SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
ARVIDA/JMB PARTNERS, L.P.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
IRS Employer Identification
Commission File No. 0-16976 No. 36-3507015
The undersigned registrant hereby amends the following sections of its
Report for the year ended December 31, 1996 on Form 10-K405 as set forth in
the pages attached hereto:
PART I
Item 3. Legal Proceedings. Pages 6 to 10.
PART II
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. Pages 14 to 23.
Item 8. Financial Statements and Supplementary Data. Pages 24 to 58.
PART IV
Item 10. Director and Executive Officers of the Registrant.
Pages 59 to 62.
Item 12. Security Ownership of Certain Beneficial Owners and
Management. Pages 65 to 66.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. Pages 67 to 69.
EXHIBIT INDEX AND EXHIBITS THERETO
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ARVIDA/JMB PARTNERS, L.P.
BY: Arvida/JMB Managers, Inc.
(The General Partner)
By: GAILEN J. HULL
Gailen J. Hull,
Senior Vice President and
Principal Accounting Officer
Dated: May 7, 1997
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ITEM 3. LEGAL PROCEEDINGS
(A) On June 24, 1996, a lawsuit entitled Irvin Weiss v. Arvida/JMB
Managers, Inc., Neil G. Bluhm, Lehman Brothers Inc. and Arvida/JMB
Partners, L.P. ("Weiss action") was filed in the County Department,
Chancery Division of the Circuit Court of Cook County, Illinois. This
lawsuit is a purported class action lawsuit on behalf of Irvin Weiss and
all other Holders of Interests to bar (i) the General Partner 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 Brothers Inc. from
advising any such special committee, and (iv) defendants and their
affiliates from making tender offers. On September 25, 1996, the claims of
Irvin Weiss were voluntarily dismissed.
A second complaint was filed in the County Department, Chancery
Division of the Circuit Court of Cook County, Illinois on July 1, 1996, and
most recently amended on November 27, 1996 in connection with a court
ruling dismissing certain allegations, in the matter of Jack M. Carlstrom,
Lynne M. Carlstrom, Woneta Bellevue, Roger Lathbury and Begona Lathbury v.
Arvida/JMB Managers, Inc., Neil G. Bluhm, Ira J. Schulman, Burton E.
Glazov, Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, Judd D. Malkin,
Lehman Brothers Inc., Starwood Capital Group I, L.P., Starwood/Florida
Funding, L.L.C., Starwood Opportunity Fund IV, L.P., BSS Capital II,
L.L.C., Barry Sternlicht, Walton Street Capital Acquisition Co. III and
Whitehall Street Real Estate Limited Partnership VII, and Arvida/JMB
Partners, L.P., nominal defendant ("Carlstrom action"). This complaint, as
amended, is brought derivatively on behalf of the Partnership and
individually on behalf of Jack M. Carlstrom, Lynne M. Carlstrom, Woneta
Bellevue, Roger Lathbury and Begona Lathbury and a purported class of all
other Holders of Interests (excluding the defendants, members of their
immediate families, affiliates, subsidiaries, agents, partners, members of
their current or former management or that of their affiliates, and any
participant in the alleged conspiracy). The Carlstrom action challenged,
among other things, the Partnership's proposed $160 million term loan from
Starwood/Florida Funding, L.L.C. ("Starwood financing") and seeks, among
other things, to bar defendants from taking any action to chill tender
offers or offers for debt financing from non-affiliates; to cause
defendants to put the issue of the Starwood financing to a vote of
unitholders; to bar defendants from completing the Starwood financing; to
disband the Special Committee and allow the Holders of Interests to vote on
an "independent slate" of directors to compose a new special committee; and
to cause the Partnership and director defendants to auction the
Partnership. The complaint, as amended, alleges, among other things, that
the General Partner breached its fiduciary duties owed plaintiffs and
members of the purported class by failing to negotiate for the financing
with other entities and entering into the Starwood financing in order to
entrench itself and maintain its control over the Partnership. The
complaint, as amended, also alleges that the terms of the Starwood
financing are burdensome to the Partnership and allegedly will cause a
waste of the Partnership's assets. The Carlstrom action has been
consolidated with the Weiss action and is brought as a four-count complaint
for breach of fiduciary duty on behalf of the class, breach of fiduciary
duty on behalf of the Partnership, conspiracy and collusion to breach
fiduciary duties on behalf of the class and the Partnership, and for an
injunction on behalf of the class and the Partnership. In addition to the
relief described above, plaintiffs in the complaint, as amended, on behalf
of themselves and members of the purported class seek damages in a sum to
be determined at trial, attorneys' fees and costs, and such other relief as
the Court may deem just and proper. On December 13, 1996, the Court
granted the plaintiffs' motion for preliminary injunction to stop the
Starwood financing until a hearing on a permanent injunction. The
Partnership, its General Partner, and members of the Special Committee have
appealed the order granting the preliminary injunction. The appeal is
pending in the Appellate Court of Illinois, First Judicial District, Case
No. 97-0093. In the appeal, the Partnership, its General Partner, and
members of the Special Committee, among other things, contend that the
wrong legal standard was applied by the trial court in the hearing on
plaintiffs' motion for preliminary injunction in requiring the Partnership
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to prove the fairness of the Starwood financing. In addition, and
alternatively, the Partnership contends that the adoption of the Starwood
financing, which an independent investment banker opined was commercially
reasonable and fair, satisfied the legal standard applied by the Court.
The parties to the Carlstrom action engaged in mediation discussions
supervised by the Court which began on March 5, 1997. The mediation effort
has resulted in a stipulation of settlement, which was preliminarily
approved by the trial court in a settlement hearing order dated April 1,
1997, as being fair, reasonable, adequate, and in the best interests of the
plaintiffs, Interestholders, and the Partnership. The stipulation of
settlement provides, among other things: (i) that the General Partner will
be able to pursue the Barnett Financing (as defined and discussed in detail
in Note 17) for the purposes of making a distribution and replacing certain
of the Partnership's current credit facilities; (ii) that the Partnership
will not pursue the Starwood financing; (iii) that the General Partner will
choose the option set forth in Section 5.5(J)(i)(c) of the Partnership
Agreement (i.e., 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); (iv) that, if the settlement is finally approved by
the trial court, the decision to choose the option set forth in Section
5.5(J)(i)(c) of the Partnership Agreement will be binding upon the
Interestholders and the General Partner, its affiliates, and any subsequent
general partner, whether or not affiliated with the General Partner; (v)
that the claims set forth in the Carlstrom action will be released; (vi)
that the Illinois appeal will be dismissed; and (vii) that the General
Partner and/or its affiliates will defer a portion of the proceeds from the
Barnett Financing otherwise distributable to them (subject to the right of
the General Partner and/or such affiliates to receive such deferred amount
after Interestholders have received a specified amount of distributions
from the Partnership after July 1, 1996) and such deferred distribution
amount will be used to pay a portion of the legal fees and expenses in the
Carlstrom action. In the preliminary settlement hearing order, the trial
court also vacated the preliminary injunction ruling, established a
procedure for notifying Interestholders of their rights in connection with
the settlement, and set the matter for a final hearing. At the final
hearing the trial will determine whether: (a) the settlement is fair,
reasonable, adequate, and in the best interests of the Partnership and the
Interestholders; (b) the settlement should be approved by the trial court;
(c) the Carlstrom action should be dismissed on the merits with prejudice;
and (d) the plaintiffs' counsels' application for attorney's fees and
reimbursement for out of pocket costs (including experts' fees) should be
approved. Due to the uncertainty of the outcome of the final hearing, the
accompanying consolidated financial statements do not reflect any accruals
related to the resolution of this matter.
(B) On or about September 27, 1996, a lawsuit entitled Vanderbilt
Income and Growth Associates, L.L.C. and Raleigh Capital Associates L.P.,
individually and derivatively on behalf of Arvida/JMB Partners, L.P. v.
Arvida/JMB Managers, Inc., Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov,
Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, BSS Capital II, L.L.C.,
Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood
Opportunity Fund, IV, L.P. and Barry Sternlicht, Defendants, and Arvida/JMB
Partners, L.P., nominal defendant, was filed in the Court of Chancery of
the State of Delaware in and for New Castle County, Civil Action No. 15238
("Raleigh action"). The Raleigh action was filed as a verified complaint
for declaratory and injunctive relief. Plaintiffs claimed that the
defendants in entering into the financing commitment letter for the
Starwood term financing violated, or aided and abetted, or participated in
the violation of, fiduciary duties owed to the Partnership and the Holders
of Interests, and put their personal interests ahead of the interests of
the Partnership and the Holders of Interests. In the first claim for
relief, plaintiffs sought a declaratory judgment that the terms of the
Starwood financing be declared null, void and unenforceable. In the second
claim for relief, plaintiffs asserted a claim, derivatively on behalf of
the Partnership, alleging, among other things, that the financing
commitment letter for the Starwood financing was not the product of a valid
exercise of business judgment. In addition to the relief described above,
plaintiffs sought to preliminarily and permanently enjoin any actions in
furtherance of the financing commitment letter, an award of compensatory
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damages, interest, costs and disbursements, including reasonable attorneys'
and experts' fees and such other relief as the Court might deem just and
proper. The General Partner and the Partnership filed a motion to dismiss
the Raleigh action which motion was granted on November 7, 1996. In
granting the motion, the Court held that Raleigh was not a Limited Partner
and did not have standing to file the derivative claims. The Court further
determined that Raleigh did not have the right to vote. Plaintiffs asked
the Court to reconsider its ruling, but the Court denied the request to
change its ruling.
Plaintiffs appealed the November 7, 1996 dismissal order. On December
12, 1996, the Delaware Supreme Court reversed the trial court order on a
procedural ground. The Delaware Supreme Court concluded that the trial
court should not have considered matters outside of the pleadings in
dismissing the Raleigh action without providing the plaintiffs some limited
discovery. Accordingly, the Delaware Supreme Court remanded the case back
to the trial court for further proceedings.
On December 16, 1996, the Partnership filed a counterclaim against
Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital
Associates L.P. ("Raleigh"), seeking a declaratory judgment that Raleigh
had no right to vote on Partnership matters. On January 28, 1997, the
trial court granted plaintiffs leave to dismiss their own complaint
concerning the Starwood financing, leaving the Partnership's counterclaim
pending.
By letter dated January 10, 1997, Raleigh requested admission as a
Substituted Limited Partner of the Partnership. The Partnership referred
the request to the Special Committee of the Partnership. On February 11,
1997, the Special Committee denied the request. Thereafter, the
Partnership supplemented its counterclaim, as amended, to seek a court
declaration that Raleigh is not entitled to be admitted as a Substituted
Limited Partner. On February 20, 1997, Raleigh filed a reply and
counterclaim against the Partnership, the General Partner, and the Special
Committee. The reply counterclaim seeks, among other things, a declaration
that Raleigh has voting rights in the Partnership and that defendants'
breached their fiduciary duties by failing to admit Raleigh as a
Substituted Limited Partner. The reply counterclaim also seeks to enjoin
the Partnership, the General Partner, and the Special Committee from
refusing to admit Raleigh as a Substituted Limited Partner, an award of
damages, interest, fees, and costs.
On or about February 28, 1997, Gladys Beasley, individually and as a
representative of a class of persons similarly situated, filed an
intervenor complaint for declaratory relief against the Partnership. In
the intervenor complaint, plaintiff seeks a declaration that purchasers who
obtained Interests in the Partnership in the public offering and subsequent
Holders of Interests in the Partnership by assignment from original Holders
have the same voting rights in the Partnership, among other things, to
remove and replace the General Partner. In addition, plaintiff Gladys
Beasley, seeks an order adjudging and decreeing that the intervenor action
be properly maintained as a class, an award of her costs and expenses of
the litigation, and such other relief as the Court deems appropriate.
The trial of all claims in the Delaware action is scheduled from April
7, 1997 through April 9, 1997.
(C) The Partnership was named a defendant in a number of homeowner
lawsuits, certain of which purported to be class actions, that allegedly in
part arose out of or related to Hurricane Andrew, which on August 24, 1992
resulted in damage to a former community development known as Country Walk.
The homeowner lawsuits alleged, among other things, that the damage
suffered by the plaintiffs' homes and/or condominiums within Country Walk
was beyond what could have been reasonably expected from the hurricane
and/or was a result of the defendants' alleged defective design,
construction, inspection and/or other improper conduct in connection with
the development, construction and sales of such homes and condominiums,
including alleged building code violations. The various plaintiffs sought
varying and, in some cases, unspecified amounts of compensatory damages and
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other relief. In certain of the lawsuits injunctive relief and/or punitive
damages were sought.
Several of these lawsuits alleged that the Partnership was liable,
among other reasons, as a result of its own alleged acts of misconduct or
as a result of the Partnership's alleged assumption of Arvida Corporation's
liabilities in connection with the Partnership's purchase of Arvida
Corporation's assets from The Walt Disney Company ("Disney") in 1987, which
included certain assets related to the Country Walk development. Pursuant
to the agreement to purchase such assets, the Partnership obtained
indemnification by Disney for certain liabilities relating to facts or
circumstances arising or occurring prior to the closing of the
Partnership's purchase of the assets. Over 80% of the Arvida-built homes
in Country Walk were built prior to the Partnership's ownership of the
Community. Where appropriate, the Partnership has tendered or will tender
each of the above-described lawsuits to Disney for defense and
indemnification in whole or in part pursuant to the Partnership's
indemnification rights. Where appropriate, the Partnership has also
tendered these lawsuits to its various insurance carriers for defense and
coverage. The Partnership is unable to determine at this time to what
extent damages in these lawsuits, if any, against the Partnership, as well
as the Partnership's cost of investigating and defending the lawsuits, will
ultimately be recoverable by the Partnership either pursuant to its rights
of indemnification by Disney or under contracts of insurance.
One of the Partnership's insurance carriers has been funding
settlements of various litigation related to Hurricane Andrew. In some,
but not all, instances the insurance carrier has provided the Partnership
with written reservation of rights letters. The aggregate amount of the
settlements funded to date by this carrier is approximately $8.0 million.
The insurance carrier that funded these settlements pursuant to certain
reservations of rights has stated its position that it has done so pursuant
to various non-waiver agreements. The carrier's position was that these
non-waiver agreements permitted the carrier to fund settlements without
barring the carrier from raising insurance coverage issues or waiving such
coverage issues. On May 23, 1995, the insurance carrier rescinded the
various non-waiver agreements currently in effect regarding the remainder
of the Hurricane Andrew litigation, allegedly without waiving any future
coverage defenses, conditions, limitations, or rights. For this and other
reasons, the extent to which the insurance carrier may recover any of these
proceeds from the Partnership is uncertain. Therefore, the accompanying
consolidated financial statements do not reflect any accruals related to
this matter.
Currently, the Partnership is involved in two subrogation lawsuits.
On April 19, 1993, a subrogation claim entitled Village Homes at Country
Walk Master Maintenance Association, Inc. v. Arvida Corporation et al., was
filed in the 11th Judicial Circuit for Dade County. Plaintiffs filed this
suit for the use and benefit of American Reliance Insurance Company
("American Reliance"). In this suit, as amended, plaintiffs seek to
recover damages and pre- and post-judgment interest in connection with
$10,873,000 American Reliance has allegedly paid, plus amounts it may have
to pay in the future, to the condominium association at Country Walk in the
wake of Hurricane Andrew. Disney is also a defendant in this suit. The
Partnership believes that the amount of this claim that allegedly relates
to units it sold is approximately $3,600,000. Plaintiffs also seek a
declaratory judgement seeking to hold the Partnership and other defendants
responsible for amounts American Reliance must pay in the future to its
insured as additional damages beyond the $10,873,000 previously paid. The
Partnership has filed motions directed to the complaint, as amended, and
the litigation is in the discovery stage. The Partnership intends to
vigorously defend itself. On or about May 10, 1996, a subrogation claim
entitled Juarez et al v. Arvida Corporation et al was filed in the Circuit
Court of the Eleventh Judicial Circuit in and for Dade County. Plaintiffs
filed this suit for the use and benefit of American Reliance. In this
suit, plaintiffs seek to recover damages, pre-and post-judgment interest,
costs and any other relief the Court may deem just and proper in connection
with $3,200,000 American Reliance allegedly paid on specified claims at
Country Walk in the wake of Hurricane Andrew. Disney is also a defendant
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in this suit. The Partnership is advised that the amount of this claim
that allegedly relates to units it sold is approximately $350,000. The
Partnership intends to defend itself vigorously in this matter. The
Partnership was also involved in a subrogation action brought by the
Insurance Company of North America ("INA") arising out of a claim that INA
allegedly paid on a single home in Country Walk. The Partnership has
settled this claim for approximately $45,600 with the settlement being
funded by the Partnership's insurance carrier. The Metropolitan Property
and Casualty Company ("Metropolitan") has advised the Partnership of its
intent to file a subrogation action allegedly in connection with an
unspecified number of Arvida-built homes. Currently, Metropolitan has
advised the Partnership of three claims, totalling approximately $505,000.
The Partnership could be named in other subrogation actions, and in such
event, the Partnership intends to vigorously defend itself in such actions.
(D) On or about October 16, 1995, a lawsuit was filed against the
Partnership and others in the Circuit Court of the 15th Judicial Circuit,
in and for Palm Beach County, Florida, and amended on or about February 20,
1996, entitled Council of Villages, Inc. et al v. Arvida/JMB Partners,
Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., Broken Sound Club,
Inc., and Country Club Maintenance Association, Inc. ("Council of Villages
Case"). The multi-count complaint, as amended, is brought as a class
action, and individually, on behalf of various residents of the Broken
Sound Community, and alleges that defendants engaged in various acts of
misconduct in, among other things, the establishment, operation, management
and marketing of the Broken Sound golf course and recreational facilities,
as well as the alleged improper failure to turn over such facilities to the
Broken Sound homeowners on a timely basis. Plaintiffs seek, through
various theories, including but not limited to breach of ordinance, breach
of fiduciary duty, fraud, unjust enrichment and civil theft, damages in
excess of $45 million, the appointment of a receiver for the Broken Sound
Club, other unspecified compensatory damages, the right to seek punitive
damages, treble damages, prejudgment interest, attorneys' fees and costs.
The Partnership believes that the lawsuit is without merit and intends to
vigorously defend itself in this matter.
(E) On or about July 30, 1996, Savoy v. Arvida/JMB Partners,
Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., and Broken Sound
Club, Inc. was filed against the Partnership and others in the Circuit
Court of the 15th Judicial Circuit, in and for Palm Beach County, Florida.
The lawsuit is filed as a three-count complaint for dissolution of the
Broken Sound Club, Inc. ("Club"), and seeks, among other things, the
appointment of a custodian or receiver for the Club, a determination that
certain acts be deemed wrongful, the return to the Club of in excess of
$2.5 million in alleged "operating profits", an injunction against the
charging of certain dues, an injunction requiring the Club to produce
certain financial statements, and such other relief as the Court deems
just, fair and proper. This action has been consolidated with the Council
of Villages Case. The Partnership believes the lawsuit is without merit
and intends to vigorously defend itself.
Other than as described above, the Partnership is not subject to any
material pending legal proceedings, other than ordinary routine litigation
incidental to the business of the Partnership. Reference is made to Note 2
regarding certain other litigation involving the Partnership. Reference is
also made to Note 11 for a discussion of certain claims by Merrill Lynch,
Pierce Fenner & Smith, Inc. ("Merrill Lynch") for indemnification by the
Partnership and the General Partner against losses and expenses suffered by
Merrill Lynch relating to claims for arbitration asserted against it by
certain investors in the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
1995 and 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 and 1995, the Partnership had cash and cash
equivalents of approximately $53,636,000 and $20,171,000, respectively.
Bank overdrafts, which represent checks in transit, of approximately
$3,973,000 at December 31, 1995 were repaid from cash on hand during
January 1996. Remaining cash and cash equivalents were available for
future debt service, working capital requirements and distributions to
partners, subject to certain restrictions, as discussed below and in the
Notes. The source of both short-term and long-term future liquidity is
expected to be derived primarily from the sale of housing units, homesites
and land parcels and through the Partnership's credit facility, or a
refinancing of such credit facility, which is discussed below.
Due to the cyclical nature of its operations, a significant portion of
the Partnership's cash flow from operations (before debt service and
distributions) was generated from closings in the fourth quarter of 1996.
However, many of the expenditures related to such closings were incurred
prior to the fourth quarter. The increased closing activity in the latter
part of 1996 is the primary cause for the increase in cash and cash
equivalents at December 31, 1996 as compared to the cash balance reported
in the Partnership's quarterly filing at September 30, 1996. In addition,
each year numerous housing and homesite closings occur during the last
business days in December. Receipts generated from such closings are
sometimes not received by the Partnership until January of the following
fiscal year. The amount of proceeds to be received from such closings are
included in Trade and other accounts receivable on the accompanying
consolidated balance sheets. Proceeds from such closings in January 1996
contributed to the increase in Cash and cash equivalents and the decrease
in Trade and other accounts receivable at December 31, 1996 as compared to
December 31, 1995 on the accompanying consolidated balance sheets.
However, the primary cause for the increase in Cash and cash equivalents
and the decrease in Trade and other accounts receivable at December 31,
1996 as compared to 1995 is the collection of receivables for units closed
within the Partnership's condominium project on Longboat Key, Florida known
as Arvida's Grand Bay, for which revenues were recognized under the
percentage of completion method of accounting in 1995.
The Partnership was able to generate significant cash flow before debt
service during 1996, 1995 and 1994. The Partnership utilized this cash
flow to make scheduled and additional principal repayments on its
outstanding debt, as required under the terms of the credit facility
agreement, and to increase its cash reserves. Such payments were the
primary reason for the decrease in Notes and mortgages payable, net at
December 31, 1996 as compared to December 31, 1995. During February 1997,
the Partnership made a distribution for 1996 of $24,240,000 to its Holders
of Interests ($60 per Interest) and $1,346,651 to the General Partner and
Associate Limited Partners, collectively. In addition, during the first
quarter of 1997, the Partnership remitted each Holder of Interests' share
of the 1996 North Carolina non-resident withholding tax on behalf of each
of the Holders of Interests. Such payments, which totaled $15,369
(approximately $.04 per Interest), are deemed distributions to the Holders
of Interests for 1997. The Partnership also remitted $469 to the North
Carolina tax authorities during the first quarter of 1997 on behalf of the
General Partners and Associate Limited Partners. Such payments are deemed
distributions. During March 1996, the Partnership made a distribution for
1995 of $10,419,160 to its Holders of Interests ($25.79 per Interest) and
$578,835 to the General Partner and Associate Limited Partners,
collectively. In addition, during 1996, the Partnership remitted each
Holder of Interests' share of the 1995 North Carolina non-resident
withholding tax. Such payments, which totalled $25,476 (approximately $.06
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per Interest), were deemed distributions to the Holders of Interests.
Distributions totalling $1,416 were also paid during 1996 on behalf of the
General Partner and Associate Limited Partners, collectively, a portion of
which was also remitted to the North Carolina tax authorities on their
behalf. In February 1995, the Partnership made a distribution for 1994 of
$5,421,680 to its Holders of Interests of Interests ($13.42 per Interest)
and $301,201 to the General Partner and Associate Limited Partners,
collectively. In addition, during the first quarter of 1995, the
Partnership remitted each Holder of Interests' share of the 1994 North
Carolina non-resident withholding tax. Such payment, which totalled
$26,784 ($.07 per Interest), was deemed a distribution to the Holders of
Interests. A distribution of $1,488 was also paid at that time to the
General Partner and Associate Limited Partners, collectively, a portion of
which was also remitted to the North Carolina tax authorities on their
behalf. As a result of certain restrictions on distributions contained in
its credit facility agreement, the Partnership made distributions in
amounts substantially less than the tax consequences attributable to the
Federal taxable income allocable to each Holder of Interests multiplied by
the maximum individual Federal income tax rate for the years ended December
31, 1995 and 1994.
At December 31, 1996, the Partnership's credit facility consists of a
term loan in the original amount of $85,252,520, a revolving line of credit
facility up to $20 million, an income property term loan in the original
amount of $18,233,326 and a $15 million letter of credit facility. The
term loan, the revolving line of credit and the letter of credit facility
are secured by recorded mortgages on all otherwise unencumbered real
property assets of the Partnership as well as an assignment of all
mortgages receivable, equity memberships, certain joint venture interests
or joint venture proceeds, and cash balances (with the exception of
deposits held in escrow). The income property term loan is secured by the
recorded first mortgage on a mixed-use center in Boca Raton, Florida.
Another office building also located in Boca Raton, known as Mizner Place,
which served as additional collateral for the income property term loan was
sold in May 1995. All of the notes under the facility are cross-
collateralized and cross-defaulted.
Under the term loan agreement, the Partnership made scheduled
principal payments of $10 million in March 1994, February 1995 and February
1996 and $5 million principal payments in July 1995 and July 1996. In
addition, the term loan agreement provides for additional principal
repayments to be made upon the sale of certain assets as well as a
specified percentage of annual cash flow, as defined. During the year
ended December 31, 1996, the Partnership made such additional term loan
payments totalling approximately $12.3 million. During January 1997, the
Partnership paid off the remaining principal balance of $5,234,008
outstanding under the term loan. Under the income property term loan,
principal payments of $0.1 million are required to be paid monthly until
maturity. In addition to the scheduled monthly payments, in May 1995 the
Partnership used the net proceeds of approximately $4 million from the sale
of the Mizner Place office building to pay down the income property term
loan. During March 1996, one of the Partnership's lenders purchased the
other's participating interest in the Partnership's credit facilities. In
addition, during March 1996, the successor lender renewed the Partnership's
revolving line of credit, income property term loan and letter of credit
facility through July 1997. The Partnership currently anticipates that it
will seek an extension from its lender of its income property term loan
upon maturity. In addition, the Partnership is currently in negotiations
with Barnett Bank of Broward County, N.A. ("Barnett") for a new credit
facility, as discussed below. Such facility, if obtained, would, in part,
replace the Partnership's existing revolving line of credit and letter of
credit facilities. At December 31, 1996, all of the term and income
property term loan proceeds had been borrowed with remaining outstanding
balances of $5,234,008 and $11,566,746, respectively. The balances
outstanding on the revolving line of credit and the letter of credit
facilities at December 31, 1996 were $0 and $5,018,311, respectively.
<PAGE>
During June and July of 1996, the Holders of Interests received
unsolicited offers to purchase their Interests in the Partnership. The
General Partner of the Partnership established a special committee (the
"Special Committee") to review such offers and make a recommendation to the
Holders of Interests with respect to the offers. In addition, the
Partnership engaged Lehman Brothers Inc. ("Lehman") as a financial advisor
to assist the Special Committee in evaluating and responding to the offers.
Lehman was asked to render its estimate of the present discounted value
("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. Lehman arrived at an Estimated
Liquidation Value as of July 2, 1996 ranging from $565 to $610 per
Interest. This Estimated Liquidation Value relied upon the Partnership's
estimate of the gross cash distributions that a Holder of Interests would
receive through the assumed liquidation period, discounted to reflect the
present value of such distributions. Based upon the estimate of the total
gross distributions, the General Partner calculated that each Holder would
receive total distributions from October 1996 through October 2002 in
excess of $1,000 per Interest. Certain assumptions and other factors,
including risk factors, that should be considered when analyzing the
projected budgets which are the basis of such estimate of gross
distributions can be found in the Partnership's Schedule 14D-9 dated July
3, 1996, as amended, and filed with the Securities and Exchange Commission.
Reference to such Schedule 14D-9 is hereby made for a discussion of such
assumptions and other factors.
Following receipt of the Estimated Liquidation Value, the Special
Committee determined that, with respect to the Holders of Interests who
have the expectation of retaining their Interests through an anticipated
orderly liquidation of the Partnership's assets by October 2002 and who
have no current or anticipated need for liquidity, these offers were
inadequate and not in the best interests of such Holders of Interests. The
Special Committee recommended that such Holders reject these offers and not
tender their Interests pursuant to these offers. With respect to all other
Holders of Interests, the Special Committee expressed no opinion and
remained neutral with respect to these offers.
One offer for Interests in the Partnership was made by Raleigh Capital
Associates L.P. ("Raleigh") commencing in June 1996. Raleigh's offer was
for up to 185,000 Interests, which represents approximately 46% of the
outstanding Interests. Raleigh's offer had a final price of $461 per
Interest and expired on August 1, 1996. Raleigh has reported that it
acquired a total of 79,696 Interests pursuant to such offer, which
represents approximately 19.7% of the total outstanding Interests.
Other offers were made by Walton Street Capital Acquisition Co. III,
L.L.C. ("Walton") and Boreas Partners, L.P. ("Boreas"), each of which was
also for up to approximately 46% of the outstanding Interests. However,
each of the Walton and Boreas offers were withdrawn and no Interests were
purchased pursuant to either such offer.
In September 1996, Smithtown Bay, LLC ("Smithtown") made an
unsolicited offer for up to 4.9% of the total outstanding Interests at a
purchase price of $480 per Interest. Smithtown's offer expired on
September 30, 1996. Smithtown acquired less than 0.4% of the total
outstanding Interests pursuant to such offer.
Lehman updated its Estimated Liquidation Value as of October 1, 1996
(the "Revised Estimated Liquidation Value"). In arriving at the Revised
Estimated Liquidation Value, Lehman relied upon the Partnership's estimate
of the gross cash distributions that the Holders would receive through the
assumed liquidation period. These estimated gross distributions were then
discounted to reflect the present value of such distributions as of October
1, 1996, which ranges from $595 to $640 per Interest, depending on the
different discount rates used.
<PAGE>
During September 1996, the Partnership and Starwood/Florida Funding,
L.L.C. ("Starwood") entered into a commitment for a term loan to be made to
the Partnership in the amount of $160 million. The Partnership had
expected to use the proceeds from the term loan to paydown the remaining
outstanding balance on the Partnership's existing term loan and to make a
non-taxable distribution, including a non-taxable distribution of $350 per
Interest to the Holders of Interests. However, during December 1996, the
Partnership was enjoined from consummating this financing transaction with
Starwood by the Circuit Court of Cook County Illinois, acting on a
preliminary injunction motion by the Plaintiffs in the matter of Jack M.
Carlstrom and Lynn M. Carlstrom v. Arvida/JMB Managers, Inc., et al.
Pursuant to the terms of the commitment with Starwood, the Partnership is
required to pay certain expenses of Starwood including, but not limited to,
certain legal expenses due to the Court's decision to enjoin the
Partnership from consummating this financing transaction. Reference is
made to Subsection (A) of Item 3. Legal Proceedings for further discussion
of this litigation.
In addition, during October 1996, Raleigh commenced another
unsolicited offer to acquire up to 100,000 Interests, which represents
approximately 24.8% of the outstanding Interests, in the Partnership at a
purchase price of $500 per Interest. Such offer remains open as of the
date of this report. Based on its analysis and its consultation with its
advisors, the Special Committee determined that with respect to Holders of
Interests who have the expectation of retaining their Interests through an
anticipated orderly liquidation of the Partnership's assets by October 2002
and who have no current or anticipated need for liquidity, the Raleigh
offer is inadequate and not in the best interest of such Holders. The
Special Committee has recommended that such Holders reject the Raleigh
offer and not tender their Interests pursuant to such offer. However, the
Special Committee has recommended to those Holders of Interests who have a
current need or desire for liquidity that such Holders tender their
Interests in the offer. The Special Committee has changed its
recommendation to Holders of Interests who have a current need or desire
for liquidity from neutrality in light of several factors, including the
likelihood that Raleigh will continue to block any of the General Partner's
efforts to provide liquidity to the Holders. Also, once the offer expires,
the price for Interests through privately negotiated sales and sales
through intermediaries may be substantially less than the purchase price
under the offer because there is no established market for the Interests.
The Partnership began incurring significant expenditures in connection
with various tender offers for Interests during the third quarter of 1996
and may incur significant additional costs in the future in connection
therewith.
The Partnership has received a non-binding term sheet from Barnett for
a proposed $75 million term loan, a $20 million revolving line of credit
and a $5 million letter of credit facility (the "Barnett Financing").
Under the term sheet, the Barnett Financing, if consummated, is expected to
have a term of four years with annual scheduled principal payments of $12.5
million as well as additional annual principal repayments based upon a
specified percentage of the Partnership's available cash, with a maximum
principal repayment including the scheduled payment of $18.75 million per
annum. The remaining outstanding balance on the Barnett Financing would be
due upon maturity. Under the term sheet, the interest rate on the Barnett
Financing would be based, at the Partnership's option, on the relevant
London Inter-Bank Offering Rate (LIBOR) plus 2.25% per annum or Barnett's
prime rate. Barnett will require the Partnership to have an interest rate
swap or cap in place for one-third of the projected outstanding balance of
the term loan. It is expected that the Partnership would be required to
pay a loan fee of 1% of the total facility upon closing of the loan. It is
currently anticipated that a portion of the proceeds of the Barnett
Financing, if consummated, would be used by the Partnership to make a
distribution in the amount of approximately $75 million, including a
distribution of approximately $175 per Interest to the Interestholders.
Consummation of the Barnett Financing is subject to the negotiation and
<PAGE>
execution by the parties of binding loan documents. There can be no
assurance that the Barnett Financing will be consummated or, if
consummated, that its terms will be similar to those described above. The
proposed terms of the Barnett Financing described above have been
tentatively approved by a judge sitting on the Circuit Court of Cook
County, Illinois pursuant to the preliminary settlement order in the
Carlstrom action, as discussed in Subsection (A) of Item 3. Legal
Proceedings.
During March 1996, the Partnership closed on the sale of its 20% joint
venture interest in Coto de Caza, including the related promissory note for
advances previously made to the joint venture, to unaffiliated third
parties for a cash sales price of $12.0 million. The Partnership used $2.0
million of the sale proceeds to paydown its term loan. This sale is the
primary cause for the decrease in Investments in and advances to joint
ventures on the accompanying consolidated balance sheets at December 31,
1996 as compared to December 31, 1995. The General Partner believes that
this sale was in the best interest of the Partnership given market
conditions in Orange County, California at that time. As a result of this
transaction, the Partnership has no future obligations with respect to Coto
de Caza. This transaction resulted in gains of approximately $1.8 million
and $1.1 million in 1996 for financial reporting and Federal income tax
purposes, respectively.
During April 1996, the Partnership refinanced the loan on one of its
retail properties located in its Weston Community with a different lender.
The outstanding principal balance on such loan of approximately $8.0
million is included in Notes and mortgages payable at December 31, 1996.
In addition, $3.0 million of subordinated debt attributable to the
Cullasaja Joint Venture is included in Notes and mortgages payable at
December 31, 1996.
The Partnership had a $24.0 million revolving construction line of
credit for the buildings and certain amenities within the Partnership's
condominium project on Longboat Key, Florida known as Arvida's Grand Bay.
This line of credit bore interest at the lender's prime rate (8.25% at
December 31, 1996) plus 1/2% per annum, and was scheduled to mature in
January 1997. As of December 31, 1996, the Partnership had repaid the
remaining outstanding principal balance under this line of credit. The
Partnership currently anticipates that it will obtain a similar line of
credit during 1997 for the remaining two buildings to be constructed within
Arvida's Grand Bay.
During January 1996, the Partnership executed a note for a $7.5
million construction loan for the construction and development of a second
retail shopping center located in its Weston Community. This note
currently bears interest at the lender's prime rate (8.25% at December 31,
1996) plus 1/2% per annum and matures in July 1997. The Partnership
currently anticipates that it will seek an extension of such note with the
lender upon maturity. At December 31, 1996, approximately $6.5 million was
outstanding under this loan. The proceeds from such loan were the primary
source of the funds required to complete the shopping center. The
construction of the shopping center was completed in November 1996. The
construction and development of this project is the primary cause for the
increase in Property and equipment on the accompanying consolidated balance
sheets at December 31, 1996 as compared to December 31, 1995.
Reference is made to Note 11 for further discussion of certain claims
by Merrill Lynch for indemnification by the Partnership and the General
Partner against losses and expenses suffered by Merrill Lynch relating to
claims for arbitration against it by certain investors of the Partnership.
Reference is also made to Note 11 regarding the terms of a loan
agreement for a commercial/industrial joint venture in Pompano Beach,
Florida in which the Partnership owns a 50% interest. The Partnership may
also have certain continuing obligations relative to this joint venture as
referred to in such Note.
<PAGE>
Reference is made to Item 3. Legal Proceedings of this annual report
for a discussion of several lawsuits, in which the Partnership is a
defendant, allegedly arising out of or relating to Hurricane Andrew and
certain property damage allegedly suffered by the plaintiffs at a
previously developed community known as Country Walk.
RESULTS OF OPERATIONS
The results of operations for the years ended December 31, 1996, 1995
and 1994 are primarily attributable to the development and sale or
operation of the Partnership's assets. See Note 1 for a discussion
regarding the recognition of profit from sales of real estate.
For the year ended December 31, 1996, the Partnership (including its
consolidated ventures and its unconsolidated ventures accounted for under
the equity method) closed on the sale of 1,291 housing units, 294 homesite
lots, and approximately 39 acres of developed and undeveloped residential
or commercial/industrial land tracts. This compares to closings in 1995 of
1,283 housing units, 554 homesite lots, approximately 177 acres of
developed and undeveloped residential or commercial/industrial land tracts,
as well as an office building located in downtown Boca Raton known as
Mizner Place, and the Partnership's cable operations in the Broken Sound
Community. Closings in 1994 were for 899 housing units, 608 homesite lots
and approximately 12 acres of developed and undeveloped land tracts.
Outstanding contracts ("backlog") as of December 31, 1996 were for 538
housing units, 31 homesites and approximately 24 acres of developed and
undeveloped land tracts. This compares to a backlog as of December 31,
1995 of 875 housing units, 22 homesites and approximately 18 acres of
developed and undeveloped land tracts. The backlog as of December 31, 1994
was for 897 housing units, 67 homesites, approximately 36 acres of
developed and undeveloped land tracts as well as the Mizner Place office
building.
The Partnership's Communities are in various stages of development,
with estimated remaining build-outs ranging from one to nine years. The
Weston Community, located in Broward County, Florida, is the Partnership's
largest Community and is in its mid stage of development. Also in their
mid stages of development are the River Hills Country Club in Tampa,
Florida; the Water's Edge Community in Atlanta, Georgia; The Cullasaja
Club, near Highlands, North Carolina and the Partnership's condominium
project on Longboat Key, Florida known as Arvida's Grand Bay. The
Partnership's Jacksonville Golf & Country Club Community in Florida is in
its late stage of development. All of the remaining units in the
Partnership's Sawgrass Country Club and Dockside Communities in
Jacksonville, Florida and Atlanta, Georgia, respectively, closed during
1996. In addition, the Broken Sound Community, located in Boca Raton,
Florida, had its final closings in 1995; however, the Partnership still has
equity memberships in the Broken Sound Club to sell. Future revenues will
be impacted to the extent that there are lower levels of inventories
available for sale as the Partnership's remaining Communities approach or
undertake their final phases.
Revenues from housing and homesite activities are recognized upon the
closing of homes built by the Partnership and developed lots, respectively,
within the Partnership's Communities. Historically, a substantial portion
of the Partnership's housing revenues during the first six months of a
given year are generated from the closing of units contracted in the prior
year. Land and property revenues are generated from the closing of
developed and undeveloped residential and/or commercial land tracts, the
sale of operating properties as well as gross revenues earned from the sale
of equity memberships in the clubs within the Partnership's Boca Raton and
Jacksonville, Florida Communities, and its Community near Highlands, North
Carolina.
Cost of revenues pertaining to the Partnership's housing sales reflect
the cost of the acquired assets as well as development and construction
expenditures, certain capitalized overhead costs, capitalized interest,
real estate taxes and marketing, as well as disposition costs. The costs
<PAGE>
related to the Partnership's homesite sales reflect the cost of the
acquired assets, related development expenditures, certain capitalized
overhead costs, capitalized interest and real estate taxes, as well as
disposition costs. Land and property costs reflect the cost of the
acquired assets, certain development costs and related disposition costs,
as well as the cost associated with the sale of equity memberships.
The decrease in housing revenues for 1996 as compared to 1995 is due
primarily to the close out of the Partnership's Broken Sound Community in
1995, as well as the close out in 1996 of the remaining units in the
Partnership's Sawgrass Country Club and Dockside Communities. Revenues
generated at these three Communities decreased approximately $16.8 million
as a direct result of the close out of these Communities. This reduction
in revenues was partially offset by increased revenues generated at the
Partnership's Weston Community due primarily to an increase in the number
of townhomes sold in 1996 as compared to 1995. In addition, the
Partnership generated more closings and revenues at its Water's Edge
Community in Atlanta due to the introduction of several new housing
products in 1995 which had their initial closings in 1996. For the year
ended December 31, 1995, the Partnership experienced a 43% net increase in
the number of housing units closed as compared to 1994. Closings during
1995 exceeded those for 1994 at all of the Partnership's Communities, with
the exception of the Broken Sound Community which had its final closings in
May 1995. This increase in closing activity is the primary cause for the
increase in housing revenues for 1995 as compared to 1994. Closings in the
Partnership's Weston Community alone accounted for approximately 93% of the
overall net increase in 1995's unit closings. This increase is primarily
attributable to the substantial increase in the backlog of unclosed housing
units at Weston at December 31, 1994 as compared to December 31, 1993. The
increase in the number of closings in the Partnership's Jacksonville
Communities for 1995 as compared to 1994 is also due primarily to an
increase in the backlog of unclosed units in those Communities at the end
of 1994 as compared to 1993. Also contributing to the favorable revenue
variance is an increase in the amount of revenues recognized under the
percentage of completion method in 1995 at Arvida's Grand Bay on Longboat
Key, Florida. During 1995, the Partnership recognized revenues from two
buildings at Arvida's Grand Bay as compared to one building in 1994.
The close-out of the Partnership's higher profit margin products
within Broken Sound in 1995, is the cause for the decline in the gross
operating profit margin from housing activities since 1994. In addition,
South Florida building code changes, which have been in effect since
September 1, 1994, have impacted construction requirements in Broward
County. These building code changes have resulted in increased
construction costs, not all of which have been passed through to the home
purchasers at this time. As a result, the Partnership experienced some
erosion in its gross operating profit margins from housing sales during
1996 and 1995 as compared to 1994.
The decrease in homesite revenues for 1996 as compared to 1995 is due
primarily to fewer lot closings in Weston as a result of the close out of
several of the lower priced products in that Community, as well as a slow
down in sales of higher priced products. Also contributing to the decrease
in revenues is the close out of lots in the Partnership's Sawgrass Country
Club and Dockside Communities in 1995 and 1996, respectively. Homesite
revenues decreased for the year ended December 31, 1995 as compared to 1994
due primarily to the close-out of lots in Sawgrass Country Club in 1995.
Homesite revenues also decreased at Weston due to lower sales prices
generated on the higher priced product sold in that Community.
The decrease in the gross operating profit margin from homesite
activities for the year ended December 31, 1995 as compared to 1994 is due
to the decreased closing activity within Sawgrass Country Club due to the
close-out of the lots in this Community in 1995, as well as reduced margins
from closings of the higher priced product in Weston resulting from
decreased sales prices, as discussed above. Also contributing to the
decrease in the gross operating profit margin are certain non-recurring
<PAGE>
adjustments made to cost of sales in 1994 to reflect reductions in
development cost estimates for certain of the Partnership's products,
primarily in the Weston Community. Development estimates at that time
indicated lower costs to be incurred than were previously anticipated,
therefore contributing to the higher gross operating profit margins in
1994.
The decrease in land and property revenues for 1996 as compared to
1995 is due to a lower volume of land and property sales closed in 1996.
Revenues for 1996 were generated primarily from the sale of the
Partnership's 20% joint venture interest in Coto de Caza as well as the
related promissory note for advances previously made to the joint venture.
Revenues for 1996 also include proceeds from closings of several developed
commercial parcels in Weston totaling approximately 21 acres, the closing
of an approximate 16 acre developed commercial parcel located in Palm Beach
County, Florida, and the closing of an approximate two acre undeveloped
commercial parcel in Cobb County, Georgia. Significant revenues were
generated in 1995 from the closings of approximately 86 acres of commercial
land parcels throughout Palm Beach and Broward Counties in Florida. In
addition to these commercial land parcels, the Partnership also closed on
the sale of the cable operation in its Broken Sound Community and the
Mizner Place office building located in downtown Boca Raton, Florida. Also
included in 1995 revenues is the sale of approximately 82 acres of
undeveloped land located near Sarasota, Florida, which was distributed to
the Partnership by one of its unconsolidated joint ventures. These
closings compare to approximately 12 acres of commercial and residential
land parcels closed during 1994.
The gross operating profit margin from land and property sales was
higher for 1995 as compared to 1996 and 1994 due primarily to the low cost
basis of the land sales generated during 1995.
Operating properties represents activity from the Partnership's club
and hotel operations, commercial properties and certain other operating
assets. Revenues from operating properties increased in 1996 as compared
to 1995 due primarily to an increase in the number of members and the
associated dues collected at Weston Hills Country Club, as well as an
increase in revenues generated by the cable operation in Weston due to an
increased number of subscribers. Increased room revenues at the
Partnership's hotel operation in Boca Raton, Florida, resulting from
increased occupancy and room rates, also contributed to the favorable
variance. These variances were partially offset by decreased revenues
resulting from the May 1996 closing of a restaurant owned by the
Partnership and located in its Weston Community, as well as decreased
revenues associated with the sale of the Mizner Place office building in
May 1995. The increase in revenues from operating properties in 1995 as
compared to 1994 is due primarily to increased membership dues and fees
generated at the Partnership's club operations in Weston. This favorable
variance resulted from an increase in the number of club members as well as
an increase in rates charged in 1995 as compared to 1994. The favorable
revenue variance from the club operations was partially offset by decreased
revenues from the Partnership's cable operation in Broken Sound as well as
decreased revenues from Mizner Place due to the sale of these properties in
1995.
Brokerage and other operations represents activity from the sale of
unaffiliated third-party builders' homes within the Partnership's
Communities, activity from resale of real estate inside and outside the
Partnership's Communities, proceeds from the Partnership's property
management activities as well as fees earned from various management
agreements with joint ventures. The decrease in revenues from brokerage
and other operations for 1996 as compared to 1995 is due primarily to
decreased resale brokerage activity resulting from the closing of certain
of the Partnership's Palm Beach County sales offices. In addition, the
Partnership sold its resale operation located in Longboat Key near
Sarasota, Florida, to an unaffiliated third party purchaser in October
1996. This sale resulted in decreased revenues from that office in 1996 as
compared to 1995. No land and property revenues were recognized as a
result of this sale as such revenues are contingent upon future operations
<PAGE>
of the sales office. Also contributing to the decrease in revenues is a
decrease in commissions earned from the sale of builders' homes within the
Partnership's Broken Sound, Sawgrass Country Club and Dockside Communities
due to the close out of products in those Communities. The decrease in
revenues from brokerage and other operations for the year ended December
31, 1995 as compared to 1994 is due primarily to a decrease in the number
of builder unit closings in the Partnership's Weston Community resulting
from a slow down in sales of the higher priced product in that Community.
Closings and revenues also decreased due to the late stage of development
of the Partnership's Sawgrass Country Club Community and the closeout of
its Broken Sound Community in 1995.
The gross operating profit margin from brokerage and other operations
declined for the year ended December 31, 1995 as compared to 1994 due
primarily to an adjustment recorded to cost of revenues in the first
quarter of 1995 to properly reflect commissions paid in connection with the
sales of builders' homes within the Partnership's Communities which had
closed prior to December 31, 1994.
Selling, general and administrative expenses include all marketing
costs, with the exception of those costs capitalized in conjunction with
the construction of housing units, and project and general administrative
costs. These expenses are net of the marketing fees received from third
party builders. Despite the significant expenditures incurred in the third
and fourth quarters of 1996 in connection with the various tender offers
for Partnership Interests, selling, general and administrative expenses
decreased for the year ended December 31, 1996 as compared to 1995. This
favorable variance is due primarily to reduced marketing and project
administrative costs incurred resulting from the close-out of the
Partnership's Broken Sound, Sawgrass Country Club and Dockside Communities.
The increase in selling, general and administrative expenses for the year
ended December 31, 1995 as compared to 1994 is primarily attributable to a
decrease in marketing fees earned from builder unit closings within the
Partnership's Communities, due to the lower volume of such closings as
discussed above. The unfavorable variance also resulted from an increase
in project administrative costs, primarily at the Partnership's Weston
Community, related to the increased housing volume discussed above.
Writedowns to the carrying value of real estate inventories and other
assets represent adjustments to the book values of the Partnership's
projects based upon the analysis of each projects' estimated selling price
in the ordinary course of business less estimated costs of completion,
holding and disposal as compared to its recorded carrying value, or the
estimated fair value of the asset held for disposition. Writedowns to the
carrying value of real estate inventories and other assets for the year
ended December 31, 1995 represents a writedown of approximately $8.5
million, recorded in September 1995, to the carrying value of the
Partnership's investment in the Coto de Caza Joint Venture. The
Partnership had been evaluating its plans for its interest in this joint
venture and was considering a shorter holding period than originally
anticipated. Therefore, the Partnership recorded this writedown to reflect
the fair value of this investment held for disposition under market
conditions at that time.
The increase in interest income since 1994 is due primarily to an
increase in the average amounts invested in short-term financial
instruments.
The decrease in Equity in earnings of unconsolidated ventures for 1996
as compared to 1995 resulted from the Partnership recording its share of
income generated from a land sale by the commercial joint venture located
in Ocala, Florida during the first quarter of 1995. No land sales were
generated by the unconsolidated joint ventures in which the Partnership
holds interests during 1996. The income recorded as a result of that land
sale is also the primary cause for the increase in Equity in earnings of
unconsolidated ventures for the year ended December 31, 1995 as compared to
1994.
<PAGE>
Interest and real estate taxes decreased for 1996 as compared to 1995
due to a reduction in real estate taxes incurred for the year. Interest
and real estate taxes decreased for the year ended December 31, 1995 as
compared to 1994 due primarily to a decrease in the average amount of
borrowings outstanding during the period, as well as a decrease in real
estate taxes incurred, due primarily to the high volume of closings during
1995.
The Partnership adopted the Financial Accounting Standards Board
Issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", effective January 1,
1995. As a result, an impairment loss of $2.2 million was recorded to the
carrying value of its Cullasaja Community located near Highlands, North
Carolina. This loss was recorded based upon an analysis of estimated
discounted cash flows used to determine the Community's fair value. The
fair value analysis estimates sell out of the remaining houses, homesites
and equity memberships in the Community by the year 2000. This loss is
reflected as the Cumulative effect due to change in accounting for long-
lived assets on the accompanying Consolidated Statements of Operations for
the year ended December 31, 1995. As a result of this adjustment,
Cullasaja's carrying value is recorded at approximately $5.4 million and
$7.1 million at December 31, 1996 and December 31, 1995, respectively. The
Partnership requires no impairment losses or other adjustments to be
recorded as of December 31, 1996 as a result of the application of this
Statement.
INFLATION
Although the relatively low rates of inflation in recent years
generally have not had a material effect on the Community development
business, inflation in future periods can adversely affect the development
of Communities generally because of its impact on interest rates. High
interest rates not only increase the cost of borrowed funds to developers,
but also have a significant effect on the affordability of permanent
mortgage financing to prospective purchasers. Any increased costs of
materials and labor resulting from high rates of inflation may, in certain
circumstances, be passed through to purchasers of real properties through
increases in sales prices, although such increases may reduce sales volume.
To the extent such cost increases are not passed through to purchasers,
there would be a negative impact on the ultimate margins realized by the
Partnership.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
INDEX
Report of Independent Certified Public Accountants
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Partners' Capital Accounts
for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
SCHEDULES NOT FILED:
All schedules have been omitted as the required information is
inapplicable or immaterial, or the information is presented in the
consolidated financial statements or related notes.
<PAGE>
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners of
ARVIDA/JMB PARTNERS, L.P.
We have audited the accompanying consolidated balance sheets of
Arvida/JMB Partners, L.P. and Consolidated Ventures as of December 31, 1996
and 1995, and the related consolidated statements of operations, changes in
partners' capital accounts, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Arvida/JMB Partners, L.P. and Consolidated Ventures at December
31, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Miami, Florida
February 21, 1997, except for
the second and third paragraph of Note 17,
as to which the date is
April 1, 1997
<PAGE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
------
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Cash and cash equivalents (note 3) . . . . . . . . . . . . . $ 53,635,737 20,171,289
Restricted cash (note 3) . . . . . . . . . . . . . . . . . . 11,833,522 13,852,395
Trade and other accounts receivable (net of allowance
for doubtful accounts of $261,326 and $236,052
at December 31, 1996 and 1995, respectively) . . . . . . . 3,582,995 28,056,262
Mortgages receivable (net of valuation allowances of
$951,839 and $951,938 at December 31, 1996 and 1995,
respectively) (note 4) . . . . . . . . . . . . . . . . . . 1,269,460 1,994,583
Real estate inventories (notes 5 and 8). . . . . . . . . . . 174,638,454 199,372,799
Property and equipment, net (notes 6 and 8). . . . . . . . . 79,373,444 71,842,531
Investments in and advances to joint ventures, net (note 7). 2,739,842 13,955,093
Equity memberships (note 9). . . . . . . . . . . . . . . . . 5,457,880 7,367,266
Amounts due from affiliates (note 10). . . . . . . . . . . . 1,003,732 1,131,697
Prepaid expenses and other assets. . . . . . . . . . . . . . 7,105,077 8,695,326
------------ -----------
Total assets . . . . . . . . . . . . . . . . . . . $340,640,143 366,439,241
============ ===========
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS
------------------------------------------
1996 1995
------------ -----------
Liabilities:
Bank overdrafts. . . . . . . . . . . . . . . . . . . . . . $ -- 3,972,987
Accounts payable . . . . . . . . . . . . . . . . . . . . . 21,532,400 22,918,450
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 17,287,325 23,825,499
Accrued expenses and other liabilities . . . . . . . . . . 15,324,815 12,718,654
Notes and mortgages payable, net (note 8). . . . . . . . . 36,843,778 70,338,364
------------ -----------
Commitments and contingencies
Total liabilities. . . . . . . . . . . . . . . . . 90,988,318 133,773,954
------------ -----------
Partners' capital accounts (note 14)
General Partner and Associate Limited Partners:
Capital contributions . . . . . . . . . . . . . . . . . 20,000 20,000
Cumulative net income . . . . . . . . . . . . . . . . . 35,750,061 34,994,723
Cumulative cash distributions . . . . . . . . . . . . . (34,492,285) (33,912,035)
------------ -----------
1,277,776 1,102,688
------------ -----------
Holders of Interests:
Initial Holder of Interests:
Capital contributions, net of offering costs. . . . . . 364,841,815 364,841,815
Cumulative net income . . . . . . . . . . . . . . . . . 36,071,642 8,815,556
Cumulative cash distributions . . . . . . . . . . . . . (152,539,408) (142,094,772)
------------ -----------
248,374,049 231,562,599
------------ -----------
Total partners' capital accounts . . . . . . . . . 249,651,825 232,665,287
------------ -----------
Total liabilities and partners' capital. . . . . . $340,640,143 366,439,241
============ ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Housing. . . . . . . . . . . . . . . . . . $236,236,822 245,700,339 195,077,922
Homesites. . . . . . . . . . . . . . . . . 23,652,202 41,429,110 49,775,550
Land and property. . . . . . . . . . . . . 25,979,069 37,065,413 11,050,339
Operating properties . . . . . . . . . . . 29,985,372 28,205,307 26,719,132
Brokerage and other operations . . . . . . 26,959,804 29,867,313 32,435,115
------------ ------------ ------------
Total revenues . . . . . . . . . . 342,813,269 382,267,482 315,058,058
------------ ------------ ------------
Cost of revenues:
Housing. . . . . . . . . . . . . . . . . . 202,965,915 205,949,253 152,838,691
Homesites. . . . . . . . . . . . . . . . . 15,486,069 27,815,676 28,980,971
Land and property. . . . . . . . . . . . . 18,554,274 17,141,616 6,488,326
Operating properties . . . . . . . . . . . 28,560,746 27,892,903 26,648,781
Brokerage and other operations . . . . . . 25,389,876 26,986,730 26,733,988
------------ ------------ ------------
Total cost of revenues . . . . . . 290,956,880 305,786,178 241,690,757
------------ ------------ ------------
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
1996 1995 1994
------------ ------------ ------------
Gross operating profit . . . . . . . . . . . 51,856,389 76,481,304 73,367,301
Selling, general and administrative expenses 22,554,641 22,755,471 20,690,839
Writedown of the carrying value of real estate
inventories and other assets
(notes 1, 5 and 7) . . . . . . . . . . . . -- 8,544,668 --
------------ ------------ ------------
Net operating income . . . . . . . 29,301,748 45,181,165 52,676,462
Interest income. . . . . . . . . . . . . . . 1,567,646 1,201,172 1,068,011
Equity in earnings (losses) of unconsolidated
ventures (notes 1 and 7) . . . . . . . . . (177,864) 1,050,994 524,520
Interest and real estate taxes, net (note 1) (2,680,106) (3,396,645) (7,071,461)
------------ ------------ ------------
Income before extraordinary
item and cumulative effect
due to change in accounting for
long-lived assets. . . . . . . . 28,011,424 44,036,686 47,197,532
Cumulative effect due to change
in accounting for long-lived
assets (note 16) . . . . . . . . -- (2,200,000) --
------------ ------------ ------------
Net income . . . . . . . . . . . . $ 28,011,424 41,836,686 47,197,532
============ ============ ============
Net income per Interest. . . . . . $ 67.47 101.91 115.37
============ ============ ============
Cash distribution per Interest . . $ 25.85 13.49 6.35
============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
GENERAL PARTNER AND ASSOCIATE LIMITED PARTNERS HOLDERS OF INTERESTS (404,000 INTERESTS)
- ----------------------------------------------------------------------------------------------------------
NET
CONTRIBU- NET CASH INCOME
TIONS INCOME DISTRIBUTIONS TOTAL CONTRIBUTIONS (LOSS) DISTRIBUTIONS TOTAL
--------- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
Decem-
ber 31,
1993. . .$20,00033,739,753(33,466,823) 292,930 364,841,815(78,963,692)(134,080,876)151,797,247
Net income
(note 14) -- 588,701 (142,523) 446,178 -- 46,608,831 (2,565,432) 44,043,399
----------------- ---------------------- ---------------------------------- -----------
Balance
Decem-
ber 31,
1994. . .20,00034,328,454 (33,609,346) 739,108 364,841,815(32,354,861)(136,646,308)195,840,646
Net income
(note 14) -- 666,269 (302,689) 363,580 -- 41,170,417 (5,448,464) 35,721,953
----------------- ---------------------- ---------------------------------- -----------
Balance
Decem-
ber 31,
1995. . .20,00034,994,723 (33,912,035) 1,102,688 364,841,815 8,815,556(142,094,772)231,562,599
Net income
(note 14) -- 755,338 (580,250) 175,088 -- 27,256,086 (10,444,636) 16,811,450
----------------- ---------------------- ---------------------------------- -----------
Balance
Decem-
ber 31,
1996. . .$20,00035,750,061(34,492,285) 1,277,776 364,841,815 36,071,642(152,539,408)248,374,049
================= ====================== ================================== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . $28,011,424 41,836,686 47,197,532
Charges (credits) to net income not
requiring (providing) cash:
Depreciation and amortization. . . . . . . 5,896,551 5,661,479 5,556,524
Equity in (earnings) losses of
unconsolidated ventures. . . . . . . . . 177,864 (1,050,994) (524,520)
Provision for doubtful accounts. . . . . . 77,203 6,511 136,395
Loss (gain) on sale of property and equipment 487,237 (3,530,599) 32,888
Writeoff of abandoned property and equipment 147,600 -- --
Writedowns of the carrying value of real estate
inventories and other assets
(notes 1, 5 and 7) . . . . . . . . . . . -- 8,544,668 --
Cumulative effect due to change in
accounting for long-lived assets
(note 16). . . . . . . . . . . . . . . . -- 2,200,000 --
Changes in:
Restricted cash. . . . . . . . . . . . . . 2,018,873 380,145 (1,586,862)
Trade and other accounts receivable. . . . 24,396,064 (9,852,816) (11,047,638)
Real estate inventories:
Additions to real estate inventories . . (203,298,668) (230,936,219) (195,200,305)
Cost of revenues . . . . . . . . . . . . 236,765,217 250,906,545 188,307,988
Capitalized interest . . . . . . . . . . (4,672,972) (8,336,902) (8,278,441)
Capitalized real estate taxes. . . . . . (3,144,609) (3,448,313) (4,024,528)
Equity memberships . . . . . . . . . . . . 1,909,386 2,003,598 5,572,166
Amounts due from affiliates. . . . . . . . 127,965 (607,141) (436,167)
Prepaid expenses and other assets. . . . . 1,523,541 312,157 (1,177,376)
Accounts payable, accrued expenses and
other liabilities. . . . . . . . . . . . 1,144,176 (2,028,810) 12,225,653
Deposits . . . . . . . . . . . . . . . . . (6,538,174) (3,257,267) 5,072,358
------------ ------------ ------------
Net cash provided by operations. . 85,028,678 48,802,728 41,825,667
------------ ------------ ------------
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
------------ ------------ ------------
Investing activities:
Mortgages receivable, net. . . . . . . . . 725,123 (900,360) 1,846,738
Acquisitions of property and equipment . . (13,748,825) (11,312,321) (7,116,040)
Proceeds from disposals of property
and equipment. . . . . . . . . . . . . . 24,899 7,027,220 5,190
Joint venture distributions (contributions),
net. . . . . . . . . . . . . . . . . . . (79,776) 1,177,194 1,667,346
Payments from (advances to) joint ventures 4,167,035 (60,235) 220,232
Proceeds from disposition of
joint venture interest . . . . . . . . . 6,111,440 -- --
------------ ------------ ------------
Net cash used in investing activities (2,800,104) (4,068,502) (3,376,534)
------------ ------------ ------------
Financing activities:
Proceeds from notes and long-term borrowings 33,944,724 55,814,878 20,132,159
Payments of notes and long-term borrowings (67,710,977) (100,624,039) (52,755,626)
Proceeds from (payments of) bank overdrafts (3,972,987) 3,972,987 (1,659,930)
Distributions to General Partner and
Associate Limited Partners . . . . . . . (580,250) (302,689) (142,523)
Distributions to Holders of Interests. . . (10,444,636) (5,448,464) (2,565,432)
------------ ------------ ------------
Net cash used in financing
activities . . . . . . . . . . . (48,764,126) (46,587,327) (36,991,352)
------------ ------------ ------------
Increase (decrease) in cash
and cash equivalents . . . . . . 33,464,448 (1,853,101) 1,457,781
Cash and cash equivalents,
beginning of year. . . . . . . . 20,171,289 22,024,390 20,566,609
------------ ------------ ------------
Cash and cash equivalents,
end of year. . . . . . . . . . . $ 53,635,737 20,171,289 22,024,390
============ ============ ============
Supplemental disclosure of cash
flow information:
Cash paid for mortgage and other
interest, net of amounts capitalized . . $ 110,275 -- 3,838,458
============ ============ ============
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
------------ ------------ ------------
Non-cash investing and financing
activities:
Consolidation of Partnership's interest in
the Arvida Boose Joint Venture (note 7) $ 914,623 -- --
Notes payable recorded in conjunction with
the settlement of certain litigation related
to the Partnership's retail plaza in Boca
Raton, Florida . . . . . . . . . . . . 271,667 -- --
Distribution of land from unconsolidated
joint venture (note 7) . . . . . . . . -- 717,472 --
------------ ------------ ------------
$ 1,186,290 717,472 --
============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
ARVIDA/JMB PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS AND BASIS OF ACCOUNTING
Operations
The assets of the Partnership consist principally of interests in land
which is in the process of being developed into master-planned residential
communities (the "Communities") and, to a lesser extent, commercial and
industrial properties; mortgage notes and accounts receivable; construc-
tion, brokerage and other support businesses; real estate assets held for
investment; certain club and recreational facilities; and a cable
television business serving one of its Communities. The Partnership's
Communities contain a diversified product mix with both resort and primary
homes designed for the middle and upper income segments of the various
markets in which the Partnership operates.
The Partnership sells individual residential lots and parcels of
partially developed and undeveloped land. The third-party builders and
developers to whom the Partnership sells homesites and land parcels are
generally smaller local builders who require project specific financing for
their developments and whose operations are more susceptible to
fluctuations in the availability and terms of financing. In addition,
within the Communities, the Partnership constructs, or causes to be
constructed, a variety of products, including single-family homes, town-
houses and condominiums to be developed for sale, as well as related
commercial and recreational facilities. The Communities are located
primarily throughout the State of Florida, with Communities also located
near Atlanta, Georgia; Highlands, North Carolina and, until March 1996, in
Orange County, California. Additional undeveloped properties owned by the
Partnership in or near its Communities are being considered for development
as commercial, office and industrial properties. The Partnership also owns
or manages certain club and recreational facilities within certain of its
Communities.
Principles of Consolidation
The consolidated financial statements include the accounts of
Arvida/JMB Partners, L.P. (the "Partnership") and its consolidated ventures
(note 7). All material intercompany balances and transactions have been
eliminated in consolidation. The equity method of accounting has been
applied in the accompanying consolidated financial statements with respect
to those investments where the Partnership's ownership interest is 50% or
less, with the exception of the Partnership's investment in the Coto de
Caza Joint Venture which was accounted for in accordance with the cost
method of accounting until March 1996 when the Partnership sold its
interest in the joint venture. Reference is made to note 7 for a
discussion of the sale of the Partnership's interest in the Coto de Caza
Joint Venture.
Recognition of Profit from Sales of Real Estate
For sales of real estate, profit is recognized in full when the
collectability of the sales price is reasonably assured and the earnings
process is virtually complete. When the sale does not meet the require-
ments for recognition of income, profit is deferred until such requirements
are met. For sales of residential units, profit is recognized at the time
of closing or if certain criteria are met, on the percentage-of-completion
method.
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the amounts reported or disclosed in
the financial statements and accompanying notes. Actual results could
differ from those estimates.
Real Estate Inventories and Cost of Real Estate Revenues
Real estate inventories are carried at cost, including capitalized
interest and property taxes. The total cost of land, land development and
common costs are apportioned among the projects on the relative sales value
method. Costs pertaining to the Partnership's housing, homesite, and land
and property revenues reflect the cost of the acquired assets as well as
development costs, construction costs, capitalized interest, capitalized
real estate taxes and capitalized overheads. Certain marketing costs
relating to housing projects, including exhibits and displays, and certain
planning and other pre-development activities, excluding normal period
expenses, are capitalized and charged to housing cost of revenues as
related units are closed. A warranty reserve is provided as residential
units are closed. This reserve is reduced by the cost of subsequent work
performed.
Effective January 1, 1995, the Partnership adopted Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which was issued by the Financial Accounting
Standards Board ("FASB") in March 1995. Reference is made to note 16 for a
discussion regarding the implementation of this Statement.
Capitalized Interest and Real Estate Taxes
Interest and real estate taxes are capitalized to qualifying assets,
principally real estate inventories. Such capitalized interest and real
estate taxes are charged to cost of revenues as sales of real estate
inventories are recognized. Interest, including the amortization of loan
fees, of $4,672,972, $8,481,343 and $11,257,464 was incurred for the years
ended December 31, 1996, 1995 and 1994, respectively, of which $4,672,972,
$8,336,902 and $8,278,441 was capitalized for the years ended December 31,
1996, 1995 and 1994, respectively. Interest payments, including amounts
capitalized, of $4,783,247, $7,937,153 and $12,116,899 were made for the
years ended December 31, 1996, 1995 and 1994, respectively. The decrease
in interest payments since 1994 is due primarily to a decrease in the
average amounts of borrowings outstanding.
Real estate taxes of $5,824,715, $6,700,517 and $8,116,966 were
incurred for the years ended December 31, 1996, 1995 and 1994,
respectively, of which $3,144,609, $3,448,313 and $4,024,528 were
capitalized for the years ended December 31, 1996, 1995 and 1994,
respectively. Real estate tax payments of $5,773,005, $6,690,152 and
$8,212,002 were made for the years ended December 31, 1996, 1995 and 1994,
respectively. The preceding analysis of real estate taxes does not include
real estate taxes incurred or paid with respect to the Partnership's club
facilities and operating properties as these taxes are included in cost of
revenues for operating properties.
Property and Equipment and Other Assets
Property and equipment are carried at cost less accumulated
depreciation and are depreciated on the straight-line method over the
estimated useful lives of the assets, which range from two to forty years.
Provisions for value impairment are recorded with respect to such assets
whenever the estimated future undiscounted cash flows from operations and
projected sales proceeds are less than the net carrying value, as discussed
in note 15. Expenditures for maintenance and repairs are charged to
expense as incurred. Costs of major renewals and improvements which extend
useful lives are capitalized.
<PAGE>
Other assets are amortized on the straight-line method, which
approximates the interest method, over the useful lives of the assets which
range from one to five years. Amortization of other assets, excluding loan
fees, of approximately $50,000, $180,000 and $175,000 was recorded for the
years ended December 31, 1996, 1995 and 1994, respectively. Amortization
of loan fees, which is included in interest expense, of approximately
$288,000, $394,000 and $429,000 was recorded for the years ended December
31, 1996, 1995 and 1994, respectively.
Investments in and Advances to Joint Ventures, Net
In general, the equity method of accounting has been applied in the
accompanying consolidated financial statements with respect to those
investments for which the Partnership does not have majority control and
where the Partnership's ownership interest is 50% or less. The cost method
of accounting was applied in the accompanying consolidated financial
statements with respect to the Coto de Caza Joint Venture until March 1996
when the Partnership sold its interest in the joint venture. Reference is
made to note 7 for further discussion of this joint venture.
Investments in the remaining joint ventures are carried at the
Partnership's proportionate share of the ventures' assets, net of their
related liabilities and adjusted for any basis differences. Basis
differences result from the purchase of interests at values which differ
from the recorded cost of the Partnership's proportionate share of the
joint ventures' net assets.
The Partnership periodically advances funds to the joint ventures in
which it holds ownership interests when deemed necessary and economically
justifiable. Such advances are generally interest bearing and are
repayable to the Partnership from amounts earned through joint venture
operations.
Equity Memberships
The amenities within certain of the Partnership's Boca Raton and
Jacksonville, Florida Communities, as well as its Community near Highlands,
North Carolina are conveyed to the respective homeowners through the sale
of equity memberships. Equity membership revenues and related cost of
revenues are included in land and property in the accompanying consolidated
statements of operations.
Reference is made to note 16 for a discussion regarding the impairment
of long-lived assets.
Partnership Records
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments where applicable to reflect
the Partnership's accounts in accordance with GAAP and to consolidate the
accounts of the ventures as described above. Such GAAP and consolidation
adjustments are not reflected on the records of the Partnership. The net
effect of these items is summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . $340,640,143 596,588,980 366,439,241 547,369,361
Partners' capital accounts:
General Partner and
Associate Limited Partners 1,277,776 533,032 1,102,688 395,919
Holders of Interests . . . 248,374,049 350,658,940 231,562,599 337,607,004
Net income:
General Partner and
Associate Limited Partners 755,338 717,363 666,269 673,245
Holders of Interests . . . 27,256,086 23,496,573 41,170,417 41,861,069
Net income per Interest . . . 67.47 58.16 101.91 103.62
=========== ============ ============= =============
</TABLE>
<PAGE>
Reference is made to note 14 for further discussion of the allocation
of profits and losses to the General Partner, Associate Limited Partners
and Holders of Interests.
The net income per Interest is based upon the average number of
Interests outstanding during each period.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994
financial statements to conform to the 1996 presentation.
Income Taxes
No provision for state or Federal income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership. However, in certain instances, the Partnership has been
required under applicable state law to remit directly to the state tax
authorities amounts representing withholding on applicable taxable income
allocated to the General Partner, Associate Limited Partners and Holders of
Interests. In such regard, during the first quarter of 1997, the
Partnership remitted each Holder of Interests' share of the 1996 North
Carolina non-resident withholding tax to the state tax authorities on
behalf of each of the Holder of Interests. Such payments, of approximately
$.04 per Interest, are deemed distributions to the Holders Of Interests for
1997. In addition, the cash distributions per Interest made during the
years ended December 31, 1996 and 1995 include $.06 and $.07, respectively,
which represent each Holder of Interests' share of a North Carolina non-
resident withholding tax which was paid directly to the state tax
authorities on behalf of the Holders of Interests for the 1995 and 1994 tax
years, respectively.
(2) INVESTMENT PROPERTIES
The Partnership's assets consist principally of interests in land
which is in the process of being developed into master-planned residential
Communities (the "Communities") and, to a lesser extent, commercial
properties; mortgage notes and accounts receivable; construction, brokerage
and other support activities; real estate assets held for investment; club
and recreational facilities; and a cable television business serving its
Weston Community.
The Partnership's Communities are in various stages of development,
with estimated remaining build-outs ranging from one to nine years. The
Weston Community, located in Broward County, Florida is the Partnership's
largest Community and is in its mid stage of development. Also in their
mid stages of development are the River Hills Country Club in Tampa,
Florida; the Water's Edge Community in Atlanta, Georgia, The Cullasaja
Club, near Highlands, North Carolina and the Partnership's condominium
project on Longboat Key, Florida known as Arvida's Grand Bay. The
Partnership's Jacksonville Golf & Country Club Community in Florida is in
its late stage development. All of the remaining units in the
Partnership's Sawgrass Country Club and Dockside Communities were sold and
closed as of December 31, 1996. In addition, the Broken Sound Community,
located in Boca Raton, Florida, had its final closings in 1995. Future
revenues will be impacted to the extent that there are lower levels of
inventories available for sale as these Communities approach or undertake
their final phases.
<PAGE>
On August 27, 1991, the General Partner, on behalf of the Partnership,
initiated a lawsuit in the Circuit Court of Cook County (County Department,
Chancery Division), Illinois against The Walt Disney Company ("Disney").
The litigation arises out of the Partnership's acquisition of substantially
all of the real estate and other assets of Arvida Corporation, a subsidiary
of Disney, in September 1987. In the complaint filed on its behalf, the
Partnership alleges that under the terms of the contract with Disney for
the acquisition, the purchase price of the assets was to be reduced by the
amount of certain payments made prior to the closing (the "Closing") of the
transaction out of funds of Arvida Corporation in order to satisfy certain
obligations that were not assumed by the Partnership. The complaint also
alleges that the contract entitles the Partnership to (i) reimbursement by
Disney for amounts advanced by the Partnership to pay certain other claimed
obligations of Arvida Corporation, including certain post-Closing
adjustments, in connection with the acquisition and (ii) indemnification by
Disney for additional costs and expenses incurred by the Partnership
subsequent to the Closing in order to remedy certain environmental
conditions that existed prior to the Closing. The complaint further
alleges that the Partnership has made various demands on Disney for payment
of these amounts and that Disney has refused to make such payments. The
Partnership seeks declaratory judgments that the Partnership is entitled to
a purchase price reduction from Disney and reimbursement or indemnification
by Disney for amounts advanced or costs and expenses incurred by the
Partnership for certain obligations of Arvida Corporation, together with
interest on all such amounts and costs. During the second quarter of 1992,
the Partnership received approximately $0.8 million in settlement of
portions of this claim. There is no assurance as to what amounts, if any,
the Partnership will recover as a result of the litigation with regard to
the remaining open issues under the initially filed complaint. During July
1993, Disney filed an answer denying the substantive allegations of the
Partnership's complaint and raising various affirmative defenses. The
Partnership believes Disney's defenses are without merit and will continue
to pursue its claims. In addition, Disney has filed a three count
counterclaim in which it seeks among other things: a complete accounting
of liabilities allegedly assumed but not discharged by the Partnership to
ascertain whether certain funds, not to exceed $2.9 million, are due Disney
in accordance with the purchase agreement; an unspecified amount of damages
exceeding $500,000 allegedly representing workers compensation and warranty
payments made by Disney, which Disney alleges are obligations of the
Partnership; an accounting for funds disbursed from a claims pool in the
amount of $3,000,000 established by the parties; and attorney fees and
costs. The Partnership believes it has meritorious defenses to these
counterclaims and will defend itself vigorously against them.
(3) CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents may consist of U.S. Government obligations
with original maturities of three months or less, money market demand
accounts and repurchase agreements, the cost of which approximated market
value. At December 31, 1996 and 1995, no funds were invested in treasury
bills. Included in Restricted cash are amounts restricted under various
escrow agreements. Credit risk associated with cash, cash equivalents and
restricted cash is considered low due to the high quality of the financial
institutions in which these assets are held.
(4) MORTGAGES RECEIVABLE
Mortgages receivable generally range in maturity from one to three
years, certain of which are collateralized by liens on the property sold
and bear interest with stated rates up to 10% per annum. All mortgages
receivable with below market rates are discounted at the market rate
prevailing at the date of issue or purchase. The resulting effective
interest rates on mortgages receivable range from approximately 6% to 9% -
per annum.
<PAGE>
(5) REAL ESTATE INVENTORIES
Real estate inventories at December 31, 1996 and 1995 are summarized
as follows:
1996 1995
------------ -----------
Land held for future development
or sale. . . . . . . . . . . $ 7,777,701 9,815,055
Community development inventory:
Work in progress and
land improvements. . . . . 135,441,247 165,914,109
Completed inventory. . . . . 31,419,506 23,643,635
------------ -----------
Real estate inventories . $174,638,454 199,372,799
============ ===========
Reference is made to note 16 for a discussion regarding the impairment
of long-lived assets.
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 are summarized as
follows:
1996 1995
------------ ----------
Land . . . . . . . . . . . . . .$ 8,437,581 5,971,614
Land improvements. . . . . . . . 30,398,047 27,762,792
Buildings. . . . . . . . . . . . 56,800,858 50,663,162
Equipment and furniture. . . . . 23,292,495 23,111,070
Construction in progress . . . . 539,275 1,847,685
------------------------
Total . . . . . . . . . . . 119,468,256 109,356,323
Accumulated depreciation. . (40,094,812)(37,513,792)
------------------------
Property and equipment, net$ 79,373,444 71,842,531
========================
Depreciation expense of approximately $5,558,000, $5,088,000 and
$4,953,000 was incurred for the years ended December 31, 1996, 1995 and
1994, respectively.
Reference is made to note 16 for a discussion regarding the impairment
of long-lived assets.
<PAGE>
(7) INVESTMENTS IN AND ADVANCES TO JOINT VENTURES, NET
The Partnership has numerous investments in real estate joint ventures
with ownership interests ranging from approximately 33% to 50%. The
Partnership's joint venture interests accounted for under the equity method
are as follows:
LOCATION OF
NAME OF VENTURE % OF OWNERSHIP PROPERTY
- --------------- -------------- ------------
Arvida Boose
Joint Venture (a) 50 Florida
H.A.E. Joint Venture 33-1/3 Florida
Arvida Corporate
Park Associates 50 Florida
Arvida Pompano Associates
Joint Venture 50 Florida
Mizner Court Associates
Joint Venture 50 Florida
Mizner Tower Associates
Joint Venture 50 Florida
Ocala 202 Joint Venture 50 Florida
Tampa 301 Associates
Joint Venture 50 Florida
Windmill Lake Estates
Associates
Joint Venture 50 Florida
Arvida/RBG I Joint Venture 40 Florida
Arvida/RBG II Joint Venture 40 Florida
(a) On December 31, 1996, the Partnership purchased its joint
venture partner's 50% interest in the Arvida Boose Joint Venture for a
purchase price of approximately $1.8 million. As a result of this
transaction, the Partnership changed from the equity method of accounting
to the consolidated method of accounting for the joint venture effective
December 31, 1996. This transaction resulted in an approximate $0.9
million decrease in Investments in and advances to joint ventures, and an
approximate $2.7 million increase to Real estate inventories on the
accompanying consolidated balance sheets at December 31, 1996 as compared
to December 31, 1995.
The following is combined summary information of joint ventures
accounted for under the equity method.
<PAGE>
<TABLE>
<CAPTION>
ASSETS
------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Real estate inventories. . . . . . . . . . . . . . . . . . . . $ 8,570,695 10,221,791
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 866,667 2,118,207
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . $ 9,437,362 12,339,998
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts payable, deposits and other liabilities . . . . . . . $ 555,568 426,049
Notes and mortgages payable. . . . . . . . . . . . . . . . . . 3,969,139 4,122,947
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . . . 4,524,707 4,548,996
Venture partners' capital. . . . . . . . . . . . . . . . . . . 2,104,308 3,097,200
Partnership's capital. . . . . . . . . . . . . . . . . . . . . 2,808,347 4,693,802
----------- -----------
Total liabilities and partners' capital. . . . . . . $ 9,437,362 12,339,998
=========== ===========
</TABLE>
<PAGE>
<TABLE>
COMBINED RESULTS OF OPERATIONS
------------------------------
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 9,485 3,079,514 1,102,242
=========== ============ ============
Net income (loss). . . . . . . . . . . . . . . . $ (414,137) 1,763,264 (210,087)
=========== ============ ============
Partnership's proportionate share of
net income (loss). . . . . . . . . . . . . . . $ (197,121) 908,994 (126,207)
=========== ============ ============
Partnership's equity in earnings (losses)
of unconsolidated ventures . . . . . . . . . . $ (177,864) 1,050,994 524,520
=========== ============ ============
The following is a reconciliation of the Partnership's Capital accounts within the joint ventures
to its investments in and advances to joint ventures as reflected on the accompanying consolidated balance
sheets:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
Partnership's Capital, equity method . . . . . . $ 2,808,347 4,693,802 5,514,724
Partnership's Capital, cost method . . . . . . . -- 5,836,000 5,836,000
Basis difference . . . . . . . . . . . . . . . . (78,896) (752,135) 7,711,036
----------- ------------ ------------
Investments in joint ventures. . . . . . . . . . 2,729,451 9,777,667 19,061,760
Advances to joint ventures, net. . . . . . . . . 10,391 4,177,426 4,117,191
----------- ------------ ------------
Investments in and advances to
joint ventures, net . . . . . . . . . . . $ 2,739,842 13,955,093 23,178,951
=========== ============ ============
</TABLE>
<PAGE>
The Partnership's share of net income (loss) is based upon its
ownership interest in numerous investments in joint ventures which are
accounted for in accordance with the equity method of accounting. Equity
in earnings (losses) of unconsolidated ventures represents the
Partnership's share of each venture's net income (loss), and may reflect a
component of purchase price adjustments included in the Partnership's
basis. Such adjustments are generally amortized to income in relation to
the cost of revenue of the underlying real estate assets. These factors
contribute to the differential in the Partnership's proportionate share of
the net income (loss) of the joint ventures and its equity in earnings
(losses) of unconsolidated ventures as well as to the basis differential
between the Partnership's investments in joint ventures and its equity in
underlying net assets, as shown above.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership. In addition, under
certain circumstances, either pursuant to the joint venture agreements or
due to the Partnership's obligations as a general partner, the Partnership
may be required to make additional cash advances or contributions to
certain of the ventures.
During September 1995, the Partnership recorded an approximate $8.5
million writedown to the carrying value of its investment in the Coto de
Caza Joint Venture. The Partnership had been evaluating its plans for its
interest in this joint venture and was considering a shorter holding period
than originally anticipated. Therefore, the Partnership recorded this
writedown to reflect the fair value of this investment under market
conditions at that time. This writedown is reflected in Writedowns of the
carrying values of real estate inventories and other assets on the
accompanying consolidated statements of operations for the year ended
December 31, 1995. During March 1996, the Partnership closed on the sale
of its 20% joint venture interest in Coto de Caza, including the related
promissory note for advances previously made to the joint venture, to
unaffiliated third parties for a cash sales price of $12.0 million. The
Partnership used $2.0 of the sale proceeds to pay down its term loan. This
sale is the primary cause for the decrease in Investments in and advances
to joint ventures on the accompanying consolidated balance sheets at
December 31, 1996 as compared to December 31, 1995. The General Partner
believes that this sale was in the best interest of the Partnership given
market conditions in Orange County, California at that time. As a result
of this transaction, the Partnership has no future obligations with respect
to Coto de Caza. This transaction resulted in gains of approximately $1.8
million and $1.1 million in 1996, for financial reporting and Federal
income tax purposes, respectively.
During April 1995, the Partnership received a distribution of
approximately 82 acres of undeveloped land near Sarasota, Florida from the
Arvida Corporate Park Associates Joint Venture. This transaction is
reflected as a non-cash investing and financing activity for the year ended
December 31, 1995 on the accompanying consolidated statements of cash
flows. The Partnership subsequently sold this land parcel to an
unaffiliated third party during April 1995, the proceeds of which are
included in Land and property revenues on the accompanying consolidated
statements of operations for the year ended December 31, 1995.
The Partnership incurs certain general and administrative expenses
which are paid by the Partnership on behalf of the joint ventures in which
it holds interests. The Partnership receives reimbursements from the joint
ventures for such costs. For the years ended December 31, 1996 and 1995,
the Partnership was entitled to receive approximately $1,800 and $251,900,
respectively, from certain of the joint ventures in which it holds
interests. At December 31, 1996, approximately $10,400 was owed to the
Partnership, which includes amounts owed from previous years, none of which
was received as of February 21, 1997.
<PAGE>
(8) NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable at December 31, 1996 and 1995 are
summarized as follows:
1996 1995
----------- -----------
Term loan credit facility of
$85,252,250 bearing interest
at approximately 8.2% and
8.4% per annum at December 31,
1996 and 1995, respectively
(Retired in January 1997) (A) . . $ 5,234,008 32,531,048
Income property term loan of
$18,233,326 bearing interest
at approximately 8.0% and 8.5%
per annum at December 31, 1996
and 1995, respectively (A). . . . 11,566,746 12,766,746
Revolving line of credit of
$20,000,000 at December 31,
1996 and 1995, respectively (A) . -- --
Other notes and mortgages
payable (B). . . . . . . . . . . 20,043,024 25,040,570
----------- -----------
Total. . . . . . . . . . $36,843,778 70,338,364
=========== ===========
(A) At December 31, 1996, the Partnership's credit facility consists
of a term loan in the original amount of $85,252,520, a revolving line of
credit facility up to $20 million, an income property term loan in the
original amount of $18,233,326 and a $15 million letter of credit facility.
The term loan, revolving line of credit and letter of credit facility are
secured by recorded mortgages on all otherwise unencumbered real property
assets of the Partnership, as well as an assignment of all mortgages
receivable, equity memberships, certain joint venture interests or joint
venture proceeds and cash balances (with the exception of deposits held in
escrow). The income property term loan is secured by the recorded first
mortgage on a mixed-use center in Boca Raton, Florida. Another office
building known as Mizner Place, also located in Boca Raton, which served as
additional collateral for the income property loan, was sold in May 1995,
and the net sale proceeds of approximately $4 million were used to reduce
the outstanding principal amount of the loan. All of the notes under the
facility are cross-collateralized and cross-defaulted. At December 31,
1996, the term loan, the revolving line of credit and the income property
term loan bear interest based, at the Partnership's option, on one of the
lenders' prime rate plus 1.25% per annum or the relevant London Inter-Bank
Offering Rate (LIBOR) plus 2.50% per annum. For the year ended December
31, 1996, the effective interest rate for the combined term loan, income
property term loan and revolving line of credit facility was approximately
8.0% per annum.
Under the term loan agreement, the Partnership made scheduled
principal payments of $10 million in March 1994, February 1995 and February
1996 and $5 million principal payments in July 1995 and July 1996. In
addition, the term loan agreement provides for additional principal
repayments based upon a specified percentage of available cash flow and
upon the sale of certain assets. During the year ended December 31, 1996,
the Partnership made such additional term loan payments totaling
approximately $12.3 million. During January 1997, the Partnership paid off
the remaining principal balance of $5,234,008 outstanding under the term
loan. Under the income property term loan, principal payments of $0.1
million are required to be paid monthly until maturity. During March 1996,
the Partnership's lenders reached an agreement with each other whereby one
of the lenders would purchase the other's participating interest in the
Partnership's credit facilities. In addition, during March 1996, the
successor lender agreed to renew the Partnership's revolving line of
credit, income property term loan and letter of credit facility through
July 1997. The Partnership currently anticipates that it will seek an
extension from its lender of its income property term loan upon maturity.
In addition, the Partnership is currently in negotiations with Barnett Bank
of Broward County, N.A. ("Barnett") for a new credit facility. Reference
is made to note 17 for a detailed discussion of this facility. Such
facility, if obtained, would, in part, replace the Partnership's existing
revolving line of credit and letter of credit facilities.
The credit agreement contains significant restrictions with respect to
the payment of distributions, the maintenance of certain loan-to-value
ratios, the use of proceeds from the sale of the Partnership's assets and
advances to the Partnership's joint ventures.
Loan fees incurred in connection with the restructuring of the
Partnership's credit facility have been capitalized and are being amortized
over the lives of the loans included in the credit facility using the
straight-line method, which approximates the interest method.
(B)Other notes and mortgages payable are collateralized by certain
real estate inventories, property and equipment and certain investments
with a net book value of approximately $25.8 million at December 31, 1996.
These notes and mortgage notes have a weighted average annual effective
interest rate of approximately 8.2% and 7.0% at December 31, 1996 and 1995,
respectively, and mature in varying amounts through 2017.
During April 1996, the Partnership refinanced the loan on one of its
retail properties located in its Weston Community with a different lender.
The outstanding principal balance on such loan of approximately $8.0
million is included in Notes and mortgages payable at December 31, 1996.
In addition, $3.0 million of subordinated debt attributable to the
Cullasaja Joint Venture is included in Notes and mortgages payable at
December 31, 1996.
The Partnership had a $24.0 million revolving construction line of
credit for the buildings and certain amenities within the Partnership's
condominium project on Longboat Key, Florida known as Arvida's Grand Bay.
This line of credit bore interest at the lender's prime rate (8.25% at
December 31, 1996) plus 1/2% per annum, and was scheduled to mature in
January 1997. As of December 31, 1996, the Partnership had repaid the
remaining outstanding principal balance under this line of credit. The
Partnership currently anticipates that it will obtain a similar line of
credit during 1997 for the remaining two buildings to be constructed within
Arvida's Grand Bay.
During January 1996, the Partnership executed a note for a $7.5
million construction loan for the construction and development of a second
retail shopping center located in its Weston Community. This note
currently bears interest at the lender's prime rate (8.25% at December 31,
1996) plus 1/2% per annum, and matures in July 1997. At December 31, 1996,
approximately $6.5 million was outstanding under this loan. The proceeds
from such loan were the primary source of the funds required to complete
the shopping center. Construction of the shopping center was completed in
November 1996. The construction and development of this project is the
primary cause for the increase in Property and equipment on the
accompanying consolidated balance sheets at December 31, 1996 as compared
to December 31, 1995.
(c) During March 1997, the Partnership received a non-binding term
sheet from Barnett for a proposed $75 million term loan, a $20 million
revolving line of credit and a $5 million letter of credit facility (the
"Barnett Financing"). Under the term sheet, the Barnett Financing, if
consummated, is expected to have a term of four years, with annual
scheduled principal payments of $12.5 million as well as additional annual
principal repayments based upon a specified percentage of the Partnership's
available cash, with a maximum principal repayment including the scheduled
payment of $18.75 million per annum. The remaining outstanding balance on
the Barnett Financing would be due upon maturity. Under the term sheet,
the interest rate on the Barnett Financing would be based, at the
Partnership's option, on the relevant London Inter-Bank Offering Rate
(LIBOR) plus 2.25% per annum or Barnett's prime rate. Barnett will require
the Partnership to have an interest rate swap or cap in place for one-third
of the projected outstanding balance of the term loan. It is expected that
the Partnership would be required to pay a loan fee of 1% of the total
facility upon closing of the loan. It is currently anticipated that a
portion of the proceeds of the Barnett Financing, if consummated, would be
used by the Partnership to make a distribution in the amount of
approximately $75 million, including a distribution of approximately $175
per Interest to the Interestholders. Consummation of the Barnett Financing
is subject to the negotiation and execution by the parties of binding loan
documents. There can be no assurance that the Barnett Financing will be
consummated or, if consummated, that its terms will be similar to those
described above. The proposed terms of the Barnett Financing described
above have been tentatively approved by a judge sitting on the Circuit
Court of Cook County, Illinois pursuant to the preliminary settlement order
in the Carlstrom action, as discussed in note 17.
Following is a schedule of the maturities of notes and mortgages
payable at December 31, 1996.
1997 . . . . . . . . . . . . . . $19,156,362
1998 . . . . . . . . . . . . . . 493,549
1999 . . . . . . . . . . . . . . 239,945
2000 . . . . . . . . . . . . . . 6,436,554
2001 . . . . . . . . . . . . . . 7,453,177
Thereafter . . . . . . . . . . . 3,064,191
-----------
Total notes and
mortgages payable. . . . . $36,843,778
===========
(9) EQUITY MEMBERSHIPS
Equity memberships represent the accumulation of costs incurred in
constructing club houses, golf courses, tennis courts and various other
related assets, less amounts allocated to memberships sold. These
amenities are conveyed to homeowners through the sale of equity
memberships.
Reference is made to note 16 for a discussion regarding the impairment
of long-lived assets.
(10) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the
Partnership to affiliates of the General Partner as of December 31, 1996
and for the years ended December 31, 1996, 1995 and 1994 are as follows:
UNPAID AT
DECEMBER 31,
1996 1995 1994 1996
-------- -------- --------------------
Property management
fees (note 15). . . .$ 68,053 62,913 147,446 --
Insurance commissions. 260,793 272,316 298,697 --
Reimbursement (at cost)
for accounting services45,408 73,326 63,633 32
Reimbursement (at cost)
for portfolio manage-
ment services . . . . 54,062 83,884 -- 12,976
Reimbursement (at cost)
for legal services. . 201,126 41,470 64,949 118,386
Reimbursement (at cost)
for other administra-
tive and out-of-pocket
expenses. . . . . . . 60,247 78,960 15,345 --
-------- -------- -------- -------
$689,689 612,869 590,070 131,394
======== ======== ======== =======
<PAGE>
The Partnership receives reimbursements from or reimburses other
affiliates of the General Partner engaged in real estate activities for
certain general and administrative costs including, and without limitation,
salary and salary-related costs 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, 1996, the amount of
such costs incurred by the Partnership on behalf of these affiliates
totaled approximately $281,600. Approximately $83,900 was outstanding at
December 31, 1996, of which approximately $35,700 was received as of
February 21, 1997. For the years ended December 31, 1995 and 1994, the
Partnership was entitled to receive reimbursements of approximately
$509,000 and $505,300, respectively.
In accordance with the Partnership Agreement, the General Partner and
Associate Limited Partners have deferred a portion of their distributions
of net cash flow from the Partnership totaling approximately $1,731,000 as
of December 31, 1996. This amount does not bear interest and is expected
to be paid in future periods, subject to certain restrictions contained in
the Partnership's credit facility agreement.
Arvida Company ("Arvida"), pursuant to an agreement with the Partner-
ship, provides development, construction, management and other personnel
and services to the Partnership for all of its projects and operations.
Pursuant to such agreement, the Partnership reimburses Arvida for all of
its out-of-pocket expenditures (including salary and salary-related costs),
subject to certain limitations. The total of such costs for the years
ended December 31, 1996, 1995 and 1994 was approximately $5,931,300,
$6,233,600 and $6,802,300, respectively, of which approximately $20,000 was
unpaid as of December 31, 1996 and all of which was paid as of February 21,
1997.
The Partnership and Arvida/JMB Partners, L.P.-II (a publicly-held
limited partnership affiliated with the General Partner) 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 costs are
incurred and charged 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 costs). For the year ended
December 31, 1996, the Partnership was entitled to receive approximately
$1,255,500 from Arvida/JMB Partners, L.P.-II. At December 31, 1996,
approximately $7,100 was outstanding, all of which was received as of
February 21, 1997. In addition, for the year ended December 31, 1996, the
Partnership was obligated to reimburse Arvida/JMB Partners, L.P.-II
approximately $113,700. At December 31, 1996, approximately $21,100 was
unpaid, all of which was paid as of February 21, 1997. The net
reimbursements paid to the Partnership for the years ended December 31,
1995 and 1994 were approximately $2,416,100 and $2,491,100, respectively.
The Partnership pays for certain general and administrative costs on
behalf of its clubs, homeowners associations and maintenance associations.
The Partnership receives reimbursements from the affiliates for such costs.
For the year ended December 31, 1996, the Partnership was entitled to
receive approximately $459,200 from its affiliates. At December 31, 1996,
approximately $83,000 was owed to the Partnership, of which approximately
$72,500 was received as of February 21, 1997. The reimbursements paid to
the Partnership for the years ended December 31, 1995 and 1994 were
approximately $350,700 and $594,200, respectively. In addition, the
Partnership owes its equity clubs for certain costs incurred by the clubs
which are obligations of the Partnership. For the year ended December 31,
1996, the Partnership was obligated to reimburse its equity clubs
approximately $19,500. At December 31, 1996, approximately $15,800 was
unpaid, none of which was paid as of February 21, 1997.
The Partnership, pursuant to an agreement, provides management and
other personnel and services to one of its equity clubs. Pursuant to this
agreement, the Partnership is entitled to receive a management fee for the
services provided to the club. For the year ended December 31, 1996 and
1995, the Partnership was entitled to receive approximately $598,300 and
$472,200. At December 31, 1996, approximately $100,100 was owed to the
Partnership, none of which was received as of February 21, 1997.
The Partnership also funds certain capital expenditures and operating
deficits of its equity clubs as well as operating deficits of its
homeowners associations, as deemed necessary. The funding of operating
deficits is expensed by the Partnership. Funding of capital expenditures
is expected to be reimbursed from future cash flows generated by the equity
clubs. At December 31, 1996, the Partnership was owed approximately
$617,500 for such reimbursements, none of which was received as of February
21, 1997.
The Partnership periodically incurs salary and salary-related costs on
behalf of an affiliate of the General Partner of the Partnership. The
Partnership was entitled to receive approximately $399,000 for such costs
for the year ended December 31, 1996. At December 31, 1996, approximately
$169,000 was outstanding, none of which was received as of February 21,
1997.
Effective October 1, 1995, the General Partner of the Partnership
engaged independent third parties to perform certain administrative
services for the Partnership which were previously performed by, and
partially reimbursed to, affiliates of the General Partners. Use of such
third parties is not expected to have a material effect on the operations
of the Partnership.
(11) COMMITMENTS AND CONTINGENCIES
As security for performance of certain development obligations, the
Partnership is contingently liable under standby letters of credit and
bonds for approximately $5,018,300 and $7,397,100, respectively, at
December 31, 1996. In addition, certain joint ventures in which the
Partnership holds an interest are also contingently liable under bonds for
approximately $1,020,000 at December 31, 1996.
The Partnership leases certain building space for its management
offices, sales offices and other facilities, as well as certain equipment.
The building and equipment leases expire over the next two to nine years.
Minimum future rental commitments under non-cancelable operating leases
having a remaining term in excess of one year as of December 31, 1996 are
as follows:
1997 . . . . . . . . . . $1,364,535
1998 . . . . . . . . . . 1,217,057
1999 . . . . . . . . . . 633,614
2000 . . . . . . . . . . 442,772
2001 . . . . . . . . . . 243,450
Thereafter . . . . . . . 57,693
----------
$3,959,121
==========
Rental expense of $1,949,770, $2,095,932 and $2,001,171 was incurred
for the years ended December 31, 1996, 1995 and 1994, respectively.
On June 24, 1996, a lawsuit entitled Irvin Weiss v. Arvida/JMB
Managers, Inc., Neil G. Bluhm, Lehman Brothers Inc. and Arvida/JMB
Partners, L.P. ("Weiss action") was filed in the County Department,
Chancery Division of the Circuit Court of Cook County, Illinois. This
lawsuit is a purported class action lawsuit on behalf of Irvin Weiss and
all other Holders of Interests to bar (i) the General Partner 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 Brothers Inc. from
advising any such special committee, and (iv) defendants and their
affiliates from making tender offers. On September 25, 1996, the claims of
Irvin Weiss were voluntarily dismissed.
<PAGE>
A second complaint was filed in the County Department, Chancery
Division of the Circuit Court of Cook County, Illinois on July 1, 1996, and
most recently amended on November 27, 1996 in connection with a court
ruling dismissing certain allegations, in the matter of Jack M. Carlstrom,
Lynne M. Carlstrom, Woneta Bellevue, Roger Lathbury and Begona Lathbury v.
Arvida/JMB Managers, Inc., Neil G. Bluhm, Ira J. Schulman, Burton E.
Glazov, Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, Judd D. Malkin,
Lehman Brothers Inc., Starwood Capital Group I, L.P., Starwood/Florida
Funding, L.L.C., Starwood Opportunity Fund IV, L.P., BSS Capital II,
L.L.C., Barry Sternlicht, Walton Street Capital Acquisition Co. III and
Whitehall Street Real Estate Limited Partnership VII, and Arvida/JMB
Partners, L.P., nominal defendant ("Carlstrom action"). This complaint, as
amended, is brought derivatively on behalf of the Partnership and
individually on behalf of Jack M. Carlstrom, Lynne M. Carlstrom, Woneta
Bellevue, Roger Lathbury and Begona Lathbury and a purported class of all
other Holders of Interests (excluding the defendants, members of their
immediate families, affiliates, subsidiaries, agents, partners, members of
their current or former management or that of their affiliates, and any
participant in the alleged conspiracy). The Carlstrom action challenged,
among other things, the Partnership's proposed $160 million term loan from
Starwood/Florida Funding, L.L.C. ("Starwood financing") and seeks, among
other things, to bar defendants from taking any action to chill tender
offers or offers for debt financing from non-affiliates; to cause
defendants to put the issue of the Starwood financing to a vote of
unitholders; to bar defendants from completing the Starwood financing; to
disband the Special Committee and allow the Holders of Interests to vote on
an "independent slate" of directors to compose a new special committee; and
to cause the Partnership and director defendants to auction the
Partnership. The complaint, as amended, alleges, among other things, that
the General Partner breached its fiduciary duties owed plaintiffs and
members of the purported class by failing to negotiate for the financing
with other entities and entering into the Starwood financing in order to
entrench itself and maintain its control over the Partnership. The
complaint, as amended, also alleges that the terms of the Starwood
financing are burdensome to the Partnership and allegedly will cause a
waste of the Partnership's assets. The Carlstrom action has been
consolidated with the Weiss action and is brought as a four-count complaint
for breach of fiduciary duty on behalf of the class, breach of fiduciary
duty on behalf of the Partnership, conspiracy and collusion to breach
fiduciary duties on behalf of the class and the Partnership, and for an
injunction on behalf of the class and the Partnership. In addition to the
relief described above, plaintiffs in the complaint, as amended, on behalf
of themselves and members of the purported class seek damages in a sum to
be determined at trial, attorneys' fees and costs, and such other relief as
the Court may deem just and proper. On December 13, 1996, the Court
granted the plaintiffs' motion for preliminary injunction to stop the
Starwood financing until a hearing on a permanent injunction. The
Partnership, its General Partner, and members of the Special Committee have
appealed the order granting the preliminary injunction. The appeal is
pending in the Appellate Court of Illinois, First Judicial District, Case
No. 97-0093. In the appeal, the Partnership, its General Partner, and
members of the Special Committee, among other things, contend that the
wrong legal standard was applied by the trial court in the hearing on
plaintiffs' motion for preliminary injunction in requiring the Partnership
to prove the fairness of the Starwood financing. In addition, and
alternatively, the Partnership contends that the adoption of the Starwood
financing, which an independent investment banker opined was commercially
reasonable and fair, satisfied the legal standard applied by the Court.
The parties to the Carlstrom action engaged in mediation discussions
supervised by the Court which began on March 5, 1997. Reference is made to
note 17 for further discussion regarding this case. Due to the uncertainty
of the outcome of the final hearing, the accompanying consolidated
financial statements do not reflect any accruals related to the resolution
of this matter.
On or about September 27, 1996, a lawsuit entitled Vanderbilt Income
and Growth Associates, L.L.C. and Raleigh Capital Associates L.P.,
individually and derivatively on behalf of Arvida/JMB Partners, L.P. v.
Arvida/JMB Managers, Inc., Judd D. Malkin, Neil G. Bluhm, Burton E. Glazov,
Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, BSS Capital II, L.L.C.,
Starwood Capital Group I, L.P., Starwood/Florida Funding, L.L.C., Starwood
Opportunity Fund, IV, L.P. and Barry Sternlicht, Defendants, and Arvida/JMB
Partners, L.P., nominal defendant, was filed in the Court of Chancery of
the State of Delaware in and for New Castle County, Civil Action No. 15238
("Raleigh action"). The Raleigh action was filed as a verified complaint
for declaratory and injunctive relief. Plaintiffs claimed that the
defendants in entering into the financing commitment letter for the
Starwood term financing violated, or aided and abetted, or participated in
the violation of, fiduciary duties owed to the Partnership and the Holders
of Interests, and put their personal interests ahead of the interests of
the Partnership and the Holders of Interests. In the first claim for
relief, plaintiffs sought a declaratory judgment that the terms of the
Starwood financing be declared null, void and unenforceable. In the second
claim for relief, plaintiffs asserted a claim, derivatively on behalf of
the Partnership, alleging, among other things, that the financing
commitment letter for the Starwood financing was not the product of a valid
exercise of business judgment. In addition to the relief described above,
plaintiffs sought to preliminarily and permanently enjoin any actions in
furtherance of the financing commitment letter, an award of compensatory
damages, interest, costs and disbursements, including reasonable attorneys'
and experts' fees and such other relief as the Court might deem just and
proper. The General Partner and the Partnership filed a motion to dismiss
the Raleigh action which motion was granted on November 7, 1996. In
granting the motion, the Court held that Raleigh was not a Limited Partner
and did not have standing to file the derivative claims. The Court further
determined that Raleigh did not have the right to vote. Plaintiffs asked
the Court to reconsider its ruling, but the Court denied the request to
change its ruling.
Plaintiffs appealed the November 7, 1996 dismissal order. On December
12, 1996, the Delaware Supreme Court reversed the trial court order on a
procedural ground. The Delaware Supreme Court concluded that the trial
court should not have considered matters outside of the pleadings in
dismissing the Raleigh action without providing the plaintiffs some limited
discovery. Accordingly, the Delaware Supreme Court remanded the case back
to the trial court for further proceedings.
On December 16, 1996, the Partnership filed a counterclaim against
Vanderbilt Income and Growth Associates, L.L.C. and Raleigh Capital
Associates L.P. ("Raleigh"), seeking a declaratory judgment that Raleigh
had no right to vote on Partnership matters. On January 28, 1997, the
trial court granted plaintiffs leave to dismiss their own complaint
concerning the Starwood financing, leaving the Partnership's counterclaim
pending.
By letter dated January 10, 1997, Raleigh requested admission as a
Substituted Limited Partner of the Partnership. The Partnership referred
the request to the Special Committee of the Partnership. On February 11,
1997, the Special Committee denied the request. Thereafter, the
Partnership supplemented its counterclaim, as amended, to seek a court
declaration that Raleigh is not entitled to be admitted as a Substituted
Limited Partner. On February 20, 1997, Raleigh filed a reply and
counterclaim against the Partnership, the General Partner, and the Special
Committee. The reply counterclaim seeks, among other things, a declaration
that Raleigh has voting rights in the Partners and that defendants breached
their fiduciary duties by failing to admit, Raleigh as a Substituted
Limited Partner. The replay counterclaim also seeks to enjoin the
Partnership, the General Partner, and the Special Committee from refusing
to admit Raleigh as a Substituted Limited Partner, an aware of damages,
interest, fees, and costs.
On or about February 28, 1997, Gladys Beasley, individually and as a
representative of a class of persons similarly situated, filed an
intervenor complaint for declaratory relief against the Partnership. In
the intervenor complaint, plaintiff seeks a declaration that purchasers who
obtained Interests in the Partnership in the public offering and subsequent
Holders of Interests in the Partnership by assignment from original Holders
have the same voting rights in the Partnership, among other things, to
remove and replace the General Partner. In addition, plaintiff Gladys
Beasley, seeks an order adjudging and decreeing that the intervenor action
be properly maintained as a class, an award of her costs and expenses of
the litigation, and such other relief as the Court deems appropriate.
The trial of all claims in the Delaware action is scheduled from April
7, 1997 through April 9, 1997.
The Partnership was named a defendant in a number of homeowner
lawsuits, certain of which purported to be class actions, that allegedly in
part arose out of or related to Hurricane Andrew, which on August 24, 1992
resulted in damage to a former community development known as Country Walk.
The homeowner lawsuits alleged, among other things, that the damage
suffered by the plaintiffs' homes and/or condominiums within Country Walk
was beyond what could have been reasonably expected from the hurricane
and/or was a result of the defendants' alleged defective design,
construction, inspection and/or other improper conduct in connection with
the development, construction and sales of such homes and condominiums,
including alleged building code violations. The various plaintiffs sought
varying and, in some cases, unspecified amounts of compensatory damages and
other relief. In certain of the lawsuits injunctive relief and/or punitive
damages were sought.
Several of these lawsuits allege that the Partnership was liable,
among other reasons, as a result of its own alleged acts of misconduct or
as a result of the Partnership's alleged assumption of Arvida Corporation's
liabilities in connection with the Partnership's purchase of Arvida
Corporation's assets from Disney in 1987, which included certain assets
related to the Country Walk development. Pursuant to the agreement to
purchase such assets, the Partnership obtained indemnification by Disney
for certain liabilities relating to facts or circumstances arising or
occurring prior to the closing of the Partnership's purchase of the assets.
Over 80% of the Arvida-built homes in Country Walk were built prior to the
Partnership's ownership of the Community. Where appropriate, the
Partnership has tendered or will tender each of the above-described
lawsuits to Disney for defense and indemnification in whole or in part
pursuant to the Partnership's indemnification rights. Where appropriate,
the Partnership has also tendered these lawsuits to its various insurance
carriers for defense and coverage. The Partnership is unable to determine
at this time to what extent damages in these lawsuits, if any, against the
Partnership, as well as the Partnership's cost of investigating and
defending the lawsuits, will ultimately be recoverable by the Partnership
either pursuant to its rights of indemnification by Disney or under
contracts of insurance.
One of the Partnership's insurance carriers has been funding
settlements of various litigation related to Hurricane Andrew. In some,
but not all, instances, the insurance carrier has provided the Partnership
with written reservation of rights letters. The aggregate amount of the
settlements funded to date by this carrier is approximately $8.0 million.
The insurance carrier that funded these settlements pursuant to certain
reservations of rights has stated its position that it has done so pursuant
to various non-waiver agreements. The carrier's position was that these
non-waiver agreements permitted the carrier to fund settlements without
barring the carrier from raising insurance coverage issues or waiving such
coverage issues. On May 23, 1995, the insurance carrier rescinded the
various non-waiver agreements currently in effect regarding the remainder
of the Hurricane Andrew litigation, allegedly without waiving any future
coverage defenses, conditions, limitations, or rights. For this and other
reasons, the extent to which the insurance carrier may recover any of these
proceeds from the Partnership is uncertain. Therefore, the accompanying
consolidated financial statements do not reflect any accruals related to
this matter.
Currently, the Partnership is involved in two subrogation lawsuits.
On April 19, 1993, a subrogation claim entitled Village Homes at Country
Walk Master Maintenance Association, Inc. v. Arvida Corporation et al., was
filed in the 11th Judicial Circuit for Dade County. Plaintiffs filed this
suit for the use and benefit of American Reliance Insurance Company
("American Reliance"). In this suit, as amended, plaintiffs seek to
recover damages and pre- and post-judgment interest in connection with
$10,873,000 American Reliance has allegedly paid, plus amounts it may have
to pay in the future, to the condominium association at Country Walk in the
wake of Hurricane Andrew. Disney is also a defendant in this suit. The
Partnership believes that the amount of this claim that allegedly relates
to units it sold is approximately $3,600,000. Plaintiffs also seek a
declaratory judgement seeking to hold the Partnership and other defendants
responsible for amounts American Reliance must pay in the future to its
insured as additional damages beyond the $10,873,000 previously paid. The
Partnership has filed motions directed to the complaint, as amended, and
the litigation is in the discovery stage. The Partnership intends to
vigorously defend itself. On or about May 10, 1996, a subrogation claim
entitled Juarez et al v. Arvida Corporation et al. was filed in the Circuit
Court of the Eleventh Judicial Circuit in and for Dade County. Plaintiffs
filed this suit for the use and benefit of American Reliance. In this
suit, plaintiffs seek to recover damages, pre-and post-judgment interest,
costs and any other relief the Court may deem just and proper in connection
with $3,200,000 American Reliance allegedly paid on specified claims at
Country Walk in the wake of Hurricane Andrew. Disney is also a defendant
in this suit. The Partnership is advised that the amount of this claim
that allegedly relates to units it sold is approximately $350,000. The
Partnership intends to defend itself vigorously in this matter. The
Partnership is also involved in a subrogation action brought by the
Insurance Company of North America ("INA") arising out of a claim that INA
allegedly paid on a single home in Country Walk. The Partnership has
settled this claim for approximately $45,600 with the settlement being
funded by the Partnership's insurance carrier. The Metropolitan Property
and Casualty Company ("Metropolitan") has advised the Partnership of its
intent to file a subrogation action allegedly in connection with an
unspecified number of Arvida-built homes. Currently, Metropolitan has
advised the Partnership of three claims, totalling approximately $505,000.
The Partnership could be named in other subrogation actions, and in such
event, the Partnership intends to vigorously defend itself in such actions.
In addition, the Partnership has been advised by Merrill Lynch that
various investors have sought to compel Merrill Lynch to arbitrate claims
brought by certain investors of the Partnership representing approximately
5% of the total of approximately 404,000 Interests outstanding. Merrill
Lynch has asked the Partnership and its General Partner to confirm an
obligation of the Partnership and its General Partner to indemnify Merrill
Lynch in these claims against all loss, liability, claim, damage and
expense, including without limitation attorneys' fees and expenses, under
the terms of a certain Agency Agreement dated September 15, 1987 ("Agency
Agreement") with the Partnership relating to the sale of Interests through
Merrill Lynch on behalf of the Partnership. These claimants have sought
and are seeking to arbitrate claims involving unspecified damages against
Merrill Lynch based on Merrill Lynch's alleged violation of applicable
state and/or federal securities laws and alleged violations of the rules of
the National Association of Securities Dealers, Inc., together with pendent
state law claims. The Partnership believes that Merrill Lynch has resolved
some of these claims through litigation and otherwise, and that Merrill
Lynch is defending other claims. The Agency Agreement generally provides
that the Partnership and its General Partner shall indemnify Merrill Lynch
against losses occasioned by any actual or alleged misstatements or
omissions of material facts in the Partnership's offering materials used in
connection with the sale of Interests and suffered by Merrill Lynch in
performing its duties under the Agency Agreement, under certain specified
conditions. The Agency Agreement also generally provides, under certain
conditions, that Merrill Lynch shall indemnify the Partnership and its
General Partner for losses suffered by the Partnership and occasioned by
certain specified conduct by Merrill Lynch in the course of Merrill Lynch's
solicitation of subscriptions for, and sale of, Interests. The Partnership
is unable to determine at this time the ultimate investment of investors
who have filed arbitration claims as to which Merrill Lynch might seek
indemnification in the future. At this time, and based upon the
information presently available about the arbitration statements of claims
filed by some of these investors, the Partnership and its General Partner
believe that they have meritorious defenses to demands for indemnification
made by Merrill Lynch and intend to vigorously pursue such defenses.
Although there can be no assurance regarding the outcome of the claims for
indemnification, at this time, based on information presently available
about such arbitration statements of claims, the Partnership and its
General Partner do not believe that the demands for indemnification by
Merrill Lynch will have a material adverse effect on the financial
condition of the Partnership.
On or about October 16, 1995, a lawsuit was filed against the
Partnership and others in the Circuit Court of the 15th Judicial Circuit,
in and for Palm Beach County, Florida, and amended on or about February 20,
1996, entitled Council of Villages, Inc. et al v. Arvida/JMB Partners,
Arvida/JMB Managers, Inc., Arvida/JMB Partners, Ltd., Broken Sound Club,
Inc., and Country Club Maintenance Association, Inc. ("Council of Villages
Case"). The multi-count complaint, as amended, is brought as a class
action, and individually, on behalf of various residents of the Broken
Sound Community, and alleges that defendants engaged in various acts of
misconduct in, among other things, the establishment, operation, management
and marketing of the Broken Sound golf course and recreational facilities,
as well as the alleged improper failure to turn over such facilities to the
Broken Sound homeowners on a timely basis. Plaintiffs seek, through
various theories, including but not limited to breach of ordinance, breach
of fiduciary duty, fraud, unjust enrichment and civil theft, damages in
excess of $45 million, the appointment of a receiver for the Broken Sound
Club, other unspecified compensatory damages, the right to seek punitive
damages, treble damages, prejudgment interest, attorneys' fees and costs.
The Partnership believes that the lawsuit is without merit and intends to
vigorously defend itself in this matter.
On or about July 30, 1996, Savoy v. Arvida/JMB Partners, Arvida/JMB
Managers, Inc., Arvida/JMB Partners, Ltd., and Broken Sound Club, Inc. was
filed against the Partnership and others in the Circuit Court of the 15th
Judicial Circuit, in and for Palm Beach County, Florida. The lawsuit is
filed as a three-count complaint for dissolution of the Broken Sound Club,
Inc. ("Club"), and seeks, among other things, the appointment of a
custodian or receiver for the Club, a determination that certain acts be
deemed wrongful, the return to the Club of in excess of $2.5 million in
alleged "operating profits", an injunction against the charging of certain
dues, an injunction requiring the Club to produce certain financial
statements, and such other relief as the Court deems just, fair and proper.
This action has been consolidated with the Council of Villages Case. The
Partnership believes the lawsuit is without merit and intends to vigorously
defend itself.
The Partnership is also a defendant in several actions brought against
it arising in the normal course of business. It is the belief of the
General Partner, based on knowledge of facts and advice of counsel, that
the claims made against the Partnership in such actions will not result in
any material adverse effect on the Partnership's consolidated financial
position or results of operations.
The Partnership owns a 50% joint venture interest in 31 commercial/
industrial acres in Pompano Beach, Florida, which is encumbered by a
mortgage loan in the principal amount of approximately $4 million at
December 31, 1996. As a result of the Partnership's previous determination
that the development of the land was no longer economically profitable,
during April 1992, the Partnership and its joint venture partner each
tendered payment in the amount of approximately $3.1 million to the lender
for their respective shares of the guarantee payment required under the
loan agreement and certain other holding costs, the majority of which
reduced the outstanding mortgage loan to its current balance. The venture
also intended at that time to convey title to the property to the lender;
however, such conveyance is pending until resolution of certain general
development obligations of the venture as well as certain environmental
issues. The Partnership had been negotiating with the lender regarding the
scope of the development work required to be done. Negotiations with the
lender were unsuccessful, and the lender has filed a lawsuit with the
Broward County Circuit Court in which the lender asserts, among other
things, that the mortgage loan is with recourse to the joint venture
partners as a result of the partners' failure to perform in accordance with
the terms of the loan agreement. The lender is demanding payment of the
outstanding loan balance plus interest thereon. The Partnership believes
this claim is without merit and is vigorously defending the lawsuit. With
respect to the environmental issues, the previous owner remains obligated
to undertake the clean up pursuant to, among other things, a surviving
obligation under the purchase and sale agreement. The clean-up began in
July 1994, and the first phase of the remedial action plan was completed in
October 1994. Further action plans are now being discussed with state
environmental officials. If the previous owner is unable to fulfill all
its obligations as they relate to this environmental issue, the venture and
ultimately the Partnership may be obligated for such costs. Should this
occur, the Partnership does not anticipate the cost of this clean-up to be
material to its operations.
The Partnership may be responsible for funding certain other ancillary
activities for related entities in the ordinary course of business which
the Partnership does not currently believe will have any material adverse
effect on its consolidated financial position or results of operations.
(12) TAX INCREMENT FINANCING ENTITIES
In connection with the development of the Partnership's Weston
Community, bond financing is utilized to construct certain on-site and off-
site infrastructure improvements, including major roadways, lakes, other
waterways and pump stations, which the Partnership would otherwise be
obligated to finance and construct as a condition to obtain certain
approvals for the project. This bond financing is obtained by The Indian
Trace Community Development District ("District"), a local government
district operating in accordance with Chapter 190 of the Florida Statutes.
Under this program, the Partnership is not obligated directly to repay the
bonds. Rather, the bonds are expected to be fully serviced by special
assessment taxes levied on the property, which effectively collateralizes
the obligation to pay such assessments until land parcels are sold. At
such point, the liability for the assessments related to parcels sold will
be borne by the purchasers through a tax assessment on their property.
These special assessment taxes are designed to cover debt service on the
bonds, including principal and interest payments, as well as the operating
and maintenance budgets of the District. The use of this type of bond
financing is a common practice for major land developers in South Florida.
The District issued $64,660,000 of variable rate bonds in November
1989 and $31,305,000 of variable rate bonds in July 1991. These bonds
mature in various years commencing in May 1991 through May 2011. In order
to reduce the exposure of variable rate debt, the District pursued a new
bond issuance. During March 1995, the District issued approximately $99
million of bonds at fixed rates of interest ranging from 4.0% to 8.25% per
annum. These bonds mature in various years commencing May 1995 through May
2011. The proceeds from this offering were used to refund the outstanding
1989 and 1991 bonds described above, as well as to fund the issuance costs
incurred in connection with this offering and deposits to certain reserve
accounts for future bond debt service requirements. In addition, during
December 1995, the District issued an additional $13,340,000 of fixed rate
bonds. These bonds bear interest at 6.875% and mature in April 2010;
however, mandatory principal redemptions commence in 1998 and continue
through maturity. At December 31, 1996, the amount of bonds issued and
outstanding totalled $100,170,000. For the twelve months ended December
31, 1996, the Partnership paid special assessments related to the bonds of
approximately $3.4 million.
(13) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107
("SFAS 107") - DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
SFAS 107 requires the disclosure of the SFAS 107 values of all
financial assets and liabilities for which it is practicable to estimate
such values. Value is defined in SFAS 107 as the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership
believes the carrying amount of its financial instruments approximates SFAS
107 value at December 31, 1996 and 1995.
(14) PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement (and subject to
Section 4.2F which allocates Profits, as defined, to the General Partner
and Associate Limited Partners), profits or losses of the Partnership will
be allocated as follows: (i) profits will be allocated such that the
General Partner and the Associate Limited Partners will be allocated
profits equal to the amount of cash flow distributed to them for such
fiscal period with the remainder allocated to the Holders of Interests,
except that in all events, the General Partner shall be allocated at least
1% of profits and (ii) losses will be allocated 1% to the General Partner,
1% to the Associate Limited Partners and 98% to the Holders of Interests.
In the event profits to be allocated in any given year do not equal or
exceed cash distributed to the General Partner and the Associate Limited
Partners for such year, the allocation of profits will be as follows: The
General Partner and the Associate Limited Partners will be allocated
profits equal to the amount of cash flow distributed to them for such year.
The Holders of Interests will be allocated losses such that the sum of
amounts allocated to the General Partner, Associate Limited Partners, and
Holders of Interests equals the profits for the given year.
For the years ended December 31, 1996 and 1995, the Partnership had
net income for financial reporting and Federal income tax purposes. In
accordance with Section 4.2A of the Partnership Agreement, the amount of
net income allocated, collectively, to the General and Associated Limited
Partners for financial reporting and tax purposes for the year ended
December 31, 1996 was approximately $755,000 and $717,000, respectively.
This allocation was based on cash distributions made during 1996 for 1995
to the Associate Limited Partners and an allocation of 1% of profits to the
General Partner in accordance with Section 4.2A of the Partnership
Agreement. In accordance with Section 4.2A of the Partnership Agreement,
the amount of net income allocated, collectively, to the General and
Associate Limited Partners for financial reporting and tax purposes for the
year ended December 31, 1995 was approximately $666,000 and $673,000,
respectively.
In general, and subject to certain limitations, the distribution of
Cash Flow (as defined) after the initial admission date is allocated 90% to
the Holders of Interests and 10% to the General Partner and the Associate
Limited Partners (collectively) until the Holders of Interests have
received cumulative distributions of Cash Flow equal to a 10% per annum
return (non-compounded) on their Adjusted Capital Investments (as defined)
plus the return of their Capital Investments; provided, however, that
4.7369% of the 10% amount otherwise distributable to the General Partner
and Associate Limited Partners (collectively) will be deferred, and such
amount will be paid to the Holders of Interests, until the Holders of
Interests receive Cash Flow distributions equal to their Capital
Investments. Any deferred amounts owed to the General Partner and
Associate Limited Partners (collectively) will be distributable to them out
of Cash Flow to the extent of one-half of Cash Flow otherwise distributable
to the Holders of Interests at such time as the Holders of Interest have
received total distributions of Cash Flow equal to their Capital
Investments. Thereafter, all distributions of Cash Flow will be made 85%
to the Holders of Interests and 15% to the General Partner and the
Associate Limited Partners (collectively); provided, however, that the
General Partner and the Associate Limited Partners (collectively) shall be
entitled to receive an additional share of Cash Flow otherwise
distributable to the Holders of Interests equal to the lesser of an amount
equal to 2% of the cumulative gross selling prices of any interests in real
property of the Partnership (subject to certain limitations) or 13% of the
aggregate distributions of Cash Flow to all parties pursuant to this
sentence.
<PAGE>
Pursuant to the Partnership Agreement, the Partnership may continue in
existence until December 31, 2087; however, the General Partner shall elect
to pursue one of the following courses of action on or before October 31,
1997: (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; (ii) to purchase, or cause JMB Realty Corporation or its
affiliates to purchase all of the Interests 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 in which all of the Partnership's remaining
assets will be sold or disposed of by the end of the fifteenth year from
the termination of the offering.
(15) MANAGEMENT AGREEMENTS - OTHER THAN VENTURES
Certain of the Partnership's properties are managed by affiliates of
the General Partner or their assignees for fees computed as a percentage of
certain receipts of the properties. In December 1994, one of the
affiliated property managers sold substantially all of its assets and
assigned its interest in its management contracts to an unaffiliated third
party. In addition, certain of the management personnel of the property
manager became management personnel of the purchaser and its affiliates.
The successor to the affiliated property manager's assets is acting as the
property manager of the office and retail components of the Partnership's
mixed-use center known as Arvida Parkway Center after the sale and
assignment of the management contracts on the same terms that existed prior
to the sale. The successor to the affiliated property manager's assets
also acted as the property manager of the Mizner Place office building
until such property was sold by the Partnership in May 1995.
(16) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". This Statement requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of,
and requires that assets to be disposed of be reported in the balance sheet
at the lower of their carrying amount or fair value less cost to sell. The
Partnership adopted Statement 121 effective January 1, 1995 and, as a
result, recorded an impairment loss of $2.2 million to the carrying value
of its Cullasaja Community located near Highlands, North Carolina. This
loss was recorded based upon an analysis of estimated discounted cash flows
used to determine the Community's fair value at such time, and is reflected
as the Cumulative effect due to change in accounting for long-lived assets
on the accompanying consolidated statements of operations. This analysis
estimated the sell out of the remaining houses, homesites and equity
memberships in this Community by the year 2000. As a result of this
adjustment, Cullasaja's carrying value is recorded at approximately $5.4
million and $7.1 million at December 31, 1996 and 1995, respectively. The
Partnership requires no impairment losses or other adjustments to be
recorded as of December 31, 1996 as a result of the application of this
statement.
(17) SUBSEQUENT EVENTS
During February 1997, the Partnership made a distribution for 1996 of
$24,240,000 to its Holders of Interests ($60 per Interest) and $1,346,651
to the General Partner and Associate Limited Partners, collectively.
The Partnership has received a non-binding term sheet from Barnett for
a proposed $75 million term loan, a $20 million revolving line of credit
and a $5 million letter of credit facility (the "Barnett Financing").
Under the term sheet, the Barnett Financing, if consummated, is expected to
have a term of four years with annual scheduled principal repayments of
$12.5 million, as well as additional annual principal repayments based upon
a specified percentage of the Partnership's available cash. The maximum
principal repayments, including the scheduled repayments, would not exceed
$18.75 million per annum. The remaining outstanding balance on the Barnett
Financing would be due upon maturity. Under the term sheet, the interest
rate on the Barnett Financing would be based, at the Partnership's option,
on the relevant LIBOR plus 2.25% per annum or Barnett's prime rate.
Barnett will require the Partnership to have an interest rate swap or cap
in place for one-third of the projected outstanding balance of the term
loan. It is expected that the Partnership would be required to pay a loan
fee of 1% of the total facility upon closing of the loan. It is currently
anticipated that a portion of the proceeds of the Barnett Financing, if
consummated, would be used by the Partnership to make a distribution in the
amount of approximately $75 million, including a distribution of
approximately $175 per Interest to the Interestholders. Consummation of
the Barnett Financing is subject to the negotiation and execution by the
parties of binding loan documents. There can be no assurance that the
Barnett Financing will be consummated or, if consummated, that its terms
will be similar to those described above. The proposed terms of the
Barnett Financing described above have been tentatively approved by a judge
sitting on the Circuit Court of Cook County, Illinois pursuant to the
preliminary settlement order in the Carlstrom action, as discussed below.
As previously disclosed in note 11, the parties to the Carlstrom
action engaged in mediation discussions supervised by the Court which began
on March 5, 1997. The mediation effort has resulted in a stipulation of
settlement, which was preliminarily approved by the trial court in a
settlement hearing order dated April 1, 1997, as being fair, reasonable,
adequate, and in the best interests of the plaintiffs, Interestholders, and
the Partnership. The stipulation of settlement provides, among other
things: (i) that the General Partner will be able to pursue the Barnett
Financing (as described in detail in note 8) for the purposes of making a
distribution and replacing certain of the Partnership's current credit
facilities; (ii) that the Partnership will not pursue the Starwood
financing; (iii) that the General Partner will choose the option set forth
in Section 5.5(J)(i)(c) of the Partnership Agreement (i.e., 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); (iv)
that, if the settlement is finally approved by the trial court, the
decision to choose the option set forth in Section 5.5(J)(i)(c) of the
Partnership Agreement will be binding upon the Interestholders and the
General Partner, its affiliates, and any subsequent general partner,
whether or not affiliated with the General Partner; (v) that the claims set
forth in the Carlstrom action will be released; (vi) that the Illinois
appeal will be dismissed; and (vii) that the General Partner and/or its
affiliates will defer a portion of the proceeds from the Barnett Financing
otherwise distributable to them (subject to the right of the General
Partner and/or such affiliates to receive such deferred amount after
Interestholders have received a specified amount of distributions from the
Partnership after July 1, 1996) and such deferred distribution amount will
be used to pay a portion of the legal fees and expenses in the Carlstrom
action. In the preliminary settlement hearing order, the trial court also
vacated the preliminary injunction ruling, established a procedure for
notifying Interestholders of their rights in connection with the
settlement, and set the matter for a final hearing. At the final hearing
the trial will determine whether: (a) the settlement is fair, reasonable,
adequate, and in the best interests of the Partnership and the
Interestholders; (b) the settlement should be approved by the trial court;
(c) the Carlstrom action should be dismissed on the merits with prejudice;
and (d) the plaintiffs' counsels' application for attorney's fees and
reimbursement for out of pocket costs (including experts' fees) should be
approved.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes or disagreements with auditors during 1996 and
1995.
PART III
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partner of the Partnership is Arvida/JMB Managers, Inc., a
Delaware corporation, of which all of the outstanding shares of stock are
owned by Northbrook Corporation, a Delaware corporation, substantially all
of the outstanding shares of which are owned by JMB Realty Corporation, a
Delaware corporation ("JMB") and certain of its officers, directors and
members of their families. Substantially all of the shares of JMB are
owned by its officers, directors, members of their families and affiliates.
Arvida/JMB Managers, Inc. was substituted as general partner of the
Partnership as a result of a merger on March 30, 1990 of an affiliated
corporation that was the then general partner of the Partnership into
Arvida/JMB Managers, Inc., which, as the surviving corporation of such
merger, continues as General Partner. All references herein to "General
Partner" include Arvida/JMB Managers, Inc. and its predecessor, as
appropriate. The General Partner has responsibility for all aspects of the
Partnership's operations. Arvida/JMB Associates, an Illinois general
partnership, of which certain officers and affiliates of JMB are partners,
and Arvida/JMB Limited Partnership, an Illinois limited partnership, of
which Arvida/JMB Associates is the general partner, are the Associate
Limited Partners of the Partnership. Various relationships of the Partner-
ship to the General Partner and its affiliates are described under the
caption "Conflicts of Interest" at pages 21-24 of the Prospectus, which
description is hereby incorporated herein by reference to Exhibit 99.1 to
this report.
The director and the executive and certain other officers of the
General Partner of the Partnership are as follows:
SERVED IN
NAME OFFICE OFFICE SINCE
---- ------ ------------
Judd D. Malkin Chairman 04/08/87
and Director 05/31/96
Neil G. Bluhm President 04/08/87
and Director 05/31/96
H. Rigel Barber Vice President 04/08/87
Gailen J. Hull Vice President 04/09/87
Howard Kogen Vice President
and Treasurer 04/08/87
Gary Nickele Vice President and
General Counsel 04/08/87
Burton E. Glazov Director 05/31/96
Stuart C. Nathan Director 05/31/96
A. Lee Sacks Director 05/31/96
John G. Schreiber Director 05/31/96
James D. Motta Vice President 04/09/87
John Grab Vice President 04/09/87
<PAGE>
Effective May 31, 1996, the Board of Directors of the General Partner
was expanded to provide for six directors. Judd D. Malkin, Neil G. Bluhm,
Burton E. Glazov, Stuart C. Nathan, A. Lee Sacks and John G. Schreiber were
elected to the Board of Directors of the General Partner, and Gary Nickele,
who had been the sole director of the General Partner since December 1990,
resigned as Director. In addition, the Board of Directors of the General
Partner established a special committee, consisting of Messrs. Malkin,
Glazov, Nathan, Sacks and Schreiber, to deal with all matters relating to
tender offers for Interests as well as certain other matters.
As more fully discussed in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations, an affiliate of
Mr. Bluhm, Walton Street Capital Acquisition Co., III, L.L.C. ("Walton"),
commenced a tender offer (the "Walton Offer") for Interests in June 1996.
Since expressing an interest in making the Walton Offer, Mr. Bluhm has not
been involved in meetings of the Board of Directors (or its special
committee) and has not been involved in decisions made with regard to the
Partnership.
There is no family relationship among any of the foregoing directors
or officers. The foregoing directors have been elected to serve a one-year
term until the annual meeting of the General Partner to be held on August
12, 1997. All of the foregoing officers have been elected to serve
one-year terms until the first meeting of the Board of Directors held after
the annual meeting of the General Partner to be held on August 12, 1997.
There are no arrangements or understandings between or among any of said
director or officers and any other person pursuant to which any director or
officer was selected as such.
The foregoing director and certain of the officers are also officers
and/or directors of various affiliated companies, including JMB, which is
the corporate general partner of Carlyle Real Estate Limited
Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-IX
("Carlyle-IX"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"),
Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real
Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate
Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited
Partnership-XV ("Carlyle-XV"), Carlyle Real Estate Limited Partnership-XVI
("Carlyle-XVI"), Carlyle Real Estate Limited Partnership-XVII ("Carlyle-
XVII"), JMB Mortgage Partners, Ltd.-III ("Mortgage Partners-III"), JMB
Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income Plus,
Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, Ltd.-II ("Carlyle
Income Plus-II") and the managing general partner of JMB Income Properties,
Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"),
JMB Income Properties, Ltd.-VI ("JMB Income-VI"), JMB Income Properties,
Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X ("JMB
Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"), JMB Income
Properties, Ltd.-XII ("JMB Income-XII") and JMB Income Properties, Ltd.-
XIII ("JMB-XIII"). JMB is also the sole general partner of the associate
general partner of most of the foregoing partnerships. Most of the
foregoing directors and officers are also officers and/or directors of
various affiliated companies of JMB including Arvida/JMB Managers-II, Inc.
(the general partner of Arvida/JMB Partners, L.P.-II ("Arvida-II")) and
Income Growth Managers, Inc. (the corporate general partner of IDS/JMB
Balanced Income Growth, Ltd. ("IDS/BIG")). The directors and most of such
officers are also partners, directly or indirectly, of certain partnerships
(the "Associate Partnerships") which are associate general partners in the
following real estate limited partnerships: Carlyle-VII, Carlyle-IX,
Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-
XVI, Carlyle-XVII, JMB Income-VI, JMB-VII, JMB Income-X, JMB Income-XI, JMB
Income-XII, JMB Income-XIII, Mortgage Partners-III, Mortgage Partners-IV,
Carlyle Income Plus, Carlyle Income Plus-II and IDS/BIG. The foregoing
directors and officers are partners, indirectly through other partnerships,
of the Associate Limited Partners of the Partnership and of the associate
limited partner of Arvida-II.
<PAGE>
The business experience during the past five years of such directors
and officers of the Corporate General Partner of the Partnership includes
the following:
Judd D. Malkin (age 59) is Chairman of the Board of JMB, an officer
and/or director of various JMB affiliates and a partner, directly or
indirectly, of the Associate Partnerships. He is also an individual
general partner of JMB Income Properties-IV and JMB Income Properties-V.
Mr. Malkin has been associated with JMB since October, 1969. Mr. Malkin is
a director of Urban Shopping Centers, Inc. ("USC, Inc."), an affiliate of
JMB that is a real estate investment trust in the business of owning,
managing and developing shopping centers. He is a Certified Public
Accountant.
Neil G. Bluhm (age 59) is President and a director of JMB, an officer
and/or director of various JMB affiliates and a partner, directly or
indirectly, of the Associate Partnerships. He is also an individual
general partner of JMB Income Properties-IV and JMB Income Properties-V.
Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is a
director of USC, Inc. He is a member of the Bar of the State of Illinois
and a Certified Public Accountant.
Burton E. Glazov (age 58) has been associated with JMB since June,
1971 and served as an Executive Vice President of JMB until December 1990.
He is a member of the Bar of the State of Illinois and a Certified Public
Accountant.
Stuart C. Nathan (age 55) has been associated with JMB since July,
1972. Mr. Nathan is also a director of Sportmart Inc., a retailer of
sporting goods. He is a member of the Bar of the State of Illinois.
A. Lee Sacks (age 63) (President and Director of JMB Insurance Agency,
Inc.) has been associated with JMB since December, 1972.
John G. Schreiber (age 50) has been associated with JMB since
December, 1970 and served as an Executive Vice President of JMB until
December 1990. Mr. Schreiber is President of Schreiber Investments, Inc.,
a company which is engaged in the real estate investing business. He is
also a senior advisor and partner of Blackstone Real Estate Partners, an
affiliate of the Blackstone Group, L.P. Since 1994, Mr. Schreiber has also
served as a Trustee of Amli Residential Property Trust, a publicly-traded
real estate investment trust that invests in multi-family properties. Mr.
Schreiber is also director of USC, Inc. He is also director of a number of
investment companies advised by T. Rowe Price Associates and its
affiliates. He holds a Masters degree in Business Administration from
Harvard University Graduate School of Business.
H. Rigel Barber (age 47) is Chief Executive Officer and Executive Vice
President of JMB, an officer of various JMB affiliates and a partner,
directly or indirectly, of various Associate Partnerships. Mr. Barber has
been associated with JMB since March, 1982. He received a J.D. Degree from
the Northwestern Law School and is a member of the Bar of the State of
Illinois.
Gailen J. Hull (age 48) is a Senior Vice President of JMB, an officer
of various JMB affiliates and a partner, directly or indirectly, of various
Associate Partnerships. Mr. Hull has been associated with JMB since March,
1982. He holds a Masters degree in Business Administration from Northern
Illinois University and is a Certified Public Accountant.
Howard Kogen (age 61) is Senior Vice President and Treasurer of JMB,
an officer of various JMB affiliates and a partner, directly or indirectly,
of various Associate Partnerships. Mr. Kogen has been associated with JMB
since March, 1973. He is a Certified Public Accountant.
<PAGE>
Gary Nickele (age 44) is Executive Vice President and General Counsel
of JMB, an officer of various JMB affiliates and a partner, directly or
indirectly, of various Associate Partnerships. Mr. Nickele has been
associated with JMB since February, 1984. He holds a J.D. degree from the
University of Michigan Law School and is a member of the Bar of the State
of Illinois.
James D. Motta (age 41) has been President and Chief Executive Officer
of Arvida since April 1, 1995. Prior thereto, he was Executive Vice
President and Chief Operating Officer of Arvida (May, 1994 to March, 1995).
Prior thereto, he was President-Community Development Division of Arvida
(August, 1993 - April, 1994), President-Southeast Division of Arvida (July,
1992 to July, 1993) and President-South Florida Division of Arvida
(January, 1989 to July, 1992). Mr. Motta is also an officer or partner of
various affiliates of Arvida.
John R. Grab (age 41) is Vice President and General Manager -
Club/Hotel Operations of Arvida. Prior thereto, he was Vice President and
Project General Manager - Weston Hills of Arvida (October 1990 to October
1993) and Vice President and Project General Manager - Jacksonville Golf &
Country Club of Arvida (June 1988 to October 1990). He is a Certified
Public Accountant. Mr. Grab is also an officer or partner of various
affiliates of Arvida.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the General Partner, the executive officers and directors of the
General Partner and persons who own more than ten percent of the Interests
to file an initial report of ownership or changes in ownership of Interests
on Form 3, 4 or 5 with the Securities and Exchange Commission (the "SEC").
Such persons are also required by SEC rules to furnish the Partnership with
copies of all Section 16(a) forms they file. Timely filings of initial
reports of ownership on Form 3 or Form 5 were not made on behalf of Messrs.
Glazov, Nathan, Sacks and Schreiber.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(a) The following have reported beneficial ownership of more than 5%
of the outstanding Interests of the Partnership.
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OF BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
- -------------- ---------- -------------------------
Limited PartnershipRaleigh Capital 80,342 Interests19.9%
Interests and Associates, L.P. directly (1)
Assignee Interests100 Jericho Quadrangle
therein Suite 214
Jericho, New York
11735-2717
Limited PartnershipRaleigh GP Corp. 80,342 Interests19.9%
Interests and 100 Jericho Quandrangleindirectly (2)
Assignee InterestsSuite 214
therein Jericho, New York
11735-2717
Limited PartnershipRockland Partners, Inc.80,347 Interests19.9%
Interests and c/o Tiger/Westbrook indirectly (3)
Assignee InterestsReal Estate Fund, L.P.
therein 599 Lexington Avenue
Suite 3800
New York, New York
10022
Limited PartnershipZephyr Partners 80,342 Interests19.9%
Interests and 100 South Bedford Roadindirectly (4)
Assignee InterestsMount Kisco, New York
therein 10549
(1) Reflects beneficial ownership of Interests held by Raleigh Capital
Associates, L.P. ("Raleigh") for which Raleigh has shared dispositive
power.
(2) Reflects beneficial ownership of Interests held by Raleigh (of which
Raleigh GP Corp. is a general partner) for which Raleigh GP Corp. has
shared dispositive power.
(3) Reflects beneficial ownership of (i) 5 Interests held by Rockland
Partners, L.P. (of which Rockland Partners, Inc. is the general partner)
for which Rockland Partners, Inc. has shared dispositive power, and (ii)
80,342 Interests held by Raleigh (of which Rockland Partners, Inc. is a
general partner) for which Rockland Partners, Inc. has shared dispositive
power.
(4) Reflects beneficial ownership of Interests held by Raleigh (of which
Zephyr Partners is a general partner) for which Zephyr Partners has shared
dispositive power.
Each of the persons listed in the above table has reported that it has
shared voting power with respect to the Interests beneficially owned by it.
However, the Partnership and the General Partner do not believe that such
Interests have voting rights associated with them. Reference is made to
Subsection (B) under Item 3. Legal Proceedings for a discussion of pending
litigation with respect to the Partnership's and the General Partner's
position that the Interests held by Raleigh, as a subsequent transferee of
the Interests, do not have voting rights associated with them.
<PAGE>
(b) The General Partner and its executive officers and directors own
the following Interests of the Partnership:
NAME OF AMOUNT AND NATURE
BENEFICIAL OF BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
- -------------- ---------- ----------------- --------
Limited PartnershipGeneral Partner None --
Interests and and its executive
Assignee Interestsofficers and
therein directors as
a group
- ---------------
No executive officer or director of the General Partner of the
Partnership possesses a right to acquire beneficial ownership of Interests
of the Partnership.
(c) In October 1996, Raleigh Capital Associates, L.P. ("Raleigh")
filed preliminary proxy materials with the Securities and Exchange
Commission in connection with a possible solicitation of consents for the
removal and replacement of Arvida/JMB Managers, Inc. ("Managers") as the
General Partner of the Partnership with an affiliate of Raleigh. Reference
is made to Item 12(a) above for certain information concerning Raleigh and
its general partners. The Partnership and the General Partner do not
believe that the Interests held by Raleigh, as a subsequent transferee of
the Interests, have voting rights associated with them. Reference is made
to subsection (B) under Item 3 Legal Proceedings for a discussion of
pending litigation involving this issue. As of the date of this report,
Raleigh has not commenced a solicitation of consents to remove Managers.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business relationships with
the General Partner, affiliates or their management other than those
described in Items 10, 11 and 12 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements. (See Index to Financial
Statements filed with this annual report on Form 10-K).
2. Exhibits.
3.1. Amended and Restated Agreement of Limited
Partnership.**
3.2 Assignment Agreement by and among the General
Partner, the Initial Limited Partner and the Partnership.**
4.1. Various mortgages and other security interests
dated October 7, 1992 related to the assets of Arvida/JMB Partners, Center
Office Partners, Center Retail Partners, Center Hotel Limited Partnership,
Weston Hills Country Club Limited Partnership which secure loans under the
Amended and Restated Credit Agreement referred to in Exhibit 4.1 are herein
incorporated by reference to Exhibit No. 4.7 the Partnership's Report on
Form 10Q (File number 0-16976) dated November 11, 1992.
4.2. Second Amended and Restated Credit Agreement
dated November 29, 1994, among Arvida/JMB Partners, L.P., Arvida/JMB
Partners, Southeast Florida Holdings, Inc., Center Office Partners, Center
Retail Partners, Center Hotel Limited Partnership, Weston Hills Country
Club Limited Partnership and Chemical Bank and Nationsbank of Florida, N.A.
***
4.3. Affirmation and Amendment of Security
Documents dated November 29, 1994, among Arvida/JMB Partners, Arvida/JMB
Partners, L.P., Southeast Florida Holdings, Inc., Center Office Partners,
Center Retail Partners, Center Hotel Limited Partnership, Weston Hills
Country Club Limited Partnership and Chemical Bank. ***
4.4. Modification of Mortgage and Security
Agreement and Other loan Documents dated November 29, 1994, among
Arvida/JMB Partners, Weston Hills Country Club Limited Partnership and
Chemical Bank. ***
<PAGE>
4.5. Modification of First Mortgage and Security
Agreement and Other Loan Documents dated November 29, 1994, among
Arvida/JMB Partners, Center Office Partners, Center Retail Partners, Center
Hotel Limited Partnership and Chemical Bank. ***
4.6. Credit Agreement extension dated July 28, 1995
made by Arvida/JMB Partners, L.P., Arvida/JMB Partners, Southeast Florida
Holdings, Inc., Center Office Partners, Center Retail Partners, Center
Hotel Limited Partnership, Weston Hills Country Club Limited Partnership
and Chemical Bank is incorporated by reference to the Partnership's Report
for June 30, 1995 on Form 10-Q (File No. 0-16976) dated August 9, 1995.
4.7. Letter Agreement dated January 17, 1996, among
Arvida/JMB Partners, L.P., Arvida/JMB Partners, Southeast Florida Holdings,
Inc., Center Office Partners, Center Retail Partners, Center Hotel Limited
Partnership, Weston Hills Country Club Limited Partnership and Chemical
Bank and Nationsbank of Florida, N.A. regarding the release of a certain
parcel from the lender's lien is incorporated by reference to Exhibit 4.15
to the Partnership's Form 10-K (File No. 0-16976) dated March 25, 1996.
4.8. Letter Agreement dated March 1, 1996 among
Arvida/JMB Partners, Arvida/JMB Partners, L.P., Southeast Florida Holdings,
Inc., Center Office Partners, Center Retail Partners, Center Hotel Limited
Partnership, Weston Hills Country Club Limited Partnership and Chemical
Bank and Nationsbank of Florida, N.A. regarding the sale of the
Partnership's interest in the Coto de Caza Joint Venture and the extension
of the maturity date of the revolving line of credit facility and the
income property term loan is incorporated by reference to Exhibit 4.16 to
the Partnership's Form 10-K (File No. 0-16976) dated March 25, 1996.
4.9. Commitment for a Term Loan by and between
Arvida/JMB Partners, L.P. and Starwood/Florida Funding, L.L.C. dated
September 12, 1996 is incorporated by reference to Exhibit 4.1 to the
Partnership's Form 8-K (Form No. 0-16976) dated September 12, 1996.
4.10. Commitment Letter dated March 12, 1997, from
Barnett Bank of Broward County, N.A. is filed
herewith.
10.1. Agreement between the Partnership and The Walt
Disney Company dated January 29, 1987 is
hereby incorporated by reference to Exhibit
10.2 to the Partnership's Registration Statement on Form S-1 (File No. 33-
14091) under the Securities Act of 1933 filed on May 7, 1987.
<PAGE>
10.2. Management, Advisory and Supervisory Agreement
is hereby incorporated by reference to Exhibit 10.2 to the Partnership's
Form 10-K (File No. 0-16976) dated March 27, 1991.
10.3. Letter Agreement, dated as of September 10,
1987, between the Partnership and The Walt Disney Company, together with
exhibits and related documents.*
10.4. Joint Venture Agreement dated as of September
10, 1987, of Arvida/JMB Partners, a Florida general partnership. *
10.5. Stipulation of Settlement dated April 1, 1997,
filed in the Circuit Court of Cook County, Illinois, Chancery Department is
filed herewith.
21. Subsidiaries of the Registrant.
27. Financial Data Schedule.
99.1. Pages 21-24, 56-59, 61-64, A-9 to A-28, A-31
to A-33, and B-2 of the Partnership's Prospectus dated September 16, 1987
are filed herewith.
* Previously filed with the Securities and Exchange
Commission as Exhibits 10.4 and 10.5, respectively, to the Partnership's
Registration Statement (as amended) on Form S-1 (File No. 33-14091) under
the Securities Act of 1933 filed on September 11, 1987 and incorporated
herein by reference.
** Previously filed with the Securities and Exchange
Commission as Exhibits 3 and 4, respectively, to the Partnership's Form 10-
K Report (File No. 0-16976) filed on March 27, 1990 and hereby incorporated
herein by reference.
*** Previously filed with the Securities and Exchange
Commission as Exhibits 4.10, 4.11, 4.12 and 4.13, respectively to the
Partnership's Form 10-K Report (File No. 33-14091) under the Securities Act
of 1993 filed on March 27, 1995 and incorporated herein by reference.
The Partnership agrees to furnish to the Securities and
Exchange Commission upon request a copy of each instrument with respect to
long-term indebtedness of the Partnership and its consolidated
subsidiaries, the authorized principal amount of which is 10% or less than
the total assets of the Partnership and its subsidiaries on a consolidated
basis.
(b) No reports on Form 8-K were required or filed since the
beginning of the last quarter of the period covered by this report.
No annual report or proxy material for the fiscal year 1996 has been
sent to the Partners of the Partnership. An annual report will be sent to
the Partners subsequent to this filing.
<PAGE>
<TABLE>
ARVIDA/JMB PARTNERS, L.P.
EXHIBIT INDEX
<CAPTION>
DOCUMENT
INCORPORATED SEQUENTIALLY
EXHIBIT NO. EXHIBIT BY REFERENCE NUMBERED PAGE
- ----------- ------- ------------ -------------
<S> <C> <C> <C>
3.1. Amended and Restated Agree-
ment of Limited Partnership
of the Partnership. Yes
3.2. Assignment Agreement by and
among the General Partner, the
Initial Limited Partner and the
Partnership Yes
4.1. Various mortgages and other security interests
dated October 7, 1992 related to the assets of
Arvida/JMB Partners, Center Office Partners,
Center Retail Partners, Center Hotel Limited
Partnership, Weston Hills Country Club Limited
Partnership which secure loans under the Amended
and Restated Credit Agreement referred to in
Exhibit 4.1. Yes
4.2. Second Amended and Restated Credit Agreement dated
November 29, 1994, among Arvida/JMB Partners, L.P.,
Arvida/JMB Partners, Southeast Florida Holdings, Inc.,
Center Office Partners, Center Retail Partners, Center
Hotel Limited Partnership, Weston Hills Country Club
Limited Partnership and Chemical Bank and Nationsbank
of Florida, N.A. Yes
4.3. Affirmation and Amendment of Security Documents dated
November 29, 1994, among Arvida/JMB Partners,
Arvida/JMB Partners, L.P., Southeast Florida Holdings,
Inc., Center Office Partners, Center Retail Partners,
Center Hotel Limited Partnership, Weston Hills Country
Club Limited Partnership and Chemical Bank. Yes
4.4. Modification of Mortgage and Security Agreement and
Other loan Documents dated November 29, 1994, among
Arvida/JMB Partners, Weston Hills Country Club Limited
Partnership and Chemical Bank. Yes
<PAGE>
DOCUMENT
INCORPORATED SEQUENTIALLY
EXHIBIT NO. EXHIBIT BY REFERENCE NUMBERED PAGE
- ----------- ------- ------------ -------------
4.5. Modification of First Mortgage and Security Agreement
and Other Loan Documents dated November 29, 1994,
among Arvida/JMB Partners, Center Office Partners,
Center Retail Partners, Center Hotel Limited
Partnership and Chemical Bank. Yes
4.6. Credit Agreement extension dated July 28, 1995 made
by Arvida/JMB Partners, L.P., Arvida/JMB Partners,
Southeast Florida Holdings, Inc., Center Office Partners,
Center Retail Partners, Center Hotel Limited Partnership,
Weston Hills Country Club Limited Partnership and
Chemical Bank. Yes
4.7. Letter Agreement dated January 17, 1996, among
Arvida/JMB Partners, L.P., Arvida/JMB Partners,
Southeast Florida Holdings, Inc., Center Office
Partners, Center Retail Partners, Center Hotel
Limited Partnership, Weston Hills Country Club
Limited Partnership and Chemical Bank and Nationsbank
of Florida, N.A. regarding the release of a certain
parcel from the lender's lien. Yes
4.8. Letter Agreement dated March 1, 1996 among
Arvida/JMB Partners, Arvida/JMB Partners, L.P.,
Southeast Florida Holdings, Inc., Center Office
Partners, Center Retail Partners, Center Hotel
Limited Partnership, Weston Hills Country Club
Limited Partnership and Chemical Bank and Nationsbank
of Florida, N.A. regarding the sale of the
Partnership's interest in the Coto de Caza Joint
Venture and the extension of the maturity date
of the revolving line of credit facility and the
income property term loan. Yes
4.9. Commitments for a Term Loan by and between
Arvida/JMB Partners, L.P. and Starwood/Florida
Funding, L.L.C. dated September 12, 1996. Yes
4.10. Commitment Letter dated March 12, 1997, from
Barnett Bank of Broward County N.A. No
10.1. Agreement between the Partnership and
The Walt Disney Company dated January 29, 1987. Yes
10.2. Management, Advisory and
Supervisory Agreement. Yes
<PAGE>
DOCUMENT
INCORPORATED SEQUENTIALLY
EXHIBIT NO. EXHIBIT BY REFERENCE NUMBERED PAGE
- ----------- ------- ------------ -------------
10.3. Letter Agreement, dated as of
September 10, 1987, between the
Partnership and The Walt Disney
Company, together with exhibits
and related documents. Yes
10.4. Joint Venture Agreement
dated as of September 10, 1987,
of Arvida/JMB Partners, a
Florida general partnership. Yes
10.5. Stipulation of Settlement dated
April 1, 1997, filed in the Circuit
Court of Cook County, Illinois,
Chancery Department No
21. Subsidiaries of the Registrant No
27. Financial Data Schedule No
99.1. Pages 21-24, 56-59, 61-64 and
A-9 to A-28, A-31 to A-33, and B-2 of
the Partnership's Prospectus
dated September 16, 1987 filed
pursuant to Rules 424(b) and
424(c) are filed herewith. No
</TABLE>
EXHIBIT 4.10
- ------------
(Arvida)
March 12, 1997
Mr. Stephen A. Lovelette
Vice President
Arvida/ JMB
900 North Michigan Avenue
Chicago, Illinois 60611-1575
Re: Refinance of Arvida/ JMB Partners, L.P.
Dear Steve,
Barnett Bank is pleased to present the following proposed terms to provide
financing for the Partnership. While these terms summarize our proposal,
the complete terms and conditions will be those contained in the loan
documents. I hope you will find everything to be in order and am looking
forward to working together.
BORROWER: Arvida/JMB Partners, L.P. (Partnership)
PARTICI-
PATION: The amounts discussed below are gross facility amounts, subject
to participation. Barnett has approval for a maximum 50% share of each
facility.
FACILITIES/
AMOUNTS: 1) $75,000,000 Term Loan
2) $20,000,000 Revolving Line of Credit
3) $5,000,000 Revolving Line of Credit available for the
issuance of standby letters of credit.
REPAYMENT: Curtailments will be based on the following: i) $12,500,000 by
each anniversary of the closing of the loan, ii) the sum of any shortfalls
from previous years calculated by subtracting the actual curtailments for
any year from $18,750,000, iii) additional principal curtailments will be
based upon a formula calculated by multiplying cash available for
distribution* times 25%. Curtailments related to (iii) will occur at the
same time distributions are made.
Subject to the other terms and conditions in the loan
agreement, once the Borrower has curtailed the term loan by $18,750,000 in
year 1, ii) $37,500,000 (cumulative) for years 1 and 2, or, iii)
$56,250,000 (cumulative) for years 1, 2, and 3, the Borrower may distribute
remaining cash available for distribution without the Bank receiving 25%.
* Cash available for distribution will include all sources
of cash that will constitute the distribution (e.g. cash flow after project
financing, cash from cash accounts that will be distributed).
TERM: 48 months from closing for all facilities.
COLLATERAL: All property and assets presently owned or in the future owned
by the Borrower subject to a first lien of the Bank Group. Security will
consist of first real estate mortgages on real property and improvements
including tangible and intangible personalty associated with the
properties, pledge or assignment of all other assets, sales contracts, and
Borrower interests in any entities. Notwithstanding the foregoing,
Borrower will be able to finance individual projects up to an aggregate
committed amount of $70 million. In the event a joint venture partner of
the Borrower will not consent to a first lien or pledge of its assets, the
Borrower will not be obligated to provide the lien or pledge, and the Bank
Group will not accept the property in the calculation of loan-to-value.
ADMINISTRATIVE
AGENT: Barnett Bank
PRICING: RATE
i) LIBOR + 225 basis points, or,
ii) Prime
FEE
1% loan fee on all facilities.
Note: Barnett intends to fully pass through all fees and rate
to other banks participating in the three credits with exception of the
letter of credit facility where only 7/8% of the 1% fee will be passed
through. Because multiple L/C's are impractical, Barnett will issue one
letter of credit for the bank group. For this service it will receive
1/8%.
OTHER: 1) Covenants -- Please see attached Conditions Sheet.
2) Borrower will pay all reasonable third-party costs
incurred by Barnett in underwriting the loan, including but not limited to:
appraisal, environmental, costing, inspections, and legal. All costs will
be subject to Borrower's review. If possible and if appropriate, Bank will
try to use any existing reports in its underwriting.
I hope you will find this proposal acceptable and that you will ask Barnett to
move forward with documenting the loan. I look forward to talking with you.
Very truly yours,
Brian K. Davis
Vice President
<PAGE>
May 7, 1997
Mr. Stephen A. Lovelette
Vice President
Arvida/ JMB
900 North Michigan Avenue
Chicago, Illinois 60611-1575
Re: Refinance of Arvida/ JMB Partners, L.P.
Dear Steve,
As part of the above financing, you have asked us, and we have agreed, to act
as administrative agent in this transaction. The annual fee for this service
is $75,000. In addition, it is our understanding that the majority of your
cash management business will be transferred to Barnett.
I can speak for all of Barnett when I say how pleased we are to have this
opportunity to help your company in being an integral part of your financing.
Very truly yours,
Brian K. Davis
Vice President
EXHIBIT 10.5
- ------------
(Arvida)
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
JACK H. CARLSTROM, LYNNE M. CARLSTROM, )
WONETA BELLEVUE, ROGER LATHBURY, and )
BEGONA LATHBURY, as representatives of a)
class of similarly situated persons and )
derivatively on behalf of nominal )
defendant ARVIDA/JMB PARTNERS, L.P., )
) No. 96 CH 6627
Plaintiffs, )
) consolidated with
v. )
) No. 96 CH 6892
ARVIDA/JMB MANAGERS, INC., NEIL G. )
BLUHM, IRA J. SCHULMAN, WALTON STREET )
CAPITAL ACQUISITION CO. III, L.L.C., )
BURTON E. GLAZOV, STUART C. NATHAN, A. )
LEE SACKS, JOHN G. SCHREIBER, and JUDD )
D. MALKIN, )
)
Defendants, )
)
and )
)
ARVIDA/JMB PARTNERS, L.P., )
)
Nominal Defendant. )
)
STIPULATION OF SETTLEMENT
The plaintiffs, on their own behalf and on behalf of the nominal
defendant Arvida/JMB Partners, L.P. (the "Partnership"), and the Settling
Defendants (defined below), each acting through their attorneys, hereby
enter into this Stipulation of Settlement (the "Stipulation") as of this
___ day of April, 1997, providing for a settlement of the above-captioned
consolidated action on the terms and conditions set forth in this
Stipulation and subject to the approval of this Court.
WHEREAS:
A. On June 24, 1996, Irwin Weiss commenced a class action against
Arvida/JMB Managers, Inc. (the "General Partner"), the Partnership, and
certain of the Defendants (defined below (the "Weiss Action").
B. On July 1, 1996, Jack H. and Lynne M. Carlstrom commenced a
class and derivative action on behalf of themselves and the Partnership
against the General Partner and certain of the Defendants (the "Carlstrom
Action").
C. By order dated August 8, 1996, the Carlstrom Action and Weiss
Action were consolidated (the "Action"), and by order dated September 25,
1996, Weiss was voluntarily dismissed as a plaintiff.
D. By Memorandum of Opinion dated November 27, 1996, determining
certain motions to dismiss, the Court dismissed the class claims, found
that the Action was properly brought only as a derivative action, held that
the Carlstroms did not have standing to assert such claims, and dismissed
claims against certain of the Defendants.
E. Plaintiffs subsequently voluntarily dismissed claims against
the remaining Defendants other than the Settling Defendants.
<PAGE>
F. On November 27, 1996, plaintiffs Woneta Bellevue, Roger
Lathbury, and Begona Lathbury filed the Third Amended Consolidated Class
Action and Verified Derivative Complaint (the "Complaint").
G. The Complaint charges that the Settling Defendants (as defined
below) violated their fiduciary obligations to the Partnership by entering
into the Starwood Financing (defined below) in order to entrench themselves
and to defeat certain attempts to wrest their control of the Partnership
posed by the Tender Offers (defined below).
H. In a verified answer filed on December 12, 1996 (the "Answer"),
the Settling Defendants denied all material allegations of the Complaint.
I. On December 12 and 13, 1996, the Court held an evidentiary
hearing. Based upon the evidence adduced at the hearing, the Court made
oral findings and issued a written order dated December 13, 1996,
preliminarily enjoining the consummation of the Starwood Financing until
issuance of a permanent injunction (the "Preliminary Injunction Ruling").
J. On January 13, 1997, the Settling Defendants filed a Notice of
Appeal of the Preliminary Injunction Ruling. The Settling Defendants
contend that the wrong legal standard -- an "enhanced" scrutiny standard
under which the Settling Defendants were required to prove the fairness of
the Starwood Financing -- was applied at the preliminary injunction
hearing. In addition and alternatively, the Settling Defendants contend
that their adoption of the Starwood Financing, which an independent
investment banker opined was commercially reasonable and fair, satisfied
the enhanced scrutiny standard.
K. The Action was set for a permanent injunction hearing to be
held on March 17, 1997.
L. Defendants continue to deny all allegations of wrongdoing and
liability contained in the Complaint. The Settling Defendants contend that
the Starwood Financing was fair, commercially reasonable, and in the best
interests of the Partnership. The Settling Defendants relied, in part, on
the opinions of an independent investment banker. In the absence of the
Settlement (defined below), the Settling Defendants would vigorously pursue
defenses to the Action and would continue to pursue the Appeal.
M. Plaintiffs' Counsel has conducted an investigation of the facts
and legal principles relating to the claims and the underlying events and
transactions alleged in the Complaint.
N. On March 5, 1997, and March 13, 1997, the Parties engaged in a
mediation before the Court with respect to the possible compromise of the
Action. Plaintiffs' Counsel, in light of their investigation and
prosecution of the Action and as a result of two days of arms' length,
Court-supervised negotiation, have concluded that settlement of the Action
on the terms set forth in this Stipulation, is fair, reasonable, and
adequate and is in the best interests of plaintiffs, the Partnership, and
the Unitholders (defined below).
O. Settling Defendants, while continuing to deny all allegations
of liability and without in any way acknowledging any fault or liability,
also desire to settle, compromise, and terminate the claims against them to
avoid the further expense, distraction of management, and inconvenience,
and to put to rest the Released Claims (defined below).
NOW, THEREFORE, IT IS HEREBY AGREED, by and among the
undersigned parties, through their respective counsel, and subject to all
of the terms and conditions set forth herein and the approval of the Court,
that the Action is hereby settled on the terms and conditions set forth
below:
<PAGE>
I. DEFINITIONS.
---------------
For purposes of this Stipulation:
P. The term "Action" means the consolidated action, case Nos.
96 CH 6627 and 96 CH 6892, for which the Complaint and Answer are the
final, operative pleadings.
Q. The term "Appeal" means the appeal of the Preliminary
Injunction Ruling captioned JACK H. CARLSTROM ET AL. V. ARVIDA/JMB
MANAGERS, INC., ET AL., No. 97-0093, presently pending before the Appellate
Court of Illinois, First District.
R. The term "Barnett Bank" means Barnett Bank of Broward County,
N.A., and its affiliates, parent and subsidiary companies, and agents.
S. The term "Barnett Bank Financing" means the financing of the
Partnership by Barnett Bank on the terms substantially set forth in a
letter dated March 12, 1997 from Brian K. Davis, Vice President of Barnett
Bank, to Stephen Lovelette, Vice President of Arvida Company, which is
attached hereto as Exhibit A.
T. The term "Defendants" shall mean the Settling Defendants
(defined below) and Lehman Brothers, Inc., Starwood Capital Group I, L.P.,
Starwood/Florida Funding, L.L.C., Starwood Opportunity Fund IV, L.P., BSS
Capital II, L.L.C., Barry Sternlicht, Walton Street Capital Acquisition
Co., III, LLC, Neil G. Bluhm, Ira J. Schulman, and Whitehall Street Real
Estate Limited Partnership VII.
U. The term "Defendants' Counsel" shall mean Kirkland & Ellis and
Jenner & Block to the extent that they represented any of the Partnership,
the General Partner, or the Special Committee in the Action or the Appeal.
V. The term "Delaware Action" means the action captioned
ARVIDA/JMB PARTNERS, L.P. V. VANDERBILT INCOME AND GROWTH ASSOCIATES,
L.L.C., ET AL.; VANDERBILT INCOME AND GROWTH ASSOCIATES, L.L.C., ET AL. V.
ARVIDA/JMB PARTNERS, L.P., ET AL.; and BEASLEY V. ARVIDA/JMB PARTNERS,
L.P., C.A. No. 15238, presently pending before the Delaware Court of
Chancery.
W. The term "Final Judgment and Order" means the final judgment
proposed to be entered by the Court, substantially in the form of
Exhibit D, attached hereto.
X. The term the "Final Settlement Hearing" means the hearing to be
held by the Court after Notice (defined below) to the Unitholders (defined
below) during which the Court will consider whether to approve the
Settlement as fair, reasonable, and adequate, and whether to enter the
Final Judgment and Order.
Y. The term "General Partner" shall mean Arvida/JMB Managers, Inc.
Z. The term "Lead Plaintiffs' Settlement Counsel" means Goodkind
Labaton Rudoff & Sucharow LLP and Beigel Lasky Rifkind Fertik Gelber &
White. Lead Plaintiffs' Settlement Counsel represent that they have full
authority to sign this Stipulation on behalf of Plaintiffs (defined below)
and Plaintiffs' Counsel (defined below).
AA. The term "Notice" means the Notice of Pendency and Proposed
Settlement of Derivative Action proposed to be approved by the Court,
substantially in the form of Exhibit C, attached hereto.
AB. The term "Partnership" means Arvida/JMB Partners, L.P.
AC. The term the "Partnership Agreement" means the Amended and
Restated Partnership Agreement appended to the initial offering prospectus
for units of the Partnership.
<PAGE>
AD. The term "Plaintiffs" shall mean the named plaintiffs, Woneta
Bellevue, Roger Lathbury, and Begona Lathbury; the dismissed plaintiffs,
Jack H. Carlstrom, and Lynne M. Carlstrom; and the Partnership.
AE. The term "Plaintiffs' Counsel" means Goodkind Labaton Rudoff &
Sucharow, LLP; Beigel, Lasky Rifkind Fertik Gelber & White; Block &
Landsman; Law Offices of Harold B. Obstfeld; and Hanzman, Criden, Korge,
Hertzberg & Chaykin.
AF. The term "Preliminary Settlement Hearing Order" means the order
proposed to be entered by the Court, substantially in the form attached as
Exhibit B hereto.
AG. The term "Raleigh" means Raleigh Capital Associates, L.P., and
each of its present and former agents, partners, shareholders in its
general partner, affiliates, attorneys, employees, officers, directors,
heirs, executors, representatives, successors, and assigns, including
without limitation, Vanderbilt Income and Growth Associates, L.L.C.
AH. The term "Release" means the release set forth in Section II,
below.
AI. The term "Released Claims" means the claims being released in
accordance with Section II below.
AJ. The term "Settlement" means the proposed settlement of the
Action as set forth herein, and accompanying exhibits.
AK. The term "Settlement Effective Date" means the first date on
which both of the following have occurred: (i) the Partnership shall
receive from Barnett Bank, on terms substantially similar to those set
forth in the Barnett Bank Financing, a term sheet which has been approved
by Barnett Bank's loan committee; and (ii) the Final Judgment and Order
entered by the Court becomes final. The date upon which the Final Judgment
and Order becomes final is determined as follows: (i) if an appeal or
review is not sought by any person from such Final Judgment and order, the
35th day after entry of such Final Judgment and Order, provided that is a
business day, and if it is not, then the next succeeding business day (or,
if the date for taking an appeal or seeking review shall be extended, five
days after the date of expiration of the extension if any appeal or review
is not sought); or (ii) if an appeal or review is sought from such Final
Judgment and Order, the day after such judgment is affirmed or the appeal
or review is dismissed or denied and such judgment is no longer subject to
further judicial review.
AL. The term "Settling Defendants" means Arvida/JMB Managers, Inc.,
Burton E. Glazov, Stuart C. Nathan, A. Lee Sacks, John G. Schreiber, and
Judd D. Malkin and each of their respective present and former agents,
partners, attorneys, affiliates, employees, officers, directors, heirs,
executors, representatives, successors, and assigns.
AM. The term "Starwood" means Starwood Capital Group I, L.P.,
Starwood/Florida Funding, L.L.C., Starwood Opportunity Fund IV, L.P., BSS
Capital II, L.L.C., and Barry Sternlicht.
AN. The term "Starwood Financing" means the $160 million
recapitalization of the Partnership described in a loan commitment letter
dated September 12, 1996, to Stephen Lovelette from Eugene Gorab, of
Starwood.
AO. The term the "Tender Offers" means the tender offers made for
the units of the Partnership by Raleigh, Boreas Partners, L.P., and Walton
Street Capital Acquisition Co. III, L.L.C. during the period of June 1996
through October 1996, including the Raleigh tender offer at $500 per unit
which was commenced on or about October 17, 1996.
<PAGE>
AP. The term "Unitholders" means all record or beneficial holders
in the Partnership as of June 24, 1996, whether they purchased their
interests in the initial offering, or subsequently; and all of their
successors and assigns through the date of the entry of the Preliminary
Settlement Hearing Order, including Raleigh; except for the Defendants,
their partners, agents, employees, attorneys, officers, directors, heirs,
executors, representatives, successors and assigns.
II. RELEASES.
-------------
Upon the Settlement Effective Date, the Partnership, and the
Plaintiffs herein, their heirs, executors, administrators, successors, and
assigns, individually and derivatively, and the Unitholders, their heirs,
executors, administrators, successors, and assigns, derivatively, for the
consideration and upon the terms and conditions set forth below, shall
release and forever discharge the Defendants, their respective present and
former partners, agents, parents, affiliates of any kind and nature,
predecessors, servants, employees, officers, directors, heirs, executors,
representatives, successors, and assigns, including their attorneys,
accountants, consultants, appraisers, and actuaries, from each and every
claim, liability, expense, cause of action, matter, or suit, whether
arising under state, federal, or the common law, whether or not brought in
this or in any other court or forum (including, but not limited to, in
arbitration), which arise from the Tender Offers, the Settling Defendants'
responses thereto through the date of the entry of the Preliminary
Settlement Hearing Order, the Barnett Bank Financing, or the Starwood
Financing, which has been or might have been asserted against them in the
Action. Notwithstanding the foregoing, and without limiting the generality
of the foregoing, the following claims are not, and shall not be, released
by this Section II - Releases: (a) Raleigh's and the Unitholders'
(including Gladys Beasley's) claims and defenses against the Partnership
and the Defendants, if now pending, or later brought, in the Delaware
action, relating to (i) Raleigh's and the Unitholders' alleged ability to
vote; (ii) Raleigh's efforts to be made replacement general partner, other
than derivative claims released in this Section; and (iii) Raleigh's
request to be made a Substituted Limited Partner in the Partnership; and
(b) any claim to enforce the terms of this Settlement.
III. CONSIDERATION TO PLAINTIFFS AND THE PARTNERSHIP.
-----------------------------------------------------
In consideration for the release, the Settling Defendants agree
to the following:
AQ. The Settling Defendants will obtain from Barnett Bank a term
sheet which has been approved by Barnett Bank's credit committee, subject
to participation of other banks, on substantially the terms set forth in
Exhibit A, and will use reasonable efforts to close the loan within 120
days of the Settlement Effective Date. The Barnett Bank Financing, if
consummated, will be used for the purposes of funding a cash distribution,
and to replace the Partnership's current Partnership-level bank facilities.
The General Partner will use its reasonable judgment to select the lowest
rates available under the Barnett Bank Financing.
AR. Defendants will not cause the Partnership to enter into the
Starwood Financing.
AS. If the Partnership does not enter into a final loan agreement
for the Barnett Bank Financing within 120 days of the Settlement Effective
Date, or on such earlier date as the General Partner concludes the Barnett
Bank Financing will not be consummated, the General Partner will notify the
Court, with copies of such notice to Lead Plaintiffs' Settlement Counsel.
Prior to such notification, the General Partner will not cause the
Partnership to enter into a Partnership-level financing other than the
Barnett Bank Financing. After such notification, the Partnership may enter
into a loan agreement with any other commercial bank for a financing on
terms not materially different than the Barnett Bank Financing. Until
October 1998, without first obtaining approval from the Court, with 21 days
<PAGE>
advance notice to Lead Plaintiffs' Settlement Counsel, the General Partner
will not cause the Partnership to enter into a Partnership-level financing
for the purposes of making a distribution which is not substantially
similar to the Barnett Bank Financing, or which is with a lender other than
a commercial bank.
AT. Upon the earlier of the Settlement Effective Date or the entry
of an order of the Circuit Court vacating the Preliminary Injunction
Ruling, the Settling Defendants will move to dismiss the Appeal without
prejudice. The appeal may be deemed to be dismissed with prejudice upon
the later of the Settlement Effective Date or the entry of an order of the
Circuit Court vacating the Preliminary Injunction Ruling.
AU. A portion of any proceeds of the Barnett Bank Financing
otherwise distributable to the General Partner and/or its affiliates will
be used to pay (i) up to 50% of the Defendants' Counsel attorney's
litigation fees and expenses in the Action and the Appeal; and (ii) up to
50% of any award by the Court of fees and expenses to Plaintiffs' Counsel
in connection with this Action and the Appeal. The total payments under
this provision will not exceed the maximum amount of the distribution to
which the General Partner and/or its affiliates may otherwise be entitled
under the Partnership Agreement as a result of the Barnett Bank Financing.
AV. The General Partner and/or its affiliates will defer the
amounts otherwise distributable to the General Partner and/or its
affiliates referred to in Section III(E) above, until such time as the
investors have received the "Threshold Amount," which is defined as
aggregate distributions made after July 1, 1996 equal to $565 per unit plus
a 4.5% per annum cumulative return, compounded quarterly, beginning July 1,
1996, on an amount, calculated from time to time, equal to $565 per unit
less any amounts distributed to the investors after July 1, 1996. At such
time as the investors have received the Threshold Amount, distributions
shall be paid to the General Partner and/or its affiliates in an amount
equal to the distributions deferred pursuant to Section III(E) above, with
appropriate adjustments to the General Partner's capital accounts for such
amounts as received. Following receipt by the General Partner of the
distributions deferred pursuant to Section III(E) above, distributions to
the General Partner and/or its affiliates and the investors shall
thereafter be made in accordance with the provisions of the Partnership
Agreement.
AW. The Settling Defendants make the following representations and
commitments:
1. The Barnett Bank Financing is the best financing offer
they have received, after investigating financing alternatives to the
Starwood Financing.
2. From a financing point of view, a commercial lender
should permit Raleigh Capital Associates, L.P. to serve as general partner
of the Partnership without calling the Partnership's loans.
3. The settlement is not intended to affect the intervention
in the Delaware Action of class counsel.
4. The Settling Defendants estimate that should $75 million
be distributed out of the proceeds of the Barnett Bank Financing:
(a) approximately $175 per interest would be distributed to those investors
who are entitled to receive distributions under the Partnership Agreement
as of the date of the distribution; (b) based on Raleigh's ownership of
approximately 20% of the interests in the Partnership, approximately $14.2
million would be distributable to Raleigh, pursuant to the terms of the
Partnership Agreement; and (c) approximately $3.6 million would be
distributable to the General Partner and its affiliates, pursuant to the
terms of the Partnership Agreement, subject to Sections III(E) and III(F)
of this Stipulation.
<PAGE>
IV. IMPLEMENTATION AND SCHEDULING.
----------------------------------
AX. As a condition of this Stipulation, the board of directors of
the General Partner will adopt a resolution within 10 business days of the
date of this Stipulation irrevocably committing that in October 1997, the
General Partner will choose the option set forth in Section 5.5(J)(i)(c) of
the Partnership Agreement. Within two business days of the adoption of the
foregoing resolution, the General Partner will provide a copy of the
resolution to the Lead Plaintiffs' Settlement Counsel. In addition, as a
provision of this Stipulation, it is agreed to by the Partnership, the
General Partner, and the Plaintiffs, if approved by the Court as fair,
reasonable, and in the best interests of the Partnership and Unitholders,
that the decision to choose the option set forth in Section 5.5(J)(i)(c) of
the Partnership Agreement will be binding upon the General Partner, its
affiliates, and any subsequent general partner, whether or not affiliated
with the General Partner, and the Unitholders.
AY. Promptly upon execution of this Stipulation, the parties shall
jointly apply to the Court for entry of a Preliminary Settlement Hearing
Order substantially in the form annexed as Exhibit B hereto, requesting
approval for the mailing to the Unitholders of a Notice in substantially
the form as that annexed hereto as Exhibit C. The Preliminary Settlement
Hearing Order will vacate the Preliminary Injunction Ruling.
AZ. Within 6 days after the entry of the Preliminary Settlement
Hearing Order, and as provided for therein, the General Partner shall send
copies of the Notice by first-class mail, postage pre-paid, to the
Unitholders at their last known addresses as appearing in the records
maintained by the Partnership. The Notice shall be substantially in the
form of Exhibit C, hereto, the terms of which are incorporated as a
material part of this Stipulation. Subsequent to mailing the Notice, and
no less than five days before the Final Settlement Hearing, Defendants'
Counsel shall file an affidavit of mailing with the Court attesting that
the Notice was duly served upon the Unitholders in accordance with the
Preliminary Settlement Hearing Order.
BA. The Final Settlement Hearing shall be held 45 days, or such
other period as the Court directs, after the sending of Notice to the
Unitholders. In connection with the Final Settlement Hearing, the Parties
shall file with the Court all such papers as their counsel believe to be
necessary. At the Final Settlement Hearing, the Court will consider the
fairness of the terms and conditions of the Settlement. The Court will
also be asked to consider the application of Plaintiffs' Counsel for fees
and reimbursement of expenses.
BB. At the Final Settlement Hearing, counsel for the Parties shall
jointly submit to the Court a proposed Final Judgment and Order, in
substantially the form annexed hereto as Exhibit D, providing, among other
things, that:
1. the Settlement is approved as fair, reasonable, adequate,
and in the best interests of the Partnership and the Unitholders; and,
without limiting the generality of the foregoing, further finding that the
decision of the General Partner to adopt a resolution irrevocably
committing that the General Partner will choose the option set forth in
Section 5.5(J)(i)(c) of the Partnership Agreement in October 1997 is fair,
reasonable, adequate, and in the best interests of the Partnership and the
Unitholders;
2. repeating and reaffirming its prior ruling that all
claims that were asserted in the Actions were only derivative in nature;
3. dismissing the Complaint and each and every cause of
action set forth therein on the merits and with prejudice to the
Plaintiffs, the Partnership, and the Unitholders, and extinguishing all
Released Claims;
4. permanently barring the plaintiffs, the Unitholders, and
the Partnership from asserting against the Defendants any and all Released
Claims; and
<PAGE>
5. reserving the Court's jurisdiction over all matters
relating to the consummation and enforcement of this Stipulation and the
Settlement, and, without limiting the generality of the foregoing, to
enforce on any replacement general partner the commitment of the General
Partner in October 1997 to choose the option set forth in Section
5.5(J)(i)(c) of the Partnership Agreement.
BC. The parties agree to cooperate in the prompt submission of this
Stipulation to the Court, to take those reasonable steps that may be
required by the Court to consummate this Settlement and to obtain the entry
of a Final Judgment and Order, annexed as Exhibit D.
BD. If this Stipulation shall terminate, or if the Settlement shall
not become effective for any reason, this Stipulation shall be of no
effect, and all orders entered pursuant to this Stipulation, shall be
vacated, without prejudice, and the parties shall be returned to their
status quo as of the date of the entry of this Stipulation, including the
reinstatement of the Preliminary Injunction Ruling and the Appeal.
V. APPLICATION OF PLAINTIFFS' COUNSEL'S FEES AND EXPENSES.
----------------------------------------------------------
Plaintiffs' Counsel intend to apply to the Court for an award
of fees and the reimbursement of out-of-pocket costs. The Settling
Defendants are free to object to such applications. Any award of fees and
expenses made by the Court shall be payable to Plaintiffs' Counsel ten days
after the Settlement Effective Date.
VI. MISCELLANEOUS.
------------------
BE. This Stipulation shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, assigns,
executors, administrators, heirs, and legal representatives, as the case
may be; provided, however, that no assignment by any party hereto shall
operate to relieve such party hereto of its obligations hereunder.
BF. This Stipulation may be executed in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
BG. This Stipulation, and the exhibits hereto, constitute the sole
and entire agreement among the parties hereto with respect to the subject
matter hereof and no representations, warranties, inducements, promises, or
agreements oral or otherwise not embodied or incorporated herein, have
been made concerning or in connection with this Stipulation, or the
exhibits hereto. Any and all prior discussions, negotiations, agreements,
commitments, and understandings relating thereto, are superseded hereby and
merged herein. The provisions of this Stipulation (including any time
periods specified herein) may be modified by written agreement of all of
the parties with the consent of the Court without further notice to the
Unitholders unless the Court so requires. The terms or provisions of this
Stipulation may not be changed, waived, modified, or varied in any manner
whatsoever unless in writing duly signed by all parties. Any failure by
any party to insist upon the strict performance by any other party of any
of the provisions of this Stipulation shall not be deemed a waiver of any
of the provisions hereof, and such party, notwithstanding such failure,
shall have the right thereafter to insist upon the strict performance of
any and all of the provisions of this agreement to be performed by such
other party.
BH. The captions contained in this Stipulation are inserted only as
a matter of convenience and in no way define, limit, extend, or describe
the scope of this agreement or the intent of any provision hereof.
<PAGE>
BI. This Stipulation including, but not limited to, the Release
contained herein, shall be governed by, and construed in accordance with
the laws of the State of Illinois, without regard to its conflict of laws
principles. This Stipulation shall be enforced solely by the Court and
this Court shall retain jurisdiction over this Settlement.
BJ. Neither this Stipulation nor any proceedings taken in
accordance with the terms set forth herein shall be construed as or deemed
to be evidence, or any admission or concession, either (a) on the part of
plaintiffs, of the lack of merit of this Action, and (b) on the part of the
Settling Defendants, of any liability or wrongdoing whatsoever, which is
hereby expressly denied and disclaimed by each of the Settling Defendants.
BK. This Stipulation shall not be construed more strictly against
one party than another merely by virtue of the fact that it may have been
prepared by counsel for one of the parties, it being recognized that,
because of the arm's-length negotiations described above, all parties
hereto have contributed substantially and materially to the preparation of
this Stipulation.
BL. All personal pronouns used in this Stipulation, whether used in
the masculine, feminine or neuter gender, shall include all other genders,
and the singular shall include the plural and vice versa.
BM. The Plaintiffs and Plaintiffs' Counsel represent that they have
not assigned any of the Released Claims.
BN. The administration of the Settlement shall be under the
authority of this Court
Dated: April __, 1997 GOODKIND LABATON RUDOFF
& SUCHAROW LLP
By:_________________________________
100 Park Avenue
New York, New York 10017-5563
(212) 907-0700
BEIGEL LASKY RIFKIND FERTIK GELBER &
WHITE
By:_________________________________
250 South Wacker Drive
Suite 1500
Chicago, Illinois 60606
(312) 466-9444
Lead Plaintiffs' Settlement Counsel
AND
JENNER & BLOCK
By:_________________________________
One IBM Plaza
Firm No. 05003
Chicago, Illinois 60611
(312) 222-9350
Counsel for Settling Defendants
EXHIBIT 21
LIST OF SUBSIDIARIES
The Partnership is a general partner in Arvida/JMB Partners, Center Office
Partners and Center Retail Partners, all of which are Florida general
partnerships. The Partnership is the owner of Southeast Florida Holdings,
Inc., an Illinois corporation. The Partnership is a limited partner in
Arvida Management Limited Partnership, Arvida Contractors Limited
Partnership, Gulf and Pacific Communications Limited Partnership, Boca
Raton Communications Limited Partnership and Jax Cable Limited Partnership,
Center Hotel Limited Partnership, Weston Athletic Club Limited Partnership,
Arvida Realty Sales Limited Partnership, Arvida/Weston Retail Sales Limited
Partnership and Arvida Grand Bay Limited Partnerships I through VI, each of
which is a Delaware limited partnership. The Partnership is also a partner
in the following partnerships with third party developers: Addison Joint
Venture, Arvida Corporate Park Associates, Arvida Pompano Associates Joint
Venture, Cullasaja Joint Venture, H.A.E. Joint Venture, Mizner Court
Associates Joint Venture, Mizner Tower Associates Joint Venture, Ocala 202
Joint Venture, Tampa 301 Associates Joint Venture, Windmill Lake Estate
Associates Joint Venture, Arvida/RBG I Joint Venture and Arvida/RBG II
Joint Venture.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 65,469,259
<SECURITIES> 0
<RECEIVABLES> 3,844,321
<ALLOWANCES> 261,326
<INVENTORY> 174,638,454
<CURRENT-ASSETS> 0
<PP&E> 119,468,256
<DEPRECIATION> 40,094,812
<TOTAL-ASSETS> 340,640,143
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 249,651,825
<TOTAL-LIABILITY-AND-EQUITY>340,640,143
<SALES> 342,813,269
<TOTAL-REVENUES> 342,813,269
<CGS> 290,956,880
<TOTAL-COSTS> 290,956,880
<OTHER-EXPENSES> 22,544,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,011,424
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,011,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,011,424
<EPS-PRIMARY> 67.47
<EPS-DILUTED> 67.47
</TABLE>
EXHIBIT 99.1
- ------------
(ARVIDA-I)
Further, although the Partnership is intended to be an
operating company producing taxable income rather than net losses
for Federal income tax purposes, prospective investors should note
that if such net losses were to arise, certain considerations
which typically arise in a so-called "tax shelter" may become
relevant, including considerations involving the profit motives of
the Partnership and the Holders and the ability to utilize such
net losses.
IN VIEW OF THE COMPLEXITY OF THE INCOME TAX CONSIDERATIONS
RELATING TO INVESTMENT IN THE PARTNERSHIP, PARTICULARLY IN LIGHT
OF RECENT CHANGES IN THE LAW AND THE FACT THAT THE INCOME TAX
CONSIDERATIONS WILL NOT BE THE SAME FOR ALL INVESTORS, PROSPECTIVE
INVESTORS ARE STRONGLY ADVISED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS PRIOR TO INVESTMENT
IN THE PARTNERSHIP.
_________________________________________________________________
CONFLICTS OF INTEREST
_________________________________________________________________
The Partnership is and will be subject to various conflicts
of interest arising out of its relationships with the General
Partner and its affiliates (including Arvida) as well as the fact
that the General Partner and its affiliates are engaged in a wide
range of real estate activities. Where conflicts arise from
anticipated transactions with affiliates of the General Partner,
certain provisions and limitations described below have been
adopted to protect the interests of the Holders of Interests.
Where no such provisions and limitations are described, none has
been adopted and these conflicts may be resolved only through the
exercise of the General Partner's judgement consistent with its
fiduciary obligations to the Partnership and the Holders as set
forth in the Partnership Agreement. See "Fiduciary Responsibility
of the General Partner" below. The conflicts of interest to which
the Partnership is and will be subject include those described
below.
DETERMINATIONS BY THE GENERAL PARTNER
The General Partner and the Associate Limited Partners have
certain interests in the Cash Flow and Profits or Losses of the
Partnership (see "Cash Distributions and Allocations of Profits or
Losses"). Because the timing and amount of Cash Flow and Profits
or Losses of the Partnership received by, or allocated to, the
General Partner and the Associate Limited Partners may be affected
by various determinations by the General Partner 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
allocation of certain tax items under the Partnership Agreement,
the timing of expenditures, the level of amortization of
indebtedness and other matters, the General Partner may have a
conflict of interest with respect to such determinations.
The Partnership Agreement provides that the General Partner
shall elect, in its sole discretion, to cause a Listing of the
Interests, or, on the date ten years from the termination of this
offering, to purchase (or to cause JMB or its affiliates to
purchase) the interests at their appraised fair market value, or
commence liquidation of the Partnership on the date ten years from
the termination of this offering and sell all properties within
fifteen years from the termination of this offering. In the event
the General Partner elects to commence a liquidations phase, JMB
and its affiliates will be permitted to purchase at appraised fair
market value any of the joint interests held by the Partnership in
Communities and Future Communities in which JMB or any of its
affiliates (other than the Partnership) has an interest. In the
event the General Partner elects, in accordance with the
foregoing, to purchase, or to cause the purchase of, the
Interests, or to commence a liquidation phase of the Partnership
and to purchase any affiliate
In the event that the proceeds of this offering plus maximum
initial aggregate indebtedness are not sufficient to permit the
payment of the cost of acquiring the assets from the Seller, the
General Partner expects to cause the Partnership to enter into a
joint venture or joint participation with affiliates of the
General Partner under which the assets acquired from the Seller
would be owned and developed. Any joint investment made by the
Partnership in any Community with an affiliate of the General
Partner will be on a strictly pro rata basis with the investment
made by another JMB affiliate. In addition, each party will pay
only its allocable share of Arvida's expenses in developing and
managing the project. However, at any particular time, it is
possible that the Partnership, the other investing JMB affiliate
and Arvida may have differing interests with respect to certain
decisions affecting such joint investments, including the timing
of expenditures, sale of certain assets and other matters. Thus,
there exists the possibility of an impasse in the event the joint
venture partners disagree. See "Risks of Joint Ventures".
However, in the event of a disagreement regarding a proposed sale
or other disposition of the property, the party desiring not to
sell or otherwise dispose would have a right of first refusal to
purchase the affiliated joint venture partner's interest in the
property. Such right of first refusal would be exercisable at the
pro rata share of the proposed sale price or other disposition
price to any unaffiliated third party; however, there can be no
assurance that the Partnership would have the financial resources
to exercise its right of first refusal at any such time.
The Partnership may permit an affiliate of the General
Partner and JMB to invest jointly with the Partnership and its
joint venturer in a portion of an approximately 200-acre parcel of
land located near Sarasota which may be suitable for development
as a regional shopping mall. See "Business of the Partnership--
Description of Current Developments--Commercial and Industrial".
This affiliate has expertise in the development and operation of
regional shopping malls. Neither the Partnership nor Arvida
currently has expertise in these matters. In the event of such a
joint venture investment, the Partnership and the Partnership's
unaffiliated joint venturer would contribute the land at appraised
value and the JMB affiliate would contribute a pro rata share of
capital. It should be noted that appraisals are only estimates of
value and should not be relied upon as measures of realizable
value. The JMB affiliate would be entitled to earn certain
development fees from the joint venture for its services, subject
to certain limitations. See "Management of the Partnership--
Management Compensation".
PARTNERSHIP'S PARTICIPATION IN NET CASH FLOW OF FUTURE COMMUNITIES
While Arvida has no current intent to move its principal
business away from Community development, it is under no
obligation to maintain Community development as its principal
business. Arvida's only obligation in respect of future
developments to the Partnership is to permit the Partnership to
receive a 10% interest in net cash flow (in excess of certain base
amounts) from Future Communities, subject to the limitations set
forth under "Description of Business-Future Developments". The
Partnership will not participate in any other future developments.
Arvida is not restricted to development of Community properties
and may participate or assist in the development and management of
other types of real property investments developed by affiliates
of JMB and Arvida. Different parcels of the same tract of land
may be developed by various JMB affiliates, including Arvida. In
certain cases, the most significant portions of such properties,
principally office or other commercial buildings, may be developed
by JMB and affiliates other than Arvida, and the Partnership will
not participate in the net cash flow in respect of those
developments.
POSSIBLE COMPETITION BY THE PARTNERSHIP WITH AFFILIATES
A substantial number of real estate investment partnerships
and other entities are presently managed or advised by or through
affiliates of JMB (see "Management of the Partnership--JMB Realty
Corporation"). JMB and its affiliates also invest in real estate
for their own accounts. JMB is presently planning to form and to
manage or advise, directly or through affiliates, additional real
estate investment partnerships and other investment entities in
the future, and expects to continue to invest in real estate for
its own account. JMB and certain of these affiliates engage in
the development of retail, commercial and office projects,
although none (either individually or in the aggregate) presently
engage in the business of Community development to the extent that
the Partnership and Arvida do. See "Business of the Partnership"
and "Management of the Partnership--Affiliate Supervisory
Agreement". The Partnership Agreement expressly provides that
neither the General Partner nor any affiliate of the General
Partner (including JMB and Arvida) will be obligated to present to
the Partnership any particular investment or development
opportunity that comes to its attention; provided, however, that
the Partnership shall be entitled to receive a 10% interest in net
cash flow (in excess of certain base amounts) with respect to each
Future Community, subject to the limitations set forth under
"Business of the Partnership--Future Community Developments". See
"Fiduciary Responsibility of the General Partner".
JMB and existing or future real estate investment entities
advised or managed by JMB or its affiliates may be in competition
under some circumstances with Arvida, and thereby the Partnership,
for real property investments. Such conflicts could arise, for
example, if the purchase of a particular undeveloped property
should appear to be suitable for development for more than one
purpose including as an Arvida-sponsored Community development.
In addition, JMB or its affiliates may acquire and develop
properties located nearby or adjacent to Communities or proposes
Arvida Community developments, and the Partnership shall have no
right to receive an interest in such developments. As a result of
its relationship with its affiliates and the nature of such
affiliates' development business, Arvida may be unable to develop
certain properties in the manner, and to the extent, which it
otherwise would, and, as a result, the Partnership may not be able
to receive an interest in certain development projects. Arvida
and its staff may supply certain development and management
services to other JMB affiliates and may develop properties for
such affiliates independent of Future Communities.
Affiliates of the General Partner may also be in competition
with the Partnership in connection with the sale or operation of
properties under some circumstances. For example, the Partnership
may own certain interest in Community properties adjacent to
properties owned by JMB or other affiliated entities. As a
result, the Partnership and one or more affiliated entities may be
competing in particular geographical markets for residents or for
tenants in commercial or office projects. There may also be
similar sorts of competition in connection with the sales of
property in certain markets. Any adjacent commercial properties
owned by the Partnership and an affiliated entity will offer
economic terms for tenant leases in such adjacent properties which
are comparable considering all relevant factors including, but not
limited to, age and quality of construction.
RELATIONSHIP OF AFFILIATES TO PARTNERSHIP
JMB or its affiliates are not prohibited from providing
services to, and otherwise dealing or doing business with, persons
who deal with the Partnership. However, no rebates or "giveups"
may be received by the General Partner or any affiliate of the
General Partner, nor may the General Partner or any such affiliate
participate in any reciprocal business arrangements which would
have the effect of circumventing any of the provisions of the
Partnership Agreement. JMB and its affiliates may provide certain
services to the Partnership as described under "Management of the
Partnership". If any other transactions between the Partnership
and JMB or its affiliates occur, they must also be negotiated on a
basis not less favorable to the Partnership than that available
from third parties providing comparable services and shall be
terminable on 60 days' notice.
REMUNERATION OF JMB, ARVIDA AND AFFILIATES
JMB and its affiliates, including Arvida, will receive
substantial compensation and other amounts from the Partnership,
regardless of whether the Partnership achieves its investment
objectives. See "Management of the Partnership--Management
Compensation" and" --Affiliate Supervisory Agreement".
PARTICIPATION OF AN AFFILIATE AS A SELECTED DEALER
JMB Securities Corporation, a broker-dealer affiliated with
JMB, is expected to participate as a Selected Dealer in the
offering of Interests and will be entitled to the same selling
commission as other dealers. See "Plan of Distribution". JMB
Securities Corporation may be subject to a conflict of interest in
performing any "due diligence" obligations that may arise out of
its participation in the offering because of its affiliation with
the General Partner.
RELATIONSHIP OF MERRILL LYNCH TO AFFILIATE
An affiliate of Merrill Lynch, the Selling Agent for this
offering, is purchasing Interests to 1% of the total Interests
sold to the public pursuant to this offering at a cost of $1 per
Interest and is a limited partner in one of the Associate Limited
Partners. As a result, Merrill Lynch as selling agent may be
subject to a conflict of interest in performing any "due
diligence" obligations that may arise out of its participation in
the offering because of such relationship with its affiliate. In
addition, the issuance of such Interests at $1 per Interest to the
Merrill Affiliate effectively dilutes the Interests purchased by
other Holders of Interests.
LEGAL REPRESENTATION
As noted under "Legal Matters", counsel for the Partnership
in connection with the offering ia also counsel to JMB and various
affiliates, including the General Partner of the Partnership, on
various matters. No counsel has been independently retained to
represent the Holders of Interests. In the event any controversy
arises following the termination of the offering in which the
interests of the Partnership appear to be in conflict with those
of JMB or its affiliates, other counsel would be retained for one
or both of the parties.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The General Partner is accountable to the Partnership as a
fiduciary and consequently must exercise good faith and integrity
in handling Partnership affairs. This is an uncertain area of the
law, and Holders of Interests who have questions concerning the
fiduciary duties of the General Partner should consult with their
counsel.
The Partnership Agreement provides that neither the General
Partner nor any affiliate thereof engaged in the performance of
services on behalf of the Partnership (the "Indemnified Parties")
will be liable to the Partnership or the Holders of Interests for
any loss or liability resulting from any act or omission performed
or omitted by them if the General Partner or its affiliates have
determined, in good faith, that the act or omission which caused
the loss or liability, was in the best interests of the
Partnership and such loss or liability was not the result of
misconduct or negligence and that, subject to certain limitations,
the Indemnified Parties will be indemnified by the Partnership
against any loss or liability suffered by them if the General
Partner or its affiliates have determined, in good faith, that the
act or omission which caused the loss or liability was in the best
interests of the Partnership and such loss or liability was not
the result of misconduct or negligence. See "Summary of the
Partnership Agreement--Indemnification of the General Partner".
Thus, the Limited Partners or Holders of Interests, as the case
may be, may have a more limited right of action than would
otherwise be the case absent such provisions. In the opinion of
the Securities and Exchange Commission, indemnification for
liabilities arising under the Securities Act of 1933, as amended,
is contrary to public policy and therefore unenforceable.
The Partnership Agreement expressly provides that neither
the General Partner nor any affiliate of the General Partner will
be obligated to present to the Partnership any particular
investment opportunity that comes to its attention. See "Business
of the Partnership" and "Conflicts of Interest--Possible
Competition by Partnership with Affiliates".
OWNERSHIP OF GENERAL PARTNER
All of the outstanding shares of the General Partner are
owned by JMB Holdings Corporation, an Illinois corporation, 75% of
the outstanding shares of which are owned by JMB Realty
Corporation and the remaining 25% of which is owned by certain
officers and directors of JMB. The General Partner is not
prohibited from paying dividends to its stockholder. The
Partnership Agreement provides that the purchasers of Interests
will acquire no interest in the stock or assets of the General
Partner, or in any proceeds of any sales thereof by virtue of
acquiring or owning Interests and becoming Holders.
MANAGEMENT COMPENSATION
The following describes the types and estimated amounts of
fees, compensation, and other payments, and distributions that the
General Partner and its affiliates (including the Associate
Limited Partners) will or may receive in connection with the
business of the Partnership and/or the acquisition of its assets.
These amounts were not determined by arm's-length bargaining.
Acquisition and Financing Guaranty Fee. The Partnership is
obligated to pay JMB or its affiliates an Acquisition and
Financing Guaranty Fee equal to $20,000,000 (subject to reduction
as set forth below and in the Partnership Agreement) for services
of JMB and such affiliates in negotiating and arranging, and
guaranteeing repayment of the Acquisition Notes and certain other
obligations incurred in connection with, the acquisition of the
assets by the Partnership from the Seller. Such fee will be
payable upon the date of the admission of Holders of Interests to
the Partnership ("Admission Date"), or, in the event of multiple
Admission Dates, pro rata upon each Admission Date based upon the
percentage of the maximum offering sold (without giving effect to
the right to increase the size of the offering to 400,000
Interests); to the extent that less than all of the Interests are
sold, therefore, the Acquisition and Financing Guaranty Fee will
be proportionately less than $20,000,000.
Fees for Property Management and Other Services. The
Partnership may engage affiliates of the General Partner for
property management, insurance brokerage, or other services to be
performed, if necessary, in connection with the properties of the
Partnership. Property management fees may be charged at rates
prevailing for comparable services in the localities where
properties are located, in the event such services are provided,
but not to exceed 6% of the gross receipts from a commercial or
industrial property (if leasing and re-leasing services are
performed by such affiliate; otherwise the maximum fee is 3% of
the gross receipts) and 3% of the gross receipts (reduced to 1%
after the first five years) from a commercial or industrial
property leased for ten years or more on a net basis. Subject to
certain limitations in the Partnership Agreement, insurance
brokerage services may be performed and commissions may be
received at rates prevailing for comparable classes of coverage in
the localities where the properties are located. If affiliates of
the General Partner perform other services for the Partnership,
the fee for such services must be not less favorable to the
Partnership than that available from third parties providing
comparable services and the arrangement in respect of such
services shall be terminable, without penalty, on 60 days' notice.
As described under "Business of the Partnership--Description
of Current Developments", an affiliate of JMB which develops malls
and shopping centers nationally may participate as a joint venture
partner with a joint venture between the Partnership and an
unaffiliated third party in the development of a regional shopping
mall at Sarasota, Florida on property owned (including under an
option) by a joint venture in which the Partnership is a 50%
partner; in such event, the affiliate would be entitled to receive
development fees equal to the lesser of 5% of the cost of
development or the amount which would be charged by an independent
third party rendering comparable services, together with allocable
reimbursements of allocable expenses. In the event of a joint
venture between the Partnership and its joint venture partner and
an affiliate of JMB, the joint venture shall obtain a report of
the appraised value of the mall or shopping center upon completion
of the property. To the extent that the actual costs of
development, including the development fees paid to such
affiliate, exceed the appraised value of the project, the
development fees will be remitted by such affiliate to the extent
of the excess, if any, of such development costs over such
appraised value.
Distributive Share of Cash Flow. Following admission of
Limited Partners, the General Partner and the Associate Limited
Partners (collectively) will be entitled to receive (i) until the
Holders of Interests have received cumulative distributions of
Cash Flow equal to a cumulative 10% per annum return (on a non-
compounded basis) on their adjusted capital Investments (which
shall be deemed return (on a non-compound basis) on their Adjusted
Capital Investments), 5% of the distibutions of Cash Flow
remaining after Cash Flow distributions to the General Partner and
the Associate Limited Partners (collectively) equal to 1% per
annum of the Gross Asset Value of the Partnership (subject to
certain limitations set forth in the Partnership Agreement);
provided, however, that until such time as the Holders of
Interests have received total distributions of Cash Flow equal to
their Capital Investments, receipt by the General Partner and the
Associate Limited Partners (collectively) of their 5% share of
Cash Flow shall be deferred (the "Deferred Amount") until receipt
by the Holders of Interests of Cash Flow distributions equal to a
12% per annum cumulative, non-compounded return on their initial
Capital Investments; any Deferred Amount shall be distributable to
the General Partner and the Associate Limited Partners
(collectively), (x) out of any Cash Flow otherwise distributable
to the Holders of Interests at such time as the Holders of
Interests have received a 12% per annum cumulative, non-compounded
return on their Capital Investments, or (y) in any event, to the
extent of one-half of Cash Flow otherwise distributable to the
Holders of Interests at such time as the Holders of Interests have
received total distributions of Cash Flow equal to their Capital
Investments; and (ii) thereafter, 15% of all distributions of Cash
Flow shall be made to the General Partner and the Associate
Limited Partners (collectively) and 85% to the Holders of
Interests; provided, however, that the General Partner and the
Associate Limited Partners (collectively) shall be entitled to
receive an additional share of Cash Flow otherwise distributable
to the Holders of Interests under clause (ii) equal to the lesser
of (a) 13% of the aggregate distributions of Cash Flow under
clause (ii) to all parties or (b) an amount equal to 2% of the
gross selling prices of all interests in real property of the
Partnership (subject to certain limitations). See "Cash
Distributions and Allocations of Profits or Losses".
The General Partner and Arvida/JMB Associates (collectively)
will be entitled to receive a distribution of Cash Flow of the
Partnership in an amount equal to $20,000,000 on September 30,
1987. The definition of Cash Flow includes, and this distribution
may be paid from, the proceeds of sales or other dispositions of
assets in the ordinary course of business and the proceeds of
borrowings of the Partnership. See "Acquisition of Assets".
Reimbursable Expenses. The Partnership will reimburse the
General Partner and its affiliates (including Arvida) for their
direct expenses relating to this offering and relating to the
administration of the Partnership and the acquisition,
development, ownership, supervision and operation of the
Partnership assets (subject to certain limitations contained in
Section 5.1D of the Partnership agreement). In addition, certain
other expenses of JMB and its affiliates will be reimbursed as
described below. JMB and its affiliates will be reimbursed by the
Partnership and all expenses of the offering, sale and
distribution of Interests, and the cost of goods, materials and
services used for or by the Partnership and obtained from entities
which are not affiliated with the General Partner.
Except for organizational expenses incurred in the creation
of the Partnership and offering, selling and distribution expenses
incurred in selling and distribution expenses incurred in the sale
of Interests, JMB and the General Partner will not be reimbursed
by the Partnership for the salaries and related salary expenses of
any of the Director, the Chairman, President or any Executive Vice
President of JMB or the General Partner or any individual who
holds 5% or more of an equity interest in JMB or the General
Partner or has the power to direct or cause the direction of JMB
or the General Partner, whether through ownership of voting
securities, by contract or otherwise, or for any indirect, general
or administrative overhead expenses incurred in performing
services for the Partnership which are not directly attributable
to such services. The Partnership, however, will subject to
certain limitations in 5.1D of the Partnership Agreement,
reimburse JMB and its affiliates for salaries (and related salary
expenses) for services which could be performed directly for the
Partnership by independent parties, such as legal, accounting,
transfer agent, data processing, duplicating and other services.
The amounts charged to the Partnership for such services will not
exceed the lesser of the actual cost of such services, or 90% of
the amount which the Partnership would be required to pay to
independent parties for comparable services. It is estimated that
such reimbursements for such services will be approximately
$175,000 in 1987. In the Partnership's annual report to Holders
of Interests, there will be provided an itemized breakdown of
reimbursements made to JMB and its affiliates in the categories of
legal, accounting, transfer agent, data processing and duplicating
services. Such reimbursement of expenses will be made regardless
of whether any distributions are made to the Holders of Interests.
Pursuant to the Supervisory Agreement, the Partnership shall
reimburse Arvida fully for all of its out-of-pocket expenses
(including salary and salary-related expenses) incurred while
supervising the development and management of the Partnership's
properties and other operations; provided, however, such
reimbursements shall not exceed 5% of the gross revenues from the
business of the Partnership. Such reimbursements will be made
regardless of whether any distributions are made to the Holders of
Interests.
CAPITAL CONTRIBUTIONS OF THE GENERAL PARTNER AND THE ASSOCIATE
LIMITED PARTNERS
The General Partner and the Associate Limited Partners have
made capital contributions to the Partnership aggregating $1,000
and will make additional capital contributions so that total
capital contributions of the General Partner and the Associate
Limited Partners will aggregate at least $20,000. Except under
certain limited circumstances upon liquidation of the Partnership
or its Partnership interest (see "Summary of the Partnership
Agreement--Dissolution and Liquidation"), the General Partner, in
its capacity as such, will make no additional capital
contributions to the Partnership. JMB Investor Services
Corporation made a capital contribution to the Partnership of
$5,000 when it purchased five Interests as the Initial Limited
Partner of the Partnership.
AFFILIATE SUPERVISORY AGREEMENT
Arvida, an affiliate of JMB and the General Partner, will
provide development and management supervisory personnel for the
Partnership for all of its projects and operations in accordance
with the objectives and criteria set forth under "Business of the
Partnership". Pursuant to the Supervisory Agreement, Arvida will
provide such supervisory management personnel at cost for the
duration of the Partnership; provided, however, that the
Supervisory Agreement may be terminated without cause by the
Partnership without penalty upon sixty days' written notice.
Arvida may terminate the Supervisory Agreement if the General
Partner ceases to be an affiliate of JMB or if the Partnership is
in material breach of the Supervisory Agreement which breach
continues for a period of sixty days. See "Management of the
Partnership--Management Compensation--Reimbursable Expenses".
While these personnel will function primarily in an advisory and
supervisory role with respect the Partnership's own operating
employees, Arvida personnel will also assist Partnership personnel
in the Partnership's management, development and sale of
properties. These personnel will supervise the identification of
Partnership-owned land for development, the design of a Community
master plan, the obtaining of regulatory and governmental
approvals, and assist with the installation of infrastructure and
amenities, the sale of developed parcels and homesites to third-
party developers and the construction of residential units and
commercial and industrial properties. Arvida intends to follow
the Seller's practice of hiring subcontractors and consulting
firms on a project-by-project basis rather than maintaining in-
house capabilities, in order to be able to select suitable
professionals for a particular project. Arvida has granted the
Partnership a non-exclusive license to the "Arvida" name for its
use pursuant to, and for the term of, the Supervisory Agreement.
Arvida intends, but has no obligation, to continue to seek
to develop, among other real estate projects, additional Future
Communities. The Partnership will be entitled to receive a 10%
interest in net cash flow (above certain base amounts) from Future
Communities. See "Business of the Partnership--Future Community
Developments".
Arvida will be reimbursed directly by the Partnership for
all of its out-of-pocket expenses (including an allocable share of
its salary and salary-related expenses) incurred while supervising
the development and management of the Partnership's properties.
Arvida will not be entitled to receive any fees or other payments,
direct or indirect, from the Partnership. Arvida will reimburse
the Partnership for any goods, services or facilities of the
Partnership which it may use in connection with projects unrelated
to the Partnership's business.
Pursuant to the Supervisory Agreement, Arvida and each of
its directors, officers and employees shall be indemnified for any
liability arising out of their activities under the Supervisory
Agreement, except for fraud, bad faith or negligence by them.
Arvida may develop new commercial and industrial projects,
which will be wholly separate and distinct from any future
Communities developed under the name "Arvida"; the Partnership
will not be entitled to participate in the net cash flow of any
such projects. Arvida may participate in the development of
Community projects for others without use of the name "Arvida" in
which case the Partnership would have no right to participate.
_________________________________________________________________
DESCRIPTION OF ASSIGNEE INTERESTS
__________________________________________________________________
ASSIGNMENT OF INTERESTS
An investor in the Partnership will hold all of his interest
in the Partnership by virtue of an assignment to the investor of
Interests held by the Initial Limited Partner which have been
acquired with the subscription proceeds of such investor. The
Initial Limited Partner will be the Limited Partner of record for
the Interests purchased and held by the Assignee Holders, but all
of the economic benefits of the Interests (including cash
distributions or allocations of Profits or Losses) will be
distributed or allocated to the Assignee Holders. The discussion
in this Prospectus with respect to receipt of such Partnership
distributions and allocations refers to Holders of Interests,
rather than Limited Partners. Purchasers of such assigned
Interests will not themselves become Limited Partners, unless they
elect or are required to do so, as explained below.
Attached to this Prospectus as part of Exhibit C is a form
of Subscription Agreement Signature Page. Investors may subscribe
to the Partnership through Merrill Lynch or Selected Dealers
without executing the Subscription Agreement Signature Page
(except where required by state law). By the payment of his
subscription proceeds and acceptance by the General partner as an
Assignee Holder, each investor will be recognized by the
Partnership as an Assignee Holder of Interests and each investor
will be bound by all the terms of the Subscription Agreement, as
well as the Partnership Agreement and Assignment Agreement. Under
the Assignment Agreement, included as Exhibit B to this
Prospectus, among the Partnership, the Initial Limited Partner,
the General Partner and each investor becoming an Assignee Holder
pursuant to this offering, all of the ownership attributes of the
Interests are granted to such Assignee Holders, including voting
rights and rights to their proportionate percentage interest in
the Partnership's income, gains, losses, deductions, credits and
distributions, and Assignee Holders are bound by the terms of the
Partnership Agreement.
An Assignee Holder who wishes to become a Substituted
Limited Partner may do so upon complying with the provisions
pertaining to transfer of Interests under the Partnership
Agreement. See "Transferability of Interests" below. An Assignee
Holder who effects such a transfer and becomes a Substituted
Limited Partner will not be permitted subsequently to reassign its
Limited Partnership Interests to the Initial Limited Partner and
once more become an Assignee Holder. The Initial Limited Partner
holds five Interests for its own account and has all rights
attributable to such Interests under the Partnership Agreement.
An assignee Holder who wishes to become a Substituted
Limited Partner may do so upon complying with the provisions
pertaining to transfer of Interests under the Partnership
Agreement. See "Transferability of Interests" below. An Assignee
Holder who effects such a transfer and becomes a Substituted
Limited Partner will not be permitted subsequently to reassign its
Limited Partnership Interests to the Initial Limited Partner and
once more become an Assignee Holder. The Initial Limited Partner
holds five Interests for its own account and has all rights
attributable to such Interests under the Partnership Agreement.
No transfer (except for intra-family and certain other
transfers, including transfers by gift or inheritance) will be
recognized if following the transfer either the transferor or the
transferee would hold fewer than five Interests. Additional
restrictions on transfer of Interests are imposed in some states
by their respective securities laws.
No transfer may be made to any person that is a non-resident
alien individual or foreign corporation or other entity or that
may be subject to tax under Section 511 of the Code or to any
"tax-exempt entity" (within the meaning of Section 168(h) of the
Code for purposes of Section 168(h)(2) of the Code for purposes of
Section 168(h)(6)(A) of the Code), except in the sole discretion
of the General Partner.
In the case of any transfer of Interests, the General
Partner will impose upon the transferee the suitability
requirements of state blue sky laws. Any member of the National
Association of Securities Dealers ("NASD") assisting in such
transfer will impose upon the transferee the suitability
requirements imposed by the NASD.
The rights of any transferee of an Interest who does not
become a Substituted Limited Partner will be limited to his share
of Partnership Profits or Losses and cash distributions as
described above. The voting rights of a transferor (other than
the Initial Limited Partner) who transfers an Interest will
terminate with respect to such Interest upon such transfer,
whether or not the transferee thereof is admitted as a Substituted
Limited Partner with respect thereto.
MERRILL LYNCH INVESTOR SERVICE
It is not anticipated that a public market for the Interests
will develop. However, Merrill Lynch may provide certain investor
services which may assist investors desiring to sell their
Interests. Merrill Lynch, acting as an agent of persons who
desire to buy or sell Interests, will use its best efforts to
match any buy order it receives with any sell order it receives,
at specified prices (or price ranges) only, but will not solicit
any sell orders for Interests. Any solicitation in respect of buy
orders will be done in accordance with Federal securities laws.
This service will be made available only after the Final Admission
Date and only to investors who are not Substituted Limited
Partners and who maintain or establish an account with Merrill
Lynch. Any transactions effected through this service are subject
to any restrictions on transfer imposed by applicable state
securities laws. This service will not be available to residents
of the State of California unless and until the Department of
Corporations of the State of California modifies or waives its
policy with respect to such service.
To facilitate such transactions, Merrill Lynch will make
available upon request, information as to the prices at which
Interests have recently been sold. However, Merrill Lynch will
not set the price at which Interests will be sold. Since this
arrangement will not constitute a market for the Interests, no
"market orders" or "stop orders" can be accepted by Merrill Lynch.
Accordingly, it is possible that no buy orders will be received by
Merrill Lynch at the prices specified in the sell orders which
Merrill Lynch receives, and in that case it will not be possible
for Merrill Lynch to arrange any sales. For its services in
acting as agent for the buyer and seller in such transactions,
Merrill Lynch will charge an appropriate fee or commission.
Further information about this service can be obtained from
Merrill Lynch. Merrill Lynch is under no obligation to provide
this service to Holders of Interests, and this service may be
discontinued or suspended at any time without notice.
_________________________________________________________________
CASH DISTRIBUTIONS AND ALLOCATIONS OF PROFITS OR LOSSES
_________________________________________________________________
In the event the minimum number of Interests is subscribed
for, a Holder of Interests will be entitled to receive from the
Partnership a distribution of Cash Flow (without regard to the
distribution to the General Partner and Arvida/JMB Associates of
Cash Flow (including the proceeds of any financings) on September
30, 1987, as described under "Management of the Partnership--
Management Compensation") in an amount equal to such Holder's
Capital Investment from the day after his subscription proceeds
are received in the Partnership escrow account through the end of
the fiscal quarter in which the Final Admission Date occurs
multiplied by an initial rate of 5% per annum. This rate,
however, may be increased prospectively (in the sole discretion of
the General Partner) at the end of any week or weeks, commencing
with the following week. Such Cash Flow will be distributed
within 60 days following the end of such fiscal quarter in which
the First Admission Date occurs and each fiscal quarter thereafter
through the fiscal quarter in which the Final Admission Date
occurs. See "Plan of Distribution--Allocations of Benefits During
the Offering Period".
Beginning with the first fiscal quarter following the
termination of the offering of Interests to the public, Cash Flow
shall be distributed on a quarterly basis, within 60 days
following the end of each fiscal quarter, as follows:
(i) until the Holders of Interests have received
cumulative distributions of Cash Flow equal to a 10% per annum
return (on a non-compounded basis) on their Adjusted Capital
Investments (as defined below) plus the return of their Capital
Investments (which shall be deemed returned to the Holders of
Interests only to the extent of cumulative distributions of Cash
Flow to Holders of Interests in excess of 10% per annum (on a non-
compounded basis) of their Adjusted Capital Investments), (a)95%
to the Holders of Interests and 5% to the General Partner and
Associate Limited Partners (collectively) remaining after (b) Cash
Flow distributions to the General Partner and the Associate
Limited Partners (collectively) equal to 1% per annum of the Gross
Asset Value (as defined below) of the Partnership (subject to
certain limitations set forth in the Partnership Agreement);
provided, however, that until such time as the Holders of
Interests have received total distributions of Cash Flow equal to
their Capital Investments, receipt by the General Partner and the
Associate Limited Partners (collectively) of their 5% share of
Cash Flow under clause (a) above shall be deferred (the "Deferred
Amount") to receipt by the Holders of Interests of Cash Flow
distributions equal to a 12% per annum cumulative, non-compounded
return on their Capital Investments; and Deferred Amount shall be
distributable to the General Partner and the Associate Limited
Partner (collectively), (x) out of any Cash Flow otherwise
distributable to the Holders of Interests under clause (a) above
at such time as the Holders of Interests have received a 12% per
annum cumulative, non-compounded return on their Capital
Investments, or (y) in any event, to the extent of one-half of
Cash Flow otherwise distributable to the Holders of Interests
under clause (a) above at such time as the Holders of Interests
have received total distributions of Cash Flow equal to their
Capital Investments; and
(ii) thereafter, all distribution of Cash Flow shall
be made 85% to the Holders of Interests and 15% to the General
Partner and the Associate Limited Partners (Collectively);
provided, however, that the General Partner and the Associate
Limited Partners (collectively) shall be entitled to receive an
additional share of Cash Flow otherwise distributable to the
Holders of Interests under this clause (ii) equal to the lesser of
(x) an amount equal to 2% of the gross selling prices of any
interests in real property of the Partnership (subject to certain
limitations) or (y) 13% of the aggregate distributions of Cash
Flow under this clause (ii) to all parties.
"Gross Asset Value" shall mean the dollar amount reflected
on the books and records maintained by the Partnership, at the
Final Admission Date, of the gross assets (including all of the
Partnership's interests in joint venture assets) acquired by the
Partnership, directly or indirectly, or, if sold or otherwise
disposed, of the proceeds of such assets, increased by the dollar
amount reflected on the books and records maintained by the
Partnership, at the time of their respective acquisition, of any
gross assets (including all of the Partnership's interests in
joint venture assets) which the Partnership subsequently acquires,
directly or indirectly, from the Seller or as otherwise
contemplated by the Acquisition Agreement or this Prospectus.
Distributions will be made on or before the last day of May,
August, November and February of each year in respect of
operations for the preceding fiscal quarter.
"Adjusted Capital Investments", with respect to any fiscal
quarter, shall mean the Capital Investments of the Holders of
Interests reduced, as of the first day of any fiscal quarter
following the fiscal quarter with respect to which a distribution
is made, by cumulative, non-compounded distributions of Cash Flow
to the Holders in excess of 10% per annum of their Adjusted
Capital Investments for all prior fiscal quarters.
The amount equal to 2% of the aggregate selling price of
Partnership properties, which shall determine the amount of Cash
Flow distributable to the General Partner under clause (ii) above,
is subject to limitations as set forth in section 4.1 of the
Partnership Agreement. These limitations include, but are not
limited to, the following: such amount with respect to any
Partnership property shall not exceed 50% of the compensation
customarily changes in connection with sales of similar properties
in arm's length transactions by non-affiliates of JMB rendering
similar services as an ongoing public activity in the same
geographical location and for comparable property, and the amount
of such distribution plus the real estate commission paid to
anyone (other than the Partnership) in connection with the sale of
a Partnership property will not exceed the lesser of (i) 6% of the
gross purchase price for the property or (ii) the amount
customarily charged in connection with sales of properties in
arm's-length transactions by non-affiliates of JMB rendering
similar services as an ongoing public activity in the same
geographical location and for comparable properly.
If in any fiscal quarter the General Partner should
determine that reserves of the Partnership exceed the amount
deemed sufficient in connection with the Partnership's operations,
such reserves might be reduced and, if so, the amount of such
reduction for a particular quarter would be included in and
distributed as a portion of Cash Flow.
As described under "Plan of Distribution", the Merrill
Affiliate, in consideration of consulting services rendered to the
Partnership and the payment of $1 per Interest, will acquire
Interests (which are subject to certain limitations) equal to 1%
of the total Interests sold to the public hereby. In the event
the General Partner causes a Listing of the Interests and the
Merrill Affiliate's Interests are so listed, the Partnership
Agreement provides for an allocation of Profits (in the form of
gross income) in order to cause the capital account for each of
the Merrill Affiliate's Interests to equal the capital accounts of
other Holders for their Interests. As a result of such
allocation, in the event of a liquidation of the Partnership after
such allocation and such a listing, the Merrill Affiliate might be
entitled, in some circumstances, to a larger share of the
liquidation proceeds which share corresponds to such capital
account increase.
Except as set forth under "Plan of Distribution--Allocation
of Benefits During the Offering Period", the portion of Cash Flow
distributed to the Holders of Interests will be made pro rata to
the persons recognized on the books of record of the Partnership
as the Holders of Interests. See "Description of Assignee
Interests--Transferability of Interests".
As more fully described under "Business of the Partnership",
the Partnership intends to invest amounts in additional
development of its Communities, which amounts would otherwise be
available for distribution as Cash Flow, subject to the limitation
described in the following sentence. Under the Partnership
Agreement, the General Partner must use its best efforts to
distribute Cash Flow in amounts at least equal to Federal taxable
income (or components thereof) allocable to the Holders,
multiplied by the maximum individual Federal income tax rate for
the year in which such taxable income (or component thereof) is
realized.
All Profits or Losses of the Partnership for each fiscal
year (or portion thereof) beginning on or after the first date
designated by the General Partner on which Assignee Holders are
recognized as such generally will be allocated as follows: (i)
Profits will be allocated such that the General Partner and the
Associate Limited Partners will be allocated Profits equal to the
amount of Cash Flow distributed to them and the Holders will be
allocated the remaining Profits, and (ii) Losses will be allocated
2% to the General Partner and the Associate Limited Partners
(collectively) and 98% to the Holders. Except as set forth under
"Description of Assignee Interests--Transferability of Interests",
all such allocations of Profits or Losses to the Holders of
Interests generally will be made in proportion to the number of
Interests owned by each Holder at the end of the fiscal year in
which such Profits or Losses are incurred.
_________________________________________________________________
SUMMARY OF THE PARTNERSHIP AGREEMENT
_________________________________________________________________
The Partnership Agreement to be executed by the General
Partner and each Limited Partner is included as Exhibit A to this
Prospectus and each prospective purchaser should read it in full.
Certain provisions of the Partnership Agreement have been
described elsewhere in this Prospectus. With regard to fees,
payments and distributions to be made to the General Partner and
affiliates, the distribution of cash from the Partnership and the
allocation of Partnership Profits or Losses, see "Management of
the Partnership" and "Cash Distributions and Allocations of
Profits or Losses"; with regard to various transactions and
relationships of the Partnership with the General Partner and
affiliates, see "Conflicts of Interest"; with regard to the
Partnership's business objectives and policies, see "Business of
the Partnership"; with regard to the management of the
Partnership, see "Management of the Partnership"; with regard to
the voting rights and certain other rights of Assignee Holders and
as to the possibility of investors being admitted as Limited
Partners of the Partnership, see "Description of Assignee
Interests--Assignment of Interests"; and with regard to the
transfer of interests, see "Description of Assignee Interests--
Transferability of Interests".
The following briefly summarizes certain provisions of the
Partnership Agreement which are not described elsewhere in this
Prospectus. All statements made below and elsewhere in this
Prospectus relating to the Partnership Agreement are hereby
qualified in their entirety by reference to the Partnership
Agreement attached hereto as Exhibit A.
ALL ASSIGNEE HOLDERS WILL BE BOUND BY THE PROVISIONS OF THE
PARTNERSHIP AGREEMENT, THE ASSIGNMENT AGREEMENT AND THE
SUBSCRIPTION AGREEMENT ATTACHED TO THIS PROSPECTUS AS EXHIBIT C
UPON PAYMENT OF THE SUBSCRIPTION AMOUNT AND ACCEPTANCE BY THE
PARTNERSHIP.
LIABILITY OF PARTNERS TO THIRD PARTIES
The General Partner will be liable for all general
obligations of the Partnership to the extent not paid by the
Partnership. JMB Realty Corporation and JMB Holdings Corporation,
affiliates of the General Partner, will not be liable for any such
obligations (except to the extent of any note issued by JMB
Holdings Corporation to the General Partner).
The Partnership Agreement provides that Limited Partners
will not be personally liable for the debts of the Partnership
beyond the amount committed by them to the capital of the
Partnership.
Assuming that a Holder of Interests does not take part in
the control of the business of the Partnership and otherwise acts
in conformity with the provisions of the Partnership Agreement,
the liability of such Holder will, under the Delaware Revised
Uniform Limited Partnership Act (the "Delaware Act"), be limited,
subject to certain possible exceptions, generally to the amount
contributed by such Holder or such Holder's predecessor in
interest to the capital of the Partnership. Under the Delaware
Act, (i) a Holder would be liable, for a period of one year after
the date of the return to the Holder of any part of such Holder's
capital contribution returned without violation of the Partnership
Agreement or the Delaware Act, for the amount of the returned
contribution to the extent necessary to discharge liabilities of
the Partnership to creditors who extended credit while the
returned contribution was held by the Partnership, and (ii) a
Holder would be liable, for a period of six years after the date
of the return to the Holder of any part of the Holder's capital
contribution returned in violation of the Partnership Agreement or
the Delaware Act, for the amount of the returned contribution.
Under the Delaware Act, a Holder may not receive a distribution
from the Partnership if, at the time of the distribution and after
giving effect thereto, the all things which it deems to
be necessary, convenient, appropriate
or advisable in connection therewith, including, but not limited
to, the preparation and filing on behalf of the Partnership of a
registration statement with the Securities and Exchange Commission
and the securities commissions (or similar agencies or offices) of
such jurisdictions as the General Partner shall determine and the
execution or performance of agreements with underwriters and
others concerning the marketing of Additional Limited Partnership
Interests on such basis and upon such terms as the General Partner
shall determine.
G. Notwithstanding any other provision of this Section 3.3
(i) within ten days after the commencement of the public offering
contemplated by Section 3.3A, ML Real Estate Associates II may
acquire an interest in the Partnership as provided herein upon its
payment of $100.00 and (ii) to evidence such interest in the
Partnership, as of the First Admission Date and any Later
Admission Dates, the General Partner may issue Additional Limited
Partnership Interests to the Initial Limited Partner for
assignment to ML Real Estate Associates II (which shall be an
Assignee Holder thereof for purposes of this Agreement) in an
amount equal to 1% of the Additional Limited Partnership Limited
Partnership Interest. It is hereby understood that such
Additional Limited Partnership Interests shall be registered with
the Securities and Exchange Commission contemporaneously with
those described in Section 3.3A.
SECTION 3.4 Partnership Capital
A. No Partner shall be paid interest on any Capital
Investment.
B. No Partner shall have the right to withdraw, or receive
any return of, his Capital Investment, except as may be
specifically provided herein.
C. Under circumstances requiring a return of any Capital
Investment, no Partner shall have the right to receive property
other than cash, except as may be specifically provided herein.
SECTION 3.5 Liability of Partners
No Limited Partner shall be liable for the debts,
liabilities, contracts or any other obligations of the
Partnership. Except as specifically provided herein with respect
to the Associate Limited Partners, a Limited Partner shall be
liable only to make the Capital Investment with respect to the
Limited Partnership Interests which he holds and shall not be
required to lend any funds to the Partnership or, after the
Capital Investments with respect to such Interests shall have been
paid, to make any further capital contribution to the Partnership.
Subject to the provisions of Section 5.8, no General Partner shall
have any personal liability for the repayment of the Capital
Investments with respect to Limited Partnership Interests. No
Limited Partner shall be entitled to the withdrawal or return of
his capital contributions, except to the extent, if any, that
distributions made pursuant to this Agreement or upon termination
of the Partnership may be considered as such by law and then only
to the extent provided for therein.
ARTICLE FOUR
CASH DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES
SECTION 4.1 Distributions of Cash Flow
Beginning with the first fiscal quarter following the fiscal
quarter in which the offering of Additional Limited Partnership
Interests to the public terminates as contemplated by Section 3.3,
all Cash Flow of the Partnership shall be distributed quarterly
within sixty (60) days after the close of each fiscal quarter as
follows:
(i) 90% to the Holders of Interests and 10% to the General
Partner and 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 shall be distributed 85% to
the Holders of Interests and 15% to the General Partner and the
Associate Limited Partners (collectively); provided, however, that
the General Partner and the Associate Limited Partners
(collectively) shall be entitled to receive distributions of
amounts otherwise distributable to the Holders of Interests under
this 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 this clause (ii) to all Persons.
Notwithstanding the foregoing clause (i), the 10% of Cash Flow
distributable to the General Partner and Associate Limited
Partners (collectively) under such clause (i) shall be limited as
follows:
(A) to the extent, if any, that one percent (1%) of the
Gross Asset Value (as defined below) is less than 5.2631% of Cash
Flow, the amount, distributed to the General Partner and Associate
Limited Partners (collectively) shall be reduced by the amount of
any such deficiency and the Holders of Interests shall receive
additional Cash Flow in the amount of such reduction;
(B) the receipt by the General Partner and the Associate
Limited Partners (collectively) of 4.7369% of total Cash Flow
under said clause (i) (the "Remainder") shall be deferred (and
such deferred amount shall be distributed to the Holders of
Interests) unless the Holders of Interests have received Cash Flow
distributions equal to a 12% per annum cumulative, non-compounded
return on their Capital Investments; provided, however, that such
deferral shall terminate at such time as the Holders of Interest
have received total distributions of Cash Flow equal to their
Capital Investments; any deferred amount of the Remainder shall be
distributable to the General Partner and the Associate Limited
Partners (collectively), (x) out of any Cash Flow otherwise
distributable to the Holders of Interests under the foregoing
clause (i) at such time as the Holders of Interests have received
a 12% per annum cumulative, non-compounded return on their Capital
Investments, or (y) in any event, to the extent of one-half of
Cash Flow otherwise distributable to the Holders of Interests at
such time as the Holders of Interests have received total
distributions of Cash Flow equal to their Capital Investments.
"Gross Asset Value" shall mean the dollar amount reflected on the
books and records maintained by the Partnership, at the Final
Admission Date, of the gross assets (including all of the
Partnership's interests in joint venture assets) acquired by the
Partnership, directly or indirectly, or, if sold or otherwise
disposed of, the proceeds of such assets, increased by the dollar
amount reflected on the books and records maintained by the
Partnership, at the time of their respective acquisition, of any
gross assets (including all of the Partnership's interests in
joint venture assets) which the Partnership subsequently acquires,
directly or indirectly, from the Seller or otherwise as
contemplated by the Acquisition Agreement or the Prospectus.
No amounts computed as 2% of the selling price of any real
property in connection with sale of a Property under (ii) above
shall exceed 50% of the amount customarily charged in connection
with sales of real properties in arm's-length transactions by non-
affiliates of JMB rendering services as an ongoing public activity
in the same geographical location and for comparable real
property; provided, however, that the amount computed as 2% of the
selling price of any Property plus the real estate commission paid
to anyone (other than commissions which inure to the benefit of
the (Partnership) in connection with the sale of a Property shall
in no event exceed the lesser of (i) 6% of the gross purchase
price of the Property or (ii) the amount customarily charged in
connection with sales or real properties in arm's-length
transactions by non-affiliates of JMB rendering real estate
brokerage services as an on-going public activity in the same
geographical location and for comparable real property.
The General Partner shall use its best efforts to operate
the Partnership so that such operation will provide sufficient
Cash Flow (including distributions under Section 3.3B) in order
that the aggregate Cash Flow distributions for each year
distributable to the Holders (other than ML Real Estate Associates
II) are at least equal to Federal taxable income (or components
thereof) allocable to the Holders (other than ML Real Estate
Associates II), multiplied by the maximum individual Federal
income tax rate for the year in which such taxable income (or
component thereof) is realized. Except as otherwise provided in
this Agreement, this Section 4.1 shall apply in determining Cash
Flow distributions upon dissolution.
If, upon the completion of the liquidation and termination
of the Partnership and final distribution of all Partnership
funds, the aggregate capital contributions with respect to Limited
Partnership Interests issued under Section 3.3A exceed the sum of
the distributions of Cash Flow with respect to such number of such
Limited Partnership Interests under clause (i) of Section 4.1,
distributions with respect to such number of such Limited
Partnership Interests under Section 8.3C of Liquidation proceeds
and distributions, if any, with respect to such number of such
Limited Partnership Interests made with the proceeds of any
capital contributions made by the General Partner and Arvida/JMB
Associates (said excess is hereinafter referred to as the "Excess
Amount"), then the General Partner, the Associate Limited Partners
and ML Real Estate Associates II (excluding its successors and
assigns and except as provided in the succeeding paragraph) shall
make aggregate payments to the Holders (other than ML Real Estate
Associates II but including any unaffiliated successor or assign
thereof) in an amount equal to the lesser of the Excess Amount or
the amounts of Cash Flow received by the General Partner, the
Associate Limited Partners and ML Real Estate Associates II
pursuant to Section 4.1(i), such payments to be made by the
General Partner, the Associated Limited Partners and ML Real
Estate Associates II based upon the relative cumulative
distributions of Cash Flow received by each of them pursuant to
Section 4.1(i) up to the time of such payments.
In the event that the General Partner shall elect under
Section 5.5(i)(a) to cause Interests to be listed and quoted on a
United States national exchange or to be reported by the National
Association of Securities Dealers Automated Quotation System and
the Interests issued to ML Real Estate Associates II under Section
3.3G are to be so listed and quoted or reported, the obligation of
ML Real Estate Associates II to make payments pursuant to the
preceding paragraph shall terminate on the date on which such
Interests are first listed and quoted or reported pursuant to such
election; provided that ML Real Estate Associates II, by prompt
notification to the General Partner, may elect to cause all (but
not less than all) of the Interests issue to ML Real Estate
Associates II under Section 3.3G not to be so listed and quoted or
reported. In the event of such an election by ML Real Estate
Associates II, ML Real Estate Associates II may subsequently
notify the general Partner that such Interests issued to ML Real
Estate Associates II under Section 3.3G shall be so listed and
quoted or reported and the General Partner shall cause such
Interests to be so listed and quoted or reported, provided that ML
Real Estate Associates II shall have agreed to pay all costs and
expenses of such listing and quotation or reporting. Any such
subsequent listing and quotation or reporting of such Interests of
ML Real Estate Associates II shall be treated for purposes of this
Section 4.1 and Section 4.3G as made pursuant to the election of
the General Partner under Section 5.5(i)(a). Except as aforesaid,
the obligation of ML Real Estate Associates II to make payments
under the preceding paragraph shall constitute the personal
obligation of ML Real Estate Associates II, and such obligation
shall continue to exist whether or not ML Real Estate Associates
II owns or holds any additional Limited Partnership Interests at
the time payments are required to be made pursuant to the
preceding paragraph.
Notwithstanding anything to the contrary in the foregoing
provisions of this Section 4.1, on September 30, 1987, subject to
the making by the General Partner of the determination provided
below, a distribution of Cash Flow of the Partnership in an amount
equal to $20,000,000 shall be made to the General Partner and
Arvida/JMB Associates. Such distribution shall be made whether or
not the Partnership receives any Capital Investments with respect
to Additional Limited Partnership Interests in connection with the
public offering contemplated by Section 3.3A. Prior to making
such distribution, the General Partner shall determine that there
is sufficient working capital available or sufficient funds
available from debt financing to permit such distribution to be
made.
SECTION 4.2 Allocation of Profits or Losses
A. The Profits or Losses for each fiscal year of the
Partnership (or portion thereof) during the term of this Agreement
for any period beginning on or after the First Admission Date
shall, except as provided in Sections 4.2F and 4.3G, be allocated
as follows: (i) Profits shall be allocated, with respect to any
such fiscal period, such that the General Partner, each of the
Associate Limited Partners and ML Real Estate Associates II shall
be allocated Profits equal to the amount of Cash Flow actually
distributed to each of them, respectively, for such fiscal period
(without taking into account any distribution made pursuant to
the last paragraph of Section 4.1), except that in all events the
General Partner shall be allocated at least 1% of Profits, and the
Holders (other than ML Real Estate Associates II) shall be
allocated the remaining Profits and (ii) Losses shall be
allocated, with respect to any such fiscal period, 1% to the
General Partners 1% to the Associate Limited Partners
(collectively) and 98% to the Holders, except that, if ML
fungibility is achieved as provided in Section 4.3G, then with
respect to any fiscal period which commences on or after the date
on which Interests are first listed and quoted or reported
pursuant to an election made by the General Partner under Section
5.5J(i)(a), for the purpose of allocating Profits under clause (i)
above. ML Real Estate Associates II shall not be allocated
Profits equal to the amount of Cash Flow actually distributed to
it but instead shall be treated for such purpose as a Holder
(other than ML Real Estate Associates II).
The Profits of the Partnership for each fiscal year of the
Partnership (or portion thereof) during the term of this Agreement
for any period ending prior to the First Admission Date shall,
except as provided in Section 4.2F, be allocated 1% to the General
Partner, 98% to the Associate Limited Partners (collectively), and
1% to the Initial Limited Partner and (commencing on its
acquisition of a Partnership interest under Section 3.3G) ML Real
Estate Associates II, and the Losses of the Partnership for each
such fiscal year (or portion thereof) shall be allocated 70% to
the General Partner, 29% to the Associate Limited Partners
(collectively), and 1% to the Initial Limited Partner and
(commencing on its acquisition of a Partnership interest under
Section 3.3G) ML Real Estate Associates II. Such Profits or
Losses shall be determined on the basis of an interim closing of
the Partnership's books on the First Admission Date.
B. Syndication commissions for any fiscal year of the
Partnership shall be allocated to the Holders of Interests in an
amount equal to the syndication commission actually paid by the
Partnership in connection with the acquisition of the Interest of
such Holder. Such allocation shall take into account the
existence of any discount applicable to the syndication commission
of a particular Holder.
C. No allocation of Losses (which include items thereof)
under Section 4.2A shall be made to any Holder to the extent that
such allocation (a) would create a deficit balance in such
Holder's Capital Account which in absolute amount exceeds the
Minimum Gain allocable to such Holder as of the end of the fiscal
year for which such allocation would be made or (b) in the good
faith judgment of the General Partner and upon advice by the
Partnership's independent certified public accountants or legal
counsel, would otherwise likely not be respected under Section
704(b) of the Code. In any such event, the allocation of such
Losses thereof to such Holder shall be reduced to that extent.
D. Any credits of the Partnership as determined for Federal
income tax purposes for a fiscal year shall be allocated as
Profits of the Partnership in accordance with Section 4.2A. In
the event the adjusted tax basis of any "Section 38 property"
(within the meaning of Section 48 of the Code) of the Partnership
is increased pursuant to Section 48(q)(2) of the Code, such
increase shall be allocated among the Partners (as if such item
were in the nature of income or gain) in the same proportions as
the investment tax credit that is recaptured with respect to such
property is shared among the Partners. Any reduction in the
adjusted tax basis or cost of (or the qualified investment in)
such Section 38 property made pursuant to Section 48(q)(1) of the
Code shall be allocated among the Partners (as if such item were
in the nature of an expense or loss) in the same proportions as
the credit for such Section 38 property is allocated under this
Section 4.2D.
E. Notwithstanding anything to the contrary that may be
expressed or implied in this Agreement, the interest of the
General Partner, in each material item of Partnership income,
gain, loss, deduction or credit will be equal to at least 1% of
each such item at all times during the existence of the
Partnership. In determining the General Partner's interest in
such items, Limited Partnership interests owned by the General
Partner shall not be taken into account.
F. Beginning on and after September 30, 1987, any gain
which is realized by the Partnership (or any partnership or joint
venture through which the Partnership holds Property) on the sale
or other disposition of Property which constitutes Distributed
Gain (as defined below) allocable to such Property shall be
allocated to the General Partner and Arvida/JMB Associates.
"Distributed Gain" with respect to all Properties shall be equal
to an amount equal to (i) the product of the Built-In Gain (as
defined below) multiplied by a fraction, the numerator of which is
the amount of Cash Flow distributed to the General Partner and
Arvida/JMB Associates under the last paragraph of Section 4.1 and
the denominator of which is the Built-In Gain, minus (ii) the
amount of any Profit allocated to the General Partner and
Arvida/JMB Associates pursuant to the third succeeding sentence of
this Section 4.2F. "Built-In Gain" shall be equal to the amount
of net gain which would be realized in the aggregate by the
Partnership for Federal income tax purposes if, on September 30,
1987, all Properties were sold for their fair market value as
determined by the General Partner. The General Partner shall
determine the portion of Built-In Gain attributable to each
Property and shall allocate at such time or times as may be
required under this Agreement Distributed Gain among Properties to
which Built-In Gain is attributable on a proportionate basis based
upon the ratio that the portion of Built-In Gain attributable to
each Property bears to the aggregate Built-In Gain.
Notwithstanding any allocation contained in this Agreement (but
subject to Section 4.2E and the succeeding sentences of this
Section 4.2F), if at any time Profit is realized by the
Partnership, any current or anticipated reduction of the share of
the Partnership's indebtedness (including the Partnership's share
of partnership or joint venture indebtedness) of any, some or all
of the General Partner, Arvida/JMB Associates, Arvida/JMB
Partners or ML Real Estate Associates II or any anticipated cash
distribution to the General Partner, Arvida/JMB Associates,
Arvida/JMB Partners or ML Real Estate Associates II would cause
the deficit balances in absolute amount in the Capital Accounts of
any, some or all of the General Partner, Arvida/JMB Associates,
Arvida/JMB Partners or ML Real Estate Associates II to be greater
than its or their share of the Partnership's indebtedness
(including the Partnership's share of partnership or joint venture
indebtedness) after such reduction or distribution, then the
allocation of Profit under this Article Four to the General
Partner, Arvida/JMB Associates/ Arvida/JMB Partners and ML Real
Estate Associates II shall be increased (to be shared by them in
proportion to the deficit balances in their respective Capital
Accounts) to the extent necessary to cause the deficit balance in
the Capital Account of each of the General Partner, Arvida/JMB
Associates, Arvida/JMB Partners and ML Real Estate Associates II
to be no less than their respective shares of the Partnership's
indebtedness (including the Partnership's share of partnership or
joint venture indebtedness) after such reduction or distribution;
provided, however, that the allocation of Profit contained in this
sentence shall not apply to ML Real Estate Associates II if at the
times as of which such allocation is made ML Fungibility has been
achieved as provided in Section 4.3G, and further provided that to
the extent the amount of Profit allocated under this sentence is
insufficient to cause the deficit balance in the Capital Account
of each of the General Partner, Arvida/JMB Associates, Arvida/JMB
Partners and ML Real Estate Associates II to be no less than their
respective shares of the Partnership's indebtedness (including the
Partnership's share of partnership or joint venture indebtedness)
after such reduction or distribution, such Profit shall be
allocated, until Profit in an aggregate amount equal to
$20,000,000 has been allocated under this Section 4.2F to the
General Partner and Arvida/JMB Associates for the current and
prior Partnership years, first to the General Partner and
Arvida/JMB Associates (in proportion to the respective deficit
balances in their Capital Accounts), in preference and priority to
Arvida/JMB Partners and ML Real Estate Associates II, to the
extent necessary to cause the deficit balance in the Capital
Account of each of the General Partner and Arvida/JMB Associates
to be no less than their respective shares of the Partnership's
indebtedness (including the Partnership's share of partnership or
joint venture indebtedness) after such reduction or distribution.
Not withstanding anything to the contrary in this Agreement (but
after giving effect to Section 8.2 and subject to the last
sentence of this Section 4.2F), if the General Partner or
Arvida/JMB Associates has a deficit balance in its Capital Account
following the Liquidation of its interest in the Partnership, as
determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which such
Liquidation occurs (other than any adjustment for a capital
contribution made pursuant to this sentence) and after adjusting
Capital Accounts for actual or anticipated Profits or Losses
allocable among the Partners in accordance with, or as if there
had been (in accordance with adjustments under the first sentence
of Section 11.4), an actual disposition of the Partnership
properties at their fair market value, the General Partner and
Arvida/JMB Associates will make capital contributions in an
aggregate amount (to be shared by them in proportion to the
deficit balances in their respective Capital Accounts) which is
equal to the smaller of (i) such deficit balances or (ii)
$20,000,000; provided, however, that neither the $20,000,000
amount specified in (ii) nor the General Partner's share of such
amount shall limit any contribution which the General Partner is
required to make under Section 8.2. Such capital contributions
shall be made on or before the end of the Partnership taxable year
during which such Liquidation occurs (or, if later, within 90 days
after the date of such Liquidation). Notwithstanding the
foregoing, if the distributions to the General Partner and
Arvida/JMB Associates under the last paragraph of Section 4.1 were
determined not to cause (without taking into account any Profit or
Loss which might arise from such distribution), in the fiscal year
in which such distribution occurs, an aggregate reduction in their
capital accounts (as determined under Section 704(b) of the Code)
equal to the amount of such distribution, then the first four
sentences of this Section 4.2F shall not apply for any period.
SECTION 4.3 Determination of Allocations and Distributions Among
Partners
A. Any Assignee Holder of an Additional Limited Partnership
Interest who is recognized as such pursuant to Section 7.2 shall
be allocated all Profits or Losses of the Partnership allocable,
and shall be entitled to all Cash Flow distributable, with respect
to such Additional Limited Partnership Interest as herein
provided; provided, however, that without limitation the share of
Profits allocable with respect to Additional Limited Partnership
Interests held by ML Real Estate Associates II shall be as
provided in Sections 4.2A, 4.2F and 4.3G. Except as otherwise
provided in Sections 4.2C, 4.3D, 4.3E, 4.3F and 4.3G and subject
to the proviso in the preceding sentence, all Profits or Losses
allocable with respect to Limited Partnership Interests and,
except as provided in Section 3.3B, all Cash Flow distributable
with respect to Limited Partnership Interests, shall be allocated
or distributed, as the case may be, to each of the Holders of
Interests entitled to such allocation or distribution in the ratio
which the Capital Investments with respect to such Limited
Partnership Interests bear to the aggregate Capital Investments
with respect to all Limited Partnership Interests entitled to such
allocation or distribution.
B. Except as provided in Sections 4.3C, 4.3E and 4.3G, all
Profits or Losses allocable with respect to Limited Partnership
Interests shall be allocated, and all Cash Flow distributable with
respect to Limited Partnership Interests shall be distributed, as
the case may be, to the Holders of Interests recognized as such as
of the last day of the fiscal period for which such allocation or
distribution is to be made.
C. Except in the case of Limited Partnership Interests held
by ML Real Estate Associates II during any fiscal quarter before
or which is the fiscal quarter in which ML Fungibility is achieved
as provided in Section 4.3G, to the extent permitted by law, all
Profits or Losses of the Partnership for a fiscal year allocable
with respect to any Limited Partnership Interest which may have
been transferred during such year shall be allocated between the
transferor and the transferee based upon the number of quarterly
periods that each was the recognized Holder of Interests, without
regard to the results of Partnership operations during particular
quarterly periods of such fiscal year and without regard to
whether cash distributions were made to the transferor or
transferee.
D. Except as provided in the last paragraph of Section 4.1
and subject to the second paragraph of Section 4.1, the General
Partner's and Associate Limited Partners' distributive share of
Cash Flow shall be distributed 10.1% to Arvida/JMB Partners, to
the General Partner in an amount equal to 1% of the total Cash
Flow being distributed at such time under Section 4.1 (i) on 4.1
(ii), as the case may be, and the remainder to Arvida/JMB
Associates. Profits or Losses allocable to the Associate Limited
Partners (collectively) under the second paragraph of Section 4.2A
and Losses allocable to the Associate Limited Partners under the
first
paragraph of Section 4.2A shall be allocated 89.0% to Arvida/JMB
Associates and 11.0% to Arvida/JMB Partners. Except as otherwise
provided in Section 4.2F, distributive shares of Cash Flow and
Distributed Gain allocable to the General Partner and Arvida/JMB
Associates under the last paragraph of Section 4.1 and under
Section 4.2F shall be distributed or allocated, respectively, 1%
to the General Partner and 99% to Arvida/JMB Associates. Profits
or Losses allocable to the Initial Limited Partner and ML Real
Estate Associates II under the second paragraph of Section 4.2A
shall be allocated between them in the ratio of the respective
amounts paid by them for their Partnership Interests at that time.
Notwithstanding anything to the contrary in Section 4.2A and this
Section 4.3D, any Partnership deduction directly resulting from
the receipt of a Partnership Interest by any Partner or Holder
(other than a Holder which is not ML Real Estate Associates II)
shall be allocated entirely to such Partner or Holder.
E. In the event that there are Later Admission Dates, all
Profits or Losses allocable to the Holders of Interests for the
period from the First Admission Date or any such Later Admission
Date through the next succeeding Later Admission Date will be
allocated in accordance with Section 4.3A solely to the Holders of
Interests as of or prior to such preceding First Admission Date or
Later Admission Date. For purposes of this Section 4.3E, Holders
of Interests will be deemed to have acquired their Limited
Partnership Interests on the first day or such other day as the
General Partner may determine of the month in which such
Additional Limited Partnership Interests have been assigned to
such Persons. Profits or Losses incurred for the period from any
such First Admission Date or Later Admission Date through the next
succeeding Later Admission date will be allocated on the basis of
an interim closing of the Partnership's books on such Later
Admission Date. The General Partner may, in its sole and absolute
discretion and at any time, adopt any other convention or
conventions (including without limitation a daily, semi-monthly or
full-month convention) regarding the distribution of Cash Flow or
the allocation of Profits or Losses with respect to any Limited
Partnership Interest that may be or may have been transferred
during any year.
F. Subject to Section 4.2C, if at the time of an allocation
pursuant to Section 42.A of Profits or Losses for a fiscal year of
the Partnership (or portion thereof) during the term of this
Agreement for a period beginning on or after the Final Admission
Date the Capital Accounts with respect to each Limited Partnership
Interest (other than any Limited Partnership Interest held by ML
Real Estate Associates II) are not then equal:
(i) Profits allocated to the Holders (other than ML Real
Estate Associates II) pursuant to Section 4.2A shall be allocated
to the Holder (other than ML Real Estate Associates II) of a
Limited Partnership Interest with a Capital Account which is
smaller in amount (or greater in deficit) than the Capital Account
for any other such Interest (other than any Limited Partnership
Interest held by ML Real Estate Associates II) until the balance
in such Capital Account equals the balance of the Capital Account
of such Limited Partnership Interest (other than any Limited
Partnership Interest held by ML Real Estate Associates II) which
was next smallest in amount (or next greatest in deficit) before
such allocation, and thereafter such Profits shall continue to be
allocated to each successive Holder or groups of Holders of
Interests (other than ML Real Estate Associates II) with Capital
Accounts which are smallest in amount (or greatest in deficit),
until either the balances of all Capital Accounts with respect to
Limited Partnership Interests (other than any Limited Partnership
Interest held by ML Real Estate Associates II) are equal or all
such Profits have been allocated; and
(ii) Losses allocated to the Holders pursuant to Section
4.2A shall be allocated to the Holder (other than ML Real Estate
Associates II) of a Limited Partnership Interest with a Capital
Account which is greater in amount (or smaller in deficit) than
the Capital Account for any other such Interest (other than any
Limited Partnership Interest held by ML Real Estate Associates II)
until the balance in such Capital Account equals the balance of
the Capital Account of such Limited Partnership Interest (other
than any Limited Partnership Interest held by ML Real Estate
Associates II) which was next greatest in amount (or next smallest
in deficit) before such allocation, and thereafter such Losses
shall continue to be allocated to each successive Holder or groups
of Holders of Interests (other than ML Real Estate Associates II)
with Capital Accounts which are greatest in amount (or smallest in
deficit), until either the balances of all Capital Accounts with
respect to Limited Partnership Interests (other than any Limited
Partnership Interest held by ML Real Estate Associates II) are
equal or all such Losses have been allocated.
The foregoing subparagraphs (i) and (ii) shall not apply to,
or with reference to, any Limited Partnership Interest held by ML
Real Estate Associates II.
G. In the event that the General Partner shall elect under
Section 5.5(i)(a) to cause Interests to be listed and quoted on a
United States national exchange or to be reported by the National
Association of Securities Dealers Automated Quotation System and
Interests of ML Real Estate Associates II are so listed and quoted
or reported, to the extent permitted by law and subject to Section
4.2F, for the fiscal year of the Partnership during the term of
this Agreement in which such Interests are first listed and quoted
or reported pursuant to such election, Profits (in the form of
gross income) realized by the Partnership during the portion of
such fiscal year ending on the day immediately preceding the date
on which such Interests are first so listed and quoted or reported
shall be allocated to ML Real Estate Associates II in such amount
as is necessary to cause the Capital Account for each Limited
Partnership Interest held by ML Real Estate Associates II and
issued to it under Section 3.3G to equal the largest balance in
the Capital Account for any Limited Partnership Interest held by a
Holder (other than ML Real Estate Associates II (the completion of
such equalization pursuant to this Section 4.3G or another
provision of this Agreement and such listing and quotation or
reporting is herein referred to as "ML Fungibility"). Such
allocation of Profits (in the form of gross income) to ML Real
Estate Associates II shall be made as of the end of the day
immediately preceding the date on which such Interests are first
listed and quoted or reported pursuant to the aforementioned
election.
ARTICLE FIVE
RIGHTS, POWERS AND DUTIES OF GENERAL PARTNER
SECTION 5.1 Management and Control of the Partnership
A. Subject to the Consent of the Limited Partners where
required by this Agreement, the General Partner, within the
authority granted to it under this Agreement, shall have the
exclusive right to manage the business of the Partnership and is
hereby authorized to take any action of any kind and to do
anything and everything it deems necessary in accordance with the
provisions of this Agreement.
B. No Limited Partner (except one who may also be a General
Partner, and then only in its capacity as General Partner within
the scope of its authority hereunder) shall participate in or have
any control over the Partnership business or shall have any
authority or right to act for or bind the Partnership. The
Limited Partners hereby Consent to the exercise by the General
Partner of the powers conferred on it by this Agreement.
C. The General Partner shall initially, upon completion of
the offering contemplated by the Prospectus, establish Reserves
for working capital and to pay taxes, insurance, Debt Service,
repairs, replacements or renewals, or other costs and expenses
incident to the ownership or operation of the Properties and for
such other purposes, as the General Partner may determine, in an
amount equal to not less than 2% of the Gross Proceeds of the
Offering and thereafter shall maintain such Reserves in such
amounts as the General Partner deems appropriate under the
circumstances from time to time.
D. All of the Partnership's expenses shall be billed
directly to and paid by the Partnership. Reimbursements to the
General Partner or any Affiliates shall not be allowed (other than
for Organization and Offering Expenses, which shall be allowed),
except for (i) the actual cost to the General Partner or such
Affiliates of goods, materials and services used for or by the
Partnership and obtained from entities which are not affiliated
with the General Partner; (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 in connection
with its carrying out the duties described in the Management and
Supervisory Agreement authorized in Section 5.2 a (ix) hereof. No
reimbursement under clause (ii) through (v) above shall be
permitted for services for which the General Partner or its
Affiliates receive a separate fee. No reimbursement under clause
(ii) through (iv) above shall be permitted for (a) the salaries of
and related salary expenses incurred by any Controlling Person (as
defined hereinafter) and (b) any indirect general or
administrative overhead expenses, such as rent, travel expenses
and other items generally falling under the category of overhead,
incurred in performing services for the Partnership which are not
directly attributable to such services. "Controlling Person" for
purposes of this Section 5.1D shall mean any Person, regardless of
title, who performs executive or senior management functions for
the Sponsor or the General Partner similar to those of directors,
executive management and senior management, or any Person who
either holds a 5% or more equity interest in the Sponsor or the
General Partner or has the power to direct or cause the direction
of the Sponsor or the General Partner, whether through the
ownership of voting securities, by contract, or otherwise, or, in
the absence of a specific role or title, any Person having the
power to direct or cause the direction of the management level
employees and policies of the Sponsor or the General Partner. It
is not intended that every Person who carries a title such as vice
president, senior vice president, secretary or treasurer be
included in the definition of Controlling Person. In no event
shall any amount charged to the actual cost of such services or
(b) in the case of reimbursements under clause (ii) through (iv)
above 90% of the amount which the Partnership would be required to
pay to independent parties for comparable services. In the
Partnership's annual report to Limited Partners, there shall be
provided an itemized breakdown of reimbursements made pursuant to
this Section 5.1D. The reimbursement for expenses provided for in
this Section 5.1D shall be made regardless of whether any
distributions are made to the Limited Partners under the
provisions of Section 4.1. The provision of any goods, material
or services for which reimbursements are authorized under Section
5.1D(i) shall be set forth in a written contract which precisely
describes the goods, materials or services to be provided and all
compensation therefor. Such contract shall provide that it may be
modified only with the consent of Limited Partners holding a
majority of the then outstanding Limited Partnership Interests
(except as to immaterial or conforming modifications, which shall
require only the consent of the General Partner) and that it shall
be terminable by either party, without penalty, upon sixty (60)
days' prior written notice.
E. In the event the General Partner deems the approximately
200-acre site near Sarasota which is owned by an existing joint
venture in which the Partnership owns an interest to be suitable
for development as a regional shopping mall or other shopping
center, development of such Property may be done jointly with
Affiliates of JMB. In the event of such a development through a
joint venture with Affiliates of JMB, the existing joint venture's
interest in the land would be valued at its appraised fair market
value, and the Affiliate would make a pro rata cash contribution.
All other contributions would be strictly pro rata. Such joint
venture development shall not be entered into by the Partnership
unless (x) there are no duplicate property management or other
fees, and (y) the Partnership and such Affiliate each enjoy a
right of first refusal as regards the sale of the equity interest
of the other.
SECTION 5.2 Authority of the General Partner
A. Except to the extent otherwise provided herein, the
General Partner, for, and in the name and on behalf of, the
Partnership is hereby authorized:
(i) to acquire, either directly or indirectly through
any joint venture, joint participation, partnership (other than
any public or privately offered limited partnership) or otherwise,
by purchase, lease, exchange or otherwise any real or personal
property (including the Properties) which may be necessary,
convenient or incidental to the accomplishment of the purposes of
the Partnership; provided, however, that real properties shall not
be acquired at an aggregate purchase price in excess of their
aggregate appraised value as determined by appraisals prepared by
competent independent appraisers, and further provided that
investments by the Partnership in other partnerships or ventures
shall be limited to partnerships or ventures which own and operate
(directly or through an interest in another partnership or joint
venture) a particular Property in which the Partnership (either
alone or with an Affiliate of the General Partner) acquires a
controlling interest and which do not involve duplicate property
management or other fees;
(ii) to operate, maintain, finance, improve, own,
grant options with respect to, sell, convey, assign, mortgage,
exchange or lease and to cause to have constructed any real estate
and any personal property necessary, convenient or incidental to
the accomplishment of the purposes of the Partnership and to
perform construction work or hire contractors to perform
construction work in connection with any of the foregoing:
(iii) to execute any and all agreements, contracts,
documents, certifications and instruments necessary or convenient
in connection with the development, management, maintenance and
operation of the Properties;
(iv) to borrow money and issue evidences of
indebtedness necessary, convenient or incidental to the
accomplishment of the purposes of the Partnership, and to secure
the same by mortgage, pledge or other lien on any Properties or
other assets of the Partnership; provided, however, that in
connection with the borrowing of money, recourse for the repayment
of which is limited solely to property of the Partnership, no
lender shall be granted or acquire, at any time as a result of
making such a loan, any direct or indirect interest in the
profits, capital or property of the Partnership other than as a
secured creditor;
(v) to execute, in furtherance of any or all of the
purposes of the Partnership, any deed, lease, mortgage, mortgage
note, bill of sale, contract or other instrument purporting to
convey, exchange or encumber the real or personal property of the
Partnership;
(vi) to prepay in whole or in part, refinance, recast,
increase, modify or extend any mortgages affecting the Properties
and in connection therewith to execute any extensions or renewals
of mortgages on any of the Properties;
(vii) to execute an agency agreement with Merrill
Lynch, Pierce, Fenner & Smith Incorporated pursuant to which said
firm would assist the Partnership in the sale of Interests and
pursuant to which the Partnership would agree, subject to the
final four sentences of Section 5.8, to indemnify and hold
harmless said firm or any selected dealer from any liability
incurred by it in so acting as agent for the Partnership;
(viii) to deal with, or otherwise engage in business
with, or provide service to and receive compensation therefor
from, any Person who has provided or may in the future provide any
services to, lend money to, sell property to, or purchase property
from, any Affiliate of the General Partner; provided, however,
that no such dealing, engaging in business or providing services
may involve any direct or indirect payment by the Partnership of
any rebate or any reciprocal arrangement which would have the
effect of circumventing any restriction set forth herein upon
dealings with Affiliates of the General Partner;
(ix) to execute the Management and Supervisory
Agreement with Arvida;
(x) to, in its sole discretion, make or revoke (and in
the case of any partnership or joint venture through which the
Partnership holds an interest in property, cause to be made or
revoked) the election referred to in Section 754 of the Code;
(xi) to request such information from any Holder as
may be reasonably required (as determined by the General Partner)
to comply with any Federal, state or local tax laws;
(xii) to, in its sole discretion, designate itself or
any other General Partner as the Tax Matters Partner within the
meaning of Section 6231(a)(7) of the Code;
(xiii) to engage in any kind of activity and to
perform and carry out contracts of any kind necessary to, or in
connection with, or incidental to the accomplishment of the
purposes of the Partnership, as may be lawfully carried on or
performed by a partnership under the laws of each state in which
the Partnership is then formed or qualified; and
(xiv) to obtain consulting services from ML Real
Estate Associates II or its Affiliates.
In the case of the making or revocation of any election under (x)
above or any designation under (xii) above, each of the Partners
will, upon request, supply such information and execute such
documents as are necessary to effectuate such election or
revocation, or such designation. In the case of any request for
information under (xi), any Holder to which any such request is
sent shall comply with such request.
B. Any Person dealing with the Partnership or the General
Partner may rely upon a certificate signed by the General Partner,
thereunto duly authorized, as to:
(i) the identity of any General Partner or Limited
Partner hereof;
(ii) the existence or non-existence of any fact or
facts which constitute a condition precedent to acts by a General
Partner or which are in any other manner germane to the affairs of
the Partnership;
(iii) the Persons who are authorized to execute and
deliver any instrument or document of the Partnership; or
(iv) any act or failure to act by the Partnership or
as to any other matter whatsoever involving the Partnership or any
Partner.
C. The General Partner shall maintain in its records for
at least five years any appraisal required to be obtained under
the provisions of clause (i) of section 5.2A.
SECTION 5.3 Authority of Partners to Deal with Partnership
A. Without limitation upon the other powers set forth
herein, the General Partner is expressly authorized (and where
indicated, directed), in the name of and on behalf of the
Partnership, to do the following:
(i) The General Partner shall commit a percentage of
Gross Proceeds of the Offering to Investment in Properties which,
at a minimum, is equal to the greater of: (i) 80% of the Gross
Proceeds of the Offering reduced by .1625% for each 1% of the
aggregate indebtedness of the Partnership; or (ii) 67% of Gross
Proceeds of the Offering. For purposes of this calculation,
"aggregate indebtedness" is the percentage resulting when such
aggregate indebtedness is divided by the aggregate purchase price
of all Properties, excluding Front-End Fees. If the Front-End
Fees must be reduced for the Partnership to commit the minimum
percentage of Gross Proceeds of the Offering to Investment in
Properties as set forth above, the General Partner shall cause JMB
or its Affiliates to reimburse the Partnership for the amount of
any such excess Acquisition Fees and Acquisition and Financing
Guaranty Fee received by them.
(ii) The General Partner may enter into an agency
agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated
providing for the payment of commissions to JMB Securities
Corporation for participating as a selected dealer in the offering
of Additional Limited Partnership Interests to the public pursuant
to Section 3.3; provided, however, that there shall be no selling
commissions paid or received by any Person in connection with the
sale of Additional Limited Partnership Interests to (and for the
account of) any Assignee Holder who is the General Partner, an
Affiliated Person of the General Partner or an officer, director,
shareholder, employee or partner thereof.
(iii) The General Partner may, subject to the
conditions of this Agreement, enter into agreements with and pay
fees to JMB or other Affiliated Persons of the General Partner in
consideration of property management and leasing services
respecting commercial and industrial Properties which are
necessary to the prudent operation of the Partnership (it being
understood and agreed that the provision of such property
management and leasing services does not constitute a part of the
duties or obligations of the General Partner as a general partner
of the Partnership); provided, however, that the General Partner
shall not enter into any agreement for property management with an
Affiliate on terms less favorable to the Partnership than those
customarily charged for similar services in the relevant
geographical area and in no event shall fees to an Affiliate of
the General Partner for property management and leasing services
exceed the following schedule:
(a) in the case of industrial or commercial
Property other than that described in the following subparagraph
(b), the maximum fee from such Property shall be 6% of the gross
receipts from the Property being managed where the Affiliate of
the General Partner performs leasing, re-leasing and leasing-
related services, and the maximum fee shall be 3% of gross
receipts from the Property being managed if the Affiliate of the
General Partner does not perform leasing, re-leasing and leasing-
related services with respect to the Property; and
(b) in the case of industrial or commercial
Properties which are leased for ten or more years on a net (or a
similar) basis, the maximum fee shall be 1% of the gross receipts
from the Property being managed, except for a one-time initial
leasing fee of 3% of the gross receipts on each lease payable over
the first five full years of the original term of the lease.
Where a property management agreement with an
Affiliate has been entered into with respect to a Property, no
fees in addition to those payable to such Affiliate under such
agreement shall be paid by the Partnership to any Persons in
consideration of their performance of property management,
bookkeeping services or other property management services with
respect to the same Property. Any property management agreements
with Affiliates shall be terminable by either party, without
penalty, upon sixty (60) days' prior written notice and may be
modified only with the consent of the Holders of the majority of
the Interests (except as to immaterial or conforming amendments
which shall require only the consent of the General Partner).
(iv) The General Partner may pay or cause to be paid
brokerage commissions to JMB Insurance Agency, Inc. or other
Affiliated Persons of the General Partner in connection with
insurance covering the Properties subject to the conditions that:
(a) before any such brokerage services are provided, there will
have been received quotations from two independent insurance
brokers or carriers or underwriters relating to the proposed
coverage, which quotations shall be upon coverage and terms
comparable to those proposed to be provided by JMB Insurance
Agency, Inc., and such agency shall not provide such insurance
brokerage services unless it can obtain such insurance at a cost
which is no greater than the lower of the two unaffiliated
entities; (b) if at any time JMB Insurance Agency, Inc. ceases to
derive at least 75% of its income from its business with entities
which are not sponsored by JMB and its Affiliates, JMB Insurance
Agency, Inc. shall not earn income from any additional insurance
placements on behalf of the Partnership or any Property then owned
by it; and (c) any agreement with Affiliates to provide insurance
brokerage services to the Partnership shall be terminable by
either party, without penalty, upon sixty (60) days' prior written
notice.
(v) The General Partner may, in the event that Gross
Proceeds of the Offering are less than $325,000,000, in its
discretion, (a) obtain additional financing to pay the costs of
owning the Properties; (b) if the additional financing under the
immediately preceding clause (a) is insufficient, to enter into a
joint venture or joint participation with an Affiliate or
Affiliates of the General Partner which would provide for the
ownership of such Properties on a pro rata basis; provided,
however, that with respect to such investment with an Affiliate,
(s) the Partnership and such Affiliate, considered together, have
or acquire a controlling interest in any ventures or partnerships
which own the Properties, (t) there are no duplicate property
management or other fees, (u) the Partnership's investment is on
substantially the same terms and conditions as the investment of
such Affiliate, (v) the purchase price of the Partnership's
investment has been confirmed by independent appraisal as not
greater than the appraised value of such investment, (w) such
investment shall not result in the breach, abrogation or
circumvention of any of the terms, conditions or provisions of
this Agreement, (x) the investments are not in publicly or
privately offered limited partnerships or other publicly offered
real estate investment entities, (y) the compensation to the
General Partner, JMB and their Affiliates received attributable to
such investment is substantially identical to the compensation
received by the general partners and sponsors of such Affiliate
and by the Affiliates of such general partners and sponsors
attributable to such investment, and (z) the Partnership and such
Affiliate must each enjoy a right of first refusal as regards the
sale of the equity interest of the other.
(vi) The General Partner may, notwithstanding any
other provision of this Agreement, pay or cause to be paid to an
Affiliate allocable reimbursements of overhead expenses with
respect to any Partnership Property being developed pursuant to
Section 5.1E as a mall or shopping center through a joint venture
with one or more Affiliates of JMB, together with development fees
in connection therewith in an amount equal to the lesser of 5% of
the cost of development or the amount which would be charged by an
independent third party rendering comparable services; provided,
however, that such joint venture shall obtain a report from an
independent appraiser of the appraised value of the mall or
shopping center upon completion of the Property; provided,
further, that to the extent that the actual costs of development,
including the development fees paid to such Affiliate, exceed such
appraised value of the project, the development fees will be
remitted by such Affiliate to the Partnership to the extent of the
excess, if any, of such development costs over such appraised
value. Development services provided by such Affiliate shall be
embodied in a written contract which describes the terms thereof
and the compensation to be paid therefor. Such contract shall be
terminable by either party, without penalty, upon sixty (60) days'
written notice, and may be modified only with the consent of the
Holders of the majority of the Interests (except as to immaterial
or conforming amendments which shall only require the consent of
the General Partner). Such contract shall be disclosed to all
Partners in the reports provided pursuant to Sections 9.4A and
9.4C (stating the compensation paid to such Affiliate). Such
Affiliate must be independently engaged in performing development
services rendered for the development of shopping malls or
shopping centers.
(vii) The validity of any transaction, agreement or
payment involving the Partnership and the General Partner or any
Affiliate thereof not otherwise prohibited by the terms of this
Agreement shall not be affected by reason of the relationship
between the Partnership and the General Partner or such Affiliate.
All transactions, agreements or payments involving the Partnership
and the General Partner or any Affiliate thereof shall be on terms
no less favorable to the Partnership than those available to the
Partnership in similar dealings with unaffiliated third parties.
B. The General Partner shall be subject to the following
prohibitions: (i) except to the extent that related commissions
inure to the benefit of the Partnership neither the General
Partner nor any Affiliate of the General Partner shall be given
the exclusive right to sell or exclusive employment to sell any
Community Property of the Partnership and no amounts shall be
computed under Section 4.1 as 2% of the selling price of a
Community Property under Section 4.1(ii) unless the General
Partner or Affiliates of the General Partner perform substantial
services in connection with the sale of a Community Property; (ii)
neither any General Partner nor any Affiliated Person of the
General Partner shall receive directly or indirectly a commission
or fee in connection with the reinvestment of the proceeds of the
sale, exchange or refinancing of any Property; (iii) neither any
General Partner nor any Affiliated Person of the General Partner
shall loan money to the Partnership unless (a) the principal
amount of such financing shall be scheduled to be paid over a
period of less than 48 months, and more than 50% of the principal
amount of such financing shall be scheduled to be paid during the
first 24 months and (b) the interest rates and other finance
charges and fees shall not be in excess of the lessor of (x) if
the loan was made in connection with a particular Property, the
amounts that are charged by unrelated banks on comparable loans
for the same purpose in the locality of the Property in connection
with which the loan was made or (y) the rate per annum equal to 2%
plus the reference rate of Continental Illinois National Bank and
Trust Company of Chicago, or provide permanent financing to the
Partnership on a Property owned by the Partnership or make loans
with a prepayment charge or penalty which are evidenced or secured
by either a first or junior or all-inclusive note or mortgage
except to the extent that such prepayment charge or penalty is
attributable to an underlying encumbrance. In the event the
Partnership utilizes any all-inclusive note, said note shall
provide that (a) the Partnership shall receive credit on its
obligation under said note for payments made by the Partnership
directly on the underlying encumbrance; (b) that a bank, escrow
company or other paying agent shall collect payments (other than
amounts not to be applied to the underlying encumbrance) on the
all inclusive note and make disbursements therefrom to the holder
of the underlying encumbrance prior to making any disbursement to
the holder of the all-inclusive note or, in the alternative, all
payments on the all-inclusive note and underlying notes shall be
made directly by the Partnership; and (c) the rate of any interest
charged by the General Partner or an Affiliated Person on such
all-inclusive note will not exceed the rate of interest payable to
the holder on the underlying encumbrance.
C. Any agreements, contracts and arrangements with the
General Partner or Affiliated Person of the General Partner
permitted by Section 5.3(iii) and Section 5.3A(vii) (with respect
to both such sections to the extent not otherwise specifically
authorized in this Agreement) shall be subject to the following
conditions:
(i) any such agreements, contracts or arrangements
shall be embodied in a written contract which describes the
subject matter thereof and all compensation to be paid therefor;
(ii) no rebates or "give-ups" may be received by the
General Partner or any such Affiliated Person, nor may the General
Partner or any such Affiliated Person participate in any
reciprocal business arrangements which would have the effect of
circumventing any of the provisions of this Agreement;
(iii) neither the General Partner (in any capacity
other than a General Partner) nor any such Affiliated Person may
act as paying or purchasing agent for the Partnership and no funds
of the Partnership may be paid to the General Partner or any such
Affiliated Person by way of reimbursement for Partnership expenses
other than Organization and Offering Expenses or expenses as
permitted by Section 5.1D and the amount of compensation paid to
the General Partner or any such Affiliated Person may not exceed
90% of the amount which the Partnership would be required to pay
to independent parties;
(iv) any such agreements, contracts or arrangements
shall be fully and promptly disclosed to all Partners in the
reports provided in Sections 9.4A and 9.4C (stating the
compensation to be paid by the Partnership);
(v) any such agreements, contracts or arrangements
shall be terminable by either party, without penalty, upon sixty
(60 days' prior written notice and may be modified only with the
Consent of the Holders of a majority of the Interests (except as
to immaterial or conforming amendments which shall only require
the consent of the General Partner); and
(vi) the General Partner or the Affiliated Person
performing the services for the Partnership previously shall have
been independently engaged in performing services of the type to
be performed for the Partnership for a period of at least two
years.
SECTION 5.4 Restrictions on Authority of General Partner
A. Without the Consent of all the Limited Partners, the
General Partner shall not have the authority to:
(i) do any act in contravention of this Agreement;
(ii) do any act which would make it impossible to
carry on the ordinary business of the Partnership;
(iii) confess a judgment against the Partnership;
(iv) possess Partnership Property, or assign its
rights in specific Partnership Property, for other than a
Partnership purpose;
(v) admit a Person as a General Partner, except as
provided in this Agreement;
(vi) admit a Person as a Limited Partner, except as
provided in this agreement;
(vii) knowingly perform any act that would subject any
Limited Partner to liability as a general partner in any
jurisdiction; or
(viii) invest in junior trust deeds or similar
obligations, except that the Partnership may advance a portion of
the purchase price of a Property to the seller in the form of a
loan, the except that junior trust deeds or similar obligations
may be taken back from purchasers of Properties in connection with
the sale thereof by the Partnership.
B. Except as provided in Section 5.5J and subject to
Section 10.3, without the Consent of a majority in interest of the
Limited Partners, the General Partner shall not have the authority
to:
(i) sell or otherwise dispose of all or substantially
all of the Partnership's real property developments and
investments in real property (except for the sale or other
disposition of real property developments or investments in real
property (or portions thereof) in the ordinary course of business
as contemplated by the Prospectus, including the sale or other
disposition of the final real property development or investment
in real property remaining as a result of such sales or
dispositions); or
(ii) elect to dissolve the Partnership.
C. The General Partner on behalf of the Partnership shall
not purchase, lease or acquire any Property from any General
Partner or any Affiliated Person of any General Partner or from
any Person in which any General Partner or any Affiliated Person
of any General Partner has a material interest. Notwithstanding
the foregoing, the General Partner or an Affiliate may purchase
Property in its own name, and assume loans in connection therewith
and temporarily hold title thereto for the purpose of facilitating
the acquisition of such Property or the borrowing of money or
obtaining of financing for the Partnership, or completion of
construction of the Property, provided that such Property is
purchased by the Partnership for an investment no greater than the
cost of such Property to the General Partner (or such Affiliate),
that there is no amendment to the stated interest rate of any note
secured by such Property between the time it is acquired by the
General Partner (or such Affiliate) and the time it is acquired by
the Partnership and that no other benefit directly or indirectly
arising out of such transaction (other than those incidental to
the ownership of the property during the time it was held by the
General Partner or such Affiliate) is received by any General
Partner or Affiliated Person thereof apart from compensation
otherwise permitted by this Agreement. Except as otherwise
provided herein, the Partnership shall not sell Property to any
General Partner or any Affiliated Person of a General Partner.
The General Partner or its Affiliates may lease office space in
Properties; provided, however, that any such lease (a) shall be
for rentals and on terms not less favorable to the Partnership
than those available to the Partnership from unaffiliated tenants,
(b) shall be terminable on 60 days' prior written notice by the
Partnership without penalty and (c) shall provide that any rentals
from subleases relating thereto which are in excess of the rentals
from such lease shall be paid to the Partnership and, provided
further, that no more than 3% of the office space of the
Properties shall be leased to JMB or its Affiliates (other than
the Partnership and Arvida). The Partnership shall not make any
loans to any General Partner or any Affiliate of the General
Partner nor to any other Person except as provided in Section
5.4A(viii). The foregoing provision shall not, however, prohibit
(i) transfers incident to the formation of joint ventures with
Affiliates of the General Partner permitted by Sections 5.1E and
5.3A(v), (ii) the making of loans or advances by the Partnership
to a joint venture partnership which owns a particular property as
provided for in Section 5.2A(i) or (iii) advancing a portion of
the purchase price of a Property to a seller which is not an
Affiliated Person of the General Partner in the form of a loan.
D. The General Partner shall not on behalf of the
Partnership acquire any Property (other than cash) in exchange for
Interests in the Partnership.
E. The General Partner, in its capacity as such, or in its
capacity as a general partner in any partnership or joint venture
which may hold title to any Property under Section 5.3A(v), shall
not do or cause the Partnership to do, any act which would not be
permitted under this Agreement to be done by it as the General
Partner if title to such Property were held directly by the
Partnership, and shall, in general, act, and cause the Partnership
to act, in such capacity in the same manner as if title to such
Property were held directly by the Partnership.
SECTION 5.5 Duties and Obligations of the General Partner
A. The General Partner shall take action which may be
necessary or appropriate (i) for the continuation of the
Partnership's valid existence as a limited partnership under the
laws of the State of Delaware (and of each other jurisdiction in
which such existence is necessary to the limited liability of the
Limited partners or to enable the Partnership to conduct the
business in which it is engaged) and (ii) for the acquisition,
development, maintenance, preservation and operation of the
Properties as contemplated by the Prospectus in accordance with
the provisions of this Agreement and applicable laws and
regulations (it being understood and agreed, however, that the
performance of day-to-day development and property management
services for specific Properties is not the obligation of the
General Partner of the Partnership).
B. The General Partner shall devote to the Partnership such
time as may be necessary for the proper performance of its duties
hereunder, but neither the officers nor the directors of the
General Partner shall be expected to devote their full time to the
performance of such duties.
C. The General Partner shall at all times use its best
efforts to maintain its net worth at a sufficient level to meet
all requirements of the Code, under currently applicable rulings,
regulations and policies of the Internal Revenue Service and as
hereafter interpreted by the Internal Revenue Service, any agency
of the Federal government or the courts, to assure that the
Partnership will be classified for Federal income tax purposes as
a partnership and not as an association taxable as a corporation,
and shall, irrespective of such requirements, maintain its net
worth at an amount at least equal to the lessor of 10% of the
aggregate capital contributions to the Partnership or $25,000,000.
The General Partner shall use its best efforts to cause JMB
Holdings Corporation to comply in all respects with the terms of
its obligation which shall be comparable to the General Partner's
obligation and which shall be set forth in a written commitment of
JMB Holdings Corporation to be received by the Partnership prior
to the issuance of Additional Limited Partnership Interests under
Section 3.3A.
D. The General Partner shall take such action as may be
necessary or appropriate in order to form or qualify the
Partnership under the laws of any jurisdiction in which the
Partnership is doing business or in which such formation or
qualification is necessary in order to protect the limited
liability of the Limited Partners or in order to continue in
effect such formation or qualification. The General Partner shall
file or cause to be filed for recordation in the office of the
appropriate authorities of the State of Delaware, and in the
proper office or offices in each other jurisdiction in which the
Partnership is formed or qualified, such certificates (including
limited partnership and assumed name certificates) and other
documents as are required by the applicable statutes, rules or
regulations of any such jurisdiction or are required to reflect
the identity of the Partners and the amounts of the Capital
Investments with respect to the Interests.
E. The General Partner shall prepare or cause to be
prepared and shall file on or before the due date (or any
extension thereof) any Federal state or local information or tax
returns required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by
the Partnership unless the General Partner determines in its sole
discretion to contest the payment of such taxes.
F. The General Partner shall obtain and keep in force
during the term hereof fire and extended coverage, workmen's
compensation and public liability insurance in favor of the
Partnership with such insurers and in such amounts as the General
Partner shall deem advisable, but in amounts not less ( and with
deductible amounts not greater) than those customarily maintained
with respect to properties comparable to the Properties.
G. The General Partner shall be under a fiduciary duty to
conduct the affairs of the Partnership in the best interests of
the Partnership and of the Limited Partners, including the
safekeeping and use of all Partnership funds and assets for the
exclusive benefit of the Partnership, whether or not in its
immediate possession or control.
H. In the case of any vote, Consent or other action by the
Limited Partners pursuant to the terms of this Agreement which
shall become binding upon the General Partner, the General
Partner, in acting on behalf of the Partnership in the
Partnership's capacity as a partner in any partnership or joint
venture which may hold title to any Property, shall, to the extent
permitted by the partnership agreement relating to such
partnership or joint venture, take corresponding or identical
action or cause an Affiliate of the General Partner in its
capacity as a general partner of such partnership or joint venture
to take such action pursuant to the terms of the partnership
agreement relating to such partnership or joint venture and, in
general, shall not act on behalf of the Partnership in such
capacity in a manner inconsistent with any such vote, Consent or
other action pursuant to this Agreement.
I. The General Partner shall use its best efforts to
assure that the Partnership shall not be deemed an investment
company as such term is defined in the Investment Company Act of
1940.
J. (i) The General Partner shall elect to pursue one of the
following courses of action: (a) to cause the Interests of the
Holders to be listed and quoted on a United States national
exchange or to be reported by the National Association of
Securities Dealers Automated Quotation System (which may be done
at any time on or prior to the date ten years from the Offering
Termination Date); (b) to purchase, or to cause JMB or its
Affiliates to purchase, on the date ten years from the offering
Termination date all of the Interests of the Holders at their ten
appraised fair market value in accordance with the procedure set
forth in subparagraph (ii) below; or (c) to commence a liquidation
phase on the date ten years from the Offering Termination date
which liquidation shall be completed within fifteen years after
the Offering Termination Date; provided, however, that if the
General Partner elects to pursue the course of action set forth in
clause (a) above, the General Partner shall have the authority to
cause the Interests of the Holders to be delisted or otherwise not
so listed and quoted if the General Partner determines that such
listing or quoting may result in adverse tax consequences to the
Partnership or any Holder.
(ii) In the event that the General Partner elects to
purchase, or to cause JMB or its Affiliates to purchase, all of
the Interests of the Holders on the date ten years from the
Offering Termination Date, an independent appraiser shall be
selected by ML Real Estate Associates II and proposed by the
General Partner for approval by the Limited Partners. Such
appraiser shall be deemed approved by the Limited Partners unless
objected to in writing by the Holders of a majority of the then
outstanding Limited Partnership Interests within 45 days after
Notification thereof is sent by the General Partner. The
appraisal shall be requested by the General Partner sufficiently
in advance to be received by the date ten years from the Offering
Termination Date. The appraisal shall value the Interests as
limited partnership interests in the Partnership with all of the
rights and obligations pertinent thereto. The cost of obtaining
the appraisal shall be borne equally by the Partnership and the
purchaser of the Interests. The General Partner shall then submit
the appraisal of the value of the Interests to an independent
nationally-recognized investment banking firm or real estate
advisory company, which shall be retained by the General Partner
specifically with respect to the determination of such value. The
purchase of the Interests shall not be consummated unless the
General Partner has obtained from such investment banking firm or
real estate advisory company a letter of opinion, addressed to the
Partnership, concluding that the appraised fair market value and
the terms of the purchase are fair to the Holders of Interests.
The General Partner shall have 120 days from receipt of a
favorable letter of opinion to purchase, or to cause JMB or its
Affiliates to purchase, the Interests from the Holders at their
appraised fair market value.
(iii) In the event the General Partner elects to commence a
liquidation phase of the Partnership on the date ten years from
the Offering Termination Date as provided in subparagraph (i)
above, JMB and its Affiliates will be permitted to purchase at
appraised fair market value any of the interests held by the
Partnership in Properties in which JMB or any of its Affiliates
(other than the Partnership) has an interest. The purchase price
for the interest of the Partnership shall be determined by
independent appraisal in the same manner as set forth in
subparagraph (ii) above; provided, however, that the General
Partner may not permit the sale of such interest of Partnership to
JMB or any Affiliate unless and until the Partnership has received
a letter of opinion from an independent nationally recognized
investment banking firm or real estate advisory company, addressed
to the Partnership, to the effect that the appraised sales price
and the other terms of the purchase are fair to the Partnership.
K. In the event Arvida uses any goods, services or
facilities of the Partnership in connection with any developments
or activities in which the Partnership does not own an interest,
then the General Partner shall require Arvida to reimburse the
Partnership for its allocable cost of such services or assets to
the extent the Partnership does not own an interest in such
development or activity.
SECTION 5.6 Compensation of General Partner
The General Partner shall not in its capacity as General
Partner receive any salary, fees, profits or distributions except
profits, distributions, fees and allocations to which it may be
entitled under Articles Four, Five, Eight and Eleven, it being
understood, however that the Partnership is obligated to pay JMB
or its Affiliates an Acquisition and Financing Guaranty Fee equal
to $20,000,000 (subject to reduction as provided below) for
services of JMB and such Affiliates in negotiating and arranging,
and guaranteeing repayment of certain indebtedness and certain
other obligations incurred in connection with, the acquisition of
the assets by the Partnership under the Acquisition Agreement.
The obligation to pay such fee in the event at least the minimum
offering amount under Section 3.3A is obtained will be required to
be satisfied as follows: on or about each Admission Date, the
Partnership shall pay to JMB or its Affiliates a portion of the
maximum amount of such Acquisition and Financing Guaranty Fee
based upon the ration that the number of Additional Limited
Partnership Interests being issued under Section 3.3A on such
Admission Date bears to 325,000; to the extent that less than an
aggregate of 325,000 Additional Limited Partnership Interests are
issued under Section 3.3A for all Admission dates, the
corresponding proportion of the Acquisition and Financing
Guaranty Fee will not be paid by the Partnership. In no event
shall the total of the Acquisition and Financing Guaranty Fee paid
to JMB or its Affiliates plus any Acquisition Fees paid to all
parties exceed the lesser of (a) the compensation customarily
charged in arm's-length transactions by others rendering similar
services as an ongoing public activity in the same geographical
location and for comparable property or (b) an amount equal to 18%
of the Capital Investments in the Partnership.
SECTION 5.7 Other Business of Partners
Any Partner may engage independently or with others in
business venturers of every nature and description, including,
without limitation, the rendering of advice or services of any
kind to other investors and the making or management of other
investments. Nothing in this Agreement shall be deemed to
prohibit the General Partner or any Affiliate of the General
Partner or any officer, director, employee, shareholder or partner
of the General Partner or any such Affiliate from dealing, or
otherwise engaging in business with, Persons transacting business
with the Partnership or from providing service relating to the
purchase, sale, management, development or operation of real
property and receiving compensation therefor, not involving any
rebate or reciprocal arrangement which would have the effect of
circumventing any restriction set forth herein upon dealing with
Affiliates of the General Partner. Neither the Partnership nor
any Partner shall have any right by virtue of this Agreement or
the partnership relationship created hereby in or to such other
ventures or activities or to the income or proceeds derived
therefrom, and the pursuit of such ventures shall not be deemed
wrongful or improper. Except as provided in the Management and
Supervisory Agreement referred to in Section 5.2 a (ix), neither
the General Partner nor any Affiliate of any General Partner shall
be obligated to present any particular investment opportunity to
the Partnership. The General Partner and Limited Partners agree
that the Partners have no right to expect that the Partnership's
Properties will consist of anything other than the assets acquired
in connection with the Acquisition Agreement and the interest of
the Partnership in future communities as described in and subject
to the terms and limitations set forth in the Management and
Supervisory Agreement.
SECTION 5.8 Limitation on Liability of General Partner;
Indemnification
Neither the General Partner nor any affiliate (for purposes
of this Section 5.8 hereof "affiliate" shall mean any person
performing services on behalf of the Partnership who (1) directly
controls, is controlled by, or is under common control with, the
General Partner or the Associate Limited Partners; or (2) owns or
controls 10% or more of the outstanding voting securities of the
General Partner or the Associate Limited Partners; or (3) is an
officer, director, partner or trustee of the General Partner or
the Associate Limited Partners; or (4) if the General Partner is
an officer, director, partner or trustee, any company for which
the General Partner acts in any such capacity) thereof engaged in
the performance of services on behalf of the Partnership (the
"Indemnified Parties") shall be liable, responsible or accountable
in damages or otherwise to any Holder for any act or omission
performed or omitted by such Indemnified Party pursuant to the
authority granted to such Indemnified Party by this Agreement or
by law if the General Partner or its affiliates have determined,
in good faith, that the act or omission which caused the loss or
liability was in the best interests of the Partnership and such
liability was not the result of misconduct or negligence. The
Partnership shall indemnify and hold harmless each Indemnified
Party from and against any loss or liability suffered or sustained
by him by reason of any acts, omissions or alleged acts or
omissions arising out of his activities on behalf of the
Partnership or in furtherance of the interests of the Partnership,
including, but not limited to, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any pending or threatened action,
proceeding or claim and including any payments made by the General
Partner to any of its officers or directors who are affiliates
pursuant to an indemnification agreement no broader than this
Section 5.8; provided that the General Partner or its affiliates
have determined, in good faith, that the act or omission which
caused the loss or liability was in the best interests of the
Partnership and such loss or liability was not the result of
misconduct or negligence by such Indemnified Party. The
satisfaction of any indemnification and any saving harmless shall
be from thereof. Notwithstanding the foregoing, the Indemnified
Parties and any person acting as a broker-dealer shall not be
indemnified for any loss or damage incurred by them in connection
with any claim involving allegations that Federal or state
securities laws were violated, unless: (1) there has been a
successful adjudication on the merits of each count involving
alleged securities law violations and a court approves
indemnification of litigation costs; (2) such claim has been
dismissed, with prejudice on the merits, by a court of competent
jurisdiction and a court approves indemnification of litigation
costs; or (3) such claim has been settled, and a court of
competent jurisdiction approves indemnification of litigation
costs (specifically, the settlement of any claim against the
Indemnified Parties and finds that indemnification of the
settlement and related costs should be made). Additionally, such
a court shall have been advised by the party seeking
indemnification as to the current position of the Securities and
Exchange Commission, the California Commissioner of Corporations,
the Securities Division of the Office of the Secretary of the
Commonwealth of Massachusetts, the Tennessee Securities Division,
the Texas State Securities Board and the securities commissioners
of the states which subscribe to the provisions of the North
American Securities Administrators, Association, Inc. Statement of
Policy Regarding Real Estate Programs effective on January 1, 1987
regarding indemnification for violations of securities laws.
Notwithstanding the foregoing, the Indemnified Parties shall not
be indemnified for any liability, loss, expense or damage incurred
by them in connection with any judgment entered arising from or
out of a violation of Federal or state securities laws which were
violated by any Indemnified Party in connection with the offer or
sale of the Interests. In addition, the Partnership may not incur
the cost of that portion of liability insurance which insures the
Indemnified Parties for any liability as to which the Indemnified
Parties are prohibited from being indemnified as described above.
ARTICLE SIX
ADMISSION OF SUCCESSOR AND ADDITIONAL GENERAL PARTNERS
SECTION 6.1 Admission of Successor and Additional General
Partners
A. With the Consent of the General Partner and of such
number of the Limited Partners as are then required under the
Revised Uniform Limited Partnership Act of the State of Delaware,
and under the applicable laws of such other jurisdictions in which
the Partnership is formed or qualified, to Consent to or ratify
the admission of a General Partner, but in no event with the
Consent of less than a majority of all the outstanding Limited
Partnership Interests, the General Partner may at any time
designate one or more Persons to be successors to such General
Partner or to be additional General Partners, in each case with
such participation in such General Partner's Interest as such
General Partner and such successor or additional General Partners
may agree upon, provided that the Interests of the Limited
Partners shall not be adversely affected thereby. Each such
designee shall become a successor or additional General Partner
upon satisfying the conditions of Section 11.2.
B. Except in connection with a transfer to a successor or
additional General Partner pursuant to Section 6.1A, the General
Partner shall not have any right to retire or withdraw voluntarily
from the Partnership or to sell, transfer or assign its Interest,
except that (i) it may substitute in its stead as General Partner
any entity which has, by merger, consolidation or otherwise,
acquired substantially all of its assets or stock and continued
its business or (ii) it may cause to be admitted to the
Partnership an additional General Partner or Partners to enable
the aggregate net worth of the General Partners to comply with the
provisions of Section 5.5C. Each such successor or additional
General Partner shall be admitted as such to the Partnership upon
satisfying the conditions of Section 11.2. Each Limited Partner
hereby Consents to the admission of any additional or successor
General Partner pursuant to this Section 6.1B, and no further
Consent or approval shall be required.
C. Any voluntary withdrawal by the General Partner from the
Partnership or any sale, transfer or assignment by such General
Partner of its Interest shall be effective only upon the admission
in accordance with Section 6.1A or Section 6.1B, whichever is
applicable, of a successor or additional General Partner, as the
case may be,and full discharge for all amounts owing to the General Partner
and the Associate Limited Partners on account of their respective
Interests in the Partnership. For purposes of this Section 6.6
the independent appraiser selected by the Limited Partners shall
be selected by ML Real Estate Associates II (excluding for this
purpose its assigns) and proposed by the General Partner for
selection by the Limited Partners. Such appraiser shall be deemed
selected by the Limited Partners unless objected to in writing by
the Holders of a majority of the then outstanding Limited
Partnership Interests within 45 days after Notification thereof is
sent by the General Partner.
B. In the event that a replacement General Partner is
elected by the Limited Partners under Section 10.2 such
replacement or successor General Partner (the "Acquiring Partner")
shall purchase from the Partnership, within 60 days of the date on
which it becomes a General Partner, the Interests in the
Partnership which the Partnership purchased from the Person
ceasing to be a General Partner as provided in Section 6.6A above
and from the Associate Limited Partners. For such Interests, the
Acquiring Partner shall pay the amounts determined pursuant to
Section 6.6A to be the fair market values of such Interests.
Payment for the Interests shall be made by promissory notes
bearing simple interest at a rate per annum equal to the lesser of
the reference rate from time to time announced by Continental
Illinois National Bank and Trust Company of Chicago plus 2% per
annum or 10% interest per annum on the unpaid principal amount of
such promissory notes and shall be secured, on a pro rata basis
according to the face amount of each promissory note, by
assignment by the Acquiring Partner to the Partnership of all its
future distributions of Cash Flow from the Partnership to the
Acquiring Partner.
ARTICLE SEVEN
TRANSFERABILITY OF PARTNERS' INTERESTS
SECTION 7.1 Restrictions on Transfers of Interests
A. No transfer or assignment with respect to any Limited
Partnership Interest or any Additional Limited Partnership
Interest, or any fraction thereof, shall be effective if such
transfer or assignment would, in the opinion of counsel for the
Partnership, result in the termination of the Partnership or the
treatment of the Partnership as an association taxable as a
corporation, for purposes of the then applicable provisions of the
Code.
B. No transfer or assignment with respect to any Limited
Partnership Interest, or any fraction thereof, shall be effective
if counsel for the Partnership shall be of the opinion that such
transfer or assignment would be in violation of any state
securities or "Blue Sky" laws (including any investment
suitability standards) applicable to the Partnership.
C. No purported transfer or assignment with respect to a
Limited Partnership Interest, or any fraction thereof, after which
the transferor or the transferee would hold an Interest
representing a Capital Investment of less than $5,000 will be
permitted or recognized or be valid for any purpose (except for
transfers by gift, inheritance or family dissolution, transfers to
Affiliates or intra-family transfers). Prior to the first date on
which an Additional Limited Partnership Interest is issued to an
Assignee Holder (other than ML Real Estate Associates II), no
purported transfer or assignment with respect to any Interest, or
any fraction thereof, shall be permitted or recognized or be valid
for any purpose.
D. No transfer or assignment with respect to any Limited
Partnership Interest or any Additional Limited Partnership
Interest, or any fraction thereof, shall be effective if as a
result of such transfer or assignment such limited partnership
Interest or Additional Limited Partnership Interest (or fraction
thereof) would be held by any person that is a non-resident alien
individual or foreign corporation or other entity or that may be
subject to tax under Section 511 of the Code, or by any "tax-
exempt entity" (within the meaning of Section 168(h)(2) of the
Code for purposes of Section 168(h)(6)(A) of the Code), except
that the foregoing restriction shall not apply to any transfer or
assignment permitted in the sole discretion of the General
Partner.
SECTION 7.2 Assignees and Substituted Limited Partners
A. If a Limited Partner dies, his executor, administrator
or trustee or, if he is adjudicated incompetent (including by
reason of insanity), his committee, guardian or conservator, or,
if he becomes bankrupt, the receiver or trustee of his estate,
shall have all the rights of a Limited Partner for the purpose of
settling or managing his estate and such power as the decedent or
incompetent or bankrupt Person possessed to assign all or any part
of his Interest and to join with the assignee thereof in
satisfying conditions precedent to such assignee becoming a
Substituted Limited Partner. The death, dissolution, adjudication
of incompetence or bankruptcy of a Limited Partner shall not
dissolve the Partnership.
B. The Partnership shall recognize as the Assignee Holder
of Additional Limited Partnership Interests each Person to whom
the Initial Limited Partner assigns Additional Limited Partnership
Interest which are purchased in the public offering pursuant to
section 3.3 (including pursuant to Section 3.3G) as of such dates
from time to time during the offering period as the General
Partner shall determine (which in no event shall be later than the
date on which the funds of such Assignee Holder are released from
the escrow deposit account) provided that (a) the Partnership has
received the capital set forth on Schedule A with respect to the
Additional Limited Partnership Interests of such Assignee Holder
and (b) the Initial Limited Partner has executed an instrument of
assignment, in form and substance satisfactory to the General
Partner, setting forth the name and address of such Assignee
Holder to whom such Additional Limited Partnership Interests are
being assigned.
C. Except as provided in Section 7.2B above, the
Partnership shall not recognize for any purpose any assignment
with respect to all or any fraction of a Limited Partnership
Interest unless there shall have been filed with the Partnership a
duly executed and acknowledged counterpart of the instrument
making such assignment and such instrument evidences the written
acceptance by the assignee of all of the terms and provisions of
this Agreement and represents that such assignment was made in
accordance with all applicable laws and regulations (including
investment suitability requirements). Such instrument shall be
accompanied by a transfer fee not in excess of $100 that shall be
paid to the Partnership or an Affiliate of the General Partner to
cover all actual, necessary and reasonable expenses, fees and
filing costs in connection with such transfer. Any assignee of a
Limited Partnership Interest shall, for the purposes of Section
4.3C, be recognized as a Holder of Interests as of the first day
of the fiscal quarter next succeeding the fiscal quarter in which
the General Partner actually receives the instrument of assignment
that complies with the requirements of this Section 7.2C;
provided, however, that except as provided in Section 7.2B above,
no assignee of a Limited Partnership Interest shall be recognized
as a Holder of Interests prior to the first fiscal quarter
following the fiscal quarter during which the final issuance of
Additional Limited Partnership Interests pursuant to Section 3.3
occurs.
D. Any Person who is an Assignee Holder of all or any
fraction of a Limited Partnership Interest may become a
Substituted Limited Partner only when such Person shall have
satisfied the conditions of Section 7.2C and Section 11.2. The
General Partner agrees to inform such Assignee Holder, within 60
days of receipt by the Partnership of the items set forth in
Sections 7.2C and 11.2A herein, if he has been rejected a s
Substituted Limited Partner. Assignee Holders (and any assignees
with respect to any Limited Partnership Interests of such Assignee
Holders) who effect such a transfer and become Substituted Limited
Partners will not be permitted subsequently to reassign their
Limited Partnership Interests to the Initial Limited Partner and
once more become Assignee Holders. The right of an assignee to
become a Substituted Limited Partner shall be subject to the
written Consent of the General Partner, which Consent may be
granted or denied in the sole and absolute discretion of the
General Partner and prior to the giving of such Consent, such
substitution shall not be effective. The written Consent or a
notice of denial of Consent shall be given to the assignee not
later than the last day of the calendar month following the month
the General Partner actually receives the executed Signature Page
and Power of Attorney and such other document or documents as may
reasonably be requested by the General Partner and payment of an
amount (not in excess of $100) required to cover all actual,
necessary and reasonable expenses, fees and filing costs in
connection with such substitution. The voting rights of a
Substituted Limited Partner who transfers his entire economic
interest in any Additional Limited Partnership Interests will
terminate with respect to such Additional Limited Partnership
Interests upon such transfer.
SECTION 7.3 Indemnification and Terms of Admission
A. Each Holder of Interests shall indemnify and hold
harmless the Partnership, the General Partner and every Holder who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by
reason of or arising from any actual misrepresentation or
misstatement of facts or omission to state facts made (or omitted
to be made) by such Holder in connection with any facts or
omission to state facts made (or omitted to be made) by such
Holder in connection with any assignment, transfer, other
disposition or encumbrance of all or any part of any Interest in
the Partnership, or the admission of an Assignee Holder as a
Substituted Limited Partner to the Partnership, against expenses
for which the Partnership or such other Person has not otherwise
been reimbursed (including attorneys' fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by it
or him in connection with such action, suit or proceeding.
B. Any Person who acquires an Interest as an Assignee
Holder (whether or not such Person becomes a Substituted Limited
Partner) or who is admitted to the Partnership as a Substituted
Limited Partner or as a successor or additional General Partner
shall be subject to and bound by all the provisions of this
Agreement as if originally a party to this Agreement.
ARTICLE EIGHT
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.1 Events Causing Dissolution
The Partnership shall terminate upon the happening of any of
the following events:
(i) the bankruptcy, death, dissolution, adjudication
of incompetence or withdrawal of a sole General Partner;
(ii) the reduction to cash or cash equivalents of all
the assets of the Partnership;
(iii) the election by the General Partner pursuant to
Section 5.5), Section 5.4B, or the vote by the Limited Partners
pursuant to Section 10.2(ii), to dissolve the Partnership; or
(iv) the happening of any other event causing the
dissolution of the Partnership under the laws of the State of
Delaware.
Dissolution of the Partnership shall be effective on the day on
which the event occurs giving rise to the dissolution, but the
Partnership shall not terminate until the Partnership's
certificate of limited partnership shall have been canceled and
the assets of the Partnership shall have been distributed as
provided in Section 8.3. Notwithstanding the dissolution of the
partnership, prior to the termination of the Partnership, as
aforesaid, the business of the Partnership and the affairs of the
Partners, as such, shall continue to be governed by this
Agreement.
In the event of the bankruptcy, dissolution or withdrawal of
a General Partner which is not then the sole General Partner at
any time during the life of the Partnership, the remaining General
Partner or General Partners shall promptly give the Limited
Partners notice of the occurrence of any event constituting such
bankruptcy, dissolution or withdrawal. The General Partner shall
give the Limited Partners sixty (60) days' notice of its intent to
withdraw voluntarily as a General Partner of the Partnership
unless, prior to such withdrawal, written notice has been given to
the Limited Partners as provided in the preceding sentence, and
the Limited Partners have (or have not) elected to exercise their
right pursuant to Section 10.2 (and subject to the conditions set
forth in Section 10.3 to elect a new General Partner.
Notwithstanding anything to the contrary in this Agreement, if any
event specified in clauses (i) through (iii) of Section 8.1 occurs
prior to the first date on which an Additional Limited Partnership
Interest is issued to an Assignee Holder (other than ML Real
Estate Associates II), no Partner or Partners shall have any right
to cause the Partnership to be continued, and if any event
specified in clause (iv) of Section 8.1 occurs prior to such date,
no Partner or Partners shall have any right to cause the
Partnership to be continued unless all Partners (including ML Real
Estate Associates II and Arvida/JMB Partners, which shall consent
for this purpose only with the affirmative approval of ML Real
Estate Associates II as a partner therein) Consent to continue the
Partnership.
SECTION 8.2 Capital Contribution upon Dissolution
Subject to Section 5.8 each Limited Partner shall look
solely to the assets of the Partnership for all distributions with
respect to the Partnership and his capital contribution thereto
and share of Profits or Losses thereof, and, except as provided in
Section 4.1 shall have no recourse therefor however, that upon
dissolution and termination of the Partnership, the General
Partner shall contribute to the Partnership an amount equal to the
amount which is determined to be the smaller of (i) the deficit
balance in its Capital Account or (ii) the excess of 1.01% of the
Capital Investments with respect to Limited Partnership Interests
held by Holders over the aggregate capital contributions made by
the General Partner as provided in Schedule A and otherwise under
this Agreement. If Arvida/JMB Associates shall in writing assume
or otherwise agree to be personally liable on Partnership
indebtedness owed to a third party, during the period that such
assumption or other personal liability exists, Arvida/JMB
Associates shall be obligated to contribute to the Partnership an
amount equal to the amount of such indebtedness which it has
assumed or on which it has otherwise agreed to be personally
liable if needed to satisfy such Partnership indebtedness.
No Limited Partner shall have any right to demand or receive
property, other than cash, upon dissolution and termination of the
Partnership.
SECTION 8.3 Liquidation
A. Upon dissolution of the Partnership, the General Partner
shall dispose of the assets of the Partnership, apply and
distribute the proceeds thereof as contemplated by this Agreement
and cause the cancellation of the Partnership's certificate of
limited partnership.
B. Notwithstanding the foregoing, in the event the General
Partner shall determine that an immediate sale of part or all of
the Partnership assets would cause undue loss to the Partners, the
General Partner, in order to avoid such loss, may (after having
given Notification to all the Limited Partners), subject to
Section 8.3C and to the extent not then prohibited by the Limited
Partnership Act of any jurisdiction in which the Partnership is
then formed or qualified and applicable in the circumstances,
defer disposition of and withhold from distribution for a
reasonable time any assets of the Partnership except those
necessary to satisfy the Partnership's debts and obligations.
C. Notwithstanding anything to the contrary in Articles
Four and Six, upon Liquidation of the Partnership the proceeds of
such Liquidation shall be distributed in the ratios of the
positive Capital Account balances of the Partners, and upon
Liquidation of any Partner's Interest in the Partnership the
proceeds of such Liquidation shall be distributed in accordance
with the positive Capital Account balance of such Partner, in each
case as determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which such
Liquidation occurs (other than those adjustments made pursuant to
this sentence), by the end of such taxable year (or, if later,
within 90 days after the date of such Liquidation), except that in
the case of a Liquidation of the Partnership the proceeds of such
Liquidation shall not be required to be distributed by the end of
such taxable year (or, if later, within 90 days after the date of
such Liquidation) to the extent such proceeds constitute (i)
reserves reasonably required to provide for liabilities
(contingent or otherwise) of the Partnership or (ii) installment
obligations owed to the Partnership, so long as such withheld
amounts are distributed as soon as practicable and in the ratios
of the Partner's positive Capital Account balances.
2. Instrument of Assignment. Effective upon the transfer
to the Partnership of the required capital contributions in
respect of Additional Limited Partnership Interests from time to
time during the Public Offering, and upon the amendment of the
Certificate of Limited Partnership of the Partnership to reflect
the issuance of Additional Limited Partnership Interests to the
Initial Limited Partner, the Initial Limited Partner shall execute
an Instrument of Assignment transferring and assigning all of its
rights and interests in and to such Additional Limited Partnership
Interests to the Assignee Holders. The names and addresses of the
Assignee Holders who have purchased the Additional Limited
Partnership Interests shall be set forth on such Instrument and,
upon its receipt and acknowledgement by the General Partner, such
instrument of Assignment shall be binding in all respects upon the
Partnership, the General Partner, the Initial Limited Partner and
the Assignee Holders name therein; provided that any such
Instrument of Assignment may be amended by written instrument
executed by the Initial Limited Partner and the General Partner
for the purpose of correcting any error or omission contained
therein. Notification of the name and address of an Assignee
Holder set forth on any such Instrument of Assignment shall be
mailed, postage prepaid, to such Assignee Holder named therein;
and thereafter any address contained therein shall be subject to
change only upon the receipt by the Initial Limited Partner of
written notification of a change of an Assignee Holder's address
signed by such Assignee Holder.
3. Subsequent Assignments. Any subsequent transfer or
assignment or reassignment of Additional Limited Partnership
Interests by any Assignee Holder to any other Person must conform
in all respects with the requirements of Section 7.2 of the
Partnership Agreement and shall be subject to all restrictions on
transfer provided in Section 7.1 of the Partnership Agreement.
4. Voting. The Initial Limited Partner hereby agrees that,
with respect to any matter on which a vote of Limited Partners is
taken in accordance with the Partnership Agreement or as to which
any Consent is requested, it will vote the Additional Limited
Partnership Interests transferred to Assignee Holders pursuant to
this Agreement or grant or withhold such Consent solely for the
benefit of, and in accordance with the written instructions of,
the respective Assignee Holders with respect to their respective
Interests; provided, however, that the voting rights of an
Assignee Holder who transfers Additional Limited Partnership
Interests will terminate with respect to such Interests upon such
transfer, whether or not the transferee thereof is admitted as a
Substituted Limited partner with respect thereto. Additional
Limited Partnership Interests assigned to Assignee Holders who do
not provide such written instructions to the Initial Limited
Partner will not be voted nor any Consent granted on any such
matter. The Initial Limited partner will provide notice to the
Assignee Holders containing information regarding any matters to
be voted upon or as to which any Consent is requested sufficiently
in advance of the date of the vote for which such Consent is
requested to permit sufficiently in advance of the date of the
vote for which such Consent is requested to permit such Assignee
Holders to provide such written instructions and shall otherwise
establish reasonable procedures for any such voting or the
granting of such Consent. The Partnership and the General Partner
hereby agree to permit Assignee Holders to attend any meetings of
Limited Partners and the Initial Limited Partner shall, upon
written request of Assignee Holders owning Additional Limited
Partnership Interests which represent in the aggregate 10% or more
of all of the outstanding Limited Partnership Interest, request
the General Partner to call a meeting of Limited Partners or to
submit a matter to the Limited Partners without a meeting pursuant
to the Partnership Agreement.
5. Reports. The Initial Limited Partner will mail to any
Assignee Holder (at the address provided under paragraph 2 above)
any report, financial statement or other communication received
from the Partnership or the General Partner with respect to the
Additional Limited Partnership Interests transferred to such
Assignee Holder. In lieu of the mailing of any such document by
the Initial Limited Partner, the Initial Limited Partner may, at
its option, request the Partnership to mail any such
communications directly to the Assignee Holders, and the Initial
Limited Partner shall be deemed to have satisfied its obligations
under this paragraph 5.
