approximately $30,900,000 of the sales proceeds
was utilized to retire the mortgage debt including a prepayment penalty of
approximately $435,000 (of which the Partnership's share of approximately
$304,453 is reported as an extraordinary item in the 1996 Consolidated
Financial Statements). Additionally, approximately $787,000 (of which the
Partnership's share was approximately $551,000) was paid to the State of
Georgia on behalf of the Holders of Interests for withholding tax related
to the sale. As a result of the sale, the Partnership recognized a gain of
approximately $10,500,000 for financial reporting purposes for the year
ended December 31, 1996 and a gain of approximately $17,500,000 for Federal
income tax purposes in 1996. The Partnership made a distribution of $25
per Interest from its share of the net sales proceeds of this sale in May
1996.
EASTRIDGE MALL
On June 30, 1995, the Partnership sold its 90% limited partnership
interest in Eastridge which owns the land, building and related
improvements of the Eastridge Mall located in Casper, Wyoming. The
purchaser, Price Development Company, Limited Partnership, was the
Partnership's joint venture partner in Eastridge and is not affiliated with
the Partnership or its General Partners.
The purchaser paid $24,075,000 (before prorations) at closing, of
which $23,403,992 was used to retire the mortgage note secured by the
property and accrued interest with the balance representing the deemed sale
price of the Partnership's interest in Eastridge. The Partnership received
net proceeds (before prorations) of $671,006 on June 30, 1995. As a result
of the sale, the Partnership recognized gains of $6,275,248 for financial
reporting purposes and $9,110,293 for Federal income tax purposes in 1995.
OWINGS MILLS
In December 1985, the Partnership, through the JMB/Owings joint
venture partnership, acquired an interest in an existing joint venture
partnership ("Owings Mills") which owns an interest in an enclosed regional
shopping center. JMB/Owings's original cash investment was $7,000,000, of
which the Partnership's share was $3,500,000. On June 30, 1993, JMB/Owings
sold its interest in Owings Mills Shopping Center as described below.
JMB/Owings sold its partnership interest in Owings Mills to an
affiliate of the Partnership's unaffiliated joint venture partners. The
sale price of the interest was $9,416,000, all of which was received in the
form of a promissory note. In addition, the Partnership and Carlyle-XVI
were relieved of their allocated portion of the debt secured by the
property. The promissory note (which is secured by a guaranty from an
affiliate of the purchaser and the unaffiliated joint venture partner)
bears interest at a rate of 7% per annum subject to increase to 8% per
annum for the remainder of the term of the note. The promissory note
requires principal and interest payments of approximately $109,000 per
month with the remaining principal balance of approximately $5,500,000 due
and payable on June 30, 1998. The monthly installment of principal and
interest would be adjusted for the increase in the interest rate if
applicable. Early prepayment of the promissory note may be required under
certain circumstances, including the sale or further encumbrance of Owings
Mills Mall.
The net cash proceeds and gain from sale of the interest was allocated
50% to the Partnership and 50% to Carlyle-XVI in accordance to the
JMB/Owings Mills Associates partnership agreement. For financial reporting
purposes, JMB/Owings recognized, on the date of sale, gain of $5,254,855,
of which the Partnership's share is $2,627,427, attributable to JMB/Owings
being relieved of its obligations under the OMLP partnership agreement
pursuant to the terms of the sale agreement. JMB/Owings adopted the cost
recovery method until such time as the purchaser's initial investment was
sufficient in order to recognize additional gain under Statement of
Financial Accounting Standards No. 66 ("SFAS #66"). At December 31, 1994,
the total deferred gain of JMB/Owings including principal and interest
payments of $1,858,572 received through December 31, 1994 was $10,305,310
of which the Partnership's share was $5,152,655. As JMB/Owings collected a
sufficient amount of the purchaser's initial investment, at March 31, 1995,
the joint venture adopted the installment method for recognition of
deferred gain. JMB/Owings recognized $870,121 and $1,713,499 of deferred
gain of which the Partnership's share is $435,060 and $856,750 in 1996 and
1995, respectively, and $527,237 and $1,501,936 of interest income in 1996
and 1995, of which the Partnership's share is $263,619 and $750,968,
respectively.
VILLA SOLANA APARTMENTS
On March 23, 1994 the Partnership, through Villa Solana Associates,
sold the Villa Solana Apartments located in Laguna Hills, California. The
sale price was $16,600,000 (before selling costs and prorations). The
venture received net sale proceeds after selling costs and the retirement
of the debt secured by the property, of $2,563,197, of which the
Partnership's share was $2,332,509.
For financial reporting purposes, the venture recognized, on the date
of sale, gain of $750,349 of which the Partnership's share was $656,560.
The venture's gain for Federal income taxes was approximately $2,614,000,
of which the Partnership's share was approximately $2,575,000.
9701 WILSHIRE BUILDING
On October 6, 1994, the Partnership sold the 9701 Wilshire Building.
The sale price for the 9701 Wilshire Building was $17,950,000 (before
selling costs and prorations), all of which was received in cash at
closing. The Partnership received net sale proceeds after selling costs
and the retirement of the debt secured by the property of $1,017,307. As a
result of the sale, the Partnership recognized a gain in 1994 of $1,522,744
for financial reporting purposes and a loss of $3,180,699 for Federal
income tax purposes.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and
1995:
1996 1995
------------ -----------
13.875% mortgage note; secured by the
RiverEdge Place Building; monthly
payments of $302,821 were due through
December 1, 1995; the outstanding
balance of principal and accrued
interest was due January 1, 1996;
in default since July 1992 . . . . . . . $18,166,294 18,166,294
1996 1995
------------ -----------
12.0% promissory note (in default);
secured by the Partnership's interest
in the Wells Fargo Center South
Tower office building in Los Angeles,
California; monthly interest only
payments through November 30, 1994;
principal balance of $22,750,000
was due December 1, 1994, replaced
in 1996 by the loan described
immediately below. . . . . . . . . . . . -- 22,750,000
17.0% promissory note; secured by the
Partnership's interest in the Wells
Fargo Center South Tower office building
in Los Angeles, California; principal
and accrued interest due September 2003. 40,834,557 --
Variable rate mortgage note; secured
by the Woodland Hills Apartments;
payable in monthly installments of
interest only of varying amounts
related to a market index until
October 1, 1997 when the principal
balance of $8,175,000 was payable,
returned at sale of the property in
May, 1996. . . . . . . . . . . . . . . . -- 8,175,000
9.3% first mortgage note; secured by the
160 Spear Street Building; monthly
payments of interest only were required
through March 10, 1995; principal and
interest payments of $278,877 were due
monthly from April 10, 1995 through
January 10, 1999; the unpaid balance
of principal and interest of
approximately $32,772,760 was due on
February 10, 1999; in default as of
December 31, 1995; lender realized
upon its security interest in the
property in January 1996 . . . . . . . . -- 33,750,000
12.55% second mortgage note; secured
by the 160 Spear Street Building;
monthly payments of interest only
were required through March 10, 1995;
principal and interest payments of
$58,216 were due monthly from April 10,
1995 through January 10, 1999;
the unpaid balance of principal and
interest of approximately $5,351,910
was scheduled to be due on February 10,
1999; in default as of December 31,
1995; lender realized upon its security
interest in the property in January 1996 -- 5,434,894
9.5% mortgage note; secured by the
21900 Burbank Boulevard Building;
required monthly principal and
interest payments of $106,789
through November 1, 1996 with the
balance of the unpaid principal
and interest of approximately
$11,563,066 due on December 1, 1996;
in default as of December 31,
1995; lender realized upon its
security interest in the property
in March 1996. . . . . . . . . . . . . . -- 11,668,754
1996 1995
------------ -----------
11.0% mortgage note (in default);
secured by the 260 Franklin Street
Building; monthly payments of
interest only of $374,455 are due
from June 1991 through January 1,
1992, monthly payments of interest
only of $499,273 are due from
February 1, 1992 through December 1,
1995, the unpaid balance of
approximately $74,891,013 plus
unpaid accrued interest is due on
January 1, 1997. Additional interest
payable upon maturity to provide
an 11% return to lender and 60% of
the greater of net sales or refinancing
proceeds or appraised value, as
defined. . . . . . . . . . . . . . . . . 89,870,356 87,623,625
10.375% mortgage note; secured by the
California Plaza Building; principal
and interest payments of $525,136 were
due monthly from February 1, 1992
through December 1, 1996; the unpaid
balance of principal and interest of
approximately $56,673,315 was due on
January 1, 1997; modified in December 1993
to require interest only payments of
$384,505 (8.00%) due monthly effective
February 1993 through January 1, 2000;
interest accrues at 10.375% through
January 1, 2000 when the unpaid principal
and interest is due. . . . . . . . . . . 60,098,432 59,206,496
7.64% mortgage note; secured by Dunwoody
Crossing (Phase II), principal and interest
payments of $73,316 are due monthly from
November 1, 1992 through October 31, 1997;
the unpaid balance of principal and interest
of approximately $9,004,930 is due on
November 1, 1997, retired at sale of
the property in May, 1996. . . . . . . . -- 9,345,916
8.65% mortgage note; secured by Dunwoody
Crossing (Phases I and III), principal and
interest payments of $171,737 are due monthly
from February 15, 1995 to October 15, 1997;
the unpaid balance of principal and interest
of approximately $20,878,209 is due on
November 15, 1997, retired at sale of
the property in May, 1996. . . . . . . . -- 21,308,879
9.53% mortgage note (in default); secured
by the Springbrook Shopping Center;
monthly payments of interest only are
required through May 1, 1995; principal
and interest payments of $92,735 are due
monthly from June 1, 1995 through April 1,
1997; the unpaid balance of principal
and interest of approximately $10,951,198
was scheduled to be due on May 1, 1997,
satisfied in January 1997 as the lender
realized upon its collected security . . 10,932,588 10,961,455
------------ ------------
1996 1995
------------ -----------
Total debt . . . . . . . . . . . . . 219,902,227 288,391,313
Less current portion
of long-term debt. . . . . . . . . 118,969,238 179,862,967
------------ ------------
Total long-term debt . . . . . . . . $100,932,989 108,528,346
============ ============
Included in the above total long-term debt is $19,514,170 and
$16,375,503 for 1996 and 1995, respectively, which represents mortgage
interest accrued but not currently payable pursuant to the terms of the
notes.
Five year maturities of long-term debt are as follows:
1997 . . . . . . . $118,969,238
1998 . . . . . . . --
1999 . . . . . . . --
2000 . . . . . . . 60,098,432
2001 . . . . . . . --
============
PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits and
losses of the Partnership from operations are allocated 96% to the Holders
of Interests and 4% to the General Partners. Profits from the sale or
other dispositions of investment properties will be allocated first to the
General Partners in an amount equal to the greater of the General Partners'
share of cash distributions from the proceeds of any such sale or other
dispositions (as described below) or 1% of the total profits from any such
sales or other dispositions, plus an amount which will reduce deficits (if
any) in the General Partners' capital accounts to a level consistent with
the gain anticipated to be realized from the sale of investment properties.
Losses from the sale or other disposition of investment properties will be
allocated 1% to the General Partners. The remaining sale or other
disposition profits and losses will be allocated to the Holders of
Interests.
The General Partners are not required to make any additional capital
contributions except under certain limited circumstances upon dissolution
and termination of the Partnership. "Net cash receipts" from operations of
the Partnership will be allocated 90% to the Holders of Interests and 10%
to the General Partners (of which 6.25% constitutes a management fee to the
Corporate General Partner for services in managing the Partnership).
The Partnership Agreement provides that subject to certain conditions,
the General Partners shall receive as a distribution of the proceeds (net
after expenses and liabilities and retained working capital) from the sale
or refinancing of a real property by the Partnership up to 3% of the
selling price for any property sold, and that the remaining proceeds be
distributed 85% to the Holders of Interests and 15% to the General
Partners. However, prior to such distribution being made, the Holders of
Interests are entitled to receive 99% and the General Partners l% of net
sale or refinancing proceeds until the Holders of Interests (i) have
received cash distributions of "sale proceeds" or "refinancing proceeds" in
an amount equal to the Holders' aggregate initial capital investment in the
Partnership and (ii) have received cumulative cash distributions from the
Partnership's operations which, when combined with "sale proceeds" or
"refinancing proceeds" previously distributed, equal a 6% annual return on
the Holders' average capital investment for each year (their initial
capital investment as reduced by "sale proceeds" or "refinancing proceeds"
previously distributed) commencing with the third fiscal quarter of 1986.
The Holders of Interests have not yet received and are not expected to
receive cash distributions of net sale or refinancing proceeds in an amount
equal to their initial capital investment in the Partnership. If upon the
completion of the liquidation of the Partnership and the distribution of
all Partnership funds, the Holders of Interests have not received the
amounts in (i) and (ii) above, the General Partners will be required to
return all or a portion of the 1% distribution of net sale or refinancing
proceeds described above in an amount equal to such deficiency in payments
to the Holders of Interests pursuant to (i) and (ii) above. As of the date
of this report, the General Partners have received net sale or refinancing
proceeds aggregating $170,311.
MANAGEMENT AGREEMENTS
Certain of the Partnership's properties are managed by affiliates of
the General Partners or their assignees for fees computed as a percentage
of certain rents received by the properties. In December 1994, one of the
affiliated property managers sold substantially all of its assets and
assigned its interest in its management contracts to an unaffiliated third
party. In addition, certain of the management personnel of the property
manager became management personnel of the purchaser and its affiliates.
The successor to the affiliated property manager has acted or is acting as
property manager of the 260 Franklin Street Building, the Dunwoody Crossing
Apartments (through its sale in May 1996) and the RiverEdge Place Building
on the same terms that existed prior to the assignment of the management
contracts. In connection with such transaction, an affiliate of the
Corporate General Partner has previously guaranteed the payments to the
successor manager of certain property management fees. As a result,
property management fees for the 260 Franklin Street Building are being
paid currently to the successor manager pursuant to the guarantee. In
addition, the affiliated property manager has entered into a sub-management
agreement with the successor for management of the 900 Third Avenue
Building.
NOTES RECEIVABLE
In 1987 and 1988, the Partnership advanced funds to pay for certain
deficits at the 21900 Burbank Boulevard Building which were the obligation
of an affiliate of the seller. Such advances, including unpaid interest,
were approximately $2,313,000. The Partnership received demand notes from
the seller which are personally guaranteed by certain of its principals.
The seller had been paying interest on the note at a rate equal to 3% over
the prime rate. In February 1991, the seller ceased paying monthly
interest required under terms of the note. The Partnership put the seller
in default and effective October 31, 1991, the notes began accruing
interest at the default rate. During 1994, two of the principals which
guaranteed the notes became subject to Chapter 7 bankruptcy proceedings.
Subsequently, these individual's obligations, including their obligations
under the notes, were discharged. Additionally, it appears that the
remaining principals guaranteeing the notes have little or no assets which
the Partnership could pursue for collection. Therefore, it appears
unlikely that any further amounts will be collected. As a matter of
prudent accounting policy, a reserve for uncollectibility for the entire
amount recorded for financial reporting purposes ($1,466,051) has been
reflected in the accompanying consolidated financial statements at December
31, 1996 and 1995.
LEASES
At December 31, 1996, the Partnership and its consolidated ventures'
principal assets are three office buildings and one shopping center. The
Partnership has determined that all leases relating to these properties are
properly classified as operating leases; therefore, rental income is
reported when earned and the cost of each of the properties, excluding cost
of land, is depreciated over the estimated useful lives. Leases with
commercial tenants range in term from one to 30 years and provide for fixed
minimum rent and partial to full reimbursement of operating costs. In
addition, substantially all leases with shopping center tenants provide for
additional rent based upon percentages of tenant sales volume. With
respect to the Partnership's shopping center investment, a substantial
portion of the ability of retail tenants to honor their leases is dependent
upon the retail economic sector.
Cost and accumulated depreciation of the leased assets are summarized
as follows at December 31, 1996:
Office buildings:
Cost . . . . . . . . . . . . . . $175,311,249
Accumulated depreciation . . . . 65,083,881
------------
110,227,368
------------
Shopping centers:
Cost . . . . . . . . . . . . . . 11,951,252
Accumulated depreciation . . . . 3,502,373
------------
8,448,879
------------
Total. . . . . . . . . . $118,676,247
============
Minimum lease payments, (excluding the Springbrook Shopping Center
which the lender obtained title to in January, 1997), including amounts
representing executory costs (e.g., taxes, maintenance, insurance), and any
related profit in excess of specific reimbursements, to be received in the
future under the above operating commercial lease agreements, are as
follows:
1997 . . . . . . . . . . $17,106,666
1998 . . . . . . . . . . 16,532,233
1999 . . . . . . . . . . 15,624,645
2000 . . . . . . . . . . 13,936,215
2001 . . . . . . . . . . 9,701,926
Thereafter . . . . . . . 24,508,161
-----------
Total. . . . . . . . $97,409,846
===========
TRANSACTIONS WITH AFFILIATES
The Partnership, pursuant to the Partnership Agreement, is permitted
to engage in various transactions involving the Corporate General Partner
and its affiliates including the reimbursement for salaries and salary-
related expenses of its employees, certain of its officers, and other
direct expenses relating to the administration of the Partnership and the
operation of the Partnership's investments. Fees, commissions and other
expenses required to be paid by the Partnership to the General Partners and
their affiliates as of December 31, 1996, 1995 and 1994 are as follows:
UNPAID AT
DECEMBER 31,
1996 1995 1994 1996
-------- ------- -------- ------------
Property management
and leasing fees . . . $ 66,560 409,364 749,801 1,510,131
Insurance commissions . 9,330 34,148 42,442 --
Reimbursement (at cost)
for accounting services 11,760 191,026 201,829 1,116
Reimbursement (at cost)
for portfolio manage-
ment services. . . . . 89,867 88,673 80,363 21,441
Reimbursement (at cost)
for legal services . . 17,775 17,883 19,116 3,700
Reimbursement (at cost)
for administrative
charges and other
out-of-pocket expenses -- 207,711 110,171 --
-------- ------- --------- ---------
$195,292 948,805 1,203,722 1,536,388
======== ======= ========= =========
Affiliates of the General Partners have previously deferred management
and leasing fees payable to them in an aggregate amount of $1,510,131
through December 31, 1996 pursuant to debt modifications at the 260
Franklin and Piper Jaffray properties. In addition, an affiliate of the
General Partners has deferred (through reimbursements made directly to the
Partnership) $675,876 for the Partnership's proportionate share of property
management and leasing fees paid by affiliated joint venture partnerships
or their underlying ventures, as the case may be (these reimbursements are
not reflected in the above table). These reimbursements include the
proportionate share of property management fees of one unconsolidated
entity, which is not included in the consolidated financial statements.
The Partnership paid $847,752 of previously deferred reimbursements to the
Corporate General Partner and its affiliates in July 1994. The Partnership
also paid previously deferred partnership management fees and distributions
of $724,121 and $249,591, respectively, to the General Partners in August
1994.
In December 1994, the Partnership paid $3,422,391 of previously
deferred management and leasing fees to an affiliate of the General
Partners. Effective October 1, 1993, the Partnership and its consolidated
ventures began paying property management and leasing fees on a current
basis other than for the 260 Franklin office building. The cumulative
deferred amounts do not bear interest and are expected to be paid in future
periods.
During 1994 and 1993, an affiliate of the Corporate General Partner
provided management and leasing services. In December 1994, the affiliate
sold substantially all of its assets and assigned its interest in its
management contracts, including the one for 260 Franklin Street, to an
unaffiliated third party. In connection with such assignment, JMB Realty
Corporation ("JMB") guaranteed payment to the unaffiliated third party of
the property management fees for the 260 Franklin property in 1995.
Beginning in January 1996, the unaffiliated property manager is being paid
management fees by the property. As a result of JMB's paying the
management fees to the unaffiliated third party manager pursuant to the
guarantee. JMB is entitled to reimbursement of prior years fees of
$331,811. As of December 31, 1996, $1,510,131 of management and leasing
fees were unpaid.
The manager of Piper Jaffray Tower, an unconsolidated joint venture,
(which was an affiliate of the Corporate General Partner through November
1994) had agreed to defer receipt of its property management fees as more
fully discussed in the Notes. Such fees deferred by the affiliate were
approximately $1,839,000 (at which the Partnership's share is approximately
$919,500) at December 31, 1996.
INVESTMENT IN UNCONSOLIDATED VENTURES
Summary financial information for South Tower, JMB/125, 125 Broad
Street Company (through effective date of JMB/125's assignment - October
31, 1994), JMB/Piper, JMB/Piper II and JMB/900, for the years ended 1996
and 1995 follows:
1996 1995
------------ ------------
Current assets. . . . . . . . . . $ 17,605,073 26,784,754
Current liabilities
(including $197,433,146
of debt in default at
December 31, 1995) . . . . . . . (15,377,451) (217,998,259)
------------ ------------
Working capital (deficit) . . 2,227,622 (191,213,505)
------------ ------------
Other assets. . . . . . . . . . . 30,339,650 31,486,199
Deferred expenses . . . . . . . . 5,955,360 4,714,000
Investment properties, net. . . . 305,457,813 317,569,356
Other liabilities . . . . . . . . (6,116,980) (4,818,311)
Long-term debt. . . . . . . . . . (393,982,072) (207,871,000)
Ventures partners' equity . . . . 38,522,255 36,739,437
------------ ------------
Partnership's capital (deficit) $(17,596,352) (13,393,824)
============ ============
Represented by:
Invested capital. . . . . . . . $148,108,615 186,371,327
Cumulative distributions. . . . (49,903,117) (58,249,495)
Cumulative losses . . . . . . . (115,801,850) (141,515,656)
------------ ------------
$(17,596,352) (13,393,824)
============ ============
Total income. . . . . . . . . . . $ 88,175,915 86,827,114
Expenses applicable to
operating loss. . . . . . . . . 91,621,900 100,056,848
------------ ------------
Operating loss. . . . . . . . . . (3,445,985) (13,229,734)
Gain on sale of interest
in unconsolidated venture . . . -- 1,713,501
------------ ------------
Net earnings (loss) . . . . . . . $ (3,445,985) (11,516,233)
============ ============
The total income, expenses applicable to operating loss and net income
for the above ventures for the year ended December 31, 1994 were
$121,161,958, $165,863,948 and $7,710,112, respectively.
<TABLE> CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV SCHEDULE III
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
PARTNERSHIP (A) TO ACQUISITION AT CLOSE OF PERIOD (B)
-------------------------- --------------------------------------------------------
LAND AND BUILDINGS LAND AND LAND AND BUILDINGS
LEASEHOLD AND BUILDINGS AND LEASEHOLD AND
DESCRIPTION ENCUMBRANCE INTERESTS IMPROVEMENTS IMPROVEMENTS INTEREST IMPROVEMENTS TOTAL
- ----------- ------------ ----------- ------------ ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE BLDGS:
RiverEdge
Place Building
Fulton County
(Atlanta), (F)
Georgia. . . . .$ 18,166,294 3,185,826 28,389,541 (5,185,670) 2,397,888 23,991,809 26,389,697
260 Franklin Street
Boston, Massac- (E)
husetts (D). . . 89,870,356 8,169,209 97,607,593 (24,333,737) 5,501,887 75,941,178 81,443,065
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV SCHEDULE III - CONTINUED
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
INCOME 1996
ACCUMULATED DATE OF DATE STATEMENT REAL ESTATE
DEPRECIATION(J) CONSTRUCTION ACQUIRED IS COMPUTED (C) TAXES
---------------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OFFICE BUILDINGS:
RiverEdge
Place Building
Fulton County (Atlanta),
Georgia . . . . . . . . . . 9,995,267 1984 06/10/85 5-30 years 241,957
260 Franklin Street
Boston, Massachusetts
(D) . . . . . . . . . . . . 31,766,188 1985 05/21/86 5-30 years 2,104,830
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV SCHEDULE III - CONTINUED
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
PARTNERSHIP (A) TO ACQUISITION AT CLOSE OF PERIOD (B)
-------------------------- --------------------------------------------------------
LAND AND BUILDINGS LAND AND LAND AND BUILDINGS
LEASEHOLD AND BUILDINGS AND LEASEHOLD AND
ENCUMBRANCE INTERESTS IMPROVEMENTS IMPROVEMENTS INTEREST IMPROVEMENTS TOTAL
------------ ----------- ------------ ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
California Plaza
Walnut Creek, (H)
California (D) . 60,098,432 6,010,604 62,029,222 (561,339) 5,132,408 62,346,079 67,478,487
SHOPPING CENTER:
Springbrook Shopping
Center
Bloomingdale, (G)
Illinois . . . . 10,932,588 3,164,708 17,913,485 (9,126,941) 1,262,617 10,688,635 11,951,252
------------ ---------- ----------- ----------- ---------- ----------- -----------
Total . . . .$179,067,670 20,530,347 205,939,841 (39,207,687) 14,294,800 172,967,701 187,262,501
============ ========== =========== =========== ========== =========== ===========
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV SCHEDULE III - CONTINUED
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
INCOME 1996
ACCUMULATED DATE OF DATE STATEMENT REAL ESTATE
DEPRECIATION(J) CONSTRUCTION ACQUIRED IS COMPUTED (C) TAXES
---------------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
California Plaza
Walnut Creek,
California (D) . . . . . . . 23,322,426 1985 06/30/86 5-30 years 702,573
SHOPPING CENTER:
Springbrook Shopping Center
Bloomingdale,
Illinois . . . . . . . . . . 3,502,373 1980 07/05/89 5-30 years 382,186
----------- ---------
Total . . . . . . . . . . 68,586,254 3,431,546
=========== =========
<FN>
Notes:
(A) The initial cost to the Partnership represents the original purchase price of the properties,
including amounts incurred subsequent to acquisition which were contemplated at the time the property was
acquired.
(B) The aggregate cost of real estate owned at December 31, 1996 for Federal income tax purposes was
$224,836,715.
(C) Certain of the Partnership's investment properties have been classified as held for sale or
disposition during 1996 as more fully described in the Notes.
(D) Properties owned and operated by joint venture.
(E) In 1990 and 1996, the Partnership recorded a provision for value impairment. The portion allocated to
real estate totalled $17,120,734 and $17,400,000, respectively.
(F) In 1992, the Partnership recorded provisions for value impairment. The portion allocated to real
estate totalled $6,149,632.
(G) In 1993 and 1996, the Partnership recorded provisions for value impairment. The portion allocated to
real estate totalled $8,972,831 and $1,400,000, respectively.
(H) In 1996, the Partnership recorded provisions for value impairment. The portion allocated to real
estate totalled $7,200,000.
</TABLE>
<TABLE>
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV SCHEDULE III - CONTINUED
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(I) Reconciliation of real estate owned as of December 31, 1996, 1995 and 1994:
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . $334,836,768 367,553,814 413,139,577
Additions during period. . . . . . . . . . . . . . . . . 2,011,678 872,103 1,279,820
Provisions for value impairment. . . . . . . . . . . . . (49,528,382) -- --
Sales and dispositions during period . . . . . . . . . . (100,057,563) (33,589,149) (46,865,583)
------------ ----------- -----------
Balance at end of period . . . . . . . . . . . . . . . . $187,262,501 334,836,768 367,553,814
============ =========== ===========
(J) Reconciliation of accumulated depreciation:
Balance at beginning of period . . . . . . . . . . . . . $104,766,634 106,168,986 107,997,321
Depreciation expense . . . . . . . . . . . . . . . . . . 5,413,953 10,440,946 11,490,889
Sales and dispositions during period . . . . . . . . . . (41,594,333) (11,843,298) (13,319,224)
------------ ----------- -----------
Balance at end of period . . . . . . . . . . . . . . . . $ 68,586,254 104,766,634 106,168,986
============ =========== ===========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes of or disagreements with accountants during
fiscal year 1996 and 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Corporate General Partner of the Partnership is JMB Realty
Corporation ("JMB"), a Delaware corporation. Substantially all of the
outstanding shares of JMB are owned, directly or indirectly, by certain of
its officers, directors, members of their families and their affiliates.
JMB as the Corporate General Partner has responsibility for all aspects of
the Partnership's operations, subject to the requirement that purchases and
sales of real property must be approved by the Associate General Partner,
ABPP Associates, L.P. ABPP Associates, L.P., an Illinois limited
partnership with JMB as its sole general partner, shall be directed by a
majority in interest of its limited partners who are generally officers,
directors and affiliates of JMB or its affiliates, as to whether to provide
its approval of any sale of real property (or interest therein) of the
Partnership.
The Partnership is subject to certain conflicts of interest arising
out of its relationships with the General Partners and their affiliates as
well as the fact that the General Partners and their affiliates are engaged
in a range of real estate activities. Certain services have been and may
in the future be provided to the Partnership or its investment properties
by affiliates of the General Partners, including property management
services and insurance brokerage services. In general, such services are
to be provided on terms no less favorable to the Partnership than could be
obtained from independent third parties and are otherwise subject to
conditions and restrictions contained in the Partnership Agreement. The
Partnership Agreement permits the General Partners and their affiliates to
provide services to, and otherwise deal and do business with, persons who
may be engaged in transactions with the Partnership, and permits the
Partnership to borrow from, purchase goods and services from, and otherwise
to do business with, persons doing business with the General Partners or
their affiliates. The General Partners and their affiliates may be in
competition with the Partnership under certain circumstances, including, in
certain geographical markets, for tenants for properties and/or for the
sale of properties. Because the timing and amount of cash distributions
and profits and losses of the Partnership may be affected by various
determinations by the General Partners under the Partnership Agreement,
including whether and when to sell or refinance a property, the
establishment and maintenance of reasonable reserves, the timing of
expenditures and the allocation of certain tax items under the Partnership
Agreement, the General Partners may have a conflict of interest with
respect to such determinations.
The names, positions held and length of service therein of each
director and the executive and certain other officers of the Corporate
General Partner are as follows:
SERVED IN
NAME OFFICE OFFICE SINCE
- ---- ------ ------------
Judd D. Malkin Chairman 5/03/71
Director 5/03/71
Chief Financial Officer 2/22/96
Neil G. Bluhm President 5/03/71
Director 5/03/71
Burton E. Glazov Director 7/01/71
Stuart C. Nathan Executive Vice President 5/08/79
Director 3/14/73
A. Lee Sacks Director 5/09/88
John G. Schreiber Director 3/14/73
H. Rigel Barber Chief Executive Officer 1/02/87
Executive Vice President 8/01/93
Glenn E. Emig Executive Vice President 1/01/93
Chief Operating Officer 1/01/95
Gary Nickele Executive Vice President 1/01/92
General Counsel 2/27/84
Gailen J. Hull Senior Vice President 6/01/88
Howard Kogen Senior Vice President 1/02/86
Treasurer 1/01/91
There is no family relationship among any of the foregoing directors
or officers. The foregoing directors have been elected to serve a one-year
term until the annual meeting of the Corporate General Partner to be held
on June 7, 1997. All of the foregoing officers have been elected to serve
one-year terms until the first meeting of the Board of Directors held after
the annual meeting of the Corporate General Partner to be held on June 7,
1997. There are no arrangements or understandings between or among any of
said directors or officers and any other person pursuant to which any
director or officer was elected as such.
JMB is the corporate general partner of Carlyle Real Estate Limited
Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-IX
("Carlyle-IX"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"),
Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real
Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate
Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited
Partnership-XVI ("Carlyle-XVI"), Carlyle Real Estate Limited Partnership-
XVII ("Carlyle-XVII"), JMB Mortgage Partners, Ltd.-III ("Mortgage
Partners-III"), JMB Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"),
Carlyle Income Plus, Ltd. ("Carlyle Income Plus") and Carlyle Income Plus,
Ltd.-II ("Carlyle Income Plus-II") and the managing general partner of JMB
Income Properties, Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V
("JMB Income-V"), JMB Income Properties, Ltd.-VI ("JMB Income-VI"), JMB
Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties,
Ltd.-X ("JMB Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"),
JMB Income Properties, Ltd.-XII ("JMB Income-XII"), JMB Income Properties,
Ltd.-XIII ("JMB Income-XIII"). JMB is also the sole general partner of the
associate general partner of most of the foregoing partnerships. Most of
the foregoing officers and directors are also officers and/or directors of
various affiliated companies of JMB including Arvida/JMB Managers, Inc.
(the general partner of Arvida/JMB Partners, L.P. ("Arvida")), Arvida/JMB
Managers-II, Inc. (the general partner of Arvida/JMB Partners, L.P.-II
("Arvida-II)) and Income Growth Managers, Inc. (the corporate general
partner of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). Most of such
directors and officers are also partners, directly or indirectly, of
certain partnerships which are associate general partners in the following
real estate limited partnerships: The Partnership, Carlyle-VII,
Carlyle-IX, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV,
Carlyle-XVI, Carlyle-XVII, JMB Income-VI, JMB Income-VII, JMB Income-X, JMB
Income-XI, JMB Income-XII, JMB Income-XIII, Mortgage Partners-III, Mortgage
Partners-IV, Carlyle Income Plus, Carlyle Income Plus-II and IDS/BIG.
Certain of such officers are also officers and the sole director of Carlyle
Advisors, Inc., the general partner of JMB/125. Reference is made to the
Notes.
The business experience during the past five years of each such
director and officer of the Corporate General Partner of the Partnership in
addition to that described above is as follows:
Judd D. Malkin (age 59) is an individual general partner of JMB
Income-II, JMB Income-IV and JMB Income-V. Mr. Malkin has been associated
with JMB since October, 1969. Mr. Malkin is a director of Urban Shopping
Centers, Inc. ("USC, Inc."), an affiliate of JMB that is a real estate
investment trust in the business of owning, managing and developing
shopping centers. He is a Certified Public Accountant.
Neil G. Bluhm (age 59) is an individual general partner of JMB Income-
II, JMB Income-IV and JMB Income-V. Mr. Bluhm has been associated with JMB
since August, 1970. Mr. Bluhm is a director of USC, Inc. He is a member
of the Bar of the State of Illinois and a Certified Public Accountant.
Burton E. Glazov (age 58) has been associated with JMB since June,
1971 and served as an Executive Vice President of JMB until December 1990.
He is a member of the Bar of the State of Illinois and a Certified Public
Accountant.
Stuart C. Nathan (age 55) has been associated with JMB since July,
1972. Mr. Nathan is also a director of Sportmart Inc., a retailer of
sporting goods. He is a member of the Bar of the State of Illinois.
A. Lee Sacks (age 63) (President and Director of JMB Insurance Agency,
Inc.) has been associated with JMB since December, 1972.
John G. Schreiber (age 50) has been associated with JMB since
December, 1970 and served as an Executive Vice President of JMB until
December 1990. Mr. Schreiber is President of Schreiber Investments, Inc.,
a company which is engaged in the real estate investing business. He is
also a senior advisor and partner of Blackstone Real Estate Partners, an
affiliate of the Blackstone Group, L.P. Since 1994, Mr. Schreiber has also
served as a Trustee of Amli Residential Property Trust, a publicly-traded
real estate investment trust that invests in multi-family properties. Mr.
Schreiber is also director of USC, Inc. He is also director of a number of
investment companies advised by T. Rowe Price Associates and its
affiliates. He holds a Masters degree in Business Administration from
Harvard University Graduate School of Business.
H. Rigel Barber (age 47) has been associated with JMB since March,
1982. He holds a J.D. degree from the Northwestern Law School and is a
member of the Bar of the State of Illinois.
Glenn E. Emig (age 49) has been associated with JMB since December,
1979. Prior to becoming Executive Vice President of JMB in 1993, Mr. Emig
was Executive Vice President and Treasurer of JMB Institutional Realty
Corporation. He holds a Masters degree in Business Administration from the
Harvard University Graduate School of Business and is a Certified Public
Accountant.
Gary Nickele (age 44) has been associated with JMB since February,
1984. He holds a J.D. degree from the University of Michigan Law School
and is a member of the Bar of the State of Illinois.
Gailen J. Hull (age 48) has been associated with JMB since March,
1982. He holds a Masters degree in Business Administration from Northern
Illinois University and is a Certified Public Accountant.
Howard Kogen (age 61) has been associated with JMB since March, 1973.
He is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no officers or directors. The Partnership is
required to pay a management fee to the Corporate General Partner and the
General Partners are entitled to receive a share of cash distributions,
when and as cash distributions are made to the Holders of Interests, and a
share of profits or losses. Reference is also made to the Notes for a
description of such transactions, distributions and allocations. Operating
losses may benefit the General Partners or the partners thereof to the
extent that such losses may be offset against taxable income from the
Partnership or other sources. In 1996, the General Partners received sales
distributions of $112,047.
The Partnership is permitted to engage in various transactions
involving the General Partners and their affiliates of the Partnership
certain of which may involve conflicts of interest, as discussed in Item 10
above. The relationship of the Corporate General Partner (and its
directors and officers) to its affiliates is set forth above in Item 10 and
Exhibit 21 hereto.
Through December 31, 1996, $2,186,007 of property management fees and
leasing fees have been deferred (including direct reimbursements made to
the Partnership) by an affiliate of the General Partner, or approximately
$5 per Interest in the aggregate. Effective October 1, 1993, the
Partnership and its consolidated ventures began paying property management
and leasing fees on a current basis.
Affiliates of the Corporate General Partner provided property
management services in 1996 for one investment property Springbrook
Shopping Center. Such affiliates earned property management and leasing
fees amounting to $66,560 in 1996 all of which were paid as of December 31,
1996.
As set forth in the Prospectus of the Partnership, the Corporate
General Partner must negotiate such agreements on terms no less favorable
to the Partnership than those customarily charged for similar services in
the relevant geographical area (but in no event at rates greater than 6% of
the gross income from a property), and such agreements must be terminable
by either party thereto, without penalty, upon 60 days notice.
An affiliate of the Corporate General Partner provided property
management and services for the 260 Franklin Street Building in Boston,
Massachusetts in 1994 and prior years. As required by the terms of a
modification for the mortgage loan secured by the 260 Franklin Street
Building, property management and leasing fees payable to the affiliate
since January 1992 have been escrowed. Pursuant to the affiliate selling
its interest in the management contracts at 260 Franklin Street, JMB
guaranteed payment of the management fees to the unaffiliated third party
in 1995. Beginning in January 1996, the unaffiliated property manager is
being paid management fees by the property. As a result of JMB's paying
the management fees to the unaffiliated third party manager, JMB is
entitled to reimbursement of prior year fees of $331,811. As of December
31, 1996, JMB is entitled to reimbursement for property and management fees
of $1,510,131 by 260 Franklin Street Associates. Such amount does not bear
interest. An affiliate of the Corporate General Partner had managed the
Piper Jaffray Tower (an unconsolidated joint venture) through November
1994. In conjunction with the August 1992 loan modification, the
affiliated property manager had agreed to defer receipt of its property
management fees which aggregated $1,839,000 at December 31, 1996. In
December 1994 the affiliated property manager entered into an agreement
with an unaffiliated third party for the sub-management of the 900 Third
Avenue building. Property management fees for this property were $452,518
in 1995, all of which were paid to the sub-manager.
JMB Insurance Agency, Inc., affiliate of the Corporate General
Partner, earned and received insurance brokerage commissions in 1996
aggregating $9,330 in connection with providing insurance coverage for
certain of the real property investments of the Partnership. Such
commissions are at rates set by insurance companies for the classes of
coverage provided.
The General Partners of the Partnership or their affiliates may be
reimbursed for their direct expenses or out-of-pocket expenses and salaries
relating to the administration of the Partnership and the operation of the
Partnership's real property investments. In 1996, no such out-of-pocket
expenses were incurred by the General Partner.
Additionally, the General Partners are also entitled to reimbursements
for administrative legal, accounting and portfolio management services.
Such costs for 1996 were $119,402, of which $26,257 was unpaid as of
December 31, 1996. Reference is made to the Notes.
<TABLE>
<CAPTION>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding
Interests of the Partnership.
(b) The Corporate General Partner, its officers and directors and the Associate General Partner own the
following Interests of the Partnership:
NAME OF AMOUNT AND NATURE
BENEFICIAL OF BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
- -------------- ---------- ----------------- --------
<S> <C> <C> <C>
Limited Partnership
Interests and Assignee
Interests therein JMB Realty Corporation 5 Interests (1) indirectly Less than 1%
Limited Partnership Corporate General Partner, 9.8 Interests(1)(2) Less than 1%
Interests and Assignee its officers and
Interests therein directors and the
Associate General
Partner as a group
<FN>
- ----------
(1) Includes 5 Interests owned by the Initial Limited Partner of the Partnership for which JMB, as its
indirect majority shareholder, is deemed to have sole voting and investment power.
(2) Includes 4.8 Interests owned by officers or their relatives for which an officer has sole investment and
voting power as to such Interests so owned.
No officer or director of the Corporate General Partner of the Partnership possesses a right to acquire
beneficial ownership of Interests of the Partnership.
Reference is made to Item 10 for information concerning the ownership of the Corporate General Partner.
(c) There exists no arrangement, known to the Partnership, the operation of which may at a subsequent
date result in a change in control of the Partnership.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with
the Corporate General Partner, affiliates or their management other than
those described in Items 10 and 11 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements (See Index to Financial Statements
filed with this annual report).
(2) Exhibits.
3-A. Amended and Restated Agreement of Limited
Partnership, is hereby incorporated by reference to Exhibit 3 to the
Partnership's Form 10-K (File No. 0-16111) for December 31, 1992 dated
March 19, 1993.
3-B. Acknowledgement of rights and duties of the
General Partners of the Partnership between ABPP Associates, L.P. (a
Successor Associated General Partner of the Partnership and JMB Realty
Corporation as of December 31, 1995 is incorporated herein by reference to
the Partnership's report for September 30, 1996 on Form 10-Q (File No. 0-
1611) dated November 8, 1996.
4-A. Assignment Agreement set forth as Exhibit B to the
Prospectus is hereby incorporated herein by reference to Exhibit 4-A to the
Partnership's Report on Form 10-K (File No. 0-16111) for December 31, 1992
dated March 19, 1993.
4-B. Documents relating to the modification of the
mortgage loan secured by 260 Franklin Street Building are hereby
incorporated herein by reference to the Partnership's Report on Form 10-K
(File No. 0-16111) for December 31, 1992 dated March 19, 1993.
4-C. Forbearance agreement relating to the modification
of the mortgage loan secured by NewPark Mall dated October 1995 is
incorporated herein by reference to the Partnership's Report for September
30, 1995 on Form 10-Q (File No. 0-16111) dated November 9, 1995.
4-D. Documents relating to the modification and
extension of the mortgage loan secured by Wells Fargo-South Tower are filed
herewith.
4-E. Amended and restated promissory note between Wells
Fargo Bank and the Partnership is filed herewith.
4-F. Loan modification agreement of Wells Fargo Bank is
filed herewith.
4-G. Documents relating to the third mortgage
modification and extension agreement secured by the 260 Franklin Street
Building dated December 4, 1996 are filed herewith.
10-A. Acquisition documents relating to the purchase by
the Partnership of an interest in the 900 Third Avenue Building in New
York, New York, are hereby incorporated herein by reference to the Partner-
ship's Registration Statement on Form S-11 (File No. 2-95382) dated January
18, 1985.
10-B. Acquisition documents relating to the purchase by
the Partnership of an interest in the Piper Jaffray Tower in Minneapolis,
Minnesota, are hereby incorporated herein by reference to the Partnership's
Registration Statement on Form S-11 (File No. 2-95382) dated January 18,
1985.
10-C. Acquisition documents relating to the purchase by
the Partnership of an interest in the Crocker Center South Tower in Los
Angeles, California, are hereby incorporated herein by reference to the
Partnership's Registration Statement on Amendment No. 2 to Form S-11 (File
No. 2-95382) dated July 5, 1985.
10-D. Acquisition documents relating to the purchase by
the Partnership of an interest in the Owings Mills Shopping Center in
Owings Mills, Maryland, are hereby incorporated herein by reference to the
Partnership's Registration Statement on Post-Effective Amendment No. 3 to
Form S-11 (File No. 2-95382) dated March 13, 1986.
10-E. Acquisition documents relating to the purchase by
the Partnership of an interest in the 260 Franklin Street Building in
Boston, Massachusetts, are hereby incorporated herein by reference to the
Partnership's Registration Statement on Post-Effective Amendment No. 4 to
Form S-11 dated April 30, 1986.
10-F. Acquisition documents relating to the purchase by
the Partnership of an interest in the California Plaza office building in
Walnut Creek, California are hereby incorporated herein by reference to the
Partnership's Registration Statement on Post-Effective Amendment No. 5 to
Form S-11 dated July 31, 1986.
10-G.* Real Estate Purchase Agreement dated June 30,
1992, between Erie-McClurg Associates ("Beneficiary") and The Streeterville
Corporation ("Purchaser") for the sale of Erie-McClurg Parking Facility, is
hereby incorporated herein by reference.
10-H.* First Amendment to Real Estate Purchase Agreement
dated August 26, 1992, between Erie-McClurg Associates ("Beneficiary") and
The Streeterville Corporation ("Purchaser") for the sale of Erie-McClurg
Parking Facility, is hereby incorporated herein by reference.
10-I.* Second Amendment to Real Estate Purchase Agreement
dated September 3, 1992, between Erie-McClurg Associates ("Beneficiary")
and The Streeterville Corporation ("Purchaser") for the sale of Erie-
McClurg Parking Facility, is hereby incorporated herein by reference.
10-J. Agreement of Limited Partnership of Carlyle-XV
Associates, L.P., dated April 19, 1993 between the Partnership and Carlyle
Partners, Inc. relating to the 125 Broad Street Building, is hereby
incorporated herein by reference to the Partnership's report for December
31, 1993 on Form 10-K (File No. 0-16111) dated March 28, 1994.
10-K. Documents relating to the modification of the
mortgage loan secured by California Plaza arehereby incorporated herein by
reference to the Partnership's report for December 31, 1993 on Form 10-K
(File No. 0-16111) dated March 28, 1994.
10-L. Documents relating to the extension of the
mortgage loan secured by the 900 Third Building are incorporated herein by
reference to the Partnership's report for December 31, 1994 on Form 10-K
(File No. 0-16111) dated March 27, 1995.
10-M. Documents relating to the assignment of the
Partnership's interest in the 125 Broad Street Building to O&Y Plaza Corp.
("Assignee") are incorporated herein by reference to the Partnership's
report for October 15, 1994 on Form 8-K dated November 15, 1994.
10-N. Lockbox and forbearance agreements related to the
mortgage note secured by the Wells Fargo Building are incorporated herein
by reference to the Partnership's report for December 31, 1994 on Form 10-K
(File No. 0-16111) dated March 27, 1995.
10-O. Modification to Reserve Escrow Agreement relating
to the 260 Franklin Street Building is hereby incorporated by reference to
the Partnership's Report for June 30, 1995 on Form 10-Q (File No. 0-16111)
dated August 9, 1995.
10-P. The Partnership Interest Purchase Agreement
related to the sale of the Partnership's interest in Eastridge Mall is
hereby incorporated herein by reference to the Partnership's report for
June 30, 1995 on Form 8-K dated July 24, 1995.
10-Q. Documents relating to the operating agreement of
Maguire Thomas Partners-South Tower, L.L.C. are filed herewith.
10-R.* Modification to Reserve Escrow Agreement dated
December 4, 1996 relating to the 260 Franklin Street Building dated
December 4, 1996 are filed herewith.
21. List of Subsidiaries.
24. Powers of Attorney.
27. Financial Data Schedule.
-----------------
* Previously filed as Exhibits 10-G, 10-H and 10-I,
respectively, to the Partnership's Report for December 31, 1992 on Form 10-
K of the Securities Exchange Act of 1934 (File No. 0-16111) dated March 19,
1993 and hereby incorporated herein by reference.
(b) No reports on Form 8-K have been filed since the beginning of
the last quarter of the period covered by this report.
No annual report for the fiscal year 1996 or proxy material has
been sent to the Partners of the Partnership. An annual report will be
sent to the Partners subsequent to this filing.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
By: JMB Realty Corporation
Corporate General Partner
GAILEN J. HULL
By: Gailen J. Hull
Senior Vice President
Date: March 21, 1997
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
registrant and in the capacities and on the dates indicated.
By: JMB Realty Corporation
Corporate General Partner
JUDD D. MALKIN*
By: Judd D. Malkin, Chairman and
Chief Financial Officer
Date: March 21, 1997
NEIL G. BLUHM*
By: Neil G. Bluhm, President and Director
Date: March 21, 1997
H. RIGEL BARBER*
By: H. Rigel Barber, Chief Executive Officer
Date: March 21, 1997
GLENN E. EMIG*
By: Glenn E. Emig, Chief Operating Officer
Date: March 21, 1997
GAILEN J. HULL
By: Gailen J. Hull, Senior Vice President
Principal Accounting Officer
Date: March 21, 1997
A. LEE SACKS*
By: A. Lee Sacks, Director
Date: March 21, 1997
STUART C. NATHAN*
By: Stuart C. Nathan, Executive Vice President
and Director
Date: March 21, 1997
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL
By: Gailen J. Hull, Attorney-in-Fact
Date: March 21, 1997
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
EXHIBIT INDEX
Document
Incorporated
By Reference Page
------------ ----
3-A. Amended and Restated Agreement Yes
of Limited Partnership of the
Partnership, included as Exhibit A
to the Partnership's Prospectus
dated July 5, 1985.
3-B. Acknowledgement of Rights and
Dates of General Partners Yes
4-A. Assignment Agreement, included as Yes
Exhibit B to the Partnership's
Prospectus dated July 5, 1985.
4-B. Documents relating to the modification
of the mortgage loan secured by
the 260 Franklin Street Building Yes
4-C. Documents relating to the modification
of the mortgage loan secured by
NewPark Mall Yes
4-D. Documents relating to the modifica-
tion and extension of the mortgage
loan secured by Wells Fargo-
South Tower No
4-E. Amended and restated promissory
note of Wells Fargo Bank No
4-F. Loan modification agreement of
Wells Fargo Bank No
4-G. Documents relating to the third
mortgage modification and extension
agreement secured by the 260 Franklin
Street Building No
10-A. through
10-F. * Exhibits 10.A through 10.F Yes
are hereby incorporated herein by
reference.
10-G. through
10-K. Exhibits 10-S. through 10-K.
are hereby incorporated herein by
reference. Yes
10-L. Documents relating to the extension of the
mortgage loan secured by the 900 Third
Building are filed herewith Yes
10-M. Documents relating to the assignment
of the Partnership's interest in the
125 Broad Street Building are
incorporated by reference. Yes
10-N. Lockbox and forbearance agreements
related to the mortgage note secured
by the Wells Fargo Building are
hereby incorporated by reference. Yes
10-O. Document relating to the
Modification to Reserve Escrow
Agreement relating to the
260 Franklin Street Building
is hereby incorporated by reference. Yes
10-P. Document relating to the
Partnership Interest Purchase
Agreement relating to sale of the
Partnership's interest in
Eastridge Mall is hereby
incorporated by reference Yes
10-Q. Documents relating to the operating
agreement of Maguire Thomas Partners-
South Tower, L.L.C. No
10-R.* Modification to Reserve Escrow
Agreement dated December 4,
1996 relating to the 260 Franklin
Street Building No
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
-------------------
* FILED ON PAPER IN ACCORDANCE WITH RULE 201 OF REGULATION
S-T, THIS THIRD MORTGAGE MODIFICATION AND EXTENSION AGREEMENT SECURED BY
THE 260 FRANKLIN STREET BUILDING IS BEING FILED IN PAPER PURSUANT TO A
TEMPORARY HARDSHIP EXEMPTION.
EXHIBIT 4-D
- -----------
(Carlyle-XV)
MODIFICATION AND EXTENSION AGREEMENT
THIS AGREEMENT is made as of September 19, 1996, between AETNA
LIFE INSURANCE COMPANY, a Connecticut corporation ("AETNA"), and
MAGUIRE/THOMAS PARTNERS-SOUTH TOWER, a California limited partnership
("MTP-SOUTH TOWER LP").
1. Aetna is the holder of that indebtedness of MTP-South
Tower LP (the "LOAN") evidenced and secured by, among other instruments
and agreements:
a. that $200,000,000 Promissory Note dated
November 26, 1984 (as at any time heretofore amended, extended, restated
or replaced, the "NOTE"), by MTP-South Tower LP (then known as Maguire
Partners - Crocker Properties - South Tower) payable to the order of The
Aetna Casualty and Surety Company, a Connecticut corporation ("AETNA
CASUALTY AND SURETY");
b. that Deed of Trust, Assignment of Rents and Security
Agreement dated as of November 26, 1984 (as at any time heretofore
amended, extended, restated or replaced, the "DEED OF TRUST"), by
MTP-South Tower LP (then known as Maguire Partners - Crocker Properties -
South Tower), as Trustor, to Ticor Title Insurance Company of California,
as Trustee, for the benefit of Aetna Casualty and Surety, as Beneficiary,
and recorded November 28, 1984 as Instrument Number 84-1399775 in the
Official Records of Los Angeles County, California; and
c. that California Assignment of Rents and Leases dated as
of November 26, 1984 (as at any time heretofore amended, extended,
restated or replaced, the "ASSIGNMENT OF RENTS"), by MTP-South Tower LP
(then known as Maguire Partners - Crocker Properties - South Tower), as
assignor, to Aetna Casualty and Surety, as assignee, and recorded November
28, 1984 as Instrument Number 84-1399776 in the Official Records of Los
Angeles County, California.
2. The Deed of Trust encumbers, with first lien priority, that
improved real property in Los Angeles, California more particularly
described in Exhibit A to the Deed of Trust (the "PROJECT"), which
improvements include, without limitation, the 45-story office building
project now known as the "IBM Tower" located at 355 South Grand Avenue,
together with associated subterranean parking and a garage penthouse
structure, and the "X-2 Garage" located at 235 South Hill Street.
3. Aetna Casualty and Surety assigned and transferred its
interest under the Note, the Deed of Trust and the Assignment of Rents to
Aetna pursuant to that Assignment dated October 29, 1986 and recorded on
December 4, 1986 as Instrument Number 86-1676563 in the Official Records
of Los Angeles County, California.
4. As of December 1, 1994, MTP-South Tower LP, Aetna and CB
Commercial Real Estate Group, Inc., as Agent for Aetna, entered into that
Lockbox Agreement (as heretofore supplemented and amended, the "LOCKBOX
AGREEMENT") providing for the deposit of all Gross Receipts (as defined
therein) into Aetna's "DEPOSIT ACCOUNT" (as defined and provided for
therein) and certain other matters.
5. The Loan matured on December 1, 1994 and has not been repaid.
6. Prior to the execution and delivery of this Agreement,
International Business Machines Corporation ("IBM"), the only limited
partner in MTP-South Tower LP, transferred its limited partnership
interest in MTP-South Tower LP to Maguire Partners-Bunker Hill, Ltd., one
of the general partners of MTP-South Tower LP.
7. MTP-South Tower LP and Aetna now wish to provide for, subject
to the payment to Aetna of $2,000,000 from equity contributions (as
provided for herein) and the satisfaction of certain other conditions
precedent to the "Effective Date" provided for herein, an extension of the
scheduled maturity date of the Loan, until September 1, 2003, and for
certain other modifications to the terms and conditions of the instruments
and agreements evidencing and securing the Loan (collectively, the "Loan
Documents," including but not limited to the Note, the Deed of Trust, the
Assignment of Rents and the Lockbox Agreement).
8. In connection with such conditional modification of the Loan
Documents, simultaneously herewith, Aetna and MTP-South Tower LP have
caused certain recording instructions dated as of even date herewith (the
"RECORDING INSTRUCTIONS") to be issued to Chicago Title Company ("CHICAGO
TITLE") providing for the transmittal of this Agreement and the other
instruments and agreements described below to Chicago Title and the
subsequent closing of the transactions provided for herein upon receipt of
the $2,000,000 payment described above and the satisfaction of certain
other conditions precedent, prior to the expiration or sooner termination
of the Recording Instructions.
9. Accordingly, as of even date herewith, the parties are
executing the following instruments and agreements and are transmitting
same to Chicago Title pursuant to the Recording Instructions:
a. this Agreement between Aetna and MTP-South Tower LP,
with the appended Acknowledgment and Agreement executed by the direct and
indirect general partners of MTP-South Tower LP;
b. that Allonge to Promissory Note dated as of even date
herewith (the "ALLONGE"), between MTP-South Tower LP and Aetna, amending
the Note;
c. that Amendment to Deed of Trust, Assignment of Rents
and Security Agreement and to California Assignment of Rents and Leases
and Fixture Filing dated as of even date herewith (the "AMENDMENT TO
SECURITY DOCUMENTS"), between MTP-South Tower LP and Aetna, amending the
Deed of Trust and the Assignment of Rents;
d. that Environmental Indemnity dated as of even date
herewith (the "ENVIRONMENTAL INDEMNITY AGREEMENT"), by MTP-South Tower LP
to and for the benefit of Aetna, providing for certain additional
covenants of MTP-South Tower LP in connection with the Project;
e. that Acknowledgment Agreement (Wells Fargo Center
Project Agreements) dated as of even date herewith (the "CENTER
ACKNOWLEDGMENT AGREEMENT"), by MTP-South Tower LP and Maguire Partners -
Crocker Properties Phase I, a California limited partnership (the "PHASE I
OWNER"), in favor of Aetna;
f. that Agreement of Property Manager dated as of even
date herewith (the "PROPERTY MANAGER'S AGREEMENT"), by Maguire/Thomas
Partners-Development, Ltd., a California limited partnership
("MTP-DEVELOPMENT"), and MTP-South Tower LP in favor of Aetna; and
g. that Consent to Lease Amendment (Munger Tolles & Olson)
dated as of even date herewith (the "MUNGER TOLLES CONSENT"), between
Aetna and MTP-South Tower LP, providing for the approval by Aetna of (i)
that Third Amendment to Lease dated as of March 1, 1996 between MTP-South
Tower LP, as Landlord, and Munger, Tolles & Olsen, as Tenant, and (ii)
that Termination Agreement dated as of March 1, 1996 among MTP-South Tower
LP, the general partners of MTP-South Tower LP and Munger, Tolles & Olson.
The instruments and agreements described in this Recital H executed by
each party are being (promptly upon full execution thereof) transmitted to
Chicago Title pursuant to the terms and conditions of the Recording
Instructions, and this Agreement and such other instruments and agreements
shall become effective only if and when same are delivered to the parties
in accordance with the terms and conditions of this Agreement prior to the
expiration or sooner termination of the Recording Instructions. The Loan
Documents, if and when amended as of the Effective Date by this Agreement,
the Allonge, the Amendment to Security Documents and the Environmental
Indemnity, are sometimes collectively referred to herein as the "AMENDED
LOAN DOCUMENTS."
IN CONSIDERATION of the recitals and agreements set forth herein,
and for other valuable consideration, the receipt and adequacy of which is
hereby acknowledged, MTP-South Tower LP and Aetna agree that the Loan
Documents shall be supplemented and modified as follows:
1. TRANSACTIONS ON EFFECTIVE DATE AND LLC CONVERSION.
1.1 CONDITIONS PRECEDENT TO EFFECTIVE DATE. Among the
conditions precedent to the Effective Date provided for herein, prior to
the expiration or sooner termination of the Recording Instructions:
1.1.1one or more of the Equity Owners (as defined in
Section 1.5 below) of MTP-South Tower (as defined below) must have made
capital contributions totalling $2,000,000 in accordance with Section 1.7
below, which sum must have been deposited with Chicago Title pursuant to
the Recording Instructions, for disbursement to Aetna on the Effective
Date provided for herein in accordance with this Agreement and the
Recording Instructions; and
1.1.2the Investment Committee of Aetna must have approved
the execution and delivery of this Agreement and the transactions provided
for herein, and Aetna must have provided Chicago Title with written
confirmation of such Investment Committee approval.
IF FOR ANY REASON SUCH TRANSACTIONS AND THE OTHER CONDITIONS PRECEDENT
PROVIDED FOR IN SECTION 10.2 BELOW HAVE NOT BEEN SATISFIED PRIOR TO THE
EXPIRATION OR SOONER TERMINATION OF THE RECORDING INSTRUCTIONS, THEN THIS
AGREEMENT AND THE OTHER INSTRUMENTS AND AGREEMENTS EXECUTED AS OF EVEN
DATE HEREWITH BY AETNA AND MTP-SOUTH TOWER LP SHALL BE NULL AND VOID, AND
NEITHER PARTY SHALL HAVE ANY LIABILITY OR OBLIGATION HEREUNDER OR
THEREUNDER. The Recording Instructions provide, among other things, that
any of the general partners of MTP-South Tower LP or Aetna may, each
acting unilaterally and with or without cause, terminate the Recording
Instructions at any time after September 26, 1996, time being of the
essence. Without limiting the generality of the foregoing, the parties
acknowledge that if the Recording Instructions are terminated prior to the
Effective Date provided for herein, the Loan Documents shall remain in
full force and effect, unmodified by the matters provided for in this
Agreement, and Aetna reserves the right, without limitation, to claim and
enforce the imposition of interest at the default rate provided for in the
Note for the period from December 1, 1994 until the Note and all other
obligations of MTP-South Tower LP to Aetna under the Loan Documents are
paid in full. The foregoing acknowledgments of MTP-South Tower LP and
Aetna shall survive the expiration or sooner termination of the Recording
Instructions.
1.2 EFFECTIVE DATE. This Agreement shall become effective only
on the date of the Closing of certain transactions provided for in this
Agreement, which Closing is described in Section 10.1 below and is subject
to satisfaction of the conditions precedent provided for in Section 1.1
above and in Section 10.2 below. The date of such Closing (as publicly
evidenced by the recording by Chicago Title, in accordance with the
Recording Instructions, of the Amendment to Security Documents in the
Official Records of Los Angeles County) is herein referred to as the
"EFFECTIVE DATE," as provided for in Section 10.1.
1.3 CONSENT TO EQUITY TRANSACTION. Aetna hereby consents to
the transfer by IBM of its interest in MTP-South Tower described in
Recital F above.
1.4 CONVERSION TO LIMITED LIABILITY COMPANY. The general
partners of MTP-South Tower LP plan to cause a limited liability company
to be formed under California law, to be named Maguire Thomas
Partners-South Tower, LLC ("MTP-SOUTH TOWER LLC"), and to cause MTP-South
Tower LLC to succeed by operation of law to all of the assets and
liabilities of MTP-South Tower LP. If MTP-South Tower LLC is formed and
succeeds to the assets and liabilities of MTP-South Tower LP, whether
before or after the Effective Date, Aetna consents to such formation and
succession, provided that:
1.4.1all of the general partners of MTP-South Tower LP
must be the managing members of MTP-South Tower LLC;
1.4.2within five days following such formation and
succession, MTP-South Tower LLC:
1.4.2.1 must duly execute, acknowledge and
deliver to Aetna an Amendment to Deed of Trust and Acknowledgement
Agreement in the form of Exhibit D attached hereto (the "MTP-SOUTH
TOWER LLC ACKNOWLEDGMENT");
1.4.2.2 must duly execute and deliver to Aetna a
Uniform Commercial Code Fixture Filing in the form of Exhibit E attached
hereto (the "MTP-SOUTH TOWER LLC FIXTURE FILING");
1.4.2.3 must duly execute and deliver to Aetna
two Uniform Commercial Code Financing Statements in the forms set forth on
Exhibit F attached hereto (the "MTP-SOUTH TOWER LLC FINANCING
STATEMENTS");
and
1.4.2.4 must cause Chicago Title to record the
MTP-South Tower LLC Acknowledgment and the MTP-South Tower LLC Fixture
Filing, and to issue a further endorsement to Aetna's title insurance
policy referred to in Section 9.3, confirming that record title to the
Project has vested in MTP-South Tower LLC and that the Aetna continues to
hold a first lien thereon, with no loss of priority -- all premiums, fees
and charges in connection therewith shall be paid by MTP-South Tower LLC,
as Approved Operating Costs hereunder; and
1.4.2.5 must execute such additional instruments
as Aetna may reasonably require to evidence the assumption by MTP-South
Tower LLC, subject to the provisions of Section 11.8 below, of all of the
obligations and liabilities of MTP-South Tower LP hereunder and to confirm
the liens and interests of Aetna on the assets of MTP-South Tower LLC in
accordance with the terms of the Amended Loan Documents.
If MTP-South Tower LLC is so organized and succeeds to the interest of
MTP-
South Tower LP, the failure to comply with the provisions of Section 1.4.1
and Section 1.4.2 above shall constitute a breach of this Agreement with
respect to MTP-South Tower LP.
1.5 MTP-SOUTH TOWER; EQUITY OWNERS. As used herein, "MTP-SOUTH
TOWER" shall mean and refer to MTP-South Tower LP or MTP-South Tower LLC
as the successor in interest to MTP-South Tower LP, as applicable, and the
partners of MTP-South Tower LP or the members of MTP-South Tower LLC, as
the case may be, are herein collectively referred to as the "EQUITY
OWNERS" of MTP-South Tower and each is herein individually referred to as
a "EQUITY OWNER" of MTP-South Tower. Without limiting the generality of
the foregoing, after the date MTP-South Tower LLC succeeds to the interest
of MTP-South Tower LP, the provisions of Section 11.8 shall apply to the
liability of MTP-South Tower LLC, as "MTP-South Tower" thereunder, and to
the members of MTP-South Tower LLC, as "Equity Owners" thereunder.
1.6 APPLICATION OF PRE-CLOSING PAYMENTS. Subject to the
disclaimers set forth in the last paragraph of Section 1.1 above (in the
event the Effective Date does not occur for any reason):
1.6.1 Aetna and MTP-South Tower agree that all payments
received by Aetna on each "Disbursement Date" under the Lockbox Agreement
during the period from December 1, 1994 (the scheduled maturity date of
the Loan under the existing Loan Documents) through September 20, 1996
(the most recent Disbursement Date for a disbursement by Agent under the
Lockbox Agreement) shall be credited and accounted for as of each such
Disbursement Date during such period as follows: (i) first, to the
reimbursement of then unpaid legal and other expenses of Aetna
reimbursable by MTP-South Tower pursuant to the terms of the Loan
Documents (during such period, the total amount of such reimbursements was
$443,892.30); (ii) second, to then accrued unpaid interest on the Loan at
the rate of thirteen percent (13%) per annum, the applicable interest rate
during such period under the existing Loan Documents, through such date;
and (iii) third, any excess to principal reduction on such date. As a
result of the foregoing, Aetna and MTP-South Tower acknowledge, affirm and
agree that as of September 20, 1996: (i) interest on the Loan has been
paid through that date, (ii) the principal balance of the Loan is One
Hundred Eighty-Nine Million Sixty Thousand Three Hundred Seven and 69/100
Dollars ($189,060,307.69) on that date, and (iii) the balance in the
Deposit Account on that date is approximately $3,000 (the minimum balance
maintained therein) plus any deposits posted thereto since September 18,
1996.
1.6.2 During the period following September 20, 1996
through the Effective Date, any payments received by Aetna in accordance
with the Lockbox Agreement on each Disbursement Date thereunder shall be
credited and accounted for in the same manner, as follows: (i) first, to
reimbursement of any then unpaid reimbursable expenses of Aetna under the
terms of the Lockbox Agreement and the other Loan Documents, (ii) second,
to then accrued unpaid interest on the Loan at the rate of thirteen
percent (13%) per annum through such date, and (iii) third, any remaining
balance to reduction of the principal balance of the Loan on such date.
1.7 ADDITIONAL PAYMENT AT CLOSING. On the Effective Date,
MTP-South Tower must also pay to Aetna the sum of Two Million
Dollars ($2,000,000), which sum shall be applied on the Effective Date in
accordance with Section 1.8 to certain obligations of MTP-South Tower. In
connection therewith, MTP-South Tower covenants, agrees, represents and
warrants to Aetna:
1.7.1 that said sum shall be contributed to the equity of
MTP-South Tower by one or more of its Equity Owners;
1.7.2 that no portion of said sum shall have been obtained
from Project rents or other Gross Receipts (as defined in the Lockbox
Agreement), from other pre-Closing assets of MTP-South Tower, or from
indebtedness of MTP-South Tower, whether owed to such Equity Owner or
Owners or to any other person; and
1.7.3 that no Equity Owner making such contribution to the
capital of MTP-South Tower shall have any right to receive any return on
or return of such sum at any time prior to the repayment in full of the
Loan and all other obligations of MTP-South Tower to Aetna.
As provided for in Section 10.1, the payment provided for in this
Section 1.7 shall be made through Chicago Title pursuant to the Recording
Instructions, which provide for the simultaneous (i) release of fully
executed counterparts of this Agreement and the other instruments and
agreements provided for herein to the parties, and (ii) the application of
such sum in accordance with the provisions of Section 1.8 below.
1.8 APPLICATION OF FUNDS AT CLOSING. On the Effective Date,
the $2,000,000 payment by MTP-South Tower pursuant to Section 1.7, shall
be released by Chicago Title pursuant to the Recording Instructions and
applied or disbursed by Aetna for obligations of MTP-South Tower as
follows:
1.8.1 $88,800 shall be applied by Chicago Title for the
title insurance premium for the policy or endorsement and recording fees
provided for in Section 9.3 below;
1.8.2 $388,934 shall be disbursed to MTP-Development as
payment in full of all previously held-back leasing commissions owed by
MTP-South Tower, which sum shall be paid by MTP-South Tower to
MTP-Development in satisfaction of all such obligations (and MTP-South
Tower hereby represents and warrants that such sum (of which $258,514 was
50% of the commission earned in connection with the February 6, 1995 lease
to The Los Angeles Unified School District, $51,176 was 50% of the
commission earned plus certain other fees earned in connection with the
March 8, 1995 lease to Finova Capital Corporation, and $79,244 was 100% of
the commission earned in connection with the July 10, 1995 lease to The
Boston Consulting Group) represents the full amount of all accrued leasing
commissions and other fees owed by MTP-South Tower to MTP-Development as
of the date of this Agreement); and
1.8.3 following the disbursements described above, the
balance of such $2,000,000 shall be disbursed to Aetna, and shall be
applied by Aetna:
1.8.3.1 first, for reimbursable costs of Aetna,
to the extent not disbursed to Aetna from the Deposit Account pursuant to
the terms of the Lockbox Agreement prior to the Effective Date, including,
without limitation, such sums as required to reimburse Aetna's legal fees
and expenses in connection with the Loan for the period following
March 31, 1996 (the last date for which such fees and expenses were
reimbursed by Aetna as provided in Section 1.6 above) through the
Effective Date (without limitation with respect to fees and expenses for
subsequent periods, such fees and expenses for the period from April 1,
1996 through August 31, 1996 were approximately $51,200); and
1.8.3.2 the remaining amount shall credited by
Aetna on the Effective Date to reduction of the principal balance of the
Loan.
1.9 ESTABLISHMENT OF PROJECT RESERVE ACCOUNT.
1.9.1 In addition to the existing Deposit Account and the
existing "TAX AND INSURANCE ESCROW" (as defined and provided for in the
Lockbox Agreement), in connection with the transactions provided for
herein, Aetna has established a new deposit account, Account No.
12336-21673 (the "PROJECT RESERVE") with Bank of America N.T. & S.A., in
the name of Agent, as agent for Aetna. As used in this Agreement and in
the Lockbox Agreement, "AGENT" means CB Commercial Real Estate Group, Inc.
or such other entity as may be designated by Aetna from time-to-time, in
accordance with Section 13 of the Lockbox Agreement (and Aetna hereby
agrees to not so designate as its Agent an entity which, directly or
through affiliates, owns, manages or is developing a competing office
building project in downtown Los Angeles), to act as Aetna's agent with
respect to the Deposit Account, the Tax and Insurance Escrow and the
Project Reserve pursuant to this Agreement and the Lockbox Agreement, as
supplemented and modified by the provisions of this Agreement (unless the
context requires otherwise, references herein to the "LOCKBOX AGREEMENT"
shall mean and refer to the existing Lockbox Agreement as so supplemented
and modified). Until the Loan and all other obligations of MTP-South
Tower under this Agreement and the other Amended Loan Documents have been
paid in full, MTP-South Tower shall remain obligated to reimburse the
reasonable fees and costs of Aetna's Agent, which fees shall not be
limited to the current fees of Agent specified in the Lockbox Agreement
(such fees and costs shall be paid out of Operating Receipts as defined in
Section 6.2.1) in accordance with Section 7.2.1.3 below). The Project
Reserve shall be the property of Aetna and shall be exclusively controlled
by Agent for Aetna for the purposes provided for in this Agreement.
1.9.2 Absent Default (as defined in Section 8.14.1) under
the Amended Loan Documents, in which event Aetna shall have the rights and
remedies provided for in Section 6.4.2, the Project Reserve shall be used:
(i) to fund Approved Capital Costs (as defined in Section 5.2.2.1 below)
for the Project (including tenant improvement costs and leasing
commissions), in accordance with Section 7.3 below; and (ii) to provide
working capital for the Project (in addition to the provision for $250,000
of working capital in section 6(b) of the Lockbox Agreement) -- as
provided for in the first paragraph of Section 7.2.1 below, if the balance
on deposit in the Deposit Account is insufficient therefor, funds in the
Project Reserve may be transferred to the Deposit Account for disbursement
to pay or permit payment of Approved Operating Costs (as defined in
Section 7.2.1.4), Fixed Rate Interest (as defined in Section 2.2.1 below)
and certain other obligations which have been approved in advance by
Aetna.
1.9.3 The amount of the maximum balance to be maintained
in the Project Reserve at any time in accordance with this Agreement (the
"PROJECT RESERVE MAXIMUM BALANCE") shall equal $3,000,000 or such lesser
sum as Aetna and MTP-South Tower may mutually agree upon in writing;
provided, however, that at any time following the designation of any such
lesser sum, MTP-South Tower shall have the right, by notice to Aetna and
Agent, to specify that the Project Reserve Maximum Balance again be the
sum of $3,000,000 (whereupon the Project Reserve shall be funded to such
increased Project Reserve Maximum Balance amount only to the extent of
subsequent disbursement of Operating Receipts pursuant to Section 7.2.1.7,
i.e., no party shall be responsible for funding such increased amount).
2. EXTENSION AND INTEREST.
ref EXTENSION; EXTENSION FEE. The scheduled "Maturity Date"
provided for in Paragraph 1(h) of the Note, in paragraph a. on page 2 of
the Deed of Trust, and in any other provision of the Loan Documents, i.e.,
December 1, 1994, is hereby extended until September 1, 2003, at which
time the entire unpaid principal balance of the Loan, all accrued but
unpaid interest on the Loan (including both Fixed Rate Interest and
Participation Interest, as provided for below), and any other unpaid
amounts owed to Aetna in accordance with the terms of the Amended Loan
Documents, shall be immediately due and payable. In consideration of such
extension, MTP-South Tower shall pay to Aetna a fee (the "EXTENSION FEE")
of Five Hundred Thousand Dollars ($500,000), which sum shall be paid to
Aetna out of disbursements of Operating Receipts pursuant to Section
7.2.1.9 below.
2.2 INTEREST. In consideration of Aetna's agreement to extend
the scheduled maturity date of the Loan, as provided for in Section 2.1
above, and to reduce the fixed rate of interest payable on the Loan, as
provided for in Section 2.2.1 below, MTP-South Tower has agreed that Aetna
shall also be entitled to Participation Interest, as provided for in
Section 2.2.2.1 below.
2.2.1FIXED RATE INTEREST. Effective from and after the
Effective Date, until the Loan has been repaid in full, the rate of fixed
interest which shall accrue on the outstanding unpaid balance of the Loan
shall be decreased to ten percent (10%) per annum ("FIXED RATE INTEREST"),
payable monthly in arrears in accordance with the Note, as amended by the
Allonge (the "AMENDED NOTE"); provided, however, during the time that any
installment of principal or interest payable under the Amended Note is
delinquent, interest at the rate of twelve percent (12%) per annum shall
accrue and be due and payable on the total of all unpaid principal plus
all arrearages of interest past due under the Amended Note; provided
further, however, that if there is a maximum legal rate of interest
applicable to the Amended Note, the total interest payable on account of
the Amended Note shall not exceed interest at such maximum rate permitted
by law. Such changes in the fixed interest rate shall only be effective
from and after the Effective Date; any unpaid accrued interest on the Loan
for the period prior to the Effective Date, at the rate of thirteen
percent (13%) per annum, shall be payable at such rate on the next date
interest is due following the Effective Date in accordance with the terms
of the Amended Note.
2.2.2PARTICIPATION INTEREST.
2.2.2.1 As more particularly provided for in the
Allonge, at the maturity of the Loan (including acceleration and
prepayment) other than upon Early Repayment in accordance with Section 3.1
below, MTP-South Tower shall also be obligated to pay Aetna additional
interest (as more particularly defined in the Allonge, "PARTICIPATION
INTEREST") equal to fifty percent (50%) of the amount, if any, by which
the sum of:
2.2.2.1.1 the "Fair Market Value" of the
Project (as defined and provided for in the Allonge, and determined by
appraisal in accordance with the Allonge, except in connection with an
"Arms-Length Sale" of the Project in accordance with Section 4.4 below),
less an amount equal to one percent (1%) of such sum as an allowance for
assumed commissions and other closing costs (except in connection with an
Arms-Length Sale of the Project, in which case the amount of closing costs
shall be based on the actual closing costs, as provided for in Section 4.4
below), plus
2.2.2.1.2 all other assets of MTP-South Tower
(other than the Excluded Assets provided for in Section 8.12 below) plus
all amounts on deposit in the Deposit Account, in the Project Reserve and
in the Tax and Insurance Escrow, to the extent not required to pay or
provide for then-accrued obligations of MTP-South Tower for (i) Fixed Rate
Interest and all other sums then due Aetna under the Amended Loan
Documents (other than principal, Yield Maintenance Payment (as defined in
Section 3.3 below) and Participation Interest), (ii) property taxes on the
Project, (iii) Approved Operating Costs, and (iv) Approved Capital Costs,
exceeds the sum of the then-outstanding principal balance of the
Loan plus the amount of any Yield Maintenance Payment then due and
payable; provided, however, that the amount of Participation Interest due
and payable to Aetna pursuant to this Agreement and the Amended Note shall
not exceed the "MAXIMUM PARTICIPATION INTEREST AMOUNT" as defined and
provided for in the Allonge.
2.2.2.2 The Participation Interest provided for
herein and in the Allonge equals a share (50%) of the entire unencumbered
value of the Project and such other amounts, and is not limited to a share
of any appreciation in such value; by way of example:
2.2.2.2.1 if Participation Interest was to
become due prior to any principal reduction of the Loan, and if the
aggregate value (determined as provided for in Section in by ref above) of
the Project plus such other assets (not including the Excluded Assets) and
the amounts on deposit in the Deposit Account, in the Project Reserve and
in the Tax and Insurance Escrow (to the extent not required to pay or
provide for then-accrued obligations of MTP-South Tower, as provided for
in Section 2.2.2.1.2 above) then exceeded the principal balance of the
Loan by $1,000,000, and no Yield Maintenance Payment was then due, then
the amount of Participation Interest then due would equal $500,000; and
2.2.2.2.2 if instead Participation Interest
was to become due later, during which period (i) the principal balance of
the Loan had been reduced by $5,000,000 and (ii) the aggregate value of
the Project plus such other assets (not including the Excluded Assets) and
the amounts on deposit in the Deposit Account, in the Project Reserve and
in the Tax and Insurance Escrow (to the extent not required to pay or
provide for then-accrued obligations of MTP-South Tower, as provided for
in Section 2.2.2.1.2 above) had increased (from the amount described in
the preceding example) by $6,000,000, and no Yield Maintenance Payment was
due, then such aggregate value would exceed the then-current Loan balance
by $12,000,000 and the amount of Participation Interest then due would
equal $6,000,000.
3. PAYMENT OF THE LOAN.
3.1 EARLY REPAYMENT. At any time during the period (the
"PERMITTED PREPAYMENT PERIOD") from the Effective Date through and
including September 1, 1999, if not then in Default under the Amended Loan
Documents, MTP-South Tower shall have the right, without the consent of
Aetna, to prepay the Loan in full or in part, and in connection with such
voluntary cash repayment of the Loan on or before said date ("EARLY
REPAYMENT"), Aetna hereby agrees that no Participation Interest shall be
due or payable in connection with any Early Repayment.
3.2 AMOUNTS DUE AT MATURITY. At the scheduled maturity date of
the Loan or the earlier date of acceleration of the obligations evidenced
and secured by the Amended Loan Documents, or upon the repayment of the
Loan in full, upon such event ("MATURITY"), in addition to accrued Fixed
Rate Interest and any other unsatisfied obligations of MTP-South Tower to
Aetna under the Amended Loan Documents, the following amounts shall be due
and payable to Aetna by MTP-South Tower:
3.2.1 any Yield Maintenance Payment (to the extent
provided for in the Allonge or in Section 3.3 below); and
3.2.2 Participation Interest (except on Early Repayment,
and subject to the provisions set forth in Section 4.2 with respect to a
Deferred Obligation in connection with a refinancing of the Loan).
3.3 YIELD MAINTENANCE PAYMENT. MTP-South Tower shall also be
obligated to pay Aetna the "YIELD MAINTENANCE PAYMENT" (as defined in the
Allonge) in the amount provided for in the Allonge, (a) upon any
acceleration of the maturity of the Loan following March 1, 2000 by reason
of an Event of Default under the Amended Loan Documents, and (b) upon any
full or partial prepayment of the Loan after March 1, 2000, except with
respect to (i) principal payments made from monthly disbursements of
Operating Receipts, as provided for in Section 7.2.1.10 below,
(ii) Additional Loan Advance Repayments in accordance with Section 3.4.1,
or (iii) principal payments made from the proceeds of condemnation awards
or insurance recoveries, as provided for in Section 4.1.2.2, made after
said date. No Yield Maintenance Payment shall be due or payable upon any
full or partial prepayment of the Loan at any time on or before March
1, 2000, regardless of whether or not an Event of Default then exists
under
the Amended Loan Documents.
3.4 REPAYMENT OF ADDITIONAL LOAN ADVANCES.
3.4.1ADDITIONAL LOAN ADVANCE REPAYMENTS. The provisions
of this Section 3.4 shall apply only if Aetna has made any Additional Loan
Advance pursuant to Section 7.4 below. In such event, on the September
1st immediately following the date of the first Additional Loan Advance,
and on each subsequent September 1st until the Loan has been repaid in
full (each an "ADJUSTMENT DATE"), MTP-South Tower shall be required to
make a partial principal payment on the Loan (an "ADDITIONAL LOAN ADVANCE
REPAYMENT"), from the proceeds of equity contributions by one or more of
the Equity Owners of MTP-South Tower in accordance with Section 3.4.2
below, equal to the lesser of:
3.4.1.1 the amount, if any, by which (i) the
outstanding principal balance of the Loan on such Adjustment Date exceeds
(ii) the amount of the applicable Maximum Principal Balance (defined
below) provided for in Exhibit A for such Adjustment Date (i.e., no
Additional Loan Advance Repayment shall be due on an Adjustment Date if
the outstanding principal balance of the Loan is then less than or equal
to the amount of the Maximum Principal Balance provided for on such date
in Exhibit A); or
3.4.1.2 the sum of (i) the aggregate amount of all
Additional Loan Advances made by Aetna pursuant to Section 7.4 below
during the twelve month period (herein referred to as a "LOAN YEAR") prior
to such Adjustment Date (e.g., on September 1, 1998, the aggregate amount
of such Additional Loan Advances made during the Loan Year between
September 1, 1997 through August 31, 1998), plus (ii) the aggregate amount
of all disbursements to MTP-South Tower in accordance with Section 7.2.1.8
during the (same) Loan Year prior to such Adjustment Date.
As more specifically provided for in Exhibit A attached hereto and
incorporated herein by reference, the "Maximum Principal Balance" for each
Loan Year specified therein shall be reduced by the amount of any
principal
payments by MTP-South Tower following the Effective Date, other than:
(i) principal payments made from monthly disbursements of Operating
Receipts, as provided for in Section 7.2.1.10, (ii) Additional Loan
Advance Repayments in accordance with Section 3.4.1, or (iii) principal
payments made from the proceeds of condemnation awards or insurance
recoveries, as provided for in Section 4.1.2.2. Such reduction of the
Maximum Principal Balance for the current and each subsequent Loan Year
shall become effective immediately upon receipt of any such principal
payment. All references in this Agreement to any "MAXIMUM PRINCIPAL
BALANCE" shall mean the applicable amount shown on Exhibit A as same may
be so reduced following any such principal payment. Any such Additional
Loan Advance Repayment pursuant to this Section 3.4.1 shall be due and
payable on the first business day immediately following the applicable
Adjustment Date. Any such Additional Loan Advance Repayment received by
Aetna from MTP-South Tower shall be applied to reduction of the principal
balance of the Loan. No Yield Maintenance Payment shall be due or payable
in connection with any such Additional Loan Advance Repayment.
3.4.2EQUITY CONTRIBUTIONS. MTP-South Tower covenants and
agrees as follows with respect to each such Additional Loan Advance
Repayment:
3.4.2.1 that the amount of any such Additional Loan
Advance Repayment shall be contributed to the equity of MTP-South Tower on
or immediately before the applicable Adjustment Date by one or more of its
Equity Owners and said sum shall be used to make such Additional Loan
Advance Repayment to Aetna;
3.4.2.2 that no portion of the amount of such
Additional Loan Advance Repayment shall be obtained from Project rents or
other Gross Receipts (as defined in the Lockbox Agreement), from other
assets of MTP-South Tower (other than any Excluded Assets), or from
indebtedness of MTP-South Tower, whether owed to such Equity Owner or
Owners or to any other person; and
3.4.2.3 that no Equity Owner making such
contribution to the capital of MTP-South Tower shall have any right to
receive any return on or return of such sum at any time prior to the
repayment in full of the Loan and all other obligations of MTP-South Tower
to Aetna (except a right to participate in any disbursement made to
MTP-South Tower in accordance with Section 3.4.3 and Section 7.2.1.8).
3.4.3PERMITTED EQUITY DISTRIBUTIONS. If (a) MTP-South
Tower makes any Additional Loan Advance Repayments following the Effective
Date, (b) on any subsequent Disbursement Date (as defined in Section
7.2.1) during the same or any subsequent Loan Year, the balance of the
Loan becomes less than the Maximum Principal Balance as provided for in
Section 3.4.1 and the schedule attached as Exhibit A for the September 1st
next following such Disbursement Date, and (c) no Default then exists,
then MTP-South Tower shall be entitled to disbursements, up to the amount
of any such Additional Loan Advance Repayments (without interest), of
excess Operating Receipts (as defined in Section 6.2.1) disbursed on such
Disbursement Date in accordance with the terms and conditions of (and at
the priority provided for in) Section 7.2.1.8 below, and any amount so
disbursed to MTP-South Tower may, notwithstanding any other provision of
this Agreement, be distributed or paid by MTP-South Tower to its Equity
Owners; provided, however, that the right to receive such disbursements
pursuant to Section 7.2.1.8 shall terminate on the earliest of (i) the
Maturity of the Loan, (ii) September 1, 2003, or (iii) the date any
Deferred Obligation is created pursuant to Section 4.2. An example of the
operation of Section 3.4.1 and the operation of Section 7.2.1.8 is
attached hereto as Exhibit C.
4. CAPITAL EVENTS.
4.1 PAYMENTS UPON RECEIPT OF CAPITAL PROCEEDS. In the event of
a refinancing of the Loan or the receipt of other Capital Receipts (as
defined in Section 6.2.2 below) by MTP-South Tower (except in connection
with a sale of the Project, which shall be governed by Section 4.4 below,
but including, without limitation, receipt of any insurance proceeds or
condemnation proceeds, to the extent not required to repair or restore the
Project), then:
4.1.1 MTP-South Tower shall be obligated to pay Aetna an
amount (not to exceed the aggregate amount owed to Aetna, including but
not limited to accrued unpaid Fixed Rate Interest, the unpaid balance of
the Loan, any Yield Maintenance Payment and any Participation Interest)
equal to 100% of the amount of net proceeds therefrom ("NET CAPITAL
PROCEEDS"), after payment of or provision for the customary and reasonable
costs associated with such refinancing or other capital event, as
reasonably approved by Aetna ("CAPITAL TRANSACTION COSTS"), including,
without limitation, (i) reasonable legal fees, appraisal costs, points and
other closing costs reasonably associated therewith, or (ii) any costs
payable out of any insurance proceeds or condemnation proceeds as
reasonably required to repair or restore the Project.
4.1.2 As provided for in Section 6.2 below, all such
proceeds received by MTP-South Tower (before deduction or provision for
Capital Transaction Costs) shall constitute "Capital Receipts" and must be
immediately deposited in Aetna's Deposit Account upon receipt by MTP-South
Tower. Agent shall disburse such Capital Receipts from the Deposit
Account as follows:
4.1.2.1 Following Aetna's reasonable approval of
such Capital Transaction Costs and in accordance with a disbursement
schedule proposed by MTP-South Tower and reasonably approved by Aetna at
the time of such capital event, from such Capital Receipts funds shall be
disbursed to MTP-South Tower, in installments, to the extent required to
permit MTP-South Tower to pay Capital Transaction Costs. In the event of
condemnation or casualty, absent the existence of an Event of Default,
Aetna shall permit insurance proceeds or condemnation payments to be
applied to the reasonable costs of any necessary repair and restoration of
the Project, and Aetna's approval of such repair or restoration costs
shall not be unreasonably withheld, delayed or conditioned. Any or all
Capital Transaction Costs may be paid or disbursed by an escrow holder or
other third party (other than MTP-South Tower or its affiliates) in
connection with a sale, refinancing or other event giving rise to Capital
Receipts, in which event (i) disbursements for such Capital Transaction
Costs shall be made by such escrow holder or other third party, and not by
Agent, and (ii) the approval by Aetna of a settlement statement or similar
instrument describing such costs shall constitute Aetna's approval of such
Capital Transaction Costs for purposes of this Agreement.
4.1.2.2 The entire amount of Net Capital Proceeds
(i.e., all Capital Receipts after payment of or provision for Capital
Transaction Costs to be disbursed to MTP-South Tower pursuant to
Section 4.1.2.1), shall be disbursed to Aetna, to be applied by Aetna to
reduction of the principal amount of the Loan plus any Yield Maintenance
Payment with respect to such principal payment (as provided for in
Section 3.3, no Yield Maintenance Payment shall be due in connection with
such principal payments made from the proceeds of condemnation awards or
insurance recoveries).
4.1.2.3 If the amount of Net Capital Proceeds
paid to Aetna in accordance with Section 4.1.2.2 is sufficient to repay
the entire principal balance of the Loan and any Yield Maintenance Payment
associated therewith, then the Loan shall mature and all other amounts due
at Maturity, as provided for in Section 3.2 above, shall be due and
payable, and:
4.1.2.3.1 Aetna shall apply such excess amount
of Net Capital Proceeds, after repayment pursuant to Section 4.1.2.2 of
the entire principal balance of the Loan and any Yield Maintenance Payment
associated therewith:
(1) first, to Fixed Rate Interest and
any other accrued unpaid obligations of MTP-South Tower under the Amended
Loan Documents other than Participation Interest, and
(2) second, (except in connection with
Early Repayment) to Participation Interest.
4.1.2.3.2 To the extent such excess amount of
Net Capital Proceeds is insufficient to pay all of such obligations owed
to Aetna under the Amended Loan Documents, including (except in connection
with Early Repayment) all Participation Interest, then MTP-South Tower
shall be obligated to immediately pay Aetna all such amounts, subject,
however, to the provisions of Section 4.2 regarding deferral of the
obligation to pay unpaid Participation Interest upon certain refinancings.
4.2 SUBORDINATION OF PARTICIPATION INTEREST ON REFINANCING. In
the event that MTP-South Tower refinances the Loan, to the extent that the
net proceeds of such refinancing (after payment of or provision for the
Capital Transaction Costs and funding any Qualified Reserves and/or
Qualified Set-Asides (as defined in Section 4.2.8.5 and Section 4.2.8.6
below, respectively) required by the first lien lender) plus all amounts
in the Project Reserve are sufficient (and are applied) to repay the
entire outstanding principal balance of the Loan, plus any Yield
Maintenance Payment associated therewith, and to pay all accrued unpaid
Fixed Rate Interest and all other obligations to Aetna under the Amended
Loan Documents, but are not sufficient to repay in full all Participation
Interest then due Aetna (i.e., in the event of Early Repayment, for which
no Participation Interest is due, the provisions of this Section 4.2 shall
not apply), then Aetna shall permit MTP-South Tower to repay the unpaid
balance of such Participation Interest (which balance shall be determined
and fixed as of the date (the "REFINANCING DATE") of such refinancing and
repayment of the principal balance of the Loan), plus Fixed Rate Interest
on such unpaid balance from the Refinancing Date until repaid (the
"DEFERRED OBLIGATION"), over a three year period subject to the terms and
conditions of this Section 4.2.
4.2.1 The Deferred Obligation shall remain a secured debt
obligation of MTP-South Tower, as part of the Loan and evidenced and
secured by the Amended Loan Documents (and subject, without limitation, to
the limitation on the liability of MTP-South Tower and its Equity Owners
in accordance with Section 11.8), as the Amended Loan Documents are
further amended as provided for in this Section 4.2.
4.2.2 The lien of the Amended Loan Documents securing the
Deferred Obligation shall be subordinated by Aetna to the lien of the
instruments and agreements evidencing and securing the new financing
obtained by MTP-South Tower to refinance the Loan, pursuant to a
subordination agreement reasonably acceptable to Aetna.
4.2.3 The Deferred Obligation, including all accrued
unpaid interest thereon, shall be due and payable on the earlier of
(i) September 1, 2006 or (ii) the third anniversary of the Refinancing
Date, regardless of the availability of funds for such repayment.
4.2.4 During the three year period following the
Refinancing Date, however, the Deferred Obligation shall be repaid out of,
and only to the extent of (i) 100% of Operating Receipts (as defined in
Section 6.2.1) remaining after payment or provision for (a) operating
costs, including taxes and insurance and a working capital reserve not to
exceed $250,000, (b) capital expenditures, including funding a Qualified
Reserve therefor not to exceed $3 million, and (c) debt service on the
first lien loan, and (ii) 100% of any Net Capital Proceeds (as defined in
Section 4.1.1) remaining after any required repayment of such first lien
loan.
4.2.5 The Deposit Account and lockbox requirements of the
Lockbox Agreement, as supplemented and modified by this Agreement, shall
continue to apply to provide for such application of funds to operating
expenses, including taxes and insurance and a working capital reserve not
to exceed $250,000, and capital expenditures, including funding a reserve
therefor not to exceed $3 million, and other approved obligations of
MTP-South Tower, including debt service on the first lien loan, and
payment of the Deferred Obligation; provided, however, that if the first
lien lender requires that MTP-South Tower provide such lender with a
similar lockbox or deposit account arrangement, then Aetna agrees to
consent to same provided that such documents, in form and substance
reasonably acceptable to Aetna, provide for direct payments to Aetna for
the Deferred Obligation from all excess funds as provided for herein.
4.2.6 Following the date that the balance of the Loan
(other than the Deferred Obligation) is repaid, Aetna shall have no
obligation to make any Additional Loan Advances and there shall be no
further disbursements to MTP-South Tower in connection therewith pursuant
to Section 7.2.1.8.
4.2.7 Aetna also agrees to reasonably cooperate to
accommodate the reasonable requests of the first lien lender in connection
with amendments to the Amended Loan Documents and agreements subordinating
the liens thereof to the liens of the instruments and agreements
evidencing and securing the first lien loan.
4.2.8 The economic terms of the new first lien loan to
which any Deferred Obligation is to be subordinated (the "NEW LOAN") shall
be subject to the prior approval of Aetna, in its reasonable discretion
(as such standard is provided for in Section 5.4), unless the following
conditions are satisfied, in which event Aetna will be deemed to have
approved such economic terms (and any amendment of such economic terms
shall similarly remain subject to the prior approval of Aetna, in its
reasonable discretion):
4.2.8.1 the maturity date of the New Loan must be
not less than five years;
4.2.8.2 the interest rate of the New Loan must be a
market rate of interest, taking into account points and fees;
4.2.8.3 the New Loan must be non-amortizing or have
an amortization schedule of not less than 25 years (level payment), with
no additional principal payments required before maturity;
4.2.8.4 no kicker, participating or other contingent
interest must be due or payable under the New Loan prior to the repayment
in full of the Deferred Obligation;
4.2.8.5 if the lender with respect to the New Loan
requires reserves for capital expenditures to be funded or maintained out
of disbursements from Operating Receipts, then (i) the maximum amount of
such capital reserve must not exceed $3,000,000 (in addition to a working
capital reserve of not more than $250,000 and any reserve for Project
property taxes and/or insurance premiums), and after the Refinancing Date
the Project Reserve Maximum Balance shall be reduced by the amount of the
required balance in such capital reserve (so that the aggregate amount of
both (in addition to a working capital reserve not to exceed $250,000 and
a reserve for Project property taxes and insurance) does not exceed the
sum of $3,000,000), and (ii) Aetna must have a lien on such reserve
subordinate only to any lien thereon securing the New Loan (such reserve
meeting the foregoing conditions is herein referred to as a "QUALIFIED
RESERVE");
4.2.8.6 if in addition to any Qualified Reserve, the
lender with respect to the New Loan requires any amounts be set-aside from
the proceeds of the New Loan, then (i) such set-asides must be used to
fund a Qualified Reserve or be held to fund Project costs (including
capital costs, operating expenses and debt service) over a period not to
exceed three years (and Aetna will not unreasonably withhold its approval
of a longer period), (ii) any amounts released from such set-asides not
used for such purposes must be included in Operating Receipts for
disbursement in accordance with this Agreement, and (iii) Aetna must have
a lien on any such set-aside funds subordinate only to any liens thereon
securing the New Loan (such set-asides meeting the foregoing conditions
are herein referred to as "QUALIFIED SET-ASIDES"); and
4.2.8.7 if the proceeds of the New Loan are to be
disbursed in installments, then the net proceeds of any such future
advances, to the extent not applied to Project operating or capital costs
or held in a Qualified Set-Aside for such Project costs, must be applied
to the Deferred Obligation when received by MTP-South Tower.
4.2.9 The obligation of Aetna to commit to such
subordination and deferral of unpaid Participation Interest shall be
subject to the following conditions:
4.2.9.1 the Loan and all other obligations of
MTP-South Tower to Aetna (other than Participation Interest) must have
been repaid in full;
4.2.9.2 to the extent that the net proceeds of the
New Loan (after payment of reasonable and customary closing costs
(including, without limitation, reasonable attorneys fees, points, swap
costs, and title insurance premiums) and funding any Qualified Reserves
and Qualified Set-Asides required by the first lien lender) plus all
amounts in the Project Reserve (but excluding amounts in the Tax and
Insurance Escrow, the Deposit Account or the Operating Account) exceed the
amount required to satisfy such other Loan obligations to Aetna, the
excess amount must have been applied to pay Participation Interest;
4.2.9.3 amendments to the Amended Loan Documents,
and agreements subordinating the liens thereof to the instruments and
agreements securing the New Loan, must be acceptable to Aetna, in its
reasonable discretion;
4.2.9.4 the economic terms of the New Loan must have
been approved, or deemed approved, by Aetna as provided for in
Section 4.2.8;
4.2.9.5 the first lien lender must have consented to
all documents and the transactions provided for therein;
ce to t the closing of such transactions must occur
on or before September 1, 2003, the scheduled maturity date of the Loan
(subject to any extension of that date by written express amendment of the
Amended Loan Documents);
4.2.9.7 all instruments and agreements must be duly
executed and delivered by all parties;
4.2.9.8 Aetna must receive opinions of counsel to
MTP-South Tower as Aetna may reasonably request;
4.2.9.9 Aetna must have received an endorsement to
its title insurance policy, confirming the second lien priority of the
instruments and agreements evidencing and securing the Deferred
Obligation;
and
4.2.9.10 MTP-South Tower must reimburse all of
Aetna's reasonable costs and expenses in connection with negotiating,
documenting and closing the transactions provided for in this Section 4.2
(including, without limitation, reasonable attorneys' fees and costs).
4.3 RIGHT OF FIRST OFFER. In connection with any sale or other
disposition of the Project by MTP-South Tower, MTP-South Tower must comply
with the terms of this Section 4.3. If MTP-South Tower desires to sell or
otherwise dispose of the Project, then MTP-South Tower must offer to sell
the Project to Aetna, which offer shall be in writing (the "OFFER") and
shall specify the purchase price and any other material economic terms
upon which MTP-South Tower would be willing to sell the Project; without
limiting the foregoing: (i) unless otherwise specified in the Offer, the
Project shall include the Excluded Assets provided for herein, and (ii)
the Offer must specify the terms of any post-closing property management
contract with MTP-Development or any other affiliate of MTP-South Tower
(as used herein, an "AFFILIATE" of MTP-South Tower means any person or
entity which is controlled by, controls or is under common control with
MTP-South Tower or any of the Equity Owners of MTP-South Tower) -- absent
such specification, there shall be no such affiliate contract.
4.3.1 If Aetna accepts such Offer in writing within
thirty (30) days following its receipt, or accepts any Revised Offer (as
defined below) within seven (7) business days following its receipt,
MTP-South Tower and Aetna shall proceed in good faith to document and
close such sale as soon as possible, in accordance with such Offer or
Revised Offer, as applicable, and at such closing, the Project shall be
sold to Aetna or its nominee subject to the matured Loan, i.e., all
accrued unpaid Fixed Rate Interest, the entire principal balance, any
Yield Maintenance Payment associated therewith, Participation Interest
(except on Early Repayment), and all other amounts payable under the
Amended Loan Documents shall be deducted in the determination of the
portion of the purchase payable to MTP-South Tower at the closing of such
sale of the Project to Aetna or its nominee. The amount of Participation
Interest, if any, shall be calculated in the same manner as provided for
in Section 4.6 below (i.e., based on (i) the purchase price, plus (ii)
amounts in the Deposit Account, in the Project Reserve and in the Tax and
Insurance Escrow, plus (iii) all cash and other assets of MTP-South Tower
other than the Excluded Assets), except that no closing costs shall be
payable at such closing or deductible in such calculation of Participation
Interest then due. At such closing, property taxes, operating expenses
and current rents shall be prorated. Aetna and MTP-South Tower shall be
obligated to close such sale within thirty (30) days following the date
Aetna accepts the applicable Offer or Revised Offer, and in such event,
solely for the purpose of determining whether or not any Yield Maintenance
Payment or Participation Interest is then due, provided MTP-South Tower
diligently proceeds to close such sale to Aetna, such sale shall be deemed
to have occurred on the date Aetna accepts the Offer or Revised Offer, as
applicable.
4.3.2 If Aetna declines or fails to accept an Offer within
such thirty (30) day period, or if Aetna declines or fails to accept a
Revised Offer within the seven business day period provided for below,
then MTP-South Tower shall have the right at any time during the following
nine months to close the sale of the Project in an Arms-Length Sale (as
provided for in Section 4.4 below) provided that the purchase price and
other material economic terms of such sale are no more favorable to the
buyer than the purchase price and other material economic terms declined
or so deemed declined by Aetna, and in such event Aetna shall have no
approval rights with respect to such Arms-Length Sale (provided that the
other "arms-length" requirements of Section 4.4 are satisfied); provided,
however:
4.3.2.1 that at any time during such nine month
period following Aetna's rejection or deemed rejection of an Offer,
MTP-South Tower shall have the right to submit a revised offer to Aetna (a
"REVISED OFFER"), which Aetna must accept, if at all, within seven (7)
business days following its receipt;
4.3.2.2 that Aetna's failure to accept any such
Offer or Revised Offer from MTP-South Tower shall not affect the right of
Aetna to approve or reject any sale or other disposition of the Project
which is not an Arms-Length Sale in accordance with Section 4.5
(including, without limitation, Aetna's rights in connection with certain
transactions in accordance with Paragraph 17 of the Note); and
4.3.2.3 that the references herein to MTP-South
Tower's rights within the nine month period described shall not be
construed to extend the date of Maturity of the Loan.
4.4 ARMS-LENGTH SALE OF PROJECT. In the event of an
Arms-Length Sale (as defined below) the Loan shall be due and payable and,
except in the case of Early Repayment (when no Participation Interest is
due hereunder), the amount of Participation Interest related to the value
of the Project shall be determined with reference to the amount of the net
proceeds of such sale, as provided for in Section 4.5 (in all other cases,
the amount of Participation Interest attributable to the value of the
Project shall be determined by appraisal, as more particularly provided
for in Section 2.2.2.1 and in the Allonge). As used herein, a sale of the
Project shall constitute an "ARMS-LENGTH SALE" only if:
4.4.1 the purchase price and the other material economic
terms of such sale are no more favorable to the buyer than those contained
in an Offer or any Revised Offer made by MTP-South Tower to Aetna in
accordance with Section 4.3, which Offer and any Revised Offer have been
declined by Aetna (or been deemed to have been declined by Aetna in
accordance with Section 4.3.2) within nine months preceding the date of
closing of such sale;
4.4.2 following such sale, if MTP-Development or any other
affiliate of MTP-South Tower is to continue to manage the Project, the
management fee payable to such affiliated entity is not more than the
management fee now payable by MTP-South Tower to MTP-Development, i.e., 2-
1/2% of Project revenues;
4.4.3 if following such sale MTP-Development or any other
affiliate of MTP-South Tower is to continue to provide leasing agent
services at the Project, the leasing commissions payable to such entity
are not more than the leasing commissions payable to MTP-Development under
its contract with MTP-South Tower as of the date of this Agreement; and
4.4.4 all other aspects of such sale are with unaffiliated
entities, including but not limited to any sales commissions payable in
connection with such sale, and none of MTP-South Tower or any of the
Equity Owners of MTP-South Tower or any affiliate of any of them retains
or receives any direct or indirect interest in the buyer or in the Project
following such sale.
Notwithstanding any other provision of this Agreement, MTP-South Tower
shall not be required to obtain the consent of Aetna to an Arms-Length
Sale of the Project.
4.5 PROCEEDS OF SALE OF PROJECT. In the event of any sale or
other disposition of the Project, whether or not same qualifies as an
Arms-Length Sale hereunder (this Section, however, shall not be deemed to
be a consent to any transfer other than in accordance with Section 5.1
hereof), upon such sale or other disposition ("SALE"):
4.5.1 The Loan and all other obligations of MTP-South
Tower to Aetna under the Amended Loan Documents shall be immediately due
and payable, and all of such obligations must be paid to Aetna regardless
of the amount of the net proceeds of such sale (except in the case of
Participation Interest payable in connection with an Arms-Length Sale, as
provided for in Section Documents relating to the assignment of the
Partnership's interest in the 125 Broad Street Building to O&Y Plaza Corp.
("Assignee") are incorporated herein by reference to the Partnership's
report for October 15, 1994 on Form 8K dated November 15, 1994.
Lockbox and forbearance agreements related to the mortgage note
secured
by the Wells Fargo Building are incorporated herein by reference to the
Partnership's report for December 31, 1994 on Form 10-K (File No. 0-16111)
dated March 27, 1995.
Modification to Reserve Escrow Agreement relating to the 260 Franklin
Street Building is hereby incorporated by reference to the Partnership's
Report for June 30, 1995 on Form 10-Q (File No. 0-16111) dated August 9,
1995.
The Partnership Interest Purchase Agreement related to the sale of
the Partnership's interest in Eastridge Mall is hereby incorporated herein
by reference to the Partnership's report for June 30, 1995 on Form 8-K
dated July 24, 1995.
Documents relating to the operating agreement of Maguire Thomas
Partners-South Tower, L.L.C. are filed herewith.
Modification to Reserve Escrow Agreement dated December 4, 1996
relating to the 260 Franklin Street Building dated December 4, 1996 are
filed herewith.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be
signed
on its behalf by the undersigned, thereunto duly authorized.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP - XV
By: JMB Realty Corporation
Corporate General Partner
By: GAILEN J. HULL
By: Gailen J. Hull
Senior Vice President
Date: March 21, 1997
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 registrant and in the capacities and on the dates indicated.
JMB Realty Corporation
Corporate General Partner
JUDD D. MALKIN*
Judd D. Malkin, Chairman and
Chief Financial Officer
March 21, 1997
NEIL G. BLUHM*
Neil G. Bluhm, President and Director
Date:March 21, 1997
H. RIGEL BARBER*
H. Rigel Barber, Chief Executive Officer
Date:March 21, 1997
GLENN E. EMIG*
Glenn E. Emig, Chief Operating Officer
Date:March 21, 1997
GAILEN J. HULL
By: Gailen J. Hull, Senior Vice President
Principal Accounting Officer
Date: March 21, 1997
A. LEE SACKS*
A. Lee Sacks, Director
Date: March 21, 1997
STUART C. NATHAN*
Stuart C. Nathan, Executive Vice President
and Director
Date: March 21, 1997
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
GAILEN J. HULL
Gailen J. Hull, Attorney-in-Fact
March 21, 1997
EXHIBIT 4-E
- -----------
(Carlyle-XV)
AMENDED AND RESTATED PROMISSORY NOTE
$40,834,557.40 October __, 1996
FOR VALUE RECEIVED, the undersigned (the "Borrower"), hereby
promises to pay to the order of WELLS FARGO BANK, N.A., a national banking
association ("Bank"), at its office at 2120 E. Park Place, Suite 100, El
Segundo, California 90245 (Attn: J. Morgan)(or such other place as Bank may
direct from time to time), in lawful money of the United States and in
immediately available funds, (i) the principal amount of FORTY MILLION
EIGHT HUNDRED THIRTY-FOUR THOUSAND FIVE HUNDRED FIFTY-SEVEN AND 40/100
DOLLARS ($40,834,557.40) on September 1, 2003, (and such earlier times as
provided herein) and (ii) interest from the date hereof (computed on the
basis of a year of 360 days for the actual number of days elapsed), in like
money and funds and at such office, on principal amounts outstanding
hereunder until paid in full, at a rate per annum of:
(a) seventeen percent (17%), to and including the date of
maturity (whether at the stated due date, upon acceleration or otherwise),
said interest to be payable at the times and in the amounts set forth in
Section 4 of the Loan Modification Agreement (defined below); and
(b) after maturity (whether at scheduled maturity, upon
acceleration or otherwise), the greater of (i) seventeen percent (17%) per
annum, or (ii) Bank's "Prime Rate" from time to time PLUS five percent
(5%), which post-maturity interest shall change effective on and as of the
date of each change in Bank's Prime Rate and shall be payable upon demand.
(Bank's "Prime Rate" is the rate of interest which Bank announces publicly
from time to time at its San Francisco or Los Angeles executive office as
its "prime rate" for unsecured commercial borrowings.)
This Note is the "New Note" referred to in the Loan
Modification Agreement by and between Borrower and Bank dated as of the
date hereof (the "Loan Modification Agreement"), and amends and restates
that certain Promissory Note dated December 30, 1985, made by Borrower to
Bank (as successor in interest to Crocker National Bank) in the original
principal amount of $12,250,000. This Note is secured by certain
Collateral more specifically described in the Security Agreements and as
provided in the Loan Modification Agreement.
Whenever any Collateral proceeds or cash Collateral (including,
without limitation, any Subject Disbursements or Management Disbursements)
are received by Bank (or are collected by or paid to Bank) under any of the
Loan Documents (as defined in the Loan Modification Agreement), such amount
shall be immediately due and payable under this Note. Such amount shall be
applied first to expenses and other amounts due other than principal and
interest, then to interest and then to principal owing under this Note.
However, notwithstanding the foregoing, so long as Maguire/Thomas Partners
Development Ltd. ("Property Manager") is obligated to make monthly
installment payments of the "Manager's Payment" to Borrower or Bank under
the Manager's Letter Agreement (as defined in the Loan Modification
Agreement), or Maguire Thomas Partners-South Tower, LLC is obligated to
withhold any installment of the Manager's Payment, if requested by Borrower
or Bank, Borrower's sixty-five percent (65%) share of the $25,000 shall be
due and payable under this Note no later than thirty (30) days after the
date Bank gives written notice to Property Manager or Maguire Partners-
Bunker Hill, Ltd. ("Maguire")(with a copy to Borrower), or notice directly
to Borrower, of the failure of Property Manager or Maguire to pay such
installment payment within the five (5) business day cure period following
the date such installment payment is due. Since such installment payment
is due on the first day of each calendar month under the Manager's Letter
Agreement, the corresponding payment under this Note shall be due and owing
to the Bank on that same date, subject to such cure period.
Upon any failure by Borrower to (i) make any payment of
principal hereunder when and as the same shall become due and payable, or
(ii) make any payment of interest hereunder within (5) days after such
interest becomes due and payable, or upon any other default under this
Note, or upon the occurrence of an Event of Default as defined in the Loan
Agreement (as defined in the Loan Modification Agreement) or the Security
Agreements, the holder of this Note may, at its option and without notice,
declare immediately due and payable the entire unpaid principal balance of
this Note, together with all accrued but unpaid interest.
Borrower, for itself and its successors and assigns, hereby
waives diligence, presentment, protest and demand and notice of protest,
demand, dishonor and nonpayment of this Note. Borrower expressly agrees
that this Note or any payment hereunder may be extended from time to time,
and that Bank may accept security or release any security herefor, all
without in any way affecting the liability of Borrower or any endorsers or
guarantors hereof.
No extension of time for the payment of this Note or any
renewal or modification hereof made by agreement by Bank with any person or
entity now or hereafter liable for the payment of this Note shall affect
the liability of Borrower under this Note, even if Borrower is not a party
to such agreement.
Borrower agrees to pay all collection expenses, court costs and
reasonable attorneys' fees which may be incurred in connection with the
collection, defense, or enforcement of this Note or any part hereof,
including by exercising any rights available to a creditor with respect to
this Note or any Collateral in any case commenced by or against the
Borrower under any provision of the United States Bankruptcy Code. If any
suit or action is instituted to enforce this Note, Borrower promises to
pay, in addition to the costs and disbursements otherwise allowed by law,
reasonable attorneys' fees in such suit or action. In the event that suit
is brought under this Note, any judgment obtained in or as a result of such
suits shall be enforceable solely against the Collateral, and Borrower and
its partners shall have no personal liability therefor.
All amounts payable under this note are payable in lawful money
of the United States. Checks will constitute payment only when collected.
Notwithstanding anything to the contrary in this Note, Bank is
entitled to all of the benefits provided to it in the Loan Agreement, the
Loan Modification Agreement, the Security Agreements and all other Loan
Documents, and reference is hereby made to the foregoing for full
particulars of the matters described therein.
Terms used in this Note and not otherwise defined herein shall
have the meanings given to such terms in the Loan Modification Agreement.
This Note shall be governed by and construed in accordance with
the laws of the State of California.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XV,
an Illinois limited partnership
By: JMB Realty Corporation
By:
Its:
EXHIBIT 4-F
- -----------
(Carlyle-XV)
LOAN MODIFICATION AGREEMENT
(Carlyle-XV)
This Loan Modification Agreement ("Agreement") is executed as of this
_____ day of October, 1996, by and between CARLYLE REAL ESTATE LIMITED
PARTNERSHIP-XV, an Illinois limited partnership (the "Borrower"), and WELLS
FARGO BANK, N.A., as successor by merger to Crocker National Bank (the
"Bank"). This Agreement is executed based on the following facts and
understandings.
RECITALS
--------
A. On or about December 26, 1985, Borrower and the Bank entered
into that certain "Loan Agreement" pursuant to which the Bank made a loan
(the "Loan") to Borrower in the original principal amount of $22,750,000.
The Loan was evidenced by a promissory note dated as of December 30, 1985
(the "Note"). All obligations of Borrower to the Bank arising out of or
relating to the Loan Agreement, the Note, or any other documents executed
pursuant to any of them, as they may be amended from time to time, are
secured by certain collateral described in a "Security Agreement" dated
December 26, 1985 and executed by Borrower in favor of the Bank (the
"Original Security Agreement"). The Loan Agreement, the Note, the Original
Security Agreement, and the other documents executed concurrently therewith
or at any time before the Closing Date pursuant thereto are hereafter
referred to as the "Original Loan Documents."
B. Borrower is a general partner of Maguire Thomas Partners-South
Tower (the "Partnership"). The other general partners of the Partnership
are Maguire Partners-Bunker Hill, Ltd. ("Maguire") and Carlyle Real Estate
Limited Partnership-XIV ("Carlyle 14"). The sole limited partner of the
Partnership was International Business Machines Corporation, a New York
Corporation ("IBM"), although its interest was recently acquired by
Maguire. Borrower has requested the Bank's consent to the merger of the
Partnership into a limited liability company formed under California law to
be named Maguire Thomas Partners-South Tower, LLC (the "LLC"), and to the
Operating Agreement of Maguire Thomas Partners-South Tower, LLC dated as of
September 24, 1996 (the "LLC Operating Agreement"), which replaces the
"Partnership Agreement" of the former Partnership (as defined in the LLC
Operating Agreement).
C. Carlyle 14 is also indebted to the Bank. On or about December
26, 1985, Carlyle 14 and the Bank entered into a "Loan Agreement" (the
"Carlyle 14 Loan Agreement") pursuant to which the Bank made a loan (the
"Carlyle 14 Loan") to Carlyle 14 in the original principal amount of
$12,250,000. The Carlyle 14 Loan was evidenced by a "Promissory Note"
dated December 30, 1985 (the "Carlyle 14 Note"). All obligations of
Carlyle 14 to the Bank arising out of or relating to the Carlyle 14 Loan
Agreement, the Carlyle 14 Note, or any other documents executed at any time
pursuant to any of them as they might be amended in writing from time to
time were secured by certain collateral described in a "Security Agreement"
(the "Carlyle 14 Security Agreement") dated December 26, 1985 and executed
by Carlyle 14 in favor of the Bank. The Carlyle 14 Loan Agreement, the
Carlyle 14 Note, and the Carlyle 14 Security Agreement, and the other
documents executed concurrently therewith or at any time pursuant thereto
by Carlyle 14 and/or the Bank are hereafter referred to as the "Original
Carlyle 14 Loan Documents." The Original Carlyle 14 Loan Documents,
together with the amendments and supplements thereto (such as counterparts
corresponding to the New Documents as described in Section 3.1 from
Borrower) as are required by the Carlyle 14 Loan Modification Agreement
dated as of the date hereof (herein, together with that Carlyle 14 Loan
Modification Agreement, collectively called the "New Carlyle 14 Documents")
are herein collectively called the "Carlyle 14 Loan Documents."
D. Borrower's present and future obligations to the Bank are
secured by the "Collateral" described in ANNEX A hereto (the "Collateral").
E. The primary asset of the Partnership is an office building more
specifically described in EXHIBIT A attached hereto (herein, together with
the Partnership's right, title and interests in all equipment, fixtures,
inventory and other real and personal property located thereon or
associated therewith and all rights and interests appurtenant or related
thereto consisting of rents, issues, profits, leases, accounts, chattel
paper, instruments, general intangibles, contract rights and other rights
to payment, collectively called the "Property"). The Property is
encumbered by a lien in favor of Aetna Life Insurance Company, as successor
to the Aetna Casualty & Surety Company ("Aetna") in the original principal
amount of $200,000,000 (the "Aetna Loan"). The Partnership has negotiated
or is in the process of negotiating and documenting a modification of the
Aetna Loan with a maturity of September 1, 2003 (the "Aetna Restructuring")
pursuant to a Modification and Extension Agreement dated as of
September 19, 1996, and certain "Amended Loan Documents" described therein
(herein collectively called the "Aetna Restructuring Documents"). The
"Aetna Loan Documents" include all "Loan Documents" defined in the Aetna
Restructuring Documents, together with the Aetna letter agreement dated
October 24, 1996 "Re Payment of Management Fee" (the "Aetna Manager Fee
Transfer Approval") and the "Letter Agreement" dated September 30, 1996
referenced therein (the "Manager's Letter Agreement") among Carlyle, the
LLC and Maguire/Thomas Partners Development Ltd. (herein, together with its
successors and assigns called, "Property Manager"), the Company
Acknowledgment and Consent dated as of the date hereof among Maguire,
Property Manager, LLC, Carlyle and Bank of America NT&SA (the "Manager's
Warranty"), and the Acknowledgment and Agreement dated September 25, 1996,
executed by Aetna in favor of the Bank (the "Aetna/WFB Acknowledgment").
F. The obligations evidenced by the Note matured on December 1,
1994. As of that date, the principal outstanding under the Note totalled
$12,250,000. Interest continued to accrue thereafter at the rate
applicable after maturity. Borrower has asked the Bank to modify and
extend the maturity date of the Loan approximately to coincide with the
maturity date of the Aetna Loan after completion of the Aetna
Restructuring. Borrower has also asked the Bank to consent to the Aetna
Restructuring Documents.
G. Subject to the terms and conditions set forth in this
Agreement, the Bank is willing to modify and extend the maturity date of
the Loan, to make certain other modifications to the Original Loan
Documents as expressly set forth below, and otherwise to do what is
expressly required for the Bank to do in this Agreement.
AGREEMENT
---------
WHEREFORE, for fair and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as
follows:
1. ACKNOWLEDGEMENTS, DEFINITIONS.
1.1 RELATION TO PAST. Borrower acknowledges, agrees,
represents and warrants that the Recitals set forth above are true and
correct. Borrower further acknowledges and agrees that, except as
expressly revised as set forth herein, the Original Loan Documents remain
fully valid, binding and enforceable in accordance with their respective
express, written terms, subject to no claims, defenses, or offsets of any
kind.
1.2 DEFINITION OF "LOAN DOCUMENTS". The term "Loan
Documents" used in this Agreement and in Article III of the Loan Agreement
(and elsewhere in the Loan Agreement) shall be deemed to refer not only to
the Original Loan Documents, but also to this Agreement, the New Documents,
all documents and agreements executed pursuant thereto, and all other duly
executed written amendments or supplements thereto or modifications
thereof. The New Documents are Loan Documents under all of the Original
Loan Documents. References to the "Partnership" in Article III of the Loan
Agreement shall be deemed to also refer to the LLC, such that, for example,
Section 3.5 of the Loan Agreement which contains a representation and
warranty that there is also no action, suit or proceeding pending against
the Partnership shall be deemed to also constitute a representation and
warranty that, to the extent applicable, as of the date hereof, there is
also no action, suit or proceeding pending against the LLC. As used in the
Original Loan Agreement, the following definitions are also modified as
follows for the purposes of the Loan Documents: (a) the "Partnership
Agreement" also includes the LLC Operating Agreement; (b) "Bank" means
Wells Fargo Bank, N.A. and its successors and assignees; and (c) "Security
Agreement" means collectively the Original Security Agreement and the
Supplemental Security Agreement. Except as otherwise expressly provided in
this Agreement, the terms used herein and defined in the California Uniform
Commercial Code as amended or recodified from time to time ("UCC") shall be
used in this Agreement with that defined meaning.
2. AGREEMENTS BY THE BANK. Subject to the satisfaction of the
conditions precedent set forth in Section 3 below, the Bank agrees as
follows:
2.1 NEW NOTE. To modify the Note in accordance with the
terms set forth in a "New Note" in the form of EXHIBIT B attached hereto,
such that (among other things):
(a) The principal amount shall be equal to the amount
stated in the New Note (calculated as to the sum of all outstanding
principal plus all accrued and unpaid interest (at the rate applicable
under the Note after maturity) from and after December 1, 1985 through the
"Closing Date" (defined below) plus a capitalized restructuring fee. The
restructuring fee is approximately equal to the difference between (i) the
total amount of interest payments made under the Note from and after
December 1, 1985 through the Closing Date, plus accrued and unpaid interest
owing on the Note, and (ii) the amount which would have been paid under the
Note if the interest rate applicable thereunder for the period from
December 1, 1985 through the Closing Date equalled seventeen percent (17%)
per annum computed on the basis of a 360 day year for actual days elapsed;
(b) The maturity date shall be extended until the first
to occur of (i) September 1, 2003, or (ii) acceleration due to the
occurrence of an "Event of Default";
(c) Interest shall accrue on the outstanding principal
amount of the New Note at a rate per annum prior to maturity of seventeen
percent (17%) per annum, and after maturity at a rate per annum equal to
the greater of (i) seventeen percent (17%) per annum, or (ii) the "Prime
Rate" (being charged by the Bank from time to time, changing with each
change in such Prime Rate) plus five percent (5%), in either case, based on
a 360-day year for actual days elapsed.
(d) The Loan (and all costs and expenses and other
payment obligations of Borrower) may be prepaid at any time without
penalty; and
(e) The New Note interest and principal shall be due
when and to the extent that any Subject Disbursements, Management
Disbursements, or other Collateral or proceeds are available in cash, and
such amounts shall be allocated first to expenses and other amounts due
other than principal and interest, then to interest and then to principal.
However, notwithstanding the foregoing, so long as the Property Manager is
obligated to make monthly installment payments (each a "Manager's Payment")
of the Management Disbursements to Borrower or the Bank under the Manager's
Letter Agreement (or the LLC is obligated to withhold any portion of any
installment of the $300,000 payment from Property Manager, if requested by
Carlyle or the Bank), Borrower's sixty-five percent (65%) share of $25,000
shall be due under the New Note no later than thirty (30) days after the
date the Bank gives written notice to Property Manager or Maguire (with a
copy to Borrower), or notice directly to Borrower, of the failure of
Property Manager or Maguire to pay such installment payment within the five
(5) day cure period following the date such installment payment is due.
Since such installment is due on the first day of each calendar month under
the Manager's Letter Agreement, the corresponding payment on the New Note
shall be due and owing to the Bank on the same date, subject to such cure
period.
2.2 ADDITIONAL ADVANCE. Subject to and upon the terms and
conditions stated in this Agreement, the Bank shall advance for the account
of Borrower Six Hundred Fifty Thousand and No/100 Dollars ($650,000.00) as
additional indebtedness evidenced by the New Note. Such advance shall be
disbursed by the Bank directly to the escrow for the Aetna Restructuring in
order to satisfy Borrower's share of the funds required by Aetna as a
condition to the closing of that transaction, and Borrower hereby
unconditionally consents to that direct disbursement of such additional
advance.
2.3 OTHER MODIFICATIONS. The Original Loan Documents shall
be deemed to have been modified and supplemented as expressly set forth in
this Agreement, including by the New Documents described below. However,
except as otherwise expressly so amended or supplemented by New Documents,
the Original Loan Documents remain in full force and effect.
3. CONDITIONS PRECEDENT. It shall be a condition precedent to
each and every obligation of the Bank to Borrower under this Agreement that
each of the following shall be satisfied (the date the satisfaction of
which shall be referred to as the "Closing Date"), which Closing Date shall
be no later than October 31, 1996 (as to which time is of the essence):
3.1 DOCUMENTS. The Bank shall have received originals of the
following documents from Borrower, each in form and substance satisfactory
to the Bank, and each of which shall have been duly executed by all parties
thereto (herein collectively called the "New Documents"):
(a) this Agreement (or a counterpart thereof);
(b) the "New Note" substantially in the form of EXHIBIT
B attached hereto;
(c) a "Release" in substantially the form of EXHIBIT C
attached hereto;
(d) a "Wells Fargo Bank Addendum" to the LLC Operating
Agreement executed by Maguire and in form and substance satisfactory to the
Bank;
(e) a "Notice of Assignment and Acknowledgement of
Receipt" in the form of EXHIBIT D attached hereto executed by the LLC and
each of the members thereof;
(f) a "Notice of Assignment and Acknowledgement of
Receipt" in the form of EXHIBIT D attached hereto executed by the Property
Manager (defined below);
(g) a "Security Agreement" in the form of EXHIBIT E
attached hereto (the "Supplemental Security Agreement");
(h) a "UCC-1 Financing Statement," and an amendment to
the existing UCC financing statement, each in the form of EXHIBIT F
attached hereto; and
(i) the Aetna Manager's Fee Transfer Approval, the
Manager's Letter Agreement, the Manager's Warranty, and the Aetna/WFB
Acknowledgment in form and substance satisfactory to the Bank.
3.2 COLLATERAL. The Bank shall have received a duly
perfected security interest of no less than first priority in all
Collateral described in ANNEX A hereto.
3.3 EXTENSION FEES. Borrower shall have paid to the Bank an
"Extension Fee" in cash or immediately available funds equal to $32,430.
Furthermore, the Bank shall have received in cash or in immediately
available funds from Carlyle 14 a separate extension fee of $17,570.
3.4 COSTS AND ATTORNEYS' FEES. Borrower shall have
reimbursed the Bank for all costs, expenses, and reasonable attorneys' fees
incurred between January 1, 1996, and the Closing Date in connection with
the defense, protection, exercise of the Bank's rights under, or
enforcement of, the Original Loan Documents, in responding to claims and
disputes raised by any of Borrower's partners in the Partnership or Aetna,
in negotiating and documenting the terms of this Agreement and the other
New Documents (and the superseded negotiations of other related matters),
in reviewing and commenting upon the Aetna loan transaction and other
matters potentially threatening or affecting the Collateral, in reviewing
and commenting upon the restructuring of the Partnership into an LLC and
negotiating and documenting the LLC Operating Agreement, and any and all
potential amendments to the Partnership Agreement and the LLC Operating
Agreement, and any other costs, expenses or charges of the type described
in Section 6.4 below (which sum is set forth in Annex B attached hereto
and is payable 65% from Borrower and 35% from Carlyle 14).
3.5 AETNA RESTRUCTURING. The Bank shall have received
evidence satisfactory to the Bank indicating that the Partnership (and/or
the LLC) and Aetna have modified the Aetna Loan and Aetna Restructuring
Documents on terms and conditions satisfactory to the Bank, including that
the maturity date of the Aetna Loan has been extended to September 1, 2003,
and delivery to the Bank of the Aetna Acknowledgement and Agreement in
favor of the Bank in connection with the Aetna Restructuring.
3.6 FORMATION OF LLC. The LLC shall have been duly formed in
accordance with documentation in form and substance satisfactory to the
Bank, including by an LLC Operating Agreement and the related "Wells Fargo
Bank Addendum," in the form of EXHIBIT G attached hereto, and the
Partnership shall have been duly merged into the LLC.
3.7 UCC STATEMENTS. The Bank shall have received from
Borrower duly executed UCC-2 statements amending the original financing
statements and perfecting the Bank's security interests (or perfecting the
Bank's security interests) granted under the Original Security Agreement,
so as to reflect the amendments to the Loan pursuant to this Agreement, and
the Bank shall have received from Borrower duly executed UCC-1 Statements
(for Illinois and California) relating to the New Security Agreement as a
supplement to the provisions of the Original Security Agreement.
3.8 NECESSARY CONSENTS. The Bank shall have received duly
executed consents, releases, and acknowledgements executed by the
Partnership and/or the LLC and the other partners in the Partnership and/or
the members in the LLC relating to the Collateral for the obligations owing
to the Bank and the other issues raised by the transactions described
herein, in the form of the New Documents described in Sections 3.1(d), (e)
and (f).
3.9 LEASES. The Bank shall have received copies of all
pending leases relating to the Property for which approval is under
consideration by the LLC, together with such related documents and
information as the Bank may reasonably request (to the extent Borrower is
entitled thereto under the LLC Operating Agreement).
3.10 CARLYLE 14 TRANSACTION. The Bank shall have received a
duly executed original (or counterpart) of the Carlyle 14 Loan Modification
Agreement and all conditions precedent to the Bank's obligations thereunder
shall have been satisfied or waived in writing by the Bank, including the
execution of the other New Carlyle 14 Documents.
3.11 FINANCIAL DOCUMENTS. The Bank shall have received the
most current profit and loss statement, balance sheet, Property rent rolls,
Property operating statements, and cash flow statement relating to the
Partnership, the LLC, and/or the Property, and the Bank shall also have
received all of the most current financial reports and documentation
provided to Aetna by the Partnership (and/or the LLC) or its various
partners (and/or the members of the LLC)(other than Maguire); and
3.12 OPINION OF COUNSEL. Borrower shall have delivered to the
Bank a favorable opinion of counsel for Borrower, addressed to the Bank and
dated as of the Closing Date covering the matters incident to the closing
of this Agreement, to the Collateral, to the valid, binding and enforceable
nature of the Loan Documents, to the formation of the LLC and the valid
nature and enforceability of the LLC Operating Agreement, and to the merger
of the Partnership into the LLC, all as the Bank may reasonably request.
4. MODIFICATION OF LOAN. Subject to the satisfaction of the
conditions precedent set forth in Section 3 above, the Original Loan
Documents shall be further modified, amended and supplemented as follows:
4.1 PAYMENT TERMS. As stated in the New Note, payments of
principal and interest are due and payable prior to the maturity date
thereof as and when cash is available from or on account of the Collateral
to make payments, including as follows:
(a) All LLC or Partnership disbursements (collectively
"Subject Disbursements") from or on account of the interests of Borrower
and Carlyle 14 in the Partnership and/or the LLC shall be delivered
directly to the Bank by the payor thereof (and may be collected directly by
the Bank at any time pursuant to UCC 9318 and 9502 or otherwise) in
accordance with this Agreement, the Security Agreements, and any other
applicable documentation executed pursuant hereto, whether before or after
the occurrence of any Event of Default or default. Additionally, Borrower
agrees to deliver to the Bank in kind and in cash (to the extent received
in cash) any Subject Disbursements which Borrower receives within five (5)
business days of having received such Subject Disbursements.
(b) The $300,000 in aggregate annual payments which are
payable in monthly installments to Borrower and Carlyle 14 by
Maguire/Thomas Partners-Development, Inc. as "Property Manager" on account
of management fees (the "Management Disbursements") shall be delivered
directly to the Bank by the payor thereof (and may be collected directly by
the Bank at any time pursuant to UCC 9318 and 9502 or otherwise) in
accordance with this Agreement and any other applicable documentation
executed pursuant hereto, whether before or after the occurrence of any
Event of Default or default. Additionally, Borrower agrees to immediately
deliver to the Bank in kind and in cash (to the extent received in cash)
any Management Disbursements which Borrower receives within five (5)
business days of having received such Management Disbursement.
(c) Any other amounts of cash Collateral or cash
proceeds of Collateral received by Borrower shall be paid to the Bank
within five (5) business days of when the same are first received or
available (and at all times subject to direct collection by the Bank
immediately pursuant to UCC 9318 and 9501 or otherwise) whether or not
any Event of Default exists.
(d) Regardless of what the amount may be of Subject
Disbursements and Management Disbursements (plus other payments or
disbursements that are made by or on account of the interests of Borrower
in the Partnership or the LLC) all principal, accrued interest, fees,
costs or other payments for which Borrower is liable shall be due and
payable on the first to occur of (a) September 1, 2003, and (b)
acceleration due to the occurrence of an "Event of Default."
4.2 MODIFICATIONS REGARDING PREPAYMENTS. Section 1.4 of the
Loan Agreement is hereby deleted. Should Borrower desire to prepay the
Loan or any portion thereof, the payment shall be first applied to any
outstanding indemnity and reimbursement liabilities, expenses and costs for
which Borrower is liable, then to any accrued or unpaid interest and late
charges, and then to the principal owing under the New Note. Furthermore,
Section 1.5 of the Original Loan Agreement is amended, such that the last
sentence reading, "Any such prepayment shall be accompanied by payment of a
premium computed in accordance with the provisions of Section 1.4, and by
all accrued and unpaid interest on the principal amount prepaid", shall be
deleted. The only limitation on prepayments (as indicated above) is that,
if Borrower desires to make a prepayment on its New Note, the payments must
be first applied to all Loan Document liabilities in the order specified
above.
4.3 EVENTS OF DEFAULT. The provisions regarding the
definition of an "Event of Default" in the Original Loan Documents shall be
supplemented by the following provisions such that it shall constitute an
Event of Default under the Loan Documents (as modified by this Agreement
and the other New Documents) when, if, or to the extent that:
(a) (I) The LLC or any of its members shall modify,
amend, supplement or otherwise alter the Aetna Loan or any of the "Aetna
Loan Documents" or Aetna Restructuring Documents or the LLC Operating
Agreement in any respect whatsoever (or shall agree to or permit any
capital call or other monetary obligation to arise as a Major Decision [as
defined in the LLC Operating Agreement], without first obtaining the prior
written consent of the Bank), in any such case without first obtaining the
prior written consent of the Bank to such modification amendment or
supplement, or (II) any "Event of Default" or default shall occur under any
of the Aetna Loan Documents which is not cured before Aetna serves or files
any notice of default, accelerates any payment due under the Aetna Loan, or
exercises any other remedy thereunder, or (III) the termination for any
reason of Property Manager as the Property Manager for the purposes of
Paragraph 2(ii) of the Manager's Letter Agreement, or the filing of any
petition by or against Property Manager under any provisions of the
Bankruptcy Code or any other law providing any moratorium on debt payments
or other exercise of creditor rights, in either case before the
satisfaction of the obligations with respect to the Supplemental Preferred
Return and the $5,000,000 Preference under the LLC Operating Agreement in
accordance with Paragraph 2(i) of the Manager's Letter Agreement, provided
that, if such Event of Default is determined by the Bank in its discretion
to be reasonably capable and reasonably probable of timely cure by
Borrower, then, so long as Borrower is continuously engaged in its diligent
efforts to cure such Event of Default (and so long as Aetna has not filed a
notice of default, accelerated any payment due under the Aetna Loan, or
exercised any other remedy under the Aetna Restructuring Documents), for up
to five (5) business days the Bank shall forbear from noticing any
foreclosure sale of any Collateral or accelerating the indebtedness owing
under the Note. However, the Bank shall have no obligation or duty to
consent to any Major Decision which exposes Borrower to any significant
risk of a capital call or other monetary obligation under the LLC Operating
Agreement for which Borrower has no reasonably certain committed source of
funding a timely payment of such obligation. For example, if the LLC
proposes a lease requiring tenant improvement allowances which could only
be funded with capital calls, approval of that lease is treated the same as
causing a capital call without the Bank's prior written consent;
(b) The LLC for any reason whatsoever is dissolved or,
absent the timely cure of any event of default by or involving Borrower or
Carlyle 14, will be dissolved; provided that, if such event of default is
determined by the Bank in its discretion to be reasonably capable and
reasonably probable of timely cure by Borrower under the applicable and
foreseeable circumstances, then so long as Borrower is continuously engaged
in using its diligent best efforts to cure before dissolution occurs,
Borrower shall have the grace period (if any) prescribed in the LLC
Operating Agreement to cure such event of default;
(c) Borrower fails to make any capital contribution as
and when required by any provision of the LLC Operating Agreement or
otherwise fails to pay or perform any other monetary obligation as or when
provided therein;
(d) Any "Event of Default" occurs under the LLC
Operating Agreement; provided that, if such Event of Default is determined
by the Bank in its discretion to be reasonably capable and reasonably
probable of being timely cured by Borrower under applicable and foreseeable
circumstances, then so long as Borrower is continuously engaged in using
its diligent best efforts to cure such Event of Default, Borrower shall
have the grace period (if any) prescribed in the LLC Operating Agreement to
cure such Event of Default;
(e) Any or all of Borrower's interest in the
Partnership or the LLC for any reason or cause is subject to loss (other
than as a result of general market conditions), impairment, dilution,
purchase by another partner or member, or the occurrence of a Major
Decision which is made without opposition by Borrower and either to which
the Bank has not in its sole discretion given its prior written consent (if
the Bank deems the same to threaten or impair any of its Collateral or
related interests) or on which the Bank has not declined in writing in its
sole discretion to either consent or disapprove; provided that, if the Bank
determines in its discretion that such event or effect is reasonably
capable and reasonably probable of timely cure to prevent the same under
applicable and foreseeable circumstances, then so long as Borrower is
continuously engaged in using its diligent efforts to cure or avoid such
event or effect, Borrower shall have the grace period (if any) prescribed
in the LLC Operating Agreement to cure or avoid such event of effect;
(f) Borrower shall breach any provision of Article 5 of
this Agreement, each of which breach shall constitute an immediate Event of
Default, or Borrower shall breach or fail to comply with any other
provision of any New Document besides those otherwise enumerated as Events
of Default in the Loan Agreement and such Event of Default is not cured
within five (5) business days after receipt of notice of such breach or
failure from Bank; provided that, if such Event of Default is determined by
the Bank in its discretion to be reasonably capable and reasonably probable
of being timely cured by Borrower under applicable and foreseeable
circumstances, then so long as Borrower is continuously engaged in using
its diligent efforts to cure such Event of Default (and so long as Aetna
has not filed a notice of default, accelerated the payment of the Aetna
loan, or exercised any other remedy under the Aetna Restructuring
Documents), Borrower shall have an additional twenty (20) business days to
cure such Event of Default; provided further, however, that if any Event of
Default occurs as a result of Borrower's failure to provide to the Bank any
reports or documents which are to be prepared by Maguire and which have not
yet been delivered to Borrower, then so long as Borrower is continuously
engaged in using its diligent efforts to cure such Event of Default, then
Borrower shall have a reasonable period of time (not to exceed fifteen (15)
business days) to cure such Event of Default; or
(g) Borrower shall (i) fail to timely pay to the Bank
its sixty-five percent (65%) share of any installment of the $300,000 in
aggregate annual payments payable in monthly installments to the Bank under
the Manager's Letter Agreement (or the Aetna Manager Fee Transfer Approval
or the LLC Operating Agreement), or (ii) fail to cure any breach of any
covenant or agreement of Property Manager or Maguire under the Manager's
Letter Agreement or Section 3.01(b) (iv) of the LLC Operating Agreement, no
later than thirty (30) days after the date the Bank gives written notice to
Property Manager or Maguire (with a copy to Borrower), or notice directly
to Borrower, of the failure of Property Manager or Maguire to pay such
installment payment, or to perform such covenant or agreement, within the
five (5) business day cure period following the date such installment
payment, or performance of such covenant or agreement, is due.
Notwithstanding any provision to the contrary contained herein
or in the Loan Agreement, the terms and provisions of Sections 4.3(a) and
(f) hereof shall replace and supersede the terms and provisions of Section
5.1.I of the Loan Agreement with respect to the occurrence of any default
under the Aetna Loan.
4.4 REMEDIES UPON DEFAULT. The Original Security Agreement
and the other Original Loan Documents are hereby amended such that any
provisions limiting the Bank's methods of selling or disposing of that
portion of the Collateral described in Section 2(b) of the Original
Security Agreement to those set forth in Section 3.03 of the Partnership
Agreement ARE DELETED. Specifically, and without limitation, the following
language is HEREBY DELETED from paragraph 9 of the Original Security
Agreement:
Notwithstanding anything to the contrary contained herein,
Secured Party shall sell or dispose of that portion of the Collateral
described in Section 2(b) of this Agreement only in accordance with Section
3.03 of the Partnership Agreement.
Instead, there shall be no limitations on the exercise of the Bank's rights
or remedies except those expressly imposed on the Bank by the Wells Fargo
Bank Addendum attached hereto as EXHIBIT G with respect to the LLC
Operating Agreement.
4.5 REPORTING REQUIREMENTS. The following reporting
requirements shall supplement the reporting requirements set forth in
Section 4.1 of the Original Loan Agreement (and any reference to reports to
be provided by (or obligations to be performed by) the Partnership or its
partners shall be deemed to refer to the LLC and its members after the
merger of the Partnership into the LLC):
(a) Before the Partnership and/or the LLC enters into
any new leases or other contracts for or with respect to any of the
Property to which Borrower (or its representative on the Management
Committee) has any right to consent or object, where the same involves any
Major Decision or any lease for more than 50,000 square feet of the
Property, Borrower shall provide to the Bank copies of such proposed leases
and contracts and any material current correspondence or other
documentation reasonably requested by the Bank (to the extent provided to
Borrower under the LLC Operating Agreement) regarding the terms thereof
with the prospective tenants (and the Bank must consent in writing thereto
before Borrower agrees to support, suffer or permit entering into a
prospective lease or contract); provided, however, that if the Bank fails
to approve or disapprove any such lease or Property contract within fifteen
(15) business days (or such longer period as may be granted to Borrower
under the LLC Operating Agreement or other agreement if and when Borrower
is limited to a specific period for approving or disapproving such lease)
after the time when the Bank has been provided all of the documents and
information which are required to be delivered to Borrower under the LLC
Operating Agreement with respect to such lease or Property contract, then
the failure by the Bank to comment within such fifteen (15) business days
(or such longer period as may be granted to Borrower under the LLC
Operating Agreement or other agreement if and when Borrower is limited to a
specific period for approving or disapproving such lease) shall be deemed
consent to Borrower's recommended position on the issue;
(b) By the 50th calendar day after the end of each
calendar quarter, Borrower shall deliver to the Bank a profit and loss
statement, and a balance sheet each of which shall contain year-to-date
figures, as well as the monthly or quarterly data for each of (i) the
Partnership and/or the LLC, and (ii) Borrower;
(c) By the 20th calendar day of each calendar month for
the previous month ending Borrower shall deliver to the Bank an operating
statement, rent roll, and profit and loss statement for the Property, each
of which shall contain year-to-date figures;
(d) Within 90 days after the end of each calendar year,
Borrower shall deliver to the Bank a financial statement with respect to
the Partnership and/or the LLC, Borrower, and the Property;
(e) Within 60 days after the filing thereof, Borrower
shall deliver to the Bank the applicable Federal Tax Return or other filing
form and all attachments thereto for the Partnership and/or the LLC, and
Borrower; and
(f) Within 30 days after the receipt or preparation by
Borrower thereof, Borrower shall deliver to the Bank any report, document
containing financial data, operating statement, or other documentation
prepared by or on behalf of the Partnership and/or the LLC, the general
partners of the Partnership and/or the members of the LLC, or any of the
Property or Management Contract which relate in any way to the operation or
profitability of the Partnership and/or the LLC or the Property.
In addition, at any reasonable time and from time to time the
Bank, as attorney-in-fact for Borrower, shall have access to all books and
records of the LLC which are available to Borrower under the LLC Operating
Agreement or otherwise, as well as reasonable access to all books and
records (including, without limitation, any and all leases) of Borrower
pertaining to the Property.
4.6 MANAGEMENT DISBURSEMENTS; ENFORCEMENT BY THE BANK. As
noted in Section 4.1(b) above, the $300,000 in aggregate annual Manager's
Letter Agreement payments which are payable in monthly installments to
Borrower and Carlyle 15 by the Property Manager on account of the
Management Disbursements shall be delivered directly to the Bank by the
payor thereof (and may be collected directly by the Bank at any time
pursuant to UCC 9318 and 9502 or otherwise whether before or after any
default or Event of Default) in accordance with this Agreement and any
other applicable documentation executed pursuant hereto, whether before or
after the occurrence of any Event of Default or default, including as
provided in the Manager's Letter Agreement, the Aetna Manager Fee Transfer
Approval and the LLC Operating Agreement. Bank shall have the right as
either or both a secured party or attorney-in-fact for Borrower to take any
and all action necessary under the LLC Operating Agreement, the Loan
Documents or applicable law to enforce collection of all or any portion of
such payments of the Manager's Payment under the Manager's Letter Agreement
including without limitation, by the Bank's execution and delivery of any
and all documents, consents, notices, acknowledgements, instruments and
other agreements, and the exercise of any and all remedies available to
Borrower under the LLC Operating Agreement, the Manager's Warranty, the
Manager's Letter Agreement, the Aetna Manager Fee Transfer Approval or any
Loan Documents. Without limiting the generality of the foregoing, the Bank
may (either as a secured party or as an attorney in fact for Borrower)
require the LLC to withhold any Manager's Payment from Property Manager and
instead to pay such amount to the Bank in accordance with the Manager's
Letter Agreement and to exercise any right available to Borrower under the
LLC Operating Agreement as a consequence of the nonpayment of the Manager's
Payment installment to the Bank, including the rights of Borrower pursuant
to Section 3.01(b)(iv) and 3.06 of the LLC Operating Agreement. To the
extent that all or any portion of the Manager's Payment is not timely paid
to the Bank, and the Bank directly collects (as secured party or attorney-
in-fact for Borrower) all or any portion of such unpaid amounts of the
defaulted installment payment from later Manager's Payments, then the Bank
shall remit to Borrower any amounts which Borrower has previously paid to
the Bank (from Borrower's sources other than the Collateral) on account of
such unpaid amounts (less any reasonable and customary expenses, including
reasonable attorneys' fees, and other amounts incurred by the Bank in
making such collection or enforcing or defending the Bank's rights and
interests under the Manager's Letter Agreement or the LLC Operating
Agreement), if an only if (i) no Event of Default exists (besides such
payment cured by Borrower); (ii) Borrower makes such payment voluntarily
within 30 days from the date when first due (which time is of the essence)
from Borrower's sources other than the Collateral; and (iii) Borrower
notifies the Bank in writing at the time of such payment of the Borrower's
source of such payment and Borrower's intention to recoup such amount from
future payments. For example, if there are insufficient LLC funds
available to make any monthly installment payment and Borrower pays the
Bank such amount from non-Collateral funds of Borrower, then the Borrower
may recoup that payment when LLC funds are later available for such late
payment. However, Borrower's right of recoupment hereunder is subordinate
to the Bank's rights to current payments (under the Manager's Letter
Agreement), so that if there are insufficient LLC funds to pay the Bank and
Borrower in a subsequent month, Borrower may only recoup its payment from
any excess remaining after the current installment is paid to the Bank.
5. REPRESENTATIONS AND WARRANTIES. Each representation and
warranty of Borrower set forth in Article III of the Loan Agreement is
hereby reaffirmed as though made as of the date of this Agreement, except
that such representations and warranties are modified and supplemented as
follows:
5.1 DUE ORGANIZATION OF LLC. The LLC upon formation shall be
(and, if already formed, currently is) duly organized and validly existing
under applicable law, qualified to do business and in good standing in each
jurisdiction where required, and has complied with all laws necessary to
conduct its business as presently conducted. The LLC Operating Agreement
is a valid and binding obligation of the parties thereto which is legally
enforceable in accordance with its express terms. No "Event of Default"
exists under the Partnership Agreement or LLC Operating Agreement, and no
event, condition or matter exists which would constitute any such "Event of
Default" after the giving of notice or the passage of time or both.
5.2 EFFECT OF SECURITY AGREEMENT. Borrower acknowledges,
agrees, represents, and warrants that the liens and security interests
granted by Borrower to the Bank pursuant to the Original Loan Documents
shall remain in full force and effect and that, when the Partnership is
merged into the LLC and the Bank obtains a security interest in Borrower's
economic and other membership interest in the LLC (which constitutes
proceeds of the interest in the Partnership), the Bank shall have an
uninterrupted, continuing security interest of first priority in said
interest in the LLC (and in all other collateral described in the Original
Security Agreement) as well as in the collateral described in the New
Security Agreement executed pursuant hereto. Said liens and security
interests in favor of the Bank securing the obligations described herein,
in the New Note and the other New Documents executed pursuant hereto is of
first priority, subject to no liens, claims, encumbrances, offsets or
defenses of any kind.
5.3 FINANCIAL REPORTS. Except as to documents prepared by
Maguire or other third parties and which are forwarded by Borrower without
warranty hereunder (except that Borrower represents that it does not
affirmatively disagree with any of such documents, except as disclosed in
writing to the Bank), the various financial reports delivered to the Bank
pursuant to Section 3 above are accurate and fairly present the financial
condition and results of operations of Borrower, the Partnership, the LLC,
and the Property as may be applicable for the periods covered thereby, all
in accordance with accounting principles and practices accepted in the real
estate industry, consistently applied. To the best of Borrower's knowledge
(with respect only to those documents prepared by Maguire or other third
parties), since the date of the various reports, statements, and
documentation indicated above, there has been no material adverse change in
such condition or operations.
5.4 LIENS ON PROPERTY. Borrower specifically reaffirms
Section 3.11 of the Loan Agreement, except that the representation and
warranty relating to the fact that the Property is subject to no liens
securing monetary obligations other than the "Aetna Loan" shall include the
Aetna Loan as modified in accordance with the Aetna Restructuring.
References to the Aetna Loan in Article III of the Loan Agreement shall be
deemed to refer to the Aetna Loan as so modified.
5.5 VALID, ETC., LOAN DOCUMENTS. Each of the Loan Documents
is and remains a valid and binding obligation of Borrower which is
enforceable in accordance with its respective express terms.
5.6 AETNA RESTRUCTURING. The Aetna Loan and Aetna
Restructuring Documents dated as of September 19, 1996, shall become
effective at the Closing Date in the form and substance of the documents
submitted to escrow on or about September 25, 1996, as attached to the
October 7, 1996, letter from Mark L. Bronson to G. Larry Engel.
6. MISCELLANEOUS.
6.1 AMENDMENTS AND WAIVERS. If the Bank and Borrower at any
time wish to enter into any supplement, modification or amendment to any
provision of this Agreement, any other New Document executed pursuant
hereto or in connection herewith, and/or any other Loan Document, any such
amendment, supplement or modification shall be in a writing duly executed
by the parties' authorized representatives, and no oral, implied or other
amendment, supplement or modification shall be of any force or effect
whatsoever. Similarly, if the Bank wishes at any time to waive any default
or Event of Default, to consent to any matter or variance, or otherwise to
confer any benefit or approval or accept any detriment, such waiver,
consent or other conduct shall only be binding or effective against the
Bank if and when the Bank shall duly execute and deliver to Borrower a
written instrument waiving any provision of this Agreement or any other
Loan Document, or consenting to any departure by Borrower therefrom or
conferring or accepting any such benefit, approval or detriment (subject to
Section 4.5(a) above). Any such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given and only after execution and delivery or such writing by the
Bank (subject to Section 4.5(a) above).
6.2 NOTICES. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (includ-
ing by overnight courier or telecopier) and mailed, sent or delivered to
the respective parties hereto at or to their respective addresses or telex
or telecopier numbers set forth below their names on the signature pages
hereof, or at or to such other address or telecopier number as shall be
designated by any party in a written notice to the other parties hereto.
All such notices and communications shall be effective (a) if delivered by
hand or overnight courier, upon delivery; (b) if sent by mail, upon the
earlier of the date of receipt or five (5) business days after deposit in
the mail, first class, postage prepaid; and (c) if sent by telecopy, upon
receipt.
6.3 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part
of the Bank to exercise, and no delay in exercising, any right, remedy,
power or privilege hereunder or under any other Loan Document shall operate
as a waiver thereof, nor shall any single or partial exercise of any such
right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege.
The rights and remedies under this Agreement and the other Loan Documents
are cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to the Bank.
6.4 COSTS AND EXPENSES; INDEMNIFICATION; OTHER CHARGES.
6.4.1 COSTS AND EXPENSES. Borrower agrees to pay on
demand (to the extent incurred after the Closing Date):
(a) all reasonable and customary out-of-pocket
costs and expenses of the Bank, and all reasonable fees of counsel (and all
disbursements by such counsel) to the Bank (including allocated reasonable
costs of internal counsel), in connection with the negotiation,
preparation, execution, and delivery of the Loan Documents, the LLC
Operating Agreement, the Aetna Loan Documents, and any amendments, modifi-
cations or waivers of the terms thereof or disputes among the parties
thereto, or in connection with the exercise of any of the Bank's rights
thereunder;
(b) all reasonable and customary title,
appraisal, survey, audit, consulting, search, recording, filing and similar
fees and expenses incurred by the Bank in connection with the Loan
Documents or the Collateral; and
(c) all reasonable and customary costs and ex-
penses of the Bank and reasonable fees and disbursements of counsel
(including allocated reasonable costs of internal counsel), whether before,
during or after the filing of any petition under any provision of the
Bankruptcy Code by or against Borrower or the LLC or Partnership in connec-
tion with (i) any default or Event of Default, (ii) the exercise,
enforcement or defense (or attempted exercise, enforcement or defense), and
preservation of any rights or interests under any or all of the Loan
Documents, (iii) any out-of-court workout or other refinancing or
restructuring or any bankruptcy case, (iv) any relief from stay proceedings
or other actions or defenses of any kind taken in any bankruptcy or
insolvency proceeding, and (v) the enforcement, defense or preservation of,
and realization upon, any of the Collateral, including any losses, costs
and expenses sustained by the Bank as a result of any failure by Borrower
to perform or observe its obligations contained in any of the Loan
Documents.
Notwithstanding any provision to the contrary contained
herein, Borrower shall have no obligation to pay to the Bank any
administrative fees, servicing fees or other similar discretionary fees
payable to the Bank or its affiliates or to any third parties to whom the
Bank has delegated any servicing or administrative functions (provided that
this sentence does not affect the Bank's right to reimbursement for
attorneys' fees or other third party fees permitted under the Loan
Documents).
6.4.2 INDEMNITY. Subject to Section 6.13, Borrower shall
indemnify the Bank from and against any loss, cost, damage, expense
(including reasonable attorneys' fees of inside and outside counsel) which
the Bank may suffer or incur as a consequence of Borrowers' noncompliance
with or breach of any provision of any Loan Document, the Partnership
Agreement, the LLC Operating Agreement or any of the Aetna Loan Documents,
including any monetary amount which the Bank would have to assume or pay in
order to succeed to Borrower's interest in the LLC or to cure Aetna Loan
Document Events of Default so as to preserve the value of the Collateral or
other rights or interests of the Bank under the Loan Documents, or to
perform any indemnity or other obligation to Aetna under the Aetna Manager
Fee Transfer Approval.
6.4.3 PROTECTIVE ADVANCES. The Bank may (but shall not
be obligated to) make any advance (or take, consistent with Section 6.4.1
above, any other action at the expense of Borrower) that the Bank may deem
necessary or appropriate in order to protect, defend, enforce or preserve
any of its rights or interests with respect to any Collateral or Loan
Documents, including by curing any monetary obligation of Borrower directly
or indirectly (through the Partnership or LLC) owing under the LLC
Operating Agreement or any of the Aetna Loan Documents. Any such amount
advanced by the Bank hereunder shall be added to the principal balance
owing under the New Note, shall bear interest at the rate specified therein
and shall be secured and supported by the same security and Loan Documents
as if included in the New Note indebtedness.
6.5 BENEFITS OF AGREEMENT. This Agreement and the other Loan
Documents are entered into for the sole protection and benefit of the par-
ties hereto and their respective permitted successors and assigns, and no
other person or entity shall be a direct or indirect beneficiary of, nor
shall have any direct or indirect cause of action or claim in connection
with, this Agreement or any other Loan Document.
6.6 ACKNOWLEDGMENTS. The Bank's activities in connection
with this Agreement, all other Loan Documents and Borrower are not "outside
the scope of the activities of a lender of money" within the meaning of
Section 3434 of the California Civil Code. The Bank shall not be liable or
responsible for any acts, omissions or decisions of Borrower. The Bank is
not, and shall not be construed as, a partner of, joint venturer with or
controlling person of Borrower.
6.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
6.8 BINDING EFFECT; ASSIGNMENT.
6.8.1 BINDING EFFECT. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by Borrower, the Bank and
their respective permitted successors and assigns.
6.8.2 ASSIGNMENT. Borrower shall not have the right to
assign its rights and obligations hereunder or under the other Loan
Documents or any interest herein or therein or any Collateral without the
prior written consent of the Bank. The Bank may sell, assign, transfer or
grant a participation interest in all or any portion of the Bank's rights
and obligations hereunder and under the other Loan Documents and in
connection therewith may disclose any information and documents as are
available to the Bank at any time.
6.8.3 REAFFIRMATION. Borrower hereby reaffirms the
validity and continued enforceability of each and every term of the
Original Loan Documents as set forth therein, except as expressly modified
in this Agreement and other New Documents.
6.9 WAIVER OF JURY TRIAL. BORROWER AND THE BANK HEREBY AGREE
TO WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN
ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF
THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND THE BANK HEREBY
AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE
VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS. A COPY OF THIS SECTION 6.9 MAY BE FILED WITH ANY
COURT AS WRITTEN EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND
CONSENT TO TRIAL BY COURT.
6.10 ENTIRE AGREEMENT. This Agreement and the other Loan
Documents reflect the entire agreement between Borrower and the Bank with
respect to the matters set forth herein and therein and supersede any prior
agreements, term sheets, letters of intent, commitments, discussions and
understandings, oral or written.
6.11 SEVERABILITY. If one or more provisions contained in
this Agreement or the other Loan Documents shall be determined by final
judgment of a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect in any jurisdiction or with respect to any
party, such invalidity, illegality or unenforceability in such jurisdiction
or with respect to such party shall, to the fullest extent permitted by
applicable law, not invalidate or render illegal or unenforceable any such
provision in any other jurisdiction or with respect to any other party, or
any other provisions of this Agreement or the other Loan Documents.
6.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counter-
parts, each of which when so executed shall be deemed to be an original,
and all of which taken together shall constitute but one and the same
agreement.
6.13 LIMITED LIABILITY. In the event that suit is brought
under this Agreement or any of the Loan Documents, any judgment obtained in
or as a result of such suit shall be enforceable solely against the
Collateral, and Borrower and its partners shall have no personal liability
therefor.
IN WITNESS WHEREOF, the parties to this Agreement have duly
executed this Agreement as of the date first above written.
CARLYLE REAL ESTATE LIMITED
PARTNERSHIP-XV, an Illinois
limited partnership
By: JMB Realty Corporation
By: _____________________________
Title: __________________________
Address:_________________________
_________________________________
Fax No.:_________________________
WELLS FARGO BANK, N.A.
By: _____________________________
Title: __________________________
Address:_________________________
_________________________________
Fax No.:_________________________
GLOSSARY OF TERMS
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Original Security Agreement. . . . . . . . . . . . . . . . . . . . . . . 1
Original Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . 1
Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Maguire. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Carlyle 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
IBM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
LLC Operating Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 1
Partnership Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Carlyle 14 Loan Agreement. . . . . . . . . . . . . . . . . . . . . . . . 1
Carlyle 14 Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Carlyle 14 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Carlyle 14 Security Agreement. . . . . . . . . . . . . . . . . . . . . . 2
Original Carlyle 14 Loan Documents . . . . . . . . . . . . . . . . . . . 2
New Carlyle 14 Documents . . . . . . . . . . . . . . . . . . . . . . . . 2
Carlyle 14 Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . 2
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Aetna. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Aetna Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Aetna Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Amended Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . 3
Aetna Restructuring Documents. . . . . . . . . . . . . . . . . . . . . . 3
Pro Rata Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Partnership Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
New Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
25% Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 5
Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
insider. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
New Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
New Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Release. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Wells Fargo Bank Addendum. . . . . . . . . . . . . . . . . . . . . . . . 6
Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Supplemental Security Agreement. . . . . . . . . . . . . . . . . . . . . 7
Security Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
UCC-1 Financing Statement. . . . . . . . . . . . . . . . . . . . . . . . 7
Extension Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Carlyle 14 Modification Agreement. . . . . . . . . . . . . . . . . . . . 9
Subject Disbursements. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management Disbursements . . . . . . . . . . . . . . . . . . . . . . . . 10
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Aetna Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
outside the scope of the activities of a lender of money . . . . . . . . 18
TABLE OF EXHIBITS
Exhibit
Description<PAGE>
A
Property
Description<PAGE>
B<PAGE>
New Note
C<PAGE>
Release
D<PAGE>
Notice of Assignment and Acknowledgement of Receipt
E<PAGE>
Security Agreement
F<PAGE>
UCC-1 Financing Statement
G<PAGE>
Wells Fargo Bank Addendum
ANNEX A
TO LOAN MODIFICATION AGREEMENT
(CARLYLE XV)
DEFINITION OF COLLATERAL
All of Borrower's obligations now or hereafter owing to the Bank
under the Loan Documents shall be secured by the following "Collateral":
A. (a) any and all partnership interests of Borrower in
Maguire Thomas Partners-South Tower, a California limited partnership (the
"Partnership") and membership interests of Borrower in Maguire Thomas
Partners-South Tower, LLC, a California limited liability company (the
"LLC"), now existing or hereafter acquired (collectively, the
"Partnership/Membership Interests"), and all distributions, capital and
profits, cash, warrants, rights, certificates, instruments, chattel paper,
accounts, contract rights, general intangibles, and other rights, property
or proceeds and products from time to time evidencing, arising from,
relating to, received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Partnership/Membership Interests; (b) all
additional rights to purchase interests in the Partnership or the LLC from
time to time acquired by Borrower in any manner (which interests shall be
deemed to be part of the Partnership/Membership Interests), the
certificates or other instruments representing such additional interests,
if any, and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of such additional interests or other rights; (c) any and all accounts,
contract rights, instruments, chattel paper, general intangibles and other
rights to payment arising from or under or as provided in the LLC Operating
Agreement or Partnership Agreement, in each case, as the same may be
amended, supplemented or modified from time to time; and (d) to the extent
not covered by clauses (a), (b) and (c) above, all Proceeds of any or all
of the foregoing. The term "Proceeds" shall have the meaning assigned that
term under the Uniform Commercial Code (the "Code") as in effect in the
State of California and the State of Illinois, as applicable, whether
consisting of general intangibles, accounts, contract rights, instruments,
chattel paper, or other rights to payment or kinds of property, and in any
event shall include, but not be limited to, any and all (A) proceeds of any
indemnity or guaranty payable to Borrower or Bank from time to time with
respect to any of the Collateral, and (B) any other amounts from time to
time paid or payable under or in connection with any of the Collateral.
B. all of Borrower's right, title and interest: (a) as a
partner in and to the Partnership and as a member in and to the LLC,
whether now owned or hereafter acquired, including, but not limited to, any
management and voting rights with respect to the Partnership/Membership
Interests, (b) all other property which, absent this Agreement would, now
or hereafter, be distributable or distributed, transferable or transferred,
payable or paid, or deliverable or delivered to Borrower as a partner in
the Partnership or a member in the LLC, as applicable, whether at any time
prior to, or in connection with, or after the dissolution of the
Partnership or the LLC, if any, including, without limitation,
distributions of cash and of property in kind by the Partnership or the LLC
(collectively, "Distributions"), and (c) all other rights, interests,
claims and other property of Borrower in any manner arising out of or
relating to the Partnership/Membership Interests, whether such rights,
interests, claims or other property are now owned or hereafter acquired by
Borrower, whatever their respective kind or character, whether they are
tangible or intangible property, and wheresoever they may exist or be
located, including, without limitation, all Proceeds, goods, documents,
instruments, claims, general tangibles, chattel paper, accounts and deposit
accounts (as such terms are defined in the Code), if any, now owned or
hereafter acquired by Borrower and in any manner arising out of or relating
to the Partnership/Membership Interests, and further including, without
limitation, all of the rights of Borrower as a holder of the
Partnership/Membership Interests to: (1) operate the business of the
Partnership or the LLC and deal with and receive the benefit from the
Partnership's or the LLC's assets; (2) receive proceeds of any indemnity,
warranty or guaranty under any agreement between Borrower and any other
party or entity associated with the Partnership or the LLC or otherwise
arising by operation of law for the account of Borrower, including any
rights of equitable or implied indemnity arising in connection with any
acts or omissions of Borrower in connection with the LLC or Partnership or
their assets; (3) receive fees, income, rents, proceeds of sale, issues,
earnings, deposits, receipts, royalties, revenues, recoveries,
compensation, permits, trade or business names, franchises, claims and
causes of action arising out of or relating to the Partnership or the LLC,
and all other rights, powers, property and remedies of Borrower with
respect to any of the foregoing; and (4) access the Partnership's or the
LLC's books and records and to the other information concerning or
affecting the Partnership or the LLC.
In the event that suit is brought under any of the Loan Documents,
any judgment obtained in or as a result of such suit shall be enforceable
solely against the Collateral, and Borrower and its partners shall have no
personal liability therefor.
ANNEX B
TO LOAN MODIFICATION AGREEMENT
(CARLYLE XV)
Legal Fees and Expenses
(from January 1, 1996
through the Closing Date) $55,257.95 (65% of
$85,012.23)
EXHIBIT 4-G
- -------------
(Carlyle-XV)
FILED ON PAPER IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THESE
AGREEMENTS ARE BEING FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP
EXEMPTION.
EXHIBIT 10-Q
- ------------
(Carlyle-XV)
OPERATING AGREEMENT
OF
MAGUIRE THOMAS PARTNERS - SOUTH TOWER, LLC
a California limited liability company
DATED
AS OF
SEPTEMBER 30, 1996
OPERATING AGREEMENT OF
MAGUIRE THOMAS PARTNERS - SOUTH TOWER, LLC
a California limited liability company
This Operating Agreement of MAGUIRE THOMAS PARTNERS - SOUTH TOWER,
LLC, a California limited liability company (the "AGREEMENT") is made and
entered into as of September 30, 1996 by and among MAGUIRE PARTNERS-BUNKER
HILL, LTD., a California limited partnership ("MAGUIRE PARTNERS"), CARLYLE
REAL ESTATE LIMITED PARTNERSHIP-XIV, an Illinois limited partnership
("CARLYLE 14"), and CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XV, an Illinois
limited partnership ("CARLYLE 15").
RECITALS
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A. Maguire Partners, Carlyle 14 and Carlyle 15 are partners in
Maguire/Thomas Partners-South Tower, a California limited partnership, (the
"PARTNERSHIP") pursuant to that certain Amended and Restated Agreement of
Limited Partnership, dated as of June 28, 1985, as amended by that certain
Amendment to Amended and Restated Agreement of Limited Partnership dated as
of August 1, 1985, as further amended by that certain Second Amendment to
Amended and Restated Agreement of Limited Partnership dated as of August 1,
1986 (the "PARTNERSHIP AGREEMENT").
B. International Business Machines Corporation ("IBM") was
previously a limited partner in the Partnership. Pursuant to that certain
Assignment and Assumption of Partnership Interest dated as of June 28,
1996, IBM assigned all of its interest in the Partnership to Maguire
Partners and Maguire Partners assumed all of IBM's interest and obligations
under the Partnership Agreement as of the date thereof. Carlyle 14 and
Carlyle 15 acknowledge and agree to such assignment by IBM to Maguire
Partners under the Partnership Agreement.
C. As a result of the foregoing, the Partnership is comprised of
Maguire Partners, with a 50.01% general and limited partnership interest
(including the 20% limited partnership interest formerly owned by IBM),
Carlyle 14 with a 17.4965% general partnership interest and Carlyle 15 with
a 32.4935% general partnership interest, each such interest being referred
to herein as such party's "PARTNERSHIP INTEREST".
D. Maguire Partners, Carlyle 14 and Carlyle 15 desire to (a)
form a limited liability company to be known as MAGUIRE THOMAS PARTNERS -
SOUTH TOWER, LLC (the "COMPANY") under the laws of the State of California
(b) merge the Partnership into the Company by a statutory merger under
California Corporations Code Section 17000 et seq. and pursuant to Code
Section 708(b)(2)(A) so that the Company will be considered the continuing
entity, and (c) set forth, in their entirety, the rights and obligations of
the parties with respect to the Company and its assets and liabilities.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises made herein, effective as of the date set forth above,
Carlyle 14, Carlyle 15 and Maguire Partners hereby form the Company as a
limited liability company under the Beverly-Killea Limited Liability
Company Act as set forth in Title 2.5 (commencing with Section 17500) of
the Corporations Code of the State of California (the "ACT") and this
Agreement shall be the Operating Agreement of the Company under the Act.
Carlyle 14, Carlyle 15 and Maguire Partners shall be the Initial Members
(as hereinafter defined) of the Company, with the rights, duties and
obligations set forth in this Agreement.
1. DEFINITIONS.
For purposes of this Agreement, the following terms which are used
herein shall have the meaning indicated, whether appearing in the plural or
singular number:
ACT - means the (California) Beverly-Killea Limited Liability Company
Act as set forth in Title 2.5 (commencing with Section 17000) of the
Corporations Code of the State of California (or any corresponding
provision or provisions of any succeeding law).
ADJUSTED CAPITAL ACCOUNT - means, with respect to any Member, such
Member's Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:
(i) increase such Capital Account by any amounts which such
Member is obligated to contribute to the Company (pursuant to the terms of
this Agreement or otherwise) or is deemed to be obligated to contribute to
the Company pursuant to Regulations Sections 1.704-2(g)(1) and 1.704-
2(i)(5); and
(ii) reduce such Capital Account by the amount of the items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
AETNA LOAN - means the first deed of trust loan made by Aetna Life
Insurance Company (as successor-in-interest to Aetna Casualty and Surety
Company) ("AETNA") to the Partnership, secured by the Property, on November
26, 1984 as amended by the Modification and Extension Agreement and related
documents between the Partnership and Aetna dated September 19, 1996
("MODIFICATION DOCUMENTS") whereby the Aetna Loan was modified and
extended.
APPROVED BY THE MANAGEMENT COMMITTEE, OR APPROVAL OF THE MANAGEMENT
COMMITTEE - means, except as otherwise provided below, the approval in
writing by Members of the Company holding at least seventy-five percent
(75%) of the aggregate Percentage Interests in the Company, acting through
their respective representatives on the Management Committee designated
pursuant to SECTION 3.01(a) hereof.
ARTICLES OF ORGANIZATION - means the articles of organization filed
with the California Secretary of State for the purpose of forming the
Company.
BUILDING - means the 44-story office tower constructed on the
Property as part of the Project at 355 South Grand Avenue, Los Angeles,
California.
CAPITAL ACCOUNT - means the capital account established for each
Member pursuant to SECTION 2.04 hereof.
CAPITAL SHORTFALL - means any event which necessitates additional
capital contributions (other than the capital contributions required under
SECTION 2.03 hereof) by the Members in order to complete, finance and
operate the Project, including but not by way of limitation, (i) failure of
performance by a contractor or subcontractor, (ii) damage to or destruction
of Improvements on the Property, (iii) shortfall in financing for the
Project, and (iv) operating losses incurred in connection with the Project.
CARLYLE - means, collectively, Carlyle 14 and Carlyle 15.
CARLYLE 14 - means Carlyle Real Estate Limited Partnership-XIV, an
Illinois limited partnership.
CARLYLE 14 PERCENTAGE INTEREST - means 17.4965%, subject to any
adjustments pursuant to this Agreement, provided, however, that the Carlyle
14 Percentage Interest shall be adjusted to 23.33% immediately upon
satisfaction of the First Level and Second Level distribution preferences
under SECTIONS 2.06(b)(i) and (ii) and/or SECTIONS 2.06(c)(i) and (ii), as
applicable.
CARLYLE 15 - means Carlyle Real Estate Limited Partnership-XV, an
Illinois limited partnership.
CARLYLE 15 PERCENTAGE INTEREST - means 32.4935%, subject to any
adjustments pursuant to this Agreement, provided, however, that the Carlyle
15 Percentage Interest shall be adjusted to 43.34% immediately upon
satisfaction of the First Level and Second Level distribution preferences
under SECTIONS 2.06(b)(i) and (ii) and/or SECTIONS 2.06(c)(i) and (ii), as
applicable.
CODE - means the Internal Revenue Code of 1986, as amended from time
to time. Reference to a particular Code provision shall refer as well to
any similar successor statute.
COMPANY - means Maguire Thomas Partners-South Tower, LLC, a
California limited liability company.
COMPANY INTEREST - means an ownership interest in the Company, which
includes the Percentage Interest, the right to vote or participate in the
management of the Company, and the right to information concerning the
business and affairs of the Company, as provided in this Agreement and
under the Act.
COMPANY MINIMUM GAIN - means the amount determined by computing with
respect to each nonrecourse liability of the Company, the amount of gain
(of whatever character), if any, that would be realized by the Company if
it disposed (in a taxable transaction) of the property subject to such
liability in full satisfaction thereof, and by then aggregating the amounts
so computed as set forth in Regulations Section 1.704-2(d).
CRA - means The Community Redevelopment Agency of The City of Los
Angeles, California.
DDA - means the Disposition and Development Agreement dated June 21,
1979 between CRA and Robert F. Maguire III.
DISPOSITION EVENT - means any sale, transfer, disposition or taking
(including, but not limited to, any taking under any eminent domain
proceeding) of the Property or the Improvements or any portion thereof or
interest therein, (2) any event, circumstance or condition relating to the
Company's interest in the Property or the Improvements and resulting in any
payment to the Company under any casualty insurance policy or title
insurance policy, and (3) any financing or refinancing of the Company's
interest in the Property or the Improvements or any portion thereof.
DISPOSITION PROCEEDS - means the aggregate Net Cash Flow
distributable hereunder to the Members as a result of a Disposition Event.
In the computation of such Disposition Proceeds there shall be deducted (i)
the payment of all costs and other expenses related thereto, (ii) the
payment for any capital expenditures or other expenses for which such
proceeds are used, (iii) the satisfaction of any indebtedness being
discharged and any other debts or liabilities of the Company including,
without limitation, the payment of any Participation Interest, Fixed Rate
Interest and/or Yield Maintenance Payment due to Aetna under the
Modification Documents (as such terms are defined in the Modification
Documents) and (iv) the setting aside of such reserves therefrom as are
Approved by the Management Committee.
DISPOSITION PROFIT AND DISPOSITION LOSS - means, respectively, the
net gain realized or net loss suffered by the Company (and each related
item of gain or loss) attributable to a Disposition Event.
IBM - means International Business Machines Corporation, a New York
corporation.
IBM LEASE - means that certain lease, dated October 1, 1982, as
amended heretofore or hereafter, between the Company and IBM relating to
space in the Building.
IMPROVEMENTS - means any physical construction on the Property,
including, without limitation, the Building, the attendant subterranean
parking garage and the Off-Site Parking Facility.
MAGUIRE PARTNERS - means Maguire Partners-Bunker Hill, Ltd., a
California limited partnership.
MAGUIRE PARTNERS PERCENTAGE INTEREST - means 50.01%, subject to any
adjustments pursuant to this Agreement, provided, however, that the Maguire
Partners Percentage Interest shall be adjusted to 33.33% immediately upon
satisfaction of the First Level and Second Level distribution preferences
under SECTIONS 2.06(b)(i) and (ii) and/or SECTIONS 2.06(c)(i) and (ii), as
applicable.
MAJOR DECISION - has the meaning set forth in SECTION 3.01(c).
MANAGEMENT COMMITTEE - means the Management Committee of the Company
contemplated by SECTION 3.01(a) hereof.
MEMBER - means a Person who:
(a) Has been admitted to the Company as a member in
accordance with the Articles of Organization or this Agreement, or an
assignee of a Company Interest, other than a right to share in Net Cash
Flow or Operating Profits or Operating Loss, who has become a Member
pursuant to Section 3.03.
(b) Has not resigned, withdrawn or been expelled as a
Member or, if other than an individual, been dissolved.
Reference to a "MEMBER" shall be to any one of the Members. Reference to
an "INITIAL MEMBER" shall be to any one of the Members listed in
SECTION 2.02.
MEMBER NONRECOURSE DEBT - has the meaning attributable to "partner
nonrecourse debt" as set forth in Regulations Section 1.704-2(b)(4).
MEMBER NONRECOURSE DEBT MINIMUM GAIN - means an amount, with respect
to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a nonrecourse
liability of the Company, determined in accordance with Regulations
Sections 1.704-2(i)(2) and (3).
MEMBER NONRECOURSE DEDUCTIONS - has the meaning attributable to
"partner nonrecourse deductions" as set forth in Regulations Section
1.704-2(i)(2). The amount of Member Nonrecourse Deductions with respect to
a Member Nonrecourse Debt for a fiscal year of the Company equals the
excess (if any) of the net increase (if any) in the amount of Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt
during that fiscal year over the aggregate amount of any distributions
during that fiscal year to the Member that bears (or is deemed to bear) the
economic loss for such Member Nonrecourse Debt to the extent such
distributions are from the proceeds of such Member Nonrecourse Debt and are
allocable to an increase in Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(2).
NET CASH FLOW - means that amount determined by deducting from the
gross cash receipts of any kind or description (including, without
limitation, the proceeds of any refinancing Approved by the Management
Committee, but excluding the proceeds of any capital contributions (except
to the extent utilized to provide reserves for contingencies)) of the
Company during a calendar month, the following:
(i) All costs of acquiring, improving, developing,
managing, leasing, operating, maintaining, replacing and preserving the
Project (including the Property and the Improvements) to the extent paid in
cash during such calendar month;
(ii) All operating or other expenses of the Company paid in
cash during such calendar month, or any amounts expended as a result of any
casualty losses to the extent that such losses are not reimbursed during
such month by any third party responsible therefor or through insurance
maintained by the Company, but not including any expenses paid in cash to
the extent that such expenses were reserved against and funded from such
reserves;
(iii) All cash payments made with respect to the discharge of
Company indebtedness during a calendar month, but not including any such
payments to the extent that the amounts thereof were reserved against and
funded from such reserves; and
(iv) All reasonable amounts of reserve cash as shall be
determined and Approved by the Management Committee to be necessary and
advisable for:
(a) repayment of Company indebtedness, coming due in
one or more calendar months next succeeding the month for which Net Cash
Flow is computed;
(b) the acquisition, improvement, development,
management, operation (including, but not limited to insurance and property
taxes and assessments), maintenance, replacement or preservation of the
Project (including the Property and Improvements); and
(c) increases in working capital and other
contingencies.
In computing Net Cash Flow, no deductions shall be made for depreciation or
amortization.
NET RECEIPTS - means all Net Cash Flow distributable hereunder to the
Members, from whatever source derived other than Disposition Proceeds.
OFF-SITE PARKING FACILITY - means the seven level parking garage
constructed on the Property as part of the Project at Second and Hill
Streets, Los Angeles, California.
OPERATING BUDGET - means the annual budget prepared by the Property
Manager as contemplated by SECTION 3.01(b)(iii) hereof.
OPERATING LOSS - means the net loss realized by the Company during a
fiscal year (after excluding any Disposition Profit and Disposition Loss),
including each and every item of income, gain, loss and deduction
comprising such net loss, whether includable in, or deductible from, the
Company's taxable income in accordance with Code Section 703(a).
OPERATING PROFIT - means the net profit realized by the Company
during the fiscal year (after excluding any Disposition Profit and
Disposition Loss), including each and every item of income, gain, loss and
deduction comprising such net profit, whether includable in, or deductible
from, the Company's taxable income in accordance with Section 703(a) of the
Code.
PERCENTAGE INTEREST - means the following: the Maguire Partners
Percentage Interest, the Carlyle 14 Percentage Interest and the Carlyle 15
Percentage Interest.
PERSON - means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government, or any agency or
political subdivision thereof.
PHASE I BUILDING - means the 54-story office building located at 333
South Grand Avenue, Los Angeles, California.
PHASE I PARTNERSHIP - means Maguire Partners-Crocker Properties Phase
I, a California limited partnership which owns and operates the Phase I
Project.
PHASE I PROJECT - means the Phase I Building and related improvements
constructed on Parcel N of the Bunker Hill Urban Renewal Project.
PROJECT - means the development and construction of the Improvements
on the Property and the operation of the Improvements following completion
as contemplated herein.
PROPERTY - means Parcels 0 and X-2(b) in the Bunker Hill Urban
Renewal project in Los Angeles, California, as more particularly described
in EXHIBIT A attached hereto, together with all Improvements from time to
time existing thereon, and all appurtenances thereof.
PROPERTY MANAGER - means the Property Manager appointed as
contemplated in SECTION 3.01(b) hereof.
REGULATIONS - means the federal income tax regulations promulgated by
the Treasury Department under the Code, as such regulations may be amended
from time to time. All references herein to a specific section of the
Regulations shall be deemed also to refer to any corresponding provisions
of succeeding Regulations.
SECRETARY OF STATE - shall mean the Secretary of State of the State
of California.
2. FORMATION OF COMPANY; CAPITAL, DISTRIBUTIONS AND ALLOCATIONS.
2.01 INTRODUCTORY MATTERS.
(a) The parties have formed the Company pursuant to the
provisions of the Act by filing the Articles of Organization with the
Secretary of State.
(b) The purpose of the Company shall be to own and operate
the Property and Improvements as investments and for income-producing
purposes, as the successor-in-interest by merger to the Partnership. The
Company shall have no other intended purpose nor engage in any other
business, except as set forth above, and shall be operated independently of
the Phase I Partnership, except to the extent that coordination between the
Phase I Project and the Project is determined by the mutual determination
of the respective Management Committees of the Company and the Phase I
Partnership to be mutually beneficial in connection with their operation.
(c) The term of the Company commenced upon the filing of the
Articles of Organization for the Company and shall end on December 31, 2035
unless the Company is terminated or dissolved sooner, in accordance with
the provisions of this Agreement.
(d) The Company shall maintain its principal place of
business at 355 South Grand Avenue, Suite 4500, Los Angeles, California
90071, or any other location mutually agreed upon by the Members.
(e) The name and address of the Company's agent for service
of process is Maguire Partners, 355 South Grand Avenue, Suite 4500, Los
Angeles, CA 90071.
2.02 MEMBERS AND THEIR INTERESTS.
(a) The Initial Members in the Company consist of Maguire
Partners, Carlyle 14 and Carlyle 15, each with the Percentage Interest in
income and capital distributions of the Company as is defined in ARTICLE I
hereof subject to the preferences set forth in SECTIONS 2.06 and 2.09.
(b) The parties hereby agree to merge the Partnership into
the Company. The Members shall cause the necessary filings and documents to
be prepared and filed to effect the merger of the Partnership into the
Company as quickly as possible including the execution of an Agreement of
Merger between the Partnership and the Company and a Certificate of Merger
(Form LLC-9) to be filed with the Secretary of State and, if necessary,
recorded in Los Angeles County Records. The Members intend that such
merger shall be accomplished pursuant to Section 708(b)(2)(A) so that the
Company is the continuing entity and shall comply with the Regulations and
rulings under Code Section 708. The Members acknowledge that they shall
hold all of their respective rights and obligations with respect to the
Project solely through the Company, from and after the effective date of
the merger of the Partnership into the Company, and that no Member has any
separate rights or claims against any other Member or any other partner in
the Partnership, or with respect to the Project, by or through the
Partnership.
(c) Maguire Partners holds an undivided twenty percent (20%)
interest in certain artworks described on EXHIBIT "B" attached hereto
("ARTWORK"), separate and apart from Maguire Partner's interest in said
Artwork through the Company. Carlyle holds no interest in such Artwork
directly or through the Company.
2.03 CAPITAL CONTRIBUTIONS.
(a) Each Member has the Capital Account set forth on EXHIBIT
"C" attached hereto, which Capital Accounts reflect the adjustment to such
Capital Accounts provided for in SECTION 2.04(a) through the date of the
Supplemental Contributions required by SECTION 2.03(b). Such Capital
Accounts have been revalued in accordance with Regulation Section 1.704-
1(b)(2)(4)(f).
(b) On the date hereof, each of Maguire Partners and Carlyle
shall contribute $1,000,000 in cash to the capital of the Company
("SUPPLEMENTAL CONTRIBUTIONS") for a total of $2,000,000 of capital. The
Supplemental Contributions shall be paid by the Company to Aetna pursuant
to the Modification Documents.
2.04 CAPITAL ACCOUNTS.
(a) A separate non-interest bearing Capital Account shall be
maintained for each Member, (A) to which there shall be credited (1) all
cash contributions of such Member to the Company, (2) the fair market
value, at the date of contribution, of property contributed by such Member
to the Company (net of liabilities assumed by the Company and liabilities
to which such contributed property is subject), which amount credited may
be less than $0, (3) such Member's share of Operating Profit, (4) such
Member's share of Disposition Profit (including, but not limited to,
Disposition Profit described in SECTION 3.06(g) hereof), (5) if an election
under Section 754 of the Code shall apply to a distribution of property by
the Company to a Member, (a) the amount of gain, if any, recognized by such
Member upon such distribution in accordance with Section 731(a)(1) of the
Code, and (b) in the case of a distribution of Company property other than
money under Section 732(a)(2) of the Code, the excess, if any, of the
Company's adjusted basis of such distributed property over the basis of
such distributed property to the distributee Member, and (6) 50% of any
recaptured investment tax credit suffered by the Member if no election
under Section 48(q)(4) of the Code was made with respect to the investment
tax credit subject to recapture; and (B) to which there shall be debited
(1) all cash distributions to such Member, (2) the fair market value of
property distributed to such Member (net of liabilities assumed by such
Member and liabilities to which such distributed property is subject),
which amount debited may be less than $0, (3) such Member's share of
Operating Loss, (4) such Member's share of Disposition Loss (including, but
not limited to, Disposition Loss described in SECTION 3.06(g) hereof), and
(5) 50% of any investment tax credit allocated to such Member unless an
election under Section 48(q)(4) of the Code was made with respect to such
investment tax credit. Upon the sale or exchange of a Company Interest,
(i) if such sale or exchange causes a termination of the Company within the
meaning of Section 708(b)(1)(B) of the Code, the income tax consequences of
the deemed distribution of Company property and the deemed immediate
contribution of Company property to a new partnership or limited liability
company (which for all other purposes continues to be the Company) shall be
governed by the relevant provision of Subchapter K of Chapter I of the Code
and the regulations promulgated thereunder (including Section 704(c) of the
Code) and the Capital Accounts of the Members shall be redetermined in
accordance with this SECTION 2.04(a); (ii) if such sale or exchange does
not cause a termination of the Company within the meaning of Section
708(b)(1)(B) of the Code and if an election by the Company under Section
754 of the Code shall apply to such sale or exchange, the Capital Account
of the selling or exchanging Member (or such portion which is attributable
to the interest sold or exchanged) will be carried over to the transferee
Member and there shall be made to the Capital Account of the Member who
receives the special basis adjustment under Section 743 of the Code a
corresponding adjustment to take into account such Code Section 743 basis
adjustment; or (iii) in the case of a sale or exchange not described in
clause (i) or (ii) of this sentence, the Capital Account of the selling or
exchanging Member (or such portion which is attributable to the interest
sold or exchanged) will be carried over to the transferee Member.
(b) Funds of the Company which are held in reserve and not
available for distribution shall to the extent practicable be invested in
bank certificates of deposit at market rates. Interest earned on funds of
the Company so invested shall inure solely to the benefit of the Company,
and no interest shall be paid to any Member upon any contributions or
advances to the capital of the Company (except as expressly provided
herein), nor upon any undistributed or reinvested income or profits of the
Company.
2.05 ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) Additional capital contributions shall be made by the
Members as described below in order to satisfy any Capital Shortfall
declared by the Management Committee as a Major Decision under SECTION
3.01(c). Such capital contributions will not be made until other existing
funds of the Company have been utilized, and the Members shall use their
best efforts to cause the Company to borrow from third parties any funds
required for satisfaction of such Capital Shortfall before any demand is
made on the Members for capital contributions for the same. No Member
shall have any obligation to make a capital contribution to the Company
except as expressly required by the provisions of this Agreement.
(b) If any additional capital contributions are required to
satisfy any Capital Shortfall declared by the Management Committee as a
Major Decision under SECTION 3.01(c) (it being contemplated that the
Project Reserve permitted by the Aetna Modification Documents and the
Additional Loan Advances which Aetna has agreed to fund to the Partnership
under the Modification Documents will be used first to fund Company
requirements as described in SECTION 2.07(a) hereof before the Members
shall be obligated to make a contribution with respect to the same), then
the same shall be contributed by the Members in proportion to their
respective Percentage Interests at the time of such Capital Shortfall.
(c) In the event any Member shall fail to make any required
capital contribution required by SECTION 2.05(b) above within ten days (10)
after written demand for such payment by any other Member, (i) unless the
Members other than the non-contributing Member elect, either pursuant to
clause (ii) below or pursuant to SECTION 2.05(d) below, to make the entire
contribution required to be made by the non-contributing Member, each
Member that has made the additional capital contribution required to be
made by it pursuant to SECTION 2.05(b) above may withdraw such capital
contribution from the Company and may retain such amount until the non-
contributing Member shall have made the additional capital contribution
required to be made by it pursuant to SECTION 2.05(b) above, or (ii) the
capital contribution required to be made by the non-contributing Member may
be made by the other Members, in proportion to their respective Percentage
Interests or as they may otherwise agree, in which event such unpaid
capital contribution shall constitute a debt owed by the non-contributing
Member to the contributing Members, which shall bear interest at the prime
rate from time to time announced by Wells Fargo Bank, N.A., plus 5% per
annum (but not to exceed the maximum rate permitted by law), until paid and
shall be payable (with interest as aforesaid) 120 days after demand by the
contributing Members. In addition, and not in limitation of, the other
rights and remedies of the contributing Members, any distributions
otherwise to be made by the Company to a non-contributing Member shall
instead be made to the contributing Members, to be applied against such
debt, and until such amounts, including accrued interest, are paid in full,
no further distributions shall be made to any non-contributing Member by
the Company and such non-contributing Member shall cease to have any vote
on the Management Committee. Such debt, with interest as aforesaid, shall
be with recourse as to the non-contributing Member, and shall be secured by
a security agreement being executed contemporaneously herewith by such
Member encumbering such Member's Company Interest. Any capital
contribution so contributed by one Member on behalf of another Member
shall, for purposes of SECTION 2.05(a) above, be deemed made by the Member
on behalf of which such contribution was made.
(d) In the event any Member shall fail to make any capital
contribution required by SECTION 2.05(b) above and the other Members do not
elect to make such capital contribution in its entirety pursuant to SECTION
2.05(c) above within 45 days after written demand for payment of the
capital contribution given to the defaulting Member by any other Member
(which may be the same written demand as that given under SECTION 2.05(c)
above), then (unless the interest of the non-contributing Member in the
Company is acquired pursuant to SECTION 3.06(c) hereof as a result thereof)
the remaining Members may make such additional capital contributions in
cash in proportion to their respective Percentage Interests, or as they may
otherwise agree, in which event the respective Percentage Interests of the
Members shall be:
(i) in the case of a Member making such additional
capital contributions pursuant hereto, the Percentage Interest of such
contributing Member shall be increased by a percentage (herein called the
"PERCENTAGE ADJUSTMENT") determined by (x) dividing the amount of the
required capital contribution made by such contributing Member by the
"Estimated Value" of the defaulting Member's Interest, and (y) multiplying
the result by such defaulting Member's Percentage Interest before such
adjustment. For this purpose, "Estimated Value" shall be equal to 80% of
the total proceeds such defaulting Member would receive upon a liquidation
of the Company at its "Net Fair Market Value" and a distribution to the
Members in accordance with SECTIONS 3.06(d) and 2.06(c) hereof. Except as
otherwise provided in this Agreement, such "Net Fair Market Value" of the
Company shall be determined in accordance with SECTION 3.03(e) hereof;
(ii) in the case of a defaulting Member, its Percentage
Interest shall be decreased by the total Percentage Adjustment increases
pursuant to (i) above.
(e) The Percentage Adjustments shall be adjusted to the
nearest one hundredth of 1%. Adjustment shall be made in the respective
Percentage Interests on each occasion when an additional aggregate capital
contribution of at least $500,000 is made pursuant to SECTION 2.05(b),
taking into consideration for this purpose on a cumulative basis any such
capital contributions not previously included in making any such
adjustment. Nothing herein shall obligate a Member to make any additional
capital contribution required by SECTION 2.05(b) in the event one or more
of the Members fails to make such contributions hereunder.
(f) To illustrate the operation of this SECTION 2.05, assume,
for purposes of this example only, that the Percentage Interests of Carlyle
14, Carlyle 15 and Maguire Partners are 17.495%, 32.495% and 50.01%,
respectively, at the time an additional capital contribution of $10,000,000
is required pursuant to SECTION 2.05(b).
(i) If all of the Members contribute the required
capital pro rata ($1,749,500 by Carlyle 14, $3,249,500 by Carlyle 15 and
$5,001,000 by Maguire Partners) there would be no adjustment in the
respective Percentage Interests.
(ii) If Carlyle 14 and Carlyle 15 did not make their
required capital contributions and Maguire Partners made such contributions
(assuming that no loans were made to Carlyle 14 and Carlyle 15 pursuant to
SECTION 2.05(c) above) then, assuming that the Net Fair Market Value of the
Company has been appraised at an amount that would result in a total
distribution of $120 million to Carlyle 14 and Carlyle 15 upon liquidation
of the Company, the Percentage Interest of Maguire Partners would be
increased by 2.61%.
MAGUIRE PARTNERS
1,749,500 x 17.495% = 0.91%
-----------------
80% x $41,996,399
3,249,500 x 32.495% = 1.69%
-----------------
80% x $78,003,601
The Percentage Interest of Carlyle 14 would be decreased by 0.91% to
16.585%, and the Percentage Interest of Carlyle 15 would be decreased by
1.69% to 30.805%.
2.06 DISTRIBUTIONS.
(a) Not later than fifteen (15) days after the end of each
calendar month, the Property Manager shall make a distribution to the
Members of the entire Net Cash Flow of the Company during such preceding
month.
(b) Net Receipts shall be distributed to the Members as
follows:
(i) FIRST LEVEL. The first available Net Receipts
shall be distributed equally (50/50) to Maguire Partners and to Carlyle
until each of them has received a cumulative amount of Net Receipts under
this SECTION 2.06(b)(i) and Disposition Proceeds under SECTION 2.06(c)(i)
to provide each Member with a 25% internal rate of return, calculated on an
annual basis, on the Supplemental Contribution made by such Member from the
date of the making of the Supplemental Contribution through the date such
return is calculated with the first distributions being treated as return
on capital. The foregoing amount is referred to herein as the
"SUPPLEMENTAL CONTRIBUTION PREFERRED RETURN". For purposes hereof, the
internal rate of return on the Supplemental Contributions shall be
calculated by the Company's accountants, which calculations shall be final
and conclusive, if made in good faith and without manifest arithmetic
error.
(ii) SECOND LEVEL. After satisfaction of the
Supplemental Contribution Preferred Return to Maguire Partners and Carlyle
under SECTION 2.06(b)(i), the next available Net Receipts, up to a
cumulative amount of $5,000,000 of Net Receipts under this SECTION
2.06(b)(ii) and Disposition Proceeds under SECTION 2.06(c)(ii), shall be
distributed pari passu 80% to Carlyle and 20% to Maguire Partners. The
allocation of Net Receipts under this SECTION 2.06(b)(ii) is referred to
herein as the "$5,000,000 PREFERENCE".
(iii) THIRD LEVEL. The balance of the Net Receipts
remaining, after the distributions under the First and Second Levels above,
shall be distributed to the Members in proportion to their Percentage
Interests.
All Net Receipts distributable to Carlyle 14 and
Carlyle 15 pursuant to this SECTION 2.06(b) shall be distributed in the
ratio of their Percentage Interests.
(c) The Disposition Proceeds shall be distributed to the
Members as follows:
(i) FIRST LEVEL. In the event distribution of Net
Receipts previously made to the Members pursuant to SECTION 2.06(b)(i)
hereof, plus the amount of the prior distributions of Disposition Proceeds
pursuant to this First Level, shall be less than the Supplemental
Contribution Preferred Return as of the date the current distribution of
such Disposition Proceeds shall be made, then there shall first be
distributed to Maguire Partners, on the one hand, and Carlyle, on the other
hand, on an equal (50/50) basis, out of such Disposition Proceeds an amount
equal to such deficiency.
(ii) SECOND LEVEL. After distribution of Disposition
Proceeds as required by SECTION 2.06(c)(i), in the event the amount of
distributions previously made to the Members pursuant to SECTION
2.06(b)(ii) hereof, plus the amount of distributions of Disposition
Proceeds previously made pursuant to this Second Level, is, in the
aggregate, less than the $5,000,000 Preference as of the date of the
current distribution of such Disposition Proceeds being made, then there
shall next be distributed an amount equal to such deficiency, on a pari
passu basis, 80% to Carlyle and 20% to Maguire Partners out of such
Disposition Proceeds.
(iii) THIRD LEVEL. The balance of the Disposition
Proceeds remaining after the distributions under the First and Second
Levels above shall be distributed to the Members in accordance with their
respective Percentage Interests.
The cash portion of the Members' share of Disposition Proceeds,
together with all installments and payments of cash of or against any
deferred portion of such Disposition Proceeds, shall be distributed in
accordance with the levels provided above, with each person or entity
entitled to payment under a level receiving the entire amount of such cash
until the sum payable under such level shall have been discharged in cash.
All Disposition Proceeds distributable to Carlyle 14 and Carlyle 15
pursuant to this SECTION 2.06(c) shall be distributed in the ratio of their
Percentage Interests.
2.07 RESERVES.
(a) During the term of the Aetna Loan, and until the Aetna
Loan is refinanced with a replacement loan that permits a greater reserve
amount, the Company shall maintain a $3,000,000 Project Reserve for capital
improvements and operating costs and a $250,000 working capital reserve in
accordance with, and to the extent permitted by, the Modification
Documents.
(i) At such time as the Company is no longer subject to
the Modification Documents, the Company shall establish capital
improvements and operating reserves as are determined from time to time
with the Approval of the Management Committee.
(b) The capital improvements and operating reserves
established from time to time by the Company shall be used (A) to fund
tenant improvements and leasing commissions with respect to space in the
Building, (B) to pay operating deficits (including, but not limited to, any
of the same resulting from the obligation to pay debt service) for any
period after the date of this Agreement, (C) to fund any required capital
improvements, and (D) to fund any obligations of the Company under leases
of space assumed by the Company from persons who have become or may
hereafter become tenants in the Building.
2.08 RESERVED.
2.09 ALLOCATIONS AMONG MEMBERS.
(a) All Operating Profit, Operating Loss, Disposition
Profits, Disposition Loss and tax credits shall be allocated to the Members
as provided below in this SECTION 2.09.
(b) The Operating Profit and Disposition Profit of the
Company shall be allocated among the Members in the following order of
priority:
(i) First, to the Members in proportion to, and in a
cumulative amount equal to, the cumulative amount of Operating Loss and
Disposition Loss previously allocated to the Members pursuant to SECTIONS
2.09(c)(ii), (iii) and (iv);
(ii) Second, to the Members in proportion to, and in a
cumulative amount up to, the cumulative amount of Net Receipts and
Disposition Proceeds distributed to the Members or to be distributed to the
Members under SECTIONS 2.06(b)(i) and (ii) and 2.06(c)(i) and (ii),
excluding any distribution of Net Receipts and Disposition Proceeds which
represents a return of the capital contributions of such Members
(including, for example, the return of the Supplemental Contributions as
part of the Supplemental Contribution Preferred Return); and
(iii) Third, the balance of the Operating Profit and
Disposition Profit in any fiscal year shall be allocated among the Members
in proportion to their Percentage Interests.
(c) The Operating Loss and Disposition Loss of the Company
shall be allocated among the Members in the following order of priority:
(i) First, to the Members in proportion to, and in a
cumulative amount equal to, the cumulative amount of Operating Profit and
Disposition Profit previously allocated to the Members pursuant to SECTION
2.09(b)(iii) until the Adjusted Capital Account of each of the Members is
reduced to the sum of (A) its share of the undistributed Supplemental
Contribution Preferred Return and (B) its share of the undistributed
$5,000,000 Preference;
(ii) Second, to the Members in proportion to the amounts
required to be allocated pursuant to this SECTION 2.09(c)(ii), until the
Adjusted Capital Account of each of the Members is reduced to its share of
the undistributed Supplemental Contribution Preferred Return;
(iii) Third, to the Members in proportion to the amounts
required to be allocated pursuant to this SECTION 2.09(c)(iii), until the
Adjusted Capital Account of each of the Members is reduced to zero; and
(iv) Fourth, the balance of the Operating Loss and
Disposition Loss in any fiscal year shall be allocated among the Members in
proportion to their Percentage Interests.
(v) Notwithstanding anything to the contrary in this
SECTION 2.09(c),
(A) Interest income recognized on any deferred
purchase price obligation received in connection with a Disposition Event
shall not be considered a part of Disposition Profit or Disposition Loss,
as the case may be, and shall be allocated to the Member receiving the
interest payment to which such income is attributable.
(B) To the extent permitted by the applicable
Code provisions and Regulations, all Disposition Profit treated as ordinary
income because it is attributable to the recapture of depreciation or cost
recovery deductions shall be allocated among the Members in the same ratio
as prior allocations to such Members of the depreciation or cost recovery
deductions subject to recapture. The preceding sentence is intended merely
to characterize the gain allocable to the Members, and shall not operate to
increase or decrease the amount of Disposition Profit otherwise allocable
to the Members under SECTION 2.09(c)(ii).
(vi) For purposes of making the allocations provided for
in this SECTION 2.09, the Capital Account of each Member shall be
determined as of the end of the fiscal year in which the Disposition Event
occurred, after (x) crediting to such account all capital contributions
made by the Members within 15 days after the close of the fiscal year, (y)
debiting all distributions (whether of Net Receipts, Disposition Proceeds
or liquidation proceeds) made or to be made to such Member, and (z) after
crediting or debiting, as the case may be, such Member's share of the
Operating Profit or Operating Loss for such fiscal year.
(d) TAX CREDITS
The Company's basis in any property qualifying for the
investment tax credit shall be allocated among the Members in accordance
with the manner in which they share Operating Profit at the time the
property is first placed in service.
(e) SPECIAL ALLOCATIONS
Notwithstanding anything to the contrary in SUBSECTIONS
(b) through (d) of this SECTION 2.09:
(i) QUALIFIED INCOME OFFSET. If any Member
unexpectedly receives any adjustments, allocation or distributions
described in clauses (4), (5) or (6) of Regulations Section
1.704-1(b)(2)(ii)(d), items of Company income shall be specially allocated
to such Member in an amount and manner sufficient to eliminate the deficit
in such Member's Adjusted Capital Account created by such adjustments,
allocations or distributions as quickly as possible. This SECTION
2.09(e)(i) is intended to constitute a "qualified income offset" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(d)(3);
(ii) MINIMUM GAIN CHARGEBACK. If there is a net
decrease in Company Minimum Gain during a fiscal year, each Member will be
allocated, before any other allocation under this SECTION 2.09, items of
income and gain for such fiscal year (and if necessary, subsequent years)
in proportion to and to the extent of an amount equal to such Member's
share of the net decrease in Company Minimum Gain determined in accordance
with Regulations Section 1.704-2(g)(2). This SECTION 2.09(e)(ii) is
intended to comply with, and shall be interpreted consistently with, the
"minimum gain chargeback" provisions of Regulations Section 1.704-2(f);
(iii) MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK.
Notwithstanding any other provision of this SECTION 2.09, but except
SECTION 2.09(e)(ii), if there is a net decrease in Member Nonrecourse Debt
Minimum Gain attributable to a Member Nonrecourse Debt during any fiscal
year of the Company, each Member who has a share of the Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined
in accordance with Regulations Section 1.704-2(i)(5), shall be specially
allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal such Member's share of the
net decrease in Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(i)(4). This
SECTION 2.09(e)(iii) is intended to comply with the minimum gain chargeback
requirement of that Section of the Regulations and shall be interpreted
consistently therewith;
(iv) MEMBER NONRECOURSE DEDUCTIONS. Any Member
Nonrecourse Deductions for any fiscal year or other period shall be
specially allocated to the Member who bears (or is deemed to bear) the
economic risk of loss with respect to the Member Nonrecourse Debt to which
such Member Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i)(2).
(v) NON-RECOURSE DEDUCTIONS. Any "Non-Recourse
Deductions" as defined in Regulations Section 1.704-2(c) for any fiscal
year or other period shall be specially allocated as items of loss in the
manner provided in Regulations Section 1.704-2(j)(1)(ii).
(vi) SPECIAL ALLOCATIONS. Any special allocations of
Operating Profits and Disposition Profits pursuant to SECTIONS 2.09(e)(ii),
(iii) and (iv) shall be taken into account in computing subsequent
allocations of Operating Profits and Disposition Profits pursuant to
SECTION 2.09(b) and (c), so that the net amount of any items so allocated
and the gain, loss and any other item allocated to each Member pursuant to
this SECTION 2.09 shall, to the extent possible, be equal to the net amount
that would have been allocated to each such Member pursuant to the
provisions of this SECTION 2.09 if such special allocations had not
occurred;
(vii) FEES TO MEMBERS OR AFFILIATES. In the event that
any fees, interest, or other amounts paid to any Member or any affiliate
thereof pursuant to this Agreement or any other agreement between the
Company and any Member or affiliate thereof providing for the payment of
such amount, and deducted by the Company in reliance on Section 707(a)
and/or 707(c) of the Code, are disallowed as deductions to the Company on
its federal income tax return and are treated as Company distributions,
then:
(a) the Operating Profits or Operating Loss, as
the case may be, for the fiscal year in which such fees, interest, or other
amounts were paid shall be increased or decreased, as the case may be, by
the amount of such fees, interest, or other amounts that are treated as
Company distributions; and
(b) there shall be allocated to the Member to
which (or to whose Affiliate) such fees, interest, or other amounts were
paid, prior to the allocations pursuant to SECTION 2.09(b), an amount of
gross income for the fiscal year equal to the amount of such fees,
interest, or other amounts that are treated as Company distributions.
(viii) 704(C) ALLOCATION. Any item of income, gain,
loss, and deduction with respect to any property (other than cash) that has
been contributed by a Member to the capital of the Company and which is
required or permitted to be allocated to such Member for income tax
purposes under Section 704(c) of the Code so as to take into account the
variation between the tax basis of such property and its fair market value
at the time of its contribution shall be allocated to such Member solely
for income tax purposes in the manner so required or permitted. The
accounting for SECTION 704(c) for each Member shall continue in the same
manner as for the partners in the Partnership.
(f) ALLOCATION UPON CHANGE IN INTERESTS.
The Company shall treat all transfers and acquisitions of any
interest in the profits or losses of the Company that occur during the
first 15 days of a month as occurring on the first day of the month, and
shall treat all such transfers and acquisitions that occur after the 15th
day of the month as occurring on the 16th day of the month, except that a
daily allocation shall be made in the case of the acquisition or
disposition of a Member's entire interest in the Company. For purposes of
this subsection (f), the Company shall utilize the interim closing of the
books method.
(g) ALLOCATIONS BETWEEN CARLYLE 14 AND CARLYLE 15.
The Operating Profit and Operating Loss of the Company (and
items of income and deduction entering into the calculation of Operating
Profit or Operating Loss) which is allocated to Carlyle 14 and Carlyle 15
as aforesaid shall be allocated between Carlyle 14 and Carlyle 15, on a
monthly basis, in such a manner that the cumulative allocations to Carlyle
14 and Carlyle 15 will be allocated 65% to Carlyle 15 and 35% to Carlyle
14.
(h) NON-RECOURSE LIABILITIES.
The non-recourse liabilities of the Partnership, as defined in
Regulations Section 1.752-1(a)(2) shall be allocated among the Members in
accordance with Regulations Section 1.752-3(1)(1), (2) and (3).
2.10 RESERVED.
2.11 SPECIAL ASSETS.
(a) Neither Carlyle 14 nor Carlyle 15 will have any interest
in any of the Artwork described on EXHIBIT "B" hereto, any benefits
therefrom to accrue to Maguire Partners; provided that if any such artwork
shall hereafter be removed from its present location, Maguire Partners
shall promptly replace any Artwork it causes or permits to be removed with
other artwork comparable in size and appearance to that so removed, in
compliance with any governmental requirements presently in effect and with
all requirements in the Permitted Exceptions, Tenant Leases, Loan Documents
and Continuing Contracts (as such terms are defined in that certain
Agreement Re: Purchase and Sale of Partnership Interests among Maguire
Partners, Carlyle and Crocker Properties, Inc. dated June 28, 1985)
relating to artworks in or around the Building, and shall promptly restore
and finish the Property to first-class condition after any such removal.
(b) Maguire Partners shall have the right, on behalf of the
Company, to covenant to the City of Los Angeles any and all "Excess Parking
Capacity" (as hereinafter defined) in the Off-Site Parking Facility,
pursuant to Section 12.26E5 of the Los Angeles Municipal Code, or any
successor provision, for the benefit of any third party for the maintenance
of off-street parking spaces for the construction, operation or other
benefit of any other development projects or structures in the City of Los
Angeles and to receive and own any consideration paid by third parties for
such Excess Parking Capacity (all gain and income recognized by the Company
for income tax purposes due to such consideration being allocated to
Maguire Partners); provided, however, that no person shall be entitled to
actually occupy parking spaces within the Off-Site Parking Facility without
both obtaining the consent of the Company and paying to the Company the
prevailing market rate for comparable parking rights in downtown Los
Angeles, to which Carlyle 14 and Carlyle 15 will be entitled in accordance
with their Company interests. As used herein, "Excess Parking Capacity"
means that number of code compliance automobile parking spaces in the Off-
Site Parking Facility equal to the excess, if any, of (a) the total number
of code compliance automobile parking spaces in the Off-Site Parking
Facility, over (b) the aggregate number of automobile parking spaces
covenanted to the City of Los Angeles or otherwise restricted (including
restrictions which are to become effective at some future date) so as to be
unavailable for covenanting to the City of Los Angeles for the benefit of
third parties.
2.12 AETNA LOCKBOX. Notwithstanding anything to the contrary in
this Agreement, all receipts and funds of the Company shall be subject to
the terms, conditions and procedures of that certain Lockbox Agreement
dated as of December 1, 1994, by and among the Partnership, Aetna and CB
Commercial Real Estate Group, Inc. and of the Modification Documents so
long as such agreements remain in force and effect.
3. MANAGEMENT AND OPERATION.
3.01 MANAGEMENT OF THE COMPANY.
(a) MANAGEMENT COMMITTEE.
(i) The overall management and control of the business
and affairs of the Company shall be vested in a Management Committee,
appointed as hereinafter provided in this SECTION 3.01, which shall be
required to approve all decisions with respect to the management or control
of the Company, except as otherwise expressly provided herein. Except
where herein expressly provided to the contrary, all decisions with respect
to the management and control of the Company that are "Approved by the
Management Committee" shall be binding on the Company and all of its
Members. The size of the Management Committee shall be determined by
written approval of Members holding Percentage Interests in the Company
equal to at least seventy-five percent (75%), and the members of the
Management Committee shall be appointed by similar written approval and
shall include at least one representative each for Maguire Partners, for
Carlyle 14 and for Carlyle 15; provided, however, that the same person or
persons may be designated as the representative or representatives of both
Carlyle 14 and of Carlyle 15. The Company shall be a limited liability
company managed by its Members for purposes of the Act. The number of
representatives which each Member may have on the Management Committee
shall in any event be subject to the written approval of each of the other
Members other than a Member whose Percentage Interest in the Company shall
at any time be equal to or less than twenty percent (20%). Each Member so
entitled shall designate in writing from time to time its respective
representatives on the Management Committee and an alternate.
Any action of the Management Committee shall require the
written approval of the representatives on the Management Committee of all
Members. Each such representative shall be fully authorized to provide any
consent or approval which may be required hereunder of the Management
Committee. No meeting of the Management Committee shall be held unless at
least one representative of Maguire Partners and one representative of
either Carlyle 14 or Carlyle 15 are present.
(ii) In the event that the Management Committee fails to
take action on a Major Decision due to the inability of the representatives
of Maguire Partners and Carlyle to agree on the action to be taken, then
either Maguire Partners or Carlyle may give written notice (the
"ARBITRATION NOTICE") to the other that such inability to agree poses
significant risk to the successful operation of the Company (provided that
no Member shall give an Arbitration Notice with respect to a proposed
refinancing of the indebtedness on the Property that is not permitted by
SECTION 3.01(c)(ii) below) and thereupon the following actions shall be
taken:
(aa) Within thirty (30) days after transmittal of
such notice Maguire Partners and Carlyle shall each appoint an arbitrator,
and the two arbitrators so appointed shall appoint a third arbitrator. If
only two arbitrators are appointed within the first ten (10) days of the
initial thirty day period, then either Maguire Partners or Carlyle shall be
entitled to apply to the presiding judge of the Superior Court of the
County of Los Angeles for the selection of a third arbitrator who shall
then participate in such arbitration proceedings, and who shall be selected
from a list of four arbitrators possessing the qualifications set forth
below two of which shall be submitted by Maguire Partners and two of which
shall be submitted by Carlyle. Any arbitrator appointed pursuant to this
SECTION 3.01(a)(ii) shall be a qualified expert with generally recognized
current competence in real estate development. In conducting their
proceedings, the arbitrators shall be guided by the intention of the
Members that the Project be constructed and operated as a high quality
investment and building complex suitable for a corporate headquarters.
Except as otherwise provided herein, such arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
(bb) Within fifteen (15) days of the date of
selection of the last of the arbitrators to be selected by the foregoing
procedure set forth in clause (aa), the arbitrators shall furnish Maguire
Partners and Carlyle with written determination of a reasonable action to
be taken on the Major Decision in question. Such written determination
shall be signed by at least a majority of the arbitrators.
Either Maguire Partners or Carlyle shall have the
right to disapprove the determination by the arbitrators by written notice
to the other within ten (10) days after the delivery of the written
determination. Failure to so disapprove the written determination shall
constitute approval of the action on the Major Decision as set forth in the
written determination.
(cc) In the event either Maguire Partners or
Carlyle disapproves said written determination, then either Maguire
Partners or Carlyle (hereinafter called the "INITIATING PARTNER") shall, by
giving written notice to the other (hereinafter called the "RESPONDING
PARTNER"), of its disapproval of said determination within said ten (10)
day period be deemed to have initiated proceedings for the purchase or sale
of its respective Percentage Interest in the Company as herein
contemplated. If a majority of the arbitrators fail to deliver a written
determination within the time period provided above, then either Maguire
Partners or Carlyle as the Initiating Member may similarly give written
notice to the other as the Responding Member of its election to initiate
such proceedings. Within ten (10) days after the delivery of such notice
to initiate such procedures, Maguire Partners and Carlyle shall take steps
to have the Net Fair Market Value of the Company determined by appraisal as
provided in SECTION 3.03(e) hereof or by agreement or by any other means or
methods upon which they may from time to time agree. Within ten (10) days
after receipt of the results of such appraisal, or other agreement upon or
determination of such Net Fair Market Value, the Responding Member shall
give written notice to the Initiating Member as to whether the Responding
Member elects to sell its Percentage Interest in the Company to the
Initiating Member at the Net Fair Market Value thereof as so determined or
whether it elects to purchase the Percentage Interest in the Company of the
Initiating Member at such Net Fair Market Value. All such notices to
purchase when so delivered shall effect a binding agreement between Maguire
Partners and Carlyle to purchase or sell its respective Percentage Interest
in the Company to the other for cash as herein contemplated and such
purchase or sale shall be consummated within the time period and in the
manner contemplated in SECTION 3.03(d) hereof. Upon the delivery of such
election to purchase or sell, the Member whose interest is to be purchased
as herein contemplated shall cease to have a vote on the Management
Committee unless and until the Member which is to purchase such interest
shall default in its obligation to do so. If the Responding Member fails
to exercise its election to purchase or sell within the time period
provided, or if the Member which elects to purchase the Percentage Interest
of the other Member as herein contemplated thereafter fails to consummate
such purchase as herein contemplated, then the Initiating Member (in case
of the Responding Member's failure) or the nondefaulting Member (in case of
such failure of the Purchasing Member) as the case may be, shall have the
right by giving written notice of its election to do so to purchase the
Percentage Interest of such Responding Member or defaulting Member for cash
within the time period and in the manner contemplated in SECTION 3.03(d)
hereof. The price to be paid for the Percentage Interest to be so
purchased shall equal that portion of the Net Fair Market Value of the
assets of the Company which such selling Member would receive in the event
of dissolution of the Company pursuant to SECTION 3.06(d).
(dd) Neither Carlyle 14 nor Carlyle 15 shall take
any action pursuant to this SECTION 3.01(a)(ii) without the concurrence of
the other.
(b) PROPERTY MANAGER.
(i) The Company shall have a manager (the "PROPERTY
MANAGER") who shall be Maguire/Thomas Partners Development, Ltd., a
California limited partnership. The Property Manager shall be responsible
for the implementation of the decisions of the Management Committee and for
conducting the ordinary and usual business and affairs of the Company as
more fully set forth herein and in the Management Agreement referred to
below. The Management Committee of the Company shall require that the
Property Manager shall at all times conform to the policies and programs
established by the Management Committee and that the scope of the Property
Manager's authority shall be limited to said policies and programs. The
acts of the Property Manager shall bind the Members and the Company only
when within the scope of such Property Manager's authority. The Property
Manager shall at all times be subject to the direction of the Management
Committee, and the Management Committee shall require that the Property
Manager shall keep such Management Committee informed as to all matters of
concern to the Company.
o th The duties, obligations and compensation of the
Property Manager are set forth in the existing Property Management and
Leasing Agreement between the Company and the Property Manager. The
Property Manager may be another affiliate of Maguire Partners if
Maguire/Thomas Partners-Development, Ltd. resigns for any reason. The
Property Manager may, but is not obligated to, hire a professional building
management firm to assist in carrying out the duties of the Property
Manager, in which event such affiliate of Maguire Partners shall receive
such compensation, if any, for performing the duties of the Property
Manager as may be Approved by the Management Committee. The Property
Manager may, with the Approval of the Management Committee, be terminated
as the Property Manager with or without cause as provided in the Management
Agreement; provided that if an affiliate of Maguire Partners is acting as
the Property Manager, Carlyle 14 and Carlyle 15 may, with cause, terminate
its employment as the Property Manager and may, with or without cause,
terminate the employment of any professional building management firm
employed by Maguire Partners to assist it as aforesaid. In the event that
the Management Committee cannot agree upon the appointment of any successor
Property Manager within thirty (30) days after the termination or removal
of such Property Manager, then within thirty (30) days after the expiration
of said thirty (30) day period, Maguire Partners may deliver to the other
Members a written statement setting forth the names of three responsible
parties experienced in the management of real estate who would be
acceptable to Maguire Partners as the Property Manager and the terms and
conditions under which such parties would act as the Property Manager.
Within thirty (30) days after receipt of such statement, the other Members
shall give Maguire Partners a joint written notice setting forth the name
of the party out of such three parties which they select to act as the
Property Manager. In the event that Maguire Partners fails to provide the
other Members with the written statement of three responsible parties
referred to above within the required thirty (30) day period, the other
Members may proceed jointly to select a Property Manager and give Maguire
Partners notice of such selection. In the event that Maguire Partners
gives the aforesaid written statement as provided above and the other
Members do not give to Maguire Partners the joint written notice setting
forth the name of the party selected as Property Manager within the
aforesaid thirty (30) days, Maguire Partners may select the Property
Manager from the list and give the other Member notice of its selection.
Upon receipt of notice from the other Members, or from Maguire Partners, as
the case may be, all parties hereto shall execute such documents and do
such other acts as may be required to appoint such party as the Property
Manager and enable such party to act as the Property Manager. Subject to
the Approval of the Management Committee, the Property Manager being
removed or terminated shall continue to serve as such until the successor
Property Manager as provided herein has been selected. During any period
of time in which there shall not be a Property Manager actively serving in
such a capacity, the Management Committee shall carry out all
responsibilities of the Property Manager hereunder and under the Management
Agreement.
(iii) Not less often than once each fiscal year, the
Property Manager shall prepare and submit to the Management Committee for
its consideration an Operating Budget setting forth the estimated receipts
and expenditures (capital, operating and other) of the Company for the
forthcoming year, which Operating Budget shall be submitted to the
Management Committee at least sixty (60) days prior to the commencement of
each fiscal year of the Company. The Management Committee shall review and
adjust the Operating Budget on a quarterly basis. The Operating Budget as
so reviewed shall provide sufficient funds for the operation of the
Project, so as to permit operation of the Project in a manner consistent
with that for the operation of a first-class office building. When
Approved by the Management Committee, the Property Manager shall implement
the Operating Budget and shall be authorized, without the need for further
Approval by the Management Committee, to make the expenditures and incur
the obligations provided for in such Operating Budget.
(iv)Maguire/Thomas Partners Development, Ltd. ("MTP-D")
has entered into a letter agreement with Carlyle dated of even date
herewith re: Maguire Thomas Partners-South Tower, LLC- Manager's Payment
(the "LETTER AGREEMENT"). Pursuant to the Letter Agreement, MTP-D is
obligated to pay the Manager's Payment, as defined therein, to Carlyle in
monthly installments on the terms and conditions specified in the Letter
Agreement. Maguire Partners agrees that if MTP-D fails to pay any
installment of the Manager's Payment when due and payable to Carlyle under
the Letter Agreement, and if Carlyle notifies MTP-D of such default and
such default remains uncured for at least 10 days after such notice (a copy
of which shall also be given to Maguire Partners), then Maguire Partners
shall cause the delinquent installment of Manager's Payment to be paid by
Maguire/Thomas Partners Development, Ltd. to Carlyle in accordance with the
Letter Agreement within 15 days after such notice of default from Carlyle.
If Maguire Partners fails to cause such payment to be made as required by
the preceding sentence, then Carlyle may take whatever action Carlyle deems
appropriate to enforce its rights under the Letter Agreement or hereunder,
in its own name or in the name of the Company, to the Manager's Payment and
may invoke the procedures of SECTION 3.06 hereof with respect to such
default of Maguire Partners.
(1) Notwithstanding anything in this Agreement to the
contrary, Maguire Partners shall not be entitled to receive, or have an
interest in, any Net Receipts or other distributions under this Agreement,
in the event Maguire Partners is in default under this SECTION 3.03(b)(iv)
except to the extent the Net Receipts or other distributions hereunder
otherwise distributable to Maguire Partners exceed any amount for which
Maguire Partners is obligated to Carlyle pursuant to this SECTION
3.03(b)(iv) ("MAGUIRE PARTNERS' OBLIGATION"). Any Net Receipts or other
distributions hereunder which, but for the preceding sentence, would be
distributed to Maguire Partners, shall be held by the Company and applied
by it to pay the Maguire Partners' Obligation by payment to Carlyle. Any
amount held by the Company on account of such Maguire Partners' Obligation
shall be deemed to be a distribution to Maguire Partners (followed by a
payment by Maguire Partners on account of the Maguire Partners'
Obligation), shall reduce the amount otherwise distributable to Maguire
Partners pursuant to this Agreement, shall reduce the Capital Account of
Maguire Partners and shall reduce the amount of the Maguire Partners'
Obligation.
(2) Maguire Partners waives: (a) any defense based upon
any legal disability to enter into the Letter Agreement or other defense of
MTP-D; (b) any defense based on any lack of authority of the officers,
directors, partners or agents acting or purporting to act on behalf of MTP-
D or any principal of MTP-D, or any defect in the formation of MTP-D or any
principal of MTP-D; (c) any and all rights and defenses arising out of an
election of remedies by Carlyle, even though that election of remedies has
destroyed Maguire Partners' rights of subrogation and reimbursement against
the principal; (d) any defense based upon Carlyle's failure to disclose to
Maguire Partners any information concerning MTP-D's financial condition or
any other circumstances bearing on MTP-D's ability to perform its
obligations the Letter Agreement; (e) any defense based upon any statute or
rule of law which provides that the obligation of a surety must be neither
larger in amount nor in any respects more burdensome than that of a
principal; (f) any defense based upon Carlyle's election, in any proceeding
instituted under the Federal Bankruptcy Code, of the application of Section
1111(b)(2) of the Federal Bankruptcy Code or any successor statute; (g) any
defense based upon any borrowing or any grant of a security interest under
Section 364 of the Federal Bankruptcy Code; (h) any right of subrogation,
any right to enforce any remedy which Carlyle may have against MTP-D and
any right to participate in, or benefit from, any security for the Letter
Agreement now or hereafter held by Carlyle; and (i) presentment, demand,
protect and notice of any kind. Maguire Partners agrees that payment or
performance of any act which tolls any statute of limitations applicable to
the Letter Agreement shall similarly operate to toll the statute of
limitations applicable to Maguire Partners' liability hereunder. Without
limiting the generality of the foregoing or any other provision hereof,
Maguire Partners expressly waives, to the extent permitted by law, any and
all rights and defenses which might otherwise be available to Maguire
Partners under California Civil Code Sections 2787 to 2855, inclusive, 2899
and 3433, or any of such sections.
(c) APPROVAL OF MAJOR DECISIONS.
Except for matters that the Property Manager may be
specifically authorized to do pursuant to SECTION 3.01(b) above, no act
shall be taken, sum expended, decision made or obligation incurred by the
Company, the Management Committee, the Property Manager, or any Member with
respect to any matter relating to the management or control of the Company
and each of the major decisions enumerated below (the "MAJOR DECISIONS"),
unless and until each such decision has been Approved by the Management
Committee. The Major Decisions shall include:
(i) Acquisition of any land or other real
property or interest therein.
(ii) Financing or refinancing of the Company
assets, including without limitation, the financing of the acquisition of
any property of the Company, interim and long-term financing or refinancing
of the Project, and financing operations of the Company; provided, however,
the Members hereby agree that when the present Aetna Loan (as extended by
the Modification Documents) shall mature, they shall accept in replacement
thereof a new mortgage loan in the maximum amount reasonably practicable
having a due date not earlier than 10 years and bearing interest without
any participation or accruals and otherwise at a market rate of interest
and points (which shall not be in excess of the rate of interest and fees
that would be charged on a loan with similar terms but in an amount equal
to the then outstanding balance of the Aetna Loan) and on market terms and
conditions. The Members hereby approve the Permanent Financing Guidelines
attached hereto as EXHIBIT "D".
(iii)Mortgaging or the placing or suffering of any
encumbrance on any of the Property owned or operated by the Company,
including the Improvements thereon; provided, however, that the Property
may be mortgaged to secure a replacement loan described in clause (ii)
above or a second mortgage not in excess of $500,000 (if permitted by the
holder of the first mortgage).
(iv) Approval of the form or forms of leases and
adoption of the terms, conditions and standards (the "LEASE GUIDELINES")
for the leasing of space within any of the Improvements owned or operated
by the Company. The Property Manager shall be authorized to negotiate and
execute, on behalf of the Company, leases of such space within the lease
guidelines.
(v) Execution of any lease or other arrangement
involving the rental, use or occupancy of space in any of the Improvements
owned or operated by the Company, if such lease or other arrangement
provides for terms, conditions or standards more favorable to the lessee
than those contained in the lease guidelines or otherwise materially varies
from the approved lease guidelines or from the lease forms previously
Approved by the Management Committee. Leases of space in the Building
shall be effected by the Property Manager pursuant to a standard form of
building lease which shall be Approved in advance by the Management
Committee. The financial responsibility of each prospective tenant in the
Building and such tenant's compatibility with the general use of the
Building as contemplated herein, and any deviation in terms of the lease to
any prospective tenant including, without limitation, terms as to base
rental, tenants' standard improvements or otherwise, shall be Approved by
the Management Committee.
(vi) Termination or modification of any lease or
other arrangement involving the rental, use or occupancy of space in any of
the Improvements owned or operated by the Company, if such lease or other
arrangement was required to be Approved by the Management Committee
pursuant hereto or if such modification would result in a modified lease or
other arrangement which would, if it were a new lease, be required to be
Approved by the Management Committee pursuant hereto.
(vii)Construction of any Improvements or the making of
any capital improvements, repairs, alterations or changes in, to or of that
portion of the Project owned or operated by the Company in an amount which
exceeds the limitations in clause (xiii) below, except for such matters as
may be expressly delegated in writing to the Property Manager by the
Management Committee. As used in this clause (vii), the term "capital
improvement" does not include any tenant improvements for any one tenant
which do not exceed $45 per square foot (exclusive of improvements paid for
by the tenant or amortized by payments made over the term of the lease).
(viii) Selecting or varying depreciation and
accounting methods and making other decisions with respect to treatment of
various transactions for state or federal income tax purposes or other
financial purposes.
(ix) Approval of all construction and
architectural contracts and all architectural plans, specifications, and
drawings prior to the construction and/or alteration of improvements on the
Property, and any modifications of such contracts, plans, specifications
and drawings, except for such matters as may be expressly delegated in
writing to the Property Manager by the Management Committee.
(x) Varying or changing any portion of the
insurance program set forth in the insurance schedule attached hereto as
EXHIBIT "E".
(xi) Determining whether distributions should be
made to the Members, except as otherwise set forth in SECTIONS 2.06, 2.07
and 2.08 hereof.
(xii)Approving the Operating Budget pursuant to SECTION
3.01(b)(iii) hereof.
(xiii) Making any expenditure or incurring any
obligation by or on behalf of the Company involving a sum in excess of
$10,000 or involving a sum of less than $5,000 where the same relates to a
component part of work, the combined cost of which in any one fiscal year
exceeds $100,000, except for expenditures made and obligations incurred
pursuant to and specifically set forth in an Operating Budget theretofore
Approved by the Management Committee or expressly provided for in this
Agreement.
(xiv)Making any expenditure or incurring an obligation
which when added to any other expenditure for the fiscal year of the
Company exceeds the Operating Budget or any line item specified in the
Operating Budget.
(xv) Preparation and release of all promotional
and advertising material relating to the Project or concerning the Company,
including without limitation, press releases.
(xvi)Selection or termination or removal of the Property
Manager (as contemplated in SECTION 3.01(d) hereof).
(xvii) Retention of counsel for the Company or
institution of any legal action, except for such action as the Management
Committee may in writing expressly authorize the Property Manager to
institute;
(xviii) Declaring the existence of a Capital
Shortfall for purposes of SECTION 2.05; or
(xix)Any other decision or action which by any provision
of this Agreement is required to be Approved by the Management Committee or
which is not contemplated by the foregoing clauses (i) through (xviii) and
which materially affects the Company or the assets or operations thereof.
Notwithstanding the foregoing, any sale or other disposition of
all or substantially all of the assets of the Company shall require the
written consent of Members holding at least 75% of the Percentage Interests
in the Company.
(d) LIMITATIONS ON AUTHORITY.
Any provisions hereof to the contrary notwithstanding, except
for expenditures made and obligations incurred that were previously
Approved by the Management Committee or incurred pursuant to a Operating
Budget Approved by the Management Committee, or otherwise not required to
be approved by the Management Committee, the Property Manager shall not
have any authority to make any expenditure or incur any obligation on
behalf of the Company. The Property Manager shall not expend more than
what the Property Manager in good faith believes to be the fair and
reasonable market value at the time and place of delivery or performance
for any goods purchased or services engaged on behalf of the Company. The
rights and obligations of the Property Manager under this Agreement and the
Management Agreement shall not be assignable voluntarily or by operation of
law by the Property Manager without the prior written Approval of the
Management Committee. None of the Members shall, without the consent of
the other Members, take any action on behalf of or in the name of the
Company, or enter into any commitment or obligation binding upon the
Company, except for (i) actions expressly provided for in this Agreement,
(ii) actions by the Property Manager within the scope of its authority
granted hereunder, and (iii) actions authorized by the Members in the
manner set forth herein. Each Member shall indemnify and hold harmless the
other Members and their affiliates, directors and officers from and against
any and all claims, demands, losses, damages, liabilities, lawsuits and
other proceedings, judgments and awards, and costs and expenses (including
but not limited to reasonable attorneys' fees) arising directly or
indirectly in whole or in part out of any breach of the foregoing
provisions by such Member or its affiliates, officers, agents or employees.
fer TIME DEVOTED TO THE COMPANY.
The Members shall each devote such time to the Company as is
reasonably necessary to carry out the provisions of this Agreement. Except
as may otherwise be expressly provided for herein or hereafter may be
Approved by the Management Committee, no payment shall be made by the
Company to any Member for the services of such Member or any member,
shareholder, director or employee of any such Member. Any such payments
shall not exceed the fair market value of such services.
(f) TRANSACTIONS WITH RELATED PERSONS.
The Property Manager shall not knowingly enter into any
agreement or other arrangement for the furnishing to or by the Company of
goods or services with any Person related to or affiliated with the
Property Manager or any Member unless such agreement or arrangement has
been Approved by the Management Committee. Such agreement or other
arrangement shall provide for payments to any such Persons not exceeding
the fair market value of the goods or services supplied. By way of
illustration and not as a limitation on the scope of the phrase "related to
or affiliated with," for the purposes of this Subsection (g), the following
Persons shall be deemed to be "related to or affiliated with" the Property
Manager or a Member:
(i) Any Owning Person, which shall mean a Person
owning directly or indirectly more than five percent (5%) of the issued and
outstanding stock of, or more than a five percent (5%) beneficial interest
in, the Property Manager or any Member;
(ii) Any Owned Person, which shall mean a Person
more than five percent (5%) of the issued and outstanding stock of which,
or more than a five percent (5%) beneficial interest in which, is owned
directly or indirectly by the Property Manager or any Member;
(iii)Any Affiliated Person, which shall mean (x) a
Person more than five percent (5%) of the issued and outstanding stock of
which, or more than a five percent (5%) beneficial interest in which, is
owned by an Owning Person or an Owned Person, and (y) a Person which owns
more than five percent (5%) of the issued and outstanding stock of, or more
than a five percent (5%) beneficial interest in, any Owning Person or any
Owned Person; and
(iv) Any agent, officer, director, employee or
partner (or any member of the family of an agent, officer, director,
employee, or partner) of the Property Manager, any Member, any Owning
Person, any Owned Person, or any Affiliated Person.
(g) OTHER INTERESTS OF MEMBERS.
Each of the Members understands that the other Members or their
affiliates may be interested, directly or indirectly, in various other
businesses and undertakings not included in the Company. Each Member also
understands that the conduct of the business of the Company may involve
business dealings with such other businesses or undertakings. The Members
hereby agree that the creation of the Company and the assumption by each of
the Members of their duties hereunder shall be without prejudice to their
rights (or the rights of their affiliates) to have such other interests and
activities and to receive and enjoy profits or compensation therefrom, and
each Member waives any rights he or it might otherwise have to share or
participate in such other interests or activities of the other Members or
their affiliates. The Members or any of them, may engage in or possess any
interest in any other business venture of any nature or description
independently or with others, including, but not limited to, the ownership,
financing, leasing, operation, management, syndication, brokerage, or
development of real property and neither the Company nor any other Member
shall have any right by virtue of this Agreement in and to such venture or
the income or profits derived therefrom. Each Member shall give notice to
the other Members of its interest, or the interest of any of its
affiliates, in any other business or undertaking which proposes to enter
into any business transactions with the Company.
3.02 ACCOUNTING, TAX ELECTIONS AND RELATED MATTERS.
(a) At all times during the existence of the Company, the
Company shall cause the Property Manager, at the Company's expense, to
maintain accurate books and records of account in which shall be entered
all matters relating to the Company, including all income, expenditures,
assets and liabilities thereof. Such books and records of account shall be
maintained on the accrual basis in accordance with the tax accounting
method used in filings of Federal income tax returns. The Company will
elect and use the accrual method of accounting for the Federal and state
returns of income of the Company unless otherwise changed pursuant to
SECTION 3.01(c). The Company will make available adequate information to
provide any Member with all financial information as may be needed for any
Member or an affiliate of any Member for purposes of satisfying the
financial and tax reporting obligations of any Member or its respective
affiliate or affiliates. Each Member shall be entitled to any additional
information with respect to the Company as the Member's individual needs
may dictate, provided that the cost of providing such information shall be
borne solely by the Member so requesting such additional information.
(b) The Company's books and records of account shall be kept
and maintained at all times at the place or places Approved by the
Management Committee. Each Member, and its authorized representatives,
including, without limitation, such Member's lenders upon the request of
such Member, and any supervisory or regulatory authority which has
oversight over any Member or its lenders (through its representatives)
shall have the right to inspect, examine and copy the books, records,
files, securities, and other documents of the Company at all reasonable
times including, without limitation, the leases of the Property and all
correspondence concerning such leases. Said supervisory and regulatory
authorities shall also have the right in connection with an examination of
the Company activities, to examine any other Person (including, but without
limitation, the Property Manager) and the employees of such other Person
having custody or control of the Company documents with respect to such
documents.
(c) The fiscal year of the Company shall end on December 31st
of each year, unless otherwise changed pursuant to SECTION 3.01(c).
(d) (i) The Property Manager shall cause the accountants
employed by the Company to prepare a balance sheet of the Company as of the
last day of each month of each fiscal year, and an income and Net Cash Flow
statement for each month for each fiscal year. Such statements shall be
certified by an officer of the Property Manager, and copies shall be
furnished to each of the Members within ten (10) days after the end of each
month to the extent feasible. An annual statement of financial condition
of the Company and Income and Net Cash Flow statements (unaudited) shall to
the extent feasible be furnished to each of the Members within sixty (60)
days after the close of the fiscal year.
(ii) The records and accounts of the Company shall be
audited annually by Arthur Andersen & Co. or other nationally recognized
firm of independent certified public accountants Approved by the Management
Committee, who shall render their opinion on the statement of financial
condition of the Company as of the end of each fiscal year and the results
of its operations, changes in its financial condition and its income and
Net Cash Flow for each fiscal year. Such firm shall also render its
opinion on the Net Cash Flow computations made by the accountants for the
Company and certify that the distributions thereof are made in accordance
with SECTION 2.06 of this Agreement.
(e) Funds of the Company shall be deposited in an account or
accounts of a type in form and name and in a bank or banks Approved by the
Management Committee. Withdrawals from bank accounts shall be made by
parties Approved by the Management Committee.
(f) All accounting decisions for the Company (other than
those specifically provided for elsewhere in this SECTION 3.02) shall be
Approved by the Management Committee and shall be in accordance with
generally accepted accounting principles.
(g) Federal, state and local income tax returns of the
Company shall be prepared by the independent auditors. Copies of all tax
returns of the Company shall be furnished for review and Approved by the
Management Committee at least thirty (30) days prior to the statutory date
for filing, including extensions thereof, if any.
(h) Each item of income, gain, loss, deduction, or credit
earned, realized or available by or to the Company shall be allocated to
the Members for federal and state income tax purposes in accordance with
SECTION 2.09 hereof; provided, however, that, subject to the provisions of
SECTION 2.09(f) hereof, under no circumstances shall any item of expense or
deduction attributable to the period prior to the date of admission of a
Member be allocated to such Member, even if actually paid in a subsequent
period. The Company shall make the election under Section 754 of the
Internal Revenue Code (and under the corresponding section of state or
local law) at the request of any Member, or if otherwise Approved by the
Management Committee, with respect to any Company Interest in the Company
to which Section 754 applies. The Company shall make such other tax
decisions and elections as are set forth on EXHIBIT "F" hereto. Tax
decisions and elections for the Company not provided for expressly herein
or on said EXHIBIT "F" must be Approved by the Management Committee. All
information relating to depreciation, including method, useful lives and
asset amount, shall be furnished to each Member in sufficient detail and
with such promptness as to permit compliance with requirements of any
applicable supervising or regulatory authority.
(i) The Members shall jointly represent the interests
of the Company before the Internal Revenue Service and, for purposes of
notice to the Company, Carlyle 15 shall be designated the Tax Matters
Partner or Member (as defined in Section 6231(a)(7) of the Code). Carlyle
15 shall not make any commitment or agreement binding on the Company, as
such Tax Matters Member, without the approval of all Members and shall
fulfill all of the duties and obligations of the Tax Matters Member as set
forth in the Code and any Regulations promulgated in connection therewith,
including, without limitation, transmitting to Members copies of all
notices and information the Tax Matters Member from the Secretary (as
defined in Section 7701(a)(11) of the Code ("SECRETARY")) immediately after
receipt thereof, providing the Secretary sufficient information to enable
the Secretary to provide proper notice to each Member of any administrative
proceeding with respect to the Company or the Members (as specified in
Sections 6223(a) and (c) of the Code) and notice to the other Members of
the terms and conditions of any settlement entered into between it and the
Secretary within thirty (30) days of the date of such settlement. In
addition, the Tax Matters Member shall:
(1) Ensure that each other Member is
a Notice Partner or Member (as defined in Section 6231(a)(8) of the Code)
at all times with respect to the Company;
(2) In the event registration of the
Company is required under the provisions of Section 6111 of the Code,
following the providing to the Tax Matters Member by the other Members of
all information required to be submitted with or in connection with such
registration, promptly register the Company with the Secretary and submit
complete and accurate information in connection therewith; timely furnish
to each Member the identification number assigned by the Secretary to the
Company in connection with any such registration; and
(3) Indemnify and hold each other
Member and the Company harmless from and against any penalty or other
liability that may be imposed upon each other Member or the Company under
the provisions of Section 6707 or any other provision of the Code by reason
of any failure of the Tax Matters Member to comply promptly and fully with
the obligations imposed upon it under this SECTION 3.02(i).
(j) All Fixed Rate Interest accruing on the Aetna Loan
(excluding any Participation Interest, as defined in the Modification
Documents) after the date hereof shall be paid by the Company on a current
basis and shall not be deferred.
3.03 SALE, TRANSFER OR MORTGAGE OF INTERESTS IN THE COMPANY.
(a) Except as expressly permitted herein, no Member shall,
voluntarily or by operation of law, sell, assign, transfer, mortgage,
charge or otherwise encumber, or permit any third party to sell, assign,
transfer, mortgage, charge or otherwise encumber (herein sometimes
collectively called a "TRANSFER"), either directly or indirectly, any part
or all of its Company interest without the written consent of all Members
and any attempt to do so shall be void unless such transfer is made in
accordance with the provisions of SECTION 3.03(b) provided that the
foregoing shall not preclude a Member from granting to a Financial
Institution as security for or in connection with a loan the right to
receive part of all of the distributions to which such Member is or may
become entitled under this Agreement. In order to effectuate the purpose
of this SECTION 3.03, each Member agrees to transfer its interest in the
Company only through a direct transfer of such interest in the manner
contemplated in this SECTION 3.03, and that no transfer of any stock or
partnership or other beneficial interest in Carlyle, Maguire Partners or
other corporation, partnership or other Person which holds an interest in
the Company will be effective; provided, however, that the foregoing is not
intended to prohibit sales or transfers of stock of publicly traded
companies or the sale or transfer of limited partnership interests in
Carlyle. Nothing contained in this SECTION 3.03 (other than the provisions
of SECTION 3.03(g) hereof) or in any other provision of this Agreement
shall preclude Carlyle or Maguire Partners from granting a security
interest in or encumbering its Company interest to another Member or to a
bank, savings and loan association, insurance company or other financial
institution having a net worth of at least $100 million (a "FINANCIAL
INSTITUTION"), provided that such Financial Institution agrees to give the
other Members written notice of any default under such security interest or
encumbrance and grant to such Members for a period of 30 days after such
notice the right to cure such default or pay the entire balance due on such
loan and obtain the rights of such lender under such security interest or
encumbrance and provided further that such security interest or encumbrance
shall not secure any loan or obligation of a Member which is in excess of
40% of the value of the Members' interest in the Company.
No change in a Percentage Interest pursuant to SECTION
2.05 will be deemed a transfer pursuant to this SECTION 3.03.
(b) Except for any transfer of a Company Interest which is
not prohibited by SUBSECTION 3.03(a) above, if any Member proposes to
transfer all or any portion of its Company Interest (such Member being
hereinafter called the "OFFEROR"), such Member shall give notice ("THE
OFFERING NOTICE") to the other Members (each such Member or group of
Members receiving the Offering Notice being hereinafter referred to as the
"OFFEREES") of the terms upon which the Offeror proposes to transfer the
Company Interest and a list of potential transferees, whereupon the
following provisions shall apply:
(i) In the Offering Notice, the Offeror shall offer
(the "SALE OFFER") to the Offerees the right to purchase all and not less
than all of the Company Interest of the Offeror referred to in said
Offering Notice (which may be less than the Offeror's entire Percentage
Interest in the Company), at the same price and subject to the same terms
and conditions as set forth in said Offering Notice. The Offerees shall
jointly have the first right to purchase proportionate shares of the
Offeror's entire Company Interest so proposed to be sold or transferred;
provided, however, that if any Offeree does not elect to purchase its full
proportionate share of the Offeror's Company Interest, the other Offerees
may elect to purchase proportionately the balance of said Offeror's Company
Interest so proposed to be sold or transferred. The Offerees shall notify
the Offeror of their election within thirty (30) days of the date of
receipt of the Offering Notice. The proportionate shares of each electing
Offerees shall be based on the ratio which its respective Percentage
Interest in the Company bears to the aggregate Percentage Interests of all
electing Offerees.
(ii) If the Sale Offer is accepted by one or more of the
Offerees, and notice in writing is given within the period specified in
subsection (i) above, the Offeror shall thereupon be bound to sell to the
Offeree or Offerees and the Offerees shall be bound to purchase the Company
Interest referred to in the Sale Offer in accordance with the terms of such
Sale Offer. The purchase shall be closed in accordance with SECTION
3.03(d) below.
(iii) If no Offerees have accepted the Sale Offer as
provided in subsection (i) above within the time limits referred to
therein, the Sale Offer shall be deemed to have been declined by the
Offerees and the Offeror shall be free to sell that portion of its Company
Interest described in the Offering Notice at a price and upon terms and
conditions not less favorable to the Offeror than those set forth in the
Offering Notice and which complies with subsection (iv) below (but no such
sale shall be made at a price less than the price or on terms and
conditions less favorable to the Offeror than those set forth in the
Offering Notice without first sending the Offerees the new Offering Notice
at the changed price and on any such changed terms and conditions, in which
event the Offerees shall have a further period in which to elect to
purchase at the new price or on the changed terms and conditions as
aforesaid, said further period to be ten (10) business days in the case of
a proposed sale at a changed price which is not less than 95% of the price
and is otherwise on terms and conditions not less favorable to the Offeror
than as set forth in the Offering Notice (and thirty (30) days in all other
instances) and all rights of the Offerees under this Section with respect
to such sale only shall be deemed void and of no further force or effect,
but the Offerees shall continue to enjoy the rights granted in this
subsection with respect to any and all subsequent sales of the same or any
other Company Interest. If in any instance the Offerees elect not to
exercise their rights hereunder or to waive such rights, such election
shall not constitute a waiver of the Offerees' right to an Offering Notice
in the case of any subsequent sale. If such Company Interest is not so
sold and the transfer not consummated within one hundred twenty (120) days
from the expiration of the time limits referred to in subsection (i), the
relevant Company Interest shall again become subject to all the provisions
of this SECTION 3.03.
(iv) The Offeror shall not be entitled to consummate a
sale pursuant to Clause (iii) above unless the following additional
conditions have been satisfied:
(aa) The purchaser of the interest in the Company
proposed to be sold is one of the proposed transferees identified in the
Offering Notice;
(bb) The proposed purchase price is payable solely
in lawful money of the United States or in any equivalent foreign currency,
and if not payable in its entirety in cash, under no circumstances may
payment of the non-cash portion of the proposed purchase price be secured
by any charge, encumbrance or hypothecation of the interest in the Company
except to the selling Member with a provision that the selling Member may
not discount or otherwise transfer the obligation and the security interest
in the Company interest to any other Person. The holder of such charge,
encumbrance or hypothecation shall be subject to the provisions of this
SECTION 3.03 in connection with any disposition of such Company Interest.
(cc) The offer contains provisions whereby the
purchaser is obligated to comply with the provisions of SECTION 3.03(d)
hereof;
(dd) The purchaser is not an agent acting on
behalf of an undisclosed principal; and
(ee) The Offeror shall not have caused or
permitted an Event of Default under Section 3.06 hereof; provided, however,
that if following the occurrence of an Event of Default under SECTION 3.06
hereof on the part of the Offeror the Non-Defaulting Members (as defined in
SECTION 3.06) do not exercise any rights under SECTION 3.06 hereof to
acquire the Offeror's Company Interest within the time period therein set
forth, the Offeror may proceed to exercise its rights under this subsection
(a) with the same force and effect as if the Offeror had not caused or
permitted any Event of Default under SECTION 3.06 hereof.
(c) In the event of any attempted transfer of any part of a
Company Interest as a result of the involuntary dissolution of a Member or
any attempted transfer otherwise by operation of law, the other Members of
the Company shall have the right to purchase the entire interest of such
dissolved or bankrupt Member in the Company for a total price equal to that
portion of the Net Fair Market Value of the assets of the Company which
such dissolved or bankrupt Member would receive in the event of dissolution
of the Company pursuant to SECTION 3.06(d). In such event the other
Members shall jointly have the first right to purchase proportionate shares
of such dissolved or bankrupt Member's entire interest; provided, however,
that if any such other Member does not elect to purchase his full
proportionate share thereof, then the remaining Members may elect to
purchase proportionately the balance thereof. The other Members shall
notify the duly appointed representative of the dissolved or bankrupt
Member of their election within sixty (60) days of receipt of the appraisal
made pursuant to SECTION 3.03(e) hereof, and failure to give such notice of
election within said period shall be deemed to be an election not to
purchase the interest of such dissolved or bankrupt Member's interest. The
proportionate shares of the other Members shall be based on the ratio which
their respective Percentage Interests in the Company bear to the aggregate
Percentage Interests of all other Members exercising rights in the same
manner. If none of the other Members elects to so purchase, or if
following an election by one or more other Members to so purchase, no other
Member is ready and willing to consummate the purchase of the entire
interest of the dissolved or bankrupt Member, the personal representative
of such Member may forthwith commence proceedings for dissolution of the
Company. Anything hereinabove contained in this SECTION 3.03(c) to the
contrary notwithstanding, in the event that any transfer by operation of
law of all or any portion of the Percentage Interest of Maguire Partners
occurs as a result of the death of Maguire or the dissolution of Maguire's
marriage, the other Members shall have no right under this SECTION 3.03(c)
or any other section of this Agreement, to purchase any portion of the
Percentage Interest of Maguire Partners which is retained by Maguire
Partners. Furthermore, in said event, Maguire Partners shall for a period
of 180 days after the occurrence of such death or dissolution, be entitled
to seek a purchaser for the portion of its Percentage Interest so
transferred, including the entire Percentage Interest if so transferred,
pursuant to the provisions of SECTION 3.03(b) hereof. If no sale offer is
made pursuant to SECTION 3.03(b) within said 180 days, then the provisions
of this SECTION 3.03(c) shall become effective as to any portion of the
Percentage Interest so transferred.
(d) The closing of any sale of an interest in the Company
pursuant to this SECTION 3.03 (the "CLOSING") shall be held at a mutually
acceptable place on a mutually acceptable date not more than 120 days after
(i) receipt by the Offeror of the written notices of election by the
Offerees or after the expiration of the time within which the Offerees must
so elect as provided in SECTION 3.03(b) above or (ii) receipt by the
representative of a dissolved or bankrupt Member of written notice or
notices of election as provided in SECTION 3.03(c) above. Any Member
transferring its interest shall transfer such interest free and clear of
any liens, encumbrances or any interests of any third party and shall
execute or cause to be executed any and all documents required to fully
transfer such interest to the acquiring Members including, but not limited
to, any documents necessary to evidence such transfer, and all documents
required to release any interest of a Member's spouse or any other party
who may claim an interest in such Member's Company Interest. As of the
effective date of any transfer not prohibited hereunder by a Member of its
entire interest in the Company, such Member's rights and obligations
hereunder shall terminate except as to items accrued and any liability for
damages as of such date and except as to any indemnity obligations of such
Member expressly provided for in this Agreement attributable to acts or
events occurring prior to such date and, as to Maguire or Maguire Partners,
as the case may be, any obligations assumed under the DDA. Thereupon,
except as limited by the preceding sentence, this Agreement shall terminate
as to the transferring Member but shall remain in effect as to the other
Members. In the event that pursuant to the provisions of this SECTION
3.03, any Member (the "TRANSFEROR") shall transfer its Company Interest to
any person or entity other than the other Members ("TRANSFEREE"), no such
transfer shall be made or shall be effective to make such Transferee a
Member (limited or general) or entitle such Transferee to any benefits or
rights hereunder until the proposed Transferee enters into a written
agreement with the other Members whereby the Transferee agrees to assume
and be bound by all the obligations of the Transferor and be subject to all
the restrictions to which the Transferor is subject under the terms of this
Agreement and any further agreement with respect to the Project to which
the Transferor is then subject or is then required to be a party.
(e) Whenever provision is made herein for the purchase of an
interest in the Company or for other valuation by appraisal, the value of
such interest in the Company shall be determined as follows: Except as
otherwise agreed by the Member whose interest is to be transferred (the
"TRANSFEROR") and the Members who are to acquire such interest (the
"TRANSFEREE"), the Transferor and the Transferee shall within twenty (20)
days after the date on which the appraisal procedure is invoked as provided
in this Agreement, each appoint a recognized real estate expert who shall
have generally recognized current competence in the valuation of properties
similar to the Company assets which are located in Los Angeles, California.
The two appraisers so appointed shall appoint a third recognized real
estate expert possessing the aforesaid qualifications. If the three
appraisers to be so appointed are not appointed within thirty (30) days of
the date the appraisal procedure is invoked as provided in this Agreement,
then the appraiser or appraisers, if any, who have been selected shall
proceed to carry out the appraisal. The appraiser or appraisers so
selected shall furnish the Members with a written appraisal within forty-
five (45) days of the date of selection of the last of the appraisers to be
so selected, setting forth the Net Fair Market Value of the Company as of
the date as of which the appraisal is to be made as provided in this
Agreement or if not otherwise so provided, then as of a date within thirty
(30) days of the date of their report. Any appraisal report so submitted
shall be signed by a majority of the appraisers if more than two have been
selected. If only two appraisers have been selected and they are unable to
agree, then either the Transferor or the Transferee shall be entitled to
apply to the presiding judge of the Superior Court of the County of Los
Angeles for the selection of a third appraiser who shall then participate
in such appraisal proceeding, and who shall be selected from a list of
names of appraisers possessing the aforesaid qualifications submitted by
the Transferor and Transferee. As used in this section, the term "NET FAIR
MARKET VALUE" shall mean the cash price which a purchaser would pay on the
effective day of the appraisal for all assets of the Company taking into
account the nature, extent and maturity date of the liabilities of the
Company, whether fixed or contingent, such valuation to be made on the
assumption that such assets are subject to this Agreement and to any other
agreement, including leases, management and service agreements then in
effect. Such appraisals shall assume that the Project is the highest and
best use of the Property subject thereto and shall be made in the usual and
normal manner for real estate appraisals. The cost of the appraisal shall
be an expense of the Company. The value of an interest in the Company
shall be deemed to be the amount that the owner of such interest would have
received under the provisions of this Agreement if the Property had been
sold for cash at the value determined by such appraisal and the Company had
been wound up and dissolved following such sale in accordance with the
terms of this Agreement.
(f) As a matter separate and apart from the other provisions
of this SECTION 3.03, the Members agree amongst themselves that none of
them will, without the prior written consent of the other Member(s),
propose to transfer, transfer, dispose of, grant a security interest in or
encumber any portion of its interest in the Company prior to the fifth
anniversary hereof, except for:
(i) a pledge by a Member of a part or all of its
interest in the Company to a bank, savings and loan association, insurance
company or other financial institution having a net worth of not less than
$100 million;
(ii) the issuance, sale or assignment of limited
partnership interests in Carlyle 14 or Carlyle 15;
(iii) with the consent of the other Members (which
consent each Member agrees not to unreasonably withhold), a sale by a
Member of part or all of its interest in the Company for reasons that are
unrelated to the Company or the Property and are presently unforeseen; or
(iv) any transfer of an interest in the Company which
under the provisions of SECTION 3.03(a) above is permitted to be made
without the prior approval or consent of any other Member.
Nothing in this SECTION 3.03(f) shall in any way affect the operation
of the other provisions of this SECTION 3.03.
(g) Notwithstanding anything to the contrary herein, no
transfer of any Company Interest shall be made if either (i) such transfer
would result in termination of the Company within the meaning of Section
708(b)(1)(B) of the Code, unless the transferring Member delivers (A) an
opinion of a nationally recognized law firm, in form and substance
satisfactory to the other Members, that no material adverse tax
consequences would result to the Company nor any of the other Members; and
(B) an indemnity reasonably satisfactory to the other Members against any
liabilities, obligations, damages, losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) on account of such
termination under Section 708(b)(1)(B); or (ii) the transferee of a Company
Interest does not have net worth at least equal to the net worth of the
transferring Member, at such time, as established to the reasonable
satisfaction of the other Members. A Member who breaches the covenant set
forth in the preceding sentence shall be liable to the other Members and
the Company for all liabilities, obligations, damages, losses, costs and
expenses (including, without limitation, reasonable attorneys' fees)
resulting to the Company and/or the other Members, or any of them, on
account of such breach.
3.04 RESERVED.
3.05 ADMISSION OF ADDITIONAL MEMBERS; SUBSTITUTION.
(a) Except as otherwise expressly provided herein, additional
Members shall be admitted to the Company only with the Approval of the
Management Committee. Except as the Members with respect to the Company
shall agree, admission of new Members shall be accomplished only by
proportional reduction of the interests of the existing Members in the
Company.
(b) Notwithstanding any other provisions hereof, the assignee
of a Member's interest shall not become a substituted partner unless (i)
the assigning partner so provides in the instrument of assignment and (ii)
the assignee agrees in writing to be bound by the provisions of this
Agreement.
(c) In the event of any assignment or transfer of a Company
Interest by any Member permitted hereunder, the Company shall not be
dissolved or wound up but instead shall continue as before with, however,
the addition or substitution (pursuant to the terms of this Agreement) of
such new Member.
3.06 DEFAULT AND DISSOLUTION.
(a) The occurrence of any of the following events shall
constitute an event of default (an "EVENT OF DEFAULT") hereunder on the
part of the Member with respect to whom such event occurs:
(i) The failure of the Member to make any additional
capital contribution to the Company as required pursuant to the provisions
of SECTION 2.05 hereof unless such contribution is made by another Member
or Members as contemplated in SECTION 2.05(c) hereof;
(ii) The unauthorized transfer by a Member of any of its
Company interest in violation of the restrictions set forth in SECTION 3.03
(other than 3.03(c), which shall be governed by the provisions thereof) of
this Agreement;
(iii) Institution by a Member of proceedings of any
nature under any laws of the United States or of any state, whether now
existing or subsequently enacted or amended, for the relief of debtors
wherein such Member is seeking relief as debtor; or a general assignment by
a Member for the benefit of creditors; or the institution by a Member of a
proceeding under any section or chapter of the Federal Bankruptcy Code as
now existing or hereafter amended or becoming effective; or the institution
against a Member of a proceeding under any section or chapter of the
Federal Bankruptcy Code as now existing or hereafter amended or becoming
effective, which proceeding is not dismissed, stayed or discharged within a
period of sixty (60) days after the filing thereof or is stayed, which stay
is thereafter lifted without a contemporaneous discharge or dismissal of
such proceedings; or the calling of a general meeting of its creditors by a
Member for the appointment of a receiver, trustee or a like officer to take
possession of assets having a value in excess of $100,000 of a Member if
the pendency of said receivership would reasonably tend to have a
materially adverse effect upon the performance by said Member of its
obligations under this Agreement, which receivership remains undischarged
for a period of thirty (30) days from the date of its imposition; or
admission by a Member in writing of his or its ability to pay his or its
debts as they mature;
(iv) Attachment, execution or other judicial seizure of
all or any substantial part of a Member's assets or of a Member's Company
Interest, or any part thereof, such attachment, execution or seizure being
with respect to an amount not less than $100,000 and remaining undismissed
or undischarged for a period of fifteen (15) days after the levy thereof,
if the occurrence of such attachment, execution or other judicial seizure
would reasonably tend to have a materially adverse effect upon the
performance by said Member of its obligations under this Agreement;
provided, however, that said attachment, execution or seizure shall not
constitute an Event of Default hereunder if said Member posts bond
sufficient to fully satisfy the amount of such claim or judgment within
fifteen (15) days after the levy thereof and the Member's assets are
thereby released from the lien of such attachment; and
(v) Any material default in the representation or
warranties of a Member material to the success of the Project contained in
SECTIONS 4.01, 4.02 or 4.03 hereof or in the performance of any other
agreements or obligations of a Member herein contained or in any other
agreements among all of the Members relating to this Agreement which are
material to the success of the Project.
ere The Company shall be dissolved in the event that:
(i) An Event of Default has occurred as provided in
SECTION 3.06(a) above and the Management Committee elects to dissolve the
Company as provided in SECTION 3.06(c);
(ii) Members holding at least 75% of the Percentage
Interests in the Company agree to terminate the Company;
(iii) The Company ceases to maintain any interest (which
term shall include but not be limited to a security interest) in the
Project;
(iv) Carlyle and Maguire Partners mutually agree to
dissolve or terminate the Company pursuant to any provisions of this
Agreement permitting such election to be made; or
(v) The Company by its terms, as set forth in this
Agreement, is terminated; or
(vi) The death, withdrawal, resignation, expulsion,
bankruptcy or dissolution of a Member or the occurrence of any other event
which terminates the Member's continued membership in the Company, unless
the business of the Company is continued by the unanimous vote of all
remaining Members within ninety (90) days of the happening of that event.
(c) Upon the occurrence of an Event of Default by a Member
("DEFAULTER"), any of the other Members (individually, a "NON-DEFAULTER" or
"NON-DEFAULTING MEMBER" and, collectively, the "NON-DEFAULTERS" or "NON-
DEFAULTING MEMBERS") shall have the right to give the Defaulter a notice of
default ("NOTICE OF DEFAULT") setting forth the nature of the default. If
within thirty (30) days following receipt of the Notice of Default the
Defaulter pays such monies, or in the case of non-monetary defaults
commences in good faith to perform such obligation in default and cure such
default and thereafter prosecutes to completion with diligence and
continues the curing thereof and cures such default within a reasonable
time, or if a waiver of such Event of Default (other than an Event of
Default arising by Maguire Partners' breach of SECTION 3.01(b)(iv)) shall
be Approved by the Management Committee (which approval shall include the
vote of Maguire Partners, unless its Company Interest shall be reduced to
or below 20%, and the vote of Carlyle 14 and Carlyle 15, unless their
aggregate Percentage Interests shall be reduced to or below 20%, whether or
not such Event of Default involves Maguire Partners or Carlyle 14 or
Carlyle 15), it shall be deemed that the Notice of Default was not given
and the initial Defaulter shall lose no rights hereunder. If, within such
time periods, the Defaulter (or another Member on behalf of the Defaulter
pursuant to SECTION 2.05(d) hereof) does not either pay or commence in good
faith the curing of such default or does not thereafter prosecute to
completion with diligence and continues the curing thereof, then (without
prejudice to any right to assert a claim for damages as the result of any
such default) the non-Defaulters shall have the right to acquire the
Company interest of the Defaulter for cash at a price determined pursuant
to appraisal procedures set forth in SECTION 3.03(e) above. For this
purpose, the price to be so paid shall equal that portion of the Net Fair
Market Value of the assets of the Company which such Defaulter would
receive in the event of dissolution of the Company pursuant to SECTION
3.06(d). In furtherance of such right, any one or more non-Defaulters may
notify the other Members within thirty (30) days of the expiration of the
aforesaid time periods of its election to invoke the appraisal procedure
set forth in SECTION 3.03(e). Upon receipt of the appraisal, any one or
more non-Defaulters may notify the other Members of its election to
purchase the interest of the Defaulter, and the non-Defaulters who elect to
acquire the interest of the Defaulter shall acquire the interest in the
following manner: the remaining non-Defaulters shall have the first right
to purchase proportionate shares of the Defaulter's entire interest;
provided, however, if any non-Defaulter does not elect to purchase his or
its full proportionate share of the Defaulter's interest, the other non-
Defaulters may purchase proportionately the Defaulter's entire interest.
The non-Defaulters shall notify the Defaulter of their election within
thirty (30) days of receipt of the appraisal. For purposes of this SECTION
3.06(c), a Member's proportionate share of the interest of another Member
shall be determined on the basis of the ratio which such Member's
Percentage Interest in the Company bears to the aggregate Percentage
Interests of all Members therein who are exercising their rights in the
same manner as such Member. The closing of any purchase pursuant to this
SECTION 3.06(c) shall take place as provided in SECTION 3.03(d) hereof. If
the non-Defaulters do not elect to acquire the interest of the Defaulter as
set forth above, then any non-Defaulter may elect to terminate the Company
pursuant to SECTION 3.06(d) below by written notice given to the other
Members not later than 15 days after (i) the expiration of the 30 day
period within which the said appraisal procedure may be invoked as
aforesaid, where the same is not invoked, or (ii) the expiration of the 30
day period after the receipt of the appraisal within which the non-
defaulters may elect to purchase such Company interest, where the appraisal
procedure is invoked but the election to purchase such Company interest is
not made; provided however that no Member shall have the election to so
terminate the Company prior to expiration of any time period during which
any non-Defaulter may elect to acquire a Defaulter's interest under this
SECTION 3.06(c).
(d) Upon dissolution of the Company pursuant to SECTION
3.06(b) hereof, the Company shall immediately commence to wind up its
affairs and the Members shall proceed with reasonable promptness to
liquidate the business of the Company. During the period of the winding up
of the affairs of the Company, the rights and obligations of the Members
set forth herein with respect to the management of the Company shall
continue. For purposes of winding up, the Management Committee shall
continue to act as such and shall make all decisions relating to the
conduct of any business or operations during the winding-up period and the
sale or other disposition of assets of the Company; provided that if the
termination of the Company results from any Event of Default, the
defaulting Member(s) shall have no further right to participate in the
management or affairs of the Company or to attend Management Committee
meetings or vote on decisions by the Management Committee of the Company,
and shall be bound by all decisions made by such Management Committee,
which shall determine all such matters as provided in this SECTION 3.06(d)
by the affirmative vote of not less than seventy-five percent (75%) of the
aggregate Percentage Interests of all non-Defaulting Members in the
Company.
If the Company is dissolved for any reason while there is
work in progress on the construction of improvements in or on any portion
of the Property and Improvements owned or operated by the Company, winding
up the affairs and termination of the business of the Company may include
completion of the work in progress to the extent of constructing and
leasing improvements then being developed on such Property and Improvements
as the Management Committee of the Company may determine to be necessary to
bring the matters under construction to a state of completion convenient
for the cessation of work, giving due regard to the interest of all
Members.
Net Cash Flow of the Company during the period of winding
up resulting from normal operations shall be distributed in accordance with
SECTION 2.06 hereof, after making provision for any necessary reserves as
therein contemplated, and Net Cash Flow of the Company from the sale of all
or substantially all of the assets of the Company, whether or not in
connection with the winding up of the Company shall be distributed as
provided in the next succeeding paragraph.
The assets of the Company shall be applied and
distributed in liquidation in the following order of priority:
(i) First, in payment of debts and obligations
of the Company owed to third parties, including the setting aside of such
reserves as are Approved by the Management Committee to satisfy contingent
or unforeseen liabilities of the Company;
(ii) Second, to pay the accrued, unpaid interest
and then principal on each of the debts and obligations of the Company to
any Member (based on the inverse chronological order in which the
indebtedness was incurred); and
(iii) Third, the balance, if any, to the Members
in accordance with SECTION 2.06. It is intended that the distributions set
forth in this subsection (iii) comply with the requirement of Regulations
Section 1.704-1(b)(2)(ii)(b)(2) that liquidating distributions be made in
accordance with positive Capital Account balances. However, if the
balances in the Capital Accounts do not result in such requirement being
satisfied, no change in the amounts of distributions pursuant to this
Section shall be made, but, instead, items of income, gain, loss, deduction
and credit will be reallocated among the Members so as to cause the
balances in the Capital Accounts to be in the amounts necessary so that, to
the extent possible, such result is achieved.
Following the final allocations and the final
distributions (other than the distribution, if any, required by this
sentence) of Company Property in connection with a dissolution and
termination of the Company, each Member that has obligated itself to make
up any deficits in its Capital Account pursuant to SECTION 3.06(f) shall
contribute to the Company an amount equal to (and shall in no event be
obligated to contribute more than) the lesser of (i) the amount that such
Member has so obligated itself to contribute and (ii) the deficit balance
in the Capital Account of such Member after such distributions and
allocations, and such contribution shall be distributed to the Members that
have positive balances in their Capital Accounts (unless such contribution
is used to satisfy obligations of the Company).
If the liquidation proceeds are insufficient to satisfy
all of the claims within any of the categories described in SECTIONS
3.06(d)(i) through (iii) above, the proceeds shall be applied prorata to
all claims within such category in order of priority for which any proceeds
are available for payment or distribution.
Every effort shall be made to dispose of the assets of
the Company so that the distribution may be made to the Members in cash.
If, at the time of the completion of the winding up of the Company, the
Company owns any assets in the form of work in progress, notes or deeds of
trust or otherwise which it has been unable to dispose of, such assets, if
any, shall be distributed in kind to the Members, in lieu of cash,
proportionately to their right to receive the assets of the Company if all
of the same were sold for cash.
(e) Each Member shall look solely to the assets of the
Company for all distributions with respect to the Company and its capital
contributions thereto and its share of the profits or losses thereof, and
shall have no recourse therefor (in the event of any deficit in a Member's
capital account or otherwise) against the other Members; provided that,
subject to SECTION 6.09, nothing contained herein shall relieve any Member
of such Member's obligation to make the capital contributions herein
provided or to pay any liability or indebtedness owing to the Company by
such Member, and the Company and the other Members shall be entitled at all
times to enforce such obligations of such Member. No holder of a Company
interest shall have any right to demand or receive property other than cash
upon dissolution and termination of the Company.
(f) Each Member may, prior to, or at the time prescribed by
law for the filing of the Company federal income tax return for each
taxable year (not including extensions), elect to be unconditionally
obligated to restore all or a portion of any deficit in such Member's
Capital Account upon liquidation of its interest in the Company. Any such
election shall be evidenced by written notice to the other Members,
delivered prior to such time, specifying the amount of any deficit for
which the Member elects a deficit restoration obligation. Any amount owing
pursuant to a deficit restoration obligation shall be payable upon the
later of (i) the end of the fiscal year in which a Member's interest is
liquidated or (ii) 90 days after the end of such liquidation. The amount
of any such election shall automatically be reduced to the extent the
deficit in such Member's Capital Account is subsequently reduced. If any
allocation or distribution thereafter increased the deficit in such
Member's Capital Account, unless a Member elects otherwise under this
SECTION 3.06(f), such Member will be obligated to restore the deficit only
to the extent of the lesser of (A) the deficit amount such Member has
previously elected to restore, or (B) the smallest deficit balance in such
Member's Capital Account at any time after such election. For purposes of
determining the amount referred to above in Clause (B), the income, gain,
losses and deductions of the Company shall be prorated on a daily basis,
except for income, gain, losses and deductions from the sale or disposition
of capital items, which will be allocated under an interim closing of the
books method.
(g) Any Company property which is not sold, but which is
distributed or deemed distributed to any Members (including any deemed
distribution in connection with a constructive termination of the Company
under Section 708 of the Code), shall be valued at its then fair market
value, as reasonably determined by the Management Committee, to determine
the gain or loss which would have resulted if such Company property had
actually been sold (subject to any debt secured by such property) at such
value, which fair market value (less the amount of any debt secured by such
property)) shall be treated as Disposition Proceeds for purposes of SECTION
2.06(c) hereof. The Members' share of the hypothetical gain or loss
realized by the Company from such deemed sale based on the property's fair
market value shall be considered a part of the Disposition Profit or
Disposition Loss, as the case may be, and shall be allocated among the
Members in accordance with SECTION 2.09 hereof. The Capital Accounts of
the Members shall be appropriately adjusted under SECTION 2.04 hereof to
take into account such allocations.
(h) All documents and records of the Company including,
without limitation, all financial records, vouchers, cancelled checks and
bank statements, shall be delivered to Carlyle upon termination of the
Company. In the event any Member ("WITHDRAWING MEMBER") for any reason
ceases as provided herein to be a Member at any time prior to termination
of the Company, and the Company is continued without the Withdrawing
Member, the other Members ("SURVIVING MEMBERS") agree that said documents
and records of the Company up to the date of the termination of the
Withdrawing Member's interest shall be maintained by the Surviving Members,
their successors and assigns, for a period of not less than seven (7) years
thereafter, and shall be available for inspection, examination and copying
by the Withdrawing Member upon reasonable notice, and by supervisory and
regulatory authorities (through their representatives) of any such
Withdrawing Member in the same manner as provided in SECTION 3.02(b) hereof
during said seven (7) year period.
4. BINDING EFFECT OF AGREEMENT; REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE PARTIES.
4.01 REPRESENTATIONS, WARRANTIES AND COVENANTS OF MAGUIRE PARTNERS.
Maguire Partners represents, warrants and covenants to Carlyle
that (i) Maguire Partners is not bound by any contractual or other
arrangement which would require the approval of any other party to the
effectuation of the transactions contemplated by this Agreement, which
approval has not been obtained, and (ii) there are no agreements between
Maguire Partners and any of the other parties hereto with respect to the
Company or the Project except as set forth or described herein and the
Wells Fargo Bank Addendum attached to this Agreement.
4.02 REPRESENTATIONS, WARRANTIES AND COVENANTS OF CARLYLE 14 AND
CARLYLE 15.
Carlyle 14 and Carlyle 15 each represents, warrants and covenants to
Maguire Partners that (i) it is not bound by any contractual or other
arrangement which would require the approval of any other party to the
effectuation of the transactions contemplated by this Agreement, which
approval has not been obtained, and (ii) there are no agreements between
Carlyle 14 and/or Carlyle 15 and any of the other parties hereto with
respect to the Company or the Project except as set forth or described
herein and the Wells Fargo Bank Addendum attached to this Agreement.
4.03 RESERVED.
4.04 INDEMNIFICATION.
Maguire Partners and Carlyle each agree to indemnify and hold
harmless the other and their affiliates, directors and officers against any
and all claims, demands, losses, damages, liabilities, lawsuits, and other
proceedings, judgments and awards and costs and expenses (including but not
limited to reasonable attorneys' fees) arising directly or indirectly in
whole or in part out of any breach of any of the foregoing representations
and warranties and covenants made by Maguire Partners or Carlyle, as the
case may be, under SECTION 4.01 or 4.02 above.
4.05 SURVIVAL OF REPRESENTATIONS.
The foregoing representations and warranties of Maguire Partners or
Carlyle set forth in SECTIONS 4.01 and 4.02 hereof shall survive the
consummation of this Agreement.
5. RESERVED.
6. MISCELLANEOUS PROVISIONS.
6.01 COMPLETE AGREEMENT; AMENDMENT.
This Agreement and the Wells Fargo Bank Addendum attached hereto,
constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all agreements, representations,
warranties, statements, promises and understandings, whether oral or
written, with respect to the subject matter hereof, and no party hereto
shall be bound by or charged with any oral or written agreements,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement, the exhibits hereto and the Wells
Fargo Bank Addendum. This Agreement may not be amended, altered or modified
except by a writing signed by all parties hereto.
6.02 NOTICES.
(a) All notices under this Agreement shall be in writing and
shall be delivered by personal service, or by certified or registered mail,
postage prepaid, return receipt requested to the parties at the addresses
herein set forth and to the Company at its principal place of business.
The addresses for notices are as follows:
If to Maguire Partners or the Company:
355 South Grand Ave., Suite 4500
Los Angeles, CA 90071
Attn: Mr. Robert F. Maguire III
with a copy to:
Gilchrist & Rutter Professional Corporation
1229 Ocean Avenue
Suite 900
Santa Monica, California 90401
Attn: Paul S. Rutter, Esq.
If to Carlyle 14 or to Carlyle 15:
c/o JMB Realty Corporation
875 North Michigan Avenue, Suite 3900
Chicago, Illinois 60611
Attn: Mr. Patrick Meara
with a copy to:
Paul, Hastings, Janofsky & Walker
555 South Flower Street, 23rd Floor
Los Angeles, California 90071-2371
Attn: Paul Walker, Esq.
with a copy to:
Wells Fargo Bank, N.A.
2030 Main Street
Suite 800
Irvine, California 92714
Attn: Mr. Patrick Mooney, Vice President
with a copy to:
Brobeck, Phleger & Harrison, LLP
One Market Plaza, Spear Street Tower
23rd Floor
San Francisco, California 94105
Attn: G. Larry Engel
(b) All notices, demands and requests shall be effective upon being
deposited in the United States mail. However, the time period in which a
response to any such notice, demand or request must be given shall commence
to run from the date of receipt on the return receipt of the notice, demand
or request by the addresses thereof. Rejection or other refusal to accept
or the inability to deliver because of changed address of which no notice
was given as provided in subsection (c) below shall be deemed to be receipt
of the notice, demand or request sent.
(c) By giving to the other party at least thirty (30) days' written
notice thereof, the parties hereto and their respective permitted
successors and assigns shall have the right from time to time and at any
time during the term of this Agreement to change their respective addresses
for notices and each shall have the right to specify as its address for
notice any other address within the United States of America.
6.03 ATTORNEYS' FEES.
Should any litigation be commenced between the parties hereto or
their representatives or should any party institute any proceedings in a
bankruptcy or similar court which has jurisdiction over any other party
hereto or any or all of his or its property or assets concerning any
provision of this Agreement or the rights or duties of any person or entity
in relation thereto, the party or parties prevailing in such litigation
shall be entitled, in addition to such other relief as may be granted to a
reasonable sum as and for his or its or their attorneys' fees and court
costs in such litigation which shall be determined by the court in such
litigation or in a separate action brought for that purpose.
6.04 SEPARABILITY.
In the event that any provision of this Agreement shall be held to be
invalid, the same shall not affect in any respect whatsoever the validity
of the remainder of this Agreement.
6.05 SURVIVAL OF RIGHTS AND ASSIGNABILITY.
Except as provided herein to the contrary, this Agreement shall be
binding upon and inure to the benefit of the parties signatory hereto,
their respective heirs, representatives and permitted successors and
assigns; provided, however, that except as expressly permitted by the
provisions of this Agreement, no Member shall be permitted to assign any
rights hereunder to any third party.
6.06 GOVERNING LAW.
This Agreement has been entered into in the State of California and
all questions with respect to this Agreement and the rights and liabilities
of the parties hereto shall be governed by the laws of that State.
6.07 WAIVER.
No consent or waiver, express or implied, by any Member to or of any
breach or default by them in the performance by them of their obligations
hereunder shall be deemed to be a consent or waiver to or of any other
breach or default in performance by them of the same or any other
obligation of them hereunder. Except as otherwise provided herein, failure
to act of any Member or to declare any Member in default shall not
constitute a waiver by any Member of its rights hereunder. The giving of
consent by any Member in any one instance shall not limit or waive the
necessity to obtain such Member's consent in any future instance.
6.08 ALTERNATIVE REMEDIES; EQUITABLE REMEDIES.
The rights and remedies of any of the Members hereunder shall not be
mutually exclusive, i.e., the exercise of one or more of the provisions
hereof shall not preclude the exercise of any other provisions hereof.
Each of the Members confirms that damages at law will be an inadequate
remedy for a breach or threatened breach of this Agreement and agrees that
in the event of a breach or threatened breach of any provision hereof, the
respective rights and obligations hereunder shall be enforceable by
specific performance, injunction or other equitable remedy, but nothing
herein contained is intended to nor shall it limit or affect any rights at
law or by statute or otherwise of any party aggrieved as against the other
for a breach or threatened breach of any provision hereof.
6.09 LIMITATION ON LIABILITY.
No Person who is a present or future Member in the Company, or a
direct or indirect partner or member in any Member in the Company shall
have any personal liability of any kind or nature for or by reason of any
matter or thing whatsoever under or in connection with this Agreement or
any other agreement entered into under or in connection herewith, and the
Company and each other Member hereby waives all such personal liability.
6.10 WELLS FARGO BANK ADDENDUM.
The Members hereby incorporate the provisions of the Wells Fargo
Bank Addendum attached to this Agreement as part of this Agreement.
6.11 ACTIONS BETWEEN MEMBERS.
Any Member shall be entitled to maintain, on its own behalf or on
behalf of the Company, any action or proceeding against the other Members
or the Company (including, without limitation, any action for damages,
specific performance or declaratory relief) for or by reason of any breach
by such Member of this Agreement or any other agreement with or related to
the Company, notwithstanding the fact that any or all of the parties to
such proceeding may then be Members in the Company, and without dissolving
the Company as a limited liability company.
6.12 NO THIRD PARTY BENEFICIARIES.
Nothing contained herein, except as otherwise herein expressly set
forth, shall be deemed to create any right or interest in any third party
or any right in any third party to enforce any provision of this Agreement
("third party" for purposes of the foregoing meaning any Person other than
a Member or an assignee, transferee or agent of a Member).
6.13 TERMINOLOGY.
All personal pronouns used in this Agreement whether used in the
masculine, feminine or neuter gender shall include all genders; and the
singular shall include the plural and vice versa. Titles of articles and
sections are for convenience only and neither limit nor amplify the
provisions of this Agreement itself. The use herein of the word
"including" when following any general statement, term or matter shall not
be construed to limit such statement, term or matter to the specific items
or matters set forth immediately following such word or to similar items or
matters whether or not non-limiting language (such as "without limitation"
or "but not limited to" or words of similar import) is used with reference
thereto but rather shall be deemed to refer to all other items or matters
that could reasonably fall within the broadest possible scope of such
general statement, term or matter.
6.14 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which shall constitute
one and the same Agreement.
6.15 FURTHER ASSURANCES.
Each party hereto agrees to do all acts and things and to make,
execute and deliver such written instruments as shall be reasonably
required to carry out the terms and provisions of this Agreement, and to
enable each party to obtain the benefits of this Agreement provided for it
herein.
6.16 NON-DISCRIMINATION.
There shall be no discrimination against or segregation of, any
person, or group of persons on account of race, color, creed, national
origin, or ancestry in the sale, lease, sublease, transfer, use, occupancy,
tenure, or enjoyment of the Property or the Improvements thereon, nor shall
the Company or any Person claiming under or through it, establish or permit
any such practice or practices of discrimination or segregation with
reference to the selection, location, number, use or occupancy of tenants,
lessees, subtenants, sublessees, or vendees of the land.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above set forth.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XIV
an Illinois limited partnership
By: JMB REALTY CORPORATION
an Illinois corporation,
General Partner
By: ________________________________
Vice President
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XV
an Illinois limited partnership
By: JMB REALTY CORPORATION
an Illinois corporation,
General Partner
By: ______________________________________
Vice President
MAGUIRE PARTNERS-BUNKER HILL, LTD.
a California Limited Partnership
By: Maguire Partners BGHS, LLC
a California limited liability company
General Partner
By: Maguire Partners SCS, Inc.
a California corporation
Its Manager
By:_________________________
Robert F. Maguire III
President
WELLS FARGO BANK ADDENDUM
The undersigned parties are entering into this Addendum which is
attached to and made a part of the Operating Agreement ("OPERATING
AGREEMENT") of Maguire Thomas Partners-South Tower, LLC ("SOUTH TOWER").
In the event of a conflict between the provisions of the Operating
Agreement and this Addendum, the provisions of this Addendum shall control
only as among the parties to this Addendum; otherwise, the Operating
Agreement shall control.
A. CONSENT TO BANK SECURITY INTEREST. Maguire Partners-Bunker
Hill, Ltd. (herein, together with its permitted successors and assignees,
called "MP") consents to and acknowledges the Wells Fargo Bank (herein,
together with its successors and permitted assignees, called the "BANK" or
"WELLS FARGO BANK") security interest in the Carlyle membership interest in
South Tower ("CARLYLE INTERESTS") for the purposes of (i) Section 3.03 of
the Operating Agreement, and (ii) Sections 9318 and 9502 of the UCC. The
Bank may assign its rights and liens to any affiliate of the Bank in which
the Bank owns at least a majority ownership interest and has the right to
control the management of the affiliate ("AFFILIATE"), all without the need
for consent by MP or compliance with Section B below. The Bank shall give
prior written notice of any such assignment to MP. The 40% loan to value
and other limitations on permissible liens on membership interests shall
not apply to the Bank's security interest on the Carlyle Interests (or to
the successors or assignees of the Bank who hold such Interests and who are
affiliates of the Bank). All references herein to "membership interests"
(or similar terms) shall include all economic interests and rights to
distributions or payments of money or property.
B. RIGHT OF FIRST NEGOTIATION. The Bank may foreclose on its
security interest or otherwise acquire any or all of the Carlyle Interests,
either directly or through one of the Bank's affiliates, all without
complying with the offer and sale procedure in Section 3.03(b) of the
Operating Agreement, so long as the Bank or its affiliate is the transferee
of the Interests. An Event of Default by Carlyle under the Operating
Agreement shall not prevent the Bank from exercising its remedies under its
loan documents with Carlyle, subject to the Bank's obligations regarding
the cure of Carlyle defaults under SECTION C below; provided that the
foregoing shall not limit the remedies of MP for an Event of Default by
Carlyle under the Operating Agreement, subject to the right of the Bank to
cure such default under SECTION C.
Notwithstanding the two foregoing sentences, the following procedure
(herein called the "right of first negotiation procedure") shall apply (i)
if the Bank intends to transfer the Carlyle Interests, or any portion
thereof, to any entity or person other than the Bank (or its affiliate) or
Carlyle, or (ii) if the Bank transfers ownership of its affiliate, whether
as a result of a foreclosure on such Interests or as a result of a transfer
by the Bank subsequent to its foreclosure and acquisition of the Interests.
In such case, the Bank shall give notice to MP at least 30 days prior to
the date of such transfer. If the Bank does not receive written notice
from MP of MP's desire to negotiate to attempt to acquire such Interests
within 10 days from the date such notice of intent to transfer was sent to
MP, then the Bank may transfer the Carlyle Interests without further
restriction. However, if MP (i) wishes to negotiate to attempt to acquire
such Carlyle Interests, and (ii) gives its corresponding notice of that
desire to the Bank within such 10 days from the date the initial notice of
intent to transfer was sent to MP, then an exclusive negotiation period
shall exist for the balance of the 30 day period commencing on the date the
initial notice of intent to transfer was sent to MP. During that 30 day
exclusive negotiation period, Bank and MP shall negotiate in good faith
with each other regarding the terms of such purchase and sale of the
Carlyle Interests (or of the Bank's loan and security interest in the
Carlyle Interests, if the parties so agree in their respective discretion,
but without in any way implying any right or interest by MP or anyone else
in Bank's loan or security and without adversely affecting Bank's
unrestricted right to manage, administer, amend, renew, extend,
restructure, enforce or otherwise deal with its loan and security in any
way the Bank wishes). During said 30 day period in which the Bank or MP
are so negotiating with respect to the transfer of the Carlyle Interests,
the Bank shall not complete its foreclosure on, sell or agree to sell its
loan or the Carlyle Interests to any other party; provided that, the Bank
may notice the foreclosure sale for any time after the end of the 30 day
period and otherwise place itself in a position to complete a foreclosure
immediately after such 30 day period, if the negotiations with MP are
unsuccessful.
The Bank may always sell participations in its loans and security
without triggering this Section B exclusive negotiation procedure, as long
as such participants are subject to the same procedure as must be followed
by the Bank hereunder; provided that Bank will not sell such portion of the
loans and security such that Bank no longer has effective control over the
exercise of rights and remedies (subject to customary rights of approval by
loan participants in similar loans) as the holder of the loans unless (i)
Bank first gives South Tower written notice thereof at least thirty (30)
days prior to the consummation of such sale and (ii) the purchaser or
purchasers of such controlling interest in the loans is a Financial
Institution having at least $100,000,000 in net worth, as defined in
Section 3.03(a) of the Operating Agreement.
The Bank agrees that, if MP gives the Bank a written offer to
purchase the Carlyle Interests on an all cash basis ("MP OFFER") during the
30 day negotiation period, and if the Bank fails to accept such MP Offer
within the time period set forth in the MP Offer (which period for
acceptance must be at least twenty-five (25) days after the delivery of the
MP Offer), then from the date of receipt of the MP Offer until the date
that is one hundred eighty (180) days thereafter (the "TRANSFER PERIOD"),
the Bank shall have the right to transfer the Carlyle Interests to a
reputable third party, whether by foreclosure or otherwise, for a price
greater than the price in the MP Offer, although the Bank's transfer at a
higher price may be on terms other than cash, including a credit bid by the
Bank at the foreclosure sale. If, during the Transfer Period, the Bank
receives an offer from a third party for the purchase of the Carlyle
Interests which is equal to or lower than the MP Offer, and which the Bank
intends to accept, then the Bank shall not consummate a foreclosure sale or
other transfer of the Carlyle Interests to such offeror without first
complying with the offer and sale procedures of Section 3.03 of the
Operating Agreement. If the Bank receives an offer from a third party at a
price superior to the MP Offer during the Transfer Period, the Bank may
consummate such sale at a price greater than the MP Offer. After the
Transfer Period, if no sale is pending as of the last day of the Transfer
Period (or if such a sale is then pending but the closing date for such
sale is scheduled to occur more than thirty (30) days after the expiration
of the Transfer Period), including a foreclosure sale for a price above the
MP Offer, and if the Bank has not timely accepted the MP Offer, and the
Bank desires to sell the Carlyle Interests, the sales process shall re-
commence in accordance with the procedures described herein for a new 180-
day Transfer Period.
The comparison of the price to a third party compared to the MP Offer
is as to the aggregate compensation benefit to the Bank, considering all
factors relevant to a reasonable commercial bank under such circumstances.
Nothing herein prevents the Bank from making a credit bid at a foreclosure
sale in an amount in excess of the MP Offer. At all times, subject to the
right of first negotiation procedure herein (in the case of a sale of the
Carlyle Interests, or any portion thereof, to any third party other than
the Bank or its affiliate), the Bank may comply with the applicable laws to
make any foreclosure sale commercially reasonable and in compliance with
UCC 9504.
Subject to the Bank complying with the right of first negotiation
procedures governing the sale of the Carlyle Interests in accordance with
this SECTION B, a purchaser of the Carlyle Interests through a Bank
foreclosure sale shall become a substitute member in South Tower, subject
only to (i) the provisions of the Agreement requiring the substitute member
to assume all of the obligations of Carlyle under the Agreement, and (ii)
the delivery to MP of a certification from such substitute member, from
Carlyle (if then a member), and from the Bank, certifying that the
substitute member is either an affiliate of the Bank or has acquired the
Carlyle Interests after compliance by the Bank with the procedures set
forth in this Section B.
Nothing herein deprives the Bank of its rights under Section 3.03 of
the Operating Agreement. MP agrees that MP shall comply with the offer and
sale procedures of Section 3.03 of the Operating Agreement in connection
with the transfer of the MP interests.
C. RIGHT TO CURE DEFAULTS. The Bank shall receive directly copies
of all notices given to Carlyle by MP under the Operating Agreement,
including notices of default under Section 3.06, or offers to buy or sell
under Section 3.03, and of arbitration. The Bank (or its affiliate) shall
have the right, but not the obligation prior to the transfer of the Carlyle
Interests to the Bank or such affiliate, to cure any Carlyle default under
the Operating Agreement within a reasonable period after notice to the Bank
of Carlyle's default, which cure period shall not exceed the longer of (i)
ten (10) days from written notice thereof for monetary defaults, (ii)
thirty (30) days from written notice thereof for non-monetary defaults, or
(iii) the cure periods granted to Carlyle under the Agreement for the
relevant default; provided, however, that the Bank (or its successor or
permitted assignee which acquires the Carlyle Interests) shall have the
obligation to cure any Carlyle monetary default and any Carlyle non-
monetary default that is reasonably curable by a successor owner of the
Carlyle Interests within the foregoing cure periods once the Bank or its
successor or permitted assignee has acquired ownership of the Carlyle
Interests, calculating such Bank cure periods for such purpose from the
date when the Bank or its successor or permitted assignee so acquires such
Carlyle Interests. However, if the Bank or its successor or permitted
assignee becomes the substitute member in place of Carlyle, any non-
monetary defaults by Carlyle that are not reasonably capable of cure (with
a commercially reasonable effort) by the Bank or its successor or permitted
assignee need not be cured by the Bank or such other substitute member. As
long as the Bank can still cure Carlyle defaults and is diligently
undertaking reasonable efforts to cure such defaults, the Bank or its
successor or permitted assignee shall have the right to vote the Carlyle
Interests once the Bank or such successor or assignee acquires the Carlyle
Interests.
D. DISTRIBUTIONS. All distributions or payments for the account
of Carlyle in connection with South Tower shall be made directly to the
Bank pursuant to UCC Sections 9318 and 9502, and Carlyle irrevocably
consents to MP complying with such direction as to payments to the Bank.
Carlyle shall indemnify and hold MP harmless from any liability as a result
of its compliance with the foregoing direction.
E. NO ASSUMPTION. Unless and until the Bank replaces Carlyle as a
member, the Bank assumes none of the Carlyle obligations under the
Operating Agreement. However, the Bank recognizes any superior right which
South Tower may have to offset liabilities of Carlyle to South Tower
against the obligations of South Tower to Carlyle, as provided in UCC
9318(1)(a).
F. ARBITRATION. The Bank may intervene as a party and/or
participate (all at its option) in any arbitration proceeding pursuant to
the Operating Agreement in order to protect its interests. To the extent
that the Carlyle Interests in which the Bank has a security interest are
affected by any arbitration in which the Bank is permitted to participate
as a party, the results of such arbitration that are binding on Carlyle
likewise bind the Carlyle Interests which are subject to the Bank's
security interest, whether or not the Bank elects to participate in the
arbitration.
G. BANK APPROVAL OF CARLYLE ACTIONS. MP acknowledges that the
Bank holds its security interest and has certain rights to approve the
actions of Carlyle with respect to the Carlyle Interests in South Tower,
and that MP does not have any claim against the Bank as a result of its
having such approval rights through its loan documentation with Carlyle.
MP shall continue to deal exclusively with Carlyle in the management of
South Tower under the terms of the Operating Agreement, without regard to
the position of the Bank unless and until the Bank (or its affiliate)
becomes the substituted member pursuant to its security interest in the
Carlyle Interests. MP shall not bring a claim against the Bank by reason
of the Bank prohibiting Carlyle, under the Bank's loan documents with
Carlyle, from taking (or omitting to take) certain actions or approving (or
disapproving) certain decisions as a member of South Tower (without waiving
any rights or claims as to Carlyle as a member in the Company).
H. NO TERMINATION OF PARTNERSHIP. The Bank agrees that in no event
shall the exercise of the Bank's remedies as a secured creditor with a
security interest in the Carlyle Interests, nor any subsequent transfer of
the Carlyle Interests by the Bank or its successor or permitted assignee,
result in the termination of the South Tower limited liability company
under Section 708 of the Internal Revenue Code; provided, however, in
determining whether a transfer of the Carlyle Interests would cause a
Section 708 termination, the Bank shall be permitted to disregard any
transfer of the MP interest, or any portion thereof, during the preceding
12 month period. However, should the Bank succeed to the Carlyle
Interests, the Bank shall thereafter have no less rights than Carlyle would
have under the Operating Agreement, none of which shall be impaired by the
provisions of this Addendum, addressing the issues regarding the Bank's
position as a secured creditor of Carlyle. Nothing contained herein
relating to the transfer of the Carlyle Interests pursuant to the Bank's
rights as a secured creditor shall abridge or limit any other or greater
rights the Bank or any affiliate may have under the Operating Agreement
should the Bank or any affiliate acquire the Carlyle Interests or any other
interest of another member in South Tower.
I. NOTICES. The parties agree that notices hereunder shall be
given in accordance with Section 6.02 of the Operating Agreement and to the
addresses specified therein, in the case of Carlyle and MP. Notices to the
Bank shall be addressed as follows:
Wells Fargo Bank, N.A.
2030 Main Street
Suite 800
Irvine, California 92714
Attn: Patrick Mooney, Vice President
with a copy to:
Brobeck, Phelger & Harrison, LLP
One Market Plaza, Spear Street Tower
23rd Floor
San Francisco, California 94105
Attn: G. Larry Engel
(415) 442-1400
IN WITNESS WHEREOF, the parties below have entered into this Addendum
as of the 30th day of September, 1996.
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XIV
an Illinois limited partnership
By: JMB REALTY CORPORATION
an Illinois corporation,
General Partner
By: ________________________________
Vice President
CARLYLE REAL ESTATE LIMITED PARTNERSHIP-XV
an Illinois limited partnership
By: JMB REALTY CORPORATION
an Illinois corporation,
General Partner
By: ______________________________________
Vice President
MAGUIRE PARTNERS-BUNKER HILL, LTD.
a California Limited Partnership
By: Maguire Partners BGHS, LLC
a California limited liability company
General Partner
By: Maguire Partners SCS, Inc.
a California corporation
Its Manager
By:_________________________
Robert F. Maguire III
President
WELLS FARGO BANK, N.A.
a national banking association
By:
Its:
EXHIBIT "A"
LEGAL DESCRIPTION
(attached)
EXHIBIT "B"
LIST OF WELLS FARGO CENTER ARTWORK
Work: Artist: Type:
La Caresse d'un Oiseau Miro Sculpture
La Dandy Dubuffet Sculpture
Four Female Figures Graham Sculpture
Sequi Graves Sculpture
Light Touches Fall Color Wile Sculpture
Lock Down Aonoldi Sculpture
Sawtooth Obulich Sculpture
Night Sail (1985) Nevelson Sculpture
EXHIBIT "C"
INITIAL CAPITAL ACCOUNTS
Maguire Partners
(Initially booked to -0-)
$1,000,000 (after Supplemental Contribution)
Carlyle 14
(Initially booked to -0-)
$350,000 (after Supplemental Contribution)
Carlyle 15
(Initially booked to -0-)
$650,000 (after Supplemental Contribution)
EXHIBIT "D"
PERMANENT FINANCING GUIDELINES
1) The maximum Fixed Interest Rate, prior to any participation for Debt
Financing, is 14% per annum. This rate is to be subject to the IRR
parameters in item 10.
2) Should the Fixed Interest Rate, prior to any participation for
Convertible Financing, exceed 12%, the maximum Equity Participant
Percentage must drop from the maximum of 50% to a percentage that will
yield no more than an 18% pre-tax IRR including Originating Fees. An
example of the Lender Financial Analysis not exceeding 12% is attached to
illustrate the calculation of the IRR. The IRR and IROR are synonymous in
this illustration.
3) No maximum term of loan.
4) Minimum term of loan is 10 years.
5) NO PRINCIPAL REDUCTION REQUIRED.
6) Minimum Principal = Total Project Construction Costs; NO MAXIMUM
PRINCIPAL.
7) Minimum Debt Service Coverage Ratio = 1.1:1
8) The pre-tax IRR or Effective Yield on permanent financing must not
exceed 18%. (See attached sheet.)
9) No more than a 1.5 Points Originating Fee is to be paid to the
lending institution. If required, this fee will be paid from the proceeds
of the mortgage obtained for Permanent financing.
10) No Compensating Balances are to be maintained with the lending
institution.
*Definition IRR (Internal Rate of Return).
The rate of return on that amount provided by the Permanent Lender to
finance the project through its minimum term of 10 years.
The internal rate of return is calculated by finding the discount rate that
equates the present value of future cash flows plus the residual value
(which is the cash flow capitalized in the year of conversion by the
Permanent Lender by a capitalization rate that will return to the lender no
more than 18% pretax) to the cost of the investment. The effective yield
is synonymous with Pretax IRR for the purposes of this document.
EXHIBIT "E"
MAGUIRE/THOMAS PARTNERS - SOUTH TOWER, LLC
INSURANCE PROGRAM
Property: South Tower
Limits- No less than $175,000,000 all risk with a stop loss
limit of $75,000,000 for earthquake and flood (as long as obtainable at
cost effective rates). The stop loss limit is calculated on an annual
aggregate basis.
- No less than $30,000,000 rental income
sublimit, no time limitation, deductions shall not exceed 15 days.
Deductibles - No more than - $ 25,000 per loss for all
perils except:
- $100,000 per loss from
flood
- 2% of value at time of
loss from earthquake
Property: X-2(b) Parking Garage
Limits- No less than $15,000,000 all risk including earthquake
and flood, no stop loss, no coinsurance.
Deductibles - No more than - $ 25,000 per loss for all
perils except:
- $100,000 per loss from
flood
- 2% of value at time of
loss from earthquake
Liability: South Tower and X-2(b) Parking Garage
Limits- $20,000,000 per accident for direct damage and
business interruption
- $25,000 per accident for expediting expense
- $25,000 per accident for water damage
Deductibles - $25,000 per accident
GENERAL OVERALL REQUIREMENTS:
1. The insurance program will provide for a waiver of subrogation
against IBM as tenant of the Project, as long as obtainable.
2. Certified copies of all such policies will be provided to the
Members.
3. The all risk insurance coverage will, at a minimum,
cover loss by fire, lightning and perils of broad form extended
coverage as now and hereafter constituted for the lesser of the full
replacement cost without deduction for physical depreciation or the actual
cash value of the Project.
4. The liability insurance coverage will provide protection for all the
Members with respect to their ownership of the Project.
EXHIBIT "F"
I. ELECTIONS
The Company has made or will make the following tax elections:
a. The election under section 168(b)(3) or otherwise to claim
straight-line depreciation or cost recovery deductions with respect to all
"section 1250 property" (as defined in section 1250(c)), and accelerated
depreciation or cost recovery deductions with respect to all "section 1245
property" (as defined in section 1245(c)), over as short a period as is
permissible;
b. If and to the extent there are start-up expenses, an election
under section 195(b) to amortize such start-up expenses over a period of 60
months;
c. If and to the extent there are organizational expenses, an
election under section 709(b) to amortize such organizational expenses over
a period of 60 months.
d. The election under section 46(d) for qualified progress
expenditures with respect to any conveying systems.
II. CAPITAL ACCOUNTS
The Capital Account of each Member as of the effective date of this
Agreement is calculated as set forth in Attachment 1 hereto in accordance
with SECTION 2.04 of the Agreement. The following is a list of principles
that were applied in determining the Capital Accounts. The Members
recognize that certain of the numbers contained in the assumptions set
forth in said Attachment are tentative in that they reflect certain
assumptions as to the amounts, bases and values of assets and liabilities
of the Company on the date of the Agreement and other similar items, which
assumptions may prove to be other than as set forth herein. The Members
agree to revise this Exhibit if necessary, to reflect actual capital
accounts using such revised items in place of the items now contained
herein, but otherwise using the same method for calculations set forth
herein.
TABLE OF CONTENTS
ARTICLE 1. Definitions. . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2. Formation of Company; Capital, Distributions and
Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.01 Introductory Matters. . . . . . . . . 8
Section 2.02 Members and Their Interests . . . . . 9
Section 2.03 Capital Contributions . . . . . . . . 10
Section 2.04 Capital Accounts. . . . . . . . . . . 10
Section 2.05 Additional Capital Contributions. . . 11
Section 2.06 Distributions . . . . . . . . . . . . 14
Section 2.07 Reserves. . . . . . . . . . . . . . . 16
Section 2.08 Reserved. . . . . . . . . . . . . . . 16
Section 2.09 Allocations Among Members . . . . . . 16
Section 2.10 Reserved. . . . . . . . . . . . . . . 21
Section 2.11 Special Assets. . . . . . . . . . . . 21
Section 2.12 Aetna Lockbox . . . . . . . . . . . . 21
ARTICLE 3. Management and Operation . . . . . . . . . . . . . . 22
Section 3.01 Management of the Company . . . . . . 22
Section 3.02 Accounting, Tax Elections and Related
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.03 Sale, Transfer or Mortgage of Interests in
the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.04 Reserved. . . . . . . . . . . . . . . 44
Section 3.05 Admission of Additional Members;
Substitution . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.06 Default and Dissolution . . . . . . . 44
ARTICLE 4. Binding Effect of Agreement; Representations,
Warranties and Covenants of the Parties. . . . . . . 51
Section 4.01 Representations, Warranties
and Covenants of Maguire Partners. . . . . . . . . . . . . . . . . 51
Section 4.02 Representations, Warranties
and Covenants of Carlyle 14 and Carlyle 15 . . . . . . . . . . . . 51
Section 4.03 Reserved. . . . . . . . . . . . . . . 51
Section 4.04 Indemnification . . . . . . . . . . . 51
Section 4.05 Survival of Representations . . . . . 52
ARTICLE 5. Reserved . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 6. Miscellaneous Provisions . . . . . . . . . . . . . . 52
Section 6.01 Complete Agreement; Amendment . . . . 52
Section 6.02 Notices . . . . . . . . . . . . . . . 52
Section 6.03 Attorneys' Fees . . . . . . . . . . . 54
Section 6.04 Separability. . . . . . . . . . . . . 54
Section 6.05 Survival of Rights and Assignability. 54
Section 6.06 Governing Law . . . . . . . . . . . . 54
Section 6.07 Waiver. . . . . . . . . . . . . . . . 54
Section 6.08 Alternative Remedies; Equitable
Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.09 Limitation on Individual Liability. . 55
Section 6.10 Wells Fargo Bank Addendum . . . . . . 55
Section 6.11 Actions Between Members . . . . . . . 55
Section 6.12 No Third Party Beneficiaries. . . . . 55
Section 6.13 Terminology . . . . . . . . . . . . . 56
Section 6.14 Counterparts. . . . . . . . . . . . . 56
Section 6.15 Further Assurances. . . . . . . . . . 56
Section 6.16 Non-Discrimination. . . . . . . . . . 56
WELLS FARGO BANK ADDENDUM
EXHIBITS
Exhibit A - Legal Description
Exhibit B - Artwork
Exhibit C - Initial Capital Accounts
Exhibit D - Permanent Financing
Guidelines
Exhibit E - Insurance Program
Exhibit F - Tax Elections
EXHIBIT 10-R
- ------------
(Carlyle-XV)
FILED ON PAPER IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THESE
AGREEMENTS ARE BEING FILED IN PAPER PURSUANT TO A TEMPORARY HARDSHIP
EXEMPTION.
EXHIBIT 21
LIST OF SUBSIDIARIES
The Partnership is a partner of the following joint ventures:
JMB/Piper Jaffray Tower Associates, a general partnership, which is a
partner in (i) OB Joint Venture II, a general partnership, which is a
partner of 222 South Ninth Street Limited Partnership, a limited partner-
ship, which holds title to the Piper Jaffray Tower office building in
Minneapolis, Minnesota, and (ii) OB Joint Venture, a general partnership,
which holds title to the land underlying the Piper Jaffray Tower office
building; JMB/Piper Jaffray Tower Associates II, a general partnership
which also is a partner in OB Joint Venture, a general partnership, which
holds title to the land underlying the Piper Jaffray Tower office building;
900 3rd Avenue Associates, a general partnership, which is a partner of
Progress Partners, a general partnership, which holds title to 900 Third
Avenue Building located in New York, New York; Maguire Thomas Partners -
South Tower, a limited liability company, which holds title to Wells Fargo
Center - IBM Tower located in Los Angeles, California; 260 Franklin Street
Associates, a general partnership, which holds title to the 260 Franklin
Street Building located in Boston, Massachusetts; C-C California Plaza
Partnership, a general partnership, which holds title to the California
Plaza office building in Walnut Creek, California; and JMB/NewPark
Associates, a general partnership, which is a partner in NewPark
Associates, a general partnership, which holds title to the NewPark Mall in
Newark, California. Reference is made to the Notes for a description of
the terms of such venture partnerships.
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers of JMB
Realty Corporation, the corporate general partner of CARLYLE REAL ESTATE
LIMITED PARTNERSHIP - XV, do hereby nominate, constitute and appoint GARY
NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and
agents of the undersigned with full power of authority to sign in the name
and on behalf of the undersigned officers a Report on Form 10-K of said
partnership for the fiscal year ended December 31, 1996, and any and all
amendments thereto, hereby ratifying and confirming all that said attorneys
and agents and any of them may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney the 22nd day of January, 1997.
H. RIGEL BARBER
- -----------------------
H. Rigel Barber Chief Executive Officer
GLENN E. EMIG
- -----------------------
Glenn E. Emig Chief Operating Officer
The undersigned hereby acknowledge and accept such power of authority
to sign, in the name and on behalf of the above named officers, a Report on
Form 10-K of said partnership for the fiscal year ended December 31, 1996,
and any and all amendments thereto, the 22nd day of January, 1997.
GARY NICKELE
-----------------------
Gary Nickele
GAILEN J. HULL
-----------------------
Gailen J. Hull
DENNIS M. QUINN
-----------------------
Dennis M. Quinn
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers of JMB
Realty Corporation, the corporate general partner of CARLYLE REAL ESTATE
LIMITED PARTNERSHIP - XV, do hereby nominate, constitute and appoint GARY
NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and
agents of the undersigned with full power of authority to sign in the name
and on behalf of the undersigned officers a Report on Form 10-K of said
partnership for the fiscal year ended December 31, 1996, and any and all
amendments thereto, hereby ratifying and confirming all that said attorneys
and agents and any of them may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney the 22nd day of January, 1997.
NEIL G. BLUHM
- ----------------------- President and Director
Neil G. Bluhm
JUDD D. MALKIN
- ----------------------- Chairman and Chief Financial Officer
Judd D. Malkin
A. LEE SACKS
- ----------------------- Director of General Partner
A. Lee Sacks
STUART C. NATHAN
- ----------------------- Executive Vice President
Stuart C. Nathan Director of General Partner
The undersigned hereby acknowledge and accept such power of authority
to sign, in the name and on behalf of the above named officers, a Report on
Form 10-K of said partnership for the fiscal year ended December 31, 1996,
and any and all amendments thereto, the 22nd day of January, 1997.
GARY NICKELE
-----------------------
Gary Nickele
GAILEN J. HULL
-----------------------
Gailen J. Hull
DENNIS M. QUINN
-----------------------
Dennis M. Quinn
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,664,264
<SECURITIES> 0
<RECEIVABLES> 11,033,758
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,698,022
<PP&E> 81,443,065
<DEPRECIATION> 31,766,188
<TOTAL-ASSETS> 174,989,293
<CURRENT-LIABILITIES> 137,463,717
<BONDS> 100,932,989
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0
0
<OTHER-SE> (80,575,338)
<TOTAL-LIABILITY-AND-EQUITY>174,989,293
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<TOTAL-REVENUES> 28,496,327
<CGS> 0
<TOTAL-COSTS> 19,711,618
<OTHER-EXPENSES> 13,251,199
<LOSS-PROVISION> 26,000,000
<INTEREST-EXPENSE> 23,796,808
<INCOME-PRETAX> (54,263,298)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,291,781)
<DISCONTINUED> 12,665,186
<EXTRAORDINARY> 35,222,897
<CHANGES> (30,000,000)
<NET-INCOME> (31,403,748)
<EPS-PRIMARY> (64.72)
<EPS-DILUTED> (64.72)
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