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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 1997
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-14536 04-2869812
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
One International Place, Boston, MA 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 330-8600
Former name or former address, if changed since last report:
Not applicable.
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Item 5 Other Events.
Winthrop California Investors Limited Partnership (the "Registrant") has
distributed to its investor limited partners (the "Investor Limited Partners") a
Statement Furnished in Connection with the Solicitation of Consents and
Supplement No. 1 thereto (collectively the "Statement"). The Statement was
furnished in connection with, and pursuant to, the Third Amended and Restated
Plan of Reorganization, dated July 23, 1997 of Crow Winthrop Operating
Partnership (the "Plan"). The Registrant holds a 99% general partner interest in
Crow Winthrop Operating Partnership (the "Operating Partnership").
The Statement, a copy of which is attached to this Current Report on Form 8-K,
seeks the consent of the Investor Limited Partners to the adoption of the Plan.
If the Plan is adopted, among other things:
(a) the outstanding indebtedness encumbering the Operating
Partnership's property (the "Headquarters Facility"), will be satisfied by (i)
the discharge, immediately prior to the transfer of the Headquarters Facility
to Jamboree LLC, a newly formed limited liability company, of an amount of the
existing debt sufficient to reduce the outstanding balance thereof to $104.5
million, (ii) the subsequent contribution by the holders of the debt of $4.5
million of the remaining debt to Jamboree LLC in exchange for a 90% interest in
Jamboree LLC, and (iii) the delivery of new promissory notes of Jamboree LLC in
the original principal amount of $100 million to such holders in satisfaction
of $100 million of the remaining $104.5 million of debt.
(b) The Operating Partnership will make a capital contribution to
Jamboree LLC of all of its assets and liabilities, including $500,000 of
unencumbered cash and the Headquarters Facility and the debt encumbering the
Headquarters Facility, in exchange for the remaining 10% interest in such
entity.
(c) The payment to the Registrant of a $500,000 fee for services
rendered and expenses incurred in connection with the Plan.
(d) The Operating Partnership will be entitled to receive cash
payments from, or additional equity interests in, a newly formed real estate
investment trust based on the appreciation, if any, in the value of the
Headquarters Facility.
(e) Winthrop California Management Limited Partnership, an entity in
which the Registrant holds a 99% interest, will be retained as the management
agent for the Headquarters Facility for approximately five years.
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Item 7. Financial Statements and Exhibits
(c) Exhibits
20.1 Statement Furnished in Connection with
the Solicitation of Consents, dated July 31, 1997
20.2 Letter to Investor Limited Partners together with
Supplement No. 1 to Statement Furnished in
Connection with the Solicitation of Consents,
dated August 7, 1997
23. Consent of Arthur Andersen LLP
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WINTHROP CALIFORNIA INVESTORS
LIMITED PARTNERSHIP
By: Winthrop Financial Associates,
A Limited Partnership, as
Managing General Partner
By: /s/ Michael L. Ashner
-------------------------
Michael L. Ashner
Chief Executive Officer
DATED: August 7, 1997
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EXHIBIT INDEX
Exhibit Page
20.1 Statement Furnished in Connection with 6
the Solicitation of Consents, dated July 31, 1997
20.2 Letter to Investor Limited Partners together with
Supplement No. 1 to Statement Furnished in
Connection with the Solicitation of Consents,
dated August 7, 1997
23. Consent of Arthur Andersen LLP
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WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
One International Place
Boston, Massachusetts 02110
------------------------------
STATEMENT FURNISHED IN CONNECTION WITH
THE SOLICITATION OF CONSENTS
Dated: July 31, 1997
------------------------------
This statement (the "Consent Statement") is being furnished to holders
of Limited Partnership Units (the "Investor Limited Partners") of Winthrop
California Investors Limited Partnership, a Delaware limited partnership (the
"Partnership"), in connection with the solicitation of consents by Three
Winthrop Properties, Inc. and Winthrop Financial Associates, A Limited
Partnership, the general partners of the Partnership (the "General Partners").
The Investor Limited Partners are being asked to consent to a single proposal
(the "Proposal") that, if adopted, would permit the Partnership to transfer its
interest in the Headquarters Facility (as hereinafter defined) pursuant to the
Third Amended Plan of Reorganization dated July 23, 1997 of Crow Winthrop
Operating Partnership, a Maryland general partnership (the "Plan"), all as more
fully described herein. The Partnership holds a 99% general partnership
interest in Crow Winthrop Operating Partnership, a Maryland general partnership
(the "Operating Partnership").
As a result of the significant down-turn in the Orange County,
California economy, the Operating Partnership was unable to satisfy the
existing first mortgage debt of approximately $198 million encumbering the
approximately 1.6 million square foot office facility owned by the Operating
Partnership known as the Fluor Corporation World Headquarters Facility in
Irvine (Orange County), California (the "Headquarters Facility"). The debt
encumbering the Headquarters Facility, which is substantially in excess of the
property's current fair market value, matured on April 21, 1996. In an effort
to avoid a foreclosure on the Headquarters Facility, the Operating Partnership
and the holders of the existing mortgage indebtedness negotiated the terms of
the Plan. If the Plan is adopted, among other things:
o The outstanding indebtedness encumbering the Headquarters
Facility, will be satisfied by (i) the discharge, immediately
prior to the transfer of the Headquarters Facility to
Jamboree LLC, a newly formed limited liability company, of an
amount of the existing debt sufficient to reduce the
outstanding balance thereof to $104.5 million, (ii) the
subsequent contribution by the holders of the debt of $4.5
million of the remaining debt to Jamboree LLC in exchange for
a 90% interest in Jamboree LLC, and (iii) the delivery of new
promissory notes of Jamboree LLC in the original principal
amount of $100 million to such holders in satisfaction of
$100 million of the remaining $104.5 million of debt.
o The Operating Partnership will make a capital contribution to
Jamboree LLC of all of its assets and liabilities, including
$500,000 of unencumbered cash and the Headquarters Facility
and the debt encumbering the Headquarters Facility, in
exchange for the remaining 10% interest in such entity.
o The payment to the Partnership of a $500,000 fee for services
rendered and expenses incurred in connection with the Plan.
o The Operating Partnership will be entitled to receive cash
payments from, or additional equity interests in, a newly
formed real estate investment trust based on the
appreciation, if any, in the value of the Headquarters
Facility.
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o Winthrop California Management Limited Partnership, an entity
in which the Partnership holds a 99% interest, will be
retained as the management agent for the Headquarters
Facility for approximately five years.
See, "The Proposal" and "Transaction with Affiliates" below.
FAILURE TO APPROVE THE PROPOSAL WILL MOST LIKELY RESULT IN THE
FORECLOSURE OF THE MORTGAGE ON THE HEADQUARTERS FACILITY BY THE HOLDERS OF THE
EXISTING MORTGAGE INDEBTEDNESS, WHICH WOULD ELIMINATE ANY POSSIBILITY OF
REALIZING ADDITIONAL CASH FROM THIS INVESTMENT AND WOULD ALSO RESULT IN
IMMEDIATE TAXABLE GAIN TO INVESTOR LIMITED PARTNERS. ACCORDINGLY, THE GENERAL
PARTNERS BELIEVE THAT THE PROPOSAL IS IN THE BEST LONG TERM INTEREST OF THE
PARTNERSHIP AND THE INVESTOR LIMITED PARTNERS, AND RECOMMEND YOUR VOTE IN FAVOR
OF THE PROPOSAL.
Approval of the Proposal requires the consent of Investor Limited
Partners. Pursuant to the terms of the Limited Partnership Agreement of the
Partnership, consent of the Investor Limited Partners is granted if either (i)
Investor Limited Partners who own of record a majority of the outstanding units
of limited partnership interest (the "Units") owned by all investor Limited
Partners affirmatively consent in writing to the Proposal or (ii) Investor
Limited Partners holding a majority of the outstanding Units owned by all
Investor Limited Partners fail to object in writing to the Proposal, in each
case, on or before August 30, 1997. The General Partners and certain of their
affiliates collectively own 1,028 of the outstanding Units. These affiliates
have advised the General Partners that they intend to vote their Units in favor
of the Proposal. Accordingly, the Proposal will be approved, unless Investor
Limited Partners holding at least 1,751 Units of the remaining 2,472 Units
reject the Proposal. Only Investor Limited Partners of record at the close of
business on June 1, 1997 are entitled to give their consent or objection to the
Proposal. A list of all such Investor Limited Partners will be available for
examination at the offices of the Partnership located at One International
Place, Boston, Massachusetts 02110.
IMPORTANT
Your vote is important. Please read this Consent Statement carefully
and then complete, sign and date the enclosed consent form and return it in a
self-addressed, postage pre-paid envelope. Any consent form that is signed and
does not specifically approve or disapprove the Proposal will effectively be
treated as approving the Proposal.
To be counted, the consent form must be received on or before 5:00
p.m. Boston time on August 30, 1997 (unless such time is extended). A consent
may be revoked by written notice received on or before the expiration of the
time for responding.
This Consent Statement and the accompanying consent form are first
being mailed to Investor Limited Partners of the Partnership on or about July
31, 1997.
INVESTOR LIMITED PARTNERS ARE URGED TO READ THE ENTIRE CONSENT
STATEMENT TOGETHER WITH THE OPERATING PARTNERSHIP'S DISCLOSURE STATEMENT, THE
PLAN, AND THE PARTNERSHIP'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996 AND QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS ENDED
MARCH 31, 1997, COPIES OF WHICH ARE ATTACHED HERETO AS EXHIBITS A, B, C AND D,
RESPECTIVELY.
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Please call the General Partners at (617) 330-8600
with any questions relating to the Proposal
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The information set forth in this Consent Statement is derived from
information set forth in Crow Winthrop Operating Partnership's Disclosure
Statement in support of the Plan (the "Disclosure Statement") , a copy of which
is annexed hereto as Exhibit A and is incorporated herein by reference.
Investor Limited Partners are urged to read carefully in its entirety the
Disclosure Statement, the Operating Partnership's Third Amended Plan of
Reorganization dated July 23, 1997 (a copy or which is annexed hereto as
Exhibit B) and the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996 and Quarterly Report on Form 10-Q for the three months ended
March 31, 1997 annexed hereto as Exhibits C and D, respectively.
THE PARTNERSHIP AND THE OPERATING PARTNERSHIP
General
Winthrop California Investors Limited Partnership was originally
organized on January 24, 1985 under the laws of the State of Maryland. On
October 16, 1985, the partnership was reorganized as Winthrop California
Investors Limited Partnership (the "Partnership"), a Delaware limited
partnership, in accordance with the provisions of the Delaware Revised Uniform
Limited Partnership Act. The general partners of the Partnership are Three
Winthrop Properties, Inc. and Winthrop Financial Associates, A Limited
Partnership (the "General Partners"). The Partnership's principal executive
offices are located at One International Place, Boston, Massachusetts 02110 and
its telephone number is (617) 330-8600.
Business of The Partnership
The Partnership was organized for the purpose of owning (i) a general
partnership interest in, and serving as a general partner of, Crow Winthrop
Operating Partnership (the "Operating Partnership"), a partnership 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 "Development Parcel") and to develop
such Development Parcel with office, hotel, retail and entertainment complexes.
The Partnership subsequently acquired in March 1992 a 99% limited partnership
interest in Winthrop California Management Limited Partnership, a Maryland
limited partnership ("WC Management"), the management agent for the
Headquarters Facility.
Business of the Operating Partnership
On July 30, 1985, the Operating Partnership acquired the Headquarters
Facility and the Development Partnership acquired the Development Parcel. The
Headquarters Facility and the Development Parcel were acquired for a total
price of $302 million, of which $297,789,000 was allocated to the Headquarters
Facility and $4,211,000 was allocated to the Development Parcel. An additional
$35 million was paid to the seller upon the transfer of certain development
rights for the Development Parcel. The Operating Partnership has continued to
own and operate the Headquarters Facility since such date.
In connection with its acquisition of the Headquarters Facility, the
Operating Partnership executed a Secured Promissory Note (the "Existing Secured
Note") in the principal amount of $204 million in favor of Pacific Mutual
Realty Finance, Inc. ("Pacific Mutual"). The Existing Secured Note is secured
by a first priority deed of trust covering the
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Headquarters Facility, the tangible personal property therein and the leases
thereon. Pacific Mutual obtained funding for the loan by selling Participation
Certificates (the "Certificates") pursuant to a Purchase, Participation and
Servicing Agreement dated June 17, 1985 (the "Purchase Agreement"), which
provides for the participation and servicing of those Certificates. The
Certificates were purchased by approximately 20 different financial
institutions. Under the terms of the Purchase Agreement, Pacific Mutual, as
servicing agent, agreed that it would act for the benefit of the holders of the
Certificates (the "Certificateholders") and that its actions as administrator
of the loan and custodian of the security therefor would be governed by the
terms of the Purchase Agreement.
THE PROPOSAL AND THE PLAN
Events Leading to the Proposal
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 91.3% 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 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 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.
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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. (See "Description of the Proposal" below.)
Description of the Proposal
Transfer of Interest
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) 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 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. See "The New Notes" below.
In addition to receiving a 10% interest in Jamboree LLC, the Operating
Partnership will receive the right to convert, subject to certain limitations,
its interest in Jamboree LLC into shares of Jamboree Office REIT as well as
certain rights to receive additional cash payments or equity interests in
Jamboree Office REIT. See "Exchange Right" and Right to Obtain Additional
Equity Interests in Jamboree LLC" below.
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
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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.
Exchange Right
Under the terms of the Property Appreciation and Exchange Rights
Agreement from Jamboree Office REIT to the Operating Partnership (the "Property
Appreciation Agreement") to be delivered pursuant to the Plan, 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.
Right to Obtain Additional Equity Interests in Jamboree LLC
Under the terms of the Property Appreciation Agreement, in addition to
receipt of its 10% interest in Jamboree LLC, 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
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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.
See, Part VI E. of the Disclosure Statement for additional information with
respect to the right of the Operating Partnership to receive such additional
payments or equity interests in Jamboree Office REIT and the right to exchange
its interest in Jamboree LLC for interests in Jamboree Office REIT.
The New Notes
In order to satisfy the remaining indebtedness evidenced by 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, which will have the following terms and conditions:
The Class A Notes
Initial Principal Balance: $80,000,000
Interest Rate: 2.25% above the interest rate
on United States Treasury
Bonds or Notes with a
maturity date closest to the
Class A Notes
Maturity Date: March 27, 2002
Monthly Payments: Interest only until
March 27, 1999; provided,
however, that payments of
interest through March 27,
1998 may be made by issuing
additional Class A Notes.
Thereafter, monthly payments
of interest and principal
based on a 25-year
amortization schedule.
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The Class B Notes
Initial Principal Balance: $20,000,000
Interest Rate: 3.0% above the interest rate
on United States Treasury
Bonds or Notes with a maturity
date closest to the Class B
Notes
Maturity Date: March 27, 2002
Monthly Payments: Interest only until
March 27, 2000; provided,
however, that payments of
interest through March 27,
2001 may be made by issuing
additional Class B Notes.
Thereafter, monthly payments
of interest and principal
based on a 25-year
amortization schedule.
Reference is made to the description of the New Notes set forth in Part VI D.
in the Disclosure Statement for additional information with respect to the
terms and conditions of the New Notes.
As security for the New Notes, among other things, Jamboree LLC will
grant the Certificateholders a mortgage lien and 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 holders of the Class A Notes and the Class B
Notes 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 holders of the Class A Notes and the Class B Notes 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.
The New Property Management Agreement
Pursuant to the Plan, Jamboree LLC will retain WC Management, an
entity in which the Partnership has a 99% ownership interest, to provide
property management and leasing services at the Headquarters Facility pursuant
to a Management and Leasing Agreement (the "Management Agreement") to be
entered into as of the effective date of the Plan. Unless terminated earlier
for cause by Jamboree LLC or WC Management, the Management Agreement will
expire by its terms on the earlier of the fifth anniversary of the effective
date of the Plan or the sale of the Property. Pursuant to the Management
Agreement, in consideration of the performance of its duties under the
Management Agreement, WC Management will receive a management fee equal to the
sum of two percent (2%) of the gross revenues (as defined in the Management
Agreement) generated by the operation of the Headquarters Facility.
Additionally, WC Management will receive certain incentive fees (up to an
additional 2% of gross revenues) based on reductions it is able to achieve, if
any, in certain operating and other expenses. Leasing commission payments,
consistent with prevailing market rates, 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
Partnership will have no rights to any payments thereunder. Furthermore, WC
Management will be entitled to be reimbursed for the costs of general
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accounting and reporting services performed by on-site personnel to the extent
such costs are passed through to tenants.
TRANSACTIONS WITH AFFILIATES
For information with respect to transactions with affiliates, see
"Item 13 to the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996 and Note 3 to Item 1 of the Partnership's Quarterly Report on
Form 10-Q for the three months ended March 31, 1997, copies of which is
attached hereto as Exhibits C and D, respectively.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
Implementation of the Plan will have federal, state and local tax
consequences to the Partnership and the Investor Limited Partners. No tax
ruling or tax opinion has been sought or will be obtained with respect to any
tax consequences of the Plan. The discussion below does not constitute and is
not intended to constitute either a tax opinion or tax advice to any person,
and the summary contained herein is provided for informational purposes only.
The discussion below summarizes only certain of the federal income tax
consequences associated with the Plan's implementation. The discussion does not
discuss all aspects of the federal income tax consequences associated with the
Plan, including special considerations relevant to Investor Limited Partners
subject to special treatment under federal income tax (for example, tax-exempt
or foreign Investor Limited Partners), nor does it attempt to consider various
facts or limitations applicable to any particular Investor Limited Partner that
may modify or alter the consequences described herein. The discussion does not
address state, local or foreign tax consequences or the consequences of any
federal tax other than the federal income tax.
The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, existing judicial decisions and administrative procedures, rulings
and practice. In light of the numerous recent amendments to the Code, no
assurance can be given that legislative, judicial or administrative changes
will not be forthcoming that would affect the accuracy of the discussion below.
Any such changes could be material and could be retroactive with respect to
transactions entered into or completed prior to the enactment or promulgation
thereof. The tax consequences of certain aspects of the Plan are uncertain due
to the lack of applicable legal authority and may be subject to judicial or
administrative interpretations that differ from the discussion below.
The discussion below is limited to federal income tax consequences
arising directly from the Plan, and does not purport to address any other
issues. The discussion assumes that the description of the Plan, including
certain federal income tax consequences thereof, in the enclosed Disclosure
Statement attached hereto as Exhibit A is accurate in all material respects.
INVESTOR LIMITED PARTNERS ARE URGED TO CONSULT WITH THEIR OWN ADVISORS
REGARDING THE TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS CONTEMPLATED BY THE
PLAN.
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Tax Consequences of a Foreclosure
One of the purposes of the Plan is to avoid a foreclosure sale of the
Headquarters Facility that would result in the immediate recognition of income
by Investor Limited Partners. If a foreclosure sale occurred, the Operating
Partnership and, hence, the Partnership (to the extent of its allocable share)
would recognize taxable gain equal to the excess of the outstanding amount of
the Existing Secured Note over the Operating Partnership's tax basis in the
Headquarters Facility (cost basis reduced by all prior depreciation
deductions), even though there would be no cash available for distribution to
Investor Limited Partners.
The Partnership's share of such gain would be allocable to Investor
Limited Partners pursuant to the Partnership Agreement. Upon a foreclosure, the
General Partners estimate that each Investor Limited Partner who purchased his
Units in the Partnership's original offering of Units would recognize
approximately $6,000 per Unit of taxable gain. (Such estimate is based on the
amount of debt outstanding as of the end of 1996 and on the results of
Partnership operations through the end of 1996.) For Investor Limited Partners
who are subject to the passive activity loss limitations of Section 469 of the
Code (discussed below), such gain could be offset by passive activity losses
generated by the Partnership or by other passive activities that have not been
used previously by such Investor Limited Partner. Assuming that an Investor
Limited Partner has been unable to use his share of the Partnership's passive
activity losses in excess of statutorily provided "phase-in" amounts, the
General Partners estimate that an Investor Limited Partner who purchased his
Units pursuant to the Partnership's original offering of Units may have
suspended passive activity losses of up to approximately $41,000 per Unit
(based on the results of Partnership operations through the end of 1996 and
without giving effect to any income, gain or loss realized by the Partnership
in 1997), depending on the Investor Limited Partner's date of entry into the
Partnership. The General Partners estimate that, if the Headquarters Facility
were foreclosed, such Investor Limited Partner could deduct $6,000 per Unit of
his suspended passive activity losses from the Partnership, resulting in a net
federal income tax benefit for such Investor Limited Partner of approximately
$700 per Unit for 1997 (applying a 39.6% federal income tax rate to determine
the tax benefit of deducting such passive activity losses, and a 28% federal
income tax rate to the estimated taxable gain). By comparison, if an Investor
Limited Partner who purchased his Units pursuant to the Partnership's original
offering of Units does not have suspended passive activity losses, he would
incur a federal income tax liability of approximately $1,700 per Unit for 1997
(applying a 28% federal income tax rate to the estimated taxable gain) without
receiving any cash distributions.
Reduction of Operating Partnership's Indebtedness
As a result of the Plan's implementation, the amount of the Operating
Partnership's aggregate outstanding indebtedness under the Existing Secured
Note will be reduced substantially. (The approximately $97.8 million reduction
in the outstanding balance of the Existing Secured Note that will occur
immediately before the Headquarters Facility is transferred to Jamboree LLC is
hereinafter called the "Debt Discharge Amount.") In general, the Code provides
that a taxpayer whose debt is discharged for no consideration must include the
debt discharge amount in income in the taxable year of discharge. (However, the
discharge of interest accrued under the Existing Secured Note since 1996 should
not result in any adverse tax consequences to the Operating Partnership.) The
Operating Partnership and, hence, the Partnership (to the extent of its
allocable share) will be required to recognize the Debt Discharge Amount as
ordinary income for 1997. Subject to a special election (described below) that
in effect defers the recognition of debt discharge income, an Investor Limited
Partner will be required to include in income and pay applicable income tax on
such Investor
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Limited Partner's allocable share of the Debt Discharge Amount, estimated by
the General Partners to be $20,600 per Unit.
Notwithstanding the Partnership's recognition of its allocable share
of the Debt Discharge Amount as ordinary income, an Investor Limited Partner
may be able to exclude his share of the Debt Discharge Amount from income if
such Investor Limited Partner is in a title 11 bankruptcy case or is insolvent.
Further, subject to certain limitations discussed below, an Investor Limited
Partner who is an individual or an S corporation may be able to exclude his
share of the Debt Discharge Amount from income by making an election described
in Code Section 108(c) relating to "qualified real property business
indebtedness." (The election is not available to Limited Partners which are C
corporations.) The Existing Secured Note should be treated as qualified debt
for this purpose since such indebtedness was incurred prior to December 31,
1992 and is secured by the Headquarters Facility.
AN ELECTION UNDER CODE SECTION 108(c) MUST BE MADE BY EACH INVESTOR
LIMITED PARTNER SEPARATELY AND NOT BY THE PARTNERSHIP. This provision applies
to a partnership by treating a partner's partnership interest as depreciable
real property to the extent of the partner's proportionate interest in
depreciable real property held by the partnership. In the event an Investor
Limited Partner makes an election to apply the provision, the Investor Limited
Partner's basis in his Units and his share of the tax basis of the Headquarters
Facility will be reduced by an amount equal to the debt discharge income which
is excluded from the Investor Limited Partner's income under this provision.
Such basis reduction will have certain future tax consequences, described
below, to an electing Investor Limited Partner, including his being allocated
taxable income over the life of Jamboree LLC in excess of the cash
distributions (if any) made to him. AN INVESTOR LIMITED PARTNER ELECTING TO
APPLY THESE PROVISIONS MUST MAKE AN ELECTION ON HIS FEDERAL INCOME TAX RETURN
FOR THE TAXABLE YEAR IN WHICH THE DEBT DISCHARGE OCCURS, AND MUST NOTIFY THE
PARTNERSHIP OF HIS ELECTION (SO THAT THE PARTNERSHIP CAN IMPLEMENT THE
RESULTANT DECREASE IN THE TAX BASIS OF THE HEADQUARTERS FACILITY) PRIOR TO
FILING SUCH RETURN. AN INVESTOR LIMITED PARTNER DESIRING TO MAKE THIS ELECTION
SHOULD CONSULT HIS TAX ADVISOR REGARDING THE APPROPRIATE PROCEDURES AND FORMS
TO BE USED FOR NOTIFYING THE PARTNERSHIP AND MAKING THE ELECTION.
The ability to exclude debt discharge income by making a Code Section
108(c) election is subject to several limitations. First, the amount that may
be excluded is limited to the excess of (1) the outstanding principal amount of
the debt immediately before the discharge over (2) the net fair market value of
the depreciable real property encumbered by the debt. No regulation or other
guidance under Code Section 108(c) has been issued concerning whether unpaid
interest is eligible to be included in the "outstanding principal amount" of
the debt (and, hence, eligible for exclusion from income) for these purposes.
In the absence of any guidance on this issue, an Investor Limited Partner
should have a reasonable basis for including accrued but unpaid interest on the
Existing Secured Note in the limitation calculation (since the cancellation of
such amounts would give rise to debt discharge income in the same manner as a
reduction of the principal amount of debt), although the matter is not free
from challenge. No independent third-party appraisal has been obtained by the
Operating Partnership or the Partnership. Based on the valuation of the
Headquarters Facility made by the parties to the Plan, the General Partners
believe that this limitation should not significantly affect an Investor
Limited Partner's ability to utilize the election. However, such valuation is
not binding on a taxing authority or the courts, and, if the Headquarters
Facility were
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determined to have a value higher than $104.5 million, an Investor Limited
Partner's ability to utilize this exclusion could be adversely affected by this
limitation.
Second, there is an overall limitation under which the amount of debt
discharge income that may be excluded is limited to the adjusted tax basis of
all depreciable real property held by the Investor Limited Partner (through the
Partnership and other investments) immediately before the discharge, determined
as of the first day of the following taxable year or the earlier date of
disposition of the property (after giving effect to any other reductions in
basis resulting from reductions in tax attributes if the Investor Limited
Partner is bankrupt or insolvent). The Operating Partnership's basis in the
Headquarters Facility (excluding land) as of the projected date for
transferring the Headquarters Facility to Jamboree LLC is estimated by the
General Partners to be approximately $129 million, or $35,000 per Unit, and
each Investor Limited Partner who is otherwise eligible to make a Section
108(c) election therefore would take into account approximately $35,000 per
Unit in computing his overall limitation. However, the tax law with respect to
this issue as applied to the transactions contemplated by the Plan is not free
from doubt, and a risk exists that an Investor Limited Partner may be required
by a taxing authority to compute this limitation by reference to a per Unit
amount that is less than his allocable share of the Debt Discharge Amount. In
that event, an Investor Limited Partner who owns no other depreciable property
would be unable to exclude from income a portion of the debt discharge income
allocated to him.
If an Investor Limited Partner makes an election to apply this
provision and has not previously reduced the basis of his Units under this
provision in connection with a previous unrelated cancellation of indebtedness
(i.e., a cancellation of indebtedness not involving the Partnership), he could
exclude all of the $20,600 per Unit Debt Discharge Amount from income, and his
share of the depreciable basis of the Headquarters Facility would be reduced by
that amount. Accordingly, the depreciation deductions that could be claimed by
such Investor Limited Partner with respect to the Headquarters Facility
following such basis reduction would be correspondingly reduced. This aspect of
the election, together with certain allocations to be made pursuant to the LLC
Agreement (see "Federal Income Taxation of Jamboree LLC" below), is anticipated
to result in an Investor Limited Partner's recognizing taxable income from the
Partnership in excess of cash distributions (if any) made to such Investor
Limited Partner in future years. In addition, under Sections 1017(d) and 1250
of the Code, such basis reduction is subject to recapture as ordinary income
upon a later sale by Jamboree LLC of the Headquarters Facility, which is
permitted without the Operating Partnership's consent after 3 years, to the
extent in excess of the basis reduction that would result using straight-line
depreciation. If the Headquarters Facility were sold for a taxable gain after
only 3 years, the General Partners estimate that approximately $14,000 per Unit
would be reportable by an electing Investor Limited Partner as ordinary income
(rather than capital gain) under this rule.
The General Partners estimate that an Investor Limited Partner who
purchased his Units pursuant to the original offering of Units and who has not
previously used any of his suspended passive activity losses from the
Partnership in excess of statutorily provided "phase-in" amounts may have up to
approximately $41,000 per Unit of suspended losses available (based on the
results of Partnership operations through the end of 1996 and without giving
effect to any income, gain or loss realized by the Partnership in 1997),
depending on the Investor Limited Partner's date of entry into the Partnership.
Such losses could be used to offset such Investor Limited Partner's share of
the Debt Discharge Amount, or any portion thereof not excluded by virtue of
making an election under Code Section 108(c).
If an Investor Limited Partner is not eligible to or does not make an
election to utilize Section 108(c), such Investor Limited Partner would be
taxed on the Debt Discharge Amount
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of $20,600 per Unit. If such Investor Limited Partner has not previously used
any of his suspended passive activity losses from the Partnership in excess of
statutorily provided "phase-in" amounts, the General Partners estimate that
such suspended passive activity losses should be sufficient to fully offset the
debt discharge income, and that such Investor Limited Partner therefore should
not incur any federal income tax liability. (Passive activity losses generated
by other investments could also be used to offset such income and would further
reduce the resulting tax liability.) By comparison, if such Investor Limited
Partner does not have suspended passive activity losses, he would incur a
federal income tax liability of approximately $8,200 per Unit for 1997
(applying a 39.6% federal income tax rate) without receiving any cash
distributions.
Section 752 of the Code provides that a partner's share of partnership
liabilities is reflected in the adjusted basis of his partnership interest by
treating any increase in the partner's share of those liabilities as a
constructive contribution of money by the partner to the partnership and any
decrease in the partner's share of those liabilities as a constructive
distribution of money to the partner (a "Deemed Cash Distribution"). Under
Section 731 of the Code, an Investor Limited Partner recognizes income on a
partnership distribution only to the extent that the distribution exceeds the
adjusted tax basis of his Units. Income recognized as a result of a Deemed Cash
Distribution generally is characterized as a capital gain. The amount of an
Investor Limited Partner's adjusted tax basis in Units will vary depending upon
the Investor Limited Partner's particular circumstances.
An Investor Limited Partner's basis in his Units will be increased by
his allocable share of the Debt Discharge Amount (even if he makes a Section
108(c) election to exclude that amount from income). Accordingly, although the
Partnership will be deemed to have made a cash distribution to Investor Limited
Partners to the extent of their share of the Debt Discharge Amount, the
Investor Limited Partners will have sufficient basis in their Units such that
income will not be recognized by them as a result of the Deemed Cash
Distribution. An Investor Limited Partner who makes a Section 108(c) election
will then be required to separately reduce his basis in his Units by the amount
of debt discharge income excluded under the election. Investor Limited Partners
are urged to consult their tax advisors concerning this aspect of an election
under Code Section 108(c).
Under the Plan, approximately $4.5 million of the Operating
Partnership's indebtedness under the Existing Secured Note will be contributed
to Jamboree LLC in consideration for the issuance to Jamboree Office REIT of a
90% interest in Jamboree LLC. (The remaining balance due under the Existing
Secured Note after the Debt Discharge Amount, i.e., $100 million, will be
satisfied by Jamboree LLC's issuance of the New Notes.) In the absence of any
express guidance on this issue, the Operating Partnership intends to take the
position that such $4.5 million contribution does not result in any additional
debt discharge income to the Operating Partnership or the Partnership, although
this matter is not free from doubt. Such contribution, however, will result in
a Deemed Cash Distribution to Investor Limited Partners in an amount estimated
by the General Partners to be $1,300 per Unit. As indicated above, a Deemed
Cash Distribution will result in an Investor Limited Partner's recognition of
taxable gain without his receipt of any actual cash distributions to the extent
such Deemed Cash Distribution exceeds the adjusted tax basis of such Investor
Limited Partner's Units, which will vary depending on an Investor Limited
Partner's particular circumstances. Such gain could be offset by an Investor
Limited Partner's unused passive activity losses, if any, from the Partnership
or other investments.
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Federal Income Taxation of Jamboree LLC
Under the Plan, after the balance due under the Existing Secured Note
has been reduced by the Debt Discharge Amount, the Operating Partnership will
transfer the Headquarters Facility plus $500,000 to Jamboree LLC in
consideration for a 10% interest in Jamboree LLC. Provided that Jamboree LLC is
respected for tax purposes as an entity separate from Jamboree Office REIT,
such transfer should not result in the recognition of any taxable income or
gain by the Operating Partnership or the Partnership, and also should not
result in any Deemed Cash Distributions to the Investor Limited Partners. (As
indicated above, however, the further $4.5 million reduction in the amount of
the indebtedness to which the Headquarters Facility will be subject after the
property is transferred to Jamboree LLC will result in a Deemed Cash
Distribution of approximately $1,300 per Unit.) If Jamboree LLC were to be
disregarded for tax purposes as an entity separate from Jamboree Office REIT,
then the transfer of the Headquarters Facility could be recast as a taxable
event for the Operating Partnership (similar to a foreclosure sale of the
Headquarters Facility), in which event substantial taxable gain could result to
the Partnership and the Limited Partners without their receipt of cash with
which to pay any resulting income taxes. See "Tax Consequences of a
Foreclosure" above.
Under recently issued Treasury Regulations, Jamboree LLC will be
classified as a partnership for federal income tax purposes. As long as
Jamboree LLC is classified as a partnership for federal income tax purposes,
its taxable income will flow through to its members. Each member in Jamboree
LLC, including the Operating Partnership, will be required to take into account
its allocable share of Jamboree LLC's items of income, gain, loss and deduction
in the member's taxable year in which the taxable year of the Jamboree LLC
ends, whether or not cash distributions with respect to such items are made to
the member. Taxable income or gain allocable to the Operating Partnership will
be reportable by the Partnership and (to the extent of their allocable share)
Investor Limited Partners whether or not any cash distributions are made to the
Partnership, and can result in an Investor Limited Partner incurring income tax
liability with respect to the Partnership in excess of the cash distributions
(if any) made to him for the applicable year. Taxable income and loss of
Jamboree LLC will be allocated among the members in accordance with the
provisions of the LLC Agreement. Under Code Section 704(b), an allocation of
income, gain, loss or deduction of Jamboree LLC to a member will not be
respected for federal income tax purposes unless the allocation has
"substantial economic effect." If an allocation does not have "substantial
economic effect," then each member's distributive share of such items will be
recalculated on the basis of such member's "interest" in Jamboree LLC, taking
into account all facts and circumstances relating to the economic arrangement
of the members. Such a determination could result in a reallocation of taxable
income or loss or items thereof, but would not alter the distribution of cash
under the LLC Agreement.
Code Section 704(c) requires that income, gain, loss and deduction
attributable to property that is contributed to a partnership in exchange for
an interest in the partnership must be allocated in a manner such that the
contributing partner is charged with the unrealized gain associated with the
property at the time of the contribution. The amount of such unrealized gain is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of such
property at such time (a "Book-Tax Difference"). Such allocations are solely
for federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. The General Partners
anticipate that, as a result of reductions to be made to the tax basis of the
Headquarters Facility in connection with Code Section 108(c) elections by
Investor Limited Partners (see "Reduction of Operating Partnership's
Indebtedness" above), the Headquarters Facility will have a Book-Tax Difference
when contributed by the Operating Partnership to
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Jamboree LLC. Consequently, the LLC Agreement will require that allocations be
made in a manner consistent with Code Section 704(c). The LLC Agreement will
require the use of the "remedial allocation method," as described in Treasury
Regulations issued under Code Section 704(c), in allocating income, gain, loss
and deduction attributable to such Book-Tax Difference. In general, these
allocations are expected to result in the Operating Partnership's being
allocated less than 10% of Jamboree LLC's depreciation deductions and more than
10% of Jamboree LLC's income from operations of the Headquarters Facility. In
addition, upon a sale or other taxable disposition of the Headquarters
Facility, which is permitted under the LLC Agreement after 3 years without the
Operating Partnership's consent, such allocations will require that all income
attributable to any Book-Tax Difference remaining at the time of such
disposition must be allocated to the Operating Partnership. To the extent that
the Operating Partnership is allocated more than 10% of Jamboree LLC's taxable
income and gain as a result of the foregoing allocations, the Operating
Partnership will report taxable income and gain in excess of the cash
distributions made (or to be made) to it by Jamboree LLC (because the Operating
Partnership will be entitled to receive only 10% of the distributions, if any,
made by Jamboree LLC to its members). The Partnership, in turn, will allocate
all tax items attributable to basis reductions made in order to effectuate an
Investor Limited Partner's Code Section 108(c) election to such Investor
Limited Partner, which is anticipated to result in such Investor Limited
Partner's being allocated taxable income and gain in excess of the cash
distributions (if any) made to him over the life of Jamboree LLC. Such income
and gain would be passive activity income that could be offset by an Investor
Limited Partner's unused passive activity losses from this and other
investments.
A portion of any taxable gain allocated to the Operating Partnership
upon a sale or other taxable disposition of the Headquarters Facility will be
taxable to Investor Limited Partners as ordinary income rather than capital
gain to the extent of any applicable depreciation recapture, as determined
under Code Sections 1245 and 1250 and, for any that which are corporations,
Code Section 291. As indicated, Investor Limited Partners who elect to exclude
their share of the Debt Discharge Amount from income under Code Section 108(c)
will be allocated any additional gain resulting from the basis reductions made
in connection with their elections, all or a portion of which gain may be
taxable as ordinary income under applicable depreciation recapture rules. (See
"Reduction of Operating Partnership's Indebtedness" above.)
Investor Limited Partners who are individuals or that are trusts,
estates, personal service companies and certain closely held C corporations are
subject to a limitation on the deduction of passive activity losses. In
general, Partnership losses allocated to an Investor Limited Partner and any
other passive activity losses of such Investor Limited Partner may only offset
other passive activity income of such Investor Limited Partner, including his
allocable share of Partnership taxable income (other than income classified as
portfolio income, such as income from investments or reserves). Disallowed
losses from passive activities may be carried forward and treated as a
deduction in the next taxable year, subject to these limitations. Closely held
corporations (a corporation more than 50% of the stock of which is owned
directly or indirectly by not more than five individuals) may not offset
portfolio income (such as interest and dividends) with passive activity losses
but may use passive activity losses to offset active business income. Any
disallowed losses from the Partnership that have not previously been applied by
an Investor Limited Partner against passive activity income generally should be
allowed in full (subject to any other applicable limitations) when the
Operating Partnership disposes of its entire interest in Jamboree LLC in a
taxable transaction, such as upon exchanging its interest in Jamboree LLC for
Jamboree Office REIT shares. See "Taxation of Exchange and Property
Appreciation Rights" below.
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Taxation of Exchange and Property Appreciation Rights
Under the Plan, the Operating Partnership will have the right at any
time after one-year from the effectiveness of the Plan, or earlier upon the
occurrence of certain events, to exchange its 10% interest in Jamboree LLC for
shares in Jamboree Office REIT by exercising the Exchange Right. An exchange of
the Operating Partnership's interest in Jamboree LLC for shares in Jamboree
Office REIT upon exercise of the Exchange Right would be a taxable transaction
in which the Operating Partnership (and, therefore, the Partnership) would
recognize taxable gain in the year of the exchange if and to the extent that
the value of the Shares received in the exchange exceeds the Operating
Partnership's adjusted tax basis in its interest in Jamboree LLC immediately
prior to the exchange. A portion of such taxable gain, if any, would be treated
as ordinary income rather than capital gain to the extent of the Operating
Partnership's share of any depreciation deductions claimed with respect to the
Headquarters Facility that are subject to recapture under Code Sections 1245
and 1250 and, for corporate Investor Limited Partners, Code Section 291. (Any
additional taxable gain attributable to basis reductions made in order to
effectuate an Investor Limited Partner's election to exclude his share of the
Debt Discharge Amount from income under Code Section 108(c) would be allocated
to such Investor Limited Partner, and would be subject to treatment as ordinary
income, rather than capital gain, under applicable depreciation recapture
rules; see "Reduction of Operating Partnership's Indebtedness" above.) Such
gain (if any) would be treated as passive activity income that could be offset
by an Investor Limited Partner's unused passive activity losses from the
Partnership or other investments. The Operating Partnership would have an
initial tax basis in the Shares received in the exchange equal to their fair
market value, such that a sale of the Shares for that amount immediately
following the exchange would not produce any additional taxable income for the
Operating Partnership. Although it is not currently anticipated that the
Operating Partnership will exercise the Exchange Right with a view to holding
the Shares received in the exchange on a long-term basis, it is possible that
Shares received in the exchange might be held for some period before they are
sold, in which event the Partnership's tax consequences with respect to such
Shares would be determined under the tax laws applicable to real estate
investment trusts and their shareholders. (See "Certain Tax Differences between
the Ownership of Units and Shares" below.) The Operating Partnership will not
report any taxable gain or loss attributable to its receipt of the Exchange
Right, although this position is not free from doubt.
In addition to receiving a 10% interest in Jamboree LLC, the Operating
Partnership will receive (in consideration for its contribution of the
Headquarters Facility to Jamboree LLC) the Property Appreciation Right. Based
on their valuation of the Headquarters Facility, the General Partners believe
that the value of the Property Appreciation Right, which is non-transferable
(except to an affiliate of the Partnership), presently is de minimis.
Accordingly, the Operating Partnership does not intend to recognize any taxable
income or gain upon its receipt of the Property Appreciation Right, although a
taxing authority might disagree. If the Operating Partnership subsequently
receives any cash payments or Shares in satisfaction of the Property
Appreciation Right, the Operating Partnership will be required to include in
income the entire amount of the payment or the fair market value of the Shares
received, as applicable. Whether and to what extent such amount should be
treated as capital gain rather than ordinary income is not clear under current
law.
A risk exists that if the Operating Partnership exercises the Exchange
Right or the Property Appreciation Right within 2 years following the transfer
of the Headquarters Facility to Jamboree LLC, such transfer might be
recharacterized under Code Section 707(b) as a taxable sale of the Headquarters
Facility (or a portion thereof) for the amount received on exercise of the
Exchange Right or the Property Appreciation Right, as applicable, even though
such payment was received by the Operating Partnership after 1997. Also, if the
Operating
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Partnership receives Shares rather than cash, its holding period in the Shares
will not commence before the Shares are received such that any gain (or loss)
recognized by the Operating Partnership upon a subsequent sale of the Shares
would be short-term capital gain or loss unless the Shares were held for at
least one year (not counting the date of receipt of the Shares) prior to the
date of such sale.
Certain Tax Differences Between the Ownership of Units and Shares
Under various circumstances, the Operating Partnership may become a
shareholder of Jamboree Office REIT, in which event an Investor Limited
Partner's investment in the Partnership would effectively be changed from an
interest in a real estate limited partnership to an interest in Shares. A
summary of the initial and ongoing requirements that must be satisfied by
Jamboree Office REIT in order to qualify for and maintain its status as a Real
Estate Investment Trust, the circumstances under which Jamboree Office REIT may
be subject to federal income and excise taxes, and certain tax aspects of
owning shares of a Real Estate Investment Trust, respectively is provided in
Section VII.D of the Disclosure Statement attached hereto as Exhibit A, and is
not repeated herein. Summarized below are certain tax differences between
owning real estate limited partnership interests (i.e., Units) and Shares.
The Operating Partnership and the Partnership are not subject to
federal income tax. Instead, each Investor Limited Partner is required to take
into account an allocable share of Partnership income or loss regardless of
whether any cash is distributed. The character of an Investor Limited Partner's
share of Partnership income or loss is dependent upon the assets and activities
of the Partnership, and generally is treated as passive activity income or loss
for purposes of the passive activity loss limitation. Partnership distributions
made to an Investor Limited Partner generally are not taxable to such Investor
Limited Partner except to the extent they exceed the Investor Limited Partner's
adjusted tax basis in his or its Units.
In contrast, Jamboree Office REIT may be subject to federal income tax
under certain circumstances. Its shareholders (which would include, indirectly,
the Investor Limited Partners) will be taxed based on the amount of
distributions received from Jamboree Office REIT. Each shareholder (e.g., the
Operating Partnership, if it holds the Shares) will receive a Form 1099-DIV
reporting the amount of taxable and non-taxable distributions paid by Jamboree
Office REIT to such shareholder during the preceding year. Jamboree Office REIT
currently anticipates that its distributions will be fully taxable. In
addition, distributions by Jamboree Office REIT generally will constitute
ordinary dividend income to its shareholders (except for distributions properly
designated as capital gain distributions). Dividends and capital gains derived
from the ownership or disposition of Shares will constitute "portfolio income",
which cannot be offset by passive activity losses in the case of Investor
Limited Partners who are subject to the passive activity loss limitation.
Furthermore, should Jamboree Office REIT incur a tax loss, such loss will not
deductible by Investor Limited Partners.
Transactions With Affiliates
Jamboree LLC will pay a fee of $500,000 to the Partnership for
services rendered and for expenses incurred in connection with the Plan. The
$500,000 fee to be paid to the Partnership will constitute non-passive activity
income and, as such, will not be able to be offset by passive activity losses
of Investor Limited Partners who are subject to the passive activity loss
limitation. In addition, WC Management and its affiliates will receive property
management and disposition fees. Payments for services generally are deductible
if the payments are ordinary and necessary expenses, are reasonable in amount
and are for services performed during the taxable year in which paid or
accrued. Payments for services related to the acquisition of an asset with a
useful life of more than one year generally must be
17
<PAGE>
capitalized into the cost basis of the acquired property. A taxing authority
could challenge the deductibility of fees and expenses, including the foregoing
payments, in which event the Partnership's taxable income might be increased
(or its tax losses reduced).
Other Tax Consequences
In addition to the federal income tax consequences described above,
Investor Limited Partners should consider potential state and local tax
consequences to them of the implementation of the Plan. Investor Limited
Partners may be subject to state and local taxation on any taxable income
recognized by them under the Plan in the state(s) in which they reside or
transact business, as well as in California, the state in which the
Headquarters Facility is located. Investor Limited Partners are urged to
consult their own tax advisors concerning the state and local tax consequences
to them of implementing the Plan.
EACH INVESTOR LIMITED PARTNER MUST CONSULT WITH HIS OR ITS OWN
PROFESSIONAL TAX ADVISOR CONCERNING THE SPECIFIC FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES TO SUCH INVESTOR LIMITED PARTNER OF IMPLEMENTING THE PLAN
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding Units of
the Partnership owned by each person who is known by the Partnership to own
beneficially or exercise voting or dispositive control over more than 5% of the
Units, by WFA and by all directors and executive officers of the General
Partners as a group as of June 1, 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------- ------------------------------------- ----------------------------
Name and address of Amount and nature of Beneficial % of Class
Beneficial Owner Owner
- -------------------------------------------------- ------------------------------------- ----------------------------
<S> <C> <C>
WILCAP Limited 1,000 28.6
Partnership (1) (2)
- -------------------------------------------------- ------------------------------------- ----------------------------
WILCAP Holdings 18 *
Co., Inc. (1)(2)(3)
- -------------------------------------------------- ------------------------------------- ----------------------------
Winthrop Financial Associates, 5 *
A Limited Partnership
(1) (2)
- -------------------------------------------------- ------------------------------------- ----------------------------
All directors and executive officers as a group -- --
(five persons)
- -------------------------------------------------- ------------------------------------- ----------------------------
</TABLE>
* Less than one percent
(1) The business address for each of 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 Partnership by WILCAP Limited
Partnership.
(3) WILCAP Holdings Co., Inc. is the general partner of WILCAP Limited
Partnership.
The Partnership is a limited partnership and has no officers or
directors. WILCAP Limited Partnership ("WILCAP") and WILCAP Holdings Co., Inc.
("Holdings") are affiliates of the General Partners. WILCAP, Holdings and WFA
have advised the Partnership that they intend to vote their 1,023 Units (see
chart below) in favor of the Proposal. Accordingly, for
18
<PAGE>
the Proposal to be adopted, either (i) Investor Limited Partners holding only
728 Units in the aggregate of the remaining 2,477 Units (29.4% of the remaining
outstanding Units) need to consent to the Proposal or (ii) Investor Limited
Partners holding 1,750 Units or more in the aggregate of the remaining 2,477
Units (70.7% of the remaining outstanding Units) do not affirmatively reject
the Proposal.
GENERAL INFORMATION CONCERNING THE VOTING
Record Date and Voting. The General Partners have fixed June 1, 1997
as the record date (the "Record Date") for the determination of those Investor
Limited Partners entitled to vote on the Proposal. Only holders of record of
Units at the close of business on the Record Date are entitled to notice of and
to vote on the Proposal. As of the Record Date, there were 3,500 Units
outstanding, which were held by approximately 1,756 holders of record. Each
holder of record of Units on the Record Date is entitled to cast one vote per
Unit on the Proposal.
Pursuant to Section 5.1 of the Limited Partnership Agreement of the
Partnership dated as of October 16, 1985, as amended (the "Partnership
Agreement"), the General Partners are not permitted, without the requisite
consent of the Investor Limited Partners, to approve the sale by the Operating
Partnership of all or substantially all of the Headquarters Facility.
Accordingly, in order for the Partnership to consent to the adoption of the
Plan, the General Partners are seeking, pursuant to this Consent Solicitation,
the requisite consent of the Investor Limited Partners. As provided in the
Partnership Agreement, consent of the requisite number of Investor Limited
Partners is obtained if either (i) Investor Limited Partners holding more than
50% of the outstanding Units consent to the action being solicited or (ii)
Investor Limited Partners holding 50% or more of the Units fail to object in
writing to the adoption of the action being solicited. Accordingly, the
approval of the Proposal will require either (i) the affirmative vote of
Investor Limited Partners who hold of record a majority of the outstanding
Units of the Partnership or (ii) the failure of Investor Limited Partners who
hold of record a majority of the outstanding Units of the Partnership to object
to the Proposal.
WFA and the affiliates of the General Partners, who own of record on
the Record Date 1,028 Units, have advised the General Partners that they intend
to vote all of such Units owned by them in favor of the Proposal. Such Units
represent 29.2% of the total number of outstanding Units. (See "Security
Ownership of Certain Beneficial Owners and Management".)
All consent forms received on or prior to 5:00 p.m. on August 30, 1997
and not revoked will be voted in accordance with the instructions indicated on
such consent forms. If no instructions are indicated or if you fail to return
your consent form, such consent form will be disregarded; this, in effect, is a
vote to approve the Proposal as such Units will not be counted against the
Proposal.
Revocation of Consents. Any consent form given by an Investor Limited
Partner pursuant to this Consent Statement may be revoked by the person giving
it at any time before 5:00 p.m. on August 30, 1997 by (i) delivering to the
General Partners a written notice of revocation bearing a later date than the
consent form to be revoked; or (ii) delivering to the General Partners a duly
executed consent form bearing a later date. Any written notice of revocation or
subsequently executed consent form should be sent so as to be delivered to the
Partnership c/o Three Winthrop Properties, Inc., One International Place, 12th
Floor, Boston, Massachusetts 02110, or hand delivered to the General Partners
at or before the Expiration Date.
19
<PAGE>
Solicitation. The Partnership will bear all expenses of this
solicitation of consents from the Investor Limited Partners. In addition to
solicitation by use of the mails, consents may be solicited by officers and
employees of the General Partners in person or by telephone, telegram or other
means of communication. Such officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation.
Dissenters' Rights. There will be no dissenters' rights of appraisal
with respect to the Proposal.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Each of the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and the Partnership's Quarterly Report on Form
10-Q for the three months ended March 31, 1997 filed with the Securities and
Exchange Commission by the Partnership (File No. 0-14536), copies of which are
enclosed herewith, is incorporated by reference in this Consent Solicitation.
All documents and reports filed by the Partnership pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act of 1934
after the date of this Consent Solicitation and prior to August 30, 1997 shall
be deemed to be incorporated by reference in this Consent Solicitation and to
be a part hereof from the dates of filing of such documents or reports. Any
statement contained in a document or report incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Consent Solicitation to the extent that a statement
contained herein, or in any other subsequently filed document or report that
also is deemed to be incorporated by reference herein, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Consent Solicitation.
By Order of the Board of Directors
of Three Winthrop Properties, Inc.,
a General Partner of the Partnership
Boston, Massachusetts /s/ Jeffrey D. Furber
July 31, 1997 Jeffrey D. Furber, Clerk
20
<PAGE>
EXHIBIT A
DISCLOSURE STATEMENT IN SUPPORT OF
THE OPERATING PARTNERSHIP'S
THIRD AMENDED PLAN OF REORGANIZATION
DATED JULY 23, 1997
<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES BANKRUPTCY COURT
for the Central District of California
In re ) Chapter 11
)
CROW WINTHROP OPERATING ) Case No. SA97-14512-JR
PARTNERSHIP, a Maryland general partnership )
)
Debtor )
)
- ---------------------------------------------
DISCLOSURE STATEMENT IN SUPPORT OF
DEBTOR'S THIRD AMENDED PLAN OF REORGANIZATION,
DATED JULY 23, 1997
O'MELVENY & MYERS LLP
400 S. Hope St.
Los Angeles, CA 90071
(213) 669-6000
Robert White (CA State Bar #54797)
Suzzanne Uhland (CA State Bar #136852)
Lisa Bossetti (CA State Bar #186243)
Deborah Saltzman (CA State Bar #186411)
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660
(714) 760-9600
Patricia Frobes (CA State Bar #85142)
Frank Crance (CA State Bar #177568)
- -------------------------------------------------------------------------------
<PAGE>
THIS DISCLOSURE STATEMENT DESCRIBES THE THIRD AMENDED PLAN OF
REORGANIZATION DATED JULY 23, 1997 (THE "PLAN") FOR CROW WINTHROP OPERATING
PARTNERSHIP ("CWOP"). THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE
BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION FOR CREDITORS AND PARTNERS
OF CWOP TO VOTE ON THE PLAN. ALL CREDITORS AND PARTNERS OF CWOP WHO ARE
ENTITLED TO VOTE ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE ENTIRE
DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED AS EXHIBIT 1, PRIOR TO
SUBMITTING THEIR BALLOTS.
IF YOU HAVE ANY QUESTIONS CONCERNING THE PROCEDURES FOR
VOTING, PLEASE CALL OR WRITE TO O'MELVENY & MYERS LLP, 400 SOUTH HOPE STREET,
LOS ANGELES, CALIFORNIA 90071, ATTENTION: LYNN TALAB (213) 669-6054.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. INTRODUCTION.................................................................................................... 1
A. SUMMARY OF THE PLAN.................................................................................... 2
B. RECOMMENDATION......................................................................................... 3
II. VOTING.......................................................................................................... 3
A. ELIGIBILITY TO VOTE.................................................................................... 3
B. BALLOTS................................................................................................ 3
C. VOTING PROCEDURE....................................................................................... 4
D. DEADLINE FOR VOTING.................................................................................... 4
E. IMPORTANCE OF YOUR VOTE................................................................................ 4
III. BACKGROUND OF CWOP AND THE CHAPTER 11 CASE...................................................................... 4
A. HISTORICAL FRAMEWORK................................................................................... 4
1. Description of the Property; Formation of CWOP................................................ 4
2. Acquisition of the Property by CWOP; Structure of Financing................................... 5
3. Major Tenants................................................................................. 6
4. Property Management........................................................................... 7
5. The Development Parcel; Exterior Common Area.................................................. 8
B. EVENTS LEADING TO THE FILING OF THE CHAPTER 11 CASE.................................................... 9
1. Orange County Real Estate Market.............................................................. 9
2. Agreement of Understanding with Certificateholders............................................ 10
C. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE.......................................................... 11
1. Cash Collateral Agreed Order.................................................................. 11
2. Motion to Dismiss............................................................................. 11
3. Claims Bar Date and Claims Procedures Order................................................... 11
4. Leasing Transactions.......................................................................... 11
5. Crow Claims and Litigation.................................................................... 12
IV. THE PLAN........................................................................................................ 13
A. TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS............................................. 14
1. Allowance of Administrative Claims............................................................ 14
2. Treatment of Allowed Administrative Claims.................................................... 15
3. Treatment of Priority Tax Claims.............................................................. 15
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS................................................... 15
1. Priority Claims (Class 1)..................................................................... 15
2. Secured Tax Claims (Class 2).................................................................. 15
3. Other Secured Claims (Classes 3a, 3b and 3c).................................................. 16
4. Certificateholder Secured Claims (Class 4).................................................... 16
5. Certificateholder Deficiency Claims (Class 5)................................................. 17
6. General Unsecured Claims (Class 6)............................................................ 17
7. Interests (Class 7)........................................................................... 18
C. IMPLEMENTATION OF THE PLAN............................................................................. 18
1. Formation of Jamboree LLC and Jamboree Office REIT............................................ 18
2. Avoidance and Recovery Actions................................................................ 19
3. Section 1129(a)(4) Payment.................................................................... 20
D. CLAIMS AND DISTRIBUTIONS............................................................................... 20
E. DISBURSEMENTS.......................................................................................... 20
F. CANCELLATION OF SECURITIES............................................................................. 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
G. DISCHARGE.............................................................................................. 21
H. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.................................................. 21
I. ASSUMED EFFECTIVE DATE; CONDITIONS TO EFFECTIVENESS.................................................... 22
1. Entry of Confirmation Order................................................................... 22
2. WCI Consent................................................................................... 22
3. Jamboree LLC and Jamboree Office REIT......................................................... 22
4. Contribution of Assets........................................................................ 22
5. Documentation................................................................................. 22
6. Jamboree Office REIT Shares and Jamboree LLC Units............................................ 22
7. Qualification of Indentures................................................................... 22
8. Perfection of Security Interests.............................................................. 23
9. Title Policies................................................................................ 23
10. Evidence of Insurance......................................................................... 23
J. RETENTION OF JURISDICTION.............................................................................. 23
V. FINANCIAL INFORMATION........................................................................................... 23
A. HISTORICAL FINANCIAL INFORMATION; RECENT FINANCIAL
PERFORMANCE............................................................................................ 24
B. PAYMENT OF ADMINISTRATIVE EXPENSES AND CLAIMS.......................................................... 24
C. PROJECTED FINANCIAL INFORMATION........................................................................ 24
VI. OPERATION AND GOVERNANCE OF SUCCESSOR ENTITIES.................................................................. 25
A. GENERAL DISCUSSION..................................................................................... 25
B. JAMBOREE LLC........................................................................................... 26
C. JAMBOREE OFFICE REIT AND JAMBOREE
OFFICE REIT SHARES..................................................................................... 27
D. DESCRIPTION OF NEW NOTES ISSUED BY JAMBOREE LLC........................................................ 29
1. New Class A Senior Secured Notes.............................................................. 29
2. New Class B Senior Subordinated Secured Notes................................................. 36
3. Security for the New Notes.................................................................... 37
4. New Notes Registration Rights Agreements...................................................... 38
E. PROPERTY APPRECIATION RIGHTS AND EXCHANGE RIGHT........................................................ 39
F. FUTURE OPERATIONS, NEW MANAGEMENT AGREEMENT............................................................ 40
G. REORGANIZED CWOP....................................................................................... 42
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................................................... 43
A. INTRODUCTION........................................................................................... 43
B. FEDERAL INCOME TAX CONSEQUENCES TO CWOP................................................................ 43
1. General....................................................................................... 43
2. Reduction Of CWOP's Indebtedness.............................................................. 44
3. Constructive Distribution Of Money Under Internal Revenue Code Section 752.................... 44
C. FEDERAL INCOME TAX CONSEQUENCES TO CREDITORS........................................................... 45
1. Constructive or Deemed Exchange of Old Debt Instrument For New Debt
Instrument.................................................................................... 45
2. Tax Basis And Holding Period Of Items Received................................................ 46
3. Withholding................................................................................... 46
D. FEDERAL INCOME TAXATION OF JAMBOREE OFFICE REIT........................................................ 47
1. REIT Organizational Requirements.............................................................. 48
2. Income Tests.................................................................................. 48
3. Relief Provisions............................................................................. 49
</TABLE>
ii
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<TABLE>
<S> <C>
4. Asset Tests................................................................................... 50
5. Annual REIT Distribution Requirements......................................................... 50
6. Failure to Qualify As a REIT.................................................................. 51
7. Taxation to United States Shareholders of Distributions....................................... 51
8. Backup Withholding............................................................................ 52
9. Treatment of Tax-Exempt Shareholders.......................................................... 52
10. Taxation of Foreign Shareholders.............................................................. 52
E. FEDERAL INCOME TAXATION OF JAMBOREE LLC................................................................ 53
F. OTHER TAX CONSEQUENCES................................................................................. 54
VIII. CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES........................................................... 54
A. GENERAL DISCUSSION..................................................................................... 54
B. RESALE CONSIDERATIONS.................................................................................. 55
C. TRUST INDENTURE ACT.................................................................................... 57
D. DELIVERY OF DISCLOSURE STATEMENT....................................................................... 57
IX. CERTAIN FACTORS TO BE CONSIDERED REGARDING THE PLAN............................................................. 57
A. BANKRUPTCY CONSIDERATIONS.............................................................................. 57
B. GENERAL BUSINESS RISKS................................................................................. 57
C. RISK WITH RESPECT TO NEW SECURITIES.................................................................... 58
X. ALTERNATIVES TO CONFIRMATION OF THE PLAN........................................................................ 59
XI. ACCEPTANCE AND CONFIRMATION OF THE PLAN......................................................................... 59
A. GENERAL CONFIRMATION REQUIREMENTS...................................................................... 59
B. BEST INTERESTS TEST.................................................................................... 59
C. FINANCIAL FEASIBILITY TEST............................................................................. 60
D. ACCEPTANCE BY IMPAIRED CLASSES......................................................................... 60
XII. CONCLUSION......................................................................................................... 61
</TABLE>
EXHIBITS TO DISCLOSURE STATEMENT
EXHIBIT 1 - Debtor's Third Amended Plan of Reorganization Dated July 23, 1997
EXHIBIT 2 - 1995 and 1996 Financial Statement
EXHIBIT 3 - January through March 1997 Cash Flow from Operations
EXHIBIT 4 - April 1997, May 1997 and June 1997 Cash Flow from Operations
(Budgeted to Actual)
EXHIBIT 5 - June 1997 through September 1997 Projected Cash Flow
EXHIBIT 6 - September 1997 through August 2002 Projected Cash Flow
iii
<PAGE>
I. INTRODUCTION.
On July 23, 1997, Crow Winthrop Operating Partnership ("CWOP"
or the "Debtor") filed with the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court") its proposed Third Amended Plan
of Reorganization Dated July 23, 1997 (the "Plan," attached hereto as Exhibit
1).
The Debtor prepared this Disclosure Statement for use in the
solicitation of acceptances of the Plan. By order of the Bankruptcy Court, this
Disclosure Statement was approved as containing information adequate to enable
creditors and partners of the Debtor to make an informed judgment to vote
either to accept or to reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT
BY THE BANKRUPTCY COURT DOES NOT MEAN THAT THE BANKRUPTCY COURT RECOMMENDS
ACCEPTANCE OR REJECTION OF THE PLAN.
The financial information used in preparing this Disclosure
Statement was prepared by and is the sole responsibility of the Debtor. This
Disclosure Statement does not constitute financial or legal advice. Creditors
and partners of the Debtor should consult their own advisors if they have
questions about the Plan or this Disclosure Statement.
WHILE THIS DISCLOSURE STATEMENT DESCRIBES CERTAIN BACKGROUND
MATTERS AND THE MATERIAL TERMS OF THE PLAN, IT IS INTENDED AS A SUMMARY
DOCUMENT ONLY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN AND THE
EXHIBITS ATTACHED TO THE PLAN AND THIS DISCLOSURE STATEMENT. YOU SHOULD READ
THE PLAN AND THE EXHIBITS TO OBTAIN A FULL UNDERSTANDING OF THEIR PROVISIONS.
ADDITIONAL COPIES OF THE DISCLOSURE STATEMENT AND THE EXHIBITS ATTACHED TO THIS
DISCLOSURE STATEMENT CAN BE OBTAINED FROM LYNN TALAB AT (213) 669-6054. THE
COST OF COPIES MUST BE PAID BY THE PERSON ORDERING THEM. COPIES OF PAPERS FILED
IN THIS CASE MAY BE INSPECTED DURING REGULAR COURT HOURS IN THE CLERK'S OFFICE,
UNITED STATES BANKRUPTCY COURT, 34 CIVIC CENTER PLAZA, SANTA ANA, CALIFORNIA.
THE STATEMENTS AND INFORMATION CONCERNING CWOP, REORGANIZED
CWOP, JAMBOREE LLC AND JAMBOREE OFFICE REIT SET FORTH IN THIS DISCLOSURE
STATEMENT CONSTITUTE THE ONLY STATEMENTS OR INFORMATION CONCERNING SUCH MATTERS
THAT HAVE BEEN APPROVED BY THE BANKRUPTCY COURT FOR THE PURPOSE OF SOLICITING
ACCEPTANCES OR REJECTIONS OF THE PLAN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE
MADE AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN. NEITHER
DELIVERY OF THIS DISCLOSURE STATEMENT NOR ANY EXCHANGE OF RIGHTS MADE IN
CONNECTION WITH THE PLAN SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE
DATE THIS DISCLOSURE STATEMENT AND THE MATERIALS RELIED UPON IN PREPARATION OF
THIS DISCLOSURE STATEMENT WERE COMPILED. CWOP, REORGANIZED CWOP, JAMBOREE LLC
AND JAMBOREE OFFICE REIT ASSUME NO DUTY TO UPDATE OR SUPPLEMENT THE DISCLOSURES
CONTAINED HEREIN AND DO NOT INTEND TO UPDATE OR SUPPLEMENT THE DISCLOSURES.
THIS DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY
PURPOSE OTHER THAN TO DETERMINE WHETHER TO VOTE IN FAVOR OF OR AGAINST THE
PLAN.
1
<PAGE>
NOTHING CONTAINED HEREIN WILL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY
BY ANY PARTY, BE ADMISSIBLE IN ANY PROCEEDING INVOLVING CWOP, REORGANIZED CWOP,
JAMBOREE LLC, JAMBOREE OFFICE REIT OR ANY OTHER PARTY OR BE DEEMED CONCLUSIVE
EVIDENCE OF THE TAX OR OTHER LEGAL EFFECTS OF THE REORGANIZATION OF CWOP ON
HOLDERS OF CLAIMS OR INTERESTS. CERTAIN OF THE INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT IS BY ITS NATURE FORWARD-LOOKING AND CONTAINS ESTIMATES,
ASSUMPTIONS AND PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL FUTURE
RESULTS. THERE CAN BE NO ASSURANCE THAT ANY FORECASTED OR PROJECTED RESULTS
CONTAINED HEREIN WILL BE REALIZED, AND ACTUAL RESULTS MAY BE DIFFERENT THAN
THOSE SHOWN, POSSIBLY BY MATERIAL AMOUNTS. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION, NOR ANY STATE SECURITIES COMMISSION, HAS APPROVED OR DISAPPROVED
THIS DISCLOSURE STATEMENT.
Capitalized terms used in this Disclosure Statement and not
expressly defined herein are defined in the Plan. A reference in this
Disclosure Statement to a "Section" refers to a section of this Disclosure
Statement.
A. SUMMARY OF THE PLAN.
The following is a brief summary of the Plan, which is
qualified in its entirety by reference to the Plan, attached as Exhibit 1 to
this Disclosure Statement. The Plan provides for the formation of a new entity,
Jamboree LLC, which will be the owner of CWOP's sole asset, the office building
complex located at 3333-3355 Michelson Drive in Irvine, California (the
"Property"). The creditors of CWOP will be satisfied under the Plan as follows:
(a) holders of the approximately $198 million of mortgage participation
certificates (the "Certificateholders") will receive collectively the New Notes
in the aggregate principal amount of $100 million issued by Jamboree LLC and
secured by the Property and an initial 90% membership interest in Jamboree LLC,
which membership interest will be held through a newly formed corporation to be
operated as a real estate investment trust (as described in Section VI.A)
("Jamboree Office REIT") and will receive 0.1% of the amount of their
deficiency claims in cash; (b) each holder of an Allowed General Unsecured
Claim will be paid in full and (c) each holder of a Secured Tax Claim or
Priority Claim will receive payment in full over time, unless other treatment
is agreed to by such holder. The partners of CWOP will retain their
proportional interests in Reorganized CWOP, which on the Effective Date will
own an initial 10% membership interest in Jamboree LLC. Reorganized CWOP's
interest in Jamboree LLC will be exchangeable for an equivalent percentage
equity interest in Jamboree Office REIT (subject to dilution). In addition,
Reorganized CWOP will receive the New Property Appreciation Rights issued by
Jamboree Office REIT representing the right to receive cash payments based upon
a percentage of the appreciation of the value of the shares of Jamboree Office
REIT above specified values or, at Jamboree Office REIT's election, the right
to receive shares of Jamboree Office REIT (the "New Property Appreciation
Rights"). As part of the Plan, Jamboree LLC will enter into a new five-year
property management agreement with Winthrop California Management, the current
property manager.
The classification and treatment of creditors and partners
under the Plan are discussed in Section IV.B. Distributions under the Plan will
be in (a) cash, (b) notes issued by Jamboree LLC payable to certain taxing
authorities, (c) the New Notes issued by Jamboree LLC, (d) Jamboree Office REIT
Shares, (e) the New Property Appreciation Rights and (f) Jamboree LLC Units.
The cash required to fund the Plan will come from cash reserves and ongoing
operations.
2
<PAGE>
B. RECOMMENDATION.
THE DEBTOR RECOMMENDS THAT ALL CREDITORS AND PARTNERS
ENTITLED TO VOTE ON THE PLAN CAST THEIR BALLOTS TO ACCEPT THE PLAN. THE DEBTOR
BELIEVES THAT THE PLAN PROVIDES THE GREATEST AND EARLIEST POSSIBLE RECOVERIES
TO CWOP'S CREDITORS AND PARTNERS. THE DEBTOR FURTHER BELIEVES THAT ACCEPTANCE
OF THE PLAN IS IN THE BEST INTERESTS OF ALL PARTIES IN INTEREST AND THAT ANY
ALTERNATIVE WOULD RESULT IN FURTHER DELAY, UNCERTAINTY AND EXPENSE.
II. VOTING.
A. ELIGIBILITY TO VOTE.
The Plan divides creditors' Claims against and partners'
Interests in CWOP into various Classes and provides separate treatment for each
Class. Holders of Administrative Claims and Tax Priority Claims are not
classified and are not entitled to vote because the Bankruptcy Code requires
the Debtor to pay the holders of such Claims in full. Class 1 (Priority
Claims), Classes 3a, 3b and 3c (Other Secured Claims) and Class 6 (General
Unsecured Claims) are unimpaired and presumed to have accepted the Plan. All
other Classes of Claims and Interests under the Plan are impaired, and holders
of Claims and Interests in such Classes are entitled to vote on the Plan.
The record date for determining any creditor's or partner's
eligibility to vote on the Plan is July 9, 1997. Only those creditors and
partners entitled to vote on the Plan will receive a ballot with this
Disclosure Statement.
CREDITORS WHOSE CLAIMS ARE BEING OBJECTED TO ARE NOT ELIGIBLE
TO VOTE UNLESS THE OBJECTION IS RESOLVED IN THEIR FAVOR OR, AFTER NOTICE AND A
HEARING PURSUANT TO BANKRUPTCY RULE 3018(a), THE BANKRUPTCY COURT ALLOWS THE
CLAIM TEMPORARILY FOR THE PURPOSE OF VOTING TO ACCEPT OR REJECT THE PLAN. ANY
CREDITOR THAT WANTS ITS CLAIM TO BE ALLOWED TEMPORARILY FOR THE PURPOSE OF
VOTING MUST TAKE THE STEPS NECESSARY TO ARRANGE AN APPROPRIATE HEARING WITH THE
BANKRUPTCY COURT UNDER BANKRUPTCY RULE 3018(a).
B. BALLOTS.
In voting for or against the Plan, please use only the ballot
or ballots sent to you with this Disclosure Statement. Votes cast to accept or
reject the Plan will be counted by Class. Please read the voting instructions
on the reverse side of the ballot for a thorough explanation of voting
procedures. Please note that the execution of the Agreement of Understanding
did not constitute a vote for the Plan. (See Section III.B.2)
PLEASE PUT YOUR TAXPAYER IDENTIFICATION (OR SOCIAL SECURITY)
NUMBER ON YOUR BALLOT; THE DEBTOR MAY NOT BE ABLE TO MAKE DISTRIBUTIONS
WITHOUT IT.
IF YOU BELIEVE THAT YOU ARE A MEMBER OF A VOTING CLASS FOR
WHICH YOU DID NOT RECEIVE A BALLOT, IF YOUR BALLOT IS DAMAGED OR LOST, OR IF
3
<PAGE>
YOU HAVE QUESTIONS CONCERNING VOTING PROCEDURES, CALL LYNN TALAB,
BANKRUPTCY COORDINATOR WITH O'MELVENY & MYERS LLP AT (213) 669-6054. LYNN
TALAB CANNOT PROVIDE YOU WITH LEGAL ADVICE.
C. VOTING PROCEDURE.
Mail your completed ballots to: Lynn Talab, Bankruptcy
Coordinator, O'Melveny & Myers LLP, 400 S. Hope Street, Los Angeles, CA
90071-2899. A pre-addressed envelope is enclosed for your convenience. DO NOT
RETURN BALLOTS TO THE BANKRUPTCY COURT. You may not change your vote after it
is cast unless the Bankruptcy Court permits you to do so after notice and a
hearing to determine whether sufficient cause exists to permit the change. DO
NOT RETURN ANY DEBT INSTRUMENTS WITH YOUR BALLOT.
D. DEADLINE FOR VOTING.
IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY 4:00
P.M., LOS ANGELES TIME ON AUGUST 25, 1997.
E. IMPORTANCE OF YOUR VOTE.
Your vote is important. The Bankruptcy Code defines
acceptance by a class of claims as acceptance by holders of at least two-thirds
in amount and a majority in number of allowed claims in that class that vote.
ONLY THOSE CREDITORS AND PARTNERS WHO ACTUALLY VOTE ARE COUNTED FOR PURPOSES OF
DETERMINING WHETHER A CLASS HAS VOTED TO ACCEPT THE PLAN. YOUR FAILURE TO VOTE
WILL LEAVE TO OTHERS THE DECISION TO ACCEPT OR REJECT THE PLAN.
III. BACKGROUND OF CWOP AND THE CHAPTER 11 CASE.
A. HISTORICAL FRAMEWORK.
1. Description of the Property; Formation of CWOP.
The Property is a 14.748 acre parcel of improved real
property located at 3333-3355 Michelson Drive in Irvine, California, at the
corner of Jamboree Boulevard and Michelson Drive, immediately south of the
Jamboree exit of Interstate 405. The Property is part of a retail and office
development known as Park Place, which consists of the Property and
approximately 90 acres of land surrounding the Property. The Property includes
a ten-story tower building containing 236,000 square feet of office space, six
four-story 200,000 square feet buildings (1.2 million square feet in the
aggregate), and approximately 300,000 square feet of concourse space --
approximately 1.5 million leasable square feet in total, making the Property
one of the largest office buildings in Orange County. Fluor Corporation
("Fluor") constructed the improvements on the Property in 1975 through 1981,
and since that time the Property has served as its world headquarters. However,
as discussed in Section III.A.3, Fluor has recently announced that it will be
constructing a new headquarters and intends to vacate the Property when its
lease expires in 1999.
In August of 1984, Trammell Crow Company ("Trammell Crow"), a
nationally known real estate developer, approached Winthrop Financial
Associates, A Limited Partnership ("WFA") with the proposition that WFA finance
the acquisition of the Property and surrounding land. In January of 1985, two
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partnerships were formed to acquire the properties: (1) CWOP, a Maryland
general partnership, which would acquire and operate the existing office
buildings, and (2) Crow Winthrop Development Limited Partnership ("CWDLP"), a
Maryland limited partnership, which would acquire and develop the land
surrounding the existing facilities (the "Development Parcel"). Winthrop
California Investors Limited Partnership ("WCI"), a limited partnership of
which WFA and Three Winthrop Properties Inc., a corporation owned by WFA, are
the general partners, is the 99% general partner of CWOP, and Crow Irvine #2
("Crow"), an entity controlled by affiliates of Trammell Crow, is the 1%
partner. Crow is a 75% general partner of CWDLP, and WCI is a 25% limited
partner. Thus, WFA and Trammell Crow agreed that an entity in which WFA
controlled a significant equity interest would own and control the Property
(i.e., the existing office building), while an entity in which Trammell Crow
affiliates controlled the predominant equity interest would own and control the
Development Parcel.
WCI's 3,500 limited partnership units are over 70% owned by
outside investors and the units are registered under the Securities Exchange
Act of 1934. WILCAP Limited Partnership, a Massachusetts limited partnership
wholly owned by WFA and its affiliates, owns 1,000 units. In addition to its
99% general partnership interest in CWOP and a 25% interest in CWDLP, WCI owns
a 99% limited partnership interest in Winthrop California Management Limited
Partnership ("WCM"), a Maryland limited partnership, which manages and leases
the Property.
2. Acquisition of the Property by CWOP; Structure of
Financing.
On July 30, 1985, CWOP acquired the Property, and CWDLP
acquired the Development Parcel from Fluor. The Property and the Development
Parcel were acquired for a total price of $302 million, of which $297,789,000
was allocated to the Property and $4,211,000 was allocated to the Development
Parcel, although an additional $35 million was paid to Fluor upon the transfer
of certain development rights for the Development Parcel.
In early 1985, the Debtor engaged Salomon Brothers Inc. and
Salomon Brothers Realty Corp. (collectively, "Salomon") to help obtain
financing to purchase the Property. Salomon in turn enlisted the assistance of
Pacific Mutual Life Insurance Co., which created Pacific Mutual Realty Finance,
Inc. (the "Servicing Agent"), a wholly-owned subsidiary, for purposes of the
transaction.
Salomon, the Servicing Agent and the Debtor devised a
structure whereby the Debtor would obtain a $204 million loan secured by its
real property and tangible personal property (the "Mortgage Loan"). The
Mortgage Loan was structured as a two-part transaction: (1) the financing to
purchase the Property was raised in the public market through the issuance of
certificated debt instruments (the "Certificates"), the issuance, participation
and servicing of which are provided for in the Purchase, Participation and
Servicing Agreement dated June 17, 1985 (the "Purchase Agreement"); and (2)
such financing was advanced to the Debtor pursuant to a loan agreement (the
"Existing Loan Agreement"), pursuant to which the Debtor executed a Secured
Promissory Note (the "Existing Secured Note") in the principal amount of $204
million in favor of the Servicing Agent. The Existing Secured Note is secured
by a first priority deed of trust covering the Property, the tangible personal
property therein and the leases thereon (the "Existing Deed of Trust"). In
addition, the Servicing Agent and CWDLP entered into an agreement granting the
Servicing Agent, as custodial holder of the Existing Secured Note and Existing
Deed of Trust, certain approval rights regarding the Development Parcel (the
"Development Approval Agreement"). The obligations under the Existing Secured
Note are nonrecourse to the partners of CWOP, except that $15 million of the
principal was guaranteed by WFA for tax purposes.
At the July 30, 1985 closing of the transaction, the
Servicing Agent simultaneously (1) issued the initial Certificates and (2)
advanced the $204 million in proceeds therefrom to the Debtor pursuant to the
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Existing Loan Agreement. Pursuant to the Purchase Agreement, the Certificates
constitute absolute, undivided ownership interests in the Existing Secured Note
and all the collateral comprising the security therefor, and the Servicing
Agent acts solely as custodial agent for the exclusive benefit of the holders
of the Certificates (the "Certificateholders"). The Existing Secured Note
matured on April 1, 1996, at which time a final principal payment of
approximately $198 million was due. CWOP was unable to pay the principal amount
when due, and this amount remained unpaid on the Petition Date.
3. Major Tenants.
Five tenants each lease 10% or more of the rentable square
footage of the Property: (i) Fluor, (ii) Air Touch Cellular, (iii) Denny's
Inc., (iv) Waban, Inc. and (v) Preferred Mortgage.
Fluor Daniel, Inc. Fluor is an international company whose
principal business is to provide engineering, construction and technical
services to a broad range of clients.
In late 1988, CWOP entered into its current lease (the
"Current Fluor Lease") with Fluor, which amended the lease entered into at the
time of the purchase of the Property. Under the terms of the Current Fluor
Lease, Fluor leases a minimum of approximately 790,000 useable square feet
(approximately 889,000 square feet on a rentable basis) for ten years. The
average rental rate is $16.84 per square foot net (which equates to an
approximately $27.26 gross per square foot). The Current Fluor Lease is
scheduled to expire July 31, 1999.
At the time the Current Fluor Lease was executed, Fluor was
leasing approximately 1,229,000 useable square feet. Since that time, they have
vacated space as permitted under the terms of the Current Fluor Lease. As of
December 31, 1996, Fluor leased approximately 790,000 useable square feet. In
June 1995, Fluor vacated approximately 174,000 useable square feet, which had
been occupied by AVCO Financial Services under a sublease. Later that year, the
space was leased directly to AirTouch Cellular.
CWOP and Fluor recently entered into subleases and leases
with two entities. California Lending Group, Inc., a subsidiary of
ContiFinancial Corporation, entered into a sublease for approximately 46,000
useable square feet of space currently leased by Fluor. The sublease will
become a direct lease for a five year term when the current Fluor lease expires
in 1998. The average rental rate is $18.00 per square foot (gross) for the
first thirty months and $19.20 thereafter. The Prudential Real Estate
Affiliates and Prudential Insurance Company recently entered into a lease for
approximately 56,000 square feet, which space consists of the ninth and tenth
floors of the tower. The lease, which has a 7 year term, will also become a
direct lease upon the expiration of the Current Fluor Lease. The average rental
rate during the term of the lease is $25.20 per square foot (gross).
Recently, CWOP has entered into another sublease/lease with
Fluor. In June, 1997, CWOP entered in an eight year lease (with two five-year
renewal options) with Prudential Residential Services, an affiliate of
Prudential Real Estate Affiliates and Prudential Insurance Company, for
approximately 9,330 square feet of the tower building. This lease will also
become a direct lease when the Fluor lease expires in 1998.
In 1995, CWOP engaged in discussions with Fluor regarding a
termination of the Current Fluor Lease and execution of a new, long-term lease.
In order to provide Fluor sufficient time to negotiate a long term lease, CWOP
agreed to provide Fluor with the rights to "holdover" designated space for a
period of 30 days to one year at an average net rental rate of $13.44 per
square foot (for atrium space) and $6.16 per square foot (for concourse space).
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CWOP made its most recent proposal for a new lease to Fluor
in December of 1996. Subsequently, Fluor announced that it will build a new
facility in Aliso Viejo and informed CWOP that it will vacate its space.
Because of the existing subleases, 698,000 feet will become vacant on
expiration of the Current Fluor Lease. On August 1, 1997, Fluor must indicate
which portions of its leased space it will vacate on July 31, 1998 (with the
balance vacated by July 31, 1999) and in which portions, if any, it will remain
in as a holdover tenant.
AirTouch Cellular. Commencing November 15, 1995, AirTouch
Cellular leased 189,265 square feet of space at an average rental rate of
approximately $14.00 per square foot. The lease is for 5.5 years and contains
two renewal options for terms of up to 5 years each.
Denny's Inc. Denny's Inc. ("Denny's") is a national food
service company that operates the Denny's restaurant chain. The lease agreement
between CWOP and Denny's Inc. is for 158,362 square feet of space. This initial
lease term expires on July 14, 2004. 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 from
Denny's and also leases 57,308 square feet directly from CWOP, as described
below. Denny's also subleases to another company, Private Healthcare Systems.
Flagstar, formerly known as T.W. Services, Inc., the parent company of Denny's,
has guaranteed the Denny's lease, as well as leases of two other subsidiaries
that are tenants, El Pollo Loco and Coco's/Carrows. Flagstar has recently
announced that it intends to file a prepackaged bankruptcy case, and the Debtor
does not know what impact that may have on the guaranty.
Waban, Inc. Waban, Inc. is a home improvement products
retailer. Waban has entered into two separate leases: a lease with CWOP for
57,308 square feet, and the sublease with Denny's discussed above. The lease
agreement between CWOP and Waban, which is scheduled to expire on July 24,
2004, contains extension options for three consecutive five year terms. Waban's
sublease agreement with Denny's expires on July 24, 2004.
Preferred Mortgage T.A.R. Preferred Mortgage Corporation
("Preferred Mortgage") entered into a lease for approximately 78,700 square
feet in January 1997. The lease expires March 31, 2002. The average rental rate
is approximately $16.56 per square foot. The lease contains a must-take option
whereby Preferred Mortgage will lease another 22,000 square feet after May
1997.
4. Property Management.
From the date that CWOP acquired the Property until March
1992, Crow Orange County Management Company, Inc. ("COCMC"), an affiliate of
Crow, provided leasing, management and construction supervision services at the
Property pursuant to a management agreement executed by CWOP and COCMC (the
"COCMC Building Management Agreement"). In 1992, WCI desired to acquire the
right to manage the Property and, except for Crow's 1% interest in CWOP, unify
ownership and management of the Property. WCI formed Winthrop California
Management Limited Partnership ("WCM"), and in consideration of a cash payment
of $4 million and WCI's agreeing to afford greater flexibility to Crow and its
principals under the CWDLP partnership agreement, WCM acquired COCMC's
management rights and Crow agreed to essentially become a limited partner in
CWOP. (Crow did not agree to be actually converted to a limited partner at the
time because the conversion expands the rights of the holder of the Existing
Secured Note (and thus impairs Crow's rights) under the Development Approval
Agreement.) Thus, the CWOP partnership agreement was amended to give WCI the
sole right to manage the business of CWOP (including the retention of
professionals and the commencement of a bankruptcy proceeding). The intent of
the parties that Crow cede all management rights to WCI is enforced by a
provision in the amendment that converts Crow to a limited partner in the event
Crow breaches the provision prohibiting Crow from controlling the
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partnership. Based on Crow's actions, WCI has asserted that Crow has lost its
status as a general partner of CWOP and has been automatically converted to a
limited partner under this provision.
WCM was formed to own the management rights to the Property
but otherwise is not a property management company. In order to perform the
management services under the property management agreement, WCM engaged
Winthrop Management, a property management affiliate of Winthrop Financial
Associates. Under CWOP's current agreement with WCM, the salaries of the
Winthrop Management employees who perform services for the Property (as well as
the office space for the property management office) are charged to CWOP at
cost and passed through to tenants as an operating expense. Winthrop Management
handles a significant portion of the accounting for the Property as well as
human resources, benefits and payroll for all on-site employees at no expense
to CWOP. Winthrop Management occupies approximately 2,000 square feet of tower
space for the property management office and 12,000 feet of concourse space for
building operations. Prior to the commencement of the Reorganization Case, WCM
received a fee of 5% of gross revenues for the space leased by Fluor and 4% for
other space plus leasing commissions and construction management fees for
managing the Property, the same fees COCMC received under the COCMC Building
Management Agreement.
5. The Development Parcel; Exterior Common Area.
The respective rights of CWOP and CWDLP to use the
Development Parcel are governed by a reciprocal easement agreement entered into
at the time the Property was acquired from Fluor (the "REA"). Under the REA,
the owner of the Property (CWOP or its transferee) is granted easements for
access, utilities and parking. The owner also has a non-exclusive right to use
the common area portion of the Development Parcel, subject to certain
restrictions. Under the REA, CWDLP must provide at least 5,225 non-exclusive
surface parking spaces "appurtenant" to the Property. Except to the extent the
owner of the Property designates any of the spaces as reserved or the spaces
are relocated to a parking structure, the spaces are to be provided without
charge to CWOP. The owner of the Property has the right to designate all or any
portion of the surface parking spaces as reserved, and CWDLP is entitled to a
reserve premium on such spaces equal to the difference between the "market
rate" for the reserved space in question and the "market rate" for the same
space on an unreserved basis.
In order to provide for the effective management and
maintenance of Park Place, CWOP and CWDLP originally agreed to appoint COCMC to
act as managing agent for Park Place. In addition to the COCMC Building
Management Agreement, CWOP executed a management agreement under which COCMC
agreed to provide maintenance services with respect to the "common area" of the
Development Parcel, which is comprised of the parking lots and walkways of Park
Place (the "Common Area Management Agreement"). Under the REA and the Common
Area Management Agreement, COCMC is responsible for allocating the expenses of
the Development Parcel common area, which expenses include insurance, security
and property taxes for the portions of the Development Parcel that constitute
"common area." The REA provides for at least two methods of allocating common
area expenses: one based on the proportionate square footage of the
improvements located on each party's parcel and another based on "standards,
customs, and guidelines common in the industry in the Newport
Beach/Irvine/South Coast Plaza area," taking into account the relative benefits
derived from the common area, the amount of use and similar factors. In
addition, if a party's use of its parcel or the common area results in an
increased cost of maintenance or services, that party is to bear the increased
cost.
Prior to the sale of the management rights for the Property
to WCM, COCMC had not charged a fee under the Common Area Management Agreement.
However, after the sale, COCMC began charging CWOP a management fee of 15% of
all costs associated with the exterior common area -- including property taxes
and management "overhead". While CWOP did not dispute COCMC's right to charge a
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reasonable management fee for the very limited services it provided with
respect to the external common area, COCMC demanded a management fee of over
$240,000 per annum (plus overhead) to manage what was, in essence, grass,
walkways and a parking lot.
COCMC's imposition of this management fee was accompanied by
CWDLP's assessment of a reserved parking charge for any space designated as
reserved by CWOP's tenants. CWOP asserted that the fee was unreasonable, and
CWOP was effectively precluded from passing on any portion of the new charge to
its tenants because the lease with its tenants, which COCMC negotiated while it
was the property manager under the COCMC Building Management Agreement,
included free reserved parking.
In 1994, CWOP commenced litigation against CWDLP seeking
relief from the amounts charged by COCMC under the REA and the related
management agreement. The litigation was settled in April 1995 pursuant to an
agreement among the parties (the "Settlement Agreement"). The Settlement
Agreement provides that CWOP will pay for reserved spaced parking at $20,833
per month as adjusted by the Consumer Price Index, for 600 reserved spaces, or
a proportionally reduced amount if CWOP has fewer reserved spaces (but CWOP may
only reduce the number of spaces in 150 space increments). Under the Settlement
Agreement, WCM subcontracted certain management duties for the common area.
However, it receives no payment for managing the common area and instead pays
COCMC $20,833 per month in consideration for this "management privilege."
During the past two years, retail development of the
Development Parcel has increased significantly. Retail tenants include
Houston's Restaurant, Ruth's Chris Steakhouse, Sports Chalet and California
Pizza Kitchen. In addition, CWDLP completed the construction of a 3-acre
18-hole putting golf course in 1996. CWDLP has recently announced plans to
commence additional development on the Development Parcel. The new project is
being advertised by Crow as a "city within a city" with two office buildings, a
hotel and a nightclub.
As part of the existing retail development, certain retail
parking was constructed separate from the parking available for tenants of the
Property and made into limited time lots. CWDLP recently informed CWOP that it
intends to gate sections of the parking for the Property that are currently
designated for visitor parking and to charge for such parking. CWOP believes
that this violates the terms of the REA and COCMC's duties as managing agent
for the common area. Numerous other disputes have arisen between CWOP and CWDLP
regarding the REA and the common area. As a result on June 27, 1997, CWOP
commenced the Crow Litigation. See Section III.C.5.
B. EVENTS LEADING TO THE FILING OF THE CHAPTER 11 CASE.
1. Orange County Real Estate Market.
Since the acquisition of the Property, the Orange County
rental market and the rental market in the area proximate to John Wayne Airport
(the "Greater Airport market") have changed dramatically. The market's general
economic condition has weakened, and supply of office space has outpaced
demand. The Orange County office market consists of approximately 52 million
square feet of space contained in 585 buildings, with approximately forty-five
percent (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. While the
Property maintained low vacancy rates as the result of an aggressive leasing
campaign (the Property was 95% occupied at the end of 1996), the Property
suffered a decline in achievable rents consistent with the market.
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2. Agreement of Understanding with Certificateholders.
In April 1996, the Existing Secured Note became due. Prior to
the maturity of the note, CWOP and the Certificateholders commenced
negotiations to restructure the Existing Secured Note. On April 10, 1996, the
Servicing Agent notified CWOP that it had received the requisite consents from
the Certificateholders to extend the maturity date through June 1996. Although
it was unable to repay the principal amount outstanding, CWOP continued to pay
interest at the nondefault rate after the maturity date. There are over 20
Certificateholders, including foreign banks. The unanimous consent of the
Certificateholders is required to restructure the Existing Secured Note, while
the consent of 51% in aggregate amount of the Certificates is required to
commence foreclosure proceedings. By April of 1996, many of the original
holders of the Certificates had sold to other funds and institutions. In May
1996, four of the Certificateholders formed a steering committee. The initial
members were Topa Savings Bank, AEGON Realty Advisors, Contrarian Capital LLC
and TCW Asset Management Company (the "Steering Committee"). The Steering
Committee retained Milbank, Tweed, Hadley & McCloy as its counsel. Despite the
ongoing negotiations with CWOP, holders representing at least 51% in aggregate
amount of the Certificates voted to record a notice of default against the
Property in June 1996, and in July 1996, the Servicing Agent 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 of 1996,
the parties reached an agreement providing for the payment of excess cash to
the Certificateholders pursuant to a monthly cash sweep of CWOP's rent account.
In November 1996, the Certificateholders and CWOP reached an
agreement in principle on the terms of a plan of reorganization, which terms
are incorporated in the Plan. The parties entered into an agreement of
understanding dated as of November 27, 1996 (the "Agreement of Understanding"),
which was executed by more than 662/3% in amount and more than 50% in number of
the Certificateholders (the "Requisite Certificateholders"). Under the
Agreement of Understanding, the Requisite Certificateholders agreed to support
a pre-arranged bankruptcy plan of reorganization for CWOP with the terms
contained in the Plan. The Requisite Certificateholders also agreed to forbear
from exercising any remedies so long as the Agreement of Understanding was in
effect.
The Agreement of Understanding does not obligate any
Certificateholder to vote for the Plan. All Certificateholders (including the
Certificateholders who signed the Agreement of Understanding and the
Certificateholders who agreed in writing to be bound by the terms of the
Agreement of Understanding when they purchased their Certificates) are
permitted to vote for the Plan or to vote against the Plan or not to vote at
all, without restraint and without breaching the Agreement of Understanding
regardless of which they choose to do.
The Debtor has indicated that it may seek to contend in the
Bankruptcy Court that the signatures to the Agreement of Understanding
constituted a valid prepetition vote in favor of the Plan that was made after
disclosure of adequate information to meet the requirements of section 1126(b)
of the Bankruptcy Code. This reservation of rights does not in any way affect
the right of Certificateholders to vote against the Plan if they choose to do
so.
On or about March 25, 1997, CWOP Note Administrator L.L.C.,
an affiliate of certain investment funds and accounts managed by TCW Asset
Management Company, became the successor servicing agent (the "Successor
Servicing Agent") under the Purchase Agreement, replacing the Servicing Agent
(but the Servicing Agent agreed to continue as subagent to perform certain
administrative tasks). The Servicing Agent intends to assign the Existing
Secured Note and liens securing the note to the Successor Servicing Agent. On
June 17, 1997, the Bankruptcy Court entered an order approving a stipulation
entered
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into by the Servicing Agent, the Successor Servicing Agent and the Debtor
modifying the automatic stay to the extent necessary to execute and record
documents in connection with that assignment.
C. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE.
CWOP commenced this case (the "Reorganization Case") by
filing a voluntary petition under chapter 11 of the Bankruptcy Code on March
28, 1997. Since the filing, the Debtor has operated its business as a debtor in
possession under the Bankruptcy Code. The following is a summary of certain
significant events that have occurred during the pendency of the Reorganization
Case.
1. Cash Collateral Agreed Order.
The Debtor currently operates under a cash collateral order
entered by the Bankruptcy Court on April 3, 1997 (the "Cash Collateral Order").
Under the terms of the Cash Collateral Order, CWOP may use the
Certificateholders' cash collateral to operate the Property and administer the
Reorganization Case in accordance with the budget attached to the order (the
"Initial Budget") or as otherwise approved by the Successor Servicing Agent.
The budget approved by the Cash Collateral Order extends through September 30,
1997, but the Debtor may use cash collateral thereafter provided CWOP and the
Successor Servicing Agent agree to the terms of additional 30 day budgets. The
Cash Collateral Order also provides that all "excess cash" (as determined under
the Cash Collateral Order) generated during the Reorganization Case will be
placed in a reserve that CWOP will contribute to Jamboree LLC on the Effective
Date.
2. Motion to Dismiss.
On March 31, 1997, Crow filed a motion to dismiss the
Reorganization Case or alternatively to treat the filing as involuntary. In its
motion, Crow asserted that it did not consent to the filing. In opposition, the
Debtor asserted that Crow expressly consented to the filing in the CWOP
partnership agreement. The Court denied Crow's motion to dismiss by an order
entered May 2, 1997.
3. Claims Bar Date and Claims Procedures Order.
On May 2, 1997, the Bankruptcy Court entered an order
requiring pre-petition creditors (with certain exceptions) to file proofs of
claim against the Debtor no later than June 16, 1997. A party to an executory
contract or lease that is rejected by the Debtor has until 30 days from the
date of mailing of the notice of entry of the order approving the rejection to
file a claim against the Debtor for rejection damages.
4. Leasing Transactions.
On June 20, 1997, the Court entered an order authorizing CWOP
to enter into in the ordinary course of business leases that fall within
certain defined parameters (the "Ordinary Course Leasing Parameters"). The
Ordinary Course Leasing parameters are as follows: (a) lease renewals of new
leases of 15,000 rentable square feet or less; (b) lease terms of 6 years or
less; and (c) tenant improvements, if any, of $18.00 or less per square foot,
payable by CWOP as the work is completed. Since that order was entered, CWOP
entered into a variety of lease renewals with existing tenants in the ordinary
course. In addition, pursuant to a motions to authorize the Debtor to enter
into leases outside of the ordinary course of business, the Court authorized
the Debtor to enter into the lease with Prudential Residential Services (see
Section III.A.3) and a short-term lease with Consumer Portfolio Services, Inc.
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5. Crow Claims and Litigation.
CWDLP filed four separate proofs of claim asserting secured
and unsecured claims for CWOP'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"). CWDLP 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 "CWDLP
Secured Claims"). CWDLP asserted an unsecured claim in the amount of $4,999.82
predicated upon another purported late payment but for which CWDLP did not file
a lien prior to the commencement of the bankruptcy case.
On June 30, 1997, CWOP filed two complaints against CWDLP and
COCMC (the "Crow Litigation"). In the first, CWOP is objecting to CWDLP's
claims and seeking turnover, avoidance of fraudulent conveyances and
declaratory and other relief. In the second, CWOP 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 REA, the parties are entitled to the
non-exclusive right to use and enjoy the Common Area. However, since April
1995, CWDLP has used and developed portions of the Common Area in a manner that
is useful, beneficial and convenient only to CWDLP to the exclusion of CWOP.
These portions of Common Area include a modular office facility from which
CWDLP 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. Notwithstanding the fact that CWOP has been denied its
right to the use and enjoyment of these areas, CWDLP has included them in
Common Area and has apportioned Common Area expenses associated therewith to
CWOP. Under federal and state fraudulent conveyance statutes, CWOP is entitled
to the return of Common Area charges improperly allocated to it, damages
against CWDLP and COCMC for breach of contract and constructive fraud, and a
declaration that the affected areas be removed from Common Area.
Second, CWDLP 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 CWOP for its allocable share of Common Area
expenses. Under state and federal fraudulent conveyance statutes, CWOP is
entitled to the return of Common Area charges improperly allocated to it,
damages against CWDLP 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, CWOP 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 CWOP'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 CWOP delinquent when payment is not made
within five days, and has imposed interest and late charges. In those instances
where CWOP has complied with COCMC's request, COCMC has impermissibly had the
use of CWOP's funds, in effect exacting a premium over and above CWOP's actual
property tax obligation. On this basis, CWDLP has asserted the improper late
charges that are the basis of its
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Claims filed against the Debtor. CWOP objects to the claims on the basis that
there is no amount due to CWDLP. CWOP is also seeking to avoid CWDLP's asserted
liens on that basis. Further, by virtue of this conduct, CWOP is entitled to
relief under federal and state fraudulent conveyance statutes for the improper
late charges and premiums, for damages for breach of contract and constructive
fraud against CWDLP and COCMC, and for a declaration that the practices of
CWDLP 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 CWDLP for the benefit of the parties to the REA. Notwithstanding
that COCMC held refunds in excess of $550,000 as of March 28, 1996 and in
excess of $610,000 as of January 1, 1996, COCMC has failed to remit to CWOP its
share of these refunds (of which the majority would be refunded to CWOP's
tenants). CWOP is entitled to relief against COCMC under turnover, federal and
state fraudulent conveyance statutes, and is entitled to damages against CWDLP
and COCMC for breach of contract and constructive fraud.
Fifth, there is presently a dispute between CWOP and CWDLP
and COCMC with respect to charges for non-reserved parking. Under the REA,
CWDLP 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. CWOP 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 CWOP and CWDLP
and COCMC concerning CWDLP'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. CWOP
is entitled to a declaration that spaces so restricted may not be counted
toward CWDLP'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 CWOP and CWDLP and COCMC with respect to
the manner in which the managing agent has exercised approvals and disapprovals
of exterior signage and monuments. CWOP is entitled to 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 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 CWOP's tenants.
CWOP has requested the managing agent to implement a parking control program,
but Crow has refused.
CWOP 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. CWOP (on behalf of itself and its successor,
Jamboree LLC) expressly reserves all of its rights to amend the complaints or
bring additional and/or unrelated claims against CWDLP, COCMC or Crow prior to
or after the Effective Date.
IV. THE PLAN.
The following summary of certain principal provisions of the
Plan is qualified in its entirety by reference to the Plan, which is attached
as Exhibit 1 to this Disclosure Statement. In the event of any discrepancy
between this Disclosure Statement, including the following summary description,
and any
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provision of the Plan, the Plan or order confirming the Plan will control.
Capitalized terms used but not otherwise defined herein will have the meanings
ascribed to them in the Plan.
A. TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS.
Administrative Claims consist of all claims for payment of
costs or expenses of administration of the Debtor or the Debtor's bankruptcy
estate (the "Estate") specified in Bankruptcy Code ss.ss. 503(b) and 507(a)(1),
including, without limitation: (a) claims under Bankruptcy Code ss.ss. 330(a),
331 or 503 for compensation for professional services rendered and
reimbursement of expenses in the Reorganization Case ("Fee Claims"); (b) the
actual, necessary costs and expenses of preserving the estate and operating the
business of the Debtor, incurred and paid in the ordinary course of business by
the Debtor after the bankruptcy filing and invoiced prior to the Effective Date
but excluding any claim of a governmental unit for taxes ("Ordinary Course
Administrative Claims"); (c) any post-petition taxes subject to administrative
treatment; and (d) fees and charges assessed against the Debtor or the Estate
pursuant to section 1930 of title 28 of the United States Code. Priority Tax
Claims consist of certain unsecured claims of governmental units entitled to
priority of distribution from the estate under Bankruptcy Code ss. 507(a)(8).
As provided in Bankruptcy Code ss. 1123(a)(1), Administrative
Claims and Priority Tax Claims against the Debtor will not be classified for
the purposes of voting or receiving distributions under the Plan. Rather, all
such Claims will be treated separately as unclassified Claims on the terms set
forth in Article 2 of the Plan. The Debtor does not believe any administrative
claims will arise in the Reorganization Case other than Ordinary Course
Administrative Claims, which are operating expenses budgeted for in the Initial
Budget, and Fee Claims, for which the Debtor has budgeted approximately $2
million. The Debtor estimates that the aggregate amount of Allowed Priority Tax
Claims will be approximately $96. Holders of Administrative and Priority Tax
Claims are not entitled to vote on the Plan; their votes will not be solicited
and they will not receive ballots. To the extent a Priority Tax Claim is
secured, it is separately classified and treated under the Plan as a Secured
Tax Claim.
1. Allowance of Administrative Claims.
An Ordinary Course Administrative Claim will become Allowed
without any action by the holder of such Claim unless it is disputed by the
Debtor or Reorganized CWOP (if prior to or on the Effective Date) and Jamboree
LLC (if after the Effective Date) prior to the 60th day after the Effective
Date. Either the Debtor or Reorganized CWOP (if prior to or on the Effective
Date) or Jamboree LLC (if after the Effective Date) may dispute an Ordinary
Course Administrative Claim by providing written notice to the claimant within
60 days after the Effective Date. If disputed by the Debtor or Reorganized CWOP
or Jamboree LLC, an Ordinary Course Administrative Claim may become Allowed
only as provided in Paragraph 2.B.3 of the Plan.
A Fee Claim will become Allowed only if the holder files an
application in accordance with the Bankruptcy Code and Bankruptcy Rules no
later than 60 days after the Effective Date and only if and to the extent such
Claim is Allowed by the Bankruptcy Court.
Under Paragraph 2.B.3 of the Plan, any other Administrative
Claim (including any Ordinary Course Administrative Claim that is disputed by
the Debtor or Reorganized CWOP or Jamboree LLC as set forth in Paragraph 2.B.1
of the Plan) will become Allowed only if within 90 days after the Effective
Date the holder of such Claim files with the Bankruptcy Court and serves on the
Debtor or Reorganized CWOP (if prior to or on the Effective Date) or Jamboree
LLC (if after the Effective Date) a motion requesting payment of such
Administrative Claim, and only if and to the extent such Claim is Allowed by
the Bankruptcy Court
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pursuant to a Final Order. The Debtor, Reorganized CWOP or Jamboree LLC may
file an objection to any such motion within the time provided by the Bankruptcy
Rules or otherwise by the Bankruptcy Court.
2. Treatment of Allowed Administrative Claims.
Each holder of an Allowed Administrative Claim will receive
(i) the amount of such holder's Allowed Administrative Claim in one cash
payment or (ii) such other treatment as may be agreed by the Debtor or
Reorganized CWOP (if prior to or on the Effective Date) or Jamboree LLC (if
after the Effective Date) and such holder. Distributions on account of
Administrative Claims that, on the Effective Date, are Allowed Claims, will be
made by Reorganized CWOP (if on the Effective Date) or Jamboree LLC (if after
the Effective Date) on or as promptly as practicable after the Effective Date.
Distributions on account of Administrative Claims Allowed after the Effective
Date will be made as soon as practicable after such Claims become Allowed. The
Debtor or Reorganized CWOP (if prior to or on the Effective Date) or Jamboree
LLC (if after the Effective Date) will pay each Allowed Ordinary Course
Administrative Claim on the date on which payment is due or otherwise would be
permitted to be made in accordance with the terms and conditions of the
particular transaction and any agreements relating thereto.
3. Treatment of Priority Tax Claims.
Each holder of an Allowed Priority Tax Claim will receive (i)
the amount of such holder's Allowed Priority Tax Claim on the sixth anniversary
of the assessment date of the taxes on which the holder's Priority Tax Claim is
based, with interest payable annually in arrears at the judgment rate of
interest determined in accordance with 28 U.S.C. ss. 1961(a) on the
Confirmation Date or such other rate as the Bankruptcy Court may determine at
the Confirmation Hearing or (ii) such other treatment as may be agreed upon by
the Debtor or Reorganized CWOP (if prior to or on the Effective Date) or
Jamboree LLC (if after the Effective Date).
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.
1. Priority Claims (Class 1).
Class 1 consists of Priority Claims. Priority Claims are
Claims entitled to priority pursuant to Bankruptcy Code ss. 507(a), other than
an Administrative Claim or Priority Tax Claim. Each holder of an Allowed
Priority Claim will receive, on account of such Claim, (i) the amount of such
holder's Allowed Priority Claim in one cash payment or (ii) such other
treatment as may be agreed by the Debtor or Reorganized CWOP (if prior to or on
the Effective Date) or Jamboree LLC (if after the Effective Date) and such
holder. Class 1 is not impaired under the Plan and is deemed to have accepted
the Plan. The Debtor does not believe that there are any Priority Claims.
2. Secured Tax Claims (Class 2).
Class 2 consists of the Secured Tax Claims. Secured Tax
Claims are Claims of governmental units for taxes to the extent that, by
operation of applicable non-bankruptcy law, such Claims are Secured Claims
under Bankruptcy Code ss. 506(a) and not subject to avoidance under chapter 5
of the Bankruptcy Code.
Under Paragraph 4.B of the Plan, each holder of an Allowed
Secured Tax Claim will receive, on account of such Claim, (i) a note in the
Allowed amount of such Claim secured by a lien on the Property pari passu with
notes issued to any other holders of Allowed Secured Tax Claims and senior to
all other liens on the Property, with interest payable monthly in arrears at a
rate of 7.5% per annum and any unpaid interest
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and principal payable on the third anniversary of the Effective Date, or (ii)
such other treatment as may be agreed to by the Debtor or Reorganized CWOP (if
prior to or on the Effective Date) or Jamboree LLC (if after the Effective
Date) and such holder. Class 2 is impaired under the Plan, and Debtor is
soliciting the votes of holders of Claims in that Class. The Debtor estimates
that the Allowed Secured Tax Claims will aggregate approximately $690,000.
3. Other Secured Claims (Classes 3a, 3b and 3c).
Classes 3a, 3b and 3c consist of Other Secured Claims. Class
3a consists of the Truck Secured Claim, the Claim of Ford Motor Credit based on
the purchase money loan for the 1997 Dodge Ram Truck to the extent such Claim
is a Secured Claim. Class 3b consists of the Van Secured Claim, the Claim of
Chrysler Financial Corporation based on the purchase money loan for the 1997
Dodge Grand Caravan to the extent such Claim is Secured Claim. Class 3c
consists of the CWDLP Secured Claims to the extent such Claims are Secured
Claims (see Section III.C.5). The aggregate amount of the CWDLP Secured Claims
is $158,221.39. The Debtor has filed an objection to the CWDLP Secured Claims
as part of the Crow Litigation.
4. Certificateholder Secured Claims (Class 4).
Class 4 consists of the Certificateholder Secured Claims. The
Certificateholder Claims consist of any and all Claims arising or asserted
under, on account of or related to the Certificates, the Purchase Agreement,
the Existing Deed of Trust, the Existing Secured Note and all other documents
executed by CWOP and delivered and/or received in connection therewith. The
Certificateholder Secured Claims are the Certificateholder Claims that are
Allowed as Secured Claims pursuant to as Paragraph 4.D.2 of the Plan.
On account of its Claim, through the process described in
Paragraph 7.E of the Plan, each holder of an Allowed Certificateholder Secured
Claim will receive its Ratable Share of (a) 100% of the Jamboree Office REIT
Shares outstanding on the Effective Date, (b) the New Class A Senior Secured
Notes and (c) the New Class B Senior Subordinated Secured Notes. On the
Effective Date, Jamboree Office REIT will own 90% of the initial Jamboree LLC
Units. The Certificateholder Secured Claims will be Allowed under the Plan in
the aggregate amount of $105 million.(1)
In addition, the Plan provides that the treatment of the
Certificateholder Secured Claims will satisfy any and all claims of the
Certificateholders under the WFA Guaranty. For tax purposes, WFA guaranteed
that at least $15 million would be recovered from the Existing Secured Note.
The Plan clarifies that the $100 million in New Notes and the Jamboree Office
REIT Shares distributed to the holders of Allowed Certificateholder Secured
Claims satisfies this obligation. In addition, and notwithstanding this
provision in the Plan, it is likely that WFA (again for tax purposes) will
elect to amend and restate the WFA Guaranty and guaranty the New Notes in a
similar amount and on the same terms as WFA's guaranty of the Existing Secured
Note.
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(1) The proposed Allowed amount of the Certificateholder Secured Claims under
the Plan is conditioned on the confirmation and effectiveness of the Plan and
represents a compromise and settlement between the Debtor and such Holders in
the Reorganization Case. The compromise is in all respects subject to Rule 408
of the Federal Rules of Evidence and shall not be used against either party, as
an admission or otherwise, in the adjudication of any such matters. If the Plan
does not become effective, the parties reserve all of their rights, including
the holders' right to elect treatment under Bankruptcy Code ss.1111(b), subject
to the terms of the Agreement of Understanding.
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On the Effective Date, the Debtor and the Certificateholders
will enter into a mutual release of all Claims and Causes of Action between the
parties not provided for in the Plan. The parties will submit the form of the
mutual release to the Bankruptcy Court prior to the Confirmation Hearing.
Class 4 is impaired under the Plan, and the Debtor is
soliciting the votes of the holders of Claims in that Class.
5. Certificateholder Deficiency Claims (Class 5).
Class 5 consists of all Certificateholder Deficiency Claims.
Certificateholder Deficiency Claims are the Claims of the Certificateholders
other than the Certificateholder Secured Claims.
On account of its Claim, through the process described in
Paragraph 7.E of the Plan, each holder of an Allowed Certificateholder
Deficiency Claim will receive 0.1% of its Allowed Claim. The Certificateholder
Deficiency Claims will be Allowed under the Plan in the amount of $93
million.(2)
Class 5 is impaired under the Plan, and the Debtor is
soliciting the votes of the holders of Claims in that Class.
6. General Unsecured Claims (Class 6).
Class 6 consists of all General Unsecured Claims. A General
Unsecured Claim is any Claim other than an Administrative Claim, a Priority Tax
Claim, a Secured Tax Claim, a Priority Claim, a Certificateholder Secured
Claim, an Other Secured Claim or a Certificateholder Deficiency Claim.
Each holder of an Allowed General Unsecured Claim will
receive on account of such Claim, cash in the amount equal to the Allowed
amount of such Claim with interest payable on such amount at the judgment rate
of interest determined in accordance with 28 U.S.C. ss. 1961 on the
Confirmation Date, or such other rate as the Bankruptcy Court may determine at
the Confirmation Hearing. Distributions on account of General Unsecured Claims
that are Allowed on the Effective Date will be made on the Effective Date.
Distributions on account of Claims Allowed after the Effective Date will be
made when such Claims become Allowed.
The Debtor estimates that the Allowed General Unsecured
Claims will aggregate approximately $25,000. These are amounts owed to vendors,
suppliers and professionals who provided goods and services to the Debtor prior
to the Petition Date. A General Unsecured Claim in the amount of $4,999.82 was
filed by CWDLP, but the Debtor disputes that any amount is owed to CWDLP on
account of this claim. In addition, proofs of claim were filed by seven of
CWOP's tenants based on the tenant's security deposit or the right to audit
operating expenses. The Debtor is assuming all of the leases of its tenants and
believes that the cure payments made under Bankruptcy Code ss. 365(b) will
satisfy all amounts owing under its leases. Class 6 is unimpaired under the
Plan, and the Debtor is not soliciting the votes of the holders of Claims in
that Class.
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(2) The proposed Allowed amount of the Certificateholder Deficiency Claims
under the Plan is conditioned on the confirmation and effectiveness of the Plan
and represents a compromise and settlement between the Debtor and such Holders
in the Reorganization Case. The compromise is in all respects subject to Rule
408 of the Federal Rules of Evidence and shall not be used against either
party, as an admission or otherwise, in the adjudication of any such matters.
If the Plan does not become effective, the parties reserve all of their rights,
including the holders' right to elect treatment under Bankruptcy Code
ss.1111(b), subject to the terms of the Agreement of Understanding.
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7. Interests (Class 7).
Class 7 consists of the partnership interests in CWOP. The
holders of the Allowed Interests will retain their Interests in Reorganized
CWOP subject to the terms of the New CWOP Partnership Agreement and the Plan.
On the Effective Date, Reorganized CWOP will own (i) 10% of the Jamboree LLC
Units and (ii) will be a party to the New Property Appreciation and Exchange
Rights Agreement granting Reorganized CWOP (a) the New Tranche A Property
Appreciation Right, pursuant to which each of its Jamboree LLC Units will be
exchangeable for a Jamboree Office REIT Share, (b) the New Tranche B Property
Appreciation Right, representing the right to purchase for $10,888,888.89 a
number of Jamboree Office REIT Shares representing 10% (subject to dilution) of
the equity value of Jamboree LLC or, at the option of Jamboree Office REIT, to
receive a net cash payment equal to the difference between the then current
market price of the such number of shares (assuming the exercise of all such
rights and all other rights under the New Property Appreciation and Exchange
Rights Agreement concurrently exercised) and such exercise price and (c) the
New Tranche C Property Appreciation Right, representing the right to purchase
for $152,777,777.78 a number of Jamboree Office REIT Shares representing 55%
(subject to dilution) of the equity value of Jamboree LLC or, at the option of
Jamboree Office REIT, to receive a net cash payment equal to the difference
between the then current market price of such number of shares (assuming the
exercise of all such rights and all other rights under the New Property
Appreciation and Exchange Rights Agreement concurrently exercised) and such
exercise price.
WCI believes that Crow has been automatically converted to a
limited partner under the terms of the CWOP Partnership Agreement. This
conversion will not affect Crow's ownership percentage in Reorganized CWOP, and
therefore will not affect the value of the property received by Crow on account
of its Interest. The confirmation of the Plan will not convert Crow to a
limited partner.
Class 7 is impaired under the Plan, and the Debtor is
soliciting the votes of holders of Interests of that Class.
C. IMPLEMENTATION OF THE PLAN.
1. Formation of Jamboree LLC and Jamboree Office REIT.
On or prior to the Effective Date, Jamboree LLC will be
formed and the initial Jamboree LLC Units will be issued 10% to Reorganized
CWOP and 90% to Jamboree Office REIT. Jamboree Office REIT will be formed and
its shares will be authorized on or before the Effective Date, and on the
Effective Date its shares will be distributed to the holders of Allowed
Certificateholder Secured Claims in accordance with Paragraph 4.D of the Plan.
If the Plan becomes effective, the confirmation of the Plan will be deemed a
revesting of all of the property of the Estate to Reorganized CWOP, and title
to all property so contributed will pass to and revest in Reorganized CWOP free
and clear of all Claims, all liens securing claims and all interests, except
any lien preserved under the Plan, including the lien created by the Existing
Deed of Trust and any valid lien or encumbrance of record on the date of
recordation of the Existing Deed of Trust. Such property shall thereafter be
contributed to Jamboree LLC in accordance with Paragraph 7.E of the Plan.
The contribution of the Property to Jamboree LLC pursuant to
Paragraph 7.E of the Plan will take place in two steps. First, after entry of
the Confirmation Order and after WCI has obtained consent to the plan
transactions from its limited partners, but immediately prior to the occurrence
of the Effective Date, the Certificateholder Claims will be satisfied by the
payment to the Certificateholders (or their agent) of the cash payable to them
on account of their Allowed Certificateholder Deficiency Claims under Paragraph
4.E of the Plan and the issuance of Intermediate Notes in the amounts of $100
million and $4.5 million secured by the liens and security interests securing
the Allowed Certificateholder Secured Claims, which liens and
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security interests will be amended and restated as contemplated by the
indentures governing the New Notes, except that the Certificateholders will be
deemed to have released their liens on cash or other assets of CWOP of a value
of $500,000. These transactions will be deemed to have satisfied the
Certificateholder Claims and discharged $93 million of CWOP's indebtedness.
Immediately after the consummation of those transactions: the $4.5 million
Intermediate Note will be deemed to be contributed by the Certificateholders to
Jamboree Office REIT, and thereafter be deemed contributed by Jamboree Office
REIT to Jamboree LLC and merged out of existence upon the assumption of the
Debtor's obligations by Jamboree LLC as described in the next paragraph; the
Certificateholders will be deemed to have contributed the Development Approval
Agreement to Jamboree LLC; and CWOP will transfer and contribute all of its
property, including assets securing the Intermediate Notes (including the Crow
litigation) and the $500,000 of free assets, to Jamboree LLC. Immediately upon
the transfer and contribution of the assets to Jamboree LLC, Reorganized CWOP
will be issued 10% of the initial Jamboree LLC Units, Jamboree Office REIT will
be issued 90% of the initial Jamboree LLC Units and the $100 million
Intermediate Note will be cancelled and satisfied by the issuance of the New
Notes to the holders of the Allowed Certificateholder Secured Claims. All of
these transactions will take place on the Effective Date. Neither the
Intermediate Notes nor any interest in them will be physically distributed to
the Certificateholders, but instead the Certificateholders will be distributed
directly the Jamboree Office REIT Shares and the New Notes, which will be
secured by the liens and security interests securing the Allowed
Certificateholder Secured Claims, which liens will be amended and restated as
contemplated by the indentures governing the New Notes, and the liens securing
the Intermediate Notes.
In consideration of the transfer and contribution of CWOP's
assets to Jamboree LLC, Jamboree LLC will execute an assignment and assumption
agreement providing for the express assumption by Jamboree LLC of (i) the
obligations of the Debtor and Reorganized CWOP under the Plan designated for
performance by Jamboree LLC after the Effective Date and (ii) the obligation to
indemnify and defend WCI, WCM, WFA, Three Winthrop Properties, Inc. their
affiliates and any current or former director, officer or employee of the
foregoing for claims against them and expenses incurred in the Crow Litigation.
These obligations are being expressly assumed by Jamboree LLC in connection
with and as consideration for the transfer of CWOP's assets to Jamboree LLC.
Reorganized CWOP will make payments on account of Claims
Allowed (and in amount certain) on the Effective Date immediately prior to the
transfer of its assets to Jamboree LLC. After the Effective Date (and the
transfer of assets to Jamboree LLC), Jamboree LLC will be obligated to make all
payments required to be made under the Plan.
Jamboree LLC will not be liable or responsible for any Claim
against the Debtor or the Estate except as expressly set forth in the Plan.
Jamboree LLC, Reorganized CWOP and Jamboree Office REIT will be successors to
the Debtor for the purposes of Bankruptcy Code ss.ss. 1123, 1129 and 1145.
2. Avoidance and Recovery Actions.
As of the Effective Date, the Debtor will waive the right to
prosecute and release, on behalf of itself and the Estate, any avoidance or
recovery actions under Bankruptcy Code ss.ss. 542 through 550 or any other
claims, rights or Causes of Action that belong to or could have been raised by
or on behalf of the Debtor or its Estate, other than or in connection with any
such actions that were commenced on or before the Effective Date. In accordance
with Bankruptcy Code ss. 1123(b), as successor to the Estate, Jamboree LLC will
retain and may enforce any claims, rights and Causes of Action that the Debtor
or Estate may hold commenced on or before the Effective Date. Jamboree LLC or
any successor may pursue those rights of action, as appropriate, in accordance
with what is in the best interests of Jamboree LLC or successors holding such
rights of action. Nothing in Paragraph 7.G of the Plan will be deemed to waive
any right of the Debtor, Reorganized CWOP or Jamboree LLC or to assert
avoidance or recovery actions under Bankruptcy Code
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ss.ss. 542 through 550 or any other Causes of Action defensively, including by
way of setoff, recoupment or counterclaim.
The only avoidance action the Debtor intends to commence
before the Effective Date is the Crow Litigation. Because the Debtor's
creditors other than the Certificateholders are relatively nominal amounts and
are generally being paid in full under the Plan, the Certificateholders would
be the beneficiaries of any avoidance action commenced by the Debtor. The
Debtor and the Certificateholders concluded to waive any avoidance actions
other than the Crow Litigation as part of the Plan to avoid complication and
delay in the restructuring process and as part of the Debtor's and
Certificateholders' agreement to execute mutual releases in connection with the
Plan.
3. Section 1129(a)(4) Payment.
Pursuant to Bankruptcy Code ss. 1129(a)(4), Jamboree LLC will
pay $500,000 to WCI on the Effective Date. The payment is on account of the
time and efforts of the officers and employees of WCI's general partner in
connection with the Plan and the restructuring process. WCI will submit a
memorandum prior to the confirmation hearing establishing the reasonableness of
such payment as required for Court approval under Bankruptcy Code ss.
1129(a)(4).
D. CLAIMS AND DISTRIBUTIONS.
Except for Administrative Claims or as otherwise ordered by
the Bankruptcy Court, all objections to Claims will be filed and served on the
applicable claimant by a date that is no later than 30 days after the Effective
Date or 30 days after the date on which the Claim is filed, whichever is later.
After the Effective Date, only Reorganized CWOP or Jamboree LLC will have the
authority to file, settle, compromise, withdraw or litigate to judgment
objections to Claims.
Notwithstanding any other provision of the Plan, no payment
or distribution will be made with respect to any Claim until such Claim becomes
an Allowed Claim. Unless a Claim is specifically Allowed under the Plan, the
Debtor, Reorganized CWOP and Jamboree LLC reserve any and all objections to
Claims, whether secured or unsecured, including any objection to the validity
or amount of alleged liens and security interests, whether under the Bankruptcy
Code, other applicable law or contract.
E. DISBURSEMENTS.
Reorganized CWOP (if on the Effective Date) or Jamboree LLC
(if after the Effective Date) will make all distributions of cash and property
pursuant to the Plan. Except as otherwise provided in the Plan, distributions
on account of Claims that are Allowed Claims on the Effective Date will be made
by Reorganized CWOP on the Effective Date. Distributions on account of Claims
Allowed after the Effective Date will be made by Jamboree LLC when Claims
become Allowed.
If a payment or distribution to the holder of an Allowed
Claim under the Plan is returned as undeliverable for lack of a current address
for the holder or otherwise, will file with the Bankruptcy Court the name, if
known, and last known address of the holder and the reason for its inability to
make payment. If, after the passage of one year and after any additional effort
to locate the holder that the Bankruptcy Court may direct, the payment or
distribution still cannot be made, the payment or distribution and any further
payment or distribution to the holder will be retained by Jamboree LLC and the
Allowed Claim will be deemed satisfied to the same extent as if payment or
distribution had been made to the holder of the Allowed Claim.
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No distributions of Jamboree Office REIT Shares will be made
to any entity, and the New Property Appreciation and Exchange Rights Agreement
will not be distributed to Reorganized CWOP, unless and until such entities
have delivered to Jamboree Office REIT an executed certificate regarding the
beneficial and constructive ownership of Jamboree Office REIT Shares
substantially in the form of Exhibit M to the Plan (the "REIT Certificate"). By
executing the REIT Certificate, the recipient represents that based on its
information and belief, neither it nor certain related parties own shares in
excess of the ownership limits specified therein. (For a discussion of the REIT
ownership limits and the New Articles, see Section VI.C.) Jamboree Office REIT
may elect in its sole discretion to waive this requirement.
F. CANCELLATION OF SECURITIES.
On and after the Effective Date, the Certificates will
represent only the right to receive property distributable under the Plan. Each
Certificateholder will surrender its Certificates to Reorganized CWOP (if on
the Effective Date) or Jamboree LLC (if after the Effective Date) and such
certificates will be cancelled. The Purchase Agreement will terminate in
accordance with its terms by the satisfaction of the Allowed Certificateholder
Claims under the Plan.
G. DISCHARGE.
Except for the obligations imposed by the Plan, the
distributions and rights that are provided in the Plan will be in complete
satisfaction, discharge and release of all Claims against, liabilities of,
liens on, obligations of and Interests in (i) the Debtor and the Estate, or
(ii) the assets and properties of the Debtor, Reorganized CWOP, Jamboree LLC,
Jamboree Office REIT or any successors thereto by merger, consolidation or
otherwise, whether known or unknown, arising or existing prior to the Effective
Date.
H. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
Under Bankruptcy Code ss. 365, a debtor may assume or reject
executory contracts and unexpired leases. The Plan provides that on the
Effective Date, each executory contract and unexpired lease of the Debtor that
has not been assumed or rejected before the Confirmation Date with the approval
of the Bankruptcy Court or for which the Debtor has not filed a motion to
assume or reject before the Confirmation Date will be assumed. Entry of the
Confirmation Order by the Bankruptcy Court will constitute approval of each
assumption pursuant to Bankruptcy Code ss. 365(c). The Debtor or Reorganized
CWOP (if prior to or on the Effective Date) or Jamboree LLC (if after the
Effective Date) will make any payments required under Bankruptcy Code ss.
365(b)(1).
The Debtor intends to file a motion to assume all of its
scheduled existing contracts and unexpired leases. The motion to assume will be
heard by the Bankruptcy Court at the Confirmation Hearing. In connection with
the assumption of the tenant leases, the Debtor will refund to each tenant its
share of the tax refunds recently received by CWOP for the 1991 through 1995
tax years. The total refunds received total approximately $1.7 million, most of
which will be refunded to tenants.
In addition, the Debtor intends to assume the various
contracts with the Crow entities, including the REA, the Common Area Management
Agreement, air space lease dated July 26, 1985 and the Settlement Agreement on
the Effective Date. The Debtor asserts that there are no amounts in default on
those agreements and no payment is necessary under Bankruptcy Code ss. 365(b).
Such assumption is expressly subject to the Crow Litigation, and the Debtor
waives no rights in connection with that litigation by virtue of its stated
intent to assume such contracts, and in any event, the Debtor's stated intent
to assume such contracts is in all respects subject to Rule 408 of the Federal
Rules of Evidence and shall not be used as an admission or otherwise in the
adjudication of such matters.
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Moreover, while the Debtor intends to assume these agreements
in connection with the Plan, the Debtor reserves all of its rights, and if the
Plan is not confirmed, will likely reject those agreements.
The Debtor will also assume the Agreement of Understanding
under the Plan.
On the Effective Date, all executory contracts and unexpired
leases assumed by the Debtor during the Reorganization Case will be assigned to
Jamboree LLC. Jamboree LLC will be bound by those contracts and any amendments
thereto, and it is anticipated that it will perform in accordance with the
terms of those contracts and any and all amendments thereto. However, nothing
in the Plan will be deemed to waive any rights, claims or defenses that the
Debtor, Reorganized CWOP, Jamboree LLC or any other entity might have with
respect to any such contracts.
I. ASSUMED EFFECTIVE DATE; CONDITIONS TO EFFECTIVENESS.
The Debtor assumes, and its projections are based on, the
occurrence of the Effective Date on September 30, 1997, but the Plan is
contingent on the Effective Date occurring on or before that date. The Plan
will not become effective unless and until each of the following conditions has
been satisfied in full in accordance with the provisions specified below:
1. Entry of Confirmation Order. The Bankruptcy Court has
entered the Confirmation Order approving the Plan in all respects.
2. WCI Consent. WCI has obtained the necessary consents from
its limited partners to effect the Plan and transactions provided
therein.
3. Jamboree LLC and Jamboree Office REIT. Jamboree LLC and
Jamboree Office REIT have been formed, and all formation documents for
such entities have been properly executed and filed as required.
4. Contribution of Assets. The issuance of the Intermediate
Notes, the contribution of the $4.5 million Intermediate Note, the
contribution of property by Reorganized CWOP, and the assumption of
obligations by Jamboree LLC shall have occurred in accordance with
Paragraph 7.E of the Plan.
5. Documentation. Each of the parties thereto has executed
and delivered the Collateral Documents, the New Notes Registration
Rights Agreement, the New Equity Registration Rights Agreement, the
New Property Appreciation and Exchange Rights Agreement, copies of the
New Articles and the New Bylaws, the New LLC Agreement, resolutions of
the directors or members of each of Jamboree Office REIT and Jamboree
LLC, good standing certificates from California and the respective
states of organization of each of Jamboree Office REIT and Jamboree
LLC and all other documents necessary or appropriate to the
transactions outlined in the Plan.
6. Jamboree Office REIT Shares and Jamboree LLC Units.
Jamboree Office REIT has issued the Jamboree Office REIT shares in
accordance with Paragraph 4.D of the Plan. Jamboree LLC has issued 90%
of the initial Jamboree LLC Units to Jamboree Office REIT and 10% of
the initial Jamboree LLC Units to Reorganized CWOP.
7. Qualification of Indentures. The applications for
qualification of each of the New Class A Senior Secured Note Indenture
and the New Class B Senior Subordinated Secured Note
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Indenture have become and remain effective in accordance with the
Trust Indenture Act of 1939, as amended.
8. Perfection of Security Interests. All actions have been
taken or caused to be taken in such a manner so that the Collateral
Agent with respect to the collateral granted as security under the
Collateral Documents holds a valid and perfected first priority
security interest in such collateral (subject only to liens expressly
permitted under the Collateral Documents) including, without
limitation, delivery of certificates representing pledged equity
interests, delivery and filing of Uniform Commercial Code financing
statements, assignments and/or amendments in all jurisdictions as may
be necessary or desirable to perfect the Collateral Agent's security
interest in the Collateral, the recordation of the New Deed of Trust
encumbering the real property identified therein, the execution and
delivery of lockbox agreements regarding any accounts in which the
Collateral Agent holds a security interest, and the making of all
other filings, recordings or other actions the Collateral Agent deems
necessary or desirable to establish, preserve and protect the first
priority liens granted to the Collateral Agent in real, personal and
mixed property.
9. Title Policies. The Collateral Agent has received an ALTA
lender's policy of title insurance on Form B-1970 (Rev. 10-17-84)
issued by Chicago Title Insurance Company or an insurer of similar
professional reputation and financial wherewithal (with reinsurance
satisfactory to the Collateral Agent) naming the Collateral Agent as
an insured in the amount of $100 million and in form satisfactory to
the Collateral Agent, insuring that the lien of the New Deed of Trust
is a valid first priority lien upon the property and collateral
described therein, subject only to encumbrances permitted in the New
Indentures, together with any endorsements required by the Collateral
Agent; and Jamboree LLC has received an ALTA owner's policy of title
insurance (Form 1970) issued by such insurer naming Jamboree LLC as
insured, in the amount of $105 million and in form satisfactory to the
Jamboree LLC, insuring that Jamboree LLC owns fee title to the real
property subject only to the New Deed of Trust and encumbrances
permitted in the New Indentures and under the Plan, together with any
endorsements required by Jamboree LLC.
10. Evidence of Insurance. The Collateral Agent has received
evidence satisfactory to Jamboree LLC and the Collateral Agent that
adequate insurance for the Property has been obtained and that
Jamboree LLC and the Collateral Agent are loss payees.
The conditions specified in Paragraphs 12.A.3. through
12.A.10 of the Plan may be waived in writing by the Debtor and Requisite
Certificateholders.
J. RETENTION OF JURISDICTION.
The Bankruptcy Court will retain jurisdiction over those
matters set forth in Paragraph 13.A of the Plan, including objections to
Claims, motions for the assumption or rejection of executory contracts and
unexpired leases, adversary proceedings and contested matters, implementation
of the Plan, all modifications and amendments to the Plan and applications for
fees and expenses of professionals.
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V. FINANCIAL INFORMATION
A. HISTORICAL FINANCIAL INFORMATION; RECENT FINANCIAL
PERFORMANCE.
CWOP's audited financial statement for calendar year 1996 is
attached as Exhibit 2. CWOP prepares audited financial statements in accordance
with Generally Accepted Accounting Principles on an accrual basis and these
statements are audited by WCI's outside accountants, Arthur Anderson LLP.
CWOP's cash flow statement for the first quarter of 1997 is
attached as Exhibit 3. This statement shows CWOP's cash revenues and expenses
in the same format as CWOP's projected cash flows. Attached as Exhibit 4 are
CWOP's cash flow statements showing both budgeted and actual amounts for the
months of April, May and June of 1997. As those statements indicate, CWOP
generated excess cash flow of $1,580,138, in April, $2,014,159 in May and
$1,861,176 in June. In accordance with the terms of the Cash Collateral Order,
CWOP reserved $1,850,696.78 on May 10, 1997 and $1,036,347.91 on June 10, 1997
and $1,151,009.17 on July 10, 1997. See Section III.C.1. As those statements
indicate, operations and leasing activity during the Reorganization Case have
been generally consistent with CWOP's projections. The cash flow projections
for the remaining months prior to the assumed Effective Date of September 30,
1997 (June through September) are attached as Exhibit 5. The projections
contained in Exhibits 4 and 5 constitute the "Initial Budget" under the Cash
Collateral Order.
B. PAYMENT OF ADMINISTRATIVE EXPENSES AND CLAIMS.
The Debtor intends to make all cash payments required to be
made under the Plan out of its cash generated from operations. Ordinary Course
Administrative Expenses are budgeted for in the Initial Budget. Other cash
payments to be made under the Plan include Allowed Fee Claims (an aggregate of
approximately $2 million is budgeted for in the Initial Budget); Secured Tax
Claims (approximated to be $690,000 and budgeted for in Initial Budget); the
Section 1129(a)(4) payment to WCI ($500,000 budgeted for in September in the
Initial Budget); payments to unsecured creditors ($100,000 budgeted for in
September in the Initial Budget). As of September 30, 1997, the Debtor projects
excess cash and reserves to total $2,809,300 after making the payments
described above.
C. PROJECTED FINANCIAL INFORMATION.
CWOP's financial projections for the years 1998 through 2003
are attached as Exhibit 6. The projection period commences on September 1,
1997, and the September 1997 projections included in Exhibit 5 are included in
the 1997 (partial year) projections. These projections assume that the Plan
will be approved and implemented in accordance with its terms. The projections
are based on several lease and expense assumptions, some of which are set forth
in Exhibit 6. Additional assumptions were made regarding general business and
economic conditions. There can be no assurance that any of these assumptions
will be met. The projections are only estimates, and actual results may vary
materially from the projections. In addition, uncertainties that are inherent
in the projections increase for later years due to the increased difficulty
associated with forecasting rental rates, expenses and other economic factors
at more distant points in the future. The projections were not prepared with a
view toward compliance with the published guidelines of the American Institute
of Certified Public Accountants regarding financial projections, and have not
been reviewed, examined or compiled by CWOP's independent auditors or certified
public accountants.
Based on the projected cash flows, the Debtor believes the
value of the Property to be approximately $105 million.
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The projected cash flows include the projected payments of
interest and principal on the New Notes. All other Claims are assumed to have
been paid in cash on the assumed Effective Date of September 30, 1997.
THE DEBTOR CAUTIONS THAT IT MAKES NO REPRESENTATION
CONCERNING THE ACCURACY OF THE PROJECTED FINANCIAL INFORMATION OR THE ABILITY
TO ACHIEVE THE PROJECTED RESULTS. MANY OF THE ASSUMPTIONS ON WHICH THESE
PROJECTIONS ARE BASED ARE SUBJECT TO SIGNIFICANT ECONOMIC UNCERTAINTIES. IT IS
LIKELY THAT SOME ASSUMPTIONS WILL NOT MATERIALIZE BECAUSE OF UNANTICIPATED
EVENTS AND CIRCUMSTANCES. ACCORDINGLY, THE ACTUAL RESULTS ACHIEVED THROUGHOUT
THE PROJECTION PERIOD ARE LIKELY TO VARY FROM THE PROJECTED RESULTS. THE
VARIATIONS MAY BE MATERIAL AND ADVERSE OR POSITIVE.
THE DEBTOR DOES NOT ANTICIPATE AT THIS TIME THAT IT WILL
UPDATE THESE PROJECTIONS AT THE CONFIRMATION HEARING, FURNISH UPDATED
PROJECTIONS IN DOCUMENTS FILED WITH THE SEC OR OTHERWISE MAKE SUCH PROJECTIONS
PUBLIC.
VI. OPERATION AND GOVERNANCE OF SUCCESSOR ENTITIES
A. GENERAL DISCUSSION
Two new entities will be formed on or prior to the Effective
Date to implement the restructuring of CWOP pursuant to the Plan: (a) Jamboree
LLC, a Delaware limited liability company that will own the Property and in
which Reorganized CWOP will initially hold a 10% equity interest and Jamboree
Office REIT will initially hold a 90% equity interest, and (b) Jamboree Office
REIT, a Maryland corporation that initially will be owned 100% by the
Certificateholders. The Jamboree LLC Units owned by Reorganized CWOP will be
exchangeable for Jamboree Office REIT Shares, and Reorganized CWOP will be
issued the New Property Appreciation Rights, which may be exercised for cash or
(at the election of Jamboree Office REIT) Jamboree Office REIT Shares.
Jamboree Office REIT is intended to be operated to qualify as
a Real Estate Investment Trust (a "REIT") under the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"). The shareholders of a REIT have
the limited liability and investment liquidity of corporate shareholders
without double taxation. The ownership structure of Jamboree LLC and Jamboree
Office REIT is referred to as an "UPREIT" or "Umbrella Partnership" REIT. In an
UPREIT, an operating partnership or LLC owns the real property and a
corporation qualified as a REIT is a partner or member of the operating
partnership or LLC. In this case, Jamboree LLC will own the property and be the
operating entity, and Jamboree Office REIT will be a member of the LLC.
(Despite the name "Umbrella Partnership REIT" if an LLC is the operating
entity, the LLC does not obtain any partnership attributes by virtue of the
structure.) This structure has several advantages. As members of an LLC,
Reorganized CWOP and the Certificateholders will be able to allocate voting
rights on particular issues through the limited liability company agreement for
Jamboree LLC (the "New LLC Agreement," substantially in the form of Exhibit K
to the Plan). In addition, Jamboree LLC will be a "bankruptcy remote" entity,
as a unanimous vote of its board will be required for a voluntary bankruptcy
filing. Because Jamboree LLC is structured so that it is taxed as a partnership
(i.e., not subject to tax at the entity level), the parties will be able to
achieve these governance goals without incurring additional tax.
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To qualify as a REIT under the Internal Revenue Code, 75% of
the assets of the corporation must be real property related and 95% of the
annual income must be attributable to interest, dividends, rents, gains or
losses on real estate. As discussed in Section VI.C, there are other
requirements, including those intended to ensure diversity of ownership (such
as a minimum number of holders and limitations on the amounts held by any
single individual) and those designed to insure that the assets of the REIT are
not being rapidly turned over (such as a limit on the amount of income that can
be derived from real estate assets held less than 4 years). To ensure that
Jamboree Office REIT qualifies as a REIT, the operating entity, in this case
Jamboree LLC, must also comply with the REIT asset and income requirements.
B. JAMBOREE LLC.
On the Effective Date, the Property will be owned in fee and
operated by Jamboree LLC, subject to the New Deed of Trust securing the New
Notes and subject to the liens on the Property, if any, securing the notes
issued to holders of Allowed Secured Tax Claims, which will be senior to the
deed of trust securing the New Notes. The units representing membership
interests in Jamboree LLC initially will be held 90% by Jamboree Office REIT
and 10% by Reorganized CWOP.
Jamboree LLC will be governed by a board of member
representatives (the "Jamboree LLC Board") in accordance with the terms of the
New LLC Agreement. Upon obtaining the requisite consent of the representatives,
the Jamboree LLC Board will be authorized to act for Jamboree LLC. The Jamboree
LLC Board will consist of five members. The initial five members will be
designated one by Reorganized CWOP and four by the holders of Allowed
Certificateholder Secured Claims. The initial board members will be determined
prior to the Confirmation Hearing, and a notice containing their identities and
respective backgrounds will be distributed to all parties in interest.
Jamboree LLC will have a term of five and one-half years from
the Petition Date provided that the Property is not sooner sold or otherwise
transferred. A majority of the members of the Jamboree LLC Board must approve
(i) all operating decisions not designated as requiring unanimous approval in
the New LLC Agreement and (ii) termination for cause of the New Management
Agreement. 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 New Management Agreement without cause, (iii) sale of all or
any material portion of the Property within three years of the Effective Date,
(iv) except as otherwise provided in the New LLC Agreement, issuance of
additional units representing membership interests, (v) the authorization of
business activities other than the ownership and operation of the Property
within three years of the Effective Date and (vi) certain other matters as
provided in the New LLC Agreement.
The New LLC Agreement contains the following exhibits:
Exhibit A - Capital Contributions and Contributed Property (which will be
completed prior to execution and will be consistent with Paragraph 7.E of the
Plan (see Section IV.C.1); Exhibit B - Distribution of Percentage Interests;
Exhibit C - Legal Description of the Property; Exhibit D - Board
Representatives (which, as indicated above, will be completed prior to the
Confirmation Hearing) and Exhibit E - the dilution formula in the event that a
member does not heed a capital call.
The membership interests in Jamboree LLC will be represented
by units, 90% of which, the Class One Units, will initially be issued to
Jamboree Office REIT and 10% of which, the Class Two Units, will initially be
issued to Reorganized CWOP. The percentage of membership interests held by each
member may be adjusted from time to time based on the amount (if any) of
additional capital contributions that a member may make or fail to make. Any
distributions made by Jamboree LLC will be made to the members pro rata based
on their percentage membership interest on the record date for distribution. In
the absence of the unanimous consent of the Jamboree LLC Board, no new classes
of units may be created. The units in
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Jamboree LLC may not be transferred, except that Reorganized CWOP may exchange
its units for Jamboree Office REIT Shares through the exercise of its exchange
right under the New Property Appreciation and Exchange Rights Agreement. The
exchange right is designated as the "New Tranche A Right" in that agreement.
C. JAMBOREE OFFICE REIT AND JAMBOREE
OFFICE REIT SHARES.
Jamboree Office REIT will be established on or before the
Effective Date and will be governed in accordance with the New Articles, in
substantially the form of Exhibit A to the Plan, and the New Bylaws, in
substantially the form of Exhibit B to the Plan. The initial board of directors
will be determined prior to the Confirmation Hearing, and a notice containing
their identities and respective backgrounds will be distributed to all parties
in interest. Jamboree Office REIT will be authorized to issue 10 million
shares, of which 6 million shares will be classified initially as common stock,
par value $0.01 per share (the "Jamboree Office REIT Shares"), 1 million shares
will be classified as preferred stock and 3 million shares initially classified
as "Excess Shares". Of those authorized shares, 810,000 Jamboree Office REIT
Shares will be issued on the Effective Date to the holders of Allowed
Certificateholder Secured Claims. Subject to the Excess Shares provisions,
holders of the Jamboree Office REIT Shares will be entitled to receive such
dividends, if any, as may declared from time to time by the board of directors
of Jamboree Office REIT in its discretion from funds legally available
therefor, and in the event of any liquidation, dissolution or winding up of the
affairs of Jamboree Office REIT, whether voluntary, involuntary or otherwise,
the holders of Jamboree Office REIT Shares will be entitled, subject to the
rights of any holders of preferred shares to share, pro rata, in any property
that may be available for distribution after the satisfaction of all other
claims. Subject to the Excess Shares provisions, holders of Jamboree Office
REIT Shares will be entitled to one vote per share. Jamboree Office REIT Shares
will have no preemptive or other subscription rights (other than certain
preemptive rights granted to Reorganized CWOP in the New Property Appreciation
and Exchange Rights Agreement) and there will be no conversion rights or
redemption or sinking fund provisions with respect to such shares. All Jamboree
Office REIT Shares issued under the Plan will be fully paid and nonassessable
upon issuance.
Pursuant to the New Articles, Jamboree Office REIT will be
authorized to reclassify unissued shares of capital stock and to issue one or
more series of preferred stock with the relative preferences and voting powers,
qualifications and/or special or relative rights or privileges, as determined
by the board of directors of Jamboree Office REIT. However, for so long as
Reorganized CWOP has not fully exercised the New Tranche C Property
Appreciation Right, the New Property Appreciation and Exchange Rights Agreement
will prohibit Jamboree Office REIT from issuing equity securities with
preferences, rights or privileges senior to the Jamboree Office REIT Shares
without the prior written consent of Reorganized CWOP. As required by the
Bankruptcy Code ss. 1123, the New Articles will prohibit the issuance of any
non-voting equity security so long as such Bankruptcy Code prohibition is in
effect.
As more particularly described in Section VII.D hereof, for
Jamboree Office REIT to continue to qualify as a REIT under the Internal
Revenue Code, (i) not more than 50% in value of its outstanding common shares
may be owned, either directly or under the applicable attribution rules of the
Internal Revenue Code, by five or fewer individuals (as defined in the Internal
Revenue Code to include certain nonnatural persons) during the last half of a
taxable year, (ii) the common shares must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year and (iii) Jamboree Office REIT
must meet certain other tests regarding the nature of its income and assets.
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In order to ensure continued REIT status, the New Articles
contain certain restrictions on transfer and ownership. The articles generally
prohibit any individual (as defined in the Internal Revenue Code to include
certain non-natural persons) from beneficially or constructively owning equity
stock in excess of 8.3% (the "Ownership Limit") (determined assuming the
issuance of the maximum number of shares pursuant to any option, warrant,
property appreciation, subscription, preemptive, conversion, exchange or
similar right that would increase such individual's ownership), which ownership
limit may be increased if the Internal Revenue Code is amended to increase
certain ownership limits of REITs or such increase would not otherwise affect
REIT status. Transfers that would (i) result in any individual owning shares in
excess of the Ownership Limit, (ii) result in the equity stock being owned by
less than 100 persons, (iii) result in Jamboree Office REIT being "closely
held" within the meeting of Section 856(h) of the Internal Revenue Code or (iv)
that would otherwise cause Jamboree Office REIT to fail to qualify as a REIT,
will be void in an amount equal to the number of shares that cause such a
result. If notwithstanding these restrictions, a transfer (or a non-transfer
event) results in an individual owning in excess of the Ownership Limit or
results in Jamboree Office REIT being "closely held," then the shares in excess
of the Ownership Limit or that result in Jamboree Office REIT being "closely
held," will be automatically converted into an equal number of "Excess Shares."
The Excess Shares will be transferred to a trust for a beneficiary named by
Jamboree Office REIT and thereafter Jamboree Office REIT as trustee may
designate a permitted transferee for the Excess Shares.
Notwithstanding the foregoing, the Ownership Limit with
respect to any individual or individuals (as defined in the Internal Revenue
Code to include certain non-natural persons) pertaining to Reorganized CWOP
will be 16.6% with respect to any one individual, 24.9% with respect to any two
individuals, 33.2% with respect to any three individuals, 41.5% with respect to
any four individuals and 49.8% with respect to any five individuals. A failure
by any individuals pertaining to Reorganized CWOP to satisfy the Ownership
Limit could result in Reorganized CWOP being unable to exercise its rights
under the New Property Appreciation and Exchange Rights Agreement or in equity
stock held through Reorganized CWOP being converted into Excess Shares. Even if
all individuals pertaining to Reorganized CWOP satisfy this Ownership Limit
with respect to equity stock owned through Reorganized CWOP, if an individual
or individuals pertaining to Reorganized CWOP beneficially or constructively
own other equity stock that, in combination with the equity stock owned through
Reorganized CWOP, exceeds the Ownership Limit, then such individual's (or
individuals') equity stock held outside Reorganized CWOP that, so combined,
exceeds the Ownership Limit will be automatically converted into an equal
number of Excess Shares if acquired after equity stock beneficially or
constructively owned through Reorganized CWOP.
In order to ensure certain anticipated allocations with
respect to the liabilities of Jamboree LLC, the New Articles contain certain
supplementary restrictions on transfer and ownership relating to persons who
are holders of the New Notes. The New Articles prohibit any person who is a
holder of the New Notes from owning, either directly or under specified
attribution rules, 80 percent or more of the equity stock of Jamboree Office
REIT (such ownership, a "752 Violation"). Transfers that would result in any
holder of the New Notes owning shares that would cause a 752 Violation will be
void in an amount equal to the number of shares that cause that result. If
notwithstanding this restriction a transfer (or non-transfer event) results in
a holder of the New Notes owning shares that would cause a 752 Violation, then
the shares being transferred (or that are the subject of the non-transfer
event) will be automatically converted into an equal number of Excess Shares
(and treated as described above) to the extent necessary to prevent such a
violation.
The Jamboree Office REIT shares will bear a legend setting
forth the above restrictions on transfer.
All persons who own, directly or by virtue of the attribution
provisions of the Internal Revenue Code, more than 5.0% (or such lower
percentage, as provided in the Treasury Regulations) of the
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equity stock of Jamboree Office REIT will be required to give within 30 days
after January 1 of each year a written statement to Jamboree Office REIT
stating the name and address of each beneficial owner, the number of shares
beneficially owned and how those shares are held. In addition, upon demand,
each shareholder will be required to disclose to Jamboree Office REIT such
other information as Jamboree Office REIT may reasonably request with respect
to the ownership of the equity stock to determine the effect of the ownership
as REIT status.
Because such entities may be considered "underwriters" and
therefore not entitled to an exemption for resale of the Jamboree Office REIT
Shares (see Section VIII.B), Reorganized CWOP, certain named persons and any
person or entity that receives or is the transferee from the named persons of
10% or more of the aggregate number of the Jamboree Office REIT Shares
distributed under the Plan and any such person's affiliates (the "Restricted
Equity Holders") will receive the benefit of a registration rights agreement
(the "New Equity Registration Rights Agreement," substantially in the form of
Exhibit H to the Plan). The New Equity Registration Rights Agreement will
provide, among other things, and subject to the conditions provided therein,
that (a) any Restricted Equity Holder, with the written consent of the
Restricted Equity Holders of at least 40% of the outstanding Jamboree Office
REIT Shares held by Restricted Equity Holders that have not then been
registered or become eligible for sale under SEC Rule 144, may serve a request
on Jamboree Office REIT requesting it to prepare a registration statement and
to use its best efforts to cause such registration statement to become
effective within 90 days (or 180 days if it is the first registration) of the
date of the demand notice and (b) if, after the Effective Date, Jamboree Office
REIT proposes to register any of its debt or equity securities (with certain
exceptions), Restricted Equity Holders will be able to include their Jamboree
Office REIT Shares in such registration, subject to certain limitations in the
event that Jamboree Office REIT's underwriter advises it that the inclusion of
such shares in an underwritten public offering is impracticable. The rights of
the Restricted Equity Holders under the New Equity Registration Rights
Agreement will be subject to customary provisions regarding share limitations,
suspension of registration rights, payment of expenses and indemnification.
D. DESCRIPTION OF NEW NOTES ISSUED BY JAMBOREE LLC.
The following discussion summarizes certain provisions of the
New Class A Senior Secured Notes (referred to in this Section IV.D as the
"Class A Notes") and the New Class B Senior Subordinated Secured Notes
(referred to in this Section IV.D as the "Class B Notes") to be issued pursuant
to the Plan.
1. New Class A Senior Secured Notes.
The Class A Notes will be issued pursuant to an indenture by
and between Jamboree LLC and IBJ Schroder Bank and Trust Company as Indenture
Trustee (the "Class A Trustee"). The following summaries of certain provisions
of the New Class A Senior Secured Notes Indenture (referred to in this Section
IV.D. as the "Class A Indenture") are qualified in their entirety by reference
to all of the provisions of the Class A Indenture, substantially in the form of
Exhibit C to the Plan. Capitalized terms used in this Section without
definition have the meanings of those terms in the Class A Indenture.
General. The Class A Notes represent senior secured
obligations of Jamboree LLC. The Class A Notes will be in aggregate principal
amount of $80,000,000. The Class A Notes are issuable only in registered form
in denominations of $1,000 and any integral multiple thereof.
Maturity, Interest and Principal. The Class A Notes will
mature on March 27, 2002. Interest will accrue on the Class A Notes at a fixed
rate equal to 2.25% above the interest rate on United States Treasury Bonds or
Notes with a maturity closest to the maturity of the Class A Notes on the
Effective Date. Interest on the Class A Notes is payable in cash monthly in
arrears on the first day of each month,
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commencing on the first such date after the Effective Date. Interest is
computed on the basis of a 360-day year of twelve 30-day months. Interest only
will be payable monthly in arrears until March 27, 1999; thereafter interest
and principal will be payable monthly in arrears with principal amortized on a
straight-line basis, based on a 25-year amortization. Interest will be payable,
at the option of Jamboree LLC, in Class A Notes until March 27, 1998.
Optional Redemption. Jamboree LLC will have the option to
redeem the Class A Notes, in whole or in part, upon not less than 30 nor more
than 60 days' notice, during the periods set forth below at a redemption price
(expressed as a percentage of par) set forth opposite such periods, plus
accrued and unpaid interest, if any, on such Class A Notes to the applicable
redemption date:
Period Percentage
Issue Date through March 27, 2000: 102.00%
March 28, 2000 through September 27, 2001: 101.00%
thereafter: 100.00%
Purchase at Option of Holders of Class A Notes. Except as
otherwise set forth in the Class A Indenture, Jamboree LLC will not be required
to make mandatory redemption payments, sinking fund payments or mandatory
purchases with respect to the Class A Notes prior to maturity.
Excess Cash Flow Amounts are defined under the Class A
Indenture as, for any period, an amount determined by the Board of Members of
Jamboree LLC equal to all forms of cash or cash equivalents received by or on
behalf of Jamboree LLC generated by the Property from any source (other than
interest on certain accounts), during such period, minus the sum, without
duplication, of (1) amounts actually paid or retained in a reserve up to the
amount of the REIT Required Dividends during the applicable period, (2)
interest and regularly scheduled installments of principal actually paid during
such period under the terms of the Class A Notes, (3) interest and regularly
scheduled installments of principal actually paid during such period under the
terms of the Class B Notes, (4) certain operating expenses of the Jamboree LLC
with respect to Property actually paid during such period, including, without
limitation, amounts paid by Jamboree LLC pursuant to the REA and Settlement
Agreement, (5) certain Capital Expenditures actually made in cash (net of any
proceeds of related financing with respect to such Capital Expenditures), (6)
certain amounts retained in the Operating Disbursement Account in accordance
with the New Management Agreement, (7) certain amounts actually paid or
retained in the Tenant Improvement Reserve with respect to tenant improvements,
(8) certain amounts actually paid or retained in the Incentive Management
Reserve under the New Management Agreement with respect to incentive management
fees, (9) certain amounts determined by the Board of Members of Jamboree LLC
and retained in a reserve to pay projected debt service shortfalls in the
future and (10) reasonable amounts actually paid in connection with litigation
to which Jamboree LLC is a party. Under the Class A Indenture, at the option of
each holder, Excess Cash will be applied to the purchase of such holder's Class
A Note as set forth more fully below.
No later than 120 days after the end of each Fiscal Year
commencing with the Fiscal Year ending December 31, 1997, Jamboree LLC shall,
at the option of each holder, purchase the maximum principal amount of the
Class A Notes (in integral multiples of $1,000), that may be purchased with
100% of the Excess Cash Flow Amount for such Fiscal Year, at a purchase price
in cash equal to 100% of the principal amount of such Class A Notes plus
accrued and unpaid interest thereon to the date of purchase.
Within 90 days after the occurrence of a Triggering Event, at
the option of each holder of Class A Notes, Jamboree LLC shall purchase all of
the outstanding Class A Notes, at a purchase price in cash equal to 100% of the
principal amount of all outstanding Class A Notes plus accrued and unpaid
interest to
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the date of purchase. A Triggering Event, as defined in the Class A Indenture,
will be deemed to have occurred upon (1) the sale, transfer, conveyance or
hypothecation of the Property or Improvements, or any material portion of the
Property or Improvements or interest therein, whether voluntary, involuntary,
by operation of law or otherwise, the execution of any installment land sale
contract or similar instrument affecting all or a material portion of the
Property or Improvements or, except in the ordinary course of business, the
lease of all or substantially all of the Property or Improvements, in one or in
a series of transactions, to any "person" or "group" (as such terms are used in
or defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended), (2) an event or series of events (whether a stock purchase, merger,
consolidation or other business combination or otherwise) as a result of which
(a) the REIT owns less than 51% of the combined voting power of the then
outstanding securities of Jamboree LLC ordinarily (and apart from rights
accruing after the happening of a contingency) having the right to vote in the
election of members of Jamboree LLC or to control Jamboree LLC's actions with
respect to the property subject to the lien of the deed of trust with respect
to the Class A Notes, or (b) Jamboree LLC's existence ceases or (iii) the
aggregation of Excess Loss Proceeds in excess of $8 million.
Covenants.
Investments. Jamboree LLC will not be permitted
directly or indirectly, to make any Investment from and after the Effective
Date except Investments approved by the Board of Members of Jamboree LLC of
cash in certain permitted investments consisting of government and certain
other liquid securities. As defined in the Class A Indenture, Investments means
any advance, loan, extension of credit or capital contribution to, or purchase
of any stocks, bonds, notes, debentures or other securities of, or interest in,
any person, any purchase of any interest in real estate, any commitment or
other obligation, whether contingent or absolute, to do any of the foregoing,
which commitment or other obligation does not constitute a Contingent
Obligation. Capital Expenditures will not be deemed to constitute Investments.
Liens. Jamboree LLC will not be permitted to create
or suffer to exist any Lien upon or with respect to any of its properties,
whether owned by Jamboree LLC as at the Effective Date or acquired later, or
assign any right to receive income, except as expressly provided in the Class A
Indenture. The Class A Indenture permits liens directly or indirectly created
in favor of the Class A Trustee or the Collateral Agent for the benefit of the
holders of the Class A Notes under the Class A Indenture, the Plan and the
Collateral Documents; certain liens arising by operation of law in favor of
materialmen, mechanics, warehousemen, carriers, lessors or other similar
persons incurred by Jamboree LLC in the ordinary course of business which
secure its obligations to such person; certain liens (excluding Environmental
Liens) securing taxes, assessments or governmental charges or levies; zoning
restrictions, easements, encroachments, licenses, reservations, restrictions on
the use of real property or minor irregularities incident thereto that do not
cause, individually or in the aggregate, a Material Adverse Effect; Existing
Encumbrances (as defined in the deed of trust securing the Class A Notes),
including, without limitation, liens in favor of the holders of the Class B
Notes and any renewal, extension or refunding of the Indebtedness represented
by the Class B Notes; leases of space in the Property (and related agreements
and instruments) entered into in the ordinary course of business; UCC-1
financing statements filed with respect to tenant-owned fixtures and
tenant-owned improvements; and certain liens on assets acquired with certain
Permitted Indebtedness.
Indebtedness. Jamboree LLC will not be permitted
under the Class A Indenture, directly or indirectly, to incur, create, assume
or suffer to exist or otherwise in any manner become or remain liable with
respect to any Indebtedness except Indebtedness represented by the Class A
Notes and the Class B Notes; Contingent Obligations constituting endorsements
for collection or deposit in the ordinary course of business of Jamboree LLC;
current liabilities in respect of (i) covenants, conditions and restrictions
constituting a lien permitted under the Class A Indenture; (ii) taxes,
assessments and governmental charges or levies incurred, or (iii) claims for
labor, materials, inventory, services, supplies and rentals incurred, or for
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goods or services purchased, in the ordinary course of business; Indebtedness
arising under any performance bond reimbursement obligation entered into in the
ordinary course of business of Jamboree LLC; unimpaired indemnification claims
under the limited liability company agreement of Jamboree LLC; certain
Indebtedness incurred to finance the purchase price of property; and certain
other unsecured Indebtedness as specified in the Class A Indenture.
Lease Obligations. Jamboree LLC will not be
permitted under the Class A Indenture to create or suffer to exist any
obligations as lessee for the rental or hire of real or personal property in
connection with any sale and leaseback transaction, or for the rental or hire
of real or personal property of any kind under other leases or agreements to
lease having an original term of one year or more that would cause the direct
or contingent liabilities of Jamboree LLC in respect of all such obligations to
be increased by more than $250,000 payable in any period of 12 consecutive
months over the amount existing on the Effective Date. Jamboree LLC is
forbidden under the Class A Indenture to become or remain liable as lessee or
guarantor or other surety with respect to any lease, whether an operating lease
or a capitalized lease, of any property, whether owned as at the Effective Date
or acquired thereafter, that Jamboree LLC has sold or transferred as of the
Effective Date or thereafter.
Restricted Payments. Jamboree LLC will not be
permitted to (a) declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of or in
respect of any of its limited liability company interests, beneficial
interests, whether voting or non-voting, or any preferred interests which may
be issued by Jamboree LLC except REIT Required Dividends; provided however that
Jamboree LLC in no event may declare or make any such dividend payment or other
distribution (other than a REIT Required Dividends) if a Default or Event of
Default has occurred and is continuing or (b) purchase, redeem or otherwise
acquire for value any such interests, whether outstanding on the Effective Date
or later issued and outstanding.
Transactions with Affiliates. Under the Class A
Indenture, Jamboree LLC will not be permitted to: (a) make any Investment in an
Affiliate of Jamboree LLC; (b) transfer, sell, lease, assign or otherwise
dispose of any assets to any Affiliate of Jamboree LLC; (c) merge into or
consolidate with or purchase or acquire assets from any Affiliate of Jamboree
LLC; (d) repay any Indebtedness to any Affiliate of Jamboree LLC (except under
existing retirement or deferred compensation plans); or (e) enter into any
other transaction directly or indirectly with or for the benefit of any
Affiliate of Jamboree LLC (including, without limitation, guaranties and
assumptions of obligations of any such Affiliate) except for (1) transactions
in the ordinary course of business, set forth in writing, on a basis no less
favorable to Jamboree LLC than would be obtained in a comparable arm's length
transaction with a person that is not an Affiliate of Jamboree LLC; provided
that any transaction or series of related transactions pursuant to which
Jamboree LLC or an Affiliate of Jamboree LLC will receive or render value
exceeding $100,000, will not be permitted unless, prior to consummation
thereof, Jamboree LLC has received an opinion of an independent financial
advisor, that such transaction or series of related transactions is on terms
that are fair, from a financial point of view, to Jamboree LLC, (2) certain
salaries and other employee compensation and benefits to officers of Jamboree
LLC or its members (3) out-of-pocket expenses of Jamboree LLC and its members
with respect to operations of Jamboree LLC and (4) any transaction required or
otherwise permitted by the Plan or the Class A Indenture or the New Management
Agreement.
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New Subsidiaries. Under the Class A Indenture,
Jamboree LLC will not be permitted to incorporate or otherwise organize any
Subsidiary after the Effective Date.
Reserve Accounts. Jamboree LLC may, from time to
time and at any time except during the continuation of an Event of Default,
withdraw amounts from the Operating Disbursement Account (as defined in the New
Management Agreement), the Approved Reserves and all other reserves or accounts
created in accordance with the New Management Agreement to pay the costs and
expenses for which such reserves and accounts were created. Jamboree LLC will
not be permitted to make any such withdrawals during the continuance of an
Event of Default without the written consent of the Class A Trustee. To the
extent that amounts then available from cash flow from operations of Jamboree
LLC, amounts in the Operating Disbursements Account, the Approved Reserves and
all other reserves or accounts created in accordance with the New Management
Agreement are not sufficient to pay such costs, Jamboree LLC will be permitted
to withdraw funds from the Existing Reserve Account except during the
continuance of an Event of Default to pay the costs of tenant improvements,
REIT Required Dividends, Debt Service, Capital Expenditures required to comply
with law and Capital Expenditures reasonably necessary (as reasonably
determined by the Board of Members of Jamboree LLC) to maintain the Property.
Event of Loss. Promptly after any Event of Loss (as
defined herein) with respect to collateral for the Class A Notes with a fair
market value (or replacement cost, if greater) equal to or less than
$1,000,000, Jamboree LLC is required to apply the Net Loss Proceeds from such
Event of Loss to the rebuilding, repair, replacement or construction of
improvements to the Property. Promptly after any Event of Loss with respect to
collateral for the Class A Notes with a fair market value (or replacement cost
if greater) in excess of $1,000,000, Jamboree LLC is required to, subject to
certain conditions, apply the Net Loss Proceeds from such Event of Loss to the
rebuilding, repair, replacement or construction of improvements to the
Property. As defined in the Class A Indenture, Event of Loss means, with
respect to any property or asset (tangible or intangible, real or personal),
any of the following: (A) any loss, destruction or damage of such property or
asset; (B) any actual condemnation, seizure or taking by exercise of the power
of eminent domain or otherwise of such property or asset, or confiscation of
such property or asset or the requisition of the use of such property or asset;
or (C) any settlement in lieu of clause (B) above.
Merger and Consolidation. Under the Class A
Indenture, Jamboree LLC may not consolidate or merge with or into (whether or
not Jamboree LLC is the surviving entity), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another person (other than the
REIT) unless, among other conditions, (a) Jamboree LLC is the surviving entity,
or the person formed by or surviving any such consolidation or merger (if other
than Jamboree LLC) or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made is a corporation organized or
existing under the laws of the United States, any state thereof or the District
of Columbia, (b) the person formed by or surviving any such consolidation or
merger (if other than Jamboree LLC), or the person to which such sale,
assignment, transfer, lease, conveyance or other disposition has been made,
assumes, pursuant to a supplemental indenture and appropriate collateral
documents in forms reasonably satisfactory to the Class A Trustee, all of the
obligations of Jamboree LLC under the operative documents with respect to the
Class A Notes, (c) immediately before and immediately after giving effect to
such transaction no Default or Event of Default exists, (d) Jamboree LLC or the
person formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or other disposition has
been made after giving pro forma effect thereto as of the end of the most
recently completed fiscal quarter has a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of Jamboree LLC immediately preceding
the transaction and (e) Jamboree LLC shall have delivered to the Class A
Trustee an officers' certificate and opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture comply with
the Class A Indenture.
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Other Covenants. The Class A Indenture will also
contain covenants requiring Jamboree LLC to maintain certain insurance on its
properties, pay taxes, provide certain financial information to the holders of
the Class A Notes, provide certain indemnities and subrogation take certain
actions to preserve its business and goodwill, not become an investment company
and forego the benefit of stay, extension and usury laws.
Events of Default and Remedies. The Class A Indenture will
define an Event of Default to have occurred whenever, among other things,
Jamboree LLC fails to make any payment in respect of principal of or premium on
the Class A Notes when the same becomes due and payable and such failure
continues for a period of 5 Business Days after the due date of such payment,
or fail to make any payment when due of interest on the Class A Notes and such
failure continues for a period of 10 days after the due date of such payment;
or certain statements made in this Disclosure Statement or the Collateral
Documents prove to contain any untrue statement of a material fact or omit to
state a material fact; or Jamboree LLC fails to perform or observe certain
terms, covenants or agreements contained in the Class A Indenture, the Plan or
the Collateral Documents, subject, in certain instances to a 30 day cure
period; or Jamboree LLC fails, after any applicable grace period, to pay any
principal of or premium, if any, or interest on the Class B Senior Subordinated
Secured Notes or any of its other Indebtedness, in an amount exceeding $200,000
(excluding the Class A Notes), when the same becomes due and payable; or any
other event occurs or condition exists under any agreement or instrument
relating to any such Indebtedness, if the effect of such event or condition is
to accelerate the maturity of such Indebtedness; or any such Indebtedness is
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
or certain events of bankruptcy, insolvency or reorganization occur with
respect to Jamboree LLC; or any final judgment or order for the payment of
money in excess of $100,000 amount is rendered against Jamboree LLC and either
enforcement proceedings have been commenced by any creditor upon such judgment
or order or 30 consecutive days shall have passed without a stay of such
judgment or order; or the Class A Indenture or the Collateral Documents, for
any reason, cease to create a valid first priority lien (except for liens
expressly permitted to be senior to the New Deed of Trust in the Class A
Indenture and the Collateral Documents) on collateral with respect to the Class
A Notes having a value in excess of $100,000; or Jamboree LLC fails to pay any
Imposition prior to delinquency or, if Jamboree LLC is prohibited by law from
paying such Imposition, Jamboree LLC fails to pay such Imposition within 180
days of Jamboree LLC's receipt of notice of such prohibition; or Jamboree LLC
shall fail to perform its obligations under the Plan.
Acceleration. If an Event of Default (other than a bankruptcy
Event of Default) occurs and is continuing, the Class A Trustee by notice to
Jamboree LLC may, or upon written notice from the holders of not less than 25%
in principal amount of the Class A Notes outstanding on the date of
determination must, or such holders by written notice to Jamboree LLC and the
Class A Trustee may, declare all the Class A Notes to be due and payable
immediately and upon such declaration, the principal of, premium, if any, and
interest on the Class A Notes will be due and payable immediately. If a
bankruptcy Event of Default occurs, such an amount will be immediately due and
payable without any declaration or other act on the part of the Class A Trustee
or any holder of Class A Notes. Holders of not less than 25% in principal
amount of the Class A Notes outstanding on the date of determination, by
written notice to the Class A Trustee, may on behalf of all of the holders of
the Class A Notes rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal, interest or premium that has
become due solely because of the acceleration) have been cured or waived. The
holders of not less than 25% in principal amount of the Class A Notes
outstanding on the date of determination by written notice to the Class A
Trustee may on behalf of the holders of all of the Class A Notes waive an
existing Default or Event of Default and its consequences under the Class A
Indenture, except a continuing Default or Event of Default in the payment of
the principal of or interest.
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Amendment, Supplement and Waiver. Under the Class A
Indenture, Jamboree LLC and the Class A Trustee may amend or supplement the
Class A Indenture, the Class A Notes and any other operative document under the
Class A Indenture without the consent of any holder of Class A Notes to cure
any ambiguity, defect or inconsistency; provide for uncertificated Class A
Notes in addition to or in place of certificated Class A Notes; provide for (i)
the assumption of Jamboree LLC's obligations to the holders of the Class A
Notes in the case of a merger or consolidation, and (ii) certain amendments to
the Collateral Documents expressly called for therein; to execute and deliver
any documents necessary or appropriate to release liens on any collateral with
respect to the Class A Indenture as permitted by the Class A Indenture; to make
any change that would provide any additional rights or benefits to the holders
of the Class A Notes or that does not materially adversely affect the legal
rights under the Class A Indenture of any holder of the Class A Notes; to
comply with requirements of the Securities and Exchange Commission in order to
effect or maintain the qualification of the Class A Indenture under the Trust
Indenture Act of 1939, as amended; or to evidence or effect the pledge of
additional or substitute collateral with respect to the Class A Indenture.
Under the Class A Indenture, Jamboree LLC and the Class A
Trustee may amend or supplement the Class A Indenture, the Class A Notes, or
any amended or supplemental Indenture with the written consent of holders of
not less than 51% in principal amount of the Class A Notes ("Required Holders")
and, subject to the rights of holders of the Class A Notes to receive payment
of principal of and interest on the Class A Notes, any existing Default or
Event of Default and its consequences or compliance with any provision of the
Class A Indenture or the Class A Notes may be waived with the consent of the
holders of not less than 25% in principal amount of the Class A Notes
outstanding on the date of determination. Jamboree LLC and the Class A Trustee
may, with the consent of holders of not less than 662/3% in principal amount of
each of the Class A Notes and the Class B Notes, respectively, outstanding on
the date of determination, directly or indirectly release liens on all or
substantially all of the collateral with respect to the Class A Indenture
except in connection with a Triggering Event. Jamboree LLC and the Class A
Trustee may, with the consent of holders of the principal amount of the Class A
Notes whose holders must consent to an amendment, supplement or waiver, reduce
such principal amount with respect to such amendment, supplement or waiver.
Without the consent of each holder of the Class Notes
affected, however, an amendment or waiver may not (with respect to any Class A
Notes held by a nonconsenting holder of the Class A Notes): reduce the
principal of or change the fixed maturity of any Class A Note or reduce the
redemption price of the Class A Notes; reduce the rate of or change the time
for payment of interest on any Class A Note; waive a Default or Event of
Default in the payment of principal of or interest on the Class A Notes (except
a rescission of acceleration of the Class A Notes by the Required Holders and a
waiver of the payment default that resulted from such acceleration); make any
Class A Note payable in money other than that stated in the Class A Notes; make
any change in certain sections of the Class A Indenture with respect to
amendments and payments of principal and interest; or waive a redemption
payment with respect to any Class A Note.
Defeasance of the Class A Indenture. Jamboree LLC will be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes when Jamboree LLC irrevocably deposits with the Class A
Trustee cash or non-callable governmental securities sufficient to pay and
discharge the Class A Notes, Jamboree LLC has delivered to the Class A Trustee
an opinion of counsel confirming that the holders of the outstanding Class A
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if the defeasance of the Class A Notes had not occurred and Jamboree LLC
meets certain other conditions set forth in the Class A Indenture.
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Release of Collateral. No Collateral will be released from
the lien and security interest created by the Collateral Documents pursuant to
the provisions of the Collateral Documents or the Class A Indenture without the
prior written consent of the Class A Trustee and the Required Holders.
2. New Class B Senior Subordinated Secured Notes.
The Class B Notes will be issued pursuant an indenture
between Jamboree LLC and Fleet National Bank, as trustee (the "Class B
Trustee"). The terms of the New Class B Senior Subordinated Secured Note
Indenture (the "Class B Indenture" substantially in the form of Exhibit D to
the Plan) are substantially identical to the terms of the Class A Indenture.
Differences between the Class B Indenture and the Class A Indenture include
differences in maturity, interest, amortization and principal amount. Also, the
Class B Notes will be subordinated to the Class A Notes.
General. The Class B Notes represent senior subordinated
secured obligations of Jamboree LLC. The Class B Notes will be in an aggregate
principal amount of $20,000,000.
Maturity, Interest and Principal. The Class B Notes will
mature on March 27, 2002. Interest will accrue on the Class B Notes at a fixed
rate equal to 3.00% above the interest rate on United States Treasury Bonds or
Notes with a maturity closest to the maturity of the Class B Notes on the
Effective Date. Interest on the Class B Notes is payable monthly in arrears on
the first day of each month, commencing on the first such date after the
Effective Date. Interest is computed on the basis of a 360-day year of twelve
30- day months. Interest only will be payable monthly in arrears until March
27, 2000; thereafter interest and principal will be payable monthly in arrears
with principal amortized on a straight-line basis, based on a 25- year
amortization. Interest will be payable, at the option of Jamboree LLC, in Class
B Notes until March 27, 2001.
Subordination. The Class B Notes are subordinated in right of
payment to the prior payment in full in cash of all existing and future Senior
Indebtedness (as defined in the Class B Indenture) when due. Senior
Indebtedness is defined in the Class B Indenture as (x) all Obligations (as
defined in the Class B Indenture) of Jamboree LLC existing to pay the principal
of, and interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization to the extent a claim for
post-filing interest is allowed in such proceedings and any excess interest due
as a result of an event of default under the Senior Indebtedness) and premiums
on, any Indebtedness of Jamboree LLC with respect to the New Class A Senior
Secured Notes and the other operative documents with respect to the New Class A
Senior Subordinated Notes, whether outstanding on the date of the Class B
Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by Jamboree LLC and (y) all amounts paid to the holders of Senior
Indebtedness or their representative under any payment that is rescinded or
otherwise required to be restored by such holders of Senior Indebtedness,
whether as a result of any proceedings in bankruptcy, reorganization or
otherwise.
No direct or indirect payment generally will be permitted to
be made by or on behalf of Jamboree LLC under the Class B Notes or any other
operative document with respect to such notes, or to acquire any Class B Notes
for cash, securities or other property, by set-off or otherwise, or to redeem,
retire, purchase, deposit moneys for defeasance of or to acquire any Class B
Notes, and no action will be permitted to be taken to accelerate or to enforce
the Class B Notes, and Jamboree LLC will not be permitted to segregate and hold
separate for the benefit of the holders of the Class B Senior Subordinated
Secured Notes any money for such payment or distribution, if (i) any of the New
Senior Indebtedness is not paid in cash when due or defeased or (ii) any other
default on the Senior Indebtedness occurs, unless, in either case, (x) the
default has been cured or waived or (y) such Senior Indebtedness as is then due
has been paid in full in cash or defeased. Jamboree LLC may, however, make any
such direct or indirect payment or take such other action under the Class B
Notes or any other operative document with respect to such notes without
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regard to the foregoing if Jamboree LLC and the Class B Trustee receive prior
written consent of all of the holders of the Senior Indebtedness. Also, the
holders of the Class B Notes may receive shares of stock and debt securities
that are subordinated to the Senior Indebtedness to at least the same extent as
the Class B Notes are subordinate to the Senior Indebtedness and pursuant to
the same or more stringent terms. In the event that Jamboree LLC makes any
payment to the Class B Trustee pursuant to the Class B Notes after defeasance
of the Senior Indebtedness but prior to a date that is 100 days after such
defeasance ("Preference Expiration Date"), such payment shall be held by the
Class B Trustee, in trust for the benefit of the holders of the Senior
Indebtedness and such payment shall promptly be paid over to such holders or
their representatives upon the filing of a petition in bankruptcy or, if no
such petition is filed prior to the Preference Expiration Date, such payment
shall be released to the benefit of the holders of the New Class B Senior
Subordinate Secured Notes; Jamboree LLC, however, will not be permitted to make
any payment to the holders of the Class B Notes after the Senior Indebtedness
is defeased and prior to the Preference Expiration Date.
3. Security for the New Notes.
The payment of the principal and interest on the New Notes
will be secured by substantially all the property of Jamboree LLC pursuant to
the Collateral Documents described below. IBJ Schroder Bank & Trust Company
will act as Collateral Agent under those Collateral Documents. The Collateral
Documents include the following:
a. Amended and Restated Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing (the "New Deed of Trust")
attached as Exhibit B to the Class A Indenture and as Exhibit G to the
Plan to be executed by Jamboree LLC to IBJ Schroder Bank & Trust
Company, as collateral agent (the "Collateral Agent") for the benefit
of the holders of the New Notes, securing the payment in full of all
amounts created and evidenced by the New Notes and the performance of
all obligations under the Collateral Documents. The New Deed of Trust
will encumber the Property and all fixtures and personal property
located on it. The New Deed of Trust will have the same priority as
the Existing Deed of Trust and will be subject to "Existing
Encumbrances." Existing Encumbrances will include all valid liens and
encumbrances that were of record on the date the Existing Deed of
Trust was recorded.
b. Security Agreement attached as Exhibit G to the Class A
Indenture to be executed by Jamboree LLC and the Collateral Agent, for
the benefit of holders of the New Notes, securing the payment in full
of all amounts created and evidenced by the New Notes and the
performance of all obligations under the Collateral Documents. The
Security Agreement will grant a first priority security interest in
all personal property of Jamboree LLC and the security interest
granted thereunder will be perfected with the filing of a UCC-1
Financing Statement with the California Secretary of State's office.
c. Amended and Restated Assignment of Rents, Leases, Income
and Profits attached to as Exhibit C to the Class A Indenture whereby
Jamboree LLC will assign all leases affecting the Property, and all
rents and income derived from them, to the Collateral Agent, for the
benefit of the holders of the New Notes. The holders of the New Notes
will grant Jamboree LLC a license to continue collecting rents so long
as no Event of Default has occurred. Upon an Event of Default, the
holders of the New Notes will have the right to revoke such license
and collect the rents.
d. Pledge and Security Agreement attached as Exhibit E to the
Class A Indenture to be executed by Reorganized CWOP to Collateral
Agent for the benefit of the holders of the New Notes. Reorganized
CWOP will pledge its Jamboree LLC Units as security for the payment in
full of all
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amounts created and evidenced by the New Notes and the performance of
all obligations under the Collateral Documents.
e. Collateral Agency Agreement attached as Exhibit I to the
Class A Indenture to be executed by and between Jamboree LLC, the
Collateral Agent and Fleet Financial Group, Inc., appointing the
Collateral Agent as collateral agent for the holders of the New Notes
under the Class A Indenture and the Class B Indenture and the
Collateral Documents and setting forth the rights and obligations of
the Collateral Agent in such capacity.
f. Assignment of Deed of Trust, Financing Statement and
Security Agreement (with Assignment of Rents and Leases) to be
executed by the Servicing Agent or CWOP Note Administrator L.L.C.,
assigning all of its right, title and interest under the Existing Deed
of Trust and the existing Assignment of Rents and Leases to the
Collateral Agent.
g. Assignment of Contracts attached as Exhibit D to the Class
A Indenture to be executed by CWOP, assigning all of its right, title
and interest under various agreements affecting the Property to
Jamboree LLC.
h. Reserve Account Agreement attached as Exhibit F to the
Class A Indenture to be executed by and between Jamboree LLC, the
Collateral Agent and a third party depositary, establishing a reserve
account and setting forth the type of investments permitted to be made
by Jamboree LLC from such reserve account.
4. New Notes Registration Rights Agreements.
Because such entities may be considered "underwriters" and
therefore not entitled to an exemption for the resale of the New Notes (see
Section VIII.B), certain named persons, and any person or entity that receives
or is the transferee from the named persons of 10% or more of the aggregate
face amount of the New Notes (with respect to each type of Note) distributed
under the Plan and any such person's affiliates (the "Restricted Note Holders")
will receive the benefit of registration rights agreements (the "New Notes
Registration Rights Agreements"). The New Class A Registration Rights Agreement
is substantially in the form of Exhibit J to the Plan, and the New Class B
Registration Rights Agreement is substantially in the form of Exhibit K to the
Pleadings. The New Notes Registration Rights Agreements will provide, among
other things, and subject to the conditions provided therein, that (a) any
Restricted Note Holder, with the written consent of the Restricted Holders of
at least 40% of then unregistered Class A Notes or Class B Notes, as the case
may be, held by Restricted Note Holders of such notes, respectively, that have
not then been registered or become eligible for sale under SEC Rule 144, may
serve a request on Jamboree LLC requesting it to prepare a registration
statement for the Class A Notes or Class B Notes, as the case may be, and to
use its best efforts to cause such registration statement for such notes to
become effective within 90 days (or 180 days if it is the first registration)
of the date of the demand notice and (b) if, after the Effective Date, Jamboree
LLC proposes to register (with certain exceptions), Restricted Note Holders
will be able to include their Class A Notes or Class B Notes in such
registration, subject to certain limitations, in the event that Jamboree LLC's
underwriter advises it that the inclusion of such Notes in an underwritten
public offering is impracticable. The rights of the Restricted Note Holders
under the New Notes Registration Rights Agreements will be subject to customary
provisions regarding share limitations, suspension of registration rights,
payment of expenses and indemnification. In addition, the New Notes
Registration Rights Agreements will provide blackout periods with respect to
certain registrations made under the New Equity Registration Rights Agreement,
and, with respect to the New Class B Notes Registration Rights Agreement, under
the New Class A Notes Registration Rights Agreement.
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E. PROPERTY APPRECIATION RIGHTS AND EXCHANGE RIGHT.
The New Property Appreciation and Exchange Rights Agreement,
substantially in the form of Exhibit F to the Plan, provides for the issuance
of the New Property Appreciation Rights to Reorganized CWOP and provides for
the exchange of Reorganized CWOP's Jamboree LLC Units for Jamboree Office REIT
Shares. The New Property Appreciation Rights will be exercisable at any time
until the earlier of (i) the close of business on March 27, 2002, and (ii) any
change in control of Jamboree Office REIT occurring after March 27, 2000;
provided that the Reorganized CWOP may not exchange its Jamboree LLC Units for
Jamboree Office REIT Shares for one year after the Effective Date except in
certain circumstances.
In general, the New Tranche A Property Appreciation Right
grants Reorganized CWOP the right to exchange each of its Jamboree LLC Units
for one Jamboree Office REIT Share.
The New Tranche B Property Appreciation Right grants to
Reorganized CWOP a right to purchase for $10,888,888.89 a number of Jamboree
Office REIT Shares (the "Tranche B Shares") representing 10% (subject to
dilution) of the equity value of Jamboree LLC or, at the option of Jamboree
Office REIT, to receive a net cash payment equal to the difference between the
then current market value of the Tranche B Shares (assuming the exercise of all
such rights and all other rights under the New Property Appreciation and
Exchange Rights Agreement concurrently exercised) and such exercise price. The
New Tranche B Property Appreciation Right is exercisable at any time during the
exercise period described above that the fair market value of the outstanding
Jamboree Office REIT Shares equals or exceeds a dollar amount that, when
divided by Jamboree Office REIT's percentage equity interest in Jamboree LLC,
equals $98 million.
In addition, the New Tranche C Property Appreciation Right
grants to Reorganized CWOP a right to purchase for $152,777,777.78 a number of
Jamboree Office REIT Shares (the "Tranche C Shares") representing 55% (subject
to dilution) of the equity value of Jamboree LLC or, at the option of Jamboree
Office REIT, to receive a net cash payment equal to the difference between the
then current market value of the Tranche C Shares (assuming the exercise of all
such rights and all other rights under the New Property Appreciation and
Exchange Rights Agreement concurrently exercised) and such exercise price. The
New Tranche C Property Appreciation Right is exercisable at any time during the
exercise period described above that the fair market value of the outstanding
Jamboree Office REIT Shares equals or exceeds a dollar amount that, when
divided by Jamboree Office REIT's percentage equity interest in Jamboree LLC,
equals $125 million.
Reorganized CWOP may elect to exercise either of the New
Tranche B and Tranche C Property Appreciation Rights on a net issue or
"cashless basis" by surrendering a portion of the Tranche B Shares or Tranche C
Shares, as the case may be, in payment of the applicable exercise price. In any
event, the amount of the payment to be made or shares issued on account of the
New Property Appreciation Rights will be adjusted upon the occurrence of
certain events at set forth in the New Property Appreciation and Exchange
Rights Agreement and will be determined on a fully diluted basis giving effect
to the exercise of rights under the New Property Appreciation and Exchange
Rights Agreement, whichever one or more has been exercised at such time, and
such other outstanding options, warrants or other rights to purchase Jamboree
Office REIT shares as deemed appropriate by the appraiser.
To determine the fair market value of the Jamboree Office
REIT Shares for the purpose of the New Property Appreciation Rights, Jamboree
Office REIT will obtain an appraisal. If Reorganized CWOP 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 an appraiser to perform a third
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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.
If, after Reorganized CWOP exercises a Property Appreciation
Right, Jamboree Office REIT elects to declare a dividend of any cash paid upon
the exercise of the New Property Appreciation Rights, then the dividend will be
distributed to shareholders of Jamboree Office REIT based on their ownership
interests after giving effect to the exercise of the applicable right. In the
event that Reorganized CWOP has not exercised the New Tranche A Property
Appreciation Right at the time of exercise of the New Tranche B or the New
Tranche C Property Appreciation Right, the exercise price for the shares will
be reduced by 10%.
Each of the Property Appreciation Rights must be exercised in
whole by Reorganized CWOP. Reorganized CWOP's rights under the New Property
Appreciation and Exchange Rights Agreement are nontransferable except to an
affiliate of the Debtor. The Jamboree Office REIT Shares received by
Reorganized CWOP upon exchange or exercise of the New Property Appreciation
Rights will be "Registerable Securities" under the New Equity Registration
Rights Agreement.
F. FUTURE OPERATIONS, NEW MANAGEMENT AGREEMENT.
After the Effective Date, Jamboree LLC will retain WCM to
lease existing vacant space in the Property, as well as to re-lease space that
currently is leased but will become vacant prior to the maturity of the New
Notes. Jamboree LLC will continue to operate and manage the Property in a
manner similar to that in which it currently is operated and managed, and to
maintain the Property in a condition consistent with other Class A office
buildings in the Irvine area.
The Property will be managed and leased by pursuant to the
New Management and Leasing Agreement (the "New Management Agreement") to be
entered into as of the Effective Date by and between Jamboree LLC and WCM and
substantially in the form of Exhibit I to the Plan. WCM is 99% owned by WCI and
had contracted with CWOP prior to the Reorganization Case to manage the
Property pursuant to an agreement similar to the New Management Agreement. (WCM
subsequently assigned its duties under the prior management agreement to its
affiliate, Winthrop Management. Section III.A.4) Unless terminated earlier for
cause by Jamboree LLC or WCM, the New Management Agreement will expire by its
terms on the earlier of the fifth anniversary of the Petition Date or the sale
of the Property.
The New Management Agreement will require WCM to manage and
lease the Property in accordance with annual operating and capital expense
budgets submitted to and approved by Jamboree LLC (collectively, the "Approved
Budgets"). The costs of managing and leasing the Property that are identified
in the Approved Budgets will be paid from an operating account maintained by
WCM for Jamboree LLC. The Approved Budgets will describe expenses for, among
other things, the on-site personnel required to manage the Property, the
necessary repairs and maintenance of the Property and its appurtenances and the
anticipated improvements to the Property. The New Management Agreement will
also require WCM to, among other things, supervise construction activities
undertaken at the Property, prepare and maintain certain financial records and
reports related to the Property and its management, maintain specified levels
of insurance coverage related to the performance of WCM's duties and seek and
obtain Jamboree LLC's prior consent to any third-party leases not meeting
certain predetermined criteria set forth in the New Management Agreement.
As set forth in more detail below, in consideration of the
performance of its duties under the New Management Agreement, WCM will receive
(a) a management fee equal to the sum of two percent (2%) of the Gross Revenues
(as defined in the New Management Agreement) generated by the operation of the
Property; (b) certain incentive fees based on reductions it is able to achieve,
if any, in certain operating and
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other expenses; and (c) leasing commission payments, consistent with prevailing
market rates, for all third-party leases it procures for the Property.
The following is a summary of the economic differences
between the New Management Agreement, and the agreement between WCM and CWOP
for the management and leasing of the Property prior to the commencement of the
case (the "Prior Agreement").
Management Fee: Under the Prior Agreement, WCM was entitled
to a management fee equal to the sum of a) 5% of gross revenues attributable to
the Fluor lease, plus b) out of pocket and on-site personnel costs as are
payable as management reimbursement under the Fluor lease, plus c) 4% of gross
revenue attributable to space released from the Fluor lease, plus d) other out
of pocket and on-site personnel costs more fully described in the Prior
Agreement. Under the New Management Agreement, WCM is entitled to a) a base
management fee equal to 2% of gross revenues generated by the Property, plus b)
an incentive fee equal to 50% of the positive difference (if any) between
actual Operating Expenses for calendar year 1996 and actual Operating Expenses
incurred in any subsequent calendar year; provided that in no event may the
incentive fee exceed 2% of gross revenues generated by the Property during the
year in question. "Operating Expenses include all of the items on the 1996
audited financial statements (see Exhibit 2) other than management fees, real
estate taxes and nonrecurring expenses in the amount of $649,402. A schedule
setting forth the calculation of the 1996 Operating Expenses will be attached
as Schedule 6 to the New Management Agreement.
Reimbursements: Under the Prior Agreement, WCM was not
entitled to reimbursement for the costs of general accounting and reporting
services. Under the New Management Agreement, WCM is entitled to reimbursement
for the costs of such services, provided the services are performed by on-site
personnel and only to the extent such costs may be passed through to tenants.
For 1997, WCM believes approximately $70,000 will be passed through to tenants
for the onsite accountant. Under the New Management Agreement, WCM is entitled
to reimbursement for the costs and expenses of any accountant retained in
connection with Jamboree LLC's dispute of WCM's calculation of its incentive
fee. There was no provision for the retention of such an accountant in the
Prior Agreement.
Leasing Commissions: Under the Prior Agreement, WCM was
entitled to a leasing commission at market rates as agreed by WCM and CWOP from
time to time. For each lease for which no other broker was a procuring cause,
WCM was entitled to 100% of such commission. If another broker was a procuring
cause, WCM was entitled to 50% of such commission. Under the New Management
Agreement, WCM is entitled to a leasing commission calculated in accordance
with a leasing commission (Schedule 2) attached to the agreement. The
percentage of such commission to which WCM is entitled depending on the
involvement of other brokers is identical to the Prior Agreement.
Construction Services Fee: Under the Prior Agreement, WCM was
entitled to a construction management fee equal to 10% of all soft and hard
costs of any work performed to prepare tenant space for occupancy. Under the
New Management Agreement, there is no construction management fee.
Subordination of Fee: Under the Prior Agreement, WCM was
required to use revenue from the Property to pay, in full, amounts due all
third party creditors of Property prior to paying any amounts due WCM. Under
the New Management Agreement, WCM is entitled to use such revenue to pay such
amounts due creditors and amounts due WCM on a pro rata basis.
Audit: Under the Prior Agreement, if an audit by CWOP of the
books, records and files which WCM maintained for CWOP revealed an error or
discrepancy of more than $200,000, WCM was required to pay the first $10,000 of
the cost of the audit. Under the New Management Agreement, if any
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such audit reveals error or discrepancies in excess of 4% of the amount
audited, WCM is required to pay the entire cost of the audit.
Leasing Parameters: Under the Prior Agreement, all leases
were subject to CWOP's approval prior to submission to a proposed tenant for
execution. In addition, WCM was required to notify CWOP of all leasing
meetings, discussions and negotiations to allow for CWOP's participation in
such meetings. Under the New Management Agreement, WCM is required to use a
standard lease, the form of which will be attached to the agreement and may,
without the prior approval of Jamboree LLC, execute, on behalf of Jamboree LLC,
the following leases (or amendments and renewals thereof):
1) leases covering 5,000 square feet or less that are
reasonably consistent with then current market terms. If any such lease
provides for tenant improvements in a certain dollar amount per foot (subject
to increase as set forth in the agreement), it must have a term in excess of 3
years; and
2) leases covering more than 5,000 square feet but less than
25,000 on terms within the leasing parameters set forth on Schedule 1 attached
to the agreement.
All other leases are subject to Jamboree LLC's approval prior
to execution by WCM on behalf of Jamboree LLC.
The New Management Agreement will contain the following
Exhibits and Schedules: Exhibit A - the legal description of the Property;
Exhibit B - the form of Approved Budget; Exhibit C - the form of monthly
reports; Exhibit D - a form of Statement of Income and Expenses and Balance
Sheet; Exhibit E - the Standard Lease; Schedule 1 - a schedule of pre-approved
leasing parameters; Schedule 2 - a schedule of leasing commissions; Schedule 3
- - schedule of existing contracts with affiliates; Schedule 4 - the owner's
Designated Representatives; and Schedule 5 - a summary of pre-reorganization
insurance coverage; Schedule 6 - operating expense calculation. The Exhibits
and Schedules that are not attached will be completed prior to execution of the
New Management Agreement. Schedule 1 (pre-approved leasing parameters) and
Exhibit E (form of standard lease) will be provided to the Successor Servicing
Agreement but not filed with the Court because of the confidential and
competitively sensitive nature of the information contained in those documents.
G. REORGANIZED CWOP.
After the Effective Date, the sole assets of Reorganized CWOP
will be an initial 10% of the Jamboree LLC Units and its rights under the New
Property Appreciation and Exchange Rights Agreement. The CWOP Partnership
Agreement will be amended by a fourth amendment, which is attached to the Plan
as Exhibit E (as amended, the "New CWOP Partnership Agreement"). The fourth
amendment amends the CWOP partnership agreement to take into account the fact
that CWOP no longer owns the Property and to add certain provisions designed to
specially allocate the burden of any Excess Shares designation resulting from a
violation of the ownership limitations for Jamboree Office REIT to the person
whose holding causes such designation.
The fourth amendment assumes that Crow has been converted to
a limited partner in accordance with the terms of Section 4.1(f) of the
existing CWOP partnership agreement, and that a third amendment has been
executed to document that conversion. If for any reason the proposed third
amendment is not executed prior to the Effective Date, the fourth amendment
will be renumbered and modified accordingly. Neither the fourth amendment nor
the Plan have the effect of converting Crow to a limited partner or CWOP to a
limited partnership.
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VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
A. INTRODUCTION.
The implementation of the Plan may have federal, state and
local tax consequences to CWOP and CWOP's creditors and partners. No tax
opinion has been sought or will be obtained with respect to any tax
consequences of the Plan. This Disclosure Statement does not constitute and is
not intended to constitute either a tax opinion or tax advice to any person,
and the summary contained herein is provided for informational purposes only.
The discussion below summarizes only certain of the federal
income tax consequences associated with the Plan's implementation. This
discussion does not attempt to comment on all aspects of the federal income tax
consequences associated with the Plan, nor does it attempt to consider various
facts or limitations applicable to any particular creditor or partner that may
modify or alter the consequences described herein. This discussion does not
address state, local or foreign tax consequences or the consequences of any
federal tax other than the federal income tax.
The following discussion is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
regulations promulgated thereunder, existing judicial decisions and
administrative rulings. In light of the numerous recent amendments to the
Internal Revenue Code, no assurance can be given that legislative, judicial or
administrative changes will not be forthcoming that would affect the accuracy
of the discussion below. Any such changes could be material and could be
retroactive with respect to transactions entered into or completed prior to the
enactment or promulgation thereof. The tax consequences of certain aspects of
the Plan are uncertain due to the lack of applicable legal authority and may be
subject to judicial or administrative interpretations that differ from the
discussion below.
Tax legislation has been introduced in Congress which, if
enacted, would fundamentally alter the basic scheme of federal taxation by
replacing the federal income tax with a national retail sales tax or a form of
value added tax. Other proposed tax legislation would transform the current
graduated-rate federal income tax into an income-based flat tax. Insofar as the
discussion below addresses income tax consequences in 1997 and/or subsequent
years, such discussion may be completely invalidated if tax reform is enacted.
CREDITORS AND PARTNERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM AND TO CWOP OF THE
TRANSACTIONS CONTEMPLATED BY THE PLAN.
B. FEDERAL INCOME TAX CONSEQUENCES TO CWOP.
1. General.
Recently issued Treasury Regulations (the "Check-the-Box
Regulations") permit most unincorporated business entities to elect whether to
be taxed as partnerships or corporations for federal income tax purposes
without regard to the prior regulations' four-factor classification test. Under
the Check-the-Box Regulations most multi-member unincorporated domestic
entities will default to partnership classification without the need to make an
election. CWOP intends to take such steps as may be necessary to ensure its
classification as a partnership for federal income tax purposes. If CWOP is
classified as a partnership for federal income tax purposes, CWOP is not itself
a tax-paying entity but instead passes through to its partners all of CWOP's
items of income, gain, loss, deduction and credit for each taxable year. CWOP's
partners take into account on their own federal income tax returns their
distributive share of such items of income, gain, loss, deduction and credit
whether or not cash distributions with respect to such items are made to the
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partners. If a CWOP partner is itself a partnership for federal income tax
purposes, such partnership passes through to its partners their distributive
share of items of income, gain, loss, deduction and credit.
2. Reduction Of CWOP's Indebtedness.
As a result of the Plan's implementation, the amount of
CWOP's aggregate outstanding indebtedness will be reduced substantially. (The
amount of discharged indebtedness for federal income tax purposes will be
referred to herein as a "Debt Discharge Amount.") In general, the Internal
Revenue Code provides that a taxpayer who realizes a discharge of indebtedness
must include the Debt Discharge Amount in its gross income in the taxable year
of discharge to the extent that the Debt Discharge Amount exceeds any
consideration given for such discharge. No income from the discharge of
indebtedness is realized to the extent that payment of the liability being
discharged would have given rise to a deduction.
The Internal Revenue Code establishes certain exceptions to
the general rule that a taxpayer who realizes a Debt Discharge Amount must
include such amount in his income. In the case of a partnership such as CWOP,
these exceptions apply at the partner level rather than the partnership level.
If a partner of a debtor partnership is itself a partnership, the exceptions
apply at the partner level of such higher-tier partnership, assuming such
partner is not another partnership (in which case the cycle is repeated).
A CWOP partner (other than another partnership, as discussed
above) may be able to exclude from income such partner's distributive share of
CWOP's Debt Discharge Amount if the partner is in a title 11 case or is
insolvent. Further, a partner who is an individual or an S corporation may be
able to exclude from income all or a portion of its distributive share of
CWOP's Debt Discharge Amount by making an election described in Internal
Revenue Code section 108(c) relating to "qualified real property business
indebtedness." The ability of any CWOP partner (or higher-tier partner, as
applicable) to qualify for any exception to the general rule of recognition of
a Debt Discharge Amount will turn, in large part, on such partner's particular
tax circumstances, including in certain cases such partner's timely filing of
an election with the Internal Revenue Service. Consequently, CWOP is unable to
express any view with respect to whether any partner of CWOP will qualify under
any of the foregoing exceptions to the recognition of CWOP's Debt Discharge
Amount.
The exclusion of debt-discharge income with respect to a
bankrupt or insolvent taxpayer triggers the reduction of various tax attributes
of the taxpayer, including a reduction in the basis of the taxpayer's property.
The tax attributes that must be reduced and the order of their reduction are
specified in Code section 108(b)(2). Notably, the insolvency exception for
nonbankrupt taxpayers is limited to the extent of the taxpayer's insolvency
before the discharge. The gross income exclusion for qualified real property
business indebtedness, on the other hand, requires an election by the taxpayer
to reduce the basis of its depreciable real property under the rules of Code
section 1017 rather than include the debt-discharge amount in income. In either
case, all or a portion of any reduction in the basis of property pursuant to an
exclusion of debt-discharge income may be recaptured as ordinary income upon
disposition of the property. As discussed in Section VII.E, below, the
allocation of items of Jamboree LLC income, gain, loss and deduction with
respect to certain items of property may be governed by Internal Revenue Code
section 704(c).
3. Constructive Distribution Of Money Under Internal Revenue
Code Section 752.
Under Internal Revenue Code section 752, a decrease in a
partner's share of a partnership's liabilities is treated as a distribution of
money by the partnership to the partner. Such a constructive distribution
generally triggers the recognition of gain by a partner to the extent the
amount so constructively distributed exceeds the partner's adjusted basis in
his partnership interest. For this purpose, the partner's
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adjusted basis will ordinarily include the amount of the increase in basis due
to the allocation to the partner of its distributive share of any Debt
Discharge Amount.
Partners of CWOP are expected to experience a reduction in
their share of the liabilities of CWOP as a result of Plan transactions.
Whether any such reduction will trigger the recognition of income by any
particular partner is dependent upon such partner's adjusted basis in its
partnership interest, as such basis may be increased by such partner's
distributive share of CWOP's Debt Discharge Amount.
C. FEDERAL INCOME TAX CONSEQUENCES TO CREDITORS.
The federal income tax consequences of the Plan's
implementation to a creditor will depend on the type of consideration received
by the creditor in exchange for its Claim, whether the creditor reports income
on the cash or accrual method, whether the creditor receives consideration in
more than one tax year of the creditor, and whether all the consideration
received by the creditor is deemed to be received by that creditor in an
integrated transaction.
1. Constructive or Deemed Exchange of Old Debt Instrument For
New Debt Instrument.
A modification of the terms of indebtedness can result in a
constructive or deemed exchange of the new modified debt for the old unmodified
debt. If a constructive or deemed exchange occurs, a creditor may realize and
recognize a gain or loss. Under Internal Revenue Code section 1001, the gain or
loss from an exchange of property is determined by reference to the amount
realized by the creditor from the exchange and the creditor's adjusted tax
basis in the property as determined under Internal Revenue Code section 1001.
For this purpose, the amount realized by the creditor likely is the "issue
price" of the new modified debt instrument as determined under the Internal
Revenue Code's original issue discount provisions.
Under newly-finalized Treasury Regulations, a constructive or
deemed exchange occurs with respect to a debt instrument if the alteration of
the terms of indebtedness constitutes a "significant modification" as defined
in the Regulations. The Regulations' approach is to establish specific rules
for determining the significance of certain types of modifications and to
provide a general rule for dealing with modifications not otherwise addressed.
The general rule broadly provides that a modification is a significant
modification only if, based on all facts and circumstances, the legal rights or
obligations that are altered and the degree to which they are altered is
economically significant. The specific rules deal with (1) a change in yield,
(2) a change in the timing of payments, (3) a change in the identity of the
obligor or the security for the debt, (4) certain changes in the nature of the
debt and (5) a change in accounting or financial covenants.
A full and complete discussion of these specific rules is
beyond the scope of this Disclosure Statement. What follows is an overview of
certain specific rules. Creditors and other parties in interest should consult
their own tax advisors with respect to the application of the Treasury
Regulations' debt modification rules to the treatment of their Claims under the
Plan.
Change in Yield. A change in yield is a significant
modification if the new yield (determined under rules promulgated in the
Treasury Regulations) varies from the annual yield on the unmodified debt
(determined as of the date of modification) by more than the greater of (i)
one-fourth of one percent (25 basis points) or (ii) 5 percent of the annual
yield of the unmodified debt.
Changes in Timing of Payments. A modification that changes
the timing of one or more payments due under the terms of the debt is a
significant modification if it "results in the material deferral of scheduled
payments." The Regulations establish a safe harbor whereby the deferral of one
or more scheduled
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payments is not a material deferral if the deferred payments are
unconditionally payable no later than at the end of the safe harbor period. The
safe harbor period begins on the original due date of the first scheduled
payment that is deferred and extends for a period equal to the lesser of five
years or 50 percent of the original term of the debt.
Change in Obligor or Security. The substitution of a new
obligor on a recourse debt generally is a significant modification. For this
purpose, the filing of a bankruptcy petition in and of itself does not result
in the substitution of a new obligor. A modification that releases,
substitutes, adds or otherwise alters the collateral for, a guarantee on, or
other form of credit enhancement for a recourse debt is a significant
modification if the modification results in a change in payment expectations. A
change in the priority of debt relative to other debt of the borrower is a
significant modification if it results in a change of payment expectations. The
substitution of a new obligor on a nonrecourse debt instrument generally is not
a significant modification.
Changes in the Nature of a Debt Instrument. A modification in
the terms of a claim that results in an instrument or property right that is
not debt for federal income tax purposes is a significant modification. For
this purpose, any deterioration in the financial condition of the obligor
between the issue date of the debt and the modification date generally is not
taken into account.
Accounting and Financial Covenants. A modification that adds,
deletes or alters customary accounting or financial covenants is not a
significant modification.
A modification described above that is effective only upon
the occurrence of a substantial contingency or that is effective on a deferred
basis is tested under the general rule rather than the specific rules.
Modifications occurring pursuant to a plan of reorganization
generally are treated as occurring on the effective date of the plan.
The new final Treasury Regulations apply to any alteration of
the terms of debt occurring on or after September 24, 1996. Taxpayers, however,
may rely on these Regulations for alterations of debt occurring after December
2, 1992 and before September 24, 1996.
2. Tax Basis And Holding Period Of Items Received.
Generally, the aggregate tax basis in the items of property
(other than cash) received by a creditor in an actual or deemed exchange will
equal the amount realized in respect of such property items (other than amounts
allocable to any accrued interest). The holding period for property items
received in the exchange will begin on the day following the exchange.
3. Withholding.
Jamboree LLC or a disbursing agent will withhold any amounts
required by law from payments made to creditors. This may require payments by
certain creditors of the required withholding tax on any non-cash consideration
issuable under the Plan. In addition, creditors may be required to provide
general tax information to Jamboree LLC or a disbursing agent.
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D. FEDERAL INCOME TAXATION OF JAMBOREE OFFICE REIT.
Jamboree Office REIT will elect to be taxed as a REIT under
Internal Revenue Code sections 856 through 860 and the applicable Treasury
Regulations (the "REIT Requirements" or the "REIT Provisions"), which are the
requirements for qualifying as a REIT. As long as Jamboree Office REIT
qualifies for taxation as a REIT, it generally will not be subject to federal
corporate income taxes on that portion of its ordinary income or capital gain
that is distributed to shareholders. Such treatment substantially eliminates
the federal "double taxation" on earnings that generally results from
investment in a corporation. Jamboree Office REIT intends to operate in such a
manner as to qualify for taxation as a REIT under the Internal Revenue Code,
but no assurance can be given that it will operate in a manner so as to qualify
or remain qualified. Qualification as a REIT involves the application of highly
technical and complex Internal Revenue Code provisions for which there are only
limited judicial or administrative interpretations. The determination of
various factual matters and circumstances not entirely within Jamboree Office
REIT's control may affect its ability to qualify as a REIT. In addition, no
assurance can be given that legislation, new regulations, administrative
interpretations, or court decisions will not significantly change the tax laws
with respect to the qualification as a REIT or the federal income tax
consequences of such qualification; however, Jamboree Office REIT is not aware
of any proposal in Congress to amend the tax laws that would materially and
adversely affect Jamboree Office REIT's ability to operate as a REIT. The REIT
Requirements are highly technical and complex. The following discussion sets
forth only certain material aspects of those requirements. This summary is
qualified in its entirety by the applicable Internal Revenue Code provisions,
rules and regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
Even if Jamboree Office REIT qualifies for taxation as a REIT
under the REIT Provisions, Jamboree Office REIT may be subject to federal
income and excise tax as follows:
First, Jamboree Office REIT will be taxed at regular
corporate income tax rates on any undistributed REIT taxable income,
including undistributed net capital gains.
Second, under certain circumstances, Jamboree Office
REIT may be subject to the "alternative minimum tax" on certain of its
items of tax preferences, if any.
Third, if Jamboree Office REIT has (i) net income
from the sale or other disposition of "foreclosure property" that is
held primarily for sale to customers in the ordinary course of
business or (ii) other nonqualifying net income from foreclosure
property, it will be subject to tax at the highest corporate rate on
such income.
Fourth, if Jamboree Office REIT has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the
ordinary course of business, other than sales of foreclosure
property), such income will be subject to a 100% tax.
Fifth, if Jamboree Office REIT should fail to
satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualifications as
a REIT because certain other requirements have been met, it will be
subject to a 100% tax on the net income attributable to the greater of
the amount by which Jamboree Office REIT fails the 75% or 95% test,
multiplied by a fraction intended to reflect Jamboree Office REIT's
profitability.
Sixth, if Jamboree Office REIT should fail to
distribute, or fail to be treated as having distributed, with respect
to each calendar year, at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any
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undistributed taxable income from prior periods, Jamboree Office REIT
would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Jamboree Office REIT does not now intend to acquire
any appreciated assets from a corporation generally subject to full
corporate-level tax in a transaction in which its basis in assets would carry
over from the transferor. However, in the event of such an acquisition,
Jamboree Office REIT could, under certain circumstances, be subject to tax upon
disposition of such assets. (Under certain proposals made by the Clinton
Administration, such tax could be imposed upon acquisition of such assets.)
1. REIT Organizational Requirements.
The Internal Revenue Code defines a REIT as a corporation,
trust, or association (a) that is managed by one or more trustees or directors;
(b) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (c) that would be taxable
as a domestic corporation, but for the REIT Requirements; (d) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Internal Revenue Code; (e) the beneficial ownership of which is held by 100
or more persons; (f) not more than 50% in value of the outstanding stock of
which is owned, directly or indirectly, by five or fewer individuals (as
defined in the Internal Revenue Code to include certain entities) at any time
during the last half of each taxable year; and (g) meets certain other tests,
described below, regarding the nature of its income and assets. The Internal
Revenue Code provides that conditions (a) through (d), inclusive, must be met
during the entire taxable year and that condition (e) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. For purposes of condition (f),
pension funds and certain other tax-exempt entities are generally treated as
individuals. Effective for taxable years beginning after December 31, 1993, a
pension trust that qualifies under section 401(a) of the Internal Revenue Code
generally will not be treated as an individual for these purposes; instead the
beneficiaries of the pension trust will be treated as holding shares of the
REIT in proportion to their actuarial interests in the pension trust.
Conditions (e) and (f) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT. The holders of the Allowed
Certificateholder Claims believe that it will issue sufficient Jamboree Office
REIT Shares pursuant to the Plan to allow it to continue to satisfy conditions
(e) and (f) above. In addition, a corporation may not elect to become a REIT
unless its taxable year is the calendar year. Jamboree Office REIT satisfies
this requirement.
Regulations promulgated under Internal Revenue Code section
856 provide that if a REIT invests in a partnership, notwithstanding the
allocation provisions set forth in the partnership agreement, for purposes of
determining whether the REIT qualifies under the various REIT Requirements, the
REIT will be deemed to own its "proportionate share" of each of the assets of
the partnership, and will be deemed to be entitled to the income of the
partnership attributable to such proportionate share. Consequently, in order
for Jamboree Office REIT to remain qualified as a REIT, Jamboree LLC must
comply with the income and asset requirements of a REIT. Accordingly, the New
LLC Agreement will contain provisions to ensure Jamboree LLC's continued
compliance with the REIT Requirements.
2. Income Tests.
In order to maintain qualification as a REIT, Jamboree Office
REIT must satisfy annually three gross income requirements. First, at least 75%
of Jamboree Office REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived, directly or indirectly,
from investments relating to real property or mortgages on real property (as
interest on obligations secured by mortgages, "rents from real property" or as
gain on the sale or exchange of such property), from certain types of temporary
investments or from certain other types of gross income. Second, at least 95%
of Jamboree
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Office REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments as aforesaid and from dividends, interest, and gain from the sale
or other disposition of stock or securities and certain other types of gross
income (or from any combination of the foregoing). Third, short-term gain from
the sale or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) generally must represent less than 30% of Jamboree Office
REIT's gross income (including gross income from prohibited transactions) for
each taxable year. For purposes of applying the 30% gross income test, the
holding period of properties acquired by Jamboree LLC in the formation
transaction will be deemed to have commenced on the date of acquisition.
Rents received or deemed to be received by Jamboree Office
REIT will qualify as "rents from real property" in satisfying the gross income
requirements for a REIT described above only if certain conditions are met.
First, the amount of rent must not be based in whole or in part on the income
or profits of any person. However, an amount received or accrued generally will
not be excluded from the term "rents from real property" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. Second,
the Internal Revenue Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income tests if
Jamboree Office REIT, or an owner of 10% or more of Jamboree Office REIT,
directly or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." Jamboree
Office REIT does not anticipate deriving rent attributable to personal property
leased in connection with real property in excess of the 15% limitation
described above. Finally, for rents received to qualify as "rents from real
property," Jamboree Office REIT generally must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" from whom Jamboree Office REIT derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by Jamboree Office REIT are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant primarily for his convenience." Jamboree
Office REIT does not and will not (i) charge rent for any property that is
based in whole or in part on the income or profits of any person (except by
reason of being based on a percentage of receipts or sales, as described
above), (ii) rent any additional property to a Related Party Tenant (unless the
Board of Directors determines in its discretion that the rent received from
such Related Party Tenant is not material and will not jeopardize Jamboree
Office REIT's status as a REIT), (iii) derive rental income attributable to
personal property (other than personal property leased in connection with the
lease of real property, the amount of which is less than 15% of the total rent
received under the lease), or (iv) perform services considered to be rendered
to the occupant of the property, other than through an independent contractor
from whom Jamboree Office REIT derives no revenue. (The operations and services
provided tenants of the Property are being reviewed to determine whether any
changes are necessary to comply with the REIT rules.) While Jamboree Office
REIT believes that the services rendered to its tenants are usually or
customarily rendered in connection with the rental of space, if challenged by
the Service, it may not be able to demonstrate that the extent to which such
services are rendered by other property owners is common enough to cause them
to be "customarily rendered." In the case of any services that are not "usual
and customary" under the foregoing rules, Jamboree Office REIT intends to
employ independent contractors to perform such services.
3. Relief Provisions.
If Jamboree Office REIT fails to satisfy one or both of the
75% or 95% gross income tests for any taxable year, it may nevertheless qualify
as a REIT for such year if it is entitled to relief under certain provisions of
the Internal Revenue Code. These relief provisions will be generally available
if Jamboree
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Office REIT's failure to meet such tests was due to reasonable cause and not
due to willful neglect, if Jamboree Office REIT attaches a schedule of the
sources of its income to its return and if any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances Jamboree Office REIT would be
entitled to the benefit of these relief provisions. As discussed above, even if
these relief provisions apply, a tax would be imposed with respect to Jamboree
Office REIT's excess net income.
4. Asset Tests.
At the close of each quarter of its taxable year, Jamboree
Office REIT must satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of Jamboree Office REIT's total assets must be
represented by real estate assets, cash, cash items, and government securities.
Second, not more than 25% of Jamboree Office REIT's total assets may be
represented by securities other than those in the 75% asset class. Third, of
the investments included in the 25% asset class, the value of any one issuer's
securities owned by Jamboree Office REIT may not exceed 5% of the value of
Jamboree Office REIT's total assets, and Jamboree Office REIT may not own more
than 10% of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any
quarter, Jamboree Office REIT will not lose its status as a REIT if it fails to
satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If the failure to satisfy the asset tests results from
an acquisition of securities or other property during a quarter, the failure
can be cured by disposition of sufficient nonqualifying assets within 30 days
after the close of that quarter. Jamboree Office REIT intends to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests, and to take such action within 30 days after the close of any quarter as
may be required to cure any noncompliance.
5. Annual REIT Distribution Requirements.
In order to be treated as a REIT, Jamboree Office REIT is
required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (a) the sum of (i) 95% of Jamboree
Office REIT's "REIT taxable income" (computed without regard to the dividends
paid deduction and Jamboree Office REIT's net capital gain) plus (ii) 95% of
the net income (after tax), if any, from foreclosure property in excess of the
special tax on income from foreclosure property, minus (b) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before Jamboree
Office REIT timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
Jamboree Office REIT does not distribute all of its net capital gain or
distributes at least 95%, but less than 100% of its "REIT taxable income," as
adjusted, it will be subject to tax thereon at regular ordinary and capital
gains corporate tax rates. Furthermore, if Jamboree Office REIT should fail to
distribute during each calendar year at least the sum of (a) 85% of its REIT
ordinary income for such year, (b) 95% of its REIT capital gain net income for
such year, and (c) any undistributed taxable income from prior periods,
Jamboree Office REIT would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Jamboree Office
REIT intends to make timely distributions sufficient to satisfy the annual
distribution requirement. Jamboree Office REIT anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the 95%
distribution requirement. REIT taxable income is taxable income computed under
general principles, subject to the following modifications: the corporate
dividends received deductions are not allowed; the deduction for dividends paid
under Internal Revenue Code section 561 is computed without regard to that
portion of the deduction that is attributable to the amount excluded from REIT
taxable income as net income from foreclosure property; taxable income is
computed without regard to the rules under Internal Revenue Code section 443(b)
relating to computation of tax on change of annual accounting period; an amount
equal to the net income from foreclosure property is excluded; an
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amount equal to the tax imposed under Internal Revenue Code section 857(b)(5)
if certain REIT requirements are not met is deducted; and an amount equal to
any net income derived from prohibited transactions is excluded ("REIT Taxable
Income").
It is possible that, from time to time, Jamboree Office REIT
may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due to timing differences between (a) the actual
receipt of income and actual payment of deductible expenses, (b) the inclusion
of such income and deduction of such expenses in arriving at the taxable income
of Jamboree Office REIT and (c) the use of cash to make nondeductible principal
payments on REIT debt. In the event that such an insufficiency or such timing
differences occur, Jamboree Office REIT may find it necessary to arrange for
borrowings, or to pay dividends in the form of taxable stock dividends, if it
is practicable to do so, to meet the 95% distribution requirement.
Under certain circumstances, Jamboree Office REIT may be able
to rectify a failure to meet the distribution requirement for a year by paying
"deficiency dividends" to shareholders in a later year, which may be included
in Jamboree Office REIT's deduction for dividends paid for the earlier year.
Thus, Jamboree Office REIT may be able to avoid being taxed on amounts
distributed as deficiency dividends; however, Jamboree Office REIT will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
6. Failure to Qualify As a REIT.
If Jamboree Office REIT fails to qualify for taxation as a
REIT in any taxable year, and the relief provisions described above do not
apply, Jamboree Office REIT will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which Jamboree Office REIT fails
to qualify will not be deductible by Jamboree Office REIT and they will not be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income, and subject to certain limitations of the Internal Revenue
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions,
Jamboree Office REIT will also be disqualified from taxation as a REIT for the
four taxable years following the year during which qualification was lost, and
will not be permitted to requalify unless it distributes any earnings and
profits attributable to the period when it failed to qualify. In addition, it
will be subject to tax on any built-in gains on property held during the period
during which it did not qualify if it sold such property within 10 years of
requalification. It is not possible to state whether in all circumstances
Jamboree Office REIT would be entitled to such statutory relief.
7. Taxation to United States Shareholders of Distributions.
As long as Jamboree Office REIT qualifies as a REIT,
distributions up to the amount of Jamboree Office REIT's current or accumulated
earnings and profits (and not designated as capital gain dividends) to a United
States shareholder (i.e., a holder of New Common Shares that is for United
States federal income tax purposes (a) a citizen or resident of the United
States, (b) a corporation, partnership, or other entity created or organized in
or under the laws of the United States or of any political subdivision thereof,
or (c) an estate or trust the income of which is subject to United States
federal income taxation regardless of its source) will be taken into account by
them as ordinary income and will not be eligible for the dividends-received
deduction for corporations. Distributions that are designated by Jamboree
Office REIT as capital gain dividends will be treated as long-term capital gain
(to the extent they do not exceed Jamboree Office REIT's actual net capital
gain) for the taxable year without regard to the period for which the
shareholder has held its stock. However, corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income
pursuant to Internal Revenue Code section 291(d). A
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distribution in excess of current or accumulated earnings and profits will
first be treated as a tax-free return of capital, reducing the tax basis in the
United States shareholder's New Common Shares, and a distribution in excess of
the United States shareholder's tax basis in such New Common Shares will be
treated as taxable gain realized from the sale of such shares. Dividends
declared by Jamboree Office REIT in October, November or December of any year
payable to a shareholder of record on a specified date in any such month will
be treated as both paid by Jamboree Office REIT and received by the shareholder
on December 31 of such year, provided that the dividend is actually paid by
Jamboree Office REIT during January of the following calendar year.
Shareholders may not claim the benefit of any tax losses of Jamboree Office
REIT on their own income tax returns.
Jamboree Office REIT will be treated as having sufficient
earnings and profits to treat as a dividend any distribution by Jamboree Office
REIT up to the amount required to be distributed in order to avoid imposition
of the 4% excise tax discussed above. As a result, shareholders may be required
to treat as taxable dividends certain distributions that would otherwise result
in a tax-free return of capital. Moreover, any "deficiency dividend" will be
treated as a "dividend" (an ordinary dividend or a capital gain dividend as the
case may be), regardless of Jamboree Office REIT's earnings and profits.
A loss incurred on the sale or exchange of Jamboree Office
REIT Shares held for less than six months will be deemed a long-term capital
loss to the extent of any capital gain dividends received by the selling
shareholder with respect to such stock.
8. Backup Withholding.
Jamboree Office REIT will report to its United States
shareholders and the IRS the amount of dividends paid during each calendar
year, and the amount of tax withheld, if any. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A United States shareholder that
does not provide Jamboree Office REIT with its correct taxpayer identification
number may also be subject to penalties imposed by the IRS. Any amount paid as
backup withholding will be creditable against the shareholder's income tax
liability. In addition, Jamboree Office REIT may be required to withhold a
portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status.
9. Treatment of Tax-Exempt Shareholders.
Distributions from Jamboree Office REIT to a tax-exempt
employee pension trust or other domestic tax-exempt shareholder will not
constitute "unrelated business taxable income" unless the shareholder has
borrowed to acquire or carry its shares of Jamboree Office REIT. A tax-exempt
employee's pension trust that holds more than 10% of the Jamboree Office REIT
Shares may, under certain circumstances, be required to treat a certain
percentage of dividends as unrelated business taxable income if Jamboree Office
REIT is "predominantly held" by qualified trusts. For these purposes, a
qualified trust is any trust defined under Internal Revenue Code section 401(a)
and exempt from tax under Internal Revenue Code section 501(a).
10. Taxation of Foreign Shareholders.
The rules governing United States income taxation of
non-resident alien individuals, foreign corporations, foreign partnerships, and
foreign trusts and estates holding Jamboree Office REIT Shares
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(collectively, "Foreign Shareholders") are complex, and no attempt will be made
herein to discuss such rules. A Foreign Shareholder should consult with his or
her own tax advisor to determine the effect of federal, state, and local and
country of tax residence income tax laws on an investment in Jamboree Office
REIT, including any reporting requirements.
E. FEDERAL INCOME TAXATION OF JAMBOREE LLC.
As explained above, the recently-enacted Check-the-Box
Regulations permit most unincorporated business entities to elect to be taxed
as partnerships or corporations for federal income tax purposes without regard
to the prior regulations' four-factor classification test. The New LLC
Agreement will authorize the members thereof to take such steps as may be
necessary to ensure Jamboree LLC's classification as a partnership under such
rules. As long as Jamboree LLC is classified as a partnership for federal
income tax purposes, its taxable income will flow through to its members. If
Jamboree LLC fails to qualify as a partnership for tax purposes, its taxable
income will be subject to tax at the regular corporate rate and distributions
by Jamboree LLC will be taxable as ordinary dividends to the members to the
extent of Jamboree LLC's earnings and profits and will not be deductible by
Jamboree LLC. Such treatment could also cause Jamboree Office REIT to fail to
satisfy certain of the income and asset tests applicable to REITs, resulting in
the unfavorable tax consequences described in Section VII.D. above.
If Jamboree LLC is classified as a partnership for federal
income tax purposes, each member in Jamboree LLC must take into account its
distributive share of the LLC items of income, gain, loss, deduction and credit
in the member's taxable year in which the taxable year of the LLC ends, whether
or not cash distributions with respect to such items are made to the member.
Such LLC items will be allocated among the members in accordance with the
provisions of the New LLC Agreement. Under Internal Revenue Code section
704(b), an allocation of income, gain, loss, deduction or credit of the LLC to
a member will not be respected for federal tax purposes unless the allocation
has "substantial economic effect." If an allocation does not have "substantial
economic effect," then each member's distributive share of such item will be
recalculated on the basis of such member's "interest" in the LLC, taking into
account all facts and circumstances relating to the economic arrangement of the
members. Although the allocations of Jamboree LLC have been drafted in an
attempt to comply with Regulations promulgated under Internal Revenue Code
section 704(b), there can be no assurances that the IRS will not be able to
successfully challenge the allocations contained in the New LLC Agreement.
Should any of these allocations be found to be invalid, they would be
disregarded and each member's distributive share of income, gain, loss,
deduction and credit would be determined in accordance with his or her
"interest" in Jamboree LLC, as discussed above. This could result in additional
tax liability, interest and potential penalties to the members.
Internal Revenue Code section 704(c) requires that income,
gain, loss and deduction attributable to appreciated or depreciated property
that is contributed to a partnership in exchange for an interest in the
partnership, must be allocated in a manner such that the contributing partner
is charged with, or benefits from, respectively, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of such property at such time (a
"Book-Tax Difference"). Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic or legal
arrangements among the partners. Jamboree LLC will be formed by way of
contributions of property. Consequently, the New LLC Agreement requires that
such allocations be made in a manner consistent with Section 704(c) of the
Internal Revenue Code. In general, a contributing partner may be allocated
depreciation deductions for tax purposes that are lower than such deductions
would be if determined on a pro rata basis. In addition, in the event of the
disposition of any of the contributed assets that have a Book-Tax Difference,
all income attributable to such Book-Tax Difference will generally be allocated
to such contributing partner, and the non-contributing
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partner will generally be allocated only its share of capital gains
attributable to appreciation, if any, occurring after the contribution. This
will tend to eliminate the Book-Tax Difference over the life of the
partnership. The New LLC Agreement will require the use of the "remedial
allocation method," as described in Regulations recently promulgated under
Section 704(c) of the Internal Revenue Code, in allocating income, gain, loss
and deduction attributable to any Book-Tax Difference.
It is anticipated that no ruling will be obtained regarding
the classification of Jamboree LLC as a partnership for federal income tax
purposes, the validity of the allocations set forth in the New LLC operating
Agreement, or any other tax matter. The tax consequences of ownership of an
interest in Jamboree LLC is therefore uncertain, and there can be no assurance
that the IRS will agree with the tax consequences described herein.
F. OTHER TAX CONSEQUENCES.
The parties may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatments may not conform
to the federal income tax consequences discussed above and each person should
consult such person's own tax advisor regarding the effect of state and local
tax laws.
EACH PERSON WHO WILL OR MAY RECEIVE AN INTEREST IN JAMBOREE
LLC OR JAMBOREE OFFICE REIT IS ADVISED TO CONSULT WITH SUCH PERSON'S OWN TAX
ADVISOR ABOUT THE POSSIBLE IMPACT OF JAMBOREE LLC AND JAMBOREE OFFICE REIT ON
SUCH PERSON'S OWN TAX SITUATION.
VIII. CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES
A. GENERAL DISCUSSION.
The Confirmation Order will authorize the issuance of the
Jamboree LLC Units, the New Notes, the New Property Appreciation Rights, the
Jamboree Office REIT Shares and the Jamboree Office REIT Shares to be issued
upon exercise of the New Property Appreciation Rights and Reorganized CWOP's
exchange of its Jamboree LLC Units. These instruments will be issued without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or under any state or local law, generally in reliance on the exemptions
set forth in Bankruptcy Code ss. 1145.
In order for the issuance of securities to be exempt from
registration under Bankruptcy Code ss. 1145(a), three principal requirements
must be satisfied: (a) the securities must be issued "under a plan" of
reorganization by a debtor, its successor under a plan of reorganization, or an
affiliate participating in a joint plan of reorganization with the debtor; (b)
each recipient of the securities must hold a claim against the debtor, an
interest in the debtor, or a claim for an administrative expense against the
debtor; and (c) the securities must be issued entirely in exchange for the
recipient's claim against or interest in the debtor, or "principally" in such
exchange and "partly" for cash or other property.
The Debtor believes that the issuance of the Jamboree LLC
Units, the New Notes, the New Property Appreciation Rights, the Jamboree Office
REIT Shares and the Jamboree Office REIT Shares issuable upon exercise of the
New Property Appreciation Rights and Reorganized CWOP's exchange of its
Jamboree LLC Units will be eligible for the exemption provided by section
1145(a) of the Bankruptcy Code because the issuance satisfies the exemption's
requirements: (a) the securities to be issued will be securities of Jamboree
LLC and Jamboree Office REIT, which are successors to the Debtor, and issuance
of the securities
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is specifically mandated under the Plan; (b) the recipients of the securities
hold claims against or interests in the Debtor; and (c) the recipients will
receive the securities in exchange for their claims against and interests in
the Debtor. The Debtor will include its legal analysis of this issue in its
memorandum of law in support of confirmation of the Plan.
B. RESALE CONSIDERATIONS.
Pursuant to ss. 1145 of the Bankruptcy Code, the resale or
disposition by the recipients of the Jamboree LLC Units, the New Notes, the New
Property Appreciation Rights, the Jamboree Office REIT Shares, and the Jamboree
Office REIT Shares to be issued upon exercise of the New Property Appreciation
Rights and Reorganized CWOP's exchange of its Jamboree LLC Units will also be
exempt from registration under the Securities Act and state and local
securities laws, unless the recipient is deemed to be an "underwriter" under
Bankruptcy Code ss. 1145(b). Bankruptcy Code ss. 1145(b) defines four types of
underwriters:
a. a person who purchases a claim against, interest
in, or claim for administrative expense in the case concerning a
debtor, with a view to distributing any security received in exchange
for that claim or interest;
b. a person who offers to sell securities offered or
sold under a plan for the holders of those securities;
c. a person who offers to buy those securities from
the holders of such securities, if the offer is (i) made with a view
to distribution of the securities, or (ii) made under an agreement
made in connection with the plan, its consummation or the offer or
sale of securities under the plan;
d. a person who is an "issuer" with respect to the
securities as the term "issuer" is defined in section 2(11) of the
Securities Act.
Under section 2(11) of the Securities Act, an "issuer"
includes any person directly or indirectly controlling or controlled by issuer
of the securities, or any person under direct or indirect common control with
the issuer of the securities (an "affiliate"). Any person or group of persons
who act in concert, who receive a substantial amount of securities pursuant to
the Plan, may be deemed to be an "issuer" under the foregoing definition and,
therefore, an "underwriter" under ss. 1145(b). Whether a person would be deemed
to be an issuer and therefore an underwriter with respect to the securities to
be issued pursuant to the Plan for purposes of the Bankruptcy Code will depend
on a number of factors. These factors include: (a) the person's equity interest
in Jamboree LLC or Jamboree Office REIT; (b) the distribution and concentration
of other equity interests in Jamboree LLC or Jamboree Office REIT; (c) whether
the person is an officer or director of Jamboree LLC or Jamboree Office REIT;
(d) whether the person, either alone or acting in concert with others, has a
contractual or other relationship giving that person power over management
policies and decisions of Jamboree LLC or Jamboree Office REIT; and (e) whether
the person actually has such power notwithstanding the absence of formal
indicia of control. Accordingly, the Debtor expresses no view on whether any
person would be an "underwriter" or an "affiliate" with respect to the
securities to be issued pursuant to the Plan.
To the extent that a person receiving securities under the
Plan is deemed to be an "underwriter" of the securities of Jamboree LLC or
Jamboree Office REIT, resales by that person likely would not be exempted by
Bankruptcy Code ss. 1145 from registration under the Securities Act, or other
applicable law, except in "ordinary trading transactions" (within the meaning
of Bankruptcy Code ss. 1145(b)(1)).
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The Bankruptcy Code does not define the term "ordinary
trading transactions," and the SEC has not given definitive guidance with
respect to the proper construction of the term. However, the Debtor believes
that a transaction will be an "ordinary trading transaction" if it is carried
out on an exchange or in the over-the-counter market at a time when Jamboree
LLC or Jamboree Office REIT is a reporting company under the Securities
Exchange Act of 1934 (the "Exchange Act") and does not involve any of the
following factors:
(i) either (x) concerted action by two or more
recipients of securities issued under a
plan of reorganization in connection with
the sale of those securities, or (y)
concerted action by distributors on behalf
of one or more such recipients in
connection with sales, or (z) both;
(ii) the preparation or use of informational
documents concerning the offering of the
securities to assist in the resale of the
securities, other than the disclosure
statement approved in connection with the
plan (and any supplement thereto) and
documents filed with the SEC by the debtors
or the reorganized company pursuant to the
Exchange Act; or
(iii) special compensation to brokers or dealers
in connection with the sale of the
securities designed as a special incentive
to resell the securities, other than
compensation that would be paid pursuant to
arms-length negotiations between a seller
and a broker or dealer, each acting
unilaterally, not greater than the
compensation that would be paid for a
routine similar-sized sale of similar
securities of a similar issuer.
In addition, a person deemed to be an "underwriter" under
Bankruptcy Code ss. 1145 solely because he is an affiliate (as defined in the
Securities Act) may be able to sell securities received under the Plan without
registration, in accordance with Rule 144 under the Securities Act, which
permits public sales of securities received pursuant to a plan by statutory
underwriters subject to the availability to the public of current information
regarding Jamboree LLC and/or Jamboree Office REIT, volume limitations, and
certain other conditions (without complying with the holding period requirement
of Rule 144(d)).
The Debtor does not expect, however, that the exemptions
discussed above for "ordinary trading transactions" by underwriters and for
sales under Rule 144 by affiliates will be available with respect to securities
issued under the Plan on the Effective Date because the availability of current
financial information under the Exchange Act about Jamboree LLC and/or Jamboree
Office REIT is a condition to both exemptions, and the Debtor does not
anticipate that either Jamboree LLC or Jamboree Office REIT will have a class
of securities registered under the Exchange Act on the Effective Date.
Jamboree LLC and Jamboree Office REIT will execute
registration rights agreements in favor of Restricted Holders granting such
Holders demand and piggy-bank registration rights with respect to the New Notes
and Jamboree Office REIT Shares. See Sections VI.C and VI.D.3.
Given the complex, subjective nature of the question of
whether a particular holder may be an underwriter or an affiliate, the Debtor
makes no representation concerning the right of any person to transfer the
Jamboree LLC Units, the New Notes, the Jamboree Office REIT Shares or the
Jamboree Office REIT Shares issuable upon exercise of the New Property
Appreciation Rights or Reorganized CWOP's exchange of its Jamboree LLC Units.
The Debtor recommends that potential recipients of securities under the Plan
consult with their own counsel concerning limitations on their right to
transfer those securities.
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C. TRUST INDENTURE ACT.
Issuance of the New Notes requires compliance with the Trust
Indenture Act of 1939. The indentures for the New Notes will be qualified under
the Trust Indenture Act of 1939.
D. DELIVERY OF DISCLOSURE STATEMENT.
Under Bankruptcy Code ss. 1145(a)(4), "stockbrokers" (as that
term is defined in the Bankruptcy Code) wishing to sell securities received
under the Plan qualify for the exemption from registration under Bankruptcy
Code ss. 1145 for sales during the first 40 days after the Effective Date of
the Plan, provided that they deliver a copy of this Disclosure Statement (and
any supplement to it ordered by the Bankruptcy Court) at or before the time of
sale of any security issued under the Plan. This requirement specifically
applies to trading and other after-market transactions in the securities issued
under the Plan.
IX. CERTAIN FACTORS TO BE CONSIDERED REGARDING THE PLAN.
Creditors and partners of CWOP should consider the following
factors when deciding how to vote on the Plan.
A. BANKRUPTCY CONSIDERATIONS.
An objection to confirmation of the Plan could prevent
confirmation or delay confirmation for a significant period of time. In such
case, the Effective Date may not occur and payments to creditors may not
commence for several months.
B. GENERAL BUSINESS RISKS.
The projections included in Exhibit 4 are based on a variety
of assumptions which, if incorrect, could affect the accuracy of the
projections.
While the attached projections included in Exhibit 4
incorporate a series of assumptions reflecting future events at the Property
and in the Orange County leasing market, they do not incorporate a wide range
of potential risks that could impact the eventual performance of the Property.
These risks may include (i) the rejection of the Denny's leases for 158,362
square feet as part of Flagstar's reported restructuring, the outcome of which
could lead to lower achieved rents on this space, (ii) the development of
competitive office buildings on the Development Parcel, which could negatively
impact leasing efforts, (iii) the possibility of aggressive overbuilding of
competitive office product in the Orange County market, which could lead to
depressed rental rates and increased vacancy rates, (iv) the inability of
management to find tenants willing to lease the sub-grade concourse space at
cost effective rents, (v) litigation related to the surrounding Development
Parcel, (vi) a general and pronounced downturn in the local economy or
continued mergers and consolidations in industries that are major tenants in
the Orange County marketplace and (vii) physical catastrophes that might damage
the Property and render it partially or fully unfunctional.
In addition, the financial terms (including free rent periods
and tenant improvement allowances) may vary significantly from the assumptions
that underlie the projections attached as Exhibit 4. Tenants in the Property
may default under their leases or otherwise cease making rental payments,
thereby negatively affecting projected cash flow from the Property and Jamboree
LLC's ability to make payments on the notes issued under the Plan. Moreover,
projected expense figures for Property operations may be lower
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than actual costs. Because the Property is now over 20 years old, capital
replacement and repair costs may significantly exceed those assumed in the
projections.
Finally, there is no assurance that Jamboree LLC will be able
to sell or refinance the Property for an amount sufficient to pay in full the
outstanding principal balance of the New Notes within five years.
Notwithstanding CWOP's conclusions that the restructuring as
effected through the Plan is feasible, there can be no assurance that payments
under the New Notes can be made if the real estate market declines further or
if recovery takes longer than expected. ALTHOUGH CWOP HAS ATTEMPTED TO PROJECT
ACCURATELY FUTURE CASH FLOWS (SUBJECT TO THE LIMITATIONS SET FORTH UNDER
"FINANCIAL PROJECTIONS"), THERE IS A RISK THAT JAMBOREE LLC MAY NOT BE ABLE TO
MEET THE REPAYMENT TERMS OF THE NEW NOTES. ADVERSE CONDITIONS, SUCH AS THE
CONTINUED DEPRESSION OF, OR A FURTHER DOWNTURN IN, THE REAL ESTATE MARKET, ARE
BEYOND THE ABILITY OF CWOP, REORGANIZED CWOP, JAMBOREE LLC OR ANY OTHER ENTITY,
TO PREDICT WITH CERTAINTY AND MAY AFFECT JAMBOREE LLC'S ABILITY TO REPAY THE
NEW NOTES.
C. RISK WITH RESPECT TO NEW SECURITIES.
No trading market currently exists for the New Notes or the
Jamboree Office REIT Shares. The Debtor does not anticipate that a trading
market will exist until after the Plan is confirmed and becomes effective. No
assurance can be given that a market for the New Notes and Jamboree Office REIT
Shares will develop after that date.
The Certificateholders have had limited ability to liquidate
their claims during the Reorganization Case. It is anticipated that, if a
trading market is established, there may initially be a large number of holders
that may wish to dispose of their new securities. As a result, the trading
market, if any, for these securities may be unstable for some period of time
following the Effective Date. The potential exercise of the New Property
Appreciation Rights for additional Jamboree Office REIT Shares may result in a
low market price for the Jamboree Office REIT Shares for some period of time
following the Effective Date and may adversely affect the marketability of the
Jamboree Office REIT Shares.
If the Plan is confirmed, ownership of a substantial number
of the New Notes and Jamboree Office REIT Shares will be concentrated in a
relatively small number of holders. Sales of or offers to sell a substantial
number of New Notes or Jamboree Office REIT Shares or the perception of
investors, investment professionals and securities analysts of the possibility
of such sales could adversely affect the market price of the New Notes and the
Jamboree Office REIT Shares.
Any sale of the New Notes may be at a substantial discount
from the principal amount. In addition, any recipient of the new securities who
is a "underwriter" under Bankruptcy Code ss. 1145(b) may not be able to resell
any securities received under the Plan in that capacity without registration
under the Securities Act. See Section VIII for a summary description of certain
applicable securities laws issues.
In addition, while Jamboree Office REIT intends to operate in
such a manner as to qualify for taxation as a REIT under the Internal Revenue
Code, but no assurance can be given that it will operate in a manner so as to
qualify or remain qualified. Qualification as a REIT involves the application
of highly technical and complex Internal Revenue Code provisions for which
there are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances not entirely within
Jamboree Office REIT's control may affect its ability to qualify as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations, or court decisions will not
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significantly change the tax laws with respect to the qualification as a REIT
or the federal income tax consequences of such qualification. One requirement
that must be satisfied is that beneficial ownership of Jamboree Office REIT
must be held by 100 or more persons. Although this condition will not apply
until after the first taxable year, Jamboree Office REIT will not meet this
requirement on the Effective Date and no guarantee can be given that it will
achieve this level of ownership within the time required.
X. ALTERNATIVES TO CONFIRMATION OF THE PLAN.
The Debtor believes that the Plan provides a recovery to
creditors that is greater than or equal to the probable recoveries by creditors
and partners if the Debtor were liquidated under chapter 7 of the Bankruptcy
Code.
XI. ACCEPTANCE AND CONFIRMATION OF THE PLAN.
The Debtor believes that the Plan satisfies all of the
requirements for confirmation.
A. GENERAL CONFIRMATION REQUIREMENTS.
Bankruptcy Code ss. 1129(a) contains several requirements for
confirmation of a plan. Among those requirements are that a plan be proposed in
good faith, that there be disclosed certain information regarding payments made
or promised to be made to insiders and that the plan comply with the applicable
provisions of chapter 11. The Debtor believes it has complied with these
requirements, as well as those requirements discussed below.
B. BEST INTERESTS TEST.
Bankruptcy Code ss. 1129(a)(7) requires that each holder of a
claim or interest in an impaired class must either (i) accept the plan or (ii)
receive or retain under the plan cash or property of a value, as of the
effective date of the plan, that is not less than the value such holder would
receive or retain if the debtor were liquidated under chapter 7 of the
Bankruptcy Code. The Debtor believes that the distributions under the Plan
equal or exceed the value that would be allocated to the holders in a
liquidation under chapter 7 of the Bankruptcy Code.
The only creditors impaired under the Plan are the Secured
Tax Claims, which are being paid in full under the Plan, and the
Certificateholders, both of which are not recourse to the general partners of
the Debtor. Accordingly, in a chapter 7 case, these creditors would be entitled
to recover only from the assets of the Debtor. The Debtor believes that if CWOP
were liquidated, the sale of the Property under such circumstances could result
in sale proceeds significantly less than the value of the Property under the
Plan. Moreover, the delay and expense of liquidation would necessarily reduce
the amount and value of distributions.
The recovery to the Certificateholders under the Plan is
significantly more than such holders would receive in a chapter 7 liquidation.
Assuming a value of the Property of $105 million, the estimated gross proceeds
through sale by a chapter 7 trustee would be approximately $100 million (this
estimate is based on the fact that the chapter 7 trustee would not be capable
of providing any continuing representations or warranties in connection with
the sale and would be selling the Property on a truly as-is basis). Assuming
legal, brokerage and other fees equaled to 3% of the gross sale amount, or $3
million, the chapter 7 trustee's fees in connection with the transaction would
be $2,910,000 (3% of the proceeds distributable to creditors in
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accordance with Bankruptcy Code ss. 326(a)), or total proceeds available for
distribution of $94,090,000. This contrasts with a recovery of approximately
$104.5 million to the Certificateholders under the Plan ($100 million in the
New Notes and $4.5 million in the equity value of Jamboree LLC). The
Certificateholders receive more under the Plan than they would in a chapter 7
liquidation even if the Property is worth significantly more. If the Property
were worth $150 million, the net proceeds available for distribution to the
Certificateholders would be $141,135,000 ($150 million less brokerage and legal
expenses of $4.5 million and chapter 7 trustee's fees of $4,365,000). In
contrast, the value of the Certificateholders' recovery under the Plan would be
$145 million ($100 million in New Notes and $45 million in equity value of the
Jamboree LLC).
C. FINANCIAL FEASIBILITY TEST.
In order to confirm a plan, the Bankruptcy Code requires that
the bankruptcy court find that confirmation of the plan is not likely to be
followed by liquidation or the need for further financial reorganization of the
debtor (the "Feasibility Test"). Thus, for a plan to meet the Feasibility Test,
the bankruptcy court must find that there is a reasonable likelihood that the
reorganized debtor will possess the working capital and other resources
necessary to operate profitably and will be able to meet its obligations under
the plan.
Based on the projections attached as Exhibit 6, the Debtor
believes that following confirmation of the Plan, there is a reasonable
likelihood that Jamboree LLC, successor to the Debtor, will be able to perform
its obligations under the Plan and operate the Property without the need for
further financial reorganization (see the projected financial information
described in Section VI.B and included in Exhibit 6).
D. ACCEPTANCE BY IMPAIRED CLASSES.
Bankruptcy Code ss. 1129(a) requires that each class of
claims or interests that is impaired under a plan accept the plan (subject to
the "cramdown" exception contained in Bankruptcy Code ss.1129(b)). A class of
claims under a plan accepts the plan if the plan is accepted by creditors that
hold at least two-thirds in amount and more than one-half in number of the
allowed claims in the class that actually vote on the plan. A class of
interests accepts the plan if the plan is accepted by holders of interests that
hold at least two-thirds in amount of the allowed interests in the class that
actually vote on a plan.
A class that is not "impaired" under a plan is conclusively
presumed to have accepted the plan. Solicitation of acceptances from such a
class is not required. A class is "impaired" unless (i) the legal, equitable
and contractual rights to which a claim or interest in the class entitles the
holder are not modified or (ii) the effect of any default is cured and the
original terms of the obligation are reinstated. Under the Plan, Class 1
(Priority Claims), Class 3a (the Truck Secured Claim), Class 3b, (the Van
Secured Claim) and Class 3c (the Crow Secured Claims) and Class 6 (General
Unsecured Claims) are not impaired and are deemed to accept the Plan. All other
Classes of Claims and Interests under the Plan are impaired under the Plan.
The Debtor believes that all impaired Classes will vote to
accept the Plan, and, therefore, the Plan will comply with this requirement for
confirmation. Nonetheless, if an impaired Class votes to reject the Plan, the
Debtor reserves its right to seek confirmation of the Plan pursuant to
Bankruptcy Code ss.1129(b), and will provide an analysis of the Plan's
compliance with the cramdown provisions in a memorandum of law in support of
confirmation of the Plan.
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XII. CONCLUSION.
THE DEBTOR URGES YOU TO VOTE TO ACCEPT THE PLAN AND TO RETURN
YOUR BALLOTS SO THAT THEY WILL BE RECEIVED AT THE ADDRESS AND PURSUANT TO THE
PROCEDURES DESCRIBED IN SECTION II.C OF THIS DISCLOSURE STATEMENT, NO LATER
THAN 4:00 P.M. LOS ANGELES TIME ON AUGUST 25, 1997.
Dated: Los Angeles, California
July __, 1997
Respectfully submitted,
CROW WINTHROP OPERATING PARTNERSHIP
as Debtor
By: WINTHROP CALIFORNIA INVESTORS LIMITED
PARTNERSHIP
Its: General Partner
By: THREE WINTHROP PROPERTIES, INC.
Its: General Partner
By: ________________________________________
Its: President
O'MELVENY & MYERS LLP
Robert J. White
Suzzanne Uhland
By: _______________________________
Suzzanne Uhland
Attorneys for the Debtor
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EXHIBIT B
THE OPERATING PARTNERSHIP'S
THIRD AMENDED PLAN OF REORGANIZATION
DATED JULY 23, 1997
<PAGE>
- ------------------------------------------------------------------------------
UNITED STATES BANKRUPTCY COURT
for the Central District of California
In re ) Chapter 11
)
CROW WINTHROP OPERATING ) Case No. SA97-14512-JR
PARTNERSHIP, a Maryland general partnership )
)
Debtor )
)
- ---------------------------------------------
DEBTOR'S THIRD AMENDED PLAN OF REORGANIZATION,
DATED JULY 23, 1997
O'MELVENY & MYERS LLP
400 S. Hope St.
Los Angeles, CA 90071
(213) 669-6000
Robert White (CA State Bar #54797)
Suzzanne Uhland (CA State Bar #136852)
Lisa Bossetti (CA State Bar #186243)
Deborah Saltzman (CA State Bar #186411)
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660
(714) 760-9600
Patricia Frobes (CA State Bar #85142)
Frank Crance (CA State Bar #177568)
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1.
DEFINITIONS................................................. 1
A. Defined Terms................................................................................. 1
B. Other Terms................................................................................... 8
C. Exhibits...................................................................................... 8
ARTICLE 2.
TREATMENT OF ADMINISTRATIVE
CLAIMS AND PRIORITY TAX CLAIMS........................................ 8
A. Administrative Claims and Priority Tax Claims................................................. 8
B. Allowance of Administrative Claims............................................................ 8
1. Ordinary Course Administrative Claims................................................ 8
2. Fee Claims........................................................................... 8
3. Other Administrative Claims.......................................................... 8
C. Treatment of Allowed Administrative Claims.................................................... 9
D. Treatment of Priority Tax Claims.............................................................. 9
ARTICLE 3.
CLASSIFICATION OF CLAIMS
AND INTERESTS................................................ 9
ARTICLE 4.
TREATMENT OF CLASSIFIED CLAIMS
AND INTERESTS................................................ 10
A. Priority Claims (Class 1)..................................................................... 10
B. Secured Tax Claims (Class 2).................................................................. 10
C. Other Secured Claims (Classes 3a -3c)......................................................... 10
D. Certificateholder Secured Claims (Class 4).................................................... 11
E. Certificateholder Deficiency Claims (Class 5)................................................. 11
F. General Unsecured Claims (Class 6)............................................................ 12
G. Interests (Class 7)........................................................................... 12
ARTICLE 5.
ACCEPTANCE OR REJECTION OF THE PLAN..................................... 12
A. Voting Classes................................................................................ 12
B. Presumed Acceptance of the Plan............................................................... 12
C. Nonconsensual Confirmation.................................................................... 12
ARTICLE 6.
PROPERTY DISTRIBUTED UNDER THE PLAN..................................... 13
A. New Class A Senior Secured Notes.............................................................. 13
1. Issuer............................................................................... 13
2. Principal............................................................................ 13
3. Interest............................................................................. 13
4. Term................................................................................. 13
</TABLE>
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<TABLE>
<S> <C>
5. Payments............................................................................. 13
6. Cash Flow Sweep...................................................................... 13
7. Security............................................................................. 13
8. Redemption........................................................................... 14
9. Covenants............................................................................ 14
B. New Class B Senior Subordinated Secured Notes................................................. 14
1. Issuer............................................................................... 14
2. Principal............................................................................ 14
3. Interest............................................................................. 14
4. Term................................................................................. 14
5. Payments............................................................................. 14
6. Cash Flow Sweep...................................................................... 14
7. Security............................................................................. 15
8. Redemption........................................................................... 15
9. Covenants............................................................................ 15
10. Subordination........................................................................ 15
C. Jamboree LLC Units............................................................................ 15
1. Issuer............................................................................... 15
2. Ownership............................................................................ 15
3. Transferability...................................................................... 15
D. Jamboree Office REIT Shares................................................................... 16
1. Issuer............................................................................... 16
2. Ownership............................................................................ 16
3. Authorization and Issued Amounts..................................................... 16
4. Par Value............................................................................ 16
5. Voting............................................................................... 16
6. Pre-emptive Rights................................................................... 16
7. REIT Status .................................................................... 16
E. New Tranche B Property Appreciation Right..................................................... 16
1. Exercise............................................................................. 16
2. Exercise Period...................................................................... 16
3. Discount............................................................................. 17
F. New Tranche C Property Appreciation Right..................................................... 17
1. Exercise............................................................................. 17
2. Exercise Period...................................................................... 17
3. Discount............................................................................. 17
ARTICLE 7.
MEANS OF IMPLEMENTING THE PLAN........................................ 18
A. Jamboree LLC.................................................................................. 18
1. Formation of Jamboree LLC............................................................ 18
2. Jamboree LLC Board................................................................... 18
3. Term................................................................................. 18
4. Management........................................................................... 18
B. Jamboree Office REIT.......................................................................... 18
1. Incorporation of Jamboree Office REIT................................................ 18
2. Board of Directors................................................................... 18
C. Reorganized CWOP.............................................................................. 18
</TABLE>
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<TABLE>
<S> <C>
1. Restated Certificate of Partnership.................................................. 18
2. Partnership Agreement................................................................ 18
D. Revesting of Property......................................................................... 18
E. Transfer of Property to Jamboree LLC.......................................................... 19
F. Partnership and Corporate Action.............................................................. 19
G. Operation After Effective Date................................................................ 20
H. Successors.................................................................................... 20
I. Avoidance and Recovery Actions................................................................ 20
J. Saturday, Sunday or Legal Holiday............................................................. 20
K. New Management Agreement...................................................................... 20
L. Section 1129(a)(4) Payment.................................................................... 20
ARTICLE 8.
CLAIMS AND DISTRIBUTION........................................... 21
A. Objections to Claims.......................................................................... 21
B. No Distributions Pending Allowance............................................................ 21
C. Reservation of Rights to Object to Claims..................................................... 21
ARTICLE 9.
DISTRIBUTIONS UNDER THE PLAN......................................... 21
A. Disbursements................................................................................. 21
B. Time of Disbursements......................................................................... 21
C. Withholding Taxes............................................................................. 21
D. Allowance of Claims Subject toss. 502(d)...................................................... 21
E. Setoffs and Recoupments....................................................................... 21
F. Undeliverable Distributions................................................................... 22
G. Record Date for Disbursements................................................................. 22
H. Cancellation of Existing Securities and Agreements............................................ 22
I. Fractional Shares............................................................................. 22
J. New Notes in Integral Multiples of $1,000..................................................... 22
K. Distribution of Jamboree Office REIT Shares................................................... 22
L. Distribution of New Property Appreciation and Exchange Rights Agreement....................... 23
ARTICLE 10.
EFFECT OF THE PLAN ON CLAIMS AND INTERESTS.................................. 23
A. Discharge..................................................................................... 23
B. Distributions in Satisfaction................................................................. 23
C. Injunction.................................................................................... 23
ARTICLE 11.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................... 23
A. Assumption and Rejection...................................................................... 23
B. Assignment.................................................................................... 24
ARTICLE 12.
EFFECTIVENESS OF THE PLAN.......................................... 24
A. Conditions Precedent.......................................................................... 24
1. Entry of Confirmation Order.......................................................... 24
</TABLE>
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<TABLE>
<S> <C>
2. WCI Consent.......................................................................... 24
3. Jamboree LLC and Jamboree Office REIT. ............................................. 24
4. Contribution of Assets. ............................................................ 24
5. Documentation. ..................................................................... 24
6. Jamboree Office REIT Shares and Jamboree LLC Units. ................................ 24
7. Qualification of Indentures. ....................................................... 24
8. Perfection of Security Interests. .................................................. 24
9. Title Policies. .................................................................... 25
10. Evidence of Insurance. ............................................................. 25
B. Waiver of Conditions.......................................................................... 25
C. Withdrawal of Plan............................................................................ 25
ARTICLE 13.
ADMINISTRATIVE PROVISIONS.......................................... 26
A. Retention of Jurisdiction..................................................................... 26
B. Payment of Statutory Fees..................................................................... 26
C. Exculpation................................................................................... 26
D. Headings...................................................................................... 26
E. Binding....................................................................................... 27
F. Final Order................................................................................... 27
G. Amendments and Modifications.................................................................. 27
H. Withholding and Reporting Requirements........................................................ 27
I. Securities Exemption.......................................................................... 27
J. Tax Exemption................................................................................. 27
K. Termination of the Committee.................................................................. 29
</TABLE>
EXHIBITS TO PLAN
Exhibit A - New Articles
Exhibit B - New By-Laws
Exhibit C - New Class A Senior Secured Note Indenture
Exhibit D - New Class B Senior Subordinated Secured Note Indenture
Exhibit E - Fourth Amendment to the CWOP Partnership Agreement
Exhibit F - New Property Appreciation and Exchange Rights Agreement
Exhibit G - New Deed of Trust
Exhibit H - New Equity Registration Rights Agreement
Exhibit I - New Management Agreement
Exhibit J - New Class A Notes Registration Rights Agreement
Exhibit K - New Class B Notes Registration Rights Agreement
Exhibit L - New LLC Agreement
Exhibit M - REIT Ownership Certificate
*Please note that the Exhibits to the Plan are included in a separate package.
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ARTICLE 1.
DEFINITIONS
A. Defined Terms. The capitalized terms used in the Plan shall have
the meanings set forth in this Article 1.
1. Administrative Claim: A Claim for payment of costs or
expenses of administration specified in Bankruptcy Code ss.ss. 503(b)
and 507(a)(1) including, without limitation: (a) Fee Claims, (b) any
post-petition taxes subject to administrative treatment, (c) Ordinary
Course Administrative Claims and (d) fees and charges assessed against
the Debtor or the Estate pursuant to Section 1930 of title 28 of the
United States Code.
2. Agreement of Understanding: The agreement regarding the
Reorganization Case entered into by the Debtor and certain
Certificateholders as of November 27, 1996.
3. Allowed: With respect to a Claim (other than an
Administrative Claim) to the extent such Claim is (a) either (i)
listed on the Schedules and is not designated as disputed, contingent
or unliquidated or (ii) set forth in a proof of claim that was or is
deemed timely filed under applicable law and any applicable orders of
the Bankruptcy Court and (b) either (i) not objected to within the
period fixed by the Bankruptcy Code, the Bankruptcy Rules and
applicable orders of the Bankruptcy Court or (ii) otherwise allowed by
a Final Order or the Plan. With respect to an Interest, to the extent
indicated in CWOP Partnership Agreement.
4. Allowed Administrative Claim: An Administrative Claim that
is "Allowed" as set forth in Article 2.
5. Allowed [Class Designation] Claim or Interest: An Allowed
Claim or Interest in the specified Class.
6. Bankruptcy Code: Title 11 of the United States Code, as in
effect from time to time, as applicable to the Reorganization Case.
7. Bankruptcy Court: The United States Bankruptcy Court for
the Central District of California and any other court that exercises
jurisdiction over the Reorganization Case.
8. Bankruptcy Rules: The Federal Rules of Bankruptcy
Procedure, as amended from time to time, as applicable to the
Reorganization Case and the Local Rules of the Bankruptcy Court.
9. Business Day: Any day except a Saturday, Sunday or "legal
holiday," as such term is defined in Bankruptcy Rule 9006(a).
10. Causes of Action: Any and all actions, causes of action
(including, without limitation, any causes of action of a debtor or
debtor in possession under chapter 5 of the Bankruptcy Code), claims
for relief, liabilities, suits, debts, sums of money, accounts,
reckonings, covenants, contracts, controversies, agreements, promises,
rights, variances,
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trespasses, damages, judgments, executions, claims and demands
whatsoever, whether known or unknown in law, equity or otherwise.
11. Certificateholders: The holders of the Certificates.
12. Certificates: The outstanding Certificates and
Participation Certificates issued pursuant to the Purchase Agreement.
13. Certificateholder Claims: Any and all Claims arising or
asserted under, on account of or related to the Certificates, the
Purchase Agreement, the Existing Deed of Trust, the Existing Secured
Note and all other documents executed by CWOP and delivered and/or
received in connection therewith.
14. Certificateholder Secured Claims: The Certificateholder
Claims that are Allowed as Secured Claims pursuant to Paragraph 4.D.2.
15. Certificateholder Deficiency Claims: The
Certificateholder Claims other than the Allowed Certificateholder
Secured Claims.
16. Claim: A claim, as such term is defined in Bankruptcy
Code ss. 101(5), against the Debtor or the Estate.
17. Class: A group of Claims or Interests as classified under
the Plan.
18. Collateral Agent: IBJ Schroder Bank & Trust Company.
19. Collateral Documents: The New Class A Senior Secured Note
Indenture, the New Class B Senior Subordinated Secured Note Indenture,
the New Deed of Trust and the collateral documents referenced in the
New Class A Senior Secured Note Indenture.
20. Confirmation Date: The date and time the Clerk of the
Bankruptcy Court enters the Confirmation Order on its docket.
21. Confirmation Hearing: The hearing held by the Bankruptcy
Court on confirmation of the Plan, as such hearing may be continued
from time to time.
22. Confirmation Order: The order of the Bankruptcy Court
confirming the Plan pursuant to Bankruptcy Code ss. 1129.
23. Crow Litigation: The actions captioned "Crow Winthrop
Operating Partnership v. Crow Winthrop Development Limited Partnership
and Crow Orange County Management Company, Inc.," Adversary Proceeding
No. AD97-01722 and Adversary Proceeding No. AD97-01723 filed in the
Reorganization Case.
24. Crow Secured Claims: The Claims numbered 19, 20 and 21
asserted by Crow Winthrop Development Limited Partnership to the
extent such Claims are Secured Claims.
25. CWOP: Crow Winthrop Operating Partnership.
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26. CWOP Partnership Agreement: The Amended and Restated
Partnership Agreement of CWOP as of May 24, 1985, as amended, prior to
the Effective Date.
27. Debtor: CWOP, as debtor.
28. Development Approval Agreement: The agreement entered
into by Pacific Mutual, as the holder of the Existing Note, and Crow
Winthrop Development Limited Partnership dated July 25, 1985, granting
certain development approval rights to the holder of the Existing
Note.
29. Disclosure Statement: The disclosure statement filed
pursuant to Bankruptcy Code ss. 1125 describing the Plan, approved by
order of the Bankruptcy Court.
30. Effective Date: The first Business Day selected by the
Debtor on or after each of the conditions in Paragraph 12.A has been
satisfied or waived.
31. Estate: The estate created by the commencement of the
Reorganization Case pursuant to Bankruptcy Code ss. 541.
32. Existing Deed of Trust: The Deed of Trust, Financing
Statement and Security Agreement (including an Assignment of Rents and
Leases), as amended, executed by CWOP to secure the obligations under
the Existing Secured Note and creating a lien on the Property.
33. Existing Secured Note: The Secured Promissory Note, dated
July 26, 1985, executed by CWOP in the original principal amount of
$204 million.
34. Fee Claim: A Claim under Bankruptcy Code ss.ss. 330(a),
331 or 503 for compensation for professional services rendered and
reimbursement of expenses incurred in the Reorganization Case.
35. Final Order: An order or judgment of the Bankruptcy
Court, or other court of competent jurisdiction, entered on the docket
of such court, that has not been reversed, rescinded, stayed, modified
or amended, that is in full force and effect, and with respect to
which: (a) the time to appeal, seek review or rehearing, or petition
for certiorari has expired and no timely filed appeal or petition for
review, rehearing, remand or certiorari is pending; or (b) any appeal
taken or petition for certiorari filed has been resolved by the
highest court to which the order or judgment was appealed or from
which review, rehearing or certiorari was sought.
36. General Unsecured Claim: Any Claim that is not an
Administrative Claim, a Priority Tax Claim, a Priority Claim, a
Secured Tax Claim, an Other Secured Claim, a Certificateholder Secured
Claim or a Certificateholder Deficiency Claim.
37. Interest: A partnership interest in the Debtor.
38. Intermediate Free Assets: The cash or other assets of the
Debtor of a value of $500,000, that will be owned by the Debtor free
and clear of all liens immediately prior to the Effective Date.
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39. Intermediate Notes: The notes, one in the amount of $100
million and one in the amount of $4.5 million, that are secured by all
of the assets of the Estate other than the Intermediate Free Assets,
to be issued to the holders of the Allowed Certificateholders Secured
Claim in satisfaction of such Claims, and thereafter treated as set
forth in Article 7.
40. Jamboree LLC: A Delaware limited liability company that
will be formed on or prior to the Effective Date, into which the
assets of the Debtor will revest and which will be a successor to the
Debtor.
41. Jamboree LLC Board: The board of managing members
appointed to manage Jamboree LLC in accordance with the terms of the
Jamboree LLC Limited Liability Company Agreement.
42. Jamboree LLC Unit: A limited liability company interest
of a member of Jamboree LLC.
43. Jamboree Office REIT: A Maryland corporation that shall
be formed on or prior to the Effective Date and which shall be a
successor to the Debtor; the assets of Jamboree Office REIT initially
shall be 90% of the Jamboree LLC Units.
44. Jamboree Office REIT Shares: The shares of common stock
of Jamboree Office REIT, as described in Paragraph 6.D.
45. New Articles: The articles of incorporation of Jamboree
Office REIT, substantially in the form of Exhibit A to the Plan.
46. New By-laws: The by-laws of Jamboree Office REIT,
substantially in the form of Exhibit B to the Plan.
47. New Class A Notes Registration Rights Agreement: The
registration rights agreement for the registration of the New Class A
Senior Secured Notes to be executed by Jamboree LLC for the benefit of
certain named persons, any person or entity that receives on the date
of the agreement or is the transferee from the named persons of 10% or
more of the New Class A Senior Secured Notes issued under the Plan,
and any such person's affiliates, substantially in the form of Exhibit
J to the Plan.
48. New Class A Senior Secured Notes: The senior secured
notes described in Paragraph 6.A to be issued by Jamboree LLC pursuant
to the New Class A Senior Secured Note Indenture.
49. New Class A Senior Secured Note Indenture: The indenture
governing the New Class A Senior Secured Notes, substantially in the
form of Exhibit C to the Plan.
50. New Class B Notes Registration Rights Agreement: The
registration rights agreement for the registration of the New Class B
Senior Subordinated Secured Notes to be executed by Jamboree LLC for
the benefit of certain named persons, any person or entity that
receives on the date of the agreement or is the transferee from the
named persons of 10% or
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more of the New Class B Senior Subordinated Secured Notes issued under
the Plan, and any such person's affiliates, substantially in the form
of Exhibit K to the Plan.
51. New Class B Senior Subordinated Secured Notes: The
subordinated secured notes described in Paragraph 6.B. to be issued by
Jamboree LLC pursuant to the New Class B Senior Subordinated Secured
Note Indenture.
52. New Class B Senior Subordinated Secured Note Indenture:
The indenture governing the New Class B Senior Subordinated Secured
Notes, substantially in the form of Exhibit D to the Plan.
53. New CWOP Partnership Agreement: The CWOP Partnership
Agreement, from and after the Effective Date, as amended by the Fourth
Amendment to the CWOP Partnership Agreement, substantially in the form
of Exhibit E to the Plan.
54. New Deed of Trust: The Amended and Restated Deed of
Trust, Assignment of Rents, Security Interest and Fixture Filing
executed by Jamboree LLC to secure obligations under the New Notes,
substantially in the form of Exhibit G to the Plan.
55. New Equity Registration Rights Agreement: The
registration rights agreement for the registration of Jamboree Office
REIT Shares to be executed by Jamboree Office REIT for the benefit of
Reorganized CWOP, certain named persons, any person or entity that
receives on the date of the agreement or is the transferee from the
named persons of 10% or more of the Jamboree Office REIT Shares issued
under the Plan, and any such person's affiliates, substantially in the
form of Exhibit H to the Plan.
56. New Indentures: The New Class A Senior Secured Note
Indenture and the New Class B Senior Subordinated Secured Note
Indenture.
57. New LLC Agreement: The members agreement for Jamboree
LLC, substantially in the form of Exhibit L to the Plan.
58. New Management Agreement: The Property Management and
Leasing Agreement to be entered into by Jamboree LLC and WCM,
substantially in the form of Exhibit I to the Plan.
59. New Notes: The New Class A Senior Secured Notes and the
New Class B Senior Subordinated Secured Notes.
60. New Property Appreciation and Exchange Rights Agreement:
The agreement pursuant to which the New Tranche A Property
Appreciation Right, the New Tranche B Property Appreciation Right and
the New Tranche C Property Appreciation Right will be issued,
substantially in the form of Exhibit F to the Plan.
61. New Property Appreciation Rights: The New Tranche A
Property Appreciation Right, the New Tranche B Property Appreciation
Right and the New Tranche C Property Appreciation Right.
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62. New Tranche A Property Appreciation Right: The right of
Reorganized CWOP to exchange each of its Jamboree LLC Units for a
Jamboree Office REIT Share.
63. New Tranche B Property Appreciation Right: The right of
Reorganized CWOP to purchase for $10,888,888.89 a number of Jamboree
Office REIT Shares representing 10% of the equity value of Jamboree
LLC (subject to dilution) or, at the option of Jamboree Office REIT,
to receive a net cash payment equal to the difference between the then
current market price of such number of shares (assuming exercise of
such rights and all other rights concurrently exercised under the New
Property Appreciation and Exchange Rights Agreement) and such exercise
price, all in accordance with the terms of the New Property
Appreciation and Exchange Rights Agreement as described in Paragraph
6.E.
64. New Tranche C Property Appreciation Right: The right of
Reorganized CWOP to purchase for $152,777,777.78 a number of Jamboree
Office REIT Shares representing 55% of the equity value of Jamboree
LLC (subject to dilution) or, at the option of Jamboree Office REIT,
to receive a net cash payment equal to the difference between the then
current market price of such number of shares (assuming exercise of
such rights and all other rights concurrently exercised under the New
Property Appreciation and Exchange Rights Agreement) and such exercise
price, all in accordance with the terms of the New Property
Appreciation and Exchange Right Agreement as described in Paragraph
6.E.
65. Ordinary Course Administrative Claims: The actual and
necessary costs and expenses of preserving the Estate and operating
the business of the Debtor incurred and payable in the ordinary course
of business by the Debtor after the Petition Date and for which the
invoice is received prior to the Effective Date, but excluding any
claim of a governmental unit for taxes.
66. Other Secured Claim: The Van Secured Claim, the Truck
Secured Claim and the Crow Secured Claims.
67. Petition Date: March 28, 1997.
68. Plan: This chapter 11 plan of reorganization, either in
its present form or as it may be amended or modified from time to
time.
69. Priority Claim: Any Claim, if Allowed, entitled to
priority pursuant to Bankruptcy Code ss. 507(a), other than an
Administrative Claim or a Priority Tax Claim.
70. Priority Tax Claim: A Claim entitled to priority pursuant
to Bankruptcy Code ss. 507(a)(8).
71. Property: The approximately 14.748 acre parcel of
improved real property located at 3333-3355 Michelson Drive in Irvine,
California, together with all the improvements now or hereafter
erected thereon and all easements and appurtenances thereto and all
fixtures that are a part thereof.
72. Purchase Agreement: The Purchase, Participation and
Servicing Agreement dated June 17, 1985 among Pacific Mutual Realty
Finance, Inc., Pacific Mutual Life
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Insurance Company and various Certificateholders, which provides,
among other things, for the participation and servicing of the
Existing Secured Note.
73. Ratable Share: With reference to a distribution on
account of a Claim, a distribution equal to the ratio that the Allowed
amount of the Claim bears to the aggregate amount of all Allowed
Claims in that Class.
74. REIT Certificate: The certificate regarding the
beneficial and constructive ownership of Jamboree Office REIT Shares
to be delivered to Jamboree Office REIT by recipients of Jamboree
Office REIT Shares under the Plan and by Reorganized CWOP on the
Effective Date and upon the exercise of its rights under the New
Property Appreciation and Exchange Rights Agreement, substantially in
the form of Exhibit M to the Plan.
75. Reinstatement or Reinstated: Treatment in accordance with
Bankruptcy Code ss. 1124 such that a Claim is not impaired.
76. Reorganization Case: The above-captioned chapter 11 case.
77. Reorganized CWOP: CWOP, on the Effective Date.
78. Requisite Certificateholders: Holders of more than 66
2/3% in amount and more than 50% in number of the Certificates.
79. Schedules: The schedules of assets and liabilities and
the statement of financial affairs filed by the Debtor, pursuant to
Bankruptcy Code ss. 521 and the Official Bankruptcy Forms, as may be
amended from time to time.
80. Secured Claim: A Claim that is secured by an unavoidable
lien on property of the Debtor, but only to the extent of the value,
as determined by the Bankruptcy Court pursuant to Bankruptcy Code ss.
506(a), of the Estate's interest in the property of the Estate that
secures payment of the Claim.
81. Secured Tax Claim: Any Claim of a governmental unit for
taxes, which, by operation of applicable nonbankruptcy law, is a
Secured Claim.
82. Truck Secured Claim: The Claim of Ford Motor Credit based
on the purchase money loan for the 1997 Dodge Ram Truck to the extent
such Claim is a Secured Claim.
83. Van Secured Claim: The Claim of Chrysler Financial
Corporation based on the purchase money loan for the 1997 Dodge Grand
Caravan, to the extent such Claim is a Secured Claim.
84. WCI: Winthrop California Investors Limited Partnership, a
Delaware limited partnership, the 99% general partner of CWOP.
85. WCM: Winthrop California Management Limited Partnership,
a Delaware limited partnership.
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86. WFA Guaranty: The Agreement of Guaranty dated July 26,
1985, executed by Winthrop Financial Associates, a Maryland limited
partnership, in favor of Pacific Mutual Realty Finance, Inc.
guarantying repayment of $15 million on account of the Existing
Secured Note.
B. Other Terms. The words "herein," "hereof," "hereto," "hereunder"
and others of similar import refer to the Plan as a whole and not to any
particular article, paragraph or clause contained in the Plan. A reference to
an "Article" or "Paragraph" refers to an Article or Paragraph of the Plan. A
term used herein that is not defined herein shall have the meaning ascribed to
that term, if any, in or by the Bankruptcy Code. The rules of construction set
forth in Bankruptcy Code ss. 102 shall apply in constructing the Plan.
C. Exhibits. All Exhibits to the Plan are incorporated by reference
into and are made a part of the Plan as if set forth in full herein.
ARTICLE 2.
TREATMENT OF ADMINISTRATIVE
CLAIMS AND PRIORITY TAX CLAIMS
A. Administrative Claims and Priority Tax Claims. As provided in
Bankruptcy Code ss. 1123(a)(1), Administrative Claims and Priority Tax Claims
shall not be classified for the purposes of voting or receiving distributions
under the Plan. Rather, all such Claims shall be treated separately as
unclassified Claims on the terms set forth in this Article 2.
B. Allowance of Administrative Claims. Administrative Claims shall
become Allowed as follows:
1. Ordinary Course Administrative Claims. An Ordinary Course
Administrative Claim shall become Allowed on the 60th day after the
Effective Date if it is not disputed prior to that date by the Debtor
or Reorganized CWOP (if prior to or on the Effective Date) or Jamboree
LLC (if after the Effective Date). Either the Debtor or Reorganized
CWOP (if prior to or on the Effective Date) or Jamboree LLC (if after
the Effective Date) may dispute an Ordinary Course Administrative
Claim by providing written notice to the claimant within 60 days after
the Effective Date. If disputed by the Debtor, Reorganized CWOP or
Jamboree LLC, an Ordinary Course Administrative Claim may become
Allowed only as provided in Paragraph 2.B.3.
2. Fee Claims. A Fee Claim shall become Allowed only if the
holder files an application in accordance with the Bankruptcy Code and
Bankruptcy Rules no later than 60 days after the Effective Date and
only if and to the extent such Claim is Allowed by the Bankruptcy
Court pursuant to a Final Order.
3. Other Administrative Claims. Any other Administrative
Claim (including any Ordinary Course Administrative Claim that is
disputed by the Debtor, Reorganized CWOP or Jamboree LLC as set forth
in Paragraph 2.B.1) shall become Allowed only if within 90 days after
the Effective Date the holder of such Claim files with the Bankruptcy
Court and serves on the Debtor or Reorganized CWOP (if prior to or on
the Effective Date) or Jamboree LLC
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(if after the Effective Date), a motion requesting payment of such
Administrative Claim and only if and to the extent such Claim is
Allowed by the Bankruptcy Court pursuant to a Final Order. The Debtor,
Reorganized CWOP or Jamboree LLC may file an objection to any such
motion within the time provided by the Bankruptcy Rules or otherwise
by the Bankruptcy Court.
C. Treatment of Allowed Administrative Claims. Each holder of an
Allowed Administrative Claim shall receive (a) the amount of such holder's
Allowed Administrative Claim in one cash payment or (b) such other treatment as
may be agreed by the Debtor or Reorganized CWOP (if prior to or on the
Effective Date) or Jamboree LLC (if after the Effective Date) and such holder.
The Debtor or Reorganized CWOP (if prior to or on the Effective Date) or
Jamboree LLC (if after the Effective Date) shall pay each Allowed Ordinary
Course Administrative Claim on the date on which payment is due or otherwise
would be permitted to be made in accordance with the terms and conditions of
the particular transaction and any agreements relating thereto.
D. Treatment of Priority Tax Claims. Each holder of an Allowed
Priority Tax Claim shall receive, (i) the amount of such holder's Allowed
Priority Tax Claim on the sixth anniversary of the assessment date with
interest payable annually on such amount at the judgment rate of interest
determined in accordance with 28 U.S.C. ss. 1961(a) on the Confirmation Date,
or such other rate as the Bankruptcy Court may determine at the Confirmation
Hearing or (ii) such other treatment as may be agreed upon by the Debtor or
Reorganized CWOP (if prior to or on the Effective Date) or Jamboree LLC (if
after the Effective Date) and such holder.
ARTICLE 3.
CLASSIFICATION OF CLAIMS
AND INTERESTS
The categories of Claims and Interests listed below classify
Claims (except for Administrative Claims and Priority Tax Claims) and Interests
for all purposes, including voting, confirmation and distribution pursuant to
the Plan.
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<TABLE>
<CAPTION>
CLASS DESCRIPTION STATUS
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<S> <C> <C>
1. Class 1. Class 1 consists of all Priority Claims. Unimpaired - not entitled to vote
2. Class 2. Class 2 consists of all Secured Tax Claims. Impaired - entitled to vote
3. Classes 3a-3c. Class 3 consists of Other Secured Claims
classified as follows:
a. Class 3a. Class 3a consists of the Unimpaired - not entitled to vote
Truck Secured Claim.
b. Class 3b. Class 3b consists of the Unimpaired - not entitled to vote
Van Secured Claim.
c. Class 3c. Class 3c consists of the Unimpaired - not entitled to vote
Crow Secured Claims.
4. Class 4. Class 4 consists of the Certificateholder Impaired - entitled to vote
Secured Claims.
5. Class 5. Class 5 consists of all Certificateholder Impaired - entitled to vote
Deficiency Claims.
6. Class 6. Class 6 consists of General Unsecured Claims. Unimpaired - not entitled to vote
7. Class 7. Class 7 consists of all Interests. Impaired - entitled to vote
</TABLE>
ARTICLE 4.
TREATMENT OF CLASSIFIED CLAIMS
AND INTERESTS
A. Priority Claims (Class 1). Each holder of an Allowed Priority Claim
shall receive, on account of such Claim, (i) the amount of such holder's
Allowed Priority Claim in one cash payment or (ii) such other treatment as may
be agreed by the Debtor or Reorganized CWOP (if prior to or on the Effective
Date) or Jamboree LLC (if after the Effective Date) and such holder.
B. Secured Tax Claims (Class 2). Each holder of an Allowed Secured Tax
Claim shall receive, on account of such Claim, (i) a note in the Allowed amount
of such Claim secured by a lien on the Property pari passu with notes issued to
any other holders of Allowed Secured Tax Claims and senior to all other liens
on the Property, with interest payable monthly in arrears at a rate of 7.5% per
annum and any unpaid interest and principal payable on the third anniversary of
the Effective Date or (ii) such other treatment as may be agreed by the Debtor
or Reorganized CWOP (if prior to or on the Effective Date) or Jamboree LLC (if
after the Effective Date) and such holder.
C. Other Secured Claims (Classes 3a -3c).
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1. Truck Secured Claim (Class 3a). To the extent
Allowed, the Truck Secured Claim shall be
Reinstated.
2. Van Secured Claim (Class 3b). To the extent Allowed,
the Van Secured Claim shall be Reinstated.
3. Crow Secured Claims (Class 3c). To the extent
Allowed, the Crow Secured Claims shall be
Reinstated.
D. Certificateholder Secured Claims (Class 4).
1. Treatment. On account of its Claim, through the process
described in Paragraph 7.E, each holder of an Allowed
Certificateholder Secured Claim shall receive its Ratable Share of (i)
100% of the Jamboree Office REIT Shares outstanding on the Effective
Date, (ii) the New Class A Senior Secured Notes and (iii) the New
Class B Senior Subordinated Secured Notes.
2. Distribution to Jamboree Office REIT. On the Effective
Date, Jamboree Office REIT shall own 90% of the Jamboree LLC Units.
3. Allowance of Certificateholder Secured Claims; Mutual
Release. The Certificateholder Secured Claims are hereby Allowed in
the aggregate amount of $105 million.(1) On the Effective Date, the
Debtor and the Certificateholders shall enter into a mutual release of
claims and Causes of Action not provided for in the Plan.
4. Satisfaction of WFA Guaranty. The treatment of the
Certificateholder Secured Claims shall satisfy any and all claims of
the Certificateholders under the WFA Guaranty.
E. Certificateholder Deficiency Claims (Class 5).
1. Treatment. On account of its Claim, through the process
described in Paragraph 7.E, each holder of an Allowed
Certificateholder Deficiency Claim shall receive on account of such
Claim, cash in the amount equal to 0.01% of the amount of its Allowed
Claim
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(1) The proposed Allowed amount of the Certificateholder Secured Claims is
conditioned on the confirmation and effectiveness of the Plan and is a proposed
compromise and settlement between the Debtor and such holders in the
Reorganization Case. The proposal is in all respects subject to Rule 408 of the
Federal Rules of Evidence and shall not be used against either party, as an
admission or otherwise, in the adjudication of any such matters. If the Plan
does not become effective, the parties reserve all of their rights, including
the holders' right to elect treatment under Bankruptcy Code ss.1111(b), subject
to the terms of the Agreement of Understanding.
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2. Allowance of Certificateholder Deficiency Claims. The
Certificateholder Deficiency Claims are hereby allowed in the
aggregate amount of $93 million.(2)
F. General Unsecured Claims (Class 6). Each holder of an Allowed
General Unsecured Claim shall receive on account of such Claim, cash in the
amount equal to the Allowed amount of such Claim with interest payable on such
amount at the judgment rate of interest determined in accordance with 28 U.S.C.
ss. 1961(a) on the Confirmation Date, or such other rate as the Bankruptcy
Court may determine at the Confirmation Hearing.
G. Interests (Class 7).
1. Treatment. The holders of the Allowed Interests shall
retain their Interests in CWOP subject to the terms of the New CWOP
Partnership Agreement and the Plan.
2. Distribution to Reorganized CWOP. On the Effective Date,
Reorganized CWOP shall (i) own 10% of the Jamboree LLC Units, and (ii)
shall be a party to the New Property Appreciation and Exchange Rights
Agreement granting Reorganized CWOP (a) the New Tranche A Property
Appreciation Right, pursuant to which each of its Jamboree LLC Units
shall be exchangeable for a Jamboree Office REIT Share, (b) the New
Tranche B Property Appreciation Right and (c) the New Tranche C
Property Appreciation Right.
ARTICLE 5.
ACCEPTANCE OR REJECTION OF THE PLAN
A. Voting Classes. Classes 2, 4, 5 and 7 shall be entitled to vote to
accept or reject the Plan.
B. Presumed Acceptance of the Plan. Classes 1, 3a, 3b, 3c and 6 are
unimpaired, and under the Plan, Classes 1, 3a, 3b, 3c and 6 are conclusively
presumed to have accepted the Plan.
C. Nonconsensual Confirmation. If necessary, the Debtor hereby
requests that the Bankruptcy Court confirm the Plan in accordance with
Bankruptcy Code ss. 1129(b).
- --------
(2) The proposed Allowed amount of the Certificateholder Deficiency Claims is
conditioned on the confirmation and effectiveness of the Plan and is a proposed
compromise and settlement between the Debtor and such holders in the
Reorganization Case. The proposal is in all respects subject to Rule 408 of the
Federal Rules of Evidence and shall not be used against either party, as an
admission or otherwise, in the adjudication of any such matters. If the Plan
does not become effective, the parties reserve all of their rights, including
the holders' right to elect treatment under Bankruptcy Code ss.1111(b), subject
to the terms of the Agreement of Understanding.
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ARTICLE 6.
PROPERTY DISTRIBUTED UNDER THE PLAN
A. New Class A Senior Secured Notes.
1. Issuer Jamboree LLC
2. Principal $80,000,000; $1,000 per New
Class A Senior Secured Note.
3. Interest Fixed at closing at 2.25%
above the interest rate on
United States Treasury Bonds
or Notes with a maturity
closest to the maturity of
the New Class A Senior
Secured Notes on the
Effective Date, and accruing
from the Effective Date.
4. Term Five years from the Petition
Date.
5. Payments Interest only payable monthly
in arrears until the second
anniversary of the Petition
Date; thereafter interest and
principal payable monthly in
arrears with principal
amortized on a straight-line
basis based on a 25-year
amortization. Interest is
payable in New Class A Senior
Secured Notes until the first
anniversary of the Petition
Date.
6. Cash Flow Sweep Excess Cash Flow Amount (as
defined in the New
Indentures) shall be an
amount determined by the
Jamboree LLC Board equal to
the cash generated by the
Property in excess of
operating expenses, required
distributions, reserves,
certain scheduled principal
and interest payments and
other items indicated in the
New Indentures. Jamboree LLC
shall be required to use the
Excess Cash Flow Amount to
redeem the New Class A Senior
Secured Notes.
7. Security The New Class A Senior
Secured Notes shall be
secured by a first priority
lien on (a) the Property
(subject to the liens, if
any, securing payments to
holders of Allowed Secured
Tax Claims and as otherwise
permitted under the New Class
A Senior Secured Note
Indenture) and (b)
Reorganized CWOP's Jamboree
LLC Units.
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8. Redemption Redeemable at any time, in
whole or in part, at 102% of
face amount, plus accrued
interest until the third
anniversary of the Petition
Date. Thereafter, until 6
months prior to maturity,
101% of the face amount plus
accrued interest. Thereafter,
without any premium.
9. Covenants New Class A Senior Secured
Note Indenture shall contain
covenants typical of similar
publicly traded indenture
securities.
B. New Class B Senior Subordinated Secured Notes.
1. Issuer Jamboree LLC
2. Principal $20,000,000; $1,000 per New
Class B Senior Subordinated
Secured Note.
3. Interest Fixed at closing at 3.00%
above interest rate on United
States Treasury Bonds or
Notes with a maturity closest
to the maturity of the New
Class B Senior Subordinated
Secured Notes on the
Effective Date; and accruing
from the Effective Date.
4. Term Five years from the Petition
Date.
5. Payments Interest only payable monthly
in arrears until the third
anniversary of the Petition
Date; thereafter interest and
principal payable monthly in
arrears with principal
amortized on a straight-line
basis based on a 25-year
amortization. Interest is
payable in New Class B Senior
Subordinated Secured Notes
until the fourth anniversary
of the Petition Date.
6. Cash Flow Sweep Excess Cash Flow Amount (as
defined in the New
Indentures) shall be an
amount determined by the
Jamboree LLC Board equal to
the cash generated by the
Property in excess of
operating expenses, required
distributions, reserves,
certain scheduled principal
and interest payments and
other items indicated in the
New Indentures. Jamboree LLC
shall be required to use the
Excess Cash Flow Amount to
redeem New Class B Senior
Subordinated Secured Notes,
provided no New Class A
Senior Secured Notes remain
outstanding.
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7. Security The New Class B Senior
Subordinated Secured Notes
will be secured by a second
priority lien on (a) the
Property (subject to the
liens, if any, securing
payments to the holders of
Allowed Secured Tax Claims
and as otherwise permitted
under the New Class B Senior
Subordinated Secured Note
Indenture) and (b)
Reorganized CWOP's Jamboree
LLC Units.
8. Redemption Redeemable at any time, in
whole or in part, at 102% of
face amount, plus accrued
interest until the third
anniversary of the Petition
Date. Thereafter, until 6
months prior to maturity, at
101% of the face amount plus
accrued interest. Thereafter,
without any premium.
9. Covenants The New Class B Senior
Subordinated Secured Note
Indenture shall contain
certain covenants typical of
similar publicly traded
indenture securities.
10. Subordination The New Class B Senior
Subordinated Secured Notes
shall be subordinated in
right of payment and in all
other respects to the prior
payment in full in cash of
all existing and future
obligations of Jamboree LLC
with respect to the New Class
A Senior Secured Notes and
related documents.
C. Jamboree LLC Units.
1. Issuer Jamboree LLC.
2. Ownership Initially 90% of the Jamboree
LLC Units shall be held by
Jamboree Office REIT and 10%
of the Jamboree LLC Units
shall be held by Reorganized
CWOP.
3. Transferability Nontransferable except the
initial Jamboree LLC Units
held by Reorganized CWOP
shall be exchangeable at any
time into Jamboree Office
REIT Shares on an equivalent
percentage basis (subject to
potential dilution) by
exercise of the New Tranche A
Property Appreciation Right.
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D. Jamboree Office REIT Shares.
1. Issuer Jamboree Office REIT.
2. Ownership Initially, 100% of the
Jamboree Office REIT Shares
shall be owned by the holders
of Allowed Certificateholder
Secured Claims.
3. Authorization and 10 million shares authorized;
Issued Amounts 810,000 shares issued on the
Effective Date.
4. Par Value $0.01 per share.
5. Voting One vote per share with no
cumulative voting rights.
6. Pre-emptive Rights None in New Articles; certain
pre-emptive rights are
granted to Reorganized CWOP
under the Property
Appreciation and Exchange
Rights Agreement.
7. REIT Status Jamboree Office REIT
shareholders' ownership
interests shall be subject to
the maintenance of REIT
status by Jamboree Office
REIT.
E. New Tranche B Property Appreciation Right.
1. Exercise A right to purchase for
$10,888,888.89 a number of
Jamboree Office REIT Shares
representing 10% of the
equity value of Jamboree LLC
(subject to dilution) or, at
the option of Jamboree Office
REIT, to receive a net cash
payment equal to the
difference between the then
current market price of such
number of shares (assuming
the exercise of all such
rights and all other rights
under the New Property
Appreciation and Exchange
Rights Agreement concurrently
exercised) and such exercise
price. Reorganized CWOP may
elect to exercise the right
on a net issue or "cashless
basis" by surrendering a
portion of the shares
otherwise purchasable in
payment of the exercise price
for all such shares.
2. Exercise Period The earlier of (i) five years
from the Petition Date or
(ii) the occurrence of a
change in control of Jamboree
Office REIT.
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3. Discount If (i) Reorganized CWOP has
not exchanged its interests
in Jamboree LLC for Jamboree
Office REIT Shares, (ii)
Jamboree Office REIT elects
to satisfy the right in
shares, (iii) Reorganized
CWOP does not exercise the
right on a net issue basis
and (iv) Jamboree Office REIT
elects to declare a dividend
of the exercise price, then
the exercise price shall be
reduced by 10%.
F. New Tranche C Property Appreciation Right.
1. Exercise A right to purchase for
$152,777,777.78 a number of
Jamboree Office REIT Shares
representing 55% of the
equity value of Jamboree LLC
(subject to dilution) or, at
the option of Jamboree Office
REIT, to receive a net cash
payment equal to the
difference between the then
current market price of such
number of shares (assuming
the exercise of all such
rights and all other rights
under the New Property
Appreciation and Exchange
Rights Agreement concurrently
exercised) and such exercise
price. Reorganized CWOP may
elect to exercise the right
on a net issue or "cashless
basis" by surrendering a
portion of the shares
otherwise purchasable in
payment of the exercise price
for all such shares.
2. Exercise Period The earlier of (i) five years
from the Petition Date or
(ii) the occurrence of a
change in control of Jamboree
Office REIT.
3. Discount If (i) Reorganized CWOP has
not exchanged its interests
in Jamboree LLC for Jamboree
Office REIT Shares, (ii)
Jamboree Office REIT elects
to satisfy the right in
shares, (iii) Reorganized
CWOP does not exercise the
right on a net issue basis
and (iv) Jamboree Office REIT
elects to declare a dividend
of the exercise price, then
the exercise price shall be
reduced by 10%.
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ARTICLE 7.
MEANS OF IMPLEMENTING THE PLAN
A. Jamboree LLC.
1. Formation of Jamboree LLC. On or prior to the Effective
Date, Jamboree LLC shall be formed, and the initial Jamboree LLC Units
shall be issued 10% to Reorganized CWOP and 90% to Jamboree Office
REIT.
2. Jamboree LLC Board. The Jamboree LLC Board shall consist
of five members. The initial five members shall be designated one by
Reorganized CWOP and four by the holders of Allowed Certificateholder
Secured Claims.
3. Term. Jamboree LLC shall have a term of five and one-half
years from the Petition Date; provided the Property is not sooner sold
or otherwise transferred.
4. Management. A majority of the members of the Jamboree LLC
Board must approve (i) all operating decisions not designated as
requiring unanimous approval in the New LLC Agreement and (ii)
termination for cause of the New Management Agreement. 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 New Management Agreement without cause, (iii) sale
of all or any material portion of the Property within three years of
the Effective Date, (iv) except as otherwise provided in the New LLC
Agreement, issuance of additional units representing membership
interests, (v) the authorization of business activities other than the
ownership and operation of the Property within three years of the
Effective Date and (v) certain other matters provided in the New LLC
Agreement.
B. Jamboree Office REIT.
1. Incorporation of Jamboree Office REIT. On or before the
Effective Date, Jamboree Office REIT shall be formed, and the Jamboree
Office REIT Shares shall be authorized.
2. Board of Directors. The board of directors of Jamboree
Office REIT shall consist of three to nine members. The initial five
members shall be designated by the holders of Allowed
Certificateholder Secured Claims.
C. Reorganized CWOP.
1. Restated Certificate of Partnership. On or before the
Effective Date, Reorganized CWOP shall file an amended and restated
certificate of partnership.
2. Partnership Agreement. The partnership agreement of
Reorganized CWOP shall be substantially as set forth in the New CWOP
Partnership Agreement.
D. Revesting of Property. If this Plan becomes effective, the
confirmation of the Plan shall be deemed a revesting of all of the property of
the Estate into Reorganized CWOP and title to all property shall revest in
Reorganized CWOP free and clear of all Claims, all liens securing claims
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and all interests, except any lien preserved under the Plan, including the lien
created by the Existing Deed of Trust and any valid lien or encumbrance of
record on the date of recordation of the Existing Deed of Trust. Such property
shall thereafter be contributed to Jamboree LLC in accordance with Paragraph
7.E.
E. Transfer of Property to Jamboree LLC. The Property and other assets
of CWOP shall be transferred to Jamboree LLC and the Allowed Certificateholder
Claims shall be satisfied as follows: (1) after the satisfaction of the
conditions set forth in Paragraphs 12.A.1 and 12.A.2 but prior to the Effective
Date (a) CWOP shall issue to the holders of the Allowed Certificateholder
Secured Claims the Intermediate Notes, which shall be secured by all liens and
security interests securing the Allowed Certificateholder Secured Claims, which
shall be amended and restated as contemplated by the Collateral Documents
(except as provided in clause (b) hereof), which liens and security interests
are hereby expressly preserved under the Plan, and the Allowed
Certificateholder Secured Claims shall be deemed satisfied by the Intermediate
Notes and shall pay to the Certificateholders (or their agent) the cash
distributable to such holders under Paragraph 4.E in satisfaction of the
Allowed Certificateholder Deficiency Claims and (b) the Certificateholders
shall be deemed to have released any and all liens on and security interests in
the Intermediate Free Assets; (2) immediately thereafter (i) the $4.5 million
Intermediate Note shall be deemed contributed by such holders to Jamboree
Office REIT, and thereafter be deemed contributed by Jamboree Office REIT to
Jamboree LLC and merged out of existence upon assumption by Jamboree LLC of the
obligations of the Debtor as provided in the immediately following paragraph,
(ii) the Development Approval Agreement shall be deemed contributed by the
Certificateholders to Jamboree LLC; and (iii) CWOP shall transfer and
contribute all of its property, including assets securing the Intermediate
Notes (including the Crow Litigation) and the Intermediate Free Assets, to
Jamboree LLC; and (3) immediately upon the transfer and contribution of such
assets (x) Reorganized CWOP shall be issued 10% of the initial Jamboree LLC
Units and Jamboree Office REIT shall be issued 90% of the initial Jamboree LLC
Units and (y) the $100 million Intermediate Note shall be cancelled and
satisfied by the issuance of the New Notes to the holders of the Allowed
Certificateholder Secured Claims, which New Notes shall be secured by all liens
and security interests securing (i) the Allowed Certificateholder Secured
Claims, which shall be amended and restated as contemplated by the Collateral
Documents (except as provided in clause (b) hereof) and (ii) the Intermediate
Notes, all of which liens and security interests are hereby expressly preserved
under the Plan.
In consideration of the transfer and contribution of CWOP's
assets to Jamboree LLC, Jamboree LLC shall execute an assignment and assumption
agreement providing for the express assumption by Jamboree LLC of (i) the
obligations of the Debtor and Reorganized CWOP under the Plan designated for
performance by Jamboree LLC after the Effective Date and (ii) the obligation to
indemnify and defend WCI, WCM, WFA, Three Winthrop Properties, Inc., their
affiliates and any current or former director, officer or employee of the
foregoing for claims against them and expenses incurred in the Crow Litigation.
The contribution of the property by CWOP to Jamboree LLC and title to all
property so contributed shall pass to Jamboree LLC free and clear of all
Claims, all liens securing Claims and all Interests, except any lien preserved
under the Plan. Jamboree LLC shall not otherwise be liable or responsible for
any Claim against the Debtor or the Estate, except for the obligation to
satisfy any Claims against or Interests in the Debtor to the extent provided in
the assignment and assumption agreement or the Plan.
F. Partnership and Corporate Action. On the Effective Date, the
matters under the Plan involving the partnership of the Debtor or Reorganized
CWOP, partnership action by the Debtor or Reorganized CWOP, action by the
members of Jamboree LLC or corporate or shareholder action
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of Jamboree Office REIT, including, but not limited to, execution of all
documentation incident to this Plan, shall be deemed to have been authorized by
the Confirmation Order and to have occurred and be in effect from and after the
Effective Date without any further action by the partners of the Debtor or
Reorganized CWOP, the members of Jamboree LLC, the Jamboree LLC Board or the
shareholders or directors of Jamboree Office REIT.
G. Operation After Effective Date. Prior to the Effective Date, the
Debtor shall continue to operate its business subject to all applicable
requirements of the Bankruptcy Code and the Bankruptcy Rules. After the
Effective Date, Reorganized CWOP, Jamboree LLC and Jamboree Office REIT may
operate their businesses and may use, acquire, and dispose of property free of
any restrictions of the Bankruptcy Code or the Bankruptcy Rules. On the
Effective Date, (i) the operations of Reorganized CWOP shall become the
responsibility of WCI, who shall thereafter have responsibility for the
management, control and operation of Reorganized CWOP subject to, and in
accordance with, the New CWOP Partnership Agreement, (ii) the operations of
Jamboree LLC shall become the responsibility of its members, who shall
thereafter have responsibility for the management, control and operation of
Jamboree LLC, subject to and in accordance with the Jamboree LLC Limited
Liability Company Agreement and (iii) the operations of Jamboree Office REIT
shall become the responsibility of its board of directors, who shall thereafter
have responsibility for the management, control, and operation of Jamboree
Office REIT in accordance with its articles and bylaws.
H. Successors. Jamboree LLC, Reorganized CWOP and Jamboree Office REIT
shall be successors to the Debtor for the purposes of Bankruptcy Code ss.ss.
1123, 1129 and 1145.
I. Avoidance and Recovery Actions. As of the Effective Date, the
Debtor waives the right to prosecute and release, on behalf of itself and the
Estate, any avoidance or recovery actions under Bankruptcy Code ss.ss. 542
through 550 or any other claims, rights or Causes of Action that belong to or
could have been raised by or on behalf of the Debtor or its Estate, other than
or in connection with any such actions that were commenced on or before the
Effective Date. As successor to the Estate, Jamboree LLC shall retain and may
enforce any such action commenced on or before the Effective Date. Jamboree LLC
or any successor may pursue those rights of action, as appropriate, in
accordance with what is in the best interests of Jamboree LLC or successors
holding such rights of action. Nothing in this Paragraph shall be deemed to
waive any right of the Debtor, Reorganized CWOP or Jamboree LLC to assert
avoidance or recovery actions under Bankruptcy Code ss.ss. 542 through 550 or
any other Causes of Action defensively, including by way of setoff, recoupment
or counterclaim.
J. Saturday, Sunday or Legal Holiday. If any payment or act under the
Plan is required to be made or performed on a date that is not a Business Day,
then the making of such payment or the performance of such act may be completed
on the next succeeding Business Day, but shall be deemed to have been completed
as of the required date.
K. New Management Agreement. On the Effective Date, Jamboree LLC shall
enter into the New Management Agreement.
L. Section 1129(a)(4) Payment. Pursuant to Bankruptcy Code ss.
1129(a)(4) of the Bankruptcy Code, on the Effective Date, the Debtor or
Reorganized CWOP (if on the Effective Date) or Jamboree LLC (if after the
Effective Date) shall pay $500,000 to WCI.
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ARTICLE 8.
CLAIMS AND DISTRIBUTION
A. Objections to Claims. Except for Administrative Claims or as
otherwise ordered by the Bankruptcy Court, all objections to Claims shall be
filed and served on the applicable claimant by a date that is no later than 30
days after the Effective Date or 30 days after the date on which the Claim is
filed, whichever is later. After the Effective Date, only Reorganized CWOP or
Jamboree LLC shall have the authority to file, settle, compromise, withdraw or
litigate to judgment objections to Claims.
B. No Distributions Pending Allowance. Notwithstanding any other
provision of the Plan, no payment or distribution shall be made with respect to
any Claim until such Claim becomes an Allowed Claim.
C. Reservation of Rights to Object to Claims. Unless a Claim is
specifically Allowed under the Plan, the Debtor, Reorganized CWOP and Jamboree
LLC reserve any and all objections to Claims, whether secured or unsecured,
including any objection to the validity or amount of alleged liens and security
interests, whether under the Bankruptcy Code, other applicable law or contract.
ARTICLE 9.
DISTRIBUTIONS UNDER THE PLAN
A. Disbursements. Reorganized CWOP (if on the Effective Date) or
Jamboree LLC (if after the Effective Date) shall make all distributions of cash
and property pursuant to the Plan.
B. Time of Disbursements. Except as otherwise provided in this Plan,
distributions on account of Claims that are Allowed Claims on the Effective
Date shall be made by Reorganized CWOP on the Effective Date. Distributions on
account of Claims Allowed after the Effective Date shall be made by Jamboree
LLC when such Claims become Allowed.
C. Withholding Taxes. Reorganized CWOP (if on the Effective Date) or
Jamboree LLC (if after the Effective Date) shall be entitled to deduct any
federal, state or local withholding taxes from any payments under the Plan. As
a condition to making any distribution under the Plan, Reorganized CWOP (if on
the Effective Date) or Jamboree LLC (if after the Effective Date) may require
that the holder of any Allowed Claim or Interest provide such holder's taxpayer
identification number and such other certification as may be deemed necessary
to comply with applicable tax reporting and withholding laws.
D. Allowance of Claims Subject to ss. 502(d). Allowance of Claims
shall be in all respects subject to the provisions of Bankruptcy Code ss.
502(d).
E. Setoffs and Recoupments. Reorganized CWOP (if on the Effective
Date) or Jamboree LLC (if after the Effective Date) may, but shall not be
required to, set off against or recoup from the payments to be made pursuant to
the Plan in respect of a Claim, any claim of any nature whatsoever the Debtor
or the Estate may have against the holder, but neither the failure to do so nor
the allowance of any Claim hereunder shall constitute a waiver or release by
the Debtor, the Estate,
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Reorganized CWOP or Jamboree LLC of any such claim the Debtor or Estate may
have against such holder.
F. Undeliverable Distributions. If payment or distribution to the
holder of an Allowed Claim under the Plan is returned for lack of a current
address for the holder or otherwise, Jamboree LLC shall file with the
Bankruptcy Court the name, if known, and last known address of the holder and
the reason for its inability to make payment. If, after the passage of one year
and after any additional effort to locate the holder that the Bankruptcy Court
may direct, the payment or distribution still cannot be made, the payment or
distribution and any further payment or distribution to the holder shall be
retained by Jamboree LLC, and the Allowed Claim shall be deemed satisfied to
the same extent as if payment or distribution had been made to the holder of
the Allowed Claim.
G. Record Date for Disbursements. The record date for determining the
holders of Claims entitled to receive distributions under the Plan shall be the
Confirmation Date. Neither the Debtor, nor Reorganized CWOP nor Jamboree LLC
shall have any obligation to recognize any transfers of Claims after that date.
H. Cancellation of Existing Securities and Agreements. On and after
the Effective Date, the Certificates will represent only the right to receive
property distributable under the Plan. Each Certificateholder shall surrender
such cancelled Certificates to Reorganized CWOP (if on the Effective Date) or
Jamboree LLC (if after the Effective Date), and such Certificates shall be
cancelled.
I. Fractional Shares. Fractional Jamboree Office REIT Shares shall not
be issued under this Plan. Instead, the aggregate of all fractional shares that
would otherwise be issued under the Plan shall be pooled in a fractional shares
pool, and each holder of an Allowed Certificateholder Secured Claim entitled to
any such fractional interest shall be placed on a distribution list in
descending order according to the size of the fractional interest to which such
holder is entitled. If two or more holders are entitled to the same fractional
interest (rounded to six decimal places), their relative ranking on the
distribution list shall be determined by lot. Whole Jamboree Office REIT Shares
shall be distributed in the descending order set forth in the distribution list
to holders named on the list until all of the whole Jamboree Office REIT Shares
in the fractional shares pool have been distributed. No other distribution
shall be due or made on any fractional shares.
J. New Notes in Integral Multiples of $1,000. The New Notes shall be
issued only in denominations of $1,000 and integral multiples thereof. The
aggregate of all New Notes in each class in amounts less than $1,000 that would
otherwise be issued under the Plan shall be pooled in fractional notes pool and
each holder of an Allowed Certificateholder Secured Claim entitled to any such
fractional interest shall be placed on a distribution list in descending order
according to the size of the fractional interest to which such holder is
entitled. If two or more holders are entitled to the same fractional interest
(rounded to six decimal places), their relative ranking on the distribution
list shall be determined by lot. New Notes in each class in the amount of
$1,000 shall be distributed in the descending order set forth in the
distribution list to holders named on the list until all of the New Notes in
the fractional notes pool have been distributed. No other distribution shall be
due or made on New Notes in amounts less than $1,000.
K. Distribution of Jamboree Office REIT Shares. No distribution of
Jamboree Office REIT Shares shall be made to any entity under the Plan unless
and until such entity delivers to
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Jamboree Office REIT an executed REIT Certificate, provided that Jamboree
Office REIT, in its sole discretion, may elect to waive this requirement.
L. Distribution of New Property Appreciation and Exchange Rights
Agreement. Reorganized CWOP shall not receive the New Property Appreciation and
Exchange Rights Agreement unless and until it delivers to Jamboree Office REIT
an executed REIT Certificate.
ARTICLE 10.
EFFECT OF THE PLAN ON CLAIMS AND INTERESTS
A. Discharge. Except as otherwise provided herein, the confirmation of
this Plan shall (i) discharge the Debtor, the Estate and Reorganized CWOP from
any debt that arose before the Effective Date, any debt of the kind specified
in Bankruptcy Code ss.ss. 502(g), 502(h) or 502(i), all Claims, all contingent
and unliquidated liabilities of every type and description to the fullest
extent discharge of such liabilities is permitted under the Bankruptcy Code,
and all other Claims against the Debtor or the Estate that were outstanding,
accrued or existing, or might reasonably have been asserted, on the Effective
Date, in each instance whether or not a proof of such Claim is filed or deemed
filed, whether or not such Claim is Allowed, and whether or not the holder of
such Claim has voted on this Plan and (ii) shall preclude all persons from
asserting against Reorganized CWOP, Jamboree LLC or Jamboree Office REIT, their
respective successors or assets or properties any other or further Claims or
Interests based upon any act or omission, transaction, or other activity of any
kind or nature that occurred before the Effective Date.
B. Distributions in Satisfaction. Except for the obligations imposed
by the Plan and Interests retained under the Plan, the distributions and rights
that are provided in the Plan shall be in complete satisfaction, discharge and
release of all Claims against, liabilities of, liens on, obligations of and
Interests in the Debtor and the Estate or the assets and properties of the
Debtor, whether known or unknown, arising or existing prior to the Effective
Date.
C. Injunction. In accordance with Bankruptcy Code ss. 524, the
discharge provided by this Article and Bankruptcy Code ss. 1141, among other
things, acts as a permanent injunction enjoining entities other than the
Debtor, Reorganized CWOP or Jamboree LLC from the commencement or continuation
of any action, employment of process or act to collect or recover on the Claims
and Interests discharged hereby.
ARTICLE 11.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
A. Assumption and Rejection. On the Effective Date, each executory
contract and unexpired lease that exists between the Debtor and any person that
has not been assumed or rejected before the Confirmation Date with the approval
of the Bankruptcy Court or for which the Debtor has not filed a motion to
assume or reject before the Confirmation Date is hereby assumed. Entry of the
Confirmation Order by the Bankruptcy Court shall constitute approval of such
assumptions pursuant to Bankruptcy Code ss. 365(a). The Debtor or Reorganized
CWOP (if prior to or on the Effective Date) or Jamboree LLC (if after the
Effective Date) shall make any payments required under Bankruptcy Code ss.
365(b)(1) in cash on the Effective Date or as soon thereafter as is
practicable.
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B. Assignment. On the Effective Date, all executory contracts and
unexpired leases assumed by the Debtor shall be assigned to Jamboree LLC.
ARTICLE 12.
EFFECTIVENESS OF THE PLAN
A. Conditions Precedent. The Plan shall not become effective unless
and until each of the following conditions shall have been satisfied in full in
accordance with the provisions specified below:
1. Entry of Confirmation Order. The Bankruptcy Court shall
have entered the Confirmation Order approving the Plan in all
respects.
2. WCI Consent. WCI shall have obtained the necessary
consents from its limited partners to effect the Plan and transactions
provided herein.
3. Jamboree LLC and Jamboree Office REIT. Jamboree LLC and
Jamboree Office REIT shall have been formed, and all formation
documents for such entities shall have been properly executed and
filed as required.
4. Contribution of Assets. The issuance of the Intermediate
Notes, the contribution of the $4.5 million Intermediate Note, the
contribution of property by Reorganized CWOP, and the assumption of
obligations by Jamboree LLC shall have occurred in accordance with
Paragraph 7.E.
5. Documentation. Each of the parties thereto shall have
executed and delivered the Collateral Documents, the New Notes
Registration Rights Agreement, the New Equity Registration Rights
Agreement, the New Property Appreciation and Exchange Rights
Agreement, copies of the New Articles and the New Bylaws, the New LLC
Agreement, resolutions of the directors or members of each of Jamboree
Office REIT and Jamboree LLC, good standing certificates from
California and the respective states of organization of each of
Jamboree Office REIT and Jamboree LLC and all other documents
necessary or appropriate to the transactions outlined in this Plan.
6. Jamboree Office REIT Shares and Jamboree LLC Units.
Jamboree Office REIT shall have issued the Jamboree Office REIT Shares
in accordance with Paragraph 4.D. Jamboree LLC shall have issued 90%
of the initial Jamboree LLC Units to Jamboree Office REIT and 10% of
the initial Jamboree LLC Units to Reorganized CWOP.
7. Qualification of Indentures. The application for
qualification of each of the New Class A Senior Secured Note Indenture
and the New Class B Senior Subordinated Secured Note Indenture shall
have become and remain effective in accordance with the Trust
Indenture Act of 1939, as amended.
8. Perfection of Security Interests. All actions shall have
been taken or caused to be taken in such a manner so that the
Collateral Agent with respect to the collateral granted as security
under the Collateral Documents holds a valid and perfected first
priority security
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interest in such collateral (subject only to liens expressly permitted
under the Collateral Documents) including, without limitation,
delivery of certificates representing pledged equity interests,
delivery and filing of Uniform Commercial Code financing statements,
assignments and/or amendments in all jurisdictions as may be necessary
or desirable to perfect the Collateral Agent's security interest in
the Collateral, the recordation of the New Deed of Trust encumbering
the real property identified therein, the execution and delivery of
lockbox agreements regarding any accounts in which the Collateral
Agent holds a security interest, and the making of all other filings,
recordings or other actions the Collateral Agent deems necessary or
desirable to establish, preserve and protect the first priority liens
granted to the Collateral Agent in real, personal and mixed property.
9. Title Policies. The Collateral Agent shall have received
an ALTA lender's policy of title insurance on Form B-1970 (Rev.
10-17-84) issued by Chicago Title Insurance Company or an insurer of
similar professional reputation and financial wherewithal (with
reinsurance satisfactory to the Collateral Agent) naming the
Collateral Agent an insured in the amount of $100 million and in form
satisfactory to the Collateral Agent, insuring that the lien of the
New Deed of Trust is a valid first priority lien upon the property and
collateral described therein, subject only to encumbrances permitted
in the New Indentures, together with any endorsements required by the
Collateral Agent; and Jamboree LLC shall have received an ALTA owner's
policy of title insurance (Form 1970) issued by such insurer naming
Jamboree LLC as insured, in the amount of $105 million and in form
satisfactory to Jamboree LLC, insuring that Jamboree LLC owns fee
title to the real property, subject only to the New Deed of Trust and
encumbrances permitted in the New Indentures, together with any
endorsements required by Jamboree LLC.
10. Evidence of Insurance. The Collateral Agent shall have
received evidence satisfactory to Jamboree LLC and the Collateral
Agent that adequate insurance for the Property has been obtained and
that Jamboree LLC and the Collateral Agent are loss payees.
B. Waiver of Conditions. The conditions specified in Paragraphs
12.A.3. through 12.A.10 may be waived in writing by the Debtor and Requisite
Certificateholders.
C. Withdrawal of Plan. The Debtor reserves the right, at any time
prior to the entry of the Confirmation Order, to revoke or withdraw this Plan
with the written consent of the Requisite Certificateholders. If after the
Confirmation Order is entered, each of the conditions to effectiveness has not
been satisfied or duly waived on or by December 31, 1997, then upon motion by
the Debtor, the Confirmation Order may be vacated by the Bankruptcy Court;
provided however, that notwithstanding the filing of such a motion, the
Confirmation Order shall not be vacated if each of the conditions to
effectiveness is either satisfied or duly waived before the Bankruptcy Court
enters an order granting the relief requested in such motion. If the Debtor
withdraws the Plan or the Confirmation Order is vacated pursuant to this
Paragraph, the Plan shall be null and void in all respects, and nothing
contained in the Plan shall (i) constitute a waiver or release of any Claims
against or Interests in the Debtor, (ii) prejudice in any manner the rights of
the holder of any Claim against or Interest in the Debtor or (iii) prejudice in
any manner the rights of the Debtor in the Reorganization Case, including
(without limitation) the right to seek extensions of the exclusivity periods
under Bankruptcy Code ss. 1121(d).
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ARTICLE 13.
ADMINISTRATIVE PROVISIONS
A. Retention of Jurisdiction. The Bankruptcy Court shall retain
jurisdiction for the following purposes:
1. To hear and determine pending motions for the assumption
or rejection of executory contracts or unexpired leases and the
allowance of Claims resulting therefrom;
2. To determine any and all adversary proceedings, motions,
applications and contested matters;
3. To resolve disputes over the ownership of a Claim or
Interest;
4. To hear and determine timely objections to Claims, whether
filed before or after the Confirmation Date, including objections to
the classification, estimation or establishment of priority or status
of any Claim, and to allow or disallow any Claim, in whole or in part;
5. To enter and implement such orders as may be appropriate
in the event the Confirmation Order is for any reason stayed, revoked,
modified or vacated;
6. To consider modifications of or amendments to the Plan;
and
7. To hear and determine all controversies arising in
connection with the implementation of the Plan, including any
controversies relating to Jamboree LLC's obligations in connection
with the implementation of the Plan.
8. To enter a final decree closing the Reorganization Case.
B. Payment of Statutory Fees. All fees payable pursuant to Section
1930 of title 28 of the United States Code, through the Effective Date, shall
be paid on or before the Effective Date.
C. Exculpation. Neither the Debtor, nor Reorganized CWOP, nor the
Certificateholders that executed the Agreement of Understanding, nor their
respective limited and general partners, nor the predecessors of such entities
or the respective officers, directors, employees, shareholders, fiduciaries,
agents, limited and general partners of any of them (including any
professionals retained by such persons), shall have any liability to any holder
of a Claim or Interest or any other entity for any act or omission in
connection with, or arising out of, the Agreement of Understanding, the pursuit
of approval of the Disclosure Statement or the solicitation of votes for or
confirmation of the Plan or consummation of the Plan, except (i) the Debtor,
Reorganized CWOP and Jamboree LLC shall fulfill the obligations expressly set
forth in the Plan and (ii) each entity shall remain liable for its willful
misconduct or gross negligence.
D. Headings. Headings are used in the Plan for convenience and
reference only and shall not constitute a part of the Plan for any other
purpose.
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E. Binding. The Plan shall be binding on and inure to the benefit of
the Debtor, Reorganized CWOP, Jamboree LLC, Jamboree Office REIT, all of the
holders of Claims and Interests and their respective successors and assigns.
F. Final Order. Except as otherwise expressly provided in this Plan,
any requirement in this Plan for a Final Order may be waived by the Debtor (if
prior to the Effective Date), Reorganized CWOP (if on the Effective Date) or
Jamboree LLC (if after the Effective Date) upon written notice to the
Bankruptcy Court. No such waiver shall prejudice the right of any party in
interest to seek a stay pending appeal of any order that is not a Final Order.
G. Amendments and Modifications. To the fullest extent permitted under
Bankruptcy Code ss. 1127, this Plan may be altered, amended or modified by the
Debtor with the consent of Requisite Certificateholders (as defined in the
Agreement of Understanding) at any time prior to the Effective Date and by
Jamboree LLC anytime thereafter.
H. Withholding and Reporting Requirements. In connection with the Plan
and all instruments issued in connection therewith and distributions thereon,
the Debtor or Reorganized CWOP (if prior to or on the Effective Date) or
Jamboree LLC (if after the Effective Date) shall comply with all withholding
and reporting requirements imposed by any federal, state, local or foreign
taxing authority, and all distributions hereunder shall be subject to any such
withholding and reporting requirements.
I. Securities Exemption. Pursuant to Bankruptcy Code ss. 1145, the
offer and sale of the Jamboree LLC Units, the New Notes, the New Property
Appreciation Rights, the Jamboree Office REIT Shares and the Jamboree Office
REIT Shares issuable upon exercise of the New Property Appreciation Rights or
exchange rights under the New Property Appreciation and Exchange Rights
Agreement, and transactions in such securities shall be and are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, and any state or local law requiring registration for offer or sale of
a security or registration or licensing of an issuer of, underwriter of, or
broker or dealer in, such Jamboree LLC Units, New Notes, New Property
Appreciation Rights, Jamboree Office REIT Shares and Jamboree Office REIT
Shares issuable upon exercise of the New Property Appreciation Rights or
exchange rights under the New Property Appreciation and Exchange Rights
Agreement. The offer and sale of the Jamboree LLC Units, the New Notes, the New
Property Appreciation Rights, the Jamboree Office REIT Shares and the Jamboree
Office REIT Shares issuable upon exercise of the New Property Appreciation
Rights or exchange rights under the New Property Appreciation and Exchange
Rights Agreement under this Plan is deemed to be a public offering of the
Jamboree LLC Units, the New Notes, the New Property Appreciation Rights, the
Jamboree Office REIT Shares and the Jamboree Office REIT Shares issuable upon
exercise of the New Property Appreciation Rights or exchange rights under the
New Property Appreciation and Exchange Rights Agreement.
J. Tax Exemption. Pursuant to Bankruptcy Code ss. 1146, the issuance,
transfer or exchange of any security under the Plan, or the execution, delivery
or recording of an instrument of transfer pursuant to, in implementation of or
as contemplated by the Plan, or the revesting, transfer or sale of any real
property of the Debtor pursuant to, in implementation of or as contemplated by
the Plan shall not be taxed under any state or local law imposing a stamp tax,
transfer tax or similar tax or fee. Consistent with the foregoing, each
recorder of deeds or similar official for any county, city or governmental unit
in which any instrument hereunder is to be recorded shall, pursuant to the
Confirmation Order, be ordered and directed to accept such instrument, without
requiring the
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payment of any documentary stamp tax, deed stamps, stamp tax, transfer tax,
intangible tax or similar tax.
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K. Termination of the Committee. Any committee appointed under
Bankruptcy Code ss. 1102 shall cease to exist on the Effective Date.
Dated: Irvine, California Respectfully submitted,
July 23, 1997
CROW WINTHROP OPERATING PARTNERSHIP
as Debtor
By: WINTHROP CALIFORNIA INVESTORS LIMITED
PARTNERSHIP
Its: General Partner
By: THREE WINTHROP PROPERTIES, INC.
Its: General Partner
By: __________________________
Jeffrey Furber, President
<PAGE>
Exhibit C
The Annual Report on
Form 10-K
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
<PAGE>
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
5
<PAGE>
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.
6
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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
8
<PAGE>
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,
9
<PAGE>
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."
10
<PAGE>
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
11
<PAGE>
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% $22.42
1993 99.6% 22.60
1994 99.5% 23.59
1995 95.0% 23.08
1996 91.5% 23.34
(1) Occupancy rates are based on December 31 of indicated year and are not
yearly averages.
(2) Calculated using operating revenues, including rent escalations and
other revenues, for the entire year divided by the total square
footage of occupied space (based on the occupancy rates reported
in this table).
The following table sets forth certain information concerning lease
expirations as of March 1, 1997 (assuming no
12
<PAGE>
renewals for this property for the period from March 1, 1997 through December
31, 2006).
Number of Aggregate SF Annualized Percentage
Tenants Whose Covered by Rental for of Total
Leases Expiring Leases Annualized
Expire Leases Expiring($) 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.
13
<PAGE>
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
<PAGE>
Exhibit D
Quarterly Report for
Form 10-Q
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
<PAGE>
[LOGO OF FIRST WINTHROP CORPORATION] First Winthrop Corporation
One International Place
Boston, MA 02110
617-330-8600
August 7, 1997
Dear Investor Limited Partners:
In response to investor inquiries, this correspondence is being provided to
investors to further clarify the impact of the proposal described in the
Statement Furnished in Connection with the Solicitation of Consents, dated July
31, 1997 (the "Proposal"). Also enclosed is Supplement No. 1 to the Statement
Furnished in Connection with the Solicitation of Consents (the "Supplement")
that more fully describes the economic interests that the Partnership will
retain under the Proposal and further discusses the tax implications of the
Proposal, including the effect of the recent changes to the federal income tax
rate on capital gain.
As previously reported to investors, one of the Partnership's properties, the
Headquarters Facility, is encumbered by $200 million in debt which matured on
April 21, 1996. The current value of the Headquarters Facility is not sufficient
to sell or refinance the property for an amount that would satisfy the debt
obligation. However, the general partners have negotiated an agreement with the
lenders that permits the Partnership to retain an economic interest in the
property.
Ownership Interest
If the Proposal is implemented the Partnership will effectively own 10% of the
first $98 million of equity in the Headquarters Facility, 20% of the equity
between $98 million and $125 million and 75% of the equity over $125 million.
The general partners believe that, under the terms of the Proposal, there is a
strong likelihood that investors will receive a cash distribution upon a sale of
the property. However, if a majority of limited partners vote against the
Proposal, the property will be lost through foreclosure. In either event, the
Partnership will continue to own its 25% interest in the Crow Winthrop
Development Partnership.
<PAGE>
[LOGO OF FIRST WINTHROP CORPORATION]
Tax Considerations
If the property is lost through foreclosure, the general partners estimate that
an investor will immediately recognize long-term capital gain of approximately
$6,000 per unit. As described more fully in the enclosed Supplement, if the
Proposal is implemented, the general partners anticipate that a limited partner
who makes an election under Section 108(c) will recognize an aggregate amount of
ordinary income during the remaining period of ownership and upon a sale of the
property of approximately $6,000 per unit, approximately the same amount as an
investor will recognize currently if the property is foreclosed. Any income
recognized may be offset by suspended passive losses not previously utilized by
an investor.
You are strongly urged to consult your tax advisor and to read the Statement
Furnished in Connection with the Solicitation of Consents dated July 31, 1997
and the enclosed Supplement dated August 7, 1997. If you have any questions
related to this Proposal or your investment in the Partnership please do not
hesitate to contact Lara Sweeney or Carolyn Tiffany at (617) 330-8600.
<PAGE>
WINTHROP CALIFORNIA INVESTORS LIMITED PARTNERSHIP
One International Place
Boston, Massachusetts 02110
------------------------------
SUPPLEMENT NO. 1 TO
STATEMENT FURNISHED IN CONNECTION WITH
THE SOLICITATION OF CONSENTS
Dated: August 7, 1997
------------------------------
This Supplement No. 1 to Statement Furnished in Connection with the
Solicitation of Consents modifies certain sections of the Statement Furnished in
Connection with the Solicitation of Consents, dated July 31, 1997 (the "Consent
Statement") of Winthrop California Investors Limited Partnership.
-------------------------
The information in the Consent Statement set forth under the Heading "The
Proposal-Description of Proposal-Right to Obtain Additional Equity Interests in
Jamboree LLC" is amended and restated to read as follows:
Right to Obtain Additional Equity Interests in Jamboree LLC
Under the terms of the Property Appreciation Agreement, in addition to
receipt of its 10% interest in Jamboree LLC, 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 Jamboree LLC equals
or exceeds $98 million and (ii) additional 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 Jamboree LLC
equals or exceeds $125 million. 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
<PAGE>
to be the value that constitutes the mid-point of the range between the two
determinations that are closest in amount.
See, Part VI E. of the Disclosure Statement for additional information with
respect to the right of the Operating Partnership to receive such additional
payments or equity interests in Jamboree Office REIT and the right to exchange
its interest in Jamboree LLC for interests in Jamboree Office REIT.
-------------------------
The information in the Consent Statement set forth under the Heading "Certain
Federal Income Tax Consequences-Tax Consequences of a Foreclosure" is amended
and restated to read as follows:
Tax Consequences of a Foreclosure
One of the purposes of the Plan is to avoid a foreclosure sale of the
Headquarters Facility that would result in the immediate recognition of income
by Investor Limited Partners. If a foreclosure sale occurred, the Operating
Partnership and, hence, the Partnership (to the extent of its allocable share)
would recognize taxable gain equal to the excess of the outstanding amount of
the Existing Secured Note over the Operating Partnership's tax basis in the
Headquarters Facility (cost basis reduced by all prior depreciation deductions),
even though there would be no cash available for distribution to Investor
Limited Partners.
The Partnership's share of such gain would be allocable to Investor Limited
Partners pursuant to the Partnership Agreement. Upon a foreclosure, the General
Partners estimate that each Investor Limited Partner who purchased his Units in
the Partnership's original offering of Units would recognize approximately
$6,000 per Unit of taxable gain. (Such estimate is based on the amount of debt
outstanding as of the end of 1996 and on the results of Partnership operations
through the end of 1996.) For Investor Limited Partners who are subject to the
passive activity loss limitations of Section 469 of the Code (discussed below),
such gain could be offset by passive activity losses generated by the
Partnership or by other passive activities that have not been used previously by
such Investor Limited Partner. Assuming that an Investor Limited Partner has
been unable to use his share of the Partnership's passive activity losses in
excess of statutorily provided "phase-in" amounts, the General Partners estimate
that an Investor Limited Partner who purchased his Units pursuant to the
Partnership's original offering of Units may have suspended passive activity
losses of up to approximately $41,000 per Unit (based on the results of
Partnership operations through the end of 1996 and without giving effect to any
income, gain or loss realized by the Partnership in 1997), depending on the
Investor Limited Partner's date of entry into the Partnership. The General
Partners estimate that, if the Headquarters Facility were foreclosed, such
Investor Limited Partner could deduct $6,000 per Unit of his suspended passive
activity losses from the Partnership, resulting in a net federal income tax
benefit for such Investor Limited Partner of approximately $876 per Unit for
1997 (applying a 39.6% federal income tax rate to determine the tax benefit of
deducting such passive activity losses, and a 25% federal income tax rate to the
estimated taxable gain). By comparison, if an Investor Limited Partner who
purchased his Units pursuant to the Partnership's original offering of Units
does not have suspended passive activity losses, he would incur a federal income
tax liability of approximately $1,500 per Unit for 1997 (applying a 25% federal
income tax rate to the estimated taxable gain) without receiving any cash
distributions.
-------------------------
2
<PAGE>
The information in the Consent Statement set forth under the Heading "Certain
Federal Income Tax Consequences-Tax Reduction of Operating Partnership's
Indebtedness" is amended and restated to read as follows:
Reduction of Operating Partnership's Indebtedness
As a result of the Plan's implementation, the amount of the Operating
Partnership's aggregate outstanding indebtedness under the Existing Secured Note
will be reduced substantially. (The approximately $97.8 million reduction in the
outstanding balance of the Existing Secured Note that will occur immediately
before the Headquarters Facility is transferred to Jamboree LLC is hereinafter
called the "Debt Discharge Amount.") In general, the Code provides that a
taxpayer whose debt is discharged for no consideration must include the debt
discharge amount in income in the taxable year of discharge. (However, the
discharge of interest accrued under the Existing Secured Note since 1996 should
not result in any adverse tax consequences to the Operating Partnership.) The
Operating Partnership and, hence, the Partnership (to the extent of its
allocable share) will be required to recognize the Debt Discharge Amount as
ordinary income for 1997. Subject to a special election (described below) that
in effect defers the recognition of debt discharge income, an Investor Limited
Partner will be required to include in income and pay applicable income tax on
such Investor Limited Partner's allocable share of the Debt Discharge Amount,
estimated by the General Partners to be $20,600 per Unit.
Notwithstanding the Partnership's recognition of its allocable share of the
Debt Discharge Amount as ordinary income, the General Partners contemplate that,
subject to certain limitations discussed below, an Investor Limited Partner who
is an individual or an S corporation should be able to exclude his share of the
Debt Discharge Amount from income by making an election described in Code
Section 108(c) relating to "qualified real property business indebtedness." (The
election is not available to Limited Partners which are C corporations.) The
Existing Secured Note should be treated as qualified debt for this purpose since
such indebtedness was incurred prior to December 31, 1992 and is secured by the
Headquarters Facility.
AN ELECTION UNDER CODE SECTION 108(c) MUST BE MADE BY EACH INVESTOR LIMITED
PARTNER SEPARATELY AND NOT BY THE PARTNERSHIP. This section applies to a
partnership by treating a partner's partnership interest as depreciable real
property to the extent of the partner's proportionate interest in depreciable
real property held by the partnership. In the event an Investor Limited Partner
makes an election to apply the provision, the Investor Limited Partner's basis
in his Units and his share of the tax basis of the Headquarters Facility will be
reduced by an amount equal to the debt discharge income which is excluded from
the Investor Limited Partner's income under this provision. Such basis reduction
will have certain future tax consequences, described below, to an electing
Investor Limited Partner, including his being allocated taxable income over the
life of Jamboree LLC in excess of the cash distributions (if any) made to him.
AN INVESTOR LIMITED PARTNER ELECTING TO APPLY THESE PROVISIONS MUST MAKE AN
ELECTION ON HIS FEDERAL INCOME TAX RETURN FOR THE TAXABLE YEAR IN WHICH THE DEBT
DISCHARGE OCCURS, AND MUST NOTIFY THE PARTNERSHIP OF HIS ELECTION (SO THAT THE
PARTNERSHIP CAN IMPLEMENT THE RESULTANT DECREASE IN THE TAX BASIS OF THE
HEADQUARTERS FACILITY) PRIOR TO FILING SUCH RETURN. AN INVESTOR LIMITED PARTNER
DESIRING TO MAKE THIS ELECTION SHOULD CONSULT HIS TAX ADVISOR REGARDING THE
3
<PAGE>
APPROPRIATE PROCEDURES AND FORMS TO BE USED FOR NOTIFYING THE PARTNERSHIP AND
MAKING THE ELECTION.
If an eligible Investor Limited Partner makes an election under Section
108(c) and has not previously reduced the basis of his Units under this
provision in connection with a previous unrelated cancellation of indebtedness
(i.e., a cancellation of indebtedness not involving the Partnership), he could
exclude all of the $20,600 per Unit Debt Discharge Amount from income, and his
share of the depreciable basis of the Headquarters Facility would be reduced by
that amount. Accordingly, the depreciation deductions that could be claimed by
such Investor Limited Partner with respect to the Headquarters Facility
following such basis reduction would be correspondingly reduced. This aspect of
the election, together with certain allocations to be made pursuant to the LLC
Agreement (see "Federal Income Taxation of Jamboree LLC" below), is anticipated
to result in an Investor Limited Partner's recognizing, as ordinary income each
year, a portion of the excluded Debt Discharge Amount, which is not anticipated
to exceed $600 per Unit per year for an electing Investor Limited Partner. In
addition, under Sections 1017(d) and 1250 of the Code, such basis reduction is
subject to recapture as ordinary income upon a later sale by Jamboree LLC of the
Headquarters Facility, which is permitted without the Operating Partnership's
consent after 3 years. However, the General Partners currently do not anticipate
that the total amount of recapture income (inclusive of any annual amounts
described above) will exceed approximately $6,000 per Unit, which is
approximately the amount of taxable gain that would be recognized by Investor
Limited Partners currently if the Headquarters Facility were foreclosed. Any
income so recognized should qualify as passive activity income against which an
Investor Limited Partner can offset any unused passive activity losses from this
and other investments.
The General Partners estimate that an Investor Limited Partner who
purchased his Units pursuant to the original offering of Units and who has not
previously used any of his suspended passive activity losses from the
Partnership in excess of statutorily provided "phase-in" amounts may have up to
approximately $41,000 per Unit of suspended losses available (based on the
results of Partnership operations through the end of 1996 and without giving
effect to any income, gain or loss realized by the Partnership in 1997),
depending on the Investor Limited Partner's date of entry into the Partnership.
Such losses could be used to offset such Investor Limited Partner's share of the
Debt Discharge Amount, or any portion thereof not excluded by virtue of making
an election under Code Section 108(c).
If an Investor Limited Partner is not eligible to or does not make an
election to utilize Section 108(c), such Investor Limited Partner would be taxed
on the Debt Discharge Amount of $20,600 per Unit. If such Investor Limited
Partner has not previously used any of his suspended passive activity losses
from the Partnership in excess of statutorily provided "phase-in" amounts, the
General Partners estimate that such suspended passive activity losses should be
sufficient to fully offset the debt discharge income, and that such Investor
Limited Partner therefore should not incur any federal income tax liability.
(Passive activity losses generated by other investments could also be used to
offset such income and would further reduce the resulting tax liability.) By
comparison, if such Investor Limited Partner does not have suspended passive
activity losses, he would incur a federal income tax liability of approximately
$8,200 per Unit for 1997 (applying a 39.6% federal income tax rate) without
receiving any cash distributions.
The ability to exclude debt discharge income by making a Code Section
108(c) election is subject to several limitations. First, the amount that may be
excluded is limited to the excess of (1) the outstanding principal amount of the
debt immediately before the discharge over (2) the net fair market value of the
depreciable real property encumbered by the debt. No regulation or other
4
<PAGE>
guidance under Code Section 108(c) has been issued concerning whether unpaid
interest is eligible to be included in the "outstanding principal amount" of the
debt (and, hence, eligible for exclusion from income) for these purposes. In the
absence of any guidance on this issue, an Investor Limited Partner should have a
reasonable basis for including accrued but unpaid interest on the Existing
Secured Note in the limitation calculation (since the cancellation of such
amounts would give rise to debt discharge income in the same manner as a
reduction of the principal amount of debt), although the matter is not free from
challenge. No independent third-party appraisal has been obtained by the
Operating Partnership or the Partnership. Based on the valuation of the
Headquarters Facility made by the parties to the Plan, the General Partners
believe that this limitation should not significantly affect an Investor Limited
Partner's ability to utilize the election. However, such valuation is not
binding on a taxing authority or the courts, and, if the Headquarters Facility
were determined to have a value higher than $104.5 million, an Investor Limited
Partner's ability to utilize this exclusion could be adversely affected by this
limitation.
Second, there is an overall limitation under which the amount of debt
discharge income that may be excluded is limited to the adjusted tax basis of
all depreciable real property held by the Investor Limited Partner (through the
Partnership and other investments) immediately before the discharge, determined
as of the first day of the following taxable year or the earlier date of
disposition of the property (after giving effect to any other reductions in
basis resulting from reductions in tax attributes if the Investor Limited
Partner is bankrupt or insolvent). The Operating Partnership's basis in the
Headquarters Facility (excluding land) as of the projected time of the debt
discharge is estimated by the General Partners to be sufficient to enable an
electing Investor Limited Partner to exclude the entire Debt Discharge Amount
allocable to him. However, the tax law with respect to this issue as applied to
the transactions contemplated by the Plan is not free from doubt, and a risk
exists that an Investor Limited Partner may be required by a taxing authority to
compute this limitation by reference to a per Unit amount that is less than his
allocable share of the Debt Discharge Amount. In that event, an Investor Limited
Partner who owns no other depreciable property would be unable to exclude from
income a portion of the debt discharge income allocated to him.
Section 752 of the Code provides that a partner's share of partnership
liabilities is reflected in the adjusted basis of his partnership interest by
treating any increase in the partner's share of those liabilities as a
constructive contribution of money by the partner to the partnership and any
decrease in the partner's share of those liabilities as a constructive
distribution of money to the partner (a "Deemed Cash Distribution"). Under
Section 731 of the Code, an Investor Limited Partner recognizes income on a
partnership distribution only to the extent that the distribution exceeds the
adjusted tax basis of his Units. Income recognized as a result of a Deemed Cash
Distribution generally is characterized as a capital gain. The amount of an
Investor Limited Partner's adjusted tax basis in Units will vary depending upon
the Investor Limited Partner's particular circumstances.
An Investor Limited Partner's basis in his Units will be increased by his
allocable share of the Debt Discharge Amount (even if he makes a Section 108(c)
election to exclude that amount from income). Accordingly, although the
Partnership will be deemed to have made a cash distribution to Investor Limited
Partners to the extent of their share of the Debt Discharge Amount, the Investor
Limited Partners will have sufficient basis in their Units such that income will
not be recognized by them as a result of the Deemed Cash Distribution. An
Investor Limited Partner who makes a Section 108(c) election will then be
required to separately reduce his basis in his Units by the amount of debt
discharge income excluded under the election. Investor Limited
5
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Partners are urged to consult their tax advisors concerning this aspect of an
election under Code Section 108(c).
Under the Plan, approximately $4.5 million of the Operating
Partnership's indebtedness under the Existing Secured Note will be contributed
to Jamboree LLC in consideration for the issuance to Jamboree Office REIT of a
90% interest in Jamboree LLC. (The remaining balance due under the Existing
Secured Note after the Debt Discharge Amount, i.e., $100 million, will be
satisfied by Jamboree LLC's issuance of the New Notes.) In the absence of any
express guidance on this issue, the Operating Partnership intends to take the
position that such $4.5 million contribution does not result in any additional
debt discharge income to the Operating Partnership or the Partnership, although
this matter is not free from doubt. Such contribution, however, will result in a
Deemed Cash Distribution to Investor Limited Partners in an amount estimated by
the General Partners to be $1,300 per Unit. As indicated above, a Deemed Cash
Distribution will result in an Investor Limited Partner's recognition of taxable
gain without his receipt of any actual cash distributions to the extent such
Deemed Cash Distribution exceeds the adjusted tax basis of such Investor Limited
Partner's Units, which will vary depending on an Investor Limited Partner's
particular circumstances. Such gain could be offset by an Investor Limited
Partner's unused passive activity losses, if any, from the Partnership or other
investments.
<PAGE>
ARTHUR
ANDERSEN
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the inclusion
in this Form 8-K of our report dated June 13, 1997 included in Winthrop
California Investors Limited Partnership's Form 10-K for the year ended
December 31, 1996 and to all references to our Firm included in this Form 8-K.
/s/ Arthur Andersen LLP
Boston, Massachusetts
August 5, 1997
