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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
ARVIDA/JMB PARTNERS, L.P.
(NAME OF SUBJECT COMPANY)
ARVIDA/JMB PARTNERS, L.P.
(NAME OF PERSON FILING STATEMENT)
Limited Partnership Interests
and Assignee Interests Therein
(TITLE OF CLASS OF SECURITIES)
NONE
----
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
Gary Nickele
ARVIDA/JMB MANAGERS, INC.
900 North Michigan Avenue
Chicago, Illinois 60611
(312) 440-4800
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
Copy to:
Michael H. Kerr, P.C.
KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, Illinois 60601
(312) 861-2094
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ITEM 1. SECURITY AND SUBJECT COMPANY
The subject company is Arvida/JMB Partners, L.P., a Delaware limited
partnership (the "Partnership"). The address of the principal executive offices
of the Partnership and Arvida/JMB Managers, Inc., a Delaware corporation and the
general partner of the Partnership ("Managers"), is 900 North Michigan Avenue,
Chicago, Illinois 60611. The title of the class of equity securities to which
this statement relates is the outstanding limited partnership interests and
assignee interests therein (the "Interests") of the Partnership.
ITEM 2. TENDER OFFER OF THE BIDDER
This statement (the "Statement") relates to (a) the offer by Raleigh
Capital Associates L.P. ("Raleigh") disclosed on a Tender Offer Statement on
Schedule 14D-1 dated June 19, 1996, as amended by Amendment No. 1 dated June 28,
1996 (the "Raleigh Schedule 14D-1"), to purchase from the holders of Interests
(hereinafter sometimes referred to as "Interestholders") up to 185,000
Interests, representing approximately 46% of the total Interests outstanding as
of March 31, 1996, at a purchase price of $421 per Interest, net to the seller
in cash, without interest, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated June 19, 1996, as amended (the "Raleigh
Offer to Purchase"), and the related Letter of Transmittal (collectively with
the Raleigh Offer to Purchase, the "Raleigh Offer"), copies of which are
attached to the Raleigh Schedule 14D-1; and (b) the offer by Walton Street
Capital Acquisition Co. III, L.L.C., a Delaware limited liability company
("Walton"), disclosed on a Tender Offer Statement on Schedule 14D-1 dated June
27, 1996 (the "Walton Schedule 14D-1") to purchase from the Interestholders up
to 185,840 Interests, representing 46% of the total Interests outstanding as of
March 31, 1996, at a purchase price of $420 per Interest, net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase dated June 27, 1996 (the "Walton Offer to Purchase"),
and the related Letter of Transmittal (collectively with the Walton Offer to
Purchase, the "Walton Offer"), copies of which are attached to the Walton
Schedule 14D-1. Raleigh and Walton are herein collectively the "Purchasers" and
individually a "Purchaser," and the Raleigh Offer and the Walton Offer are
herein collectively the "Offers" and individually an "Offer."
The address of Raleigh's principal executive office is 100 Jericho
Quadrangle, Suite 214, Jericho, New York, 11735-2717. The address of Walton's
principal executive office is 900 North Michigan Avenue, Chicago, Illinois
60611.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Partnership, which is the
person filing this statement, are set forth in Item 1 above.
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(b)(1) Pursuant to the Partnership's Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement", filed as Exhibit (c)(1)
hereto), Managers is the sole general partner of the Partnership. All of the
outstanding shares of Managers are owned by Northbrook Corporation, a Delaware
corporation ("Northbrook"), and substantially all of the outstanding shares of
Northbrook are owned by JMB Realty Corporation, a Delaware corporation ("JMB"),
and certain of JMB's officers, directors, members of their families and their
affiliates. Managers has responsibility for all aspects of the Partnership's
operations. Arvida/JMB Associates, an Illinois general partnership, of which
certain officers, directors and affiliates of JMB are partners, and Arvida/JMB
Limited Partnership, an Illinois limited partnership, of which Arvida/JMB
Associates is the general partner and ML Real Estate Associates II, an affiliate
of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), is the
limited partner, are the Associate Limited Partners of the Partnership. Except
as described below, there are no material contracts, agreements, arrangements or
understandings or any actual or potential material conflicts of interest between
Managers or its affiliates, on the one hand, and the Partnership, its executive
officers, directors or affiliates, on the other hand. Capitalized terms not
otherwise defined herein are used as defined in the Partnership Agreement.
The Partnership Agreement for the Partnership contains the financial
arrangement between Managers and the Associate Limited Partners, on the one
hand, and the Interestholders, on the other. For each fiscal quarter, subject
to certain limitations contained in the Partnership Agreement, the Partnership
distributes all Cash Flow (which includes sales proceeds) (i) 90% to the holders
of Interests and 10% to Managers and the Associate Limited Partners
(collectively) until the holders of Interests have received a cumulative, non-
compounded, 10% per annum return on their Adjusted Capital Investments plus the
return of their Capital Investments; and (ii) thereafter, all Cash Flow is
distributed 85% to the holders of Interests and 15% to Managers and the
Associate Limited Partners (collectively); provided, however, that Managers and
the Associate Limited Partners (collectively) are entitled to receive
distributions of amounts otherwise distributable to the holders of Interests as
described in clause (ii) to the extent such additional amounts do not exceed the
lesser of (A) 2% of the total cumulative selling price of all interests in real
property of the Partnership which have been sold or otherwise disposed of
subsequent to the First Admission Date and (B) 13% of the cumulative amount
distributed under clause (ii) to all Persons. Certain executive officers of
Arvida Company, some of whom are also officers of Managers, share in a portion
of the Cash Flow distributable to Managers and the Associate Limited Partners.
The Partnership Agreement contains certain limitations on the above described
distribution of 10% of all Cash Flow to Managers and the Associate Limited
Partners (collectively), including the deferral, subject to certain limitations,
of 4.7369% of total Cash Flow distributable under clause (i) above until the
holders of the Interests have received aggregate Cash Flow distributions equal
to their Capital Investments. Such amount is currently being deferred.
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The officers and directors of Managers receive no direct remuneration
in such capacities from the Partnership. The directors of Managers, including
Mr. Neil G. Bluhm, one of the managing members of Walton, are also partners in
Arvida/JMB Associates, which is one of the Associate Limited Partners and the
general partner of the other Associate Limited Partner. Managers and the
Associate Limited Partners (collectively) received a distribution of Cash Flow
in 1995 of $302,689. Under certain circumstances, they will be entitled to
approximately $1,588,000 which has been deferred through March 31, 1996. Payment
of such amount, which does not bear interest, is subject to certain restrictions
contained in the Partnership Agreement and the Partnership's credit facility.
Because the timing and amount of Cash Flow and profits or losses of
the Partnership received by, or allocated to, Managers and the Associate Limited
Partners may be affected by various determinations by Managers under the
Partnership Agreement, including whether or not to refinance or sell any
property and the timing of any such sale or refinancing, the establishment and
maintenance of reasonable reserves, the level of amortization of indebtedness
and other matters, Managers may have a conflict of interest with respect to such
determinations. Managers may have an interest in retaining, rather than selling,
properties if Managers is receiving Cash Flow, or if the sales proceeds
realizable at the time in question would not be large enough to provide any
distribution to Managers or if a liquidation or termination of the Partnership
resulting from a sale of all or substantially all of the properties would
obligate Managers, the Associate Limited Partners and ML Real Estate Associates
II to make payments to the Interestholders.
Pursuant to the terms of the Partnership Agreement, if upon completion
of a liquidation and termination of the Partnership and final distribution of
all Partnership funds, the aggregate capital contributions with respect to all
Interests (other than those held by ML Real Estate Associates II) exceed the sum
of the distributions of Cash Flow to holders of such Interests over the life of
the Partnership plus any distributions upon the liquidation (such difference,
the "Excess Amount"), then Managers, the Associate Limited Partners and ML Real
Estate Associates II must make aggregate payments to holders of Interests (other
than ML Real Estate Associates II) in an amount equal to the lesser of the
Excess Amount or the aggregate amount of certain distributions of Cash Flow
received by Managers, the Associate Limited Partners and ML Real Estate
Associates II (to be made in proportion to such distributions of the Cash Flow
received by each of them, respectively) over the life of the Partnership. For a
complete description of these provisions and certain defined terms used therein,
see Section 4.1 of the Partnership Agreement which is filed as Exhibit (c)(1)
hereto.
If Managers is removed or ceases to be a general partner because of
bankruptcy or dissolution, the Partnership Agreement provides that the
Partnership will purchase Managers' interest (as well as the interests of the
Associate Limited Partners) in the Partnership for fair market value, as such
value is determined pursuant to the Partnership Agreement. Payment of such
amount must be made by the delivery of promissory notes bearing interest at the
lesser of 10% per annum or the reference rate established by Bank of America
Illinois plus 2% per annum with all principal and accrued interest subject to
mandatory payment from time to time from all Cash Flow realized by the
Partnership. The unpaid balance of such promissory notes will be due in equal
installments over a period of not less than five years. Any replacement or
successor general partner of the Partnership will be obligated to purchase from
the Partnership such interests of Managers and the Associate Limited Partners,
generally on the same terms as the Partnership paid for such interests with such
payment secured by such replacement or successor general partner's interest in
all of its future distributions of Cash Flow.
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The Partnership is permitted to engage in various transactions
involving Managers and its affiliates, as more fully described in the
Partnership Agreement.
The Partnership reimburses Managers or its affiliates for (i) the
actual cost to Managers or its affiliates of goods, materials and services used
for or by the Partnership and obtained from entities which are not affiliated
with Managers; (ii) salaries and related salary expenses for administrative
services which could be performed directly for the Partnership by independent
parties, such as legal, accounting, transfer agent, data processing, duplicating
and other such services; (iii) Partnership reports and communications to
investors; (iv) other administrative services, provided that such services are
necessary to the prudent operation of the Partnership; and (v) reimbursements to
Arvida Company in connection with its carrying out the duties described in the
Management Agreement described below; provided, however, that no reimbursement
under clauses (ii) through (v) above is permitted for services for which
Managers or its affiliates receive a separate fee and the amount of such
expenses may not exceed the lesser of (a) the actual cost of such services or
(b) 90% of the amount which the Partnership would be required to pay to
independent third parties for comparable services. For 1995, Managers or its
affiliates, other than Arvida Company, were reimbursed for direct or other
administrative and out-of-pocket expenses in the amount of approximately
$277,600.
The Partnership does not employ its own senior and supervisory
development and management employees. Instead, Arvida Company, an Illinois
corporation, the outstanding stock of which is owned by certain officers and
directors of JMB (including Mr. Bluhm) or their family members, employs all of
the senior and supervisory development and management personnel for the projects
and for the operation of the Partnership's developments and properties pursuant
to a Management, Advisory and Supervisory Agreement (as filed as Exhibit (c)(2)
hereto, the "Management Agreement"), who also act in such capacities for
Arvida/JMB Partners, L.P. - II and other Arvida Company real estate projects.
Arvida Company receives no fee for such services, but is reimbursed fully for
all of its out-of-pocket expenditures (including salary and salary-related
expenses) incurred in connection therewith, subject to the limitation that such
reimbursement may not exceed 5% of the aggregate gross revenues from the
business of the Partnership. In 1995, such expenses were approximately
$6,233,600. In addition, the Partnership has agreed to indemnify Arvida Company
and its directors, officers and employees for liability arising out of their
activities under the Management Agreement, except for fraud, bad faith or
negligence.
The Partnership and Arvida/JMB Partners, L.P. - II (a publicly-held
limited partnership affiliated with Arvida Company) each employ project-related
and administrative personnel who perform services on behalf of both
partnerships. In addition, certain out-of-pocket expenditures related to such
services and other general and administrative expenses are incurred and
allocated to each partnership as appropriate. The Partnership receives
reimbursements from or reimburses Arvida/JMB Partners, L.P. - II for such costs
(including salary and salary-related expenses). The Partnership received
approximately $1,021,800 from Arvida/JMB Partners, L.P. - II for such costs
incurred for the year ended December 31, 1995. In addition, the Partnership was
obligated to reimburse Arvida/JMB Partners, L.P. - II approximately $245,100 for
the year ended December 31, 1995.
The Partnership is also entitled to receive reimbursements from
affiliates of Arvida Company for certain general and administrative expenses
including, without limitation, salary and salary-related expenses relating to
work performed by employees of the Partnership and certain out-of-pocket
expenditures incurred on behalf of such affiliates. For the year ended December
31, 1995, such costs totaled approximately $509,000. Approximately $222,100 was
unpaid as of March 31, 1996. The Partnership periodically incurs salary and
salary-related costs on behalf of an affiliate of Managers. The Partnership was
entitled to receive approximately $31,400 for such costs for the year ended
December 31, 1995, all of which was outstanding as of March 31, 1996.
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Urban Retail Properties Co., an affiliate of Managers, provides
property management services at certain of the Partnership's retail properties.
For 1995, Urban Retail Properties Co. earned and received property management
fees of approximately $62,900 for providing such services.
JMB Insurance Agency, Inc., an affiliate of Managers, earned and
received insurance brokerage commissions for 1995 of approximately $272,300 in
connection with providing insurance coverage for certain of the properties of
the Partnership and for general liability, workers' compensation and certain
other miscellaneous insurance. Such commissions are at rates set by insurance
companies for the classes of coverage provided.
The Partnership Agreement exculpates Managers, its officers, directors
and affiliates from liabilities to the Partnership and indemnifies Managers, its
officers, directors and affiliates against liability to third parties resulting
from its or their acts or omissions, except in the event such liabilities or
losses resulted from misconduct or negligence (gross or ordinary). As a result
of the exculpation and indemnification provisions, a Limited Partner may be
entitled to a more limited right of action than he or she would otherwise have
if such provisions were not included in the Partnership Agreement.
Managers entered into Indemnification Agreements, effective June 1,
1996, with each of the members of the Special Committee formed by the Board of
Directors of Managers to consider offers for Interests (each such member,
individually, an "Indemnitee"), which provide that subject to certain provisions
of the Indemnification Agreements, in the event an Indemnitee is, or becomes a
party to, or witness or other participant in, or is threatened to be made a
party to, or witness or other participant in, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
investigative or other (a "Proceeding") by reason of (or arising in part out of)
an Indemnifiable Event (as hereinafter defined), Managers will indemnify such
Indemnitee from and against any and all expenses, judgments, fines, penalties
and amounts paid in settlement incurred or suffered by the Indemnitee to the
fullest extent permitted by law. The rights to receive indemnification and the
advancement of expenses under the Indemnification Agreement are not exclusive of
any other rights to which any Indemnitee may be entitled under any statute, the
Partnership Agreement or otherwise. "Indemnifiable Event," as used in the
Indemnification Agreements, means any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee or agent of Managers, or
is or was serving at the request of Managers as a director, officer, employee,
trustee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise or by reason of anything done
or not done by Indemnitee in any such capacity.
The obligation of Managers to make indemnification payments is subject
to the condition that Independent Legal Counsel (as hereinafter defined) shall
not have determined in a
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written opinion that Indemnitee is not permitted to be indemnified under
applicable law. If the Independent Legal Counsel determines that Indemnitee
substantively would not be entitled to indemnification under applicable law,
Indemnitee has the right to commence arbitration proceedings to determine his
right to indemnification. Otherwise any determination by such Counsel shall be
conclusive and binding on Managers and the Indemnitee. "Independent Legal
Counsel" is defined as an attorney or firm of attorneys selected by Indemnitee
and approved by Managers who shall not have otherwise performed services for
Managers or Indemnitee within the last five years. The fees of any Independent
Legal Counsel are to be borne by Managers.
The Indemnification Agreement provides that if requested by
Indemnitee, Managers shall advance within two business days any and all expenses
of Indemnitee. If and to the extent that Independent Legal Counsel determines
that Indemnitee is not permitted to be indemnified under applicable law,
Managers shall be entitled to be reimbursed, provided that if Indemnitee
exercises his right to have such issue determined by arbitration or other legal
proceedings his obligation to reimburse Managers shall be deferred pending the
outcome of such arbitration or proceedings.
Each of the Indemnitees has also entered into similar Indemnification
Agreements with Northbrook and JMB, affiliates of Managers. The by-laws of each
of Managers, Northbrook and JMB also provide that their respective officers,
directors, employees and other agents shall be indemnified by the respective
corporations to the fullest extent permitted under Delaware law, whether acting
in their capacities as officers, directors, employees or other agents of such
corporation or serving, at the request of such corporation, as a director,
officer, employee, fiduciary or other agent of another corporation, partnership
or other entity.
Certain senior executives of Arvida Company, which provides
development, construction, management and other personnel and services to the
Partnership, have entered into employment contracts with Arvida Company to
secure their continued service on behalf of the Partnership under the Management
Agreement. These contracts are generally for a one-to-three year term and
provide for severance of one year's base salary (in addition to any unpaid base
salary and accrued and unpaid bonus amounts for the remainder of the contract
term and the acceleration of payment of certain vested deferred compensation
amounts) either in the event of termination of employment without cause or in
the event of such termination after a change of control of the Partnership which
results in the termination of the Management Agreement or, in one instance, one
year's total compensation if the executive officer remains employed by Arvida
Company (or two years' total compensation if he does not remain so employed) in
the event of a change in control of the Partnership which results in the
termination of the Management Agreement. The amounts payable under these
employment contracts are primarily attributable to the services of these
executives performed on behalf of the Partnership, and are reimbursable under
the terms of the Management Agreement.
(b)(2) Except as described below, to the knowledge of Managers, there
are no material contracts, agreements, arrangements or understandings or any
actual or potential material conflicts of interest between the Partnership,
Managers or its affiliates, on the one hand, and the Purchasers, or their
respective executive officers, directors or affiliates, on the other hand.
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Raleigh
-------
On June 24, 1996, Raleigh requested a confidentiality agreement with
the Partnership pursuant to which Raleigh would be entitled, among other things,
to review certain non-public information concerning the Partnership, and, in
return, Raleigh would agree, among other things, to treat such information as
confidential in accordance with the terms of such agreement. The Partnership
has provided Raleigh with a confidentiality agreement having terms no less
favorable to Raleigh than those received by Walton. To date Raleigh has not
executed such confidentiality agreement with the Partnership.
During 1993 and 1994, Apollo Real Estate Advisors, L.P. ("AREA"), an
affiliate of Raleigh, either itself or through its affiliates, has invested, on
a negotiated basis, approximately $50,000,000 in real estate assets with
affiliates of JMB.
Walton
------
Managers has a conflict of interest with respect to the Walton Offer
as a result of the affiliation of certain of the managing members of Walton with
Managers and certain of its affiliates. See discussion under Item 3(b)(1) above
regarding certain material contracts, agreements, arrangements and
understandings and certain actual or potential material conflicts of interests
involving Managers, its affiliates and the Partnership, in which such managing
members of Walton, as a result of their affiliation with Managers and certain of
its affiliates, have an interest.
Walton was formed in December 1994 to be the exclusive investment
vehicle through which Mr. Bluhm and the other principals of Walton would make
opportunistic purchases of equity and/or debt interests in real estate assets
and real estate companies in the United States and Canada. Mr. Bluhm and Mr.
Ira J. Schulman, two of the managing members of Walton, are also the President
and a Vice President, respectively, of Managers in addition to owning interests
in Managers and Arvida/JMB Associates. Mr. Bluhm also serves as President of,
and is a significant shareholder in, JMB and is also an officer, director and/or
shareholder of certain of its affiliates, including Arvida Company. JMB and its
affiliates are principally engaged, directly and indirectly, in real estate
development and investment, including through Managers and Arvida Company.
Subsequent to the formation of Walton, Mr. Bluhm has remained involved in the
operation of JMB and certain of its affiliates, including Managers and Arvida
Company, while Mr. Schulman has remained involved in the operation of Managers
and Arvida Company. As such, Mr. Bluhm and Mr. Schulman received or had access
to confidential information, including draft projected budgets concerning the
Partnership's future operations. Since expressing an interest in making the
Walton Offer, neither Mr. Bluhm nor Mr. Schulman has been involved in Managers'
board or special committee meetings and neither has any current involvement in
decisions being made with regard to the Partnership. Neither Managers nor
Arvida Company owns any interests in Walton.
As discussed under Item 3(b)(1) above in regard to Managers and the
Associate Limited Partners, since a liquidation or sale of the Partnership's
assets other than in the ordinary course of business may result in a decrease or
elimination of certain payments payable to
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Managers, the Associate Limited Partners and their affiliates and its affiliates
or could give rise to an obligation of Managers and the Associate Limited
Partners to make certain payments to Interestholders, Walton will have
conflicting interests in deciding how to vote on future extraordinary
transactions affecting the Partnership. In addition, as discussed under Item
3(b)(1), because the timing and amount of Cash Flow and profits and losses in
the Partnership received by, or allocated to, Managers and the Associate Limited
Partners may be affected by various determinations by Managers, Messrs. Bluhm
and Schulman, as a result of their interests in Managers and the Associate
Limited Partners, may have a conflict of interest in participating in such
determinations by Managers and/or may have an interest in retaining rather than
selling properties under certain circumstances.
On June 17, 1996, Walton signed a confidentiality agreement with the
Partnership pursuant to which Walton is entitled, among other things, to review
certain non-public information concerning the Partnership and, in return, Walton
agreed, among other things, to treat such information as confidential in
accordance with the terms of such agreement, and to take or abstain from taking
certain actions, including agreeing that for a period of two years from the date
of such agreement not to acquire any Interests other than pursuant to an offer
made in compliance with the requirements of Regulations 14D and 14E of the
Securities Exchange Act of 1934 (the "Exchange Act"), all as set forth in such
agreement. Walton also agreed to provide Managers with advance notice of its
offer and to a minimum period that its offer would be required to remain open,
subject to certain conditions.
Walton has disclosed in the Walton Offer that it has entered into an
agreement (the "Financing Agreement") with Whitehall Street Real Estate Limited
Partnership VII ("Whitehall") pursuant to which, among other things, Whitehall
has agreed, subject to the terms and conditions of such agreement, to finance a
portion of the Walton Offer by purchasing approximately 80% of the Interests
tendered pursuant to the Walton Offer at the purchase price under the Walton
Offer. Whitehall and certain of its affiliates, including Goldman, Sachs & Co.,
as part of their investment banking and financial advisory business, are
continually engaged in the valuation of properties, businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. In that capacity, Whitehall and certain of its affiliates,
including Goldman, Sachs & Co., have provided financial advisory, asset
management, investment banking, underwriting, financing and similar services to
certain affiliates of Managers and the Partnership, including JMB, and are
anticipated to continue to provide such services in the future to such parties.
A director of Managers, who is also a member of the Special Committee
of its board of directors, is affiliated with Blackstone Real Estate Advisors,
L.P. ("Blackstone"). Whitehall and certain of its affiliates, including Goldman
Sachs & Co., have made investments with, and have provided financial advisory,
investment banking, financing and similar services to, Blackstone and its
affiliates, and are anticipated to continue to engage in investments with, and
to provide such services to, such parties in the future.
Mr. Bluhm and certain other principals and affiliates of Walton have
invested, directly or indirectly, in various community developments in which
Arvida Company has invested and/or acted as the project manager and may in the
future invest in additional community developments in which Arvida Company
and/or its affiliates invest and/or act as project manager.
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General
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In the event that one or both of the Offers is consummated, the
Purchaser under either Offer may be in a position to significantly influence
future Partnership decisions on which Interestholders and/or Limited Partners
may vote. As a substitute Limited Partner, the Purchaser under either Offer
would have the right to vote each Interest it purchases pursuant to its Offer.
Depending on the number of Interests it purchases pursuant to its Offer, the
Purchaser under either Offer could be in a position to influence significantly
all voting decisions with respect to the Partnership. Accordingly, a Purchaser
could (1) prevent non-tendering Interestholders from taking action they desire
but that such Purchaser opposes, and (ii) take action desired by such Purchaser
but opposed by non-tendering Interestholders. Under the Partnership Agreement,
holders of 10% or more of the Interests are entitled to call a meeting of
holders, and holders holding a majority of the Interests are entitled to take
action with respect to a variety of matters, including: removal of Managers as
the general partner of the Partnership; election of a successor general partner;
dissolution of the Partnership; the sale of all or substantially all of the
Partnership's properties (other than in the ordinary course of the Partnership's
business); and most types of amendments to the Partnership Agreement. When
voting on such matters, the Purchaser under either Offer may be expected to vote
Interests owned and acquired by it in its interest, which may not be in the
interest of other Interestholders or Managers. As discussed under "Walton"
above, as a result of the affiliation of certain of the managing members of
Walton with Managers and certain of its affiliates, such managing members of
Walton in deciding how to vote any Interests acquired by Walton will have
conflicting interests arising out of such affiliation.
The Partnership is prepared to provide confidential information to any
other responsible parties who express a bona fide interest in considering making
a tender offer for Interests in the Partnership pursuant to the requirements of
the federal securities laws. While it is possible that additional offers for
Interests in the Partnership on more favorable terms than the Offers may be
forthcoming, there can be no assurance as to whether any such offer will be
made, the terms thereof, or, if made, whether any such offer will be
subsequently amended or with drawn. In anticipation of the Walton Offer and
possible other offers, the Board of Directors of Managers formed a special
committee (the "Special Committee") consisting of those directors not affiliated
with Walton to consider any offers for Interests that may be received, including
the Offers. In addition to being directors of Managers, all of the members of
the Special Committee are directors or officers of, or are significant
shareholders (directly or indirectly) in, JMB, Northbrook, and certain of their
affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Following the Partnership's receipt of the Offers, the Special
Committee of the Board of Directors of Managers met with its financial and legal
advisors to review and consider the Offers and to explore various possible
alternative courses of action which might be available in response to the
Offers. Based on its analysis and its consultation with its advisors, the
Special Committee has determined that with respect to Interestholders who have
no current or anticipated need for liquidity and who expect to retain the
Interests through an anticipated orderly liquidation of the Partnership by
October, 2002
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, the Offers are inadequate and not in the best interests of such
Interestholders. Accordingly, the Partnership recommends that such
Interestholders reject the Offers and not tender their Interests pursuant to
either of the Offers. With respect to all other Interestholders, the Special
Committee is expressing no opinion and remains neutral with respect to the
Offers.
(b) The Special Committee reached the conclusions set forth in Item
4(a) after considering a variety of factors, including, but not limited to, the
following:
(i) The opinion of Lehman Brothers Inc. ("Lehman"), whom the
Partnership has retained as financial advisor for the Special Committee,
expressed in a letter dated July 2, 1996 delivered to the Special Committee,
that the consideration offered in the Offers is inadequate from a financial
point of view to the Interestholders as a class as compared to the Lehman
Estimated Liquidation Value (as defined below). However, because the decision of
each individual Interestholder as to whether to accept the consideration offered
pursuant to either of the Offers may be based to a significant extent on such
holder's current or anticipated need for liquidity, Lehman was not requested to,
and did not, render any opinion as to the adequacy, from a financial point of
view, of the consideration offered in each of the Offers to any particular
Interestholder who has an immediate need or desire for liquidity or any
particular Interestholder who anticipates a need for liquidity prior to October
2002. A copy of such letter is filed as Exhibit (c)(5) hereto.
(ii) Lehman has also prepared an estimate of the present discounted
value (the "Lehman Estimated Liquidation Value") of an Interest based on the
assumption that the Partnership commences a theoretical orderly liquidation in
October 1997 and completes that liquidation by October 2002 (the "Assumed
Liquidation"). The Lehman Estimated Liquidation Value as of July 2, 1996, which
was conveyed in writing to the Special Committee on July 2, 1996, is a range of
$565 to $610 per Interest. The Lehman Estimated Liquidation Value represents
Lehman's estimate (based on, among other things, the Partnership's June 1996
Draft Projected Budgets (defined below)) of the gross cash distributions that an
Interestholder would receive between June 30, 1996 and the completion of the
Assumed Liquidation, discounted to reflect the present value of such
distributions. It should be noted that the Lehman Estimated Liquidation Value
does not represent an estimate by Lehman of the fair market value of an
Interest.
The Lehman Estimated Liquidation Value is based in part upon certain
estimated cash receipts and disbursements of the Partnership through an assumed
liquidation in October, 2002. As a business planning tool, the Partnership
prepares near and long-term budgets of cash receipts and disbursements on an
annual basis for the next succeeding year and the remaining life of the
Partnership. These projected budgets are prepared to estimate the level of cash
flow each asset of the Partnership will produce and the related expenditures and
timing of the expenditures to achieve the potential cash flow. These projected
budgets are utilized as a management tool to determine the appropriate methods
of operating the Partnership's business, which include, but are not limited to,
the amount of invested capital in assets, appropriate development plans for
assets, level of indebtedness for the Partnership, cash reserves and appropriate
distribution levels. In addition, projected budgets are used in preparing a
borrowing base analysis of the Partnership's indebtedness to the market value of
its assets as required under the Partnership's credit facility with its
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<PAGE>
principal secured lender (the "lender"). The borrowing base analysis is
submitted quarterly to the lender pursuant to the requirements of the credit
facility. Due to the timing of submitting the borrowing base analysis and the
time at which particular projected budgets are finally completed and approved,
there generally are multiple ongoing revisions to the projected budgets. In
addition, the projected budgets may be updated during any particular year for
identified, material projected budgets change(s) to estimated cash receipts
and/or disbursements and to comply with the quarterly borrowing base analysis
required by the lender in order for the borrowing base analysis to be the most
current estimate when submitted.
Changes in projected budgets may occur due to changes in market
conditions (e.g., mortgage interest rates, consumer confidence, unemployment,
population growth and income levels), land use, entitlements, permitting, costs
of materials and labor, operating expenses, rental rates, price and quantity of
home sales, the amount, pricing and timing of the Partnership's homes, homes
built by third party builders in the Partnership's communities and competing
builders and competing communities, all of which are subject to frequent and
material changes. During the life of the Partnership long-term budgets have
changed materially on an annual basis and in some instances on a more frequent
basis. Because a significant portion of the Partnership's business is related to
the sale of undeveloped or partially developed parcels of land and homesites,
and development of residential properties within its communities, the amount of
cash flow realized by the Partnership may be affected by changes in overall
demand for homes, homesites and other real estate within its communities. In
particular, changes in demand could result from higher interest rates or the
unavailability of mortgage financing on advantageous terms or from inflation,
recessions or other economic conditions that reduce the utilization of, and
demand for, housing, homesites and undeveloped and partially developed parcels
of land. Any rise in interest rates or downturn in the national or local economy
could affect the Partnership's sales and cash flow. Such factors tend to be
cyclical in nature and have been experienced in the past.
Partnership has prepared various sets of long-term budgets of its
cash receipts and disbursements, all on a draft basis, to be reviewed by various
operating personnel for, among other things, appropriateness of assumptions,
timing of expected cash receipts and disbursements, cash reserves, timing of
scheduled bank term loan repayments and levels of cash flow generally. The draft
long-term budgets dated as of June 16, 1996 (the "June 1996 Draft Projected
Budgets"), were presented to the Special Committee and to Lehman for their
review and consideration as the most current long-term business plan of the
Partnership. The following are the June 1996 Draft Projected Budgets, which have
been prepared on the basis of the most current knowledge of the Partnership's
operating personnel:
<TABLE>
<CAPTION>
ARVIDA/JMB PARTNERS, L.P.
June 1996 Draft Projected Budgets
1996 1997 1998 1999 2000 2001 2002 Total
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES
- --------------------
RIVER HILLS 66 133 144 4,361 4,703
SAWGRASS 204 183 2,787 3,174
WESTON (8,360) (535) 19,790 2,592 (7,932) 33,625 37,693 76,872
COMMERCIAL (1,052) 38,791 (8,056) (11,458) 3,926 39,778 14,426 76,354
------- ------- ------- ------- ------ ------- ------- --------
SUBTOTAL OPERATING PROPERTIES (9,142) 38,571 14,665 (4,506) (4,007) 73,402 52,119 161,103
COMMUNITIES
- -----------
RIVER HILLS 1,322 4,222 8,348 7,771 1,039 22,701
SARASOTA 14,461 (1,602) (13,013) 20,548 22,868 43,261
SAWGRASS 834 859 878 897 917 286 4,670
JACKSONVILLE G & C.C. 7,194 3,061 4,652 14,907
BROKEN SOUND (377) (961) 486 716 595 690 1,305 2,454
WESTON 26,672 17,557 37,088 42,993 44,113 60,115 159,141 387,679
COMMERCIAL 5,424 (6,993) 1,421 2,295 4,488 3,966 13,555 24,157
WATERS EDGE/DOCKSIDE (523) 177 2,023 2,986 2,138 6,802
CULLASAJA 1,479 2,160 2,104 2,006 1,465 9,215
CALIFORNIA 11,772 11,772
BOCA COMM/BOCA ARSL 292 357 364 371 2,002 3,387
SUPPORT SERVICES (13,930) (13,729) (10,967) (9,249) (8,156) (6,492) (10,918) (73,441)
PROJECT FINANCING (35,331) 13,340 26,308 (6,917) 481 (35,207) (73,280) (110,606)
------- ------- ------- ------- ------ ------- ------- --------
SUBTOTAL COMMUNITIES 19,289 18,449 59,690 64,418 71,951 23,359 89,803 346,958
CONSOLIDATED TOTAL 10,147 57,020 74,355 59,912 67,944 96,761 141,922 508,061
------- ------- ------- ------- ------ ------- ------- --------
</TABLE>
The June 1996 Draft Projected Budgets are based upon a number of
factors, including the following items and assumptions:
. The June 1996 Draft Projected Budgets are generally based on the
Partnership's last three years (i.e., 1993, 1994 and 1995) market
experience, supplemented with market studies prepared periodically
by outside independent market research and economic analysis firms.
. The June 1996 Draft Projected Budgets do not include any specific
recessionary period in the market for selling homes. There is a
general assumption that absorption and pricing of the Partnership's
homes will average out in accordance with projected demand and
pricing through October, 2002.
. Underlying inflation in the home-building/land development
industry, based on particular markets, is assumed to be 2% - 3%
annually.
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<PAGE>
. Cash flows for community development and homebuilding are based on
current development plans, permits and entitlements (whether final
or preliminary).
. The Partnership's current bank term loan is assumed to be repaid in
full by the end of the first quarter of 1997.
. Project specific financing is assumed to be obtained and used to
finance construction costs of certain to-be-built commercial
properties.
. Debt financing is also assumed to be obtained and used to finance
the construction costs of housing units to be built by the
Partnership in certain communities. Such indebtedness is generally
assumed to be at specific loan to value ratios and utilized to fund
"hard construction costs."
. All bank and other financing is assumed to be generally recourse to
the Partnership, but at all times to be less than a percentage of
cost or of the market value of the Partnership's assets.
. Various land parcels are assumed to be sold in bulk while other
parcels are assumed to be sold as developed homesites and remaining
parcels are used for homes to be constructed and sold by the
Partnership.
. Club and amenity assets utilized by the Partnership as enhancements
to various communities and to assist in the marketing of the
Partnership's communities are assumed to be sold at times deemed
appropriate in a community's life-cycle and at assumed market
values based on a normal ized income or cash flow projection.
. Various parcels are assumed to be developed by the Partnership and
sold as developed operating properties or residential communities.
13
<PAGE>
. Certain bulk sales of assets are assumed to occur in the year 2002
in order to liquidate the Partnership's assets by the currently
anticipated date of October, 2002. Accordingly, a more
representative depiction of assumed average annual absorption and
sales levels may be the years 1996-2001. Sales are assumed to have
the following approximate average annual absorptions of units in
the following years:
<TABLE>
<CAPTION>
1996-2001 1996-2002
--------- ---------
<S> <C> <C>
Partnership built homes 1171 1202
Homesites 301 310
Third party builder
homes on homesites sold 312 319
by the Partnership
</TABLE>
. Land and property, homesites and housing cash flows are assumed
based on the Partnership's experience and assumptions as to the
costs and availability of labor and materials.
. Affordability of mortgage interest rates is assumed to remain at
acceptable levels for home buyers.
. All assets are assumed to be sold by October 2002, the currently
anticipated date for the liquidation of the Partnership. (See Item
7 below.)
The June 1996 Draft Projected Budgets are based on the above and
other assumptions and on other general factors relating to the
Partnership's business or to more general economic conditions. THERE
IS NO ASSURANCE THAT THE JUNE 1996 DRAFT PROJECTED BUDGETS WILL BE
ACHIEVED DUE TO, AMONG OTHER THINGS, CHANGES IN PRICING OR LEVELS OF
SALES; CHANGES IN COSTS OF CONSTRUCTION OR DEVELOPMENT; ADVERSE
GENERAL NATIONAL OR LOCAL ECONOMIC CONDITIONS; CHANGES IN INTEREST
RATES OR RESTRICTIONS IN FINANCING FOR BUYERS OF BULK LAND, HOMESITES
OR CONSTRUCTED HOMES; UNANTICIPATED EXPENDITURES TO BUILD OUT OR
DEVELOP IN ACCORDANCE WITH THE PARTNERSHIP'S CURRENT PLANS OR ANY
UNANTICIPATED CHANGES TO THOSE PLANS OR GOVERNMENTAL REQUIREMENTS TO
MAINTAIN ENTITLEMENTS OR TO OBTAIN APPROPRIATE PERMITS; CHANGES IN
ENVIRONMENTAL LAWS, REGULATIONS OR CONDITIONS AND UNANTICIPATED
EXPENDITURES FOR ENVIRONMENTAL MATTERS; CHANGES IN BUILDING CODES;
INCREASED COMPETITION; DELAYS IN OBTAINING PERMITS OR APPROVALS FOR
CONSTRUCTION OR DEVELOPMENT AND ADVERSE CHANGES IN LAWS, GOVERNMENTAL
RULES OR FISCAL POLICIES; AND OTHER FACTORS AFFECTING THE DEVELOPMENT
OF REAL ESTATE, THE CONSTRUCTION AND
14
<PAGE>
SALE OF HOMES, THE OPERATION OF CLUBS AND OTHER AMENITIES OR
COMMERCIAL PROPERTIES.
ACCORDINGLY, THE ACTUAL OPERATIONS AND CASH FLOWS OF THE
PARTNERSHIP ARE LIKELY TO VARY FROM THOSE INCLUDED IN THE JUNE 1996
DRAFT PROJECTED BUDGETS AND SUCH VARIATIONS MAY BE MATERIAL.
CONSEQUENTLY, SUCH BUDGETED RESULTS OF OPERATIONS AND CASH FLOWS
OF THE PARTNERSHIP, AND THE LEHMAN ESTIMATED LIQUIDATION VALUE,
ARE NOT GUARANTEES OF ACTUAL RESULTS OF OPERATIONS OR CASH FLOWS OF
THE PARTNERSHIP AND SHOULD NOT BE CONSIDERED AS THE ACTUAL RESULTS OF
THE PARTNERSHIP OR THE AMOUNT THAT WILL NECESSARILY BE REALIZED BY AN
INTERESTHOLDER WHO RETAINS AN INTEREST IN THE PARTNERSHIP THROUGH ITS
ACTUAL LIQUIDATION.
NO ASSURANCE CAN OR IS MADE THAT THE JUNE 1996 DRAFT PROJECTED
BUDGETED RESULTS OF THE PARTNERSHIP'S OPERATIONS AND CASH FLOWS, OR
THE AMOUNT SET FORTH IN THE LEHMAN ESTIMATED LIQUIDATION VALUE,
WILL BE REALIZED IN WHOLE OR PART. NO ASSURANCE CAN OR IS MADE AS TO
THE ACTUAL RESULTS THAT WILL BE ACHIEVED BY AN INTERESTHOLDER WHO
RETAINS AN INTEREST IN THE PARTNERSHIP.
(iii) The Raleigh Offer of $421 per Interest and the Walton Offer
of $420 per Interest are between approximately 69% and 75% of the high and low
end of the range in the Lehman Estimated Liquidation Value.
(iv) Over the past three years (i.e., 1993, 1994 and 1995), the
Partnership has generated net cash flow after operating expenses and before debt
service ("net operating cash flow") in an aggregate amount of approximately
$157,000,000. As required, under the terms of the Partnership's existing credit
facility and in order to repay the Partnership's acquisition and other certain
indebtedness, the Partnership's net operating cash flow was required to be used
to make scheduled and additional principal payments on its term loan, income
property term loan and revolving line of credit in the aggregate amounts of
approximately $19,300,000, $35,800,000 and $46,100,000 for the years 1993, 1994
and 1995, respectively, and was otherwise severely restricted with respect to
the amount of distributions that could be made to the partners. The Partnership
currently anticipates that it will have fully repaid its existing term loan by
the end of the first quarter of 1997 and is currently seeking a refinancing of
its income property term loan. The Partnership also currently has certain
project-specific financing and expects to obtain additional project-specific
financing in the future as well as a revolving line of credit for working
capital purposes. Given its current strong financial condition, the Partnership
does not believe that the terms of any such financing will impose substantial
restrictions on the Partnership's ability to make distributions to its partners
out of its net operating cash flow commencing in the second half of 1997.
(v) The Partnership believes that the Interests are a long-term,
illiquid investment and the full value of an investment in the Interests can
only be realized by an
15
<PAGE>
Interestholder who retains his/her Interests through the liquidation of the
Partnership. On the other hand, the Offers provide Interestholders who desire
immediate cash with the opportunity to immediately liquidate their investment in
the Partnership.
(vi) No active trading market exists for the Interests. Because the
Interests are not listed on an exchange or quoted as reported on NASDAQ, they
are essentially illiquid. Limited private sales and sales through certain
intermediaries are the only current means for an Interestholder to liquidate an
investment in Interests. The Partnership believes that trading prices of any
such sales do not reflect the values inherent in the Interests. The Partnership
anticipates that, in view of the absence of a public market for the Interests,
once the Offers have expired, the price for Interests through privately
negotiated sales and sales through intermediaries may be substantially less than
the purchase price under either of the Offers.
(vii) Each of Raleigh and Walton is making its respective Offer
with a view to making a profit. Accordingly, there is a conflict of interest
between their desire to purchase the Interests at a low price and
Interestholders' desire to obtain the maximum cash return for his/her Interests.
The Walton Offer itself concedes that Walton's own estimate of the net asset
value of the Interests is $559 per Interest, assuming the Partnership's assets
are developed and sold in the ordinary course of business.
(viii) The Partnership has, from time to time, received inquiries
from other parties that may be considering making tender offers for the
Interests. In anticipation of the Walton Offer, the Special Committee has
determined to make confidential information available to responsible parties who
express a bona fide interest in considering making a tender offer for Interests
in the Partnership pursuant to the requirements of the federal securities laws.
While it is possible that additional offers for Interests in the Partnership on
more favorable terms than either the Raleigh Offer or the Walton Offer may be
forthcoming, there can be no assurance as to whether any such offer will be
made, the terms thereof, or, if made, whether any such offer will be
subsequently amended or withdrawn.
(ix) As stated in the Raleigh Offer to Purchase, if the Raleigh
Offer is successful, Raleigh could "be in a position to significantly influence
all Partnership decisions on which Interestholders may vote, including decisions
regarding removal of the General Partner, merger, sales of assets and
liquidation." In considering the possibility of Raleigh influencing voting
decisions with respect to the Partnership and whether Raleigh or one of its
affiliates would replace Managers and be suitable in such a role, the
Partnership further considered the following:
(A) The terms of the Partnership's credit facility agreements
provide that in the event that the interest of Managers in the
Partnership is transferred to a person that is not an affiliate
of JMB the lender will have the right to accelerate the
Partnership's outstanding indebtedness under its term loan,
16
<PAGE>
income property term loan, revolving line of credit and letter
of credit facility. In such event, there could be a substantial
adverse effect on the Partnership's liquidity and ability to
continue its current operations.
(B) Under the terms of the Management Agreement, in the event of
the removal of Managers as the general partner of the
Partnership, Arvida Company will have the right to terminate
the Management Agreement upon 60 days' prior written notice.
Alternatively, a successor general partner of the Partnership
could terminate the Management Agreement upon 60 days' prior
written notice. In either such event, the Partnership would
lose (1) the knowledge and experience of Arvida Company in
developing and selling the Partnership's remaining interests
its communities and other assets and (2) the right to use the
"Arvida" name on its communities.
(x) Each of the Offers is conditioned upon Managers' consenting to
the admission of Raleigh or Walton, as the case may be, as a substitute limited
partner of the Partnership. Managers has not determined whether or not to admit
Raleigh or Walton as a substitute limited partner. Any such determination will
be made depending on a number of factors, including the effect on such admission
on the tax status of the Partnership.
(xi) Managers from time to time considers potential means of
enhancing the value of the Interests in the near term, such as a financing of
Partnership assets followed by a distribution of financing proceeds to the
partners or a "rollup" transaction. There are no current plans for any such
transaction, and there is no assurance that plans for any such transaction will
be developed, or that any such transaction will be pursued, in the future.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
The Partnership has engaged Lehman as financial advisor to the Special
Committee of the Board of Directors of Managers to prepare the Lehman Estimated
Liquidation Value and to advise the Special Committee of Lehman's opinion as to
the adequacy, from a financial point of view, of the consideration offered in
the Offers to Interestholders as a class as compared to the Lehman Estimated
Liquidation Value. Pursuant to the engagement agreement between the Partnership
and Lehman, the Partnership has paid Lehman a retainer of $125,000. In addition,
the Partnership has agreed to pay Lehman a fee of $250,000 for preparation of
the Lehman Estimated Liquidation Value and a fee of $50,000 upon delivery of its
adequacy opinion described above (with the $125,000 retainer to be credited
against such amounts). The Partnership has also agreed that (i) in the event of
a Transaction (as hereinafter defined), other than a tender offer for Interests,
it will pay Lehman a fee of 1% of the Consideration (as hereinafter defined)
involved in such Transaction for its assistance in developing financial
strategies and providing general financial advisory services, and (ii) upon
consummation of certain tender offers for Interests, including the Offers, it
will pay Lehman a fee equal to 2.5% of any Incremental Value (as hereinafter
defined) created
17
<PAGE>
in respect of a tender offer with a purchase price equal to or less than $441
per Interest, plus 5% of any additional Incremental Value thereafter, subject to
a maximum additional fee in respect of Incremental Value of $300,000. The
Partnership also has agreed to reimburse Lehman for its reasonable out-of-pocket
costs, and to indemnify it against certain expenses and liabilities if incurred
in connection with its engagement, including liabilities under the federal
securities laws. Lehman's engagement is for a period of two years. Lehman has
been previously engaged by the Partnership, including in connection with the
unsolicited preliminary proposal for the purchase of the Partnership's assets
received in March 1994 discussed in Item 7 below. For purposes of this
paragraph, "Transaction" means any transaction or series or combination of
transactions, other than in the ordinary course of business, whereby (i) control
of a material amount of the Partnership's businesses or assets is transferred
for consideration, (ii) any payment or distribution of cash, securities or other
property is made to the partners of, or to the holders of debt securities of or
other claims against, the Partnership as to which Lehman completes analyses or
represents the Partnership in discussions with third parties, and (iii)
Interests in the Partnership are transferred in connection with a tender offer
that is subject to the requirements of Sections 14(d) and 14(e) of the
Exchange Act; "Consideration" means the gross value of all cash, securities and
other property paid directly or indirectly by the acquiror to the seller(s) (or
contributed by the parties in the case of a joint venture), as well as the
aggregate principal amount of any of the seller's indebtedness, unfunded pension
liabilities, and/or guarantees assumed by the acquiror; and "Incremental Value"
means the product of the excess of the tender offer price over $420 per Interest
multiplied by the number of Interests tendered at such price.
Except as described above, neither the Partnership nor any person
acting on its behalf has employed, retained, or compensated or intends to
employ, retain, or compensate any other person or class of persons to make
solicitations or recommendations to holders of Interests on its behalf
concerning the Offers.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as described in Item 3, neither the Partnership nor
Managers has effected any transactions in the Interests during the past 60 days.
Except as described in Item 3, Managers is not aware of any transactions in the
Interests during the past 60 days by any of its executive officers, directors,
affiliates, or subsidiaries.
(b) Neither Managers nor, to the knowledge of Managers, any of its
executive officers, directors, affiliates, or subsidiaries intends to tender
Interests owned by them in the Offers.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) In December 1994, Managers was contacted by an unaffiliated third
party investor group (which included Bankers Trust New York Corporation, Widock
Partners, Ltd., which was comprised of certain former officers of Arvida
Company, Managers and one of its
18
<PAGE>
affiliates, and Apollo Real Estate Advisors, L.P. ("AREA"), an affiliate of
Raleigh), to discuss a possible transaction involving the acquisition of the
Partnership and/or Managers' interest in the Partnership. The former officers
included a Vice President of Managers who was also the Chief Financial Officer
of Arvida Company and who resigned from both such positions in May 1994, and the
Director of Acquisitions of Arvida Company, who resigned in April, 1994. The
Partnership does not know what non-public information about the Partnership, if
any, such former officers may have provided to the investor group in connection
with its possible acquisition. Managers advised the investor group that it was
not interested in selling its interest in the Partnership and that the
Partnership was not interested in selling its assets. In March 1995, Managers
received a preliminary written unsolicited proposal from this investor group,
which proposal did not identify AREA as being a member of the investor group at
that time, seeking to acquire the business of the Partnership. Such proposal was
very preliminary in nature and was subject to a number of contingencies and
conditions, including the completion of satisfactory business and legal due
diligence and the negotiation and execution of an acquisition agreement.
Pursuant to the proposal, the investor group would acquire the business of the
Partnership for an aggregate purchase price of $240,000,000 plus the assumption
of certain liabilities, excluding approximately $102,000,000 of the
Partnership's indebtedness. In addition, the investor group would only assume,
among other things, certain liabilities reflected on the balance sheet as of
September 30, 1994. The investor group would not assume any liabilities relating
to litigation, except litigation covered by insurance and other litigation
incurred in the ordinary course of business and not, in the aggregate, material
to the business. Representatives of Managers and representatives of the investor
group held several phone calls to clarify certain aspects of the proposal since
the financial result to the Partnership was not fully determinable under the
proposal. In response to this unsolicited proposal, the Partnership retained
Lehman to evaluate the adequacy of the unsolicited proposal. In April 1995,
Lehman delivered its written and oral opinion to the Partnership that, from a
financial point of view, the consideration offered by the investor group was
inadequate and the Partnership therefore rejected the proposal. No further
significant correspondence was received from this third party.
Managers received a letter dated May 1, 1996, on behalf of Merced
Partners ("Merced"), an unaffiliated third party and an existing Interestholder,
notifying Managers that it was interested in making a tender offer for up to 4.9
% of the Interests and requesting certain information from the Partnership,
including the list of Interestholders. Managers furnished a list of
Interestholders to Merced, but is not aware that Merced has begun an offer.
On May 15, 1996, at a meeting of the board of directors of Managers,
Mr. Bluhm informed the board that Walton, or one of its affiliates, was
considering making an offer for some of the Interests. The board decided that it
would be in the best interests of the Partnership if Mr. Bluhm and Mr. Schulman,
two of the managing members of Walton, participated neither in the Partnership's
management and affairs nor in Managers' consideration of any offers during such
time as Walton is exploring an offer or until such time as the Walton Offer is
completed. In addition, Managers created a Special Committee (consisting of
directors not affiliated with Walton), which retained independent counsel to
advise it in connection with any potential offers from third parties, including
any potential offer from Walton, involving the Interests. By a press release
dated June 21, 1996, the Partnership, among other things, announced that it had
hired
19
<PAGE>
Lehman to assist it in evaluating any offers from third parties that may be made
for Interests in the Partnership. Since May 15, 1996, neither Mr. Bluhm nor Mr.
Schulman has been involved in any of the Special Committee meetings nor have
they had any involvement in decisions being made with regard to the Partnership.
During May and June of 1996, certain members of Walton met with
representatives of Managers. The purpose of these meetings was to (i) reiterate
to the representatives that Walton was considering making an offer to the
Interestholders to purchase Interests in the Partnership, (ii) to request
information on the Partnership's projects, (iii) to request a list of names and
addresses of all of the Interestholders and (iv) to discuss certain procedural
issues in connection with the making of the Walton Offer and the transferring of
Interests pursuant to the Walton Offer, as well as to negotiate the terms of the
confidentiality agreement discussed below.
By an offer to purchase dated June 12, 1996, Equity Resources Bay Fund
("Equity"), an unaffiliated third party, began a tender offer for up to 12,000
Interests at a price of $100 per Interest. This offer is scheduled to expire on
July 12, 1996. Equity had previously requested a list of Interestholders, which
it received in April, 1996.
On June 12, Managers received a request from the Secondary Market
Fund L.P. ("SMF"), an unaffiliated third party, seeking a list of
Interestholders in order to facilitate a tender offer for less than five percent
of the Interests in the Partnership. On June 13, 1996, Managers entered into an
agreement with SMF to provide such list.
On June 17, 1996, Walton (i) signed a confidentiality agreement with
the Partnership pursuant to which Walton is entitled, among other things, to
receive certain non-public information concerning the Partnership and, in
return, Walton agreed, among other things, to treat such information as
confidential in accordance with the terms of such agreement, and to take or
abstain from taking certain actions including agreeing that for a period of two
years from the date of such agreement not to acquire any Interest other than
pursuant to an offer made in compliance with the requirements of Regulations 14D
and 14E of the Exchange Act, all as set forth in that agreement and (ii) gave
prior notice of at least five business days, as required by the confidentiality
agreement, that it intended to commence a tender offer in the near future.
On June 19, 1996, Raleigh commenced its Offer for up to 185,000
Interests at a price of $411 per Interest. The Raleigh Offer is scheduled to
expire on July 17, 1996.
On June 20, 1996, Walton and Whitehall met with senior management of
Arvida Company, three of whom are also officers of Managers, to discuss the
business and projects of the Partnership. As part of these meetings, Walton and
Whitehall received drafts of the Partnership's long-term budgets through the
year 2002.
On June 21, 1996, the Partnership issued a press release relating to
the Raleigh Offer, the announced intention of an affiliate of a director and
officer of Managers (such affiliate being Walton) to make an unsolicited tender
offer for the Interests in the Partnership, and an unsolicited offer and a
potential unsolicited offer from unaffiliated third parties for less than five
percent of the Interests (a copy of which press release is filed herewith as
Exhibit (c)(3)). On the same date the Partnership also mailed a letter to all
Interestholders informing them of these offers and potential offers (a copy of
which is filed as Exhibit (c)(4) hereto).
20
<PAGE>
On June 21, 1996, Managers received a request from Longacre Corp.
("Longacre"), an unaffiliated third party, requesting a list of Interestholders
in order to facilitate a tender offer for Interests in the Partnership by an
affiliate of Longacre. On June 27, 1996, Managers entered into an agreement
with Longacre to provide such list on the condition that it be used solely to
make a tender offer for the Interests in compliance with the requirements of the
Exchange Act.
On June 24, 1996, Raleigh requested a confidentiality agreement with
the Partnership pursuant to which Raleigh would be entitled, among other things,
to review certain non-public information concerning the Partnership, and, in
return, Raleigh would agree, among other things, to treat such information as
confidential in accordance with the terms of such agreement. The Partnership
has provided Raleigh with a confidentiality agreement having terms no less
favorable to Raleigh than those received by Walton. To date Raleigh has not
executed such confidentiality agreement with the Partnership.
On June 28, 1996, Walton commenced its Offer for up to 185,840
Interests at a price of $420 per Interest. The Offer is scheduled to expire on
July 26, 1996.
On June 28, 1996, Raleigh amended its Offer to increase the price to
$421 per Interest.
Managers has, from time to time, received inquires from other parties
which may consider making offers for the Interests of the Partnership. These
inquiries were preliminary in nature and, accordingly, there can be no assurance
that any such offers will be made or, if made,
21
<PAGE>
will be consummated. There can be no assurance that any of the foregoing will
result in any transaction being recommended to the Partnership or that any
transaction that may be recommended, will be authorized or consummated, or that
a transaction other than those described herein will be proposed, authorized or
consummated.
Under the Partnership Agreement, Managers is required to elect to
pursue one of the following courses of action: (i) to cause the Interests to be
listed on a national exchange or to be reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") at any time on or prior
to October 31, 1997; (ii) to purchase, or cause JMB or its affiliates to
purchase, on October 31, 1997 all of the Interests of the Interestholders at
their then appraised fair market value (as determined by an independent
nationally recognized investment banking firm or real estate advisory company);
or (iii) to commence a liquidation phase on October 31, 1997, in which all of
the Partnership's remaining assets will be sold or disposed of by October 31,
2002. The Special Committee of Managers at a meeting on June 27, 1996,
expressed the position of the members of such Committee that, if such choice
were to be submitted to the board of Managers at the present time, based on the
facts and circumstances then known to them, such members would vote in favor of
commencing a liquidation phase on October 31, 1997, in which all of the
Partnership's remaining assets would be sold over five years. The Special
Committee directed that Lehman be informed of the members' position in reaching
an opinion with regard to the adequacy of the Offers. It should be noted that
Managers has not approved a plan of liquidation and that Managers expressly
reserves the right to choose any of the three alternatives on or prior to
October 31, 1997.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Pursuant to the Partnership Agreement, no transfer or assignment of
Interests which, when considered with all other transfers or assignments during
the twelve-month period ending with such transfer or assignment, would, in the
opinion of counsel to the Partnership, cause a termination of the Partnership
for federal income tax purposes (which termination may occur when 50% or more of
the total interest in the Partnership capital and profits is transferred by sale
or exchange in a twelve-month period) shall be effective. Depending upon the
number of Interests tendered pursuant to the Offers, sales of Interests on the
secondary market for the twelve-month period following completion of the Offers
may be limited. The Partnership will not process any requests for transfers of
Interests during such twelve-month period which the Partnership believes would
cause a tax termination. For the period from July 1, 1995 to June 30, 1996
approximately 17,465.5 (approximately 4.3%) of the Interests were transferred.
The aggregate number of Interests being sought pursuant to each of the Offers
equals approximately 46% of the Interests and together equal approximately 92%
of the Interests. However, because of the tax-related transfer restrictions, in
no event will an aggregate of 50% or more of the Interests be acquired pursuant
to the Offers (reduced to the extent of any prior transfers of Interests within
the preceding twelve months unless such previously transfered Interests can be
traced to Interests accepted for purchase under the Offers). Thus, depending on
the number of Interests acquired in the Offer which closes first, it is possible
that only a limited number of Interests could be purchased pursuant to the
later-closing Offer.
An Interestholder may recognize gain or loss on the sale of
Interests pursuant to the Offers depending on the specific circumstances of the
Interestholder. In addition, the ability of an Interestholder to fully utilize
losses may depend on whether the Interestholder sells all or less than all of
his or her Interests pursuant to the Offers. The Partnership does not
anticipate that an Interestholder who does not tender his or her Interests under
the Offers will realize any material tax consequences as a result of the
election not to tender his or her Interests. Each Interestholder should consult
his, her or its own tax advisor as to the particular tax consequences to such
Interestholder of selling or not selling Interests pursuant to the Offers.
Secondary market sales activity for the Interests, including privately
negotiated sales, has been limited and sporadic. The Partnership's Annual Report
on Form 10-K for the year ended December 31, 1995 states that "there is no
public market for Interests, and it is not anticipated that a public market for
Interests will develop." Privately negotiated sales and sales through
intermediaries (e.g., through the matching services for buyers and sellers of
Interests operated by Merrill, Lynch) currently are the only means available to
an Interestholder to liquidate an investment in Interests (other than offers to
purchase, including the Offers) because the Interests are not listed or traded
on any exchange or quoted on any Nasdaq list or system. High and low sales
prices of Interests may be obtained through certain entities such as Partnership
Spectrum, an independent, third-party source which reports such information;
however, the gross sales prices reported by Partnership Spectrum do not
necessarily reflect the net sales proceeds received by sellers of Interests,
which typically are reduced by commissions and other secondary market
transaction costs to amounts less than the reported prices. The Partnership
anticipates that, in view of the absence of an established market for the
Interests, once the Offers have expired, the price for Interests through
privately negotiated sales and sales through intermediaries may be substantially
less than the purchase price under either of the Offers.
22
<PAGE>
On June 24, 1996, Irvin Weiss v Arvida/JMB Managers, Inc., Neil G.
Bluhm, Lehman Brothers Inc. and Arvida/JMB Partners, L.P. (Case No. 96CH 6627)
was filed in the County Department, Chancery Division of the Circuit Court of
Cook County Illinois. This complaint is a purported class action complaint on
behalf of Irvin Weiss and all other holders of Interests to bar (i) Managers and
Mr. Bluhm from taking any action to chill tender offers from non-affiliates,
(ii) the officers, directors and shareholders of the defendants from
participating in any special committee on tender offers, (iii) Lehman from
advising any such special committee, and (iv) defendants and their affiliates
from making tender offers. The complaint alleges, inter alia, that Managers and
Mr. Bluhm breached their fiduciary duty owed plaintiff and members of the
purported class by chilling tender offers for Interests by non-affiliates,
failing to provide non-affiliated offerors with information and stifling
competition for such Interests, and that Lehman participated in such breaches of
fiduciary duty by colluding with them. In addition to seeking the relief
described above, plaintiff seeks such other and further relief as the Court may
deem just and proper and the award of attorneys' fees and costs. Managers for
itself and acting for the Partnership believes this action is groundless and has
no merit, and intends to vigorously defend this lawsuit.
23
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------
<S> <C>
(a)(1) Letter dated July 3, 1996, from Arvida/JMB Partners, L.P. to its
Limited Partners.
(c)(1) Amended and Restated Agreement of Limited Partnership of Arvida/JMB
Partners, L.P., made and entered into to be effective as of
September 10, 1987, by and between Managers and the Limited Partners
(previously filed with the Securities and Exchange Commission as
Exhibit 3 to the Partnership's Form 10-K Report (File No. 0-16976)
filed on March 27, 1990 and hereby incorporated herein by reference).
(c)(2) Management, Advisory and Supervisory Agreement (previously filed with
the Securities and Exchange Commission as Exhibit 10.2 to the
Partnership's Form 10-K Report (File No. 0-16976) filed on March 27,
1991 and hereby incorporated herein by reference).
(c)(3) Press Release of Partnership, dated June 21, 1996 (previously filed
with the Securities and Exchange Commission as Exhibit 20.1 to the
Partnership's Form 8-K Report (File No. 0-16976) filed on June 26,
1996 and hereby incorporated herein by reference).
(c)(4) Letter, dated June 21, 1996, from Arvida/JMB Partners, L.P. to its
Limited Partners.
(c)(5) Letter, dated July 2, 1996, from Lehman Brothers addressed to
the Special Committee.
</TABLE>
24
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: July 3, 1996
ARVIDA/JMB PARTNERS, L.P.
By: ARVIDA/JMB MANAGERS, INC.,
General Partner of the Partnership
By: /s/ Judd D. Malkin
---------------------------
Name: Judd D. Malkin
Title: Chairman
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------- ----------- --------
<S> <C> <C>
(a)(1) Letter, dated July 3, 1996, from Arvida/JMB Partners, L.P. to 27
its Limited Partners.
(c)(1) Amended and Restated Agreement of Limited Partnership of
Arvida/JMB Partners, L.P., made and entered into to be
effective as of September 10, 1987, by and between Managers
and the Limited Partners (previously filed with the Securities
and Exchange Commission as Exhibit 3 to the Partnership's Form
10-K Report (File No. 0-16976) filed on March 27, 1990 and
hereby incorporated herein by reference).
(c)(2) Management, Advisory and Supervisory Agreement (previously
filed with the Securities and Exchange Commission as Exhibit
10.2 to the Partnership's Form 10-K Report (File No. 0-16976)
filed on March 27, 1991 and hereby incorporated herein by
reference).
(c)(3) Press Release of Partnership, dated June 21, 1996 (previously
filed with the Securities and Exchange Commission as Exhibit
20.1 to the Partnership's Form 8-K Report (File No. 0-16976)
filed on June 26, 1996 and hereby incorporated herein by
reference).
(c)(4) Letter, dated June 21, 1996, from Arvida/JMB Partners, L.P. to 29
its Limited Partners.
(c)(5) Letter, dated July 2, 1996, from Lehman Brothers addressed to 30
the Special Committee.
</TABLE>
26
<PAGE>
EXHIBIT (a)(1)
ARVIDA/JMB PARTNERS. L.P.
900 North Michigan Avenue
Chicago, Illinois 60611
312-440-4800
July 3, 1996
Dear Limited Partners:
In anticipation of the receipt of unsolicited offers to acquire interests
and assignee interests ("Interests") in Arvida/JMB Partners, L.P. (the
"Partnership"), the Board of Directors of Arvida/JMB Managers, Inc., the general
partner of the Partnership ("Managers"), at a meeting on May 15, 1996 appointed
a Special Committee of the Board to review and consider any such offers.
Subsequent to May 15, 1996, Walton Street Capital Acquisition Co. III,
L.L.C. ("Walton"), an affiliate of which is a director and executive officer
of Managers, and Raleigh Capital Associates, L.P. ("Raleigh") have each made
offers to acquire up to approximately 46% of the total Interests, at a purchase
price of $420 per Interest and $421 per Interest, respectively, net to the
seller in cash (collectively, the "Offers").
The Special Committee retained the services of Lehman Brothers Inc.
("Lehman") as its financial advisor and advised Lehman that it was the current
intention of the members of the Special Committee to vote in favor of commencing
a liquidation phase on October 31, 1997 in which all of the Partnership's
assets would be sold over a five-year period. The Special Committee directed
Lehman to render (a) its estimate of the present discounted value (the "Lehman
Estimated Liquidation Value") of an Interest based on the assumption that the
Partnership commences an orderly liquidation in October 1997 and completes that
liquidation by October 2002 (the "Assumed Liquidation"), and (b) its opinion as
to the adequacy, from a financial point of view, to the holders of Interests as
a class, of the consideration offered in any offer to acquire Interests
(including the Offers), as compared to the Lehman Estimated Liquidation Value.
Managers provided Lehman with its draft projected budgets through 2002 in order
to facilitate the rendering of the Lehman Estimated Liquidation Value and
Lehman's adequacy opinion.
. Following receipt of the Offers, the Special Committee met with its
financial and legal advisors to review and consider the Offers. Based upon
its analysis and its consultations with its advisors, the Special Committee
has determined that the Offers are inadequate and not in the best interests
of Interestholders who have the expectation of retaining the Interests
through an anticipated orderly liquidation of the Partnership's assets by
October 31, 2002 and who have no current or anticipated need for liquidity.
Accordingly, the Special Committee recommends that such Interestholders
reject the Offers and not tender their Interests pursuant to either of the
Offers.
. The Lehman Estimated Liquidation Value as of July 2, 1996, which was
conveyed in writing to the Special Committee on July 2, 1996, is a range of
$565 to $610 per Interest. It should be noted that the Lehman Estimated
Liquidation Value does not represent an estimate by Lehman of the fair
market value of an Interest.
. On July 2, 1996, Lehman rendered its written opinion to the Special
Committee that the consideration offered in the Offers is inadequate from a
financial point of view to the Interestholders as a class as compared to
the Lehman Estimated Liquidation Value. However, as more fully discussed in
the enclosed Schedule 14D-9, Lehman's opinion does not address the adequacy
of the Offers with respect to Interestholders who have a present or
anticipated need for liquidity.
. Both Raleigh and Walton state in their respective offers that "The
Purchaser is making the Offer with a view to making a profit" and warn that
their interest in purchasing the Interests at a low price may conflict with
the interest of holders to sell their Interests at a high price.
. The Special Committee does not express any opinion and remains neutral as
to the Offers with respect to any Interestholders other than those who have
the expectation of retaining the Interests through an anticipated orderly
liquidation of the Partnership's assets by October 31, 2002 and who have no
current or anticipated need for liquidity. It should be noted that because
there is no established market for the Interests, once the Offers
have expired, the price for Interests through privately negotiated sales
and sales through intermediaries may be substantially less than the
purchase price under either of the Offers.
YOU SHOULD CONSULT WITH YOUR PERSONAL TAX ADVISOR AND FINANCIAL CONSULTANT
PRIOR TO ACCEPTING EITHER OF THE OFFERS AND TENDERING YOUR INTERESTS.
Under the terms of the Raleigh and Walton Offers, they cannot, until July
17, 1996, and July 26, 1996, respectively, purchase and pay for any Interests
tendered prior to such times, and you may withdraw Interests tendered to Raleigh
or Walton at any time prior to 12:00 midnight on July 17, 1996, or
July 26, 1996, respectively. IF YOU WISH TO RETAIN YOUR INTERESTS AND YOU HAVE
NOT ALREADY TENDERED YOUR INTERESTS PURSUANT TO EITHER OF THE OFFERS, YOU NEED
NOT TAKE ANY ACTION REGARDING THE OFFERS.
27
<PAGE>
In arriving at the recommendation, the Special Committee gave careful
consideration to a number of business, financial and other factors described in
the enclosed Schedule 14D-9 filed with the Securities and Exchange Commission.
The opinion letter of Lehman is enclosed with the Schedule 14D-9.
INTERESTHOLDERS ARE URGED TO READ CAREFULLY THE ENCLOSED SCHEDULE 14D-9.
On behalf of the Special Committee.
Very truly yours,
ARVIDA/JMB PARTNERS, L.P.
By: Arvida/JMB Managers, Inc.
General Partner
By: Judd D. Malkin
Chairman
28
<PAGE>
EXHIBIT (c)(4)
ARVIDA/JMB PARTNERS, L.P.
Special Report
To All Limited Partners June 21, 1996
On June 19, 1996, an affiliate of Apollo Real Estate Capital Advisors II,
Inc., Raleigh Capital Associates, L.P. ("Raleigh"), filed with the Securities
and Exchange Commission an offer (the "Offer") to purchase 185,000 limited
partnership interests (the "Interests") in Arvida/JMB Partners, L.P. (the
"Partnership"), which represents approximately 46% of the outstanding Interests,
at a price of $411 net per Interest. Raleigh is not affiliated with the
Partnership or its general partner.
A special committee of the board of directors of the Partnership's general
partner is reviewing the Offer and, within 10 business days of the commencement
of the Offer, will advise Limited Partners as to its recommendation, if any,
with respect to the Offer and its reasons therefor. The Partnership has engaged
Lehman Brothers Inc. as a financial advisor to assist the special committee in
evaluating and responding to the Offer and any other offers that have been or
that may subsequently be made for Interests in the Partnership. The Partnership
is urging Limited Partners to refrain from making a decision whether to accept
or reject any offer or tender their Interests until they have been advised of
the special committee's position.
In addition, an affiliate of a director and officer of the Partnership's
general partner has notified the Partnership that it intends to make an
unsolicited tender offer for Interests in the Partnership. The Partnership has
provided this entity with non-public information about the Partnership on a non-
exclusive basis pursuant to the terms of a confidentiality agreement, which also
provides that any offer from this entity would be made pursuant to the federal
securities laws governing tender offers.
The Partnership also has recently become aware of an unsolicited offer from
an unaffiliated third party to purchase less than five percent of the
outstanding Interests at $100 per Interest. Additionally, the Partnership has
been notified by another unaffiliated third party that it intends to make an
unsolicited offer for less than five percent of the Interests.
There can be no assurance as to whether the offers discussed above will be
made, the terms of any such offers or whether any such offers, if made, will be
consummated, amended or withdrawn.
29
<PAGE>
The Partnership's current objective is to maximize the Limited Partners'
return. The Partnership will continue to operate with this objective in mind
and to act in a manner that it believes is in the best interests of the Limited
Partners.
Very truly yours,
ARVIDA/JMB MANAGERS,INC.
General Partner
By: Judd D. Malkin
Chairman
30
<PAGE>
EXHIBIT (c)(5)
[LETTERHEAD OF LEHMAN BROTHERS]
July 2, 1996
Special Committee of the Board of Directors
Arvida/JMB Managers, Inc.
900 North Michigan Avenue
Chicago, IL 60611-1575
Members of the Board:
We understand that the following two unrelated tender offers (each an "Offer")
for units of limited partnership interest ("Units") in Arvida/JMB Partners, L.P.
(the "Partnership") have been commenced: (i) an unsolicited offer by Raleigh
Capital Associates, L.P. ("Raleigh") to purchase up to 185,000 Units (46% of the
outstanding Units) at a purchase price of $411 per Unit, as amended to increase
the purchase price to $421 per Unit in cash (the "Raleigh Offer"); and (ii) an
unsolicited offer by Walton Street Capital Acquisition Co. III, L.L.C.
("Walton") to purchase up to 185,840 Units (46% of the outstanding Units) at a
purchase price of $420 per Unit in cash (the "Walton Offer"). The terms and
conditions of the Raleigh Offer are set forth in more detail in the Offer to
Purchase relating thereto dated June 19, 1996, as supplemented and amended by
Amendment No. 1 thereto dated June 28, 1996 (as amended, the "Raleigh Offer to
Purchase"); and the terms and conditions of the Walton Offer are set forth in
more detail in the Offer to Purchase relating thereto dated June 27, 1996 (the
"Walton Offer to Purchase").
We have been requested by the special committee of the Board of Directors (the
"Special Committee") of Arvida/JMB Managers, Inc., in its capacity as general
partner of the Partnership (the "General Partner"), to render: (i) our estimate
as to the hypothetical liquidation value (the "Hypothetical Liquidation Value")
of a Unit based on the assumption that the Partnership commences a theoretical
orderly liquidation of the Partnership's assets in October 1997 and completes
that liquidation by the year 2002 (the "Liquidation"); and (ii) our opinion as
to the adequacy, from a financial point of view, to the holders of the Units as
a class, of the consideration offered to such holders in each of the Offers as
compared to the Hypothetical Liquidation Value. However, because the decision of
each individual holder of Units as to whether to accept the consideration
offered pursuant to either of the Offers may be based to a significant extent on
such holder's current or anticipated need or desire for liquidity, we have not
been requested to opine as to, and our opinion does not in any manner address,
the adequacy, from a financial point of view, of such consideration to any
particular holder of the Units
31
<PAGE>
Arvida/JMB Managers, Inc.
July 2, 1996
Page 2
who has an immediate need or desire for liquidity or any particular holder
of the Units who anticipates a need for liquidity prior to 2002.
In arriving at our opinion, we reviewed and analyzed:
(i) the Raleigh Offer to Purchase and the specific terms and conditions of
the Raleigh Offer;
(ii) the Walton Offer to Purchase and the specific terms and conditions of
the Walton Offer;
(iii) publicly available information regarding the Partnership set forth in
the Partnership's Form 10-Q for the quarter ended March 31, 1996 and Form
10-K for the year ended December 31, 1995;
(iv) financial and operating information with respect to the business,
operations and prospects of the Partnership furnished to us by the
Partnership;
(v) independent appraisals, market studies and other information regarding
certain of the Partnership's assets furnished to us by the Partnership or
obtained from third parties; and
(vi) a comparison of the financial terms of each Offer with the results of
the analysis of the Hypothetical Liquidation Value performed by us as
described below.
In addition, we have had discussions with the management of the Partnership and
the General Partner concerning the Partnership's business, operations, assets,
financial condition and prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the financial
and other information used by us in arriving at our opinion without assuming
responsibility for the independent verification of such information and have
further relied upon the assurances of management of the Partnership and the
General Partner that they are not aware of any facts that would make such
information inaccurate or misleading in any material respect. With respect to
the financial projections of the Partnership, we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Partnership
as to the future financial performance of the Partnership. However, for purposes
of our analysis, and based upon our review of certain independent market data,
we also utilized certain somewhat more conservative assumptions and estimates
which resulted in certain adjustments to the Partnership's projections. In
arriving at our opinion, we have not conducted a physical inspection of the
Partnership's properties, but have obtained and
32
<PAGE>
Arvida/JMB Managers, Inc.
July 2, 1996
Page 3
reviewed existing independent appraisals and market studies of certain of the
assets of the Partnership. Our opinion is necessarily based upon market,
economic and other conditions as they exist on, and can be evaluated as of, the
date of this letter.
You have advised us that, based on current circumstances, the members of the
Special Committee currently intend to commence an orderly liquidation of the
Partnership's assets in October 1997 and complete that liquidation by 2002.
Accordingly, at your direction, the only valuation analysis we have performed is
a discounted cash flow analysis applied to the cash distributions to be received
by the limited partners in the Partnership based on the financial projections
referred to in the preceding paragraph and the assumption that the Partnership
commences and completes the Liquidation as described above. The projected cash
distributions to limited partners are based on a series of important assumptions
underlying such financial projections, including assumptions as to the prices
and other terms for which the Partnership's assets can be sold and the timing of
those sales. Many of these assumptions are beyond the control of the Partnership
and may or may not prove to be correct. Based solely on this limited valuation
methodology, we have estimated a Hypothetical Liquidation Value of $565 to $610
per Unit.
Based on the limited valuation methodology discussed above, and subject to the
assumptions, limitations and other considerations referred to herein, we are of
the opinion that, as of the date hereof, the consideration offered to the
holders of the Units in each of the Offers is inadequate, from a financial point
of view, to the holders of the Units as a class as compared to the Hypothetical
Liquidation Value. However, as mentioned above, we express no opinion as to the
adequacy, from a financial point of view, of the consideration offered in each
of the Offers to any particular holder of the Units who has an immediate need or
desire for liquidity or any particular holder of the Units who anticipates a
need for liquidity prior to 2002.
Because, in the future, other alternative strategies may be selected by the
General Partner for realizing the value of the Partnership's assets, our
analysis described herein cannot and does not take into account the potential
value of the Units if other strategies are employed.
We have acted as financial advisor to the Partnership in connection with the
Proposals and will receive a fee for our services a portion of which may be
dependent upon the price at which a tender offer for the Units is consummated.
In addition, the Partnership has agreed to indemnify us for certain liabilities
that might arise out of the rendering of this opinion. We also have performed
various investment banking services for affiliates of the Partnership and the
General Partner in the past and have received customary fees for such services.
33
<PAGE>
Arvida/JMB Managers, Inc.
July 2, 1996
Page 4
This opinion is for the use and benefit of the Board of Directors of the General
Partner. This opinion is not intended to be and does not constitute a
recommendation to any limited partner of the Partnership as to whether or not to
accept the consideration offered for the Units in the Offers, whether as a means
to liquidate such limited partner's interest in the Units or otherwise.
Very truly yours,
LEHMAN BROTHERS
/s/Robert C. Leiber
- --------------------
Managing Director
34
