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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of Securities Exchange Act of 1934
Commission File
For the fiscal year ended December 31, 1996 Number 0-14536
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2869812
(State of organization) (IRS Employer Identification No.)
One International Place, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 330-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(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 No X
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. [ ]
No market exists for the limited partnership interests of the Registrant, and,
therefore, a market value for such interests cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. Business.
Organization
Winthrop California Investors Limited Partnership was originally
organized on January 24, 1985 as a Maryland limited partnership. On October 16,
1985, the Registrant was reorganized as Winthrop California Investors Limited
Partnership, a Delaware limited partnership (the "Registrant"), in accordance
with the provisions of the Delaware Revised Uniform Limited Partnership Act. The
Registrant was organized for the purpose of owning (i) a general partnership
interest in, and serving as a general partner of, Crow Winthrop Operating
Partnership, a Maryland general partnership (the "Operating Partnership") which
was originally organized on January 24, 1985 to acquire, own and operate an
approximately 1.6 million square foot office facility known as the Fluor
Corporation World Headquarters Facility in Irvine (Orange County), California
(the "Headquarters Facility"), and (ii) a limited partnership interest in Crow
Winthrop Development Limited Partnership, a Maryland limited partnership (the
"Development Partnership") organized on January 24, 1985 to acquire and own in
excess of 120 acres of land surrounding the Headquarters Facility (the "Excess
Land") and to develop such Excess Land with office, hotel, retail and
entertainment complexes. The Registrant and the Operating and Development
Partnerships are herein referred to collectively as the "Partnerships". The
Headquarters Facility and the Excess Land are herein referred to collectively as
the "Properties". The Registrant subsequently acquired in March 1992 a 99%
limited partnership interest in Winthrop California Management Limited
Partnership, a Maryland limited partnership ("WC Management").
The general partners of the Registrant (the "General Partners") are
Winthrop Financial Associates, A Limited Partnership ("WFA") and Three Winthrop
Properties, Inc. ("Three Winthrop").
The Registrant was initially capitalized with nominal capital
contributions from the General Partners. In December 1986, the Registrant
completed an offering of 3,500 units of limited partnership interest ("Units")
in the Registrant to limited partners ("Limited Partners"), raising capital
contributions of $217,780,500. One of the Limited Partners is WILCAP Limited
Partnership, a Massachusetts limited partnership which is wholly-owned by WFA
and its affiliates ("WILCAP"). On May 9, 1986, WILCAP purchased 1,000 Units for
an aggregate price of $54 million, or $54,000 per Unit, payable in cash upon its
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admission to the Registrant. The purchase price equals the purchase price paid
by other limited partners in the offering less brokerage commissions which
otherwise would have been payable to an affiliate of WFA and a pro rata portion
of certain acquisitions fees which otherwise would have been payable to WFA. Of
the total capital contributions raised, $151,194,500 was paid upon admission of
the Limited Partners, and the balance was payable in installments pursuant to
the terms of promissory notes. As of May 1, 1988, the Limited Partners' capital
contributions had been paid in full.
Description of Business
The only business of the Registrant is investing as a 99% general
partner in the Operating Partnership, as a 25% limited partner in the
Development Partnership and as a 99% limited partner in WC Management. The other
partner of the Operating Partnership is Crow Irvine #2, a California limited
partnership ("Crow Irvine"). Pursuant to an amendment to the partnership
agreement of the Operating Partnership entered into in February 1992, the
Registrant assumed sole responsibility for the management of the business of the
Operating Partnership. Crow Irvine is also the general partner of the
Development Partnership. The general partner of Crow Irvine is Crow Irvine #1, a
Texas limited partnership, and the limited partner is the Fluor Corporation. The
general and limited partners of Crow Irvine #1 are certain partners and an
affiliate of Trammel Crow Company. Trammel Crow Company is one of the largest
private real estate development and investment firms in the United States.
In exchange for its interests in the Operating Partnership and the
Development Partnership, the Registrant agreed to contribute as capital $138
million and $45 million, respectively, payable in installments. As of May 1988,
the Registrant had fully funded the capital contributions. The Registrant is
entitled to 97% (of which the Limited Partners receive 98%) of the profits,
losses and cash flow and, after certain priorities, 90% (of which the Limited
Partners receive 90% of the proceeds) from a sale or refinancing from the
Operating Partnership. The Registrant is entitled to 25% (of which the Limited
Partners receive 60%) of the profits, losses, cash flow and, after certain
priorities, the proceeds from a sale or refinancing from the Development
Partnership.
Change in Ownership; Mortgage Loan Workout
THE FOLLOWING DISCUSSION WITH RESPECT TO THE PROPOSED WORKOUT OF THE
OPERATING PARTNERSHIP'S DEFAULT UNDER ITS EXISTING INDEBTEDNESS IS BASED ON THE
CURRENT STRUCTURE OF THE NEGOTIATED PLAN OF REORGANIZATION OF THE OPERATING
PARTNERSHIP. THERE CAN
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BE NO ASSURANCE, HOWEVER, THAT THE PLAN ULTIMATELY APPROVED, IF ANY, WILL BE ON
THE SAME TERMS AND CONDITIONS AS THE CURRENT PLAN. LIMITED PARTNERS SHOULD BE
AWARE, HOWEVER, THAT PRIOR TO THE IMPLEMENTATION OF THE PLAN AS CURRENTLY
PROPOSED, THE CONSENT OF LIMITED PARTNERS AS PROVIDED FOR IN THE PARTNERSHIP
AGREEMENT OF THE PARTNERSHIP WILL BE SOUGHT.
After the acquisition of the Headquarters Facility, the Orange County
rental market, in general, and the rental market in the area proximate to John
Wayne Airport (the "Greater Airport market") weakened dramatically as supply of
office space outpaced demand. In addition, in the late 1980s an affiliate of
fluor Corporation ("Fluor"), which originally occupied 100% of the Headquarters
Facility in 1985, began exercising its right to cancel the lease with respect to
significant portions of space at the Headquarters Facility. While WC Management
was able to re-let much of the vacated space and maintain low vacancy rates as
the result of an aggressive leasing campaign (the Headquarters Facility was
91.5% occupied at the end of 1996), the Headquarters Facility suffered a
decline in achievable rents. The decline in rents was due to significantly lower
rental rates for the re-let Flour space, which were consistent with the then
current market rates. Furthermore, Fluor recently announced that it will be
constructing a new facility to serve as its headquarters and intends to vacate
the Headquarters Facility when its lease expires in 1998. Fluor currently leases
approximately 54% of the total rentable space at the Headquarters Facility.
As a result of the adverse events described above, the Operating
Partnership was unable to satisfy the approximately $198 million due under a
Secured Promissory Note (the "Existing Secured Note") at its April 1, 1996
maturity. Prior to the maturity of the Existing Secured Note, the Operating
Partnership and the holders of the Existing Secured Note (the
"Certificateholders") commenced negotiations to restructure the Existing Secured
Note. On April 10, 1996, Pacific Mutual Realty Finance, Inc. ("Pacific Mutual"),
the agent for the Certificateholders, notified the Operating Partnership that it
had received the requisite consents from the Certificateholders to extend the
maturity date through June 1996. Although the Operating Partnership was unable
to repay the principal amount outstanding on the Existing Secured Note at such
extended maturity date, the Operating Partnership continued to pay interest at
the non-default rate after such maturity date. As a result of its inability to
satisfy the Existing Secured Note at maturity, a notice of default against the
Headquarters Facility was filed in June 1996 and in July 1996, Pacific Mutual
took possession of approximately $1.3 million in cash that was held in a pledged
account. Nonetheless, negotiations among the parties continued, and in August
1996 the parties reached an agreement
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providing for the payment of excess cash to the Certificateholders pursuant to a
monthly cash sweep of the Operating Partnership's rent account.
On November 27, 1996, the Certificateholders and the Operating
Partnership reached an agreement (the "Agreement of Understanding") in principle
on the terms of a plan of reorganization. Under the Agreement of Understanding,
the Certificateholders agreed to support a pre-arranged bankruptcy plan of
reorganization for the Operating Partnership on certain terms and conditions.
The Certificateholders also agreed to forbear from exercising any remedies so
long as the Agreement of Understanding was in effect.
In connection with, and as contemplated by, the Agreement of
Understanding, the Operating Partnership filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") on March
28, 1997. As a condition to the transfer of the Headquarters Facility as
contemplated by the Operating Partnership's Second Amended and Restated Plan of
Reorganization dated June 27, 1997 (the "Plan"), the requisite consent of the
Limited Partners will be required with respect to the Plan.
Pursuant to the terms of the Plan, the Operating Partnership will
contribute all of its assets and liabilities, including all of its right, title
and interest in the Headquarters Facility and $500,000 of unencumbered cash, to
a newly formed Delaware limited liability company to be known as Jamboree LLC,
in exchange for an initial 10% ownership interest in Jamboree LLC. In addition,
Jamboree LLC will pay to the Registrant a $500,000 fee in connection with the
Plan. Immediately prior to the transfer by the Operating Partnership of its
assets and liabilities to Jamboree LLC, the Existing Secured Note will be
satisfied by (i) the forgiveness of approximately $93 million of the debt plus
interest accrued thereon and (ii) the issuance by the Operating Partnership of
two intermediate notes, one in the original principal amount of $4.5 million
(the "First Intermediate Note") and the second in the original principal amount
of $100 million (the "Second Intermediate Note"). Subsequent to the contribution
by the Operating Partnership of all of its assets and liabilities to Jamboree
LLC, the Certificateholders will contribute the First and Second Intermediate
Notes to Jamboree Office REIT (a newly formed real estate investment trust, the
initial stockholders of which will be the Certificateholders) and Jamboree
Office REIT will, in turn, contribute the First Intermediate Note to Jamboree
LLC in exchange for the remaining 90% interest in Jamboree LLC. Jamboree LLC
will satisfy the Second Intermediate Note by issuing the New Notes (as defined
below) in the original principal amount
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of $100 million in satisfaction of the $100 million outstanding balance.
Jamboree LLC will be a newly formed limited liability company organized
under the laws of the State of Delaware. Jamboree LLC will terminate on the
earlier to occur of (i) one year after the sale or transfer of the Headquarters
Facility, provided that the Jamboree LLC Board (as defined below) does not vote
to continue the company, (ii) September 28, 2002, (iii) the consent of the
members of Jamboree LLC or (iv) as required by applicable law. Jamboree LLC will
be governed by a five person board of member representatives (the "Jamboree LLC
Board"). The initial five members will be designated one by the Operating
Partnership and four by Jamboree Office REIT. A majority of the members of the
Jamboree LLC Board must approve (i) all operating decisions not designated as
requiring unanimous approval in Jamboree LLC's Limited Liability Company
Agreement (the "LLC Agreement") and (ii) termination for cause of the Management
Agreement (as hereinafter defined). Unanimous approval of the Jamboree LLC Board
will be required to (i) commence a voluntary case under the Bankruptcy Code,
(ii) terminate the Management Agreement without cause, (iii) sell all or any
material portion of the Headquarters Facility prior to three years after the
effective date of the Plan, (iv) except as otherwise provided in the LLC
Agreement, issue additional units representing membership interests (v)
authorize business activities other than the ownership and operation of the
Headquarters Facility within three years of the Effective Date, (vi) following
the sale of the Headquarters Facility, authorize the continued existence of
Jamboree LLC for more than one year, and (vii) authorize certain other matters
as provided in the LLC Agreement.
In addition, the Operating Partnership will have the right (the
"Exchange Right") to exchange its interest in Jamboree LLC at any time after one
year from the effectiveness of the Plan (subject to certain exceptions) through
March 27, 2002 for shares in Jamboree Office REIT ("REIT Shares"). In general,
the Operating Partnership may exchange its 10% interest in Jamboree LLC for a
fixed number of Shares (on a one-for-one basis) in Jamboree Office REIT, subject
to adjustment, equal to 900,000 multiplied by the Operating Partnership's then
ownership percentage in Jamboree LLC. All REIT shares received by the Operating
Partnership either upon the exchange of its interest in Jamboree LLC or as
payment for the Property Appreciation Right (as defined below) will be
"Registerable Securities" pursuant to the provisions of the Property
Appreciation and Put Right. In general, upon the occurrence of certain events,
the Operating Partnership can request that Jamboree Office REIT prepare a
registration statement to effect the registration of the shares held by the
Operating Partnership in Jamboree Office REIT.
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Furthermore, the Operating Partnership is also expected to be provided
with the right to acquire additional equity interests in, or receive cash
payments from, Jamboree Office REIT (the "Property Appreciation Rights"). The
Property Appreciation Rights will be exercisable, if at all, at any time until
the close of business on March 27, 2002. In general, the Property Appreciation
Rights entitle the Operating Partnership to purchase (i) Shares representing 10%
of the equity value of Jamboree LLC for a purchase price of $10,888,888.89 in
the aggregate, if the fair market value of all of the issued and outstanding
Shares equals or exceeds $98 million divided by Jamboree Office REIT's interest
in Jamboree LLC and (ii) Shares representing 55% of the equity value of Jamboree
LLC for a purchase price of $152,777,777.78 in the aggregate, if the fair market
value of the issued and outstanding Shares equals or exceeds $125 million
divided by Jamboree Office REIT's interest in Jamboree LLC. Alternatively, the
Operating Partnership can purchase such additional Shares on a "cashless basis"
by surrendering a portion of the Shares to be purchased in payment of the
applicable purchase price. If the Operating Partnership elects to exercise
either of the property appreciation rights, Jamboree Office REIT has the option
to deliver to the Operating Partnership in lieu of the issuance of Shares a cash
payment equal to the difference between the then current market value of the
Shares which would otherwise be issued and the exercise price for such Shares.
The fair market value of the Shares for the purpose of the Property
Appreciation Right will be determined by an appraisal obtained by Jamboree
Office REIT. If the Operating Partnership disputes the appraisal obtained by
Jamboree Office REIT, it may obtain a second appraisal. If the appraisals differ
by less than 10%, then the value will be deemed to be the average of the two
determinations. If the appraisals differ by 10% or more, then the two appraisers
will select a third appraiser to perform a third appraisal, and the value will
be deemed to be the value that constitutes the mid-point of the range between
the two determinations that are closest in amount.
To satisfy the Intermediate Notes, Jamboree LLC will issue promissory
notes (the "New Notes") having an aggregate principal amount of $100,000,000 to
the Certificateholders. The New Notes will be divided into two tranches, the
Class A Notes and the Class B Notes. The Class A Tranche will have an initial
principal balance of $80,000,000, bear interest at 2.25% above the interest rate
on United States Treasury Bonds or Notes with a maturity date closest to the
Class A Notes and be payable in interest only for the first 36 months (provided,
however, that payments of interest for a the first 12 month period may be made
by issuing additional Class A Notes) and thereafter, monthly
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payments of interest and principal based on a 25-year amortization schedule. The
Class B Tranche will have an initial principal balance of $20,000,000, bear
interest at 3.0% above the interest rate on United States Treasury Bonds or
Notes with a maturity date closest to the Class B Notes and be payable in
interest only for the first 36 months ( provided, however, that payments of
interest for the first 48 months may be made by issuing additional Class B
Notes) and thereafter, monthly payments of interest and principal based on a
25-year amortization schedule.
As security for the New Notes, among other things, Jamboree LLC will
grant the Certificateholders a security interest on the Headquarters Facility
and the Operating Partnership will execute a Pledge and Security Agreement
pursuant to which the Operating Partnership will pledge its interest in Jamboree
LLC to the Class A Noteholders and the Class B Noteholders as collateral for the
payment in full of all amounts evidenced by the New Notes. If Jamboree LLC were
to default on its obligations under the New Notes, the Class A Noteholders and
the Class B Noteholders will have the right to foreclose on the Registrant's
interest in Jamboree LLC. If this were to occur, the Registrant would lose its
entire ownership interest in the Headquarters Facility. There can be no
assurance that the Headquarters Facility will be able to generate sufficient
cash flow to enable it to satisfy its obligations under the New Notes.
Change in Management
Pursuant to a series of transactions which were consummated in February
1992, the following changes in management were effected: (i) in consideration of
the payment of approximately $4 million to Crow Management, effective March 10,
1992, Crow Management transferred its rights under the Management Contract to a
newly organized affiliate of the Registrant, WC Management (see "Property
Management" below); (ii) the partnership agreement of the Operating Partnership
was amended to give the Registrant the right to manage the business of the
Operating Partnership; (iii) the partnership agreement for the Development
Partnership and the agreement with respect to the development of the Excess Land
were amended to afford greater flexibility to Crow Irvine and its principals in
modifying the master plan for the development of the Excess Land; and (iv) the
Operating Partnership agreed to provide Crow Management with 3,000 square feet
of rent free space until April 1, 1996 and to perform tenant improvements
therein costing $36,000.
In connection with the transaction described above, the Registrant and
WFA agreed to indemnify Crow Irvine for any liability it may incur, on a going
forward basis, as a result of
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it remaining a general partner of the Headquarters Facility. In addition, Crow
Irvine gave up its right of first offer in the event of a sale of the
Headquarters Facility, and the buy-sell arrangement originally included in the
partnership agreement as a mechanism to resolve disputes was eliminated. The
amendment to the partnership agreement for the Development Partnership
eliminated the Registrant's right of first offer in the event of a sale of the
land. In addition, the provisions in the partnership agreement of the Operating
Partnership which restricted the ability of the principals of Crow Irvine to
transfer their interests were amended. As amended, the principals may transfer
their interests so long as there is no change in control. Transfers which would
cause a change in control require the prior consent of the Registrant, which
consent will not be unreasonably withheld. Such consent will be given so long as
the transferee has net worth and experience comparable to the present principals
and the transferee is of sound moral character (i.e., not known to engage in
criminal conduct) and has a good business reputation.
Employees
The Registrant does not have any employees. Services are performed for
the Registrant by the General Partners and agents retained by them.
Property Management
Winthrop Management, an affiliate of WFA, has, since 1992, been
retained by WC Management to actually perform management and leasing functions
at the Headquarters Facility. Winthrop Management is reimbursed at cost by WC
Management for the compensation paid by Winthrop Management to certain senior
level on-site employees as well as for accounting and other support functions
performed off-site by Winthrop Management. The compensation paid to other
Winthrop Management employees as well as the costs associated with the office
space occupied by Winthrop Management and other administrative expenses are
reimbursed to Winthrop Management, at cost, by the Operating Partnership. WC
Management and Winthrop Management occupy approximately 13,000 and 2,000 square
feet of space, respectively, at the Headquarters Facility. Under the terms of
its Management Agreement, WC Management was, until the March 1997 loan
restructuring, entitled to a fee of 5% of gross receipts from the Headquarters
Facility. As a result of, and as a condition to, the Plan, WC Management's fee
has been reduced to 2% of gross receipts. Additionally, WC Management will
receive certain incentive fees based on reductions it is able to achieve, if
any, in certain operating and other expenses. Leasing commission payments,
consistent with prevailing market rates,
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will be paid to WC Management for all third-party leases it procures for the
Headquarters Facility. All payments under the Management Agreement will be paid
to WC Management and the Registrant will have no rights to any payments
thereunder.
Partnership Agreement Amendment
In August 1995, the General Partner amended the Registrant's
partnership agreement to clarify and remove certain ambiguities pertaining to
the requirements for calling and voting at a meeting of limited partners, or
taking action by written consent of partners in lieu thereof. Such requirements
include, among other matters, that any action by written consent may be
initiated only by the General Partner or by one or more Limited Partners holding
not less than 10% of the outstanding Units.
Change in Control
Three Winthrop Properties, Inc. is a wholly-owned subsidiary of First
Winthrop Corporation, which in turn is wholly-owned by WFA. Until December 22,
1994, Arthur J. Halleran, Jr. was the sole general partner of Linnaeus
Associates Limited Partnership ("Linnaeus"), the sole general partner of WFA.
On December 22, 1994, pursuant to an Investment Agreement entered into among
Nomura Asset Capital Corporation ("NACC"), Mr. Halleran and certain other
individuals who comprised the senior management of WFA, the general partnership
interest in Linnaeus was transferred to W.L. Realty, L.P. ("W.L. Realty").
W.L. Realty is a Delaware limited partnership, the general partner of which
was, until July 18, 1995, A.I. Realty Company, LLC ("Realtyco"), an entity
owned by certain employees of NACC. On July 18, 1995 Londonderry Acquisition II
Limited Partnership ("Londonderry II"), a Delaware limited partnership, and
affiliate of Apollo Real Estate Advisors, L.P. ("Apollo"), acquired, among
other things, Realtyco's general partner interest in W.L. Realty and a sixty
four percent (64%) limited partnership interest in W.L. Realty.
As a result of the foregoing acquisitions, Londonderry II is the sole
general partner of W.L. Realty which is the sole general partner of Linnaeus,
and which in turn is the sole general partner of WFA. As a result of the
foregoing, effective July 18, 1995, Londonderry II, an affiliate of Apollo,
became the controlling entity of WFA and, indirectly, Three Winthrop. In
connection with the transfer of control, the officers of WFA and the officers
and directors of Three Winthrop resigned and Londonderry II appointed new
officers. See "Item 10, Directors and Executive Officers of Registrant."
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Item 2. Properties.
The Registrant owns no property other than its interests in the
Operating Partnership, the Development Partnership and WC Management.
The Operating Partnership
The Operating Partnership owns title in fee simple to the Headquarters
Facility. The Headquarters Facility consists of eight buildings; a 10-story
tower, a single story concourse and six four-story buildings; containing, in the
aggregate, approximately 1,606,000 rentable square feet of space and
approximately 15 acres of land. The property is located in the Greater Airport
area of Irvine, California and is used principally by an engineering firm and as
various tenants' corporate headquarters.
The following tenants lease ten percent or more of the rentable square
footage of the Headquarters Facility.
Fluor Daniel, Inc., an international company whose principal business
is to provide engineering, construction and technical services to a broad range
of clients, leased at March 1, 1997, 865,000 square feet of space (constituting
53.83% of the total rentable space) at the Headquarters Facility. Flour Daniel
paid rent of $13,327,218 in 1996. This lease is scheduled to expire in 1998.
Flour Daniel has informed the Operating Partnership that it plans to vacate the
leased space upon lease expiration.
Air Touch Cellular, a corporation which provides communication
services, leased at March 1, 1997, 189,265 square feet of space (constituting
11.78% of the total rentable space) at the Headquarters Facility. Air Touch
Cellular paid rent of $2,611,860 in 1996. The lease is scheduled to expire in
2000. Air Touch, however, has the right to renew the lease for two five year
terms. Air Touch Cellular was responsible for its own tenant improvements.
Denny's Inc. ("Denny's"), a national food service company which
operates the Denny's, CoCo's/Carrows, and El Pollo Loco restaurant chains,
leased at March 1, 1997, 188,655 square feet of space (constituting 11.75% of
the total rentable space) at the Headquarters Facility. Denny's paid rent of
$2,170,000 in 1996. Their lease for 158,362 square feet is scheduled to expire
on July 31, 2004 and grants three five year extension options. Denny's does not
occupy any of the space under this lease and has subleased its entire space to
two tenants. The largest subtenant is Waban, Inc. ("Waban"), which subleases
106,576 square feet
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from Denny's and also leases 57,308 square feet directly from the Operating
Partnership, as described below. In addition to Denny's lease, El Pollo Loco
also signed a lease covering 18,500 square feet in 1993. This lease was assigned
in January 1997 to CoCo's and expires on February 28, 2002 with one five year
extension option. El Pollo Loco leased an additional 11,793 square feet in
January 1997 for a term scheduled to expire February 28, 2002 with one five year
extension option. Flagstar, formerly known T.W. Services, Inc., the parent
company of Denny's, CoCo's/Carrows and El Pollo Loco,, which has recently filed
for bankruptcy, previously guaranteed both leases.
Waban, Inc., a home improvement products retailer has entered into two
separate leases for space at the Headquarters Facility; a lease with the
Operating Partnership for 57,308 square feet of space and a sublease with
Denny's (as discussed above). As a result, Waban occupies a total of 163,884
square feet of space at the Headquarters Facility (constituting 10.2% of the
total rentable space). The lease agreement between the Operating Partnership and
Waban is scheduled to expire on July 31, 2004 and contains extension options for
three consecutive five year terms. Waban's sublease agreement with Denny's is
scheduled to expire on July 31, 2004. Waban paid a total of $744,420 of rent
to the Operating Partnership in 1996.
The following table sets forth the occupancy rates for the last five
years and the associated gross rental per square foot amount, as footnoted.
Percentage Average Annual Total
Occupancy Gross Rental Per SF
Year Rate(1) of Occupied Space (2)
1992 96.0% $22.42
1993 99.6% 22.60
1994 99.5% 23.59
1995 95.0% 23.08
1996 91.5% 23.34
(1) Occupancy rates are based on December 31 of indicated year and are not
yearly averages.
(2) Calculated using operating revenues, including rent escalations and
other revenues, for the entire year divided by the total square
footage of occupied space (based on the occupancy rates reported
in this table).
The following table sets forth certain information concerning lease
expirations as of March 1, 1997 (assuming no
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renewals for this property for the period from March 1, 1997 through December
31, 2006).
Number of Aggregate SF Annualized Percentage
Tenants Whose Covered by Rental for of Total
Leases Expiring Leases Annualized
Expire Leases Expiring($) Rental
1997 11 109,387 1,868,956 7.91
1998 9 882,271 13,618,596 62.38
1999 5 43,307 880,061 9.38
2000 4 200,764 3,186,534 34.79
2001 3 19,960 365,582 6.25
2002 0 90,465 0 43.25
2003 0 9,413 0 4.29
2004 4 215,670 3,322,149 100.00
2005 0 0 0 0
2006 0 0 0 0
In the opinion of the General Partners, as of March 31, 1997 the
properties comprising the Headquarters Facility are adequately covered by
insurance.
The Development Land
The following information relating to the Development Land is based
solely on information provided to the Partnership by the general partner of the
Development Partnership. Accordingly, the Partnership makes no representation or
warranty as to the accuracy thereof.
Since inception, the Development Partnership sold 32 acres of the
Excess Land in 1989 for $42,150,000 and a 36,400 square foot parcel of land to
Edwards Theaters Circuit, Inc. in 1994 for $3,500,000. The Registrant did not
receive any proceeds from the sale of the land. The Registrant was informed by
the general partner of the Development Partnership that such proceeds were used
to pay certain debts and obligations of the Development Partnership, pursuant to
the Development Partnership's partnership agreement.
In 1995, the Development Partnership commenced construction of a
144,000 square foot retail development (the "Retail Space") including an
eighteen hole putting golf course on the Excess Land. The retail development was
completed in 1996. At June 1, 1997 the Development Partnership has leased-up
132,517 square feet of the 144,000 square feet of occupancy space.
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The two tenants occupying ten percent or more of the leaseable space at
the Retail Space are Putting Courses of America and Sports Chalet.
Putting Courses of America is an eighteen-hole putting course. The
lease is for 20,000 square feet constituting approximately 14% of the total
rentable space at the Retail Space. The annual rent paid under this lease, which
is scheduled to expire February 2003 (subject to extension), is $33,660, plus
percentage rent on sales in excess of a fixed base.
Sports Chalet is a retail store leasing 35,000 square feet constituting
approximately 24% of the total rentable space at the Retail Space. The annual
rent paid under this lease, which is scheduled to expire August 2015 (subject to
extension), is $420,000.
The following table sets forth certain information concerning lease
expirations (assuming no renewals for this property for the period from January
1, 1997 through December 31, 2006) at the Retail Space.
<TABLE>
<CAPTION>
Number of Aggregate SF Annualized Percentage
Tenants Whose Covered by Rental for of Total
Leases Expiring Leases Annualized
Expire Leases Expiring($) Rental
<S> <C> <C> <C> <C>
1997 0 0 0 0
1998 0 0 0 0
1999 1 1,000 $ 30,000 1
2000 0 0 0 0
2001 3 7,181 $190,092 8
2002 0 0 0 0
2003 2 25,204 $158,556 7
2004 0 0 0 0
2005 1 2,100 $ 37,800 2
2006 6 16,408 $464,076 23
</TABLE>
Item 3. Legal Proceedings.
To the best of the Registrant's knowledge, there are no material
pending legal proceedings to which it is a party or to which its properties are
subject except as follows:
In re Crow Winthrop Operating Partnership, Debtor and Debtor in
Possession, Case No. SA 97-14512-JR, United States Bankruptcy Court, Central
District of California.
14
<PAGE>
In addition to the information set forth in Item 1, Business - Change
in Ownership; Mortgage Loan Workout, the Development Partnership has filed four
separate proofs of claim asserting secured and unsecured claims for the
Operating Partnership's alleged delinquencies in the payment of its share of
property taxes and insurance premiums with respect to the common area of the
Development Parcel (the "Common Area"). The Development Partnership asserted the
following secured claims: $18,634.78 predicated upon liens filed with the Orange
County Recorder on March 14, 1996 and March 18, 1996; $79,714.07 predicated upon
a lien filed with the Orange County Recorder on November 12, 1996 and amended
December 6, 1996; and $59,872.54 predicated upon a lien filed with the Orange
County Recorder on January 31, 1997 and amended March 29, 1997 (the "the
Development Partnership Secured Claims"). The Development Partnership asserted
an unsecured claim in the amount of $4,999.82 predicated upon another purported
late payment but for which the Development Partnership did not file a lien prior
to the commencement of the bankruptcy case.
On June 30, 1997, the Operating Partnership filed two complaints (the
"Crow Litigation") against the Development Partnership and Crow Orange County
Management Company, Inc. ("COCMC"). In the first, the Operating Partnership is
objecting to the Development Partnership's claims and seeking turnover,
avoidance of fraudulent conveyances and declaratory and other relief. In the
second, the Operating Partnership is seeking declaratory and other relief
regarding the failure of COCMC to establish a parking control program. The
disputes that give rise to the Crow Litigation are set forth below.
First, under the Reciprocal Easement Agreement between the Operating
Partnership and the Development Partnership (the "REA"), the parties are
entitled to the non-exclusive right to use and enjoy the Common Area. However,
it is the Operating Partnership's contention that since April 1995 the
Development Partnership has used and developed portions of the Common Area in a
manner that is useful, beneficial and convenient only to the Development
Partnership to the exclusion of the Operating Partnership. These portions of
Common Area include a modular office facility from which the Development
Partnership conducts its leasing and development activities, parcels used for
the development and operation of a miniature golf course, and parcels used for
the construction and development of a retail area, including the establishment
of restricted parking. Nevertheless,
15
the Development Partnership has included them in Common Area and has apportioned
Common Area expenses associated therewith to the Operating Partnership. Under
federal and state fraudulent conveyance statues, the Operating Partnership
believes it is entitled to the return of Common Area charges improperly
allocated to it, damages against the Development Partnership and COCMC for
breach of contract and constructive fraud, and a declaration that the affected
areas by removed from Common Area.
Second, the Operating Partnership contends that the Development
Partnership has impermissibly delayed charging tenants or occupants of developed
portions of the Development Parcel their share of the Common Area expenses until
the tenant or occupant is "open for business," although such land is removed
from the Common Area upon the commencement of construction, thereby overcharging
the Operating Partnership for its allocable share of Common Area expenses. Under
state and federal fraudulent conveyance statutes, the Operating Partnership
believes it is entitled to the return of Common Area charges improperly
allocated to it, damages against the Development Partnership and COCMC for
breach of contract and constructive fraud, and a declaration that the allocable
share of Common Area Expenses be allocated to tenants or occupants at the time
the land is removed from the Common Area.
Third, under the REA, the Operating Partnership is obligated to pay its
allocable share of property taxes associated with the Common Area. As managing
agent, COCMC is authorized to submit invoices from time to time requesting the
Operating Partnership's advance payment of its share of the property tax
obligation. Although the property tax payments are nominally due on November 1
and March 1 of each fiscal year, installments may be paid, and are not
delinquent, if paid by December 10 and April 10, respectively. COCMC has engaged
in the practice of submitting invoices for property tax payments well in advance
of the delinquency date, and then declaring the Operating Partnership delinquent
when payment is not made within five days, and has imposed interest and late
charges. In those instances where the Operating Partnership has complied with
COCMC's request, COCMC has impermissibly had the use of the Operating
Partnership's funds, which the Operating Partnership believes in effect exacts a
premium over and above the Operating Partnership's actual property tax
obligation. On this basis, the Development Partnership has asserted the improper
late charges that are the basis of its claims filed against the Operating
Partnership. The
16
Operating Partnership objects to the claims on the basis that there is no amount
due to the Development Partnership. The Operating Partnership is also seeking to
avoid the Development Partnership's asserted liens on that basis. Further, by
virtue of this conduct, the Operating Partnership is seeking relief under
federal and state fraudulent conveyance statues for the improper late charges
and premiums, for damages for breach of contract and constructive fraud against
the Development Partnership and COCMC, and for a declaration that the practices
of the Development Partnership and COCMC with respect to the collection of
property tax are improper.
Fourth, as noted above, COCMC, as managing agent collects from the
parties to the REA and remits to the County of Orange property taxes for the
Common Area. In turn, where a refund is due, the County of Orange pays the
refund to the Development Partnership for the benefit of the parties to the REA.
Although COCMC has held refunds in excess of $550,000 as of March 28, 1996 and
in excess of $610,000 as of January 1, 1996, COCMC failed to remit to the
Operating Partnership its share of these refunds (of which the majority would be
refunded to the Operating Partnership's tenants). The Operating Partnership
believes it is entitled to relief against COCMC under turnover, federal and
state fraudulent conveyance statutes, and is entitled to damages against the
Development Partnership and COCMC for breach of contract and constructive fraud.
Fifth, there is presently a dispute between the Operating Partnership
and the Development Partnership and COCMC with respect to charges for
non-reserved parking. Under the REA, the Development Partnership is required to
supply at least 5,225 non-exclusive surface parking spaces at no charge. COCMC
contends that it is entitled to initiate a parking system that would impose a
charge on some or all of the non-reserved spaces. The Operating Partnership
believes it is entitled to a declaration that it is entitled to at least 5,225
non-exclusive surface parking spaces without charge.
Sixth, there is presently a dispute between the Operating Partnership
and the Development Partnership and COCMC concerning the Development
Partnership's reduction in the number of non-exclusive parking spaces, as
required under the REA, through the imposition of parking time restrictions on
parking spaces in the vicinity of the retail development. The Operating
Partnership believes it is entitled to a declaration that spaces so
17
<PAGE>
restricted may not be counted toward the Development Partnership's obligation
under the REA to supply at least 5,225 surface parking spaces.
Seventh, under the REA, the managing agent, COCMC, is required to
provide prior written approval of exterior signage and monuments. There is
presently a dispute between the Operating Partnership and the Development
Partnership and COCMC with respect to the manner in which the managing agent has
exercised approvals and disapprovals of exterior signage and monuments. The
Operating Partnership is seeking a declaration that the managing agent is
required to administer the approval process in a fair, consistent and
commercially reasonable manner.
Eighth, the REA requires the managing agent to establish a controlled
parking program where necessary. At present, the Operating Partnership contends
that the absence of a control program has resulted in an uneven and inefficient
use of the parking spaces and complaints and dissatisfaction on the part of the
Operating Partnership's tenants. The Operating Partnership has requested the
managing agent to implement a parking control program, but Crow has refused.
Finally, the Operating Partnership is seeking the recovery or turnover
of approximately $900,000 and damages in an undetermined amount in addition to
the declaratory relief sought in the complaints.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
18
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Units in the
Registrant. Trading in the Units is sporadic and occurs solely through private
transactions. In addition, transfers of Units are subject to limitations set
forth in the Registrant's partnership agreement which require the prior written
consent of WFA of any such transfer, which consent may be granted or denied in
WFA's sole discretion. As of May 15, 1997, there were 1,756 holders of 3,500
Units.
The Registrant's partnership agreement requires that Cash Flow (as
defined therein) be distributed to the partners in specified proportions at
reasonable intervals during the fiscal year and in any event no later than 60
days after the close of each fiscal year. The Registrant's ability to make
distributions of Cash Flow is limited by the extent to which (i) it receives
distributions of Cash Flow from the Operating Partnership, the Development
Partnership and, from WC Management, (ii) it earns income from other sources and
(iii) its receipts of Cash Flow and income are not sufficient to meet its
expenses and current obligations including fees payable to the General Partners.
In addition, the General Partners have the right to establish, maintain and
replenish reserves from available cash prior to making distributions to
partners.
No cash distributions were paid or accrued to the Limited Partners for
the years ended December 31, 1994, 1995 or 1996. Although the Registrant
received distributions from WC Management in 1994, 1995 and 1996, these
distributions have been applied to replenish unrestricted reserves previously
held by the Registrant and, in 1996, to pay certain accrued but unpaid fees to
WFA. Therefore, the General Partners do not anticipate that there will be any
additional distributions in the near future. See "Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operation," for
further information relating to the Registrant's future distributions.
19
<PAGE>
Item 6. Selected Financial Data.
(a) The following represents selected financial data for the
Registrant, the Operating Partnership and WC Management on a consolidated basis
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992. The data
should be read in conjunction with the financial statements included elsewhere
herein. This data is not covered by the independent auditors' report.
Operating Statement Data:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts in thousands, except per unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues.................................. $ 35,191 $ 36,023 $ 38,403 $ 36,904 $ 35,649
Total Expenses.................................. 72,745(3) 101,592(1) 52,565 54,961 52,655
Equity in Loss of Development
Partnership................................... (531) (794) (101) (409) (416)
Net Loss Before Minority Interest............... (38,085) (66,363) (14,263) (18,466) (21,469)
Minority Interest in the Operating
Partnership(2)................................ 327 152 134 177 167
Minority Interest in Management
Partnership................................... (13) (17) (15) (16) 23
Net Loss........................................ $(37,771) $(66,228) $(14,144) $(18,305) $(21,279)
======== ======== ======== ======== ========
Net Loss Per Unit Outstanding................... $(10,576) $(18,544) $ (3,961) $ (5,125) $ (5,958)
======== ======== ======== ======== ========
Cash Distributions Paid or Accrued Per
Unit Outstanding.............................. $ -- -- -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Total Assets.................................... $142,599 $180,373 $246,755 $264,898 $278,723
Mortgage Loans.................................. 197,712 198,650 199,925 201,058 202,065
Total Liabilities............................... 208,501 208,504 208,658 212,657 208,177
------- ------- ------- ------- -------
Total Capital................................... $(65,902) $(28,131) $ 38,097 $ 52,241 $ 70,546
======== ======== ======== ======== ========
</TABLE>
(1) Includes reduction in carrying value of income-producing properties of
$50,000,000.
(2) Minority interest represents the 1% interest of Crow Irvine in the Operating
Partnership.
(3) Includes reduction in carrying values of income-producing properties of
$23,261,000.
20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Registrant was formed for the purpose of investing in the Operating
Partnership and the Development Partnership. The Registrant made a subsequent
investment in WC Management which is directly related to and consistent with
these purposes. As a result of the inability of the Operating Partnership to
satisfy the Existing Secured Note at maturity, the Operating Partnership entered
into a pre-approved bankruptcy plan (the "Plan"). The Plan provides for, among
other things, (i) the transfer by the Operating Partnership of all of its assets
and liabilities, including, without limitation, $500,000 of unencumbered cash as
well as the Headquarters Facility and debt encumbering the Headquarters
Facility, to a newly formed limited liability company to be known as Jamboree
LLC in exchange for a 10% interest in such entity, (ii) the forgiveness,
immediately prior to the transfer of the assets and liabilities to Jamboree LLC,
by the Certificateholders of approximately $93 million of the debt plus interest
accrued thereon, and the issuance of intermediate notes as satisfaction of the
remaining outstanding balance of the Existing Secured Note, (iii) the subsequent
contribution by Jamboree Office REIT of $4.5 million of the remaining $104.5
million of debt to Jamboree LLC in exchange for the remaining 90% interest in
Jamboree LLC, and (iv) the issuance by Jamboree LLC of the New Notes, which will
mature in five years and have an aggregate principal amount of $100 million. In
addition, the Operating Partnership will have the right to exchange its interest
in Jamboree LLC for an interest in Jamboree Office REIT and to obtain cash
payments or equity interests in Jamboree Office REIT upon the occurrence of
certain events. See "Item 1, Business - Change in Ownership; Mortgage Loan
Workout", for additional information with respect to the Plan.
If the Plan is not approved, the General Partners believe that the
Headquarters Facility will most likely be lost through foreclosure. If the
Headquarters Facility were to be foreclosed upon, it would most likely result in
significant adverse tax consequences to the Limited Partners.
The Registrant's primary source of liquidity has been distributions
from the Operating Partnership, WC Management (derived from the management of
the Operating Partnership's properties) and, to a lesser extent, distributions
from the Development Partnership. For the year ended December 31, 1996, the
Registrant received a distribution of $1,434,000 from WC Management. No
distribution was received from the Operating Partnership or the Development
Partnership in 1996. Assuming the
21
<PAGE>
Plan is approved, future liquidity of the Registrant is dependent upon the
ability of the Headquarters Facility to generate sufficient positive cash flow
to enable Jamboree LLC to make distributions to its partners (or in the
alternative, if the Registrant were to exchange its interest in Jamboree LLC for
an interest in Jamboree Office REIT, the market for shares of stock in Jamboree
Office REIT) as well as the ability of WC Management and the Development
Partnership to generate income sufficient to make distributions to the
Registrant.
The Registrant received approximately $1,798,000, $1,577,000 and
$1,434,000 of distributions from WC Management in 1994, 1995, and 1996,
respectively. These amounts were used to pay the accrued asset management fee
payable to WFA under the terms of the Partnership Agreement. It is expected that
WC Management will continue to generate income sufficient to enable it to make
distributions to the Registrant. However, in connection with the implementation
of the Plan, the fee payable to WC Management for its property management and
leasing services at the Headquarters Facility was reduced from 5% of gross
receipts to 2% of gross receipts, with an additional 2% incentive fee. With
respect to Registrant's general and administrative expenses, exclusive of asset
management fees, (totaling approximately $359,000 in 1996), it is expected that
these costs will continue to be paid from the distributions from WC Management
unless and until there are distributions made to the Registrant by the Operating
Partnership or the Development Partnership. At December 31, 1996, the Registrant
and WC Management collectively held cash reserves of $2,194,000.
Commencing in 1990, and through June 1996, WFA had not been paid its
annual asset management fee. In August 1996, $4,875,000 of this fee was paid to
WFA. As of December 31, 1996, $375,000 in asset management fees remained due and
owing to WFA. To the extent that the Operating Partnership, the Development
Partnership or WC Management are unable to make distributions to the Registrant
which are sufficient to satisfy the annual asset management fee payable to WFA,
the Registrant will need to continue to defer this payment. The deferred asset
management fees will be paid as a priority from available sources of cash prior
to any future distributions to partners of the Registrant if and when they are
paid.
As of December 31, 1996, approximately $1,289,000 remained in the
reserve account of the Operating Partnership in the control of the mortgage
lender. The Registrant utilized a significant portion of the amounts held in the
Reserve to pay real estate taxes in 1996. The balance of these funds were
transferred by the lender to a tenant improvement reserve in 1997
22
<PAGE>
controlled by the Operating Partnership to fund tenant improvement costs on new
leases approved by the bankruptcy court.
The Development Partnership has depleted its Development Reserves.
Pursuant to the terms of its partnership agreement, Crow Irvine is obligated to
fund any operating deficits it may incur. In 1994, the Development Partnership
sold a parcel of land. The Registrant did not receive any proceeds from the sale
of the land because such proceeds were used to pay certain debts and obligations
of the Development Partnership, pursuant to the Development Partnership's
partnership agreement. If the Development Partnership engages in any
construction, neither the Registrant nor the Limited Partners will be required
to make any additional investment or be subject to any risks of construction.
At this time, it appears that the original investment objective of
capital growth from the inception of the Registrant will not be attained and
that Limited Partners will not receive a return of their invested capital. The
extent to which invested capital is refunded to Limited Partners is dependent
upon the performance of the properties and the market in which they are located.
The ability to hold and operate the properties is dependent upon the approval of
the Plan and, if approved, Jamboree LLC's ability to make payment on the New
Notes.
Results of Operations
Results of operations for the year ended December 31, 1996 reflect the
consolidated results of the Registrant, the Operating Partnership and WC
Management. Results of the Development Partnership are accounted for on the
equity method.
The Registrant has completed its tenth full year of operations. The
Registrant's expenses consisted primarily of the amortization of deferred fees
payable to WFA or its affiliates, which were paid from the proceeds of the
capital contributions of Limited Partners. Other expenses consisted of the
investor service fee to WFA and expenses related to the restructuring.
The Registrant's results of operations depend largely on the results of
the operations of the Operating Partnership and, to a lesser extent, on the
results of operations of WC Management and the Development Partnership.
WC Management commenced operations on January 1, 1992. Because WC
management is 99% owned by the Registrant, it reports for financial purposes on
a consolidated basis with the Registrant and the Operating Partnership. Revenues
of WC Management consist primarily of fees received in connection with the
management, leasing, and the providing of construction
23
<PAGE>
supervision services for the Headquarters Facility. For 1994, 1995 and 1996, WC
Management received $2,026,000, $2,100,585 and $1,685,000, respectively in gross
fees for these services. Of this amount, $1,767,000, $1,675,000 and $1,626,000,
respectively was for property management fees, $80,000, $119,000 and $10,000,
respectively represented construction supervision fees, and $179,000, $307,000
and $49,000, respectively for leasing commissions. Operating expenses associated
with performing management and leasing functions totaled $542,000, $496,000 and
$498,000, respectively, and included certain reimbursable costs such as salaries
of certain senior level on-site employees and costs associated with payroll,
accounting, legal and other administrative support functions incurred by
Winthrop Management in performing management services on behalf of WC Management
at the Headquarters Facility. All fees are eliminated in consolidation.
Revenues for the Operating Partnership decreased by 6.4% from 1994 to
1995 and decreased by 2% from 1995 to 1996. During 1996, rental income accrued
on leases with approximately 34 tenants accounted for approximately 69% of the
Property's total income, 1% represented interest income earned on the Reserves
and the remaining 30% represented operating expense and tax escalation
reimbursements and miscellaneous income.
Revenues decreased in 1996 as the result of Fluor vacating
approximately 200,000 square feet in 1995 as permitted under its lease
agreement. All but 11,000 square feet of this space was released by December 31,
1995. The new leases are at substantially lower rental rates, reflecting the
current market. At December 31, 1996, the Headquarters Facility was 91.5%
occupied. The annual base rent per the rent roll was approximately $21,988,000,
or an average of $15.16 per leased square foot. The recovery of expenses from
tenants by the Headquarters Facility decreased by approximately $1,408,000 (12%)
primarily as the result of higher tenant bases for escalation on the new leases.
Operating expenses of the Operating Partnership before interest
expense, depreciation, and amortization, reduction in carrying value, and loss
on investments increased by approximately $366,000 (2.4%). This increase is
primarily attributable to an increase in administrative expense of approximately
$441,000 (24.9%). The increased administrative costs are the result of the costs
involved in the restructuring of the debt. The remaining operating expenses,
interest expense and amortization were consistent with prior year. Depreciation
decreased by approximately $2,237,000 because of the 1995 and 1996 write-down of
carrying value.
24
<PAGE>
During 1995 and 1996, management reduced the Operating Partnership's
carrying value of its aggregate investment in the Headquarters Facility as well
as the equity investment in the Development Partnership by $50 million and $23
million, respectively. The write down is the result of management's
determination that future cash flows will not enable the Operating Partnership
nor the Development Partnership to recover their investments. Management
considered various factors, which included the current and future expected
occupancy rates and prospects for leasing at rates sufficient to support the
existing carrying value of the Headquarters Facility.
Pursuant to the terms of the lease between the Operating Partnership
and Sodexho, f/k/a Gardener Merchant which operates a cafeteria at the
Headquarters Facility, Sodexho is to receive a management fee of 3% of gross
revenues from the cafeteria and 15% of the net profits generated by the
cafeteria. Under the contract, the Operating Partnership is to receive 85% of
the net profits from the operation of the cafeteria. The Operating Partnership's
share of net profits from the cafeteria for 1996, 1995 and 1994 were $95,000,
$98,000 and $173,000, respectively.
The Registrant has a 25% limited partnership interest in the
Development Partnership which is accounted for under the equity method of
accounting. Prior to 1996, the operations of the Development Partnership
consisted primarily of interest income earned on its cash reserves and expenses
associated with the approval process of the development plan and administrative
expenses. During 1996, a 144,000 square foot retail center including an eighteen
hole putting course commenced operations. The reduced equity loss from the
Development Partnership is primarily due to the partial year of operations of
the retail center in 1996.
25
<PAGE>
Item 8. Financial Statements and Supplementary Data.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Winthrop California Investors Limited Partnership:
We have audited the accompanying consolidated balance sheets of Winthrop
California Investors Limited Partnership (a Delaware limited partnership) and
subsidiaries as of December 31, 1996 and 1995, and the related statements of
operations, partners' capital (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of Winthrop California Investors Limited
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Winthrop California
Investors Limited Partnership and subsidiaries as of December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Notes 2
and 9 to the consolidated financial statements, the operating subsidiary has
experienced several years of losses, was not able to fund or refinance the
principal amount under the mortgage loan which became due during 1996, and, as
a result, has filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code
on March 28, 1997. These matters raise substantial doubt about the
Partnership's ability to continue as a going concern. These consolidated
financial statements do not include any adjustments relating to the
recoverability of asset carrying amounts or the amount of liabilities that
might result should the Partnership be unable to continue as a going concern.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the consolidated
financial statements and schedule index is the responsibility of Winthrop
California Investors Limited Partnership's management, is presented for
purposes of complying with the Securities and Exchange Commission's rules, and
is not a required part of the consolidated financial statements. The schedule
has been subjected to the auditing procedures applied in our audits of the
consolidated financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 13, 1997
F-2
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
(Amounts in thousands)
<S> <C> <C>
LAND (NOTE 1) $ 13,339 $ 16,757
BUILDINGS AND IMPROVEMENTS (NOTES 1 AND 2) 221,342 239,769
--------- ---------
234,681 256,526
LESS--ACCUMULATED DEPRECIATION (NOTE 2) 130,004 122,065
--------- ---------
104,677 134,461
CASH AND CASH EQUIVALENTS 5,335 9,216
INVESTMENT SECURITIES (NOTE 4) -- 3,672
MORTGAGE ESCROW (NOTE 4) 1,289 --
OTHER DEPOSITS 241 221
PREPAID EXPENSES AND OTHER ASSETS, NET 7,485 5,511
DEFERRED COSTS, NET OF ACCUMULATED AMORTIZATION OF $5,544 AND $12,639
AS OF DECEMBER 31, 1996 AND 1995, RESPECTIVELY (NOTES 2 AND 5) 3,205 6,394
EQUITY INVESTMENT IN DEVELOPMENT PARTNERSHIP (NOTE 3) 20,367 20,898
--------- ---------
Total assets $ 142,599 $ 180,373
========= =========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Mortgage loan (Note 4) $ 197,712 $ 198,650
Accounts payable, accrued expenses and other 10,789 9,854
--------- ---------
208,501 208,504
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
PARTNERS' DEFICIT:
Limited partners--units of Investor Limited Partnership
Interest, $65 stated value per cash unit and $66 stated value per deferred
unit; authorized--3,500 units; issued and outstanding--3,500 units as of
December 31, 1996 and 1995 (Note 1) (44,573) (7,557)
General partners (21,329) (20,574)
--------- ---------
(65,902) (28,131)
--------- ---------
Total liabilities and partners' deficit $ 142,599 $ 180,373
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
(Amounts in thousands)
<S> <C> <C> <C>
INCOME:
Rental income $ 24,376 $ 23,590 $ 24,487
Common area expense reimbursements (Note 2) 9,906 11,314 12,784
Interest income 441 817 709
Other 468 302 423
---------- ---------- ----------
Total income 35,191 36,023 38,403
---------- ---------- ----------
EXPENSES:
Utilities 2,758 3,049 3,082
Repairs, maintenance and security 6,329 5,734 6,883
Real estate taxes 2,680 2,608 2,543
Insurance 357 332 228
General and administrative 2,417 2,225 2,252
Asset and property management fees (Note 5) 750 750 750
Interest expense (Note 4) 23,660 23,611 23,754
Depreciation and amortization (Note 2) 10,533 13,241 13,005
Unrealized loss on investments -- 42 68
Reduction in carrying value of income-producing properties
and equity investment (Note 2) 23,261 50,000 --
---------- ---------- ----------
Total expenses 72,745 101,592 52,565
---------- ---------- ----------
EQUITY IN LOSS OF DEVELOPMENT PARTNERSHIP (NOTE 3) (531) (794) (101)
---------- ---------- ----------
Loss before minority interest (38,085) (66,363) (14,263)
MINORITY INTEREST IN LOSS (INCOME) OF:
Operating partnership (Note 2) 327 152 134
Management partnership (Note 2) (13) (17) (15)
---------- ---------- ----------
Net loss $ (37,771) $ (66,228) $ (14,144)
========== ========== ==========
NET LOSS ALLOCATED TO GENERAL PARTNERS (NOTE 2) $ (755) $ (1,325) $ (283)
========== ========== ==========
NET LOSS ALLOCATED TO INVESTOR LIMITED PARTNERS (NOTE 2) $ (37,016) $ (64,903) $ (13,861)
========== ========== ==========
NET LOSS PER UNIT OF LIMITED PARTNERSHIP INTEREST $ (10.58) $ (18.54) $ (3.96)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Units of Investor
Investor Limited
Limited Partners' General Total Partners'
Partnership Capital Partners' Capital
Interest (Deficit) Deficit (Deficit)
(Amounts in thousands, except unit amounts)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 3,500 $ 71,207 $ (18,966) $ 52,241
Net loss (Notes 2 and 10) -- (13,861) (283) (14,144)
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31,1994 3,500 57,346 (19,249) 38,097
Net loss (Notes 2 and 10) -- (64,903) (1,325) (66,228)
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 3,500 (7,557) (20,574) (28,131)
Net loss (Notes 2 and 10) -- (37,016) (755) (37,771)
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 3,500 $ (44,573) $ (21,329) $ (65,902)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
(Amounts in thousands, except per unit data)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (37,771) $ (66,228) $ (14,144)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 9,948 12,831 12,612
Unrealized loss on investments -- 42 68
Reduction in carrying value of income producing properties
and equity investment 23,261 50,000 --
Minority interest in income of Operating Partnership and
Management Partnership (314) (135) (119)
Equity in loss of Development Partnership 531 794 101
Changes in current assets and liabilities-
(Increase) decrease in other deposits (20) 712 (933)
(Increase) decrease in prepaid expenses and other assets (1,648) 502 298
Increase (decrease) in accounts payable, accrued expenses
and other 923 1,121 (2,866)
Increase in deferred costs related to operating activities (111) (716) (159)
---------- ---------- ----------
Net cash used in operating activities (5,201) (1,077) (5,142)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities held for
trading, net of purchases 2,383 5,223 6,316
Capital expenditures (125) (422) (181)
---------- ---------- ----------
Net cash provided by investing activities 2,258 4,801 6,135
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loan (938) (1,275) (1,133)
Decrease in investment securities 1,289 -- --
Increase in mortgage escrow (1,289) -- --
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,881) 2,449 (140)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,216 6,767 6,907
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,335 $ 9,216 $ 6,767
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION
Winthrop California Investors Limited Partnership (the Partnership) was
originally organized on January 24, 1985 under the Maryland Uniform
Limited Partnership Act and was reorganized on October 16, 1985 as a
Delaware limited partnership to own a 99% general partnership interest
in Crow Winthrop Operating Partnership, a Maryland general partnership
(the Operating Partnership), as well as a 25% Limited Partnership
interest in Crow Winthrop Development Limited Partnership, a Maryland
limited partnership (the Development Partnership). The Partnership
subsequently acquired, in March 1992, a 99% limited partnership interest
in Winthrop California Management Limited Partnership, a Maryland
limited partnership (Management Partnership).
On July 30, 1985 (the Acquisition Date), the Operating Partnership
acquired the Fluor Corporation World Headquarters Facility (the
Headquarters Facility) in Irvine, California, from Fluor Corporation
(Fluor) consisting of approximately 1,606,000 rentable square feet, the
directly underlying land of approximately 14.8 acres and all related
rights and easements.
As of the same date, the Development Partnership acquired 122.2 acres of
undeveloped land (the Excess Land) surrounding the Headquarters Facility
(the Excess Land together with the Headquarters Facility is collectively
referred to as the Properties).
The Properties were acquired for a total price of $337,000,000 (the
Purchase Price) consisting of $302,000,000 paid on the Acquisition Date
(the Fixed Purchase Price) and $35,000,000 paid in August 1986 (the
Contingent Purchase Price) after certain development rights were
approved for the Development Partnership.
The General Partners of the Partnership are Winthrop Financial
Associates (WFA) and Three Winthrop Properties, Inc. (Three Winthrop)
(see Note 6). The General Partners made capital contributions totaling
$101 for a 2.0% interest in the operating profits and losses of the
Partnership.
(2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of the Partnership, the Operating Partnership and the Management
Partnership. The Partnership is the 99% General Partner of the Operating
Partnership and the 99% Limited Partner of the Management Partnership.
The remaining 1% ownership interests of an unaffiliated partner of the
Operating Partnership (Crow Irvine #2) and of an affiliated partner of
the Management Partnership (First Winthrop Properties, Inc.) have been
included in other assets in the accompanying consolidated balance
sheets. All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-7
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of Consolidation (Continued)
The Partnership owns a 25% Limited Partner's interest in the Development
Partnership, which is accounted for under the equity method.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
Operating Partnership has experienced several years of losses and was
not able to fund or refinance the principal amount due under the
mortgage note at maturity in April 1996 (see Note 4). As a result, the
Operating Partnership filed for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code on March 28, 1997. This matter raises substantial doubt
as to the Partnership's ability to continue as a going concern for a
reasonable period of time (see Note 9).
The consolidated financial statements do not include any adjustments
relating to the recoverability of recorded asset amounts or the amounts
of liabilities that might be necessary should the Partnership be unable
to continue as a going concern. The Partnership's continuation as a
going concern is dependent on its management's ability to obtain
approval of its plan of reorganization of the Operating Partnership from
the U.S. Bankruptcy Court, Central District of California.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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 those
estimates.
Income Taxes
No provision has been made for federal, state or local income taxes in
the accompanying consolidated financial statements of the Partnership.
The partners are required to report, on their individual income tax
returns, their allocable share of income, gains, losses, deductions and
credits of the Partnership. The Partnership has elected to file its tax
returns on the accrual basis.
F-8
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Common Area Expense Reimbursement and Reimbursable Common Area Expenses
Reimbursable common area expenses are all expenses and costs, as defined
in the tenant leases, which are paid in connection with the ownership
and operation of the Headquarters Facility. Included in common area
expense reimbursements are calculated cost recovery amounts related to
certain capitalized equipment expenditures, which reduce project
operating expenses.
Depreciation and Amortization
The Operating Partnership provides for depreciation of buildings and
improvements on the straight-line method over their estimated useful
lives. Real property is depreciated over a period of six to fifty-four
years. Personal property is depreciated over a period of five to seven
years. Building and improvements are valued at cost, adjusted for
impairment considered other than temporary (see Income Producing
Properties). Fully depreciated assets and assets no longer in service,
along with the related accumulated depreciation, have been written off.
Due to the adjustment for impairment for financial statement purposes,
the tax basis of the property exceeds its carrying value for financial
reporting purposes by approximately $46 million at December 31, 1996.
Deferred Costs
Financing costs (including fees and insurance), leasing costs and
deferred fees are capitalized and amortized primarily using the
straight-line method over the term of the related agreements.
Organization costs have been amortized using the straight-line method
over five years.
Statements of Cash Flows
For purposes of the statements of cash flows, cash equivalents are
defined by the Partnership as investments consisting of certificates of
deposits, money market funds, commercial paper and other instruments
with original maturities of three months or less. The Partnership made
interest payments of $21,003,000, $23,623,000 and $23,765,000 in 1996,
1995 and 1994, respectively.
F-9
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Producing Properties
Income producing properties are carried at cost adjusted for
depreciation. Management reviews the properties to determine whether
they have suffered an impairment in value which is deemed to be other
than temporary requiring the properties to be reduced to their fair
value at that time. Such instances arise when management concludes that
expected future cash flows will not enable the Partnerships to recover
their investment. In making such assessments, management considers
certain factors, which include recessionary effects on commercial real
estate markets, current and future expected occupancy rates, prospects
for leasing at rates sufficient to support the existing carrying value
of the properties, expected changes in operating costs or appraisal of
an independent firm.
During 1995, management determined that the Properties suffered an
impairment in value which was considered to be other than temporary.
Management's assessment of impairment related to the weaker than
projected Orange County commercial real estate market. Given the
unfavorable development of the adjacent parcels, structural flaws
recently identified and the potential inability to retain the Fluor
tenant (Note 4), management believed that there would be a major
lease-up effort. This lease-up effort could include major structural
improvements, a longer than anticipated vacancy period and rental rates
lower than those being achieved on existing leases. As a result, the
Partnership reduced the carrying value of its investment in the
Properties by $40,000,000 in 1995 to its estimated fair value (see
Note 3).
During 1996, as a result of the Operating Partnership's default on the
Mortgage Loan (see Note 4), and the subsequent notification by Fluor
that it would not renew its lease upon expiration in July 1998,
management updated its assessment of potential impairment of the
Properties. Based on a valuation prepared by an outside party, the
Partnership, in conjunction with its Agreement of Understanding with the
Mortgage Lender, has determined that an additional impairment in value
that is considered to be other than temporary needed to be recognized,
and further reduced the carrying value of its investment in the
properties by $23,261,000 to its estimated fair value as of December 31,
1996.
Accounting for Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of, which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. As
required, the Partnership adopted SFAS No. 121 in the first quarter of
1996. Management believes adoption did not have any effect on the
financial position of the Partnership.
F-10
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Disclosures About Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires that disclosure be made of estimates of the fair value of each
class of financial instrument. Financial instruments held by the
Partnership as of December 31, 1996 and 1995 consist primarily of
short-term trade receivables and payables, for which the carrying
amounts approximate fair values, and long-term debt. As discussed in
Note 4, the Partnership has a permanent mortgage note payable to Pacific
Mutual Life Insurance Company, which matured on April 1, 1996. On March
28, 1997, the Operating Partnership filed for bankruptcy under Chapter
11, of the U.S. Bankruptcy Code. Due to this factor, it is not
practicable to determine the fair market equivalent for this
indebtedness. However, under the current circumstances, it is
management's estimate that the fair value of this instrument is less
than the carrying amount at December 31, 1996.
Allocation of Net Profits or Losses and Cash Flow
The net operating profits or losses and cash flow of the Partnership
are, in general, allocated as follows (see Note 7):
<TABLE>
<CAPTION>
Profits, Losses Profits, Losses Profits, Losses
and Cash Flow and Cash Flow and Cash Flow
Received from Received from Received from
Operating Development Management
Partnership Partnership Partnership
<S> <C> <C> <C>
Investor Limited Partners 97.020% 15.000% 97.020%
WFA 1.881 9.975 1.881
Three Winthrop 0.099 0.025 0.099
-------- -------- --------
Total interest of the Partnership in-
Operating Partnership 99.000 -- --
Development Partnership -- 25.000 --
Management Partnership -- -- 99.000
Interest of Crow Irvine in-
Operating Partnership 1.000 -- --
Development Partnership -- 75.000 --
Interest of First Winthrop in-
Management Partnership -- -- 1.000
-------- -------- --------
100.000% 100.000% 100.000%
======== ======== ========
</TABLE>
Any gains resulting from sales, disposition or refinancing of any of the
Properties are to be allocated to the partners of the Partnerships
according to various provisions of the Partnership Agreements.
F-11
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) EQUITY INVESTMENT IN DEVELOPMENT PARTNERSHIP
The Partnership's equity investment in the Development Partnership is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
(Amounts in thousands)
<S> <C> <C>
Balance, beginning of year $ 20,898 $ 31,692
Equity in loss of Development Partnership (531) (794)
Reduction in carrying value -- (10,000)
----------- -----------
$ 20,367 $ 20,898
=========== ===========
</TABLE>
Condensed balance sheets of the Development Partnership are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
ASSETS
(Restated)
Fixed assets $ 63,602 $ 53,947
Cash and cash equivalents, at cost, which approximates
market value 3,646 4,691
Accounts receivable and other assets 1,782 10,324
----------- -----------
Total assets $ 69,030 $ 68,962
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable $ 33,702 $ 33,702
Accounts payable and accrued interest 12,881 10,692
----------- -----------
46,583 44,394
----------- -----------
Partners' Capital:
Winthrop California Investors Limited Partnership 29,960 30,490
Crow Irvine (7,513) (5,922)
----------- -----------
22,447 24,568
----------- -----------
Total liabilities and partners' capital $ 69,030 $ 68,962
=========== ===========
</TABLE>
F-12
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) EQUITY INVESTMENT IN DEVELOPMENT PARTNERSHIP (Continued)
Condensed statements of operations of the Development Partnership are as
follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
(Amounts in thousands)
(Unaudited)
(Restated)
<S> <C> <C> <C>
Operating revenues $ 3,063 $ 2,619 $ 6,618
Costs and expenses 5,185 5,551 7,021
---------- ---------- ---------
Net loss $ (2,122) $ (2,932) $ (403)
========== ========== =========
Net loss allocated to Crow Irvine $ (1,591) $ (2,199) $ (302)
========== ========== =========
Net loss allocated to Winthrop California
Investors Limited Partnership $ (531) $ (733) $ (101)
========== ========== =========
</TABLE>
The 1995 balance sheet and operating results are restated for changes
made by the Development Partnership subsequent to issuance of the 1995
financial statements.
In conjunction with the impairment in value determined with respect to
the Properties, management concluded that there was an impairment in the
value of its equity investment in the Development Partnership. Such
impairment is substantially related to factors discussed in Note 2. As a
result, the Partnership reduced the carrying value of this investment by
$10,000,000 in 1995 to its estimated fair value. The tax basis of this
investment exceeds its carrying value for financial statement purposes
by approximately $11,611,000.
(4) FINANCING ARRANGEMENTS
The Operating Partnership, in connection with the acquisition of the
Headquarters Facility, obtained a $204,000,000 mortgage loan (the
Mortgage Loan) from Pacific Mutual Life Insurance Company (the Mortgage
Lender) as of the Acquisition Date. The Mortgage Loan had a 127-month
term, bears interest at the fixed rate of 11.85% and is secured by the
Headquarters Facility. Under the terms of the loan, monthly payments of
interest only were required through August 1, 1990. Thereafter, monthly
payments of principal and interest of $2,075,000 were made until
maturity. A balloon payment of $198,190,000 was due at maturity on April
1, 1996.
F-13
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(4) FINANCING ARRANGEMENTS (Continued)
The Operating Partnership failed to make the balloon payment on April 1,
1996, but continued to make scheduled monthly payments of principal and
interest through August 1996. In July, the Mortgage Lender swept the
funds from the investment accounts, in an amount totaling $1,264,759,
which were placed in an interest-bearing escrow account. Interest income
in the amount of $24,267 was credited through December 31, 1996. The
parties agreed that starting in September 1996, the Mortgage Lender
would sweep the Operating Partnership's operating bank account and would
take and apply all funds in excess of $500,000 in the bank account to
the outstanding principal and accrued interest on the Mortgage Loan.
Payments made under this arrangement totaled approximately $9,958,000.
Any unpaid interest accrues interest at 11.85%. Accrued interest payable
included in accounts payable at December 31, 1996 totaled approximately
$4,617,000.
The Mortgage Lender has a security interest in the cash balances of the
Operating Partnership and has placed certain restrictions on investment
policies and capital distributions.
Although market conditions in Southern California have recently
stabilized and market rental rates have increased slightly, the
Partnership does not anticipate being able to sell or refinance the
Headquarters Facility to repay the Mortgage Loan. During March 1997, the
property's largest tenant, Fluor, announced that it would not be
extending its lease term. On March 28, 1997, the Operating Partnership
filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy
Code.
On November 27, 1996, the Mortgage Lender and the Partnership reached an
agreement (the Agreement of Understanding) in principle on the terms of
a plan of reorganization for the Operating Partnership, under which the
Mortgage Lender agreed to support a prearranged bankruptcy plan of
reorganization on certain terms and conditions, and agreed to forbear
from exercising any remedies so long as the Agreement of Understanding
was in effect. The Mortgage Lender may terminate this Agreement if the
plan of reorganization is not confirmed on or before December 31, 1997
(see Note 9).
F-14
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) DEFERRED COSTS
The following summarizes by category the Partnership's deferred costs at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
(Amounts in thousands)
<S> <C> <C>
Financing costs $ -- $ 4,156
Leasing costs 7,554 7,265
Organization costs -- 2,080
Deferred fees 1,195 5,532
Less--Accumulated amortization (5,544) (12,639)
---------- ----------
$ 3,205 $ 6,394
========== ==========
</TABLE>
(6) CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
WFA and Three Winthrop, as General Partners of the Partnership, are
entitled to allocations of profits and losses and cash distributions
from operations and liquidation of the Partnerships.
WFA or an affiliate earns annual asset management fees of $750,000 paid
from the Partnership's distributive share of cash flow from operations
of the Operating, Development and Management Partnerships. At December
31, 1996, 1995 and 1994, $375,000, $4,500,000 and $3,750,000,
respectively, of such fees are included in accounts payable.
WFA and Crow Orange County Management Company (Crow Management) are
entitled to an incentive asset management fee equal to 10% and 5%,
respectively, of the excess, if any, in any year of actual cash flow
over the cash flow forecast for the Headquarters Facility in the summary
of cash flow forecast from operations of the Operating Partnership set
forth in the Partnership's confidential memorandum describing the
Offering. There were no such amounts paid or accrued in 1996, 1995 or
1994.
During 1996 and 1995, the Management Partnership occupied space (14,851
rental square feet of office space) and earned management fees, leasing
commissions and fees for supervising the conversion of tenant space and
certain other capital improvements at the Headquarters Facility in
accordance with agreements assigned from Crow Management. All fees have
been eliminated in consolidation.
During 1996 and 1995, the Management Partnership reimbursed
approximately $145,000 and $175,000, respectively, of costs incurred by
an affiliate in connection with the operation of the Management
Partnership.
F-15
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(6) CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (Continued)
During 1995 and 1994, Crow Management occupied approximately 3,564 and
4,675, respectively, rentable square feet of office space owned by the
Operating Partnership. This space was used by Crow Management personnel
to oversee the management of the Properties.
During 1995, the Operating Partnership reimbursed to WFA approximately
$9,000 of costs for legal services that certain WFA employees provided
to the Partnership.
WFA obtains general liability insurance coverage for the Partnership.
The cost of this coverage charged to the Partnership was $15,100 and
$14,128 in 1996 and 1995, respectively.
(7) REAL ESTATE TAX ABATEMENT
In 1995, the Operating Partnership received an abatement of real estate
taxes from Orange County related to the 1992, 1993 and 1994 fiscal
years. The amount received totaled $1,665,000. Of this amount,
$1,424,000 was payable to certain tenants. The remaining $241,000 was
reflected as other income.
During 1996, the Operating Partnership received an abatement of real
estate taxes related to fiscal years 1991 through 1995. Of the total
rebate of approximately $150,000, approximately $127,000 is payable to
certain tenants and $23,000 is included in other income.
In March 1997, the Operating Partnership received a real estate tax
abatement related to the 1994 and 1995 fiscal years totaling
approximately $1,666,000. This amount is included in accounts receivable
at December 31, 1996. Of this amount, approximately $1,405,000 is
payable to certain tenants. The remaining $261,000 is included in other
income.
(8) COMMITMENTS AND CONTINGENCIES
Leases
Originally, the Operating Partnership entered into three separate, but
substantially identical, 50-year completely net leases (collectively,
the Master Lease) with a subsidiary of Fluor (with a guarantee by Fluor)
for each of the three components of the Headquarters Facility. At all
times during the term of the Master Lease, Fluor will pay its pro rata
share of all operating expenses of the Headquarters Facility and the
90.2 acres surrounding the Headquarters Facility, which contain parking
lots, access roads and landscaped grounds (the Master Land).
F-16
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(8) COMMITMENTS AND CONTINGENCIES (Continued)
Leases (Continued)
Effective November 1, 1988, the Partnership negotiated revised lease
terms with Fluor (the Revised Lease Terms), which were approved by the
Mortgage Lender during 1990. The primary components of the Revised Lease
Terms were (i) Fluor will continue to lease a minimum of 790,409 usable
square feet until 1998 (797,142 square feet currently leased at December
31, 1995) and (ii) the average rental rate on this space will be
approximately $16.87, net, per usable square foot. Fluor must inform the
Operating Partnership of its intentions regarding renewal by July 1,
1997, at which time Fluor may elect to (i) renew the lease on August 1,
1998 for up to seven consecutive six-year renewal terms for a minimum of
350,000 square feet at a rental rate equal to 95% of the market rates
but not less than the rates then in effect or (ii) vacate one half of
its space on August 1, 1998 and the remainder on August 1, 1999. During
March 1997, Fluor announced that it would not be extending its lease
term.
The Master Lease provides that Fluor may sublease space with the consent
of the Operating Partnership. If rent under a sublease is in excess of
that due under the Master Lease, a portion of the excess will be paid by
Fluor to the Operating Partnership. If rent due under a sublease is less
than that due under the Master Lease, Fluor will continue to pay the
full rent due under the Master Lease to the Operating Partnership.
Fluor entered into several subleases in 1991 and 1990.
The following is a summary of the minimum lease revenues, exclusive of
escalation recoveries and future lease renewals, on existing leases,
which reflects the revised lease terms discussed above:
<TABLE>
<CAPTION>
Year Amount
(Amounts in thousands)
<S> <C>
1997 $ 21,097
1998 14,467
1999 6,578
2000 6,614
2001 3,561
Thereafter 8,521
-----------
$ 60,838
</TABLE>
F-17
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(8) COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
During 1993, the Partnership, both on its own behalf and on behalf of
the Operating Partnership, commenced legal proceedings against Crow
Irvine and its general partners, Crow Management and the Development
Partnership (together, the Crow Defendants). The Crow Defendants filed a
cross-complaint against the Partnership, the Operating Partnership, the
General Partners and certain other individuals and entities affiliated
with WFA. On April 1, 1995, the Partnership and its affiliates, along
with the Crow Defendants, agreed to dismiss all claims pursuant to a
settlement agreement. That settlement agreement required the Partnership
to pay $1,050,000 to either Crow Management or the Development
Partnership in full and complete satisfaction of all amounts due under
the management agreement. This amount was paid in 1995.
The settlement agreement also requires Crow Management to subcontract
all management services to the Management Partnership for the period
April 1, 1995 to December 31, 2000 in consideration for a monthly fee of
$20,833. The Partnership will be required to remit payments for fees
related to common area operations to the Management Partnership. In
addition, the Partnership agreed to pay certain fees for reserved
parking spaces.
During November 1996, Crow Management gave notice to the Management
Partnership that the subcontract entered into in April 1995 was canceled
immediately due to the Management Partnership's failure to fulfill its
obligations under the terms of the subcontract. It is the Partnership's
position that all required duties are being properly performed and that
the subcontract requires the parties to enter into arbitration prior to
cancellation of the subcontract. Management believes that any liability
that may ultimately result from the resolution of these matters will not
have a material adverse effect on the financial position or results of
operation of the Partnership.
In July 1985, the Operating and Development Partnerships entered into
the Construction, Operation and Reciprocal Easement Agreement (the REA)
to govern the development and use of the properties under the control of
each. On February 20, 1997, the Development Partnership sent a notice to
the Operating Partnership claiming that the Operating Partnership was in
default of the REA due to its refusal to permit the Development
Partnership to use certain electrical lines located on the Operating
Partnership's property.
Financial Instruments
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and investment securities. The Partnership places its
temporary cash investments and investment securities with high credit
quality financial institutions and, by policy, limits the amount of
credit exposure to any one financial institution. As of December 31,
1995, the Partnership had no significant concentrations of credit risk.
F-18
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(9) SUBSEQUENT EVENT
The Operating Partnership filed for bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code on March 28, 1997, as outlined in the Agreement of
Understanding with the Mortgage Lender (see Note 4). Under the terms of
the proposed plan of reorganization, the Mortgage Lender will reduce the
Operating Partnership's mortgage obligation to $104.5 million through
forgiveness of indebtedness. The debt will be evidenced by two new notes
in the principal amounts of $100 million and $4.5 million (the
Intermediate Debt). The Operating Partnership will then contribute
$500,000 in cash, and all other partnership assets and liabilities
(including the Headquarters Facility subject to the Intermediate Debt)
to a limited liability corporation (LLC) formed for this purpose. In
return, the Operating Partnership will receive a 10% interest in LLC.
The LLC will terminate upon the earlier of the sale or disposition of
the Headquarters Facility or September 28, 2002, although its term may
be extended by the members.
A real estate investment trust (REIT) will be formed to own a 90%
interest in LLC. In return for satisfaction of the existing mortgage,
the Mortgage Lender will initially own 100% of the REIT and receive $100
million in secured debentures from LLC. Class A Notes in the principal
amount of $80 million will bear interest at 2.25% above the interest
rate on U.S. Treasury Bonds or Notes with a maturity date closest to the
Class A Notes, and be payable monthly in interest only through March 28,
1999. Thereafter, monthly payment of interest and principal will be
based on a 25-year amortization schedule. Through March 28, 1998, the
interest may be payable in additional Class A Notes. Class B Notes in
the principal amount of $20 million will bear interest at 3.0% above the
interest rate on U.S. Treasury Bonds or Notes with a maturity date
closest to the Class B Notes, and be payable monthly in interest only
through March 28, 2000. Thereafter, monthly payments of interest and
principal will be based on a 25-year amortization schedule. Through
March 28, 2001, the interest may be payable in additional Class B Notes.
Both Class A and B Notes mature March 28, 2002.
The Operating Partnership will have the right to exchange its 10%
interest in the LLC for a 10% interest in the REIT (the Exchange Right).
It will also pledge its interest in the LLC as collateral for the
payment in full of all amounts evidenced by the Class A and Class B
Notes.
The Operating Partnership will also receive certain Property
Appreciation Rights, which will be exercisable through March 27, 2002.
The Operating Partnership will have the right to purchase an equity
interest in the REIT representing 10% of the equity value of the LLC
(subject to dilution) for $10,888,889. The Operating Partnership will
also have the right to purchase an equity interest in the REIT
representing 55% of the equity value of the LLC (subject to dilution)
for $152,777,778. The exercise of the rights is subject to the value of
the LLC equaling or exceeding $98 million for the 10% purchase and $125
million for the 55% purchase. In lieu of issuing shares for these
Property Appreciation Rights, the REIT will have the option of making a
net cash payment equal to the difference between the current market
value of the REIT shares to be issued and the exercise price.
F-19
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(9) SUBSEQUENT EVENT (Continued)
In return for its services in connection with assistance in negotiating
the reorganization plan, the LLC will pay a fee of $500,000 to the
Partnership.
The above terms of the proposed plan of reorganization are subject to
change and are also subject to approval by the Bankruptcy Court and the
Investor Limited Partners.
(10) TAX LOSS
The Partnership's loss for federal income tax reporting purposes differs
from the net loss for financial reporting purposes primarily due to
timing differences in the recognition of certain revenue and expense
items. The Partnership's federal tax loss was calculated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(Amounts in thousands)
<S> <C> <C> <C>
Loss for financial reporting purposes $ (37,771) $ (66,228) $ (14,144)
Reduction in carrying value of property 23,261 50,000 --
Accelerated depreciation (in excess of) less
than the depreciation for financial statement
purposes (1,746) 285 (368)
Prepaid rent 71 8 (2,547)
Deferred rental income (252) 110 107
Nondeductible accruals 492 (1,365) 1,107
Amortization of intangibles 100 100 495
Other (42) 1,232 5
Legal fees related to bankruptcy 350 -- --
Special tax loss allocation to Partnership (326) (151) (137)
Development Partnership interest expense
capitalized for tax (274) 217 34
----------- ----------- -----------
Loss for federal income tax reporting
purposes $ (16,137) $ (15,792) $ (15,448)
=========== =========== ===========
</TABLE>
Allocations of the net loss to Investor Limited Partners for financial
statement and tax purposes are computed in accordance with the
Partnership Agreements.
F-20
<PAGE>
SCHEDULE III
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Cost
Capitalized
Subsequent to
Initial Cost to Partnership Acquisition-
Encumbrances Buildings & Improvements,
Description (A) Land Improvements Net
<S> <C> <C> <C> <C>
Commercial
office
property $198,650,332 $ 22,756,500 $279,217,582 $(23,914,913)
<CAPTION>
Gross Amount at which Carried at Close of Period
Impairment of
Buildings & Land & Accumulated Date of Depreciable
Description Land Improvements Buildings Total (B) Depreciation Acquisition Life
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial
office
property $ 22,756,500 $273,894,029 $(61,970,000) $234,680,529 $130,004,456 7/30/85 5-54 years
</TABLE>
(A) See Note 4 of notes to consolidated financial statements for information
regarding the terms of the various encumbrances.
(B) The total cost of land, buildings and improvements, net of accumulated
depreciation at December 31, 1996, for federal income tax purposes is
$151,093,762.
RECONCILIATION OF COST:
Balance as of December 31, 1993 $ 295,923,309
Additions during 1994 180,563
Retirements during 1994 --
--------------
Balance as of December 31, 1994 296,103,872
Additions during 1995 421,370
Retirements during 1995 --
Loss due to permanent impairment-
Land (6,000,000)
Building (34,000,000)
--------------
Balance as of December 31, 1995 256,525,242
Additions during 1996 125,287
Retirements during 1996 --
Loss due to permanent impairment-
Land (3,417,500)
Building (18,552,500)
--------------
Balance as of December 31, 1996 $ 234,680,529
==============
RECONCILIATION OF ACCUMULATED DEPRECIATION:
Balance as of December 31, 1993 $ 99,559,775
Depreciation expense 1994 11,109,324
Retirements during 1994 --
--------------
Balance as of December 31, 1994 110,669,099
Depreciation expense 1995 11,395,960
Retirements during 1995 --
--------------
Balance as of December 31, 1995 122,065,059
Depreciation expenses 1996 9,196,372
Retirements during 1996 (1,256,975)
--------------
Balance as of December 31, 1996 $ 130,004,456
==============
F-21
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
26
<PAGE>
PART III
Item 10. Directors and Executive Officers.
The Registrant has no directors or executive officers. The managing
general partner of the Registrant is WFA. WFA manages and controls substantially
all of Registrant's affairs and has general responsibility and ultimate
authority in all matters affecting its business. As of May 1, 1997, the names of
the executive officers of WFA and the position held by each of them, are as
follows:
Has Served as
Position Held with a Director or
Name the General Partner Officer Since
Michael L. Ashner Chief Executive Officer 1-96
Richard J. McCready President and
Chief Operating Officer 7-95
Jeffrey Furber Executive Vice President 7-95
and Clerk
Edward Williams Chief Financial Officer 4-96
Vice President and
Treasurer
Peter Braverman Senior Vice President 1-96
Michael L. Ashner, age 45, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") since January 15,
1996. From June 1994 until January 1996, Mr. Ashner was a Director, President
and Co-chairman of National Property Investors, Inc., a real estate investment
company ("NPI"). Mr. Ashner was also a Director and executive officer of NPI
Property Management Corporation ("NPI Management") from April 1984 until January
1996. In addition, since 1981 Mr. Ashner has been President of Exeter Capital
Corporation, a firm which has organized and administered real estate limited
partnerships.
Richard J. McCready, age 39, is the President and Chief Operating
Officer of WFA and its subsidiaries. Mr. McCready previously served as a
Managing Director, Vice President and Clerk of WFA and a Director, Vice
President and Clerk of the Managing General Partner and all other subsidiaries
of WFA. Mr. McCready joined the Winthrop organization in 1990.
27
<PAGE>
Jeffrey Furber, age 37, has been the Executive Vice President of WFA
and the President of WC Management since January 1996. Mr. Furber served as a
Managing Director of WFA from January 1991 to December 1995 and as a Vice
President from June 1984 until December 1990.
Edward V. Williams, age 56, has been the Chief Financial Officer of WFA
since April 1996. From June 1991 through March 1996, Mr. Williams was Controller
of NPI and NPI Management. Prior to 1991, Mr. Williams held other real estate
related positions including Treasurer of Johnstown American Companies and Senior
Manager at Price Waterhouse.
Peter Braverman, age 45, has been a Senior Vice President of WFA since
January 1996. From June 1995 until January 1996, Mr. Braverman was a Vice
President of NPI and NPI Management. From June 1991 until March 1994, Mr.
Braverman was President of the Braverman Group, a firm specializing in
management consulting for the real estate and construction industries. From 1988
to 1991, Mr. Braverman was a Vice President and Assistant Secretary of Fischbach
Corporation, a publicly traded, international real estate and construction firm.
One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to
the reporting requirements of Section 15(d) of such Act: Winthrop Partners 79
Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners
81 Limited Partnership; Winthrop Residential Associates I, A Limited
Partnership; Winthrop Residential Associates II, A Limited Partnership; Winthrop
Residential Associates III, A Limited Partnership; 1626 New York Associates
Limited Partnership; 1999 Broadway Associates Limited Partnership; One Financial
Place Limited Partnership; Presidential Associates I Limited Partnership;
Riverside Park Associates Limited Partnership; Springhill Lake Investors Limited
Partnership; Twelve AMH Associates Limited Partnership; Winthrop California
Investors Limited Partnership; Winthrop Growth Investors I Limited Partnership;
Winthrop Interim Partners I, A Limited Partnership; Southeastern Income
Properties Limited Partnership; Southeastern Income Properties II Limited
Partnership; and Winthrop Miami Associates Limited Partnership.
Except as indicated above, neither the Registrant nor the General
Partner has any significant employees within the meaning of Item 401(b) of
Regulation S-K. There are no family relationships among the officers and
directors of WFA.
28
<PAGE>
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Registrant under Rule 16a-3(e) during the Registrant's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Registrant with respect to its most recent fiscal year, the Registrant is not
aware of any director, officer or beneficial owner of more than ten percent of
the units of limited partnership interest in the Registrant that failed to file
on a timely basis, as disclosed in the above Forms, reports required by section
16(a) of the Exchange Act during the most recent fiscal year or prior fiscal
years.
(f) Involvement in Certain Legal Proceedings. None.
Item 11. Executive Compensation.
Registrant is not required to and did not pay any compensation to the
officers or partners of the General Partner. The General Partner does not
presently pay any compensation to any of its officers or partners (See "Item 13,
Certain Relationships and Related Transactions").
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners.
WFA and Three Winthrop own all the outstanding general partnership
interests in the Registrant. The following table sets forth certain information
regarding Units of the Registrant owned by each person who is known by the
Registrant to own beneficially or exercise voting or dispositive control over
more than 5% of the Registrant's limited partnership assignee units, by each of
the directors of the General Partners of the Registrant and by all directors and
executive officers of the General Partners as a group as of May 1, 1997.
29
<PAGE>
Name and address of Amount and nature of
Beneficial Owner Beneficial Owner % of Class
---------------- ---------------- ----------
WILCAP Limited Partnership (1) (2) 1,000 28.6
WILCAP Holdings Co., Inc. (1)(2)(3) 18 *
Winthrop Financial Associates,
A Limited Partnership (1) (2) 5 *
All directors and executive officers
as a group (five persons) -- --
* Less than one percent
(1) The business address for WILCAP Limited Partnership WILCAP
Holdings Co., Inc. and WFA is One International Place,
12th Floor, Boston, Massachusetts 02110.
(2) Based upon information supplied to the Registrant by WILCAP
Limited Partnership.
(3) WILCAP Holdings Co., Inc. is the general partner of WILCAP
Limited Partnership.
There exists no arrangements known to the Registrant the operation of
which may at a subsequent date result in a change in control of the Registrant.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and Others.
The directors, officers and general partners of the General Partners
and their affiliates receive no remuneration or other compensation from the
Registrants.
Under the terms of the Partnership Agreement, the General Partners and
their affiliates are entitled to receive certain cash distributions from, and
allocations of taxable profits and losses from the Registrant. In addition, the
General Partners and their affiliates receive certain fees and compensation paid
by the Partnership for services rendered in connection with the operations of
the Partnership.
30
<PAGE>
The only fees, commissions and cash distributions which the Registrant
paid or accrued for the account of the General Partners and their affiliates for
the years ended December 31, 1996, 1995 and 1994 is an annual asset management
fee payable to WFA of $750,000 per annum. In August 1996, the Registrant paid
$4,875,000 to the General Partners as payment of current and accrued annual
asset management fees.
There were no other material transactions between the General Partners
or their affiliates and the Registrant during 1994, 1995 or 1996, except as
follows:
In February 1992, WC Management was organized for the purpose of buying
out Crow Management's interest in the Management Contract. A wholly-owned
subsidiary of WFA contributed $100 to the capital of this partnership in
exchange for a 1% general partnership interest. The Registrant contributed
approximately $4 million to the capital of WC Management in exchange for a 99%
limited partnership interest. In 1994, 1995 and 1996, the WFA affiliate which is
the general partner of WC Management received a distribution of $2,981, $14,376
and $0, respectively, in respect of its 1.0% interest. Others than the
distribution in respect of its 1% interest, the general partner of WC Management
received no compensation for its services as general partner.
WC Management has engaged Winthrop Management, an affiliate of WFA, to
perform the services required under the Management Contract. Winthrop Management
is reimbursed for payroll and other expenses associated with discharging these
duties. Winthrop Management also occupies approximately 2,000 square feet of
office space in the Headquarters Facility and receives reimbursement from the
Operating Partnership for the expenses associated with this space. Other than
these reimbursements, Winthrop Management receives no fees for the services it
performs for WC Management.
(b) Certain Business Relationships.
The Registrant's response to Item 13(a) hereof is incorporated herein
by this reference. The Registrant has no other business relationship with
entities of which the officers, directors or general partners of the General
Partners or its affiliates are officers, directors or 10 percent shareholders
other than as discussed in "Item 12(a), Security Ownership of Certain Beneficial
Owners".
31
<PAGE>
(c) Indebtedness of the Management.
There is no indebtedness to the Registrant by the General Partners or
their affiliates, or any of their officers, directors or general partners.
(d) Transactions with Promoters. None.
32
<PAGE>
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 in
Item 8.
2. Financial Statement Schedules - See Index to Financial
Statement Schedule filed pursuant to Item 14(a)(2) in "Item 8, Financial
Statements and Supplementary Data." Financial statement schedules not included
in Item 8 have been omitted because of the absence of conditions under which
they are required or because the information is included elsewhere in the
financial statements.
3. The exhibits listed in the accompanying Index to Exhibits are
filed as part of this Report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter covered
by this report.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
WINTHROP CALIFORNIA INVESTORS
LIMITED PARTNERSHIP
By: WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP,
Managing General Partner
By: /s/ Michael L. Ashner
----------------------
Michael L. Ashner
Chief Executive Officer
Date: July 24, 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.
Signature/Name Title Date
- -------------- ----- ----
/s/Michael L. Ashner Chief Executive July 24, 1997
- ---------------------
Michael L. Ashner Officer and Director
/s/Edward V. Williams Chief Financial Officer July 24, 1997
- ---------------------
Edward V. Williams
34
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document
<S> <C> <C>
3,4 Limited Partnership Agreement of Winthrop California Investors Limited Partnership, (1)
dated October 16, 1988, Agreement of Merger, dated October 16, 1985
3,4 Amendment to Limited Partnership Agreement of Winthrop California Investors Limited (2)
Partnership, dated November 15, 1995
10 (a) Form of Amended and Restated Partnership Agreement of Crow Winthrop Operating (3)
Partnership
(b) Form of Limited Partnership Agreement and Certificate of Amendment of Crow Winthrop (3)
Development Limited Partnership
(c) Amended and Restated Agreement of Purchase and Sale, dated October 31, 1984, by and (3)
among Fluor Corporation, as Seller, and Crow Irvine #1, as Buyer
(d) Assignment of Amended and Restated Agreement of Purchase and Sale, dated as of May (3)
24, 1985, by and among Fluor Corporation and Crow Irvine #1, as Assignors, and Crow
Winthrop Operating Partnership and Crow Winthrop Development Limited Partnership, as
Assignees
(e) Management and Leasing Agreement, dated as of May 24, 1985, between Crow Winthrop (3)
Operating Partnership, as Owner and Crow Orange County Management Company, as Manager
(f) First Amendment to Limited Partnership Agreement and Certificate of Amendment of Crow (3)
Winthrop Development Limited Partnership, dated as of July 26, 1985, by and between
Crow Irvine #2, as General Partner, and Winthrop California Investors Limited
Partnership, as Limited Partner
(g) First Amendment to Amended and Restated Agreement of Purchase and Sale, dated as of (3)
July 26, 1985, by and among Fluor Corporation, as Seller, and
35
<PAGE>
Crow Winthrop Operating Partnership and Crow Winthrop Development Limited Partnership,
as Buyer
(h) Contingent Purchase Price Agreement, dated as of July 26, 1985, by and between Fluor (3)
Corporation, as Seller, and Crow Winthrop Development Limited Partnership, as Buyer
(i) Subordinated Short Form Deed of Trust and Assignment of Rents, dated as of July 26, (3)
1985, by and among Crow Winthrop\Development Limited Partnership, as Trustor, Ticor
Title Insurance Company of California, as Trustee, and Fluor Corporation, as
Beneficiary
(j) Security Agreement, dated as of July 30, 1985, by and between Crow Winthrop (3)
Development Limited Partnership, as Secured Party, and Winthrop California Investors
Limited Partnership, as Debtor
(k) Assignment of Master Leases, executed as of July 26, 1985, by and between Fluor (3)
Corporation, as Assignor, and Crow Winthrop Operating Partnership, as Assignee, and
Consent, dated as of July 26, 1985, by Crow Winthrop Development Limited Partnership,
covering the following leases between Fluor Corporation, as Landlord, and Fluor
Engineers, Inc., as Tenant
(k)(i) Corporate Tower Lease (3)
(k)(ii) Concourse Lease (3)
(k)(iii) Building Pod Lease (3)
(l) Guaranty of Leases, dated as of July 26, 1985 by and among Fluor Corporation, as (3)
Guarantor, Crow Winthrop Operating Partnership, as Landlord, and Crow Winthrop
Development Limited Partnership, as Developer
(m) Concourse Management Agreement, dated as of July 26, 1985, by and between Fluor (3)
Engineers, Inc., as Manager, and Crow Winthrop Operating Partnership, as Owner
(n) License Agreement dated as of July 26, 1985, by and between Crow Winthrop Development (3)
Limited
36
<PAGE>
Partnership, as Licensor, and Fluor Engineers, Inc., as Licensee to Exhibit
10(n) to the Registration Statement)
(o) Construction, Operation and Reciprocal Easement Agreement, dated as of July 26, 1985, (3)
by and between Crow Winthrop Development Limited Partnership
(p) Amendment to Management and Leasing Agreement, dated as of July 26, 1985, by and (3)
between Crow Winthrop Operating Partnership, as Owner, and Crow Orange County
Management Company, as Manager
(q) Air Space Lease, dated as of July 26, 1985, by and between Crow Winthrop Operating (3)
Partnership, as Lessor, and Crow Winthrop Development Limited Partnership, as Lessee
(r) Air Space Easement Agreement, dated as of July 26, 1985, by and between Crow Winthrop (3)
Operating Partnership, as Grantor, and Crow Winthrop Development Limited Partnership,
as Grantee
(s) Amended and Restated Development Agreement, dated as of February 28, 1992, by and (1)
among Crow Winthrop Operating Partnership, Crow Winthrop Development Limited
Partnership, Winthrop California Investors Limited Partnership and Crow Irvine #2
(t) Management Agreement, dated as of July 26, 1985, by and among Crow Winthrop Operating (3)
Partnership and Crow Winthrop Development Limited Partnership, as Owners, and Crow
Orange County Management Company, as Manager
(u) Bank Loan Agreement, dated as of September 19, 1986, by and
between Winthrop (4) California Investors Limited
Partnership, as Borrower, and Mellon Bank, N.A.
(v) Pledge and Security Agreement, dated as of September 19, 1986, by and between (4)
Winthrop California Investors Limited Partnership, as Debtor, and Mellon Bank, N.A.
(w) Revolving Credit Note, dated September 19, 1986, by Winthrop California Investors (4)
Limited Partnership in favor of Mellon Bank, N.A.
37
<PAGE>
(incorporated by reference to Exhibit 10(w) to
(x) Lease between Crow Winthrop Operating Partnership and Denny's Inc., dated December (5)
30, 1988
(y) Sublease between Crow Winthrop Operating Partnership and AT&T dated December 20, 1988 (5)
(z) Assignment and Assumption of Management Agreement, dated February 28, 1992, by and (1)
between Crow Orange County Management Company, Inc. and Winthrop California
Management Limited Partnership
(aa) Second Amendment to Partnership Agreement, dated February 28, 1992, by and between (1)
Crow Irvine #2 and Winthrop California Investors Limited Partnership
(bb) Fourth Amendment to Limited Partnership Agreement and Certificate of Amendment, dated (1)
February 28, 1992, by and between Crow Irvine #2 and Winthrop California Investors
Limited Partnership
</TABLE>
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended 1991, filed on August 28, 1992
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
filed November 15, 1995
(3) Incorporated by reference to Registrant's Registration Statement
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year 1986, filed on March 31, 1987
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year 1988, filed on March 31, 1989
