<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997 Commission File Number 0-14536
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 04-2869812
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One International Place, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-8600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
(Amounts in Thousands)
<S> <C> <C>
Land ....................................................................... $ 13,339 $ 13,339
Buildings and improvements...................................................... 221,791 221,342
-------- --------
235,130 234,681
Less: Accumulated depreciation................................................. 132,158 130,004
-------- --------
102,972 104,677
Cash and cash equivalents....................................................... 4,687 5,335
Investment securities........................................................... 2,756 1,289
Other deposits.................................................................. 499 241
Prepaid expenses and other assets............................................... 5,474 7,485
Deferred costs, net of accumulated amortization
of $5,731 and $5,554 as of March 31, 1997
1996 and December 31, 1996 respectively..................................... 3,796 3,205
Equity investment in Development Partnership.................................... 20,296 20,367
-------- --------
Total Assets........................................................... $140,480 $142,599
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities subject to compromise:
Mortgage loan............................................................... $197,712 $197,712
Accounts payable, accrued expenses, accrued
interest and other......................................................... 13,110 10,789
---------- ---------
Total Liabilities subject to compromise ............................... 210,822 208,501
--------- ---------
Partners' Capital:
Limited Partners - Units of Investor Limited Partnership Interest, $65,000
stated value per cash unit and $66,000 stated value per deferred unit;
3,500 units, authorized, issued and outstanding........................ (48,924) (44,573)
General Partners............................................................ (21,418) (21,329)
--------- --------
Total Partners' Capital................................................ (70,342) (65,902)
---------- ----------
Total Liabilities and Partners' Capital................................ $140,480 $142,599
======== ========
</TABLE>
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Three Months
Ended March 31, Ended March 31,
1997 1996
------ ----
(Amounts in Thousands)
(Except per unit data)
<S> <C> <C>
REVENUES:
Base rent revenue............................................ $ 5,762 $ 6,180
Common area expense reimbursements........................... 2,517 2,712
Interest and other income.................................... 122 126
-------- ---------
Total Revenues............................................ 8,401 9,018
-------- -------
EXPENSES:
Repairs, maintenance and security............................ 1,634 1,430
General and administrative................................... 403 494
Real estate taxes............................................ 658 683
Utilities.................................................... 511 427
Asset and property management fee............................ 188 188
Insurance.................................................... 88 87
Interest expense............................................. 5,992 5,882
Depreciation and amortization................................ 2,448 2,933
--------- --------
Total Expenses............................................ 11,922 12,124
-------- -------
Operating loss............................................ (3,521) (3,106)
Equity in Loss of the Development
Partnership...................................................... (70) (199)
------- --------
Non-operating Expense:
Reorganization item-professional fees............................ 885 --
------- --------
Loss Before Minority Interest............................. (4,476) (3,305)
Minority Interest in Operating Partnership
and Management Partnership................................... 36 28
-------- ---------
Net Loss.................................................. $(4,440) $(3,277)
======== ========
Net Loss Allocated to General Partners............................... $ (89) $ ( 65)
========== ==========
Net Loss Allocated to Investor
Limited Partners............................................... $(4,351) $(3,212)
======== ========
Net Loss per unit of Limited Partner
Interest....................................................... $ (1,243) $ (918)
=========== ==========
</TABLE>
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED) (NOTE 1)
<TABLE>
<CAPTION>
Investor
Limited General
Partners Partners Total
-------- -------- -----
(Amounts in Thousands)
<S> <C> <C> <C>
Balance, December 31, 1995 ................................. $ (7,557) $(20,574) $(28,131)
Net Loss ................................................... (3,212) (65) (3,277)
-------- -------- --------
Balance, March 31, 1996 .................................... $(10,769) $(20,639) $(31,408)
======== ======== ========
Balance, December 31, 1996 ................................. $(44,573) $(21,329) $(65,902)
Net Loss ................................................... (4,351) (89) (4,440)
-------- -------- --------
Balance, March 31, 1997 .................................... $(48,924) $(21,418) $(70,342)
======== ======== ========
</TABLE>
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------
1997 1996
---- ----
(Amounts in thousands)
<S> <C> <C>
Cash flow from operating activities:
Net loss before reorganization item....................................... $ (3,555) $ (3,277)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ......................................... 2,331 2,838
Minority interest in income of Operating
Partnership and Management Partnership ................................ (36) (28)
Equity in loss of the Development Partnership ......................... 70 199
Change in assets and liabilities:
Increase in other deposits ............................................ (258) --
Decrease in prepaid expenses and other assets ......................... 2,049 377
Increase in accounts payable,
accrued expenses and other ........................................... 2,321 1,454
Increase in deferred costs related to
operating activities ................................................. (768) --
-------- --------
Net cash provided by operating activities
before reorganization item .......................................... 2,154 1,563
-------- --------
Cash flows from reorganization items:
Professional fees paid for services rendered
in connection with the Chapter 11 proceeding ............................ (885) --
-------- --------
Net cash used by reorganization items .................................... (885) --
-------- --------
Cash flows from investing activities:
Capital expenditures ..................................................... (449) (44)
Net (increase) decrease in investment securities ......................... (1,467) 72
-------- --------
Net cash provided (used) by investing activities ..................... (1,916) 28
-------- --------
Cash flows from financing activities:
Principal payments on mortgage loan ...................................... -- (343)
-------- --------
Net cash used in financing activities ................................. -- (343)
-------- --------
Net increase (decrease) in cash and cash equivalents ........................... (647) 1,248
Cash and cash equivalents at beginning of period ............................... 5,334 9,216
-------- --------
Cash and cash equivalents at end of period ..................................... $ 4,687 $ 10,464
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................... $ 1,323 $ 5,881
======== ========
</TABLE>
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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 (the "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 surrounding the Headquarters Facility (the "Excess
Land" - together with the Headquarters Facility, the "Property").
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") when 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"). 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
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 interest in the
Operating Partnership is held by an unaffiliated entity (Crow Irvine
#2) and the remaining 1% ownership interest in the Management
Partnership is held by an affiliate of the Partnership (First Winthrop
Properties, Inc.). The ownership interests of these entities have been
included in other assets in the accompanying consolidated balance
sheets. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The Partnership owns a 25% Limited Partnership interest in the
Development Partnership, which is accounted for under the equity
method.
The consolidated financial statements were prepared on the accrual
basis of accounting and reflect the Partnership's results of
operations for an interim period, which may not necessarily be
indicative of the results of operations for the year ending December
31, 1997. All adjustments considered necessary for a fair presentation
of results of operations for an interim period have been made in the
accompanying consolidated financial statements. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Partnership's 1996 Annual
Report on Form 10-K.
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 Partnership did not have
the financial resources to fund the principal amount of $197,712,000 due under
the mortgage loan upon maturity. In addition, the General Partner has been
unsuccessful in obtaining financing from the current lender or other available
sources of capital. This matter raises substantial doubt as to the Partnership's
ability to continue as a going concern for a reasonable period of time.
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
ability to generate sufficient cash flow to meet its obligations on a timely
basis and obtain financing as may be required.
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. 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 acquire a 90% interest
in LLC, the members of which will be the existing mortgage noteholders, in
exchange for a $4,500,000 capital contribution. The remaining $100 million
balance of the intermediate debt will be satisfied by the LLC issuing to the
REIT $100 million in secured debetures , which will be divided into two classes.
Class A Notes in 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 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. 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 equity value interests in the REIT having a value at the exercise price
which is premised on value of $98 million and $125 million, respectively for the
net equity of the LLC. The REIT has the right to substitute cash payments in
lieu of REIT shares.
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 Partnership's
limited partners.
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
3. RELATED PARTIES
The Partnership is required to pay to WFA an asset management fee of $750,000
per year. From 1990 through June 1996, this fee was accrued and unpaid by the
Partnership. During the third quarter of 1996, the Partnership paid to WFA
$4,875,000 in asset management fees which represented the asset management fees
due for the period form January 1990 through June 1996. The Partnership has
continued to pay this asset management fee and has paid in this quarter
$562,500, representing the fee due for July 1, 1996 to March 31, 1997. In
addition, the Partnership has provided overhead reimbursement to an affiliate of
the general partner in the amount of $7,710 and $36,250 for the three months
ended March 31, 1997 and 1996.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's assets consist of (i) a 99% general partnership
interest in Crow Winthrop Operating Partnership, a Maryland general partnership
(the "Operating Partnership") which owns a 1.6 million square foot office
facility known as the Fluor Corporation World Headquarters Facility in Irvine
(Orange County), California (the "Headquarters Facility"), (ii) a limited
partnership interest in Crow Winthrop Development Limited Partnership, a
Maryland limited partnership (the Development Partnership") which owns in excess
of 120 acres of land surrounding the Headquarters Facility (the "Excess Land")
and (iii) a 25% limited partnership interest in Winthrop California Management
Limited Partnership, a Maryland limited partnership ("WC Management").
The Partnership's ability to continue in existence is contingent on (i)
the ability of the Operating Partnership to continue in existence, and in
particular to restructure the mortgage loan encumbering the Headquarters
Facility, and to generate revenue allocable to the Partnership either as a
result of distributions from WC Management (derived from the management of the
Operating Partnership's properties) and/or distributions from operations of the
Operating Partnership and (ii) to a lessor extent, the ability of the
Development Partnership to continue in existence and to generate revenue to the
Partnership as a result of distributions from the Development Partnership.
To date the annual asset management fee due Winthrop Financial
Associates ("WFA") and the monies to pay general and administrative expenses
have been funded by the Partnership's reserves and cash flow from WC Management.
Commencing in 1990, and through the second quarter of 1996, however, WFA had not
been paid its annual asset management fee. As of June 30, 1996, $4,875,000 of
this fee was payable to WFA. This deferred fee was paid in the third quarter of
1996 and had been paid currently to the first quarter of 1997. The General
Partners do not anticipate that there will be cash distributions from the
Operating Partnership or the Development Partnership in the near future and WFA
may permit the payment of its asset management fee to be deferred in the future.
There can be no assurance, however, that the deferral of this fee will be
permitted. Any deferred asset management fees will be paid as a priority from
available sources of cash prior to any future distributions to partners of the
Partnership if and when they are paid.
As of March 31, 1997, the balance of the Operating Partnership's
reserve account has been transferred to a tenant improvement escrow account with
operating funds of $1,467,000. This account had a balance of $2,756,000 at March
31, 1997.
Cash provided by operating activities for the three months ended March
31, 1997 was $2,154,000 as compared to $1,563,000 for the three months ended
March 31, 1996. During the first three months ended March 31, 1997, $885,000 of
cash was used by reorganization items. During the first three months ended March
31, 1997, $1,916,000 of cash was used by investing activities compared to
$28,000 provided in the three months ended March 31, 1997. This decrease is the
result of capital expenditures of $449,000 and the transfer from operating funds
of $1,467,000 to the tenant improvement escrow.
At this time, it appears that the original investment objective of
capital growth from the inception of the Partnership will not be attained and
that the 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 Operating Partnership's ability to restructure.
Bankruptcy of the Operating Partnership
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 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.
<PAGE>
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. The Orange County office market consists of
approximately 52 million square feet of space contained in 585 buildings, with
approximately 45% of these buildings developed since 1985. As a result of this
tremendous growth of supply, average vacancy for the Greater Airport market
increased from 9% in 1984 to approximately 25% in 1989. While the vacancy rate
gradually declined to approximately 17.2% at the end of 1994 and 13.5% at the
end of 1996, average rental rates have remained depressed, with average rental
rates in Orange County declining approximately 20% from 1985 to 1996. In
addition, in the late 1980s Fluor Corporation, which originally occupied 100% of
the Headquarters Facility in 1985, began exercising its right to cancel its
lease with respect to significant portions of space at the Headquarters
Facility. While the 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 95% 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 Fluor space,
which were consistent with the then current market rates. Furthermore, Fluor
Corporation 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 1999. Fluor Corporation currently leases approximately 53%
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 Certificateholders commenced negotiations to restructure the
Existing Secured Note. On April 10, 1996, Pacific Mutual Realty Finance, Inc.
("Pacific Mutual") 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 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, certain of the Certificateholders and the
Operating Partnership reached an agreement in principle on the terms of a plan
of reorganization. These Certificateholders agreed to forbear from exercising
any remedies under the conditions set forth in the parties agreement.
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 Third Amended Plan of Reorganization dated July 23,
1997 (the "Plan), the requisite consent of the Limited Partners is required with
respect to the Proposal.
Pursuant to the terms of the Plan, the Operating Partnership will
contribute all of its assets and liabilities, including, $500,000 of
unencumbered cash and all of its right, title and interest in the Headquarters
Facility, to a newly formed Delaware limited liability company to be known as
Jamboree LLC. In exchange for transferring all of its assets and liabilities to
Jamboree LLC, the Operating Partnership will receive an initial 10% ownership
interest in Jamboree LLC. In addition, the Partnership will receive a
restructuring fee of $500,000 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 discharge
of an amount of the existing debt sufficient to reduce the outstanding balance
thereof to $104.5 million (approximately $93 million plus accrued interest
thereon since December 31, 1996) 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"), which will be
secured by all of the assets of the Operating Partnership. Simultaneous with the
contribution by the Operating Partnership of all of its assets and liabilities
to Jamboree LLC, the Certificateholders will contribute the First Intermediate
Note to Jamboree Office REIT (a newly formed real estate investment trust, the
initial stockholders of which will be the Certificateholders) and Jamboree
Office
<PAGE>
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 of $100 million to the
Certificateholders.
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 by Jamboree LLC 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 for (i) the commencement of a voluntary case
under the Bankruptcy Code, (ii) termination of the Management Agreement without
cause, (iii) sale of all or any material portion of the Headquarters Facility
prior to the date which is three years after the effective date of the Plan,
(iv) except as otherwise provided in the LLC Agreement, issuance of additional
units representing membership interests (v) the authorization of 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) certain other matters as provided in the LLC
Agreement. See "Certain Federal Income Tax Consequences" below for information
with respect to the tax effect of the Proposal.
In addition, the Operating Partnership will have the right (the
"Exchange Right") to exchange its interest in Jamboree LLC at any time on or
after one year from the effectiveness of the Plan through March 27, 2002 for
shares in Jamboree Office REIT ("Shares"); provided, however, such one year
lock-out period shall be waived if, among other things, (i) Jamboree Office REIT
shall (a) file a registration statement registering Shares, (b) issue, or
provide rights to subscribe for, additional Shares to its shareholders, (c)
effect a capital reorganization or reclassification, (d) sell all or
substantially all or its assets or (e) dissolve or liquidate, or (ii) Jamboree
LLC shall sell all or substantially all of its assets. In general, the Operating
Partnership may exchange its interest in Jamboree LLC for a fixed number of
Shares (on a one-for-one basis) in Jamboree Office REIT. All 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 Exchange 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.
Furthermore, the Operating Partnership also will have the right to
receive additional equity interests or 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 (subject to dilution)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 (subject to dilution) 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
<PAGE>
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 Second Intermediate Note, 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
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 Partnership's
interest in Jamboree LLC. If this were to occur, the Partnership 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.
Results of Operations
The net loss realized by the Partnership for the first three months in
1997 was $4,440,000 compared to $3,277,000 for the same period in 1996. The
increase in the net loss is attributable to a decrease in the total revenues and
an increase in expenses. Total revenues decreased by $617,000 for the three
months ended March 31, 1997 as compared to the same period of 1996. This
decrease is attributed to space currently being rented at lower rates and higher
bases for operating escalation. The property's occupancy for the three months
ended March 31, 1997 and 1996 was 98%.
Total expenses increased to $12,807,000 for the three months ended
March 31, 1997 from $12,124,000 for the three months ended March 31, 1996. This
increase was primarily attributed to the increase in general and administrative,
as a result of restructuring fees incurred in 1997, partially offset by a
decrease in depreciation and amortization as a result of the write downs of
property value in 1996 and 1995.
<PAGE>
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the three months
ended March 31, 1997.
<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
Dated: July 30, 1997 By: /s/ Michael L. Ashner
---------------------
Michael L. Ashner
Chief Executive Officer
Dated: July 30, 1997 By: /s/ Edward V. Williams
----------------------
Edward V. Williams
Chief Financial Officer
