Exhibit 99.3
T3E
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UNITED STATES BANKRUPTCY COURT
for the Central District of California
In re ) Chapter 11
)
▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING ) Case No. SA97-14512-JR
PARTNERSHIP, a Maryland general partnership )
)
Debtor )
)
_________________________________________
DISCLOSURE STATEMENT IN SUPPORT OF
DEBTOR'S THIRD AMENDED PLAN OF REORGANIZATION,
DATED JULY 23, 1997
O'MELVENY & ▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ (CA State Bar #54797)
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (CA State Bar #136852)
▇▇▇▇ ▇▇▇▇▇▇▇▇ (CA State Bar #186243)
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (CA State Bar #186411)
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (CA State Bar #85142)
▇▇▇▇▇ ▇▇▇▇▇▇ (CA State Bar #177568)
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THIS DISCLOSURE STATEMENT DESCRIBES THE THIRD AMENDED PLAN OF
REORGANIZATION DATED JULY 23, 1997 (THE "PLAN") FOR ▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING
PARTNERSHIP ("CWOP"). THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE
BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION FOR CREDITORS AND PARTNERS
OF CWOP TO VOTE ON THE PLAN. ALL CREDITORS AND PARTNERS OF CWOP WHO ARE
ENTITLED TO VOTE ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE ENTIRE
DISCLOSURE STATEMENT, INCLUDING THE PLAN ATTACHED AS EXHIBIT 1, PRIOR TO
SUBMITTING THEIR BALLOTS.
IF YOU HAVE ANY QUESTIONS CONCERNING THE PROCEDURES FOR VOTING, PLEASE
CALL OR WRITE TO O'MELVENY & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ATTENTION: ▇▇▇▇ ▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇.
TABLE OF CONTENTS
I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. SUMMARY OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . 2
B. RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
A. ELIGIBILITY TO VOTE. . . . . . . . . . . . . . . . . . . . . . . . 3
B. BALLOTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
C. VOTING PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . 4
D. DEADLINE FOR VOTING. . . . . . . . . . . . . . . . . . . . . . . . 4
E. IMPORTANCE OF YOUR VOTE. . . . . . . . . . . . . . . . . . . . . . 4
III. BACKGROUND OF CWOP AND THE CHAPTER 11 CASE. . . . . . . . . . . . . . . 4
A. HISTORICAL FRAMEWORK . . . . . . . . . . . . . . . . . . . . . . . 4
1. Description of the Property; Formation of CWOP. . . . . . . . 4
2. Acquisition of the Property by CWOP; Structure of Financing . 5
3. Major Tenants . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Property Management . . . . . . . . . . . . . . . . . . . . . 7
5. The Development Parcel; Exterior Common Area. . . . . . . . . 8
B. EVENTS LEADING TO THE FILING OF THE CHAPTER 11 CASE. . . . . . . . 9
1. Orange County Real Estate Market. . . . . . . . . . . . . . . 9
2. Agreement of Understanding with Certificateholders. . . . . . 10
C. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE. . . . . . . . . . . 11
1. Cash Collateral Agreed Order. . . . . . . . . . . . . . . . . 11
2. Motion to Dismiss . . . . . . . . . . . . . . . . . . . . . . 11
3. Claims Bar Date and Claims Procedures Order . . . . . . . . . 11
4. Leasing Transactions. . . . . . . . . . . . . . . . . . . . . 11
5. Crow Claims and Litigation. . . . . . . . . . . . . . . . . . 12
IV. THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS . . . . 14
1. Allowance of Administrative Claims. . . . . . . . . . . . . . 14
2. Treatment of Allowed Administrative Claims. . . . . . . . . . 15
3. Treatment of Priority Tax Claims. . . . . . . . . . . . . . . 15
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS . . . . . . . 15
1. Priority Claims (Class 1) . . . . . . . . . . . . . . . . . . 15
2. Secured Tax Claims (Class 2). . . . . . . . . . . . . . . . . 15
3. Other Secured Claims (Classes 3a, 3b and 3c). . . . . . . . . 16
4. Certificateholder Secured Claims (Class 4). . . . . . . . . . 16
5. Certificateholder Deficiency Claims (Class 5) . . . . . . . . 17
6. General Unsecured Claims (Class 6). . . . . . . . . . . . . . 17
7. Interests (Class 7) . . . . . . . . . . . . . . . . . . . . . 18
C. IMPLEMENTATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . 18
1. Formation of Jamboree LLC and Jamboree Office REIT. . . . . . 18
2. Avoidance and Recovery Actions. . . . . . . . . . . . . . . . 19
3. Section 1129(a)(4) Payment. . . . . . . . . . . . . . . . . . 20
D. CLAIMS AND DISTRIBUTIONS.. . . . . . . . . . . . . . . . . . . . . 20
E. DISBURSEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
F. CANCELLATION OF SECURITIES . . . . . . . . . . . . . . . . . . . . 21
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G. DISCHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
H. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES. . . . . . . 21
I. ASSUMED EFFECTIVE DATE; CONDITIONS TO EFFECTIVENESS. . . . . . . . 22
1. Entry of Confirmation Order . . . . . . . . . . . . . . . . . 22
2. WCI Consent . . . . . . . . . . . . . . . . . . . . . . . . . 22
3. Jamboree LLC and Jamboree Office REIT . . . . . . . . . . . . 22
4. Contribution of Assets. . . . . . . . . . . . . . . . . . . . 22
5. Documentation . . . . . . . . . . . . . . . . . . . . . . . . 22
6. Jamboree Office REIT Shares and Jamboree LLC Units. . . . . . 22
7. Qualification of Indentures . . . . . . . . . . . . . . . . . 22
8. Perfection of Security Interests. . . . . . . . . . . . . . . 23
9. Title Policies. . . . . . . . . . . . . . . . . . . . . . . . 23
10. Evidence of Insurance . . . . . . . . . . . . . . . . . . . . 23
J. RETENTION OF JURISDICTION. . . . . . . . . . . . . . . . . . . . . 23
V. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 23
A. HISTORICAL FINANCIAL INFORMATION; RECENT FINANCIAL PERFORMANCE . . 24
B. PAYMENT OF ADMINISTRATIVE EXPENSES AND CLAIMS. . . . . . . . . . . 24
C. PROJECTED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . 24
VI. OPERATION AND GOVERNANCE OF SUCCESSOR ENTITIES. . . . . . . . . . . . . 25
A. GENERAL DISCUSSION . . . . . . . . . . . . . . . . . . . . . . . . 25
B. JAMBOREE LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
C. JAMBOREE OFFICE REIT AND JAMBOREE
OFFICE REIT SHARES . . . . . . . . . . . . . . . . . . . . . . . . 27
D. DESCRIPTION OF NEW NOTES ISSUED BY JAMBOREE LLC. . . . . . . . . . 29
1. New Class A Senior Secured Notes. . . . . . . . . . . . . . . 29
2. New Class B Senior Subordinated Secured Notes.. . . . . . . . 36
3. Security for the New Notes. . . . . . . . . . . . . . . . . . 37
4. New Notes Registration Rights Agreements. . . . . . . . . . . 38
E. PROPERTY APPRECIATION RIGHTS AND EXCHANGE RIGHT. . . . . . . . . . 39
F. FUTURE OPERATIONS, NEW MANAGEMENT AGREEMENT. . . . . . . . . . . . 40
G. REORGANIZED CWOP . . . . . . . . . . . . . . . . . . . . . . . . . 42
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . 43
A. INTRODUCTION.. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
B. FEDERAL INCOME TAX CONSEQUENCES TO CWOP. . . . . . . . . . . . . . 43
1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2. Reduction Of CWOP's Indebtedness. . . . . . . . . . . . . . . 44
3. Constructive Distribution Of Money Under Internal Revenue
Code Section 752. . . . . . . . . . . . . . . . . . . . . . . 44
C. FEDERAL INCOME TAX CONSEQUENCES TO CREDITORS . . . . . . . . . . . 45
1. Constructive or Deemed Exchange of Old Debt Instrument For
New Debt Instrument . . . . . . . . . . . . . . . . . . . . . 45
2. Tax Basis And Holding Period Of Items Received. . . . . . . . 46
3. Withholding.. . . . . . . . . . . . . . . . . . . . . . . . . 46
D. FEDERAL INCOME TAXATION OF JAMBOREE OFFICE REIT. . . . . . . . . . 47
1. REIT Organizational Requirements. . . . . . . . . . . . . . . 48
2. Income Tests. . . . . . . . . . . . . . . . . . . . . . . . . 48
3. Relief Provisions . . . . . . . . . . . . . . . . . . . . . . 49
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4. Asset Tests . . . . . . . . . . . . . . . . . . . . . . . . . 50
5. Annual REIT Distribution Requirements.. . . . . . . . . . . . 50
6. Failure to Qualify As a REIT. . . . . . . . . . . . . . . . . 51
7. Taxation to United States Shareholders of Distributions . . . 51
8. Backup Withholding. . . . . . . . . . . . . . . . . . . . . . 52
9. Treatment of Tax-Exempt Shareholders. . . . . . . . . . . . . 52
10. Taxation of Foreign Shareholders. . . . . . . . . . . . . . . 52
E. FEDERAL INCOME TAXATION OF JAMBOREE LLC. . . . . . . . . . . . . . 53
F. OTHER TAX CONSEQUENCES.. . . . . . . . . . . . . . . . . . . . . . 54
VIII. CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES . . . . . . . . . . . 54
A. GENERAL DISCUSSION . . . . . . . . . . . . . . . . . . . . . . . . 54
B. RESALE CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . 55
C. TRUST INDENTURE ACT. . . . . . . . . . . . . . . . . . . . . . . . 57
D. DELIVERY OF DISCLOSURE STATEMENT . . . . . . . . . . . . . . . . . 57
IX. CERTAIN FACTORS TO BE CONSIDERED REGARDING THE PLAN . . . . . . . . . . 57
A. BANKRUPTCY CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . 57
B. GENERAL BUSINESS RISKS . . . . . . . . . . . . . . . . . . . . . . 57
C. RISK WITH RESPECT TO NEW SECURITIES. . . . . . . . . . . . . . . . 58
X. ALTERNATIVES TO CONFIRMATION OF THE PLAN. . . . . . . . . . . . . . . . 59
XI. ACCEPTANCE AND CONFIRMATION OF THE PLAN . . . . . . . . . . . . . . . . 59
A. GENERAL CONFIRMATION REQUIREMENTS. . . . . . . . . . . . . . . . . 59
B. BEST INTERESTS TEST. . . . . . . . . . . . . . . . . . . . . . . . 59
C. FINANCIAL FEASIBILITY TEST . . . . . . . . . . . . . . . . . . . . 60
D. ACCEPTANCE BY IMPAIRED CLASSES . . . . . . . . . . . . . . . . . . 60
XII. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
EXHIBITS TO DISCLOSURE STATEMENT
EXHIBIT 1 - Debtor's Third Amended Plan of Reorganization Dated July 23, 1997
EXHIBIT 2 - 1995 and 1996 Financial Statement
EXHIBIT 3 - January through March 1997 Cash Flow from Operations
EXHIBIT 4 - April 1997, May 1997 and June 1997 Cash Flow from Operations
(Budgeted to Actual)
EXHIBIT 5 - June 1997 through September 1997 Projected Cash Flow
EXHIBIT 6 - September 1997 through August 2002 Projected Cash Flow
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I. INTRODUCTION.
On July 23, 1997, ▇▇▇▇ ▇▇▇▇▇▇▇▇ Operating Partnership ("CWOP" or
the "Debtor") filed with the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court") its proposed Third Amended Plan
of Reorganization Dated July 23, 1997 (the "Plan," attached hereto as
Exhibit 1).
The Debtor prepared this Disclosure Statement for use in the
solicitation of acceptances of the Plan. By order of the Bankruptcy Court, this
Disclosure Statement was approved as containing information adequate to enable
creditors and partners of the Debtor to make an informed judgment to vote either
to accept or to reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT BY THE
BANKRUPTCY COURT DOES NOT MEAN THAT THE BANKRUPTCY COURT RECOMMENDS ACCEPTANCE
OR REJECTION OF THE PLAN.
The financial information used in preparing this Disclosure
Statement was prepared by and is the sole responsibility of the Debtor. This
Disclosure Statement does not constitute financial or legal advice. Creditors
and partners of the Debtor should consult their own advisors if they have
questions about the Plan or this Disclosure Statement.
WHILE THIS DISCLOSURE STATEMENT DESCRIBES CERTAIN BACKGROUND
MATTERS AND THE MATERIAL TERMS OF THE PLAN, IT IS INTENDED AS A SUMMARY DOCUMENT
ONLY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN AND THE EXHIBITS
ATTACHED TO THE PLAN AND THIS DISCLOSURE STATEMENT. YOU SHOULD READ THE PLAN
AND THE EXHIBITS TO OBTAIN A FULL UNDERSTANDING OF THEIR PROVISIONS. ADDITIONAL
COPIES OF THE DISCLOSURE STATEMENT AND THE EXHIBITS ATTACHED TO THIS DISCLOSURE
STATEMENT CAN BE OBTAINED FROM ▇▇▇▇ ▇▇▇▇▇ AT (▇▇▇) ▇▇▇-▇▇▇▇. THE COST OF COPIES
MUST BE PAID BY THE PERSON ORDERING THEM. COPIES OF PAPERS FILED IN THIS CASE
MAY BE INSPECTED DURING REGULAR COURT HOURS IN THE CLERK'S OFFICE, UNITED STATES
BANKRUPTCY COURT, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇.
THE STATEMENTS AND INFORMATION CONCERNING CWOP, REORGANIZED CWOP,
JAMBOREE LLC AND JAMBOREE OFFICE REIT SET FORTH IN THIS DISCLOSURE STATEMENT
CONSTITUTE THE ONLY STATEMENTS OR INFORMATION CONCERNING SUCH MATTERS THAT HAVE
BEEN APPROVED BY THE BANKRUPTCY COURT FOR THE PURPOSE OF SOLICITING ACCEPTANCES
OR REJECTIONS OF THE PLAN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS
OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN. NEITHER DELIVERY OF
THIS DISCLOSURE STATEMENT NOR ANY EXCHANGE OF RIGHTS MADE IN CONNECTION WITH THE
PLAN SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE THIS DISCLOSURE
STATEMENT AND THE MATERIALS RELIED UPON IN PREPARATION OF THIS DISCLOSURE
STATEMENT WERE COMPILED. CWOP, REORGANIZED CWOP, JAMBOREE LLC AND JAMBOREE
OFFICE REIT ASSUME NO DUTY TO UPDATE OR SUPPLEMENT THE DISCLOSURES CONTAINED
HEREIN AND DO NOT INTEND TO UPDATE OR SUPPLEMENT THE DISCLOSURES.
THIS DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY PURPOSE
OTHER THAN TO DETERMINE WHETHER TO VOTE IN FAVOR OF OR AGAINST THE PLAN.
NOTHING CONTAINED HEREIN WILL CONSTITUTE AN ADMISSION OF ANY FACT OR
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LIABILITY BY ANY PARTY, BE ADMISSIBLE IN ANY PROCEEDING INVOLVING CWOP,
REORGANIZED CWOP, JAMBOREE LLC, JAMBOREE OFFICE REIT OR ANY OTHER PARTY OR BE
DEEMED CONCLUSIVE EVIDENCE OF THE TAX OR OTHER LEGAL EFFECTS OF THE
REORGANIZATION OF CWOP ON HOLDERS OF CLAIMS OR INTERESTS. CERTAIN OF THE
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY ITS NATURE
FORWARD-LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS AND PROJECTIONS THAT MAY
BE MATERIALLY DIFFERENT FROM ACTUAL FUTURE RESULTS. THERE CAN BE NO
ASSURANCE THAT ANY FORECASTED OR PROJECTED RESULTS CONTAINED HEREIN WILL BE
REALIZED, AND ACTUAL RESULTS MAY BE DIFFERENT THAN THOSE SHOWN, POSSIBLY BY
MATERIAL AMOUNTS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY
STATE SECURITIES COMMISSION, HAS APPROVED OR DISAPPROVED THIS DISCLOSURE
STATEMENT.
Capitalized terms used in this Disclosure Statement and not
expressly defined herein are defined in the Plan. A reference in this
Disclosure Statement to a "Section" refers to a section of this Disclosure
Statement.
A. SUMMARY OF THE PLAN.
The following is a brief summary of the Plan, which is
qualified in its entirety by reference to the Plan, attached as Exhibit 1 to
this Disclosure Statement. The Plan provides for the formation of a new
entity, Jamboree LLC, which will be the owner of CWOP's sole asset, the
office building complex located at ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ (the "Property"). The creditors of CWOP will be satisfied under
the Plan as follows: (a) holders of the approximately $198 million of
mortgage participation certificates (the "Certificateholders") will receive
collectively the New Notes in the aggregate principal amount of $100 million
issued by Jamboree LLC and secured by the Property and an initial 90%
membership interest in Jamboree LLC, which membership interest will be held
through a newly formed corporation to be operated as a real estate investment
trust (as described in Section VI.A) ("Jamboree Office REIT") and will
receive 0.1% of the amount of their deficiency claims in cash; (b) each
holder of an Allowed General Unsecured Claim will be paid in full and (c)
each holder of a Secured Tax Claim or Priority Claim will receive payment in
full over time, unless other treatment is agreed to by such holder. The
partners of CWOP will retain their proportional interests in Reorganized
CWOP, which on the Effective Date will own an initial 10% membership interest
in Jamboree LLC. Reorganized CWOP's interest in Jamboree LLC will be
exchangeable for an equivalent percentage equity interest in Jamboree Office
REIT (subject to dilution). In addition, Reorganized CWOP will receive the
New Property Appreciation Rights issued by Jamboree Office REIT representing
the right to receive cash payments based upon a percentage of the
appreciation of the value of the shares of Jamboree Office REIT above
specified values or, at Jamboree Office REIT's election, the right to receive
shares of Jamboree Office REIT (the "New Property Appreciation Rights"). As
part of the Plan, Jamboree LLC will enter into a new five-year property
management agreement with Winthrop California Management, the current
property manager.
The classification and treatment of creditors and partners under
the Plan are discussed in Section IV.B. Distributions under the Plan will be in
(a) cash, (b) notes issued by Jamboree LLC payable to certain taxing
authorities, (c) the New Notes issued by Jamboree LLC, (d) Jamboree Office REIT
Shares, (e) the New Property Appreciation Rights and (f) Jamboree LLC Units.
The cash required to fund the Plan will come from cash reserves and ongoing
operations.
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B. RECOMMENDATION.
THE DEBTOR RECOMMENDS THAT ALL CREDITORS AND PARTNERS ENTITLED TO
VOTE ON THE PLAN CAST THEIR BALLOTS TO ACCEPT THE PLAN. THE DEBTOR BELIEVES
THAT THE PLAN PROVIDES THE GREATEST AND EARLIEST POSSIBLE RECOVERIES TO CWOP'S
CREDITORS AND PARTNERS. THE DEBTOR FURTHER BELIEVES THAT ACCEPTANCE OF THE PLAN
IS IN THE BEST INTERESTS OF ALL PARTIES IN INTEREST AND THAT ANY ALTERNATIVE
WOULD RESULT IN FURTHER DELAY, UNCERTAINTY AND EXPENSE.
II. VOTING.
A. ELIGIBILITY TO VOTE.
The Plan divides creditors' Claims against and partners'
Interests in CWOP into various Classes and provides separate treatment for each
Class. Holders of Administrative Claims and Tax Priority Claims are not
classified and are not entitled to vote because the Bankruptcy Code requires the
Debtor to pay the holders of such Claims in full. Class 1 (Priority Claims),
Classes 3a, 3b and 3c (Other Secured Claims) and Class 6 (General Unsecured
Claims) are unimpaired and presumed to have accepted the Plan. All other
Classes of Claims and Interests under the Plan are impaired, and holders of
Claims and Interests in such Classes are entitled to vote on the Plan.
The record date for determining any creditor's or partner's
eligibility to vote on the Plan is July 9, 1997. Only those creditors and
partners entitled to vote on the Plan will receive a ballot with this Disclosure
Statement.
CREDITORS WHOSE CLAIMS ARE BEING OBJECTED TO ARE NOT ELIGIBLE TO
VOTE UNLESS THE OBJECTION IS RESOLVED IN THEIR FAVOR OR, AFTER NOTICE AND A
HEARING PURSUANT TO BANKRUPTCY RULE 3018(a), THE BANKRUPTCY COURT ALLOWS THE
CLAIM TEMPORARILY FOR THE PURPOSE OF VOTING TO ACCEPT OR REJECT THE PLAN. ANY
CREDITOR THAT WANTS ITS CLAIM TO BE ALLOWED TEMPORARILY FOR THE PURPOSE OF
VOTING MUST TAKE THE STEPS NECESSARY TO ARRANGE AN APPROPRIATE HEARING WITH THE
BANKRUPTCY COURT UNDER BANKRUPTCY RULE 3018(a).
B. BALLOTS.
In voting for or against the Plan, please use only the ballot or
ballots sent to you with this Disclosure Statement. Votes cast to accept or
reject the Plan will be counted by Class. Please read the voting instructions
on the reverse side of the ballot for a thorough explanation of voting
procedures. Please note that the execution of the Agreement of Understanding
did not constitute a vote for the Plan. (See Section III.B.2)
PLEASE PUT YOUR TAXPAYER IDENTIFICATION (OR SOCIAL SECURITY)
NUMBER ON YOUR BALLOT; THE DEBTOR MAY NOT BE ABLE TO MAKE DISTRIBUTIONS WITHOUT
IT.
IF YOU BELIEVE THAT YOU ARE A MEMBER OF A VOTING CLASS FOR WHICH
YOU DID NOT RECEIVE A BALLOT, IF YOUR BALLOT IS DAMAGED OR LOST, OR IF YOU HAVE
QUESTIONS CONCERNING VOTING PROCEDURES, CALL ▇▇▇▇ ▇▇▇▇▇, BANKRUPTCY COORDINATOR
WITH O'MELVENY & ▇▇▇▇▇ LLP AT (▇▇▇) ▇▇▇-▇▇▇▇. ▇▇▇▇ ▇▇▇▇▇ CANNOT PROVIDE YOU
WITH LEGAL ADVICE.
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C. VOTING PROCEDURE.
Mail your completed ballots to: ▇▇▇▇ ▇▇▇▇▇, Bankruptcy
Coordinator, O'Melveny & ▇▇▇▇▇ LLP, ▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇-▇▇▇▇. A pre-addressed envelope is enclosed for your convenience. DO
NOT RETURN BALLOTS TO THE BANKRUPTCY COURT. You may not change your vote
after it is cast unless the Bankruptcy Court permits you to do so after
notice and a hearing to determine whether sufficient cause exists to permit
the change. DO NOT RETURN ANY DEBT INSTRUMENTS WITH YOUR BALLOT.
D. DEADLINE FOR VOTING.
IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY 4:00 P.M.,
LOS ANGELES TIME ON AUGUST 25, 1997.
E. IMPORTANCE OF YOUR VOTE.
Your vote is important. The Bankruptcy Code defines
acceptance by a class of claims as acceptance by holders of at least
two-thirds in amount and a majority in number of allowed claims in that class
that vote. ONLY THOSE CREDITORS AND PARTNERS WHO ACTUALLY VOTE ARE COUNTED
FOR PURPOSES OF DETERMINING WHETHER A CLASS HAS VOTED TO ACCEPT THE PLAN.
YOUR FAILURE TO VOTE WILL LEAVE TO OTHERS THE DECISION TO ACCEPT OR REJECT
THE PLAN.
III. BACKGROUND OF CWOP AND THE CHAPTER 11 CASE.
A. HISTORICAL FRAMEWORK.
1. DESCRIPTION OF THE PROPERTY; FORMATION OF CWOP.
The Property is a 14.748 acre parcel of improved real property
located at ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, at the corner of
Jamboree Boulevard and ▇▇▇▇▇▇▇▇▇ Drive, immediately south of the Jamboree
exit of Interstate 405. The Property is part of a retail and office
development known as Park Place, which consists of the Property and
approximately 90 acres of land surrounding the Property. The Property
includes a ten-story tower building containing 236,000 square feet of office
space, six four-story 200,000 square feet buildings (1.2 million square feet
in the aggregate), and approximately 300,000 square feet of concourse space
--approximately 1.5 million leasable square feet in total, making the
Property one of the largest office buildings in Orange County. Fluor
Corporation ("Fluor") constructed the improvements on the Property in 1975
through 1981, and since that time the Property has served as its world
headquarters. However, as discussed in Section III.A.3, Fluor has recently
announced that it will be constructing a new headquarters and intends to
vacate the Property when its lease expires in 1999.
In August of 1984, ▇▇▇▇▇▇▇▇ ▇▇▇▇ Company ("▇▇▇▇▇▇▇▇ ▇▇▇▇"), a
nationally known real estate developer, approached Winthrop Financial
Associates, A Limited Partnership ("WFA") with the proposition that WFA
finance the acquisition of the Property and surrounding land. In January of
1985, two partnerships were formed to acquire the properties: (1) CWOP, a
Maryland general partnership, which would acquire and operate the existing
office buildings, and (2) ▇▇▇▇ ▇▇▇▇▇▇▇▇ Development Limited Partnership
("CWDLP"), a Maryland limited partnership, which would acquire and develop
the land surrounding the existing facilities (the "Development Parcel").
Winthrop California Investors Limited Partnership ("WCI"), a limited
partnership of which WFA and Three Winthrop Properties Inc., a corporation
owned by WFA, are the
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general partners, is the 99% general partner of CWOP, and Crow Irvine #2
("Crow"), an entity controlled by affiliates of ▇▇▇▇▇▇▇▇ ▇▇▇▇, is the 1%
partner. Crow is a 75% general partner of CWDLP, and WCI is a 25% limited
partner. Thus, WFA and ▇▇▇▇▇▇▇▇ ▇▇▇▇ agreed that an entity in which WFA
controlled a significant equity interest would own and control the Property
(i.e., the existing office building), while an entity in which ▇▇▇▇▇▇▇▇ ▇▇▇▇
affiliates controlled the predominant equity interest would own and control
the Development Parcel.
WCI's 3,500 limited partnership units are over 70% owned by
outside investors and the units are registered under the Securities Exchange
Act of 1934. WILCAP Limited Partnership, a Massachusetts limited partnership
wholly owned by WFA and its affiliates, owns 1,000 units. In addition to its
99% general partnership interest in CWOP and a 25% interest in CWDLP, WCI
owns a 99% limited partnership interest in Winthrop California Management
Limited Partnership ("WCM"), a Maryland limited partnership, which manages
and leases the Property.
2. ACQUISITION OF THE PROPERTY BY CWOP; STRUCTURE OF
FINANCING.
On July 30, 1985, CWOP acquired the Property, and CWDLP
acquired the Development Parcel from Fluor. The Property and the Development
Parcel were acquired for a total price of $302 million, of which $297,789,000
was allocated to the Property and $4,211,000 was allocated to the Development
Parcel, although an additional $35 million was paid to Fluor upon the
transfer of certain development rights for the Development Parcel.
In early 1985, the Debtor engaged ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Inc. and
Salomon Brothers Realty Corp. (collectively, "Salomon") to help obtain
financing to purchase the Property. ▇▇▇▇▇▇▇ in turn enlisted the assistance
of Pacific Mutual Life Insurance Co., which created Pacific Mutual Realty
Finance, Inc. (the "Servicing Agent"), a wholly-owned subsidiary, for
purposes of the transaction.
▇▇▇▇▇▇▇, the Servicing Agent and the Debtor devised a
structure whereby the Debtor would obtain a $204 million loan secured by its
real property and tangible personal property (the "Mortgage Loan"). The
Mortgage Loan was structured as a two-part transaction: (1) the financing to
purchase the Property was raised in the public market through the issuance of
certificated debt instruments (the "Certificates"), the issuance,
participation and servicing of which are provided for in the Purchase,
Participation and Servicing Agreement dated June 17, 1985 (the "Purchase
Agreement"); and (2) such financing was advanced to the Debtor pursuant to a
loan agreement (the "Existing Loan Agreement"), pursuant to which the Debtor
executed a Secured Promissory Note (the "Existing Secured Note") in the
principal amount of $204 million in favor of the Servicing Agent. The
Existing Secured Note is secured by a first priority deed of trust covering
the Property, the tangible personal property therein and the leases thereon
(the "Existing Deed of Trust"). In addition, the Servicing Agent and CWDLP
entered into an agreement granting the Servicing Agent, as custodial holder
of the Existing Secured Note and Existing Deed of Trust, certain approval
rights regarding the Development Parcel (the "Development Approval
Agreement"). The obligations under the Existing Secured Note are nonrecourse
to the partners of CWOP, except that $15 million of the principal was
guaranteed by WFA for tax purposes.
At the July 30, 1985 closing of the transaction, the Servicing
Agent simultaneously (1) issued the initial Certificates and (2) advanced the
$204 million in proceeds therefrom to the Debtor pursuant to the Existing
Loan Agreement. Pursuant to the Purchase Agreement, the Certificates
constitute absolute, undivided ownership interests in the Existing Secured
Note and all the collateral comprising the security therefor, and the
Servicing Agent acts solely as custodial agent for the exclusive benefit of
the holders of the Certificates (the "Certificateholders"). The Existing
Secured Note matured on April 1, 1996, at which time a final principal
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payment of approximately $198 million was due. CWOP was unable to pay the
principal amount when due, and this amount remained unpaid on the Petition
Date.
3. MAJOR TENANTS.
Five tenants each lease 10% or more of the rentable square
footage of the Property: (i) Fluor, (ii) Air Touch Cellular, (iii) Denny's
Inc., (iv) Waban, Inc. and (v) Preferred Mortgage.
▇▇▇▇▇ ▇▇▇▇▇▇, INC. Fluor is an international company whose
principal business is to provide engineering, construction and technical
services to a broad range of clients.
In late 1988, CWOP entered into its current lease (the
"Current Fluor Lease") with Fluor, which amended the lease entered into at
the time of the purchase of the Property. Under the terms of the Current
Fluor Lease, Fluor leases a minimum of approximately 790,000 useable square
feet (approximately 889,000 square feet on a rentable basis) for ten years.
The average rental rate is $16.84 per square foot net (which equates to an
approximately $27.26 gross per square foot). The Current Fluor Lease is
scheduled to expire July 31, 1999.
At the time the Current Fluor Lease was executed, Fluor was
leasing approximately 1,229,000 useable square feet. Since that time, they
have vacated space as permitted under the terms of the Current Fluor Lease.
As of December 31, 1996, Fluor leased approximately 790,000 useable square
feet. In June 1995, Fluor vacated approximately 174,000 useable square feet,
which had been occupied by AVCO Financial Services under a sublease. Later
that year, the space was leased directly to AirTouch Cellular.
CWOP and Fluor recently entered into subleases and leases with
two entities. California Lending Group, Inc., a subsidiary of ContiFinancial
Corporation, entered into a sublease for approximately 46,000 useable square
feet of space currently leased by Fluor. The sublease will become a direct
lease for a five year term when the current Fluor lease expires in 1998. The
average rental rate is $18.00 per square foot (gross) for the first thirty
months and $19.20 thereafter. The Prudential Real Estate Affiliates and
Prudential Insurance Company recently entered into a lease for approximately
56,000 square feet, which space consists of the ninth and tenth floors of the
tower. The lease, which has a 7 year term, will also become a direct lease
upon the expiration of the Current Fluor Lease. The average rental rate
during the term of the lease is $25.20 per square foot (gross).
Recently, CWOP has entered into another sublease/lease with
Fluor. In June, 1997, CWOP entered in an eight year lease (with two
five-year renewal options) with Prudential Residential Services, an affiliate
of Prudential Real Estate Affiliates and Prudential Insurance Company, for
approximately 9,330 square feet of the tower building. This lease will also
become a direct lease when the Fluor lease expires in 1998.
In 1995, CWOP engaged in discussions with Fluor regarding a
termination of the Current Fluor Lease and execution of a new, long-term
lease. In order to provide Fluor sufficient time to negotiate a long term
lease, CWOP agreed to provide Fluor with the rights to "holdover" designated
space for a period of 30 days to one year at an average net rental rate of
$13.44 per square foot (for atrium space) and $6.16 per square foot (for
concourse space).
CWOP made its most recent proposal for a new lease to Fluor in
December of 1996. Subsequently, Fluor announced that it will build a new
facility in Aliso Viejo and informed CWOP that it will vacate its space.
Because of the existing subleases, 698,000 feet will become vacant on
expiration of the Current Fluor Lease. On August 1, 1997, Fluor must
indicate which portions of its leased space it will vacate
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on July 31, 1998 (with the balance vacated by July 31, 1999) and in which
portions, if any, it will remain in as a holdover tenant.
AIRTOUCH CELLULAR. Commencing November 15, 1995, AirTouch
Cellular leased 189,265 square feet of space at an average rental rate of
approximately $14.00 per square foot. The lease is for 5.5 years and
contains two renewal options for terms of up to 5 years each.
▇▇▇▇▇'▇ INC. ▇▇▇▇▇'▇ Inc. ("Denny's") is a national food
service company that operates the Denny's restaurant chain. The lease
agreement between CWOP and ▇▇▇▇▇'▇ Inc. is for 158,362 square feet of space.
This initial lease term expires on July 14, 2004. Denny's does not occupy
any of the space under this lease and has subleased its entire space to two
tenants. The largest subtenant is Waban, Inc. ("Waban"), which subleases
106,576 square feet from Denny's and also leases 57,308 square feet directly
from CWOP, as described below. Denny's also subleases to another company,
Private Healthcare Systems. Flagstar, formerly known as T.W. Services, Inc.,
the parent company of Denny's, has guaranteed the Denny's lease, as well as
leases of two other subsidiaries that are tenants, El Pollo Loco and
Coco's/Carrows. Flagstar has recently announced that it intends to file a
prepackaged bankruptcy case, and the Debtor does not know what impact that
may have on the guaranty.
WABAN, INC. Waban, Inc. is a home improvement products
retailer. Waban has entered into two separate leases: a lease with CWOP for
57,308 square feet, and the sublease with Denny's discussed above. The lease
agreement between CWOP and Waban, which is scheduled to expire on July 24,
2004, contains extension options for three consecutive five year terms.
▇▇▇▇▇'s sublease agreement with Denny's expires on July 24, 2004.
PREFERRED MORTGAGE T.A.R. Preferred Mortgage Corporation
("Preferred Mortgage") entered into a lease for approximately 78,700 square
feet in January 1997. The lease expires March 31, 2002. The average rental
rate is approximately $16.56 per square foot. The lease contains a must-take
option whereby Preferred Mortgage will lease another 22,000 square feet after
May 1997.
4. PROPERTY MANAGEMENT.
From the date that CWOP acquired the Property until March
1992, Crow Orange County Management Company, Inc. ("COCMC"), an affiliate of
Crow, provided leasing, management and construction supervision services at
the Property pursuant to a management agreement executed by CWOP and COCMC
(the "COCMC Building Management Agreement"). In 1992, WCI desired to acquire
the right to manage the Property and, except for Crow's 1% interest in CWOP,
unify ownership and management of the Property. WCI formed Winthrop
California Management Limited Partnership ("WCM"), and in consideration of a
cash payment of $4 million and WCI's agreeing to afford greater flexibility
to Crow and its principals under the CWDLP partnership agreement, WCM
acquired COCMC's management rights and Crow agreed to essentially become a
limited partner in CWOP. (▇▇▇▇ did not agree to be actually converted to a
limited partner at the time because the conversion expands the rights of the
holder of the Existing Secured Note (and thus impairs Crow's rights) under
the Development Approval Agreement.) Thus, the CWOP partnership agreement
was amended to give WCI the sole right to manage the business of CWOP
(including the retention of professionals and the commencement of a
bankruptcy proceeding). The intent of the parties that Crow cede all
management rights to WCI is enforced by a provision in the amendment that
converts Crow to a limited partner in the event Crow breaches the provision
prohibiting Crow from controlling the partnership. Based on Crow's actions,
WCI has asserted that Crow has lost its status as a general partner of CWOP
and has been automatically converted to a limited partner under this
provision.
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WCM was formed to own the management rights to the Property
but otherwise is not a property management company. In order to perform the
management services under the property management agreement, WCM engaged
Winthrop Management, a property management affiliate of Winthrop Financial
Associates. Under CWOP's current agreement with WCM, the salaries of the
Winthrop Management employees who perform services for the Property (as well
as the office space for the property management office) are charged to CWOP
at cost and passed through to tenants as an operating expense. Winthrop
Management handles a significant portion of the accounting for the Property
as well as human resources, benefits and payroll for all on-site employees at
no expense to CWOP. Winthrop Management occupies approximately 2,000 square
feet of tower space for the property management office and 12,000 feet of
concourse space for building operations. Prior to the commencement of the
Reorganization Case, WCM received a fee of 5% of gross revenues for the space
leased by Fluor and 4% for other space plus leasing commissions and
construction management fees for managing the Property, the same fees COCMC
received under the COCMC Building Management Agreement.
5. THE DEVELOPMENT PARCEL; EXTERIOR COMMON AREA.
The respective rights of CWOP and CWDLP to use the Development
Parcel are governed by a reciprocal easement agreement entered into at the
time the Property was acquired from Fluor (the "REA"). Under the REA, the
owner of the Property (CWOP or its transferee) is granted easements for
access, utilities and parking. The owner also has a non-exclusive right to
use the common area portion of the Development Parcel, subject to certain
restrictions. Under the REA, CWDLP must provide at least 5,225 non-exclusive
surface parking spaces "appurtenant" to the Property. Except to the extent
the owner of the Property designates any of the spaces as reserved or the
spaces are relocated to a parking structure, the spaces are to be provided
without charge to CWOP. The owner of the Property has the right to designate
all or any portion of the surface parking spaces as reserved, and CWDLP is
entitled to a reserve premium on such spaces equal to the difference between
the "market rate" for the reserved space in question and the "market rate"
for the same space on an unreserved basis.
In order to provide for the effective management and
maintenance of Park Place, CWOP and CWDLP originally agreed to appoint COCMC
to act as managing agent for Park Place. In addition to the COCMC Building
Management Agreement, CWOP executed a management agreement under which COCMC
agreed to provide maintenance services with respect to the "common area" of
the Development Parcel, which is comprised of the parking lots and walkways
of Park Place (the "Common Area Management Agreement"). Under the REA and
the Common Area Management Agreement, COCMC is responsible for allocating the
expenses of the Development Parcel common area, which expenses include
insurance, security and property taxes for the portions of the Development
Parcel that constitute "common area." The REA provides for at least two
methods of allocating common area expenses: one based on the proportionate
square footage of the improvements located on each party's parcel and another
based on "standards, customs, and guidelines common in the industry in the
Newport Beach/Irvine/South Coast Plaza area," taking into account the
relative benefits derived from the common area, the amount of use and similar
factors. In addition, if a party's use of its parcel or the common area
results in an increased cost of maintenance or services, that party is to
bear the increased cost.
Prior to the sale of the management rights for the Property to
WCM, COCMC had not charged a fee under the Common Area Management Agreement.
However, after the sale, COCMC began charging CWOP a management fee of 15% of
all costs associated with the exterior common area -- including property
taxes and management "overhead". While CWOP did not dispute COCMC's right to
charge a reasonable management fee for the very limited services it provided
with respect to the external common area, COCMC demanded a management fee of
over $240,000 per annum (plus overhead) to manage what was, in essence,
grass, walkways and a parking lot.
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COCMC's imposition of this management fee was accompanied by
CWDLP's assessment of a reserved parking charge for any space designated as
reserved by CWOP's tenants. CWOP asserted that the fee was unreasonable, and
CWOP was effectively precluded from passing on any portion of the new charge
to its tenants because the lease with its tenants, which COCMC negotiated
while it was the property manager under the COCMC Building Management
Agreement, included free reserved parking.
In 1994, CWOP commenced litigation against CWDLP seeking
relief from the amounts charged by COCMC under the REA and the related
management agreement. The litigation was settled in April 1995 pursuant to
an agreement among the parties (the "Settlement Agreement"). The Settlement
Agreement provides that CWOP will pay for reserved spaced parking at $20,833
per month as adjusted by the Consumer Price Index, for 600 reserved spaces,
or a proportionally reduced amount if CWOP has fewer reserved spaces (but
CWOP may only reduce the number of spaces in 150 space increments). Under
the Settlement Agreement, WCM subcontracted certain management duties for the
common area. However, it receives no payment for managing the common area and
instead pays COCMC $20,833 per month in consideration for this "management
privilege."
During the past two years, retail development of the
Development Parcel has increased significantly. Retail tenants include
Houston's Restaurant, ▇▇▇▇'▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Sports Chalet and California
Pizza Kitchen. In addition, CWDLP completed the construction of a 3-acre
18-hole putting golf course in 1996. CWDLP has recently announced plans to
commence additional development on the Development Parcel. The new project
is being advertised by Crow as a "city within a city" with two office
buildings, a hotel and a nightclub.
As part of the existing retail development, certain retail
parking was constructed separate from the parking available for tenants of
the Property and made into limited time lots. CWDLP recently informed CWOP
that it intends to gate sections of the parking for the Property that are
currently designated for visitor parking and to charge for such parking.
▇▇▇▇ believes that this violates the terms of the REA and COCMC's duties as
managing agent for the common area. Numerous other disputes have arisen
between CWOP and CWDLP regarding the REA and the common area. As a result on
June 27, 1997, CWOP commenced the Crow Litigation. See Section III.C.5.
B. EVENTS LEADING TO THE FILING OF THE CHAPTER 11 CASE.
1. ORANGE COUNTY REAL ESTATE MARKET.
Since the acquisition of the Property, the Orange County
rental market and the rental market in the area proximate to ▇▇▇▇ ▇▇▇▇▇
Airport (the "Greater Airport market") have changed dramatically. The
market's general economic condition has weakened, and supply of office space
has outpaced demand. The Orange County office market consists of
approximately 52 million square feet of space contained in 585 buildings,
with approximately forty-five percent (45%) of these buildings developed
since 1985. As a result of this tremendous growth of supply, average vacancy
for the Greater Airport market increased from 9% in 1984 to approximately 25%
in 1989. While the vacancy rate gradually declined to approximately 17.2% at
the end of 1994 and 13.5% at the end of 1996, average rental rates have
remained depressed, with average rental rates in Orange County declining
approximately 20% from 1985 to 1996. While the Property maintained low
vacancy rates as the result of an aggressive leasing campaign (the Property
was 95% occupied at the end of 1996), the Property suffered a decline in
achievable rents consistent with the market.
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2. AGREEMENT OF UNDERSTANDING WITH CERTIFICATEHOLDERS.
In April 1996, the Existing Secured Note became due. Prior to
the maturity of the note, CWOP and the Certificateholders commenced
negotiations to restructure the Existing Secured Note. On April 10, 1996,
the Servicing Agent notified CWOP that it had received the requisite consents
from the Certificateholders to extend the maturity date through June 1996.
Although it was unable to repay the principal amount outstanding, CWOP
continued to pay interest at the nondefault rate after the maturity date.
There are over 20 Certificateholders, including foreign banks. The unanimous
consent of the Certificateholders is required to restructure the Existing
Secured Note, while the consent of 51% in aggregate amount of the
Certificates is required to commence foreclosure proceedings. By April of
1996, many of the original holders of the Certificates had sold to other
funds and institutions. In May 1996, four of the Certificateholders formed a
steering committee. The initial members were Topa Savings Bank, AEGON Realty
Advisors, Contrarian Capital LLC and TCW Asset Management Company (the
"Steering Committee"). The Steering Committee retained Milbank, Tweed,
▇▇▇▇▇▇ & ▇▇▇▇▇▇ as its counsel. Despite the ongoing negotiations with CWOP,
holders representing at least 51% in aggregate amount of the Certificates
voted to record a notice of default against the Property in June 1996, and in
July 1996, the Servicing Agent took possession of approximately $1.3 million
in cash that was held in a pledged account. Nonetheless, negotiations among
the parties continued, and in August of 1996, the parties reached an
agreement providing for the payment of excess cash to the Certificateholders
pursuant to a monthly cash sweep of CWOP's rent account.
In November 1996, the Certificateholders and CWOP reached an
agreement in principle on the terms of a plan of reorganization, which terms
are incorporated in the Plan. The parties entered into an agreement of
understanding dated as of November 27, 1996 (the "Agreement of
Understanding"), which was executed by more than 66 2/3% in amount and more
than 50% in number of the Certificateholders (the "Requisite
Certificateholders"). Under the Agreement of Understanding, the Requisite
Certificateholders agreed to support a pre-arranged bankruptcy plan of
reorganization for CWOP with the terms contained in the Plan. The Requisite
Certificateholders also agreed to forbear from exercising any remedies so
long as the Agreement of Understanding was in effect.
The Agreement of Understanding does not obligate any
Certificateholder to vote for the Plan. All Certificateholders (including
the Certificateholders who signed the Agreement of Understanding and the
Certificateholders who agreed in writing to be bound by the terms of the
Agreement of Understanding when they purchased their Certificates) are
permitted to vote for the Plan or to vote against the Plan or not to vote at
all, without restraint and without breaching the Agreement of Understanding
regardless of which they choose to do.
The Debtor has indicated that it may seek to contend in the
Bankruptcy Court that the signatures to the Agreement of Understanding
constituted a valid prepetition vote in favor of the Plan that was made after
disclosure of adequate information to meet the requirements of section
1126(b) of the Bankruptcy Code. This reservation of rights does not in any
way affect the right of Certificateholders to vote against the Plan if they
choose to do so.
On or about March 25, 1997, CWOP Note Administrator L.L.C., an
affiliate of certain investment funds and accounts managed by TCW Asset
Management Company, became the successor servicing agent (the "Successor
Servicing Agent") under the Purchase Agreement, replacing the Servicing Agent
(but the Servicing Agent agreed to continue as subagent to perform certain
administrative tasks). The Servicing Agent intends to assign the Existing
Secured Note and liens securing the note to the Successor Servicing Agent.
On June 17, 1997, the Bankruptcy Court entered an order approving a
stipulation entered into by the Servicing Agent, the Successor Servicing
Agent and the Debtor modifying the automatic stay to the extent necessary to
execute and record documents in connection with that assignment.
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C. SIGNIFICANT EVENTS DURING THE CHAPTER 11 CASE.
CWOP commenced this case (the "Reorganization Case") by filing
a voluntary petition under chapter 11 of the Bankruptcy Code on March 28,
1997. Since the filing, the Debtor has operated its business as a debtor in
possession under the Bankruptcy Code. The following is a summary of certain
significant events that have occurred during the pendency of the
Reorganization Case.
1. CASH COLLATERAL AGREED ORDER.
The Debtor currently operates under a cash collateral order
entered by the Bankruptcy Court on April 3, 1997 (the "Cash Collateral
Order"). Under the terms of the Cash Collateral Order, CWOP may use the
Certificateholders' cash collateral to operate the Property and administer
the Reorganization Case in accordance with the budget attached to the order
(the "Initial Budget") or as otherwise approved by the Successor Servicing
Agent. The budget approved by the Cash Collateral Order extends through
September 30, 1997, but the Debtor may use cash collateral thereafter
provided CWOP and the Successor Servicing Agent agree to the terms of
additional 30 day budgets. The Cash Collateral Order also provides that all
"excess cash" (as determined under the Cash Collateral Order) generated
during the Reorganization Case will be placed in a reserve that CWOP will
contribute to Jamboree LLC on the Effective Date.
2. MOTION TO DISMISS.
On March 31, 1997, ▇▇▇▇ filed a motion to dismiss the
Reorganization Case or alternatively to treat the filing as involuntary. In
its motion, ▇▇▇▇ asserted that it did not consent to the filing. In
opposition, the Debtor asserted that ▇▇▇▇ expressly consented to the filing
in the CWOP partnership agreement. The Court denied ▇▇▇▇'▇ motion to dismiss
by an order entered May 2, 1997.
3. CLAIMS BAR DATE AND CLAIMS PROCEDURES ORDER.
On May 2, 1997, the Bankruptcy Court entered an order
requiring pre-petition creditors (with certain exceptions) to file proofs of
claim against the Debtor no later than June 16, 1997. A party to an
executory contract or lease that is rejected by the Debtor has until 30 days
from the date of mailing of the notice of entry of the order approving the
rejection to file a claim against the Debtor for rejection damages.
4. LEASING TRANSACTIONS.
On June 20, 1997, the Court entered an order authorizing CWOP
to enter into in the ordinary course of business leases that fall within
certain defined parameters (the "Ordinary Course Leasing Parameters"). The
Ordinary Course Leasing parameters are as follows: (a) lease renewals of new
leases of 15,000 rentable square feet or less; (b) lease terms of 6 years or
less; and (c) tenant improvements, if any, of $18.00 or less per square foot,
payable by CWOP as the work is completed. Since that order was entered, CWOP
entered into a variety of lease renewals with existing tenants in the
ordinary course. In addition, pursuant to a motions to authorize the Debtor
to enter into leases outside of the ordinary course of business, the Court
authorized the Debtor to enter into the lease with Prudential Residential
Services (see Section III.A.3) and a short-term lease with Consumer Portfolio
Services, Inc.
5. ▇▇▇▇ CLAIMS AND LITIGATION.
CWDLP filed four separate proofs of claim asserting secured
and unsecured claims for CWOP's alleged delinquencies in the payment of its
share of property taxes and insurance premiums with respect to the common
area of the Development Parcel (the "Common Area"). CWDLP asserted the
following
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secured claims: $18,634.78 predicated upon liens filed with the Orange
County Recorder on March 14, 1996 and March 18, 1996; $79,714.07 predicated
upon a lien filed with the Orange County Recorder on November 12, 1996 and
amended December 6, 1996; and $59,872.54 predicated upon a lien filed with
the Orange County Recorder on January 31, 1997 and amended March 29, 1997
(the "CWDLP Secured Claims"). CWDLP asserted an unsecured claim in the
amount of $4,999.82 predicated upon another purported late payment but for
which CWDLP did not file a lien prior to the commencement of the bankruptcy
case.
On June 30, 1997, CWOP filed two complaints against CWDLP and
COCMC (the "Crow Litigation"). In the first, CWOP is objecting to CWDLP's
claims and seeking turnover, avoidance of fraudulent conveyances and
declaratory and other relief. In the second, CWOP is seeking declaratory and
other relief regarding the failure of COCMC to establish a parking control
program. The disputes that give rise to the Crow Litigation are set forth
below.
First, under the REA, the parties are entitled to the
non-exclusive right to use and enjoy the Common Area. However, since April
1995, CWDLP has used and developed portions of the Common Area in a manner
that is useful, beneficial and convenient only to CWDLP to the exclusion of
CWOP. These portions of Common Area include a modular office facility from
which CWDLP conducts its leasing and development activities, parcels used for
the development and operation of a miniature golf course, and parcels used
for the construction and development of a retail area, including the
establishment of restricted parking. Notwithstanding the fact that CWOP has
been denied its right to the use and enjoyment of these areas, CWDLP has
included them in Common Area and has apportioned Common Area expenses
associated therewith to CWOP. Under federal and state fraudulent conveyance
statutes, CWOP is entitled to the return of Common Area charges improperly
allocated to it, damages against CWDLP and COCMC for breach of contract and
constructive fraud, and a declaration that the affected areas be removed from
Common Area.
Second, CWDLP has impermissibly delayed charging tenants or
occupants of developed portions of the Development Parcel their share of the
Common Area expenses until the tenant or occupant is "open for business,"
although such land is removed from the Common Area upon the commencement of
construction, thereby overcharging CWOP for its allocable share of Common
Area expenses. Under state and federal fraudulent conveyance statutes, CWOP
is entitled to the return of Common Area charges improperly allocated to it,
damages against CWDLP and COCMC for breach of contract and constructive
fraud, and a declaration that the allocable share of Common Area Expenses be
allocated to tenants or occupants at the time the land is removed from the
Common Area.
Third, under the REA, CWOP is obligated to pay its allocable
share of property taxes associated with the Common Area. As managing agent,
COCMC is authorized to submit invoices from time to time requesting CWOP's
advance payment of its share of the property tax obligation. Although the
property tax payments are nominally due on November 1 and March 1 of each
fiscal year, installments may be paid, and are not delinquent, if paid by
December 10 and April 10, respectively. COCMC has engaged in the practice of
submitting invoices for property tax payments well in advance of the
delinquency date, and then declaring CWOP delinquent when payment is not made
within five days, and has imposed interest and late charges. In those
instances where CWOP has complied with COCMC's request, COCMC has
impermissibly had the use of CWOP's funds, in effect exacting a premium over
and above CWOP's actual property tax obligation. On this basis, CWDLP has
asserted the improper late charges that are the basis of its Claims filed
against the Debtor. CWOP objects to the claims on the basis that there is no
amount due to CWDLP. CWOP is also seeking to avoid CWDLP's asserted liens on
that basis. Further, by virtue of this conduct, CWOP is entitled to relief
under federal and state fraudulent conveyance statutes for the improper late
charges and premiums, for damages for breach of contract and constructive
fraud against CWDLP and COCMC, and for a declaration that the practices of
CWDLP and COCMC with respect to the collection of property tax are improper.
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Fourth, as noted above, COCMC, as managing agent collects
from the parties to the REA and remits to the County of Orange property taxes
for the Common Area. In turn, where a refund is due, the County of Orange
pays the refund to CWDLP for the benefit of the parties to the REA.
Notwithstanding that COCMC held refunds in excess of $550,000 as of March 28,
1996 and in excess of $610,000 as of January 1, 1996, COCMC has failed to
remit to CWOP its share of these refunds (of which the majority would be
refunded to CWOP's tenants). CWOP is entitled to relief against COCMC under
turnover, federal and state fraudulent conveyance statutes, and is entitled
to damages against CWDLP and COCMC for breach of contract and constructive
fraud.
Fifth, there is presently a dispute between CWOP and
CWDLP and COCMC with respect to charges for non-reserved parking. Under the
REA, CWDLP is required to supply at least 5,225 non-exclusive surface parking
spaces at no charge. ▇▇▇▇▇ contends that it is entitled to initiate a
parking system that would impose a charge on some or all of the non-reserved
spaces. CWOP is entitled to a declaration that it is entitled to at least
5,225 non-exclusive surface parking spaces without charge.
Sixth, there is presently a dispute between CWOP and
CWDLP and COCMC concerning CWDLP's reduction in the number of non-exclusive
parking spaces, as required under the REA, through the imposition of parking
time restrictions on parking spaces in the vicinity of the retail
development. CWOP is entitled to a declaration that spaces so restricted may
not be counted toward CWDLP's obligation under the REA to supply at least
5,225 surface parking spaces.
Seventh, under the REA, the managing agent, COCMC, is
required to provide prior written approval of exterior signage and monuments.
There is presently a dispute between CWOP and CWDLP and COCMC with respect to
the manner in which the managing agent has exercised approvals and
disapprovals of exterior signage and monuments. CWOP is entitled to a
declaration that the managing agent is required to administer the approval
process in a fair, consistent and commercially reasonable manner.
Eighth, the REA requires the managing agent to establish
a controlled parking program where necessary. At present, the absence of a
control program has resulted in an uneven and inefficient use of the parking
spaces and complaints and dissatisfaction on the part of the CWOP's tenants.
CWOP has requested the managing agent to implement a parking control program,
but ▇▇▇▇ has refused.
CWOP is seeking the recovery or turnover of approximately
$900,000 and damages in an undetermined amount in addition to the declaratory
relief sought in the complaints. CWOP (on behalf of itself and its
successor, Jamboree LLC) expressly reserves all of its rights to amend the
complaints or bring additional and/or unrelated claims against CWDLP, COCMC
or Crow prior to or after the Effective Date.
IV. THE PLAN.
The following summary of certain principal provisions of
the Plan is qualified in its entirety by reference to the Plan, which is
attached as Exhibit 1 to this Disclosure Statement. In the event of any
discrepancy between this Disclosure Statement, including the following
summary description, and any provision of the Plan, the Plan or order
confirming the Plan will control. Capitalized terms used but not otherwise
defined herein will have the meanings ascribed to them in the Plan.
A. TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX
CLAIMS.
Administrative Claims consist of all claims for payment of
costs or expenses of administration of the Debtor or the Debtor's bankruptcy
estate (the "Estate") specified in Bankruptcy Code SECTIONS 503(b) and
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507(a)(1), including, without limitation: (a) claims under Bankruptcy Code
SECTIONS 330(a), 331 or 503 for compensation for professional services
rendered and reimbursement of expenses in the Reorganization Case ("Fee
Claims"); (b) the actual, necessary costs and expenses of preserving the
estate and operating the business of the Debtor, incurred and paid in the
ordinary course of business by the Debtor after the bankruptcy filing and
invoiced prior to the Effective Date but excluding any claim of a
governmental unit for taxes ("Ordinary Course Administrative Claims"); (c)
any post-petition taxes subject to administrative treatment; and (d) fees and
charges assessed against the Debtor or the Estate pursuant to section 1930 of
title 28 of the United States Code. Priority Tax Claims consist of certain
unsecured claims of governmental units entitled to priority of distribution
from the estate under Bankruptcy Code SECTION 507(a)(8).
As provided in Bankruptcy Code SECTION 1123(a)(1),
Administrative Claims and Priority Tax Claims against the Debtor will not be
classified for the purposes of voting or receiving distributions under the
Plan. Rather, all such Claims will be treated separately as unclassified
Claims on the terms set forth in Article 2 of the Plan. The Debtor does not
believe any administrative claims will arise in the Reorganization Case other
than Ordinary Course Administrative Claims, which are operating expenses
budgeted for in the Initial Budget, and Fee Claims, for which the Debtor has
budgeted approximately $2 million. The Debtor estimates that the aggregate
amount of Allowed Priority Tax Claims will be approximately $96. Holders of
Administrative and Priority Tax Claims are not entitled to vote on the Plan;
their votes will not be solicited and they will not receive ballots. To the
extent a Priority Tax Claim is secured, it is separately classified and
treated under the Plan as a Secured Tax Claim.
1. ALLOWANCE OF ADMINISTRATIVE CLAIMS.
An Ordinary Course Administrative Claim will become
Allowed without any action by the holder of such Claim unless it is disputed
by the Debtor or Reorganized CWOP (if prior to or on the Effective Date) and
Jamboree LLC (if after the Effective Date) prior to the 60th day after the
Effective Date. Either the Debtor or Reorganized CWOP (if prior to or on the
Effective Date) or Jamboree LLC (if after the Effective Date) may dispute an
Ordinary Course Administrative Claim by providing written notice to the
claimant within 60 days after the Effective Date. If disputed by the Debtor
or Reorganized CWOP or Jamboree LLC, an Ordinary Course Administrative Claim
may become Allowed only as provided in Paragraph 2.B.3 of the Plan.
A Fee Claim will become Allowed only if the holder files
an application in accordance with the Bankruptcy Code and Bankruptcy Rules no
later than 60 days after the Effective Date and only if and to the extent
such Claim is Allowed by the Bankruptcy Court.
Under Paragraph 2.B.3 of the Plan, any other
Administrative Claim (including any Ordinary Course Administrative Claim that
is disputed by the Debtor or Reorganized CWOP or Jamboree LLC as set forth in
Paragraph 2.B.1 of the Plan) will become Allowed only if within 90 days after
the Effective Date the holder of such Claim files with the Bankruptcy Court
and serves on the Debtor or Reorganized CWOP (if prior to or on the Effective
Date) or Jamboree LLC (if after the Effective Date) a motion requesting
payment of such Administrative Claim, and only if and to the extent such
Claim is Allowed by the Bankruptcy Court pursuant to a Final Order. The
Debtor, Reorganized CWOP or Jamboree LLC may file an objection to any such
motion within the time provided by the Bankruptcy Rules or otherwise by the
Bankruptcy Court.
2. TREATMENT OF ALLOWED ADMINISTRATIVE CLAIMS.
Each holder of an Allowed Administrative Claim will receive
(i) the amount of such holder's Allowed Administrative Claim in one cash payment
or (ii) such other treatment as may be agreed by the Debtor or Reorganized CWOP
(if prior to or on the Effective Date) or Jamboree LLC (if after the Effective
Date) and such holder. Distributions on account of Administrative Claims that,
on the Effective Date, are Allowed
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Claims, will be made by Reorganized CWOP (if on the Effective Date) or
Jamboree LLC (if after the Effective Date) on or as promptly as practicable
after the Effective Date. Distributions on account of Administrative Claims
Allowed after the Effective Date will be made as soon as practicable after
such Claims become Allowed. The Debtor or Reorganized CWOP (if prior to or
on the Effective Date) or Jamboree LLC (if after the Effective Date) will pay
each Allowed Ordinary Course Administrative Claim on the date on which
payment is due or otherwise would be permitted to be made in accordance with
the terms and conditions of the particular transaction and any agreements
relating thereto.
3. TREATMENT OF PRIORITY TAX CLAIMS.
Each holder of an Allowed Priority Tax Claim will receive
(i) the amount of such holder's Allowed Priority Tax Claim on the sixth
anniversary of the assessment date of the taxes on which the holder's
Priority Tax Claim is based, with interest payable annually in arrears at the
judgment rate of interest determined in accordance with 28 U.S.C. SECTION
1961(a) on the Confirmation Date or such other rate as the Bankruptcy Court
may determine at the Confirmation Hearing or (ii) such other treatment as may
be agreed upon by the Debtor or Reorganized CWOP (if prior to or on the
Effective Date) or Jamboree LLC (if after the Effective Date).
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.
1. PRIORITY CLAIMS (CLASS 1).
Class 1 consists of Priority Claims. Priority Claims are
Claims entitled to priority pursuant to Bankruptcy Code SECTION 507(a), other
than an Administrative Claim or Priority Tax Claim. Each holder of an
Allowed Priority Claim will receive, on account of such Claim, (i) the amount
of such holder's Allowed Priority Claim in one cash payment or (ii) such
other treatment as may be agreed by the Debtor or Reorganized CWOP (if prior
to or on the Effective Date) or Jamboree LLC (if after the Effective Date)
and such holder. Class 1 is not impaired under the Plan and is deemed to have
accepted the Plan. The Debtor does not believe that there are any Priority
Claims.
2. SECURED TAX CLAIMS (CLASS 2).
Class 2 consists of the Secured Tax Claims. Secured Tax
Claims are Claims of governmental units for taxes to the extent that, by
operation of applicable non-bankruptcy law, such Claims are Secured Claims
under Bankruptcy Code SECTION 506(a) and not subject to avoidance under
chapter 5 of the Bankruptcy Code.
Under Paragraph 4.B of the Plan, each holder of an
Allowed Secured Tax Claim will receive, on account of such Claim, (i) a note
in the Allowed amount of such Claim secured by a lien on the Property PARI
PASSU with notes issued to any other holders of Allowed Secured Tax Claims
and senior to all other liens on the Property, with interest payable monthly
in arrears at a rate of 7.5% per annum and any unpaid interest and principal
payable on the third anniversary of the Effective Date, or (ii) such other
treatment as may be agreed to by the Debtor or Reorganized CWOP (if prior to
or on the Effective Date) or Jamboree LLC (if after the Effective Date) and
such holder. Class 2 is impaired under the Plan, and Debtor is soliciting
the votes of holders of Claims in that Class. The Debtor estimates that the
Allowed Secured Tax Claims will aggregate approximately $690,000.
3. OTHER SECURED CLAIMS (CLASSES 3A, 3B AND 3C).
Classes 3a, 3b and 3c consist of Other Secured Claims.
Class 3a consists of the Truck Secured Claim, the Claim of Ford Motor Credit
based on the purchase money loan for the 1997 Dodge Ram Truck to the extent such
Claim is a Secured Claim. Class 3b consists of the Van Secured Claim, the Claim
of Chrysler
15
Financial Corporation based on the purchase money loan for the 1997 Dodge
Grand Caravan to the extent such Claim is Secured Claim. Class 3c consists
of the CWDLP Secured Claims to the extent such Claims are Secured Claims (see
SECTION III.C.5). The aggregate amount of the CWDLP Secured Claims is
$158,221.39. The Debtor has filed an objection to the CWDLP Secured Claims
as part of the Crow Litigation.
4. CERTIFICATEHOLDER SECURED CLAIMS (CLASS 4).
Class 4 consists of the Certificateholder Secured Claims.
The Certificateholder Claims consist of any and all Claims arising or
asserted under, on account of or related to the Certificates, the Purchase
Agreement, the Existing Deed of Trust, the Existing Secured Note and all
other documents executed by CWOP and delivered and/or received in connection
therewith. The Certificateholder Secured Claims are the Certificateholder
Claims that are Allowed as Secured Claims pursuant to as Paragraph 4.D.2 of
the Plan.
On account of its Claim, through the process described in
Paragraph 7.E of the Plan, each holder of an Allowed Certificateholder
Secured Claim will receive its Ratable Share of (a) 100% of the Jamboree
Office REIT Shares outstanding on the Effective Date, (b) the New Class A
Senior Secured Notes and (c) the New Class B Senior Subordinated Secured
Notes. On the Effective Date, Jamboree Office REIT will own 90% of the
initial Jamboree LLC Units. The Certificateholder Secured Claims will be
Allowed under the Plan in the aggregate amount of $105
million.(1)
In addition, the Plan provides that the treatment of the
Certificateholder Secured Claims will satisfy any and all claims of the
Certificateholders under the WFA Guaranty. For tax purposes, WFA guaranteed
that at least $15 million would be recovered from the Existing Secured Note.
The Plan clarifies that the $100 million in New Notes and the Jamboree Office
REIT Shares distributed to the holders of Allowed Certificateholder Secured
Claims satisfies this obligation. In addition, and notwithstanding this
provision in the Plan, it is likely that WFA (again for tax purposes) will
elect to amend and restate the WFA Guaranty and guaranty the New Notes in a
similar amount and on the same terms as WFA's guaranty of the Existing
Secured Note.
On the Effective Date, the Debtor and the
Certificateholders will enter into a mutual release of all Claims and Causes
of Action between the parties not provided for in the Plan. The parties will
submit the form of the mutual release to the Bankruptcy Court prior to the
Confirmation Hearing.
Class 4 is impaired under the Plan, and the Debtor is
soliciting the votes of the holders of Claims in that Class.
5. CERTIFICATEHOLDER DEFICIENCY CLAIMS (CLASS 5).
Class 5 consists of all Certificateholder Deficiency
Claims. Certificateholder Deficiency Claims are the Claims of the
Certificateholders other than the Certificateholder Secured Claims.
----------------------
1. The proposed Allowed amount of the Certificateholder Secured Claims under
the Plan is conditioned on the confirmation and effectiveness of the Plan and
represents a compromise and settlement between the Debtor and such Holders in
the Reorganization Case. The compromise is in all respects subject to Rule
408 of the Federal Rules of Evidence and shall not be used against either
party, as an admission or otherwise, in the adjudication of any such matters.
If the Plan does not become effective, the parties reserve all of their
rights, including the holders' right to elect treatment under Bankruptcy Code
SECTION 1111(b), subject to the terms of the Agreement of Understanding.
16
On account of its Claim, through the process described in
Paragraph 7.E of the Plan, each holder of an Allowed Certificateholder
Deficiency Claim will receive 0.1% of its Allowed Claim. The
Certificateholder Deficiency Claims will be Allowed under the Plan in the
amount of $93 million.(2)
Class 5 is impaired under the Plan, and the Debtor is
soliciting the votes of the holders of Claims in that Class.
6. GENERAL UNSECURED CLAIMS (CLASS 6).
Class 6 consists of all General Unsecured Claims. A
General Unsecured Claim is any Claim other than an Administrative Claim, a
Priority Tax Claim, a Secured Tax Claim, a Priority Claim, a
Certificateholder Secured Claim, an Other Secured Claim or a
Certificateholder Deficiency Claim.
Each holder of an Allowed General Unsecured Claim will
receive on account of such Claim, cash in the amount equal to the Allowed
amount of such Claim with interest payable on such amount at the judgment
rate of interest determined in accordance with 28 U.S.C. SECTION 1961 on the
Confirmation Date, or such other rate as the Bankruptcy Court may determine
at the Confirmation Hearing. Distributions on account of General Unsecured
Claims that are Allowed on the Effective Date will be made on the Effective
Date. Distributions on account of Claims Allowed after the Effective Date
will be made when such Claims become Allowed.
The Debtor estimates that the Allowed General Unsecured
Claims will aggregate approximately $25,000. These are amounts owed to
vendors, suppliers and professionals who provided goods and services to the
Debtor prior to the Petition Date. A General Unsecured Claim in the amount
of $4,999.82 was filed by CWDLP, but the Debtor disputes that any amount is
owed to CWDLP on account of this claim. In addition, proofs of claim were
filed by seven of CWOP's tenants based on the tenant's security deposit or
the right to audit operating expenses. The Debtor is assuming all of the
leases of its tenants and believes that the cure payments made under
Bankruptcy Code SECTION 365(b) will satisfy all amounts owing under its
leases. Class 6 is unimpaired under the Plan, and the Debtor is not
soliciting the votes of the holders of Claims in that Class.
7. INTERESTS (CLASS 7).
Class 7 consists of the partnership interests in CWOP.
The holders of the Allowed Interests will retain their Interests in
Reorganized CWOP subject to the terms of the New CWOP Partnership Agreement
and the Plan. On the Effective Date, Reorganized CWOP will own (i) 10% of
the Jamboree LLC Units and (ii) will be a party to the New Property
Appreciation and Exchange Rights Agreement granting Reorganized CWOP (a) the
New Tranche A Property Appreciation Right, pursuant to which each of its
Jamboree LLC Units will be exchangeable for a Jamboree Office REIT Share, (b)
the New Tranche B Property Appreciation Right, representing the right to
purchase for $10,888,888.89 a number of Jamboree Office REIT Shares
representing 10% (subject to dilution) of the equity value of Jamboree LLC
or, at the option of Jamboree Office REIT, to receive a net cash payment
equal to the difference between the then current market price of the such
number of shares (assuming the exercise of all such rights and all other
rights under the New Property Appreciation and
-----------------------
2. The proposed Allowed amount of the Certificateholder Deficiency Claims
under the Plan is conditioned on the confirmation and effectiveness of the
Plan and represents a compromise and settlement between the Debtor and such
Holders in the Reorganization Case. The compromise is in all respects
subject to Rule 408 of the Federal Rules of Evidence and shall not be used
against either party, as an admission or otherwise, in the adjudication of
any such matters. If the Plan does not become effective, the parties reserve
all of their rights, including the holders' right to elect treatment under
Bankruptcy Code SECTION 1111(b), subject to the terms of the Agreement of
Understanding.
17
Exchange Rights Agreement concurrently exercised) and such exercise price and
(c) the New Tranche C Property Appreciation Right, representing the right to
purchase for $152,777,777.78 a number of Jamboree Office REIT Shares
representing 55% (subject to dilution) of the equity value of Jamboree LLC
or, at the option of Jamboree Office REIT, to receive a net cash payment
equal to the difference between the then current market price of such number
of shares (assuming the exercise of all such rights and all other rights
under the New Property Appreciation and Exchange Rights Agreement
concurrently exercised) and such exercise price.
WCI believes that ▇▇▇▇ has been automatically converted
to a limited partner under the terms of the CWOP Partnership Agreement. This
conversion will not affect Crow's ownership percentage in Reorganized CWOP,
and therefore will not affect the value of the property received by Crow on
account of its Interest. The confirmation of the Plan will NOT convert Crow
to a limited partner.
Class 7 is impaired under the Plan, and the Debtor is
soliciting the votes of holders of Interests of that Class.
C. IMPLEMENTATION OF THE PLAN.
1. FORMATION OF JAMBOREE LLC AND JAMBOREE OFFICE REIT.
On or prior to the Effective Date, Jamboree LLC will be
formed and the initial Jamboree LLC Units will be issued 10% to Reorganized
CWOP and 90% to Jamboree Office REIT. Jamboree Office REIT will be formed
and its shares will be authorized on or before the Effective Date, and on the
Effective Date its shares will be distributed to the holders of Allowed
Certificateholder Secured Claims in accordance with Paragraph 4.D of the
Plan. If the Plan becomes effective, the confirmation of the Plan will be
deemed a revesting of all of the property of the Estate to Reorganized CWOP,
and title to all property so contributed will pass to and revest in
Reorganized CWOP free and clear of all Claims, all liens securing claims and
all interests, except any lien preserved under the Plan, including the lien
created by the Existing Deed of Trust and any valid lien or encumbrance of
record on the date of recordation of the Existing Deed of Trust. Such
property shall thereafter be contributed to Jamboree LLC in accordance with
Paragraph 7.E of the Plan.
The contribution of the Property to Jamboree LLC pursuant to
Paragraph 7.E of the Plan will take place in two steps. First, after entry of
the Confirmation Order and after WCI has obtained consent to the plan
transactions from its limited partners, but immediately prior to the occurrence
of the Effective Date, the Certificateholder Claims will be satisfied by the
payment to the Certificateholders (or their agent) of the cash payable to them
on account of their Allowed Certificateholder Deficiency Claims under Paragraph
4.E of the Plan and the issuance of Intermediate Notes in the amounts of $100
million and $4.5 million secured by the liens and security interests securing
the Allowed Certificateholder Secured Claims, which liens and security interests
will be amended and restated as contemplated by the indentures governing the New
Notes, except that the Certificateholders will be deemed to have released their
liens on cash or other assets of CWOP of a value of $500,000. These
transactions will be deemed to have satisfied the Certificateholder Claims and
discharged $93 million of CWOP's indebtedness. Immediately after the
consummation of those transactions: the $4.5 million Intermediate Note will be
deemed to be contributed by the Certificateholders to Jamboree Office REIT, and
thereafter be deemed contributed by Jamboree Office REIT to Jamboree LLC and
merged out of existence upon the assumption of the Debtor's obligations by
Jamboree LLC as described in the next paragraph; the Certificateholders will be
deemed to have contributed the Development Approval Agreement to Jamboree LLC;
and CWOP will transfer and contribute all of its property, including assets
securing the Intermediate Notes (including the Crow litigation) and the $500,000
of free assets, to Jamboree LLC. Immediately upon the transfer and contribution
of the assets to Jamboree LLC, Reorganized CWOP will be issued 10% of the
initial Jamboree LLC Units, Jamboree Office REIT will be issued 90% of the
initial Jamboree LLC Units and the $100 million Intermediate Note will be
cancelled and satisfied by the issuance of the New Notes to the holders
18
of the Allowed Certificateholder Secured Claims. All of these transactions
will take place on the Effective Date. Neither the Intermediate Notes nor
any interest in them will be physically distributed to the
Certificateholders, but instead the Certificateholders will be distributed
directly the Jamboree Office REIT Shares and the New Notes, which will be
secured by the liens and security interests securing the Allowed
Certificateholder Secured Claims, which liens will be amended and restated as
contemplated by the indentures governing the New Notes, and the liens
securing the Intermediate Notes.
In consideration of the transfer and contribution of
CWOP's assets to Jamboree LLC, Jamboree LLC will execute an assignment and
assumption agreement providing for the express assumption by Jamboree LLC of
(i) the obligations of the Debtor and Reorganized CWOP under the Plan
designated for performance by Jamboree LLC after the Effective Date and (ii)
the obligation to indemnify and defend WCI, WCM, WFA, Three Winthrop
Properties, Inc. their affiliates and any current or former director, officer
or employee of the foregoing for claims against them and expenses incurred in
the Crow Litigation. These obligations are being expressly assumed by
Jamboree LLC in connection with and as consideration for the transfer of
CWOP's assets to Jamboree LLC.
Reorganized CWOP will make payments on account of Claims
Allowed (and in amount certain) on the Effective Date immediately prior to
the transfer of its assets to Jamboree LLC. After the Effective Date (and
the transfer of assets to Jamboree LLC), Jamboree LLC will be obligated to
make all payments required to be made under the Plan.
Jamboree LLC will not be liable or responsible for any
Claim against the Debtor or the Estate except as expressly set forth in the
Plan. Jamboree LLC, Reorganized CWOP and Jamboree Office REIT will be
successors to the Debtor for the purposes of Bankruptcy Code SECTIONS 1123,
1129 and 1145.
2. AVOIDANCE AND RECOVERY ACTIONS.
As of the Effective Date, the Debtor will waive the right
to prosecute and release, on behalf of itself and the Estate, any avoidance
or recovery actions under Bankruptcy Code SECTIONS 542 through 550 or any
other claims, rights or Causes of Action that belong to or could have been
raised by or on behalf of the Debtor or its Estate, other than or in
connection with any such actions that were commenced on or before the
Effective Date. In accordance with Bankruptcy Code SECTION 1123(b), as
successor to the Estate, Jamboree LLC will retain and may enforce any claims,
rights and Causes of Action that the Debtor or Estate may hold commenced on
or before the Effective Date. Jamboree LLC or any successor may pursue those
rights of action, as appropriate, in accordance with what is in the best
interests of Jamboree LLC or successors holding such rights of action.
Nothing in Paragraph 7.G of the Plan will be deemed to waive any right of the
Debtor, Reorganized CWOP or Ja mboree LLC or to assert avoidance or recovery
actions under Bankruptcy Code SECTIONS 542 through 550 or any other Causes of
Action defensively, including by way of setoff, recoupment or counterclaim.
The only avoidance action the Debtor intends to commence
before the Effective Date is the Crow Litigation. Because the Debtor's
creditors other than the Certificateholders are relatively nominal amounts
and are generally being paid in full under the Plan, the Certificateholders
would be the beneficiaries of any avoidance action commenced by the Debtor.
The Debtor and the Certificateholders concluded to waive any avoidance
actions other than the Crow Litigation as part of the Plan to avoid
complication and delay in the restructuring process and as part of the
Debtor's and Certificateholders' agreement to execute mutual releases in
connection with the Plan.
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3. SECTION 1129(a)(4) PAYMENT.
Pursuant to Bankruptcy Code SECTION 1129(a)(4), Jamboree
LLC will pay $500,000 to WCI on the Effective Date. The payment is on
account of the time and efforts of the officers and employees of WCI's
general partner in connection with the Plan and the restructuring process.
WCI will submit a memorandum prior to the confirmation hearing establishing
the reasonableness of such payment as required for Court approval under
Bankruptcy Code SECTION 1129(a)(4).
D. CLAIMS AND DISTRIBUTIONS.
Except for Administrative Claims or as otherwise ordered
by the Bankruptcy Court, all objections to Claims will be filed and served on
the applicable claimant by a date that is no later than 30 days after the
Effective Date or 30 days after the date on which the Claim is filed,
whichever is later. After the Effective Date, only Reorganized CWOP or
Jamboree LLC will have the authority to file, settle, compromise, withdraw or
litigate to judgment objections to Claims.
Notwithstanding any other provision of the Plan, no
payment or distribution will be made with respect to any Claim until such
Claim becomes an Allowed Claim. Unless a Claim is specifically Allowed under
the Plan, the Debtor, Reorganized CWOP and Jamboree LLC reserve any and all
objections to Claims, whether secured or unsecured, including any objection
to the validity or amount of alleged liens and security interests, whether
under the Bankruptcy Code, other applicable law or contract.
E. DISBURSEMENTS.
Reorganized CWOP (if on the Effective Date) or Jamboree
LLC (if after the Effective Date) will make all distributions of cash and
property pursuant to the Plan. Except as otherwise provided in the Plan,
distributions on account of Claims that are Allowed Claims on the Effective
Date will be made by Reorganized CWOP on the Effective Date. Distributions
on account of Claims Allowed after the Effective Date will be made by
Jamboree LLC when Claims become Allowed.
If a payment or distribution to the holder of an Allowed
Claim under the Plan is returned as undeliverable for lack of a current
address for the holder or otherwise, will file with the Bankruptcy Court the
name, if known, and last known address of the holder and the reason for its
inability to make payment. If, after the passage of one year and after any
additional effort to locate the holder that the Bankruptcy Court may direct,
the payment or distribution still cannot be made, the payment or distribution
and any further payment or distribution to the holder will be retained by
Jamboree LLC and the Allowed Claim will be deemed satisfied to the same
extent as if payment or distribution had been made to the holder of the
Allowed Claim.
No distributions of Jamboree Office REIT Shares will be
made to any entity, and the New Property Appreciation and Exchange Rights
Agreement will not be distributed to Reorganized CWOP, unless and until such
entities have delivered to Jamboree Office REIT an executed certificate
regarding the beneficial and constructive ownership of Jamboree Office REIT
Shares substantially in the form of Exhibit M to the Plan (the "REIT
Certificate"). By executing the REIT Certificate, the recipient represents
that based on its information and belief, neither it nor certain related
parties own shares in excess of the ownership limits specified therein. (For
a discussion of the REIT ownership limits and the New Articles, see SECTION
VI.C.) Jamboree Office REIT may elect in its sole discretion to waive this
requirement.
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F. CANCELLATION OF SECURITIES.
On and after the Effective Date, the Certificates will
represent only the right to receive property distributable under the Plan. Each
Certificateholder will surrender its Certificates to Reorganized CWOP (if on the
Effective Date) or Jamboree LLC (if after the Effective Date) and such
certificates will be cancelled. The Purchase Agreement will terminate in
accordance with its terms by the satisfaction of the Allowed Certificateholder
Claims under the Plan.
G. DISCHARGE.
Except for the obligations imposed by the Plan, the
distributions and rights that are provided in the Plan will be in complete
satisfaction, discharge and release of all Claims against, liabilities of, liens
on, obligations of and Interests in (i) the Debtor and the Estate, or (ii) the
assets and properties of the Debtor, Reorganized CWOP, Jamboree LLC, Jamboree
Office REIT or any successors thereto by merger, consolidation or otherwise,
whether known or unknown, arising or existing prior to the Effective Date.
H. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
Under Bankruptcy Code Section 365, a debtor may assume or
reject executory contracts and unexpired leases. The Plan provides that on the
Effective Date, each executory contract and unexpired lease of the Debtor that
has not been assumed or rejected before the Confirmation Date with the approval
of the Bankruptcy Court or for which the Debtor has not filed a motion to assume
or reject before the Confirmation Date will be assumed. Entry of the
Confirmation Order by the Bankruptcy Court will constitute approval of each
assumption pursuant to Bankruptcy Code Section 365(c). The Debtor or
Reorganized CWOP (if prior to or on the Effective Date) or Jamboree LLC (if
after the Effective Date) will make any payments required under Bankruptcy Code
Section 365(b)(1).
The Debtor intends to file a motion to assume all of its
scheduled existing contracts and unexpired leases. The motion to assume will be
heard by the Bankruptcy Court at the Confirmation Hearing. In connection with
the assumption of the tenant leases, the Debtor will refund to each tenant its
share of the tax refunds recently received by CWOP for the 1991 through 1995 tax
years. The total refunds received total approximately $1.7 million, most of
which will be refunded to tenants.
In addition, the Debtor intends to assume the various
contracts with the Crow entities, including the REA, the Common Area Management
Agreement, air space lease dated July 26, 1985 and the Settlement Agreement on
the Effective Date. The Debtor asserts that there are no amounts in default on
those agreements and no payment is necessary under Bankruptcy Code Section
365(b). Such assumption is expressly subject to the Crow Litigation, and the
Debtor waives no rights in connection with that litigation by virtue of its
stated intent to assume such contracts, and in any event, the Debtor's stated
intent to assume such contracts is in all respects subject to Rule 408 of the
Federal Rules of Evidence and shall not be used as an admission or otherwise in
the adjudication of such matters.
MOREOVER, WHILE THE DEBTOR INTENDS TO ASSUME THESE
AGREEMENTS IN CONNECTION WITH THE PLAN, THE DEBTOR RESERVES ALL OF ITS RIGHTS,
AND IF THE PLAN IS NOT CONFIRMED, WILL LIKELY REJECT THOSE AGREEMENTS.
The Debtor will also assume the Agreement of Understanding
under the Plan.
On the Effective Date, all executory contracts and unexpired
leases assumed by the Debtor during the Reorganization Case will be assigned to
Jamboree LLC. Jamboree LLC will be bound by those
21
contracts and any amendments thereto, and it is anticipated that it will
perform in accordance with the terms of those contracts and any and all
amendments thereto. However, nothing in the Plan will be deemed to waive any
rights, claims or defenses that the Debtor, Reorganized CWOP, Jamboree LLC or
any other entity might have with respect to any such contracts.
I. ASSUMED EFFECTIVE DATE; CONDITIONS TO EFFECTIVENESS.
The Debtor assumes, and its projections are based on, the
occurrence of the Effective Date on September 30, 1997, but the Plan is
contingent on the Effective Date occurring on or before that date. The Plan
will not become effective unless and until each of the following conditions has
been satisfied in full in accordance with the provisions specified below:
1. ENTRY OF CONFIRMATION ORDER. The Bankruptcy Court has
entered the Confirmation Order approving the Plan in all
respects.
2. WCI CONSENT. WCI has obtained the necessary consents
from its limited partners to effect the Plan and transactions
provided therein.
3. JAMBOREE LLC AND JAMBOREE OFFICE REIT. Jamboree LLC
and Jamboree Office REIT have been formed, and all formation
documents for such entities have been properly executed and filed
as required.
4. CONTRIBUTION OF ASSETS. The issuance of the
Intermediate Notes, the contribution of the $4.5 million
Intermediate Note, the contribution of property by Reorganized
CWOP, and the assumption of obligations by Jamboree LLC shall
have occurred in accordance with Paragraph 7.E of the Plan.
5. DOCUMENTATION. Each of the parties thereto has
executed and delivered the Collateral Documents, the New Notes
Registration Rights Agreement, the New Equity Registration Rights
Agreement, the New Property Appreciation and Exchange Rights
Agreement, copies of the New Articles and the New Bylaws, the New
LLC Agreement, resolutions of the directors or members of each of
Jamboree Office REIT and Jamboree LLC, good standing certificates
from California and the respective states of organization of each
of Jamboree Office REIT and Jamboree LLC and all other documents
necessary or appropriate to the transactions outlined in the
Plan.
6. JAMBOREE OFFICE REIT SHARES AND JAMBOREE LLC UNITS.
Jamboree Office REIT has issued the Jamboree Office REIT shares
in accordance with Paragraph 4.D of the Plan. Jamboree LLC has
issued 90% of the initial Jamboree LLC Units to Jamboree Office
REIT and 10% of the initial Jamboree LLC Units to Reorganized
CWOP.
7. QUALIFICATION OF INDENTURES. The applications for
qualification of each of the New Class A Senior Secured Note
Indenture and the New Class B Senior Subordinated Secured Note
Indenture have become and remain effective in accordance with the
Trust Indenture Act of 1939, as amended.
8. PERFECTION OF SECURITY INTERESTS. All actions have
been taken or caused to be taken in such a manner so that the
Collateral Agent with respect to the collateral granted as
security under the Collateral Documents holds a valid and
perfected first priority security interest in such collateral
(subject only to liens expressly permitted under the Collateral
Documents) including, without limitation, delivery of
certificates representing pledged equity interests, delivery and
filing of Uniform
22
Commercial Code financing statements, assignments and/or
amendments in all jurisdictions as may be necessary or
desirable to perfect the Collateral Agent's security interest
in the Collateral, the recordation of the New Deed of Trust
encumbering the real property identified therein, the
execution and delivery of lockbox agreements regarding any
accounts in which the Collateral Agent holds a security
interest, and the making of all other filings, recordings or
other actions the Collateral Agent deems necessary or
desirable to establish, preserve and protect the first
priority liens granted to the Collateral Agent in real,
personal and mixed property.
9. TITLE POLICIES. The Collateral Agent has received an
ALTA lender's policy of title insurance on Form B-1970 (Rev. 10-
17-84) issued by Chicago Title Insurance Company or an insurer of
similar professional reputation and financial wherewithal (with
reinsurance satisfactory to the Collateral Agent) naming the
Collateral Agent as an insured in the amount of $100 million and
in form satisfactory to the Collateral Agent, insuring that the
lien of the New Deed of Trust is a valid first priority lien upon
the property and collateral described therein, subject only to
encumbrances permitted in the New Indentures, together with any
endorsements required by the Collateral Agent; and Jamboree LLC
has received an ALTA owner's policy of title insurance (Form
1970) issued by such insurer naming Jamboree LLC as insured, in
the amount of $105 million and in form satisfactory to the
Jamboree LLC, insuring that Jamboree LLC owns fee title to the
real property subject only to the New Deed of Trust and
encumbrances permitted in the New Indentures and under the Plan,
together with any endorsements required by Jamboree LLC.
10. EVIDENCE OF INSURANCE. The Collateral Agent has
received evidence satisfactory to Jamboree LLC and the Collateral
Agent that adequate insurance for the Property has been obtained
and that Jamboree LLC and the Collateral Agent are loss payees.
The conditions specified in Paragraphs 12.A.3. through
12.A.10 of the Plan may be waived in writing by the Debtor and Requisite
Certificateholders.
J. RETENTION OF JURISDICTION.
The Bankruptcy Court will retain jurisdiction over those
matters set forth in Paragraph 13.A of the Plan, including objections to Claims,
motions for the assumption or rejection of executory contracts and unexpired
leases, adversary proceedings and contested matters, implementation of the Plan,
all modifications and amendments to the Plan and applications for fees and
expenses of professionals.
V. FINANCIAL INFORMATION
A. HISTORICAL FINANCIAL INFORMATION; RECENT FINANCIAL
PERFORMANCE.
CWOP's audited financial statement for calendar year 1996 is
attached as Exhibit 2. CWOP prepares audited financial statements in accordance
with Generally Accepted Accounting Principles on an accrual basis and these
statements are audited by WCI's outside accountants, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP.
CWOP's cash flow statement for the first quarter of 1997 is
attached as Exhibit 3. This statement shows CWOP's cash revenues and expenses
in the same format as CWOP's projected cash flows. Attached as Exhibit 4 are
CWOP's cash flow statements showing both budgeted and actual amounts for the
months of April, May and June of 1997. As those statements indicate, CWOP
generated excess cash flow of $1,580,138, in April, $2,014,159 in May and
$1,861,176 in June. In accordance with the terms of the Cash Collateral Order,
CWOP reserved $1,850,696.78 on May 10, 1997 and $1,036,347.91 on June 10, 1997
and
23
$1,151,009.17 on July 10, 1997. See Section III.C.1. As those statements
indicate, operations and leasing activity during the Reorganization Case have
been generally consistent with CWOP's projections. The cash flow projections
for the remaining months prior to the assumed Effective Date of September 30,
1997 (June through September) are attached as Exhibit 5. The projections
contained in Exhibits 4 and 5 constitute the "Initial Budget" under the Cash
Collateral Order.
B. PAYMENT OF ADMINISTRATIVE EXPENSES AND CLAIMS.
The Debtor intends to make all cash payments required to be
made under the Plan out of its cash generated from operations. Ordinary Course
Administrative Expenses are budgeted for in the Initial Budget. Other cash
payments to be made under the Plan include Allowed Fee Claims (an aggregate of
approximately $2 million is budgeted for in the Initial Budget); Secured Tax
Claims (approximated to be $690,000 and budgeted for in Initial Budget); the
Section 1129(a)(4) payment to WCI ($500,000 budgeted for in September in the
Initial Budget); payments to unsecured creditors ($100,000 budgeted for in
September in the Initial Budget). As of September 30, 1997, the Debtor projects
excess cash and reserves to total $2,809,300 after making the payments described
above.
C. PROJECTED FINANCIAL INFORMATION.
CWOP's financial projections for the years 1998 through 2003
are attached as Exhibit 6. The projection period commences on September 1,
1997, and the September 1997 projections included in Exhibit 5 are included in
the 1997 (partial year) projections. These projections assume that the Plan
will be approved and implemented in accordance with its terms. The projections
are based on several lease and expense assumptions, some of which are set forth
in Exhibit 6. Additional assumptions were made regarding general business and
economic conditions. There can be no assurance that any of these assumptions
will be met. The projections are only estimates, and actual results may vary
materially from the projections. In addition, uncertainties that are inherent
in the projections increase for later years due to the increased difficulty
associated with forecasting rental rates, expenses and other economic factors at
more distant points in the future. The projections were not prepared with a
view toward compliance with the published guidelines of the American Institute
of Certified Public Accountants regarding financial projections, and have not
been reviewed, examined or compiled by CWOP's independent auditors or certified
public accountants.
Based on the projected cash flows, the Debtor believes the
value of the Property to be approximately $105 million.
The projected cash flows include the projected payments of
interest and principal on the New Notes. All other Claims are assumed to have
been paid in cash on the assumed Effective Date of September 30, 1997.
THE DEBTOR CAUTIONS THAT IT MAKES NO REPRESENTATION
CONCERNING THE ACCURACY OF THE PROJECTED FINANCIAL INFORMATION OR THE ABILITY TO
ACHIEVE THE PROJECTED RESULTS. MANY OF THE ASSUMPTIONS ON WHICH THESE
PROJECTIONS ARE BASED ARE SUBJECT TO SIGNIFICANT ECONOMIC UNCERTAINTIES. IT IS
LIKELY THAT SOME ASSUMPTIONS WILL NOT MATERIALIZE BECAUSE OF UNANTICIPATED
EVENTS AND CIRCUMSTANCES. ACCORDINGLY, THE ACTUAL RESULTS ACHIEVED THROUGHOUT
THE PROJECTION PERIOD ARE LIKELY TO VARY FROM THE PROJECTED RESULTS. THE
VARIATIONS MAY BE MATERIAL AND ADVERSE OR POSITIVE.
24
THE DEBTOR DOES NOT ANTICIPATE AT THIS TIME THAT IT WILL
UPDATE THESE PROJECTIONS AT THE CONFIRMATION HEARING, FURNISH UPDATED
PROJECTIONS IN DOCUMENTS FILED WITH THE SEC OR OTHERWISE MAKE SUCH PROJECTIONS
PUBLIC.
VI. OPERATION AND GOVERNANCE OF SUCCESSOR ENTITIES
A. GENERAL DISCUSSION
Two new entities will be formed on or prior to the Effective
Date to implement the restructuring of CWOP pursuant to the Plan: (a) Jamboree
LLC, a Delaware limited liability company that will own the Property and in
which Reorganized CWOP will initially hold a 10% equity interest and Jamboree
Office REIT will initially hold a 90% equity interest, and (b) Jamboree Office
REIT, a Maryland corporation that initially will be owned 100% by the
Certificateholders. The Jamboree LLC Units owned by Reorganized CWOP will be
exchangeable for Jamboree Office REIT Shares, and Reorganized CWOP will be
issued the New Property Appreciation Rights, which may be exercised for cash or
(at the election of Jamboree Office REIT) Jamboree Office REIT Shares.
Jamboree Office REIT is intended to be operated to qualify
as a Real Estate Investment Trust (a "REIT") under the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"). The shareholders of a REIT have
the limited liability and investment liquidity of corporate shareholders without
double taxation. The ownership structure of Jamboree LLC and Jamboree Office
REIT is referred to as an "UPREIT" or "Umbrella Partnership" REIT. In an
UPREIT, an operating partnership or LLC owns the real property and a corporation
qualified as a REIT is a partner or member of the operating partnership or LLC.
In this case, Jamboree LLC will own the property and be the operating entity,
and Jamboree Office REIT will be a member of the LLC. (Despite the name
"Umbrella Partnership REIT" if an LLC is the operating entity, the LLC does not
obtain any partnership attributes by virtue of the structure.) This structure
has several advantages. As members of an LLC, Reorganized CWOP and the
Certificateholders will be able to allocate voting rights on particular issues
through the limited liability company agreement for Jamboree LLC (the "New LLC
Agreement," substantially in the form of Exhibit K to the Plan). In addition,
Jamboree LLC will be a "bankruptcy remote" entity, as a unanimous vote of its
board will be required for a voluntary bankruptcy filing. Because Jamboree LLC
is structured so that it is taxed as a partnership (i.e., not subject to tax at
the entity level), the parties will be able to achieve these governance goals
without incurring additional tax.
To qualify as a REIT under the Internal Revenue Code, 75% of
the assets of the corporation must be real property related and 95% of the
annual income must be attributable to interest, dividends, rents, gains or
losses on real estate. As discussed in Section VI.C, there are other
requirements, including those intended to ensure diversity of ownership (such as
a minimum number of holders and limitations on the amounts held by any single
individual) and those designed to insure that the assets of the REIT are not
being rapidly turned over (such as a limit on the amount of income that can be
derived from real estate assets held less than 4 years). To ensure that
Jamboree Office REIT qualifies as a REIT, the operating entity, in this case
Jamboree LLC, must also comply with the REIT asset and income requirements.
B. JAMBOREE LLC.
On the Effective Date, the Property will be owned in fee and
operated by Jamboree LLC, subject to the New Deed of Trust securing the New
Notes and subject to the liens on the Property, if any, securing the notes
issued to holders of Allowed Secured Tax Claims, which will be senior to the
deed of trust securing the New Notes. The units representing membership
interests in Jamboree LLC initially will be held 90% by Jamboree Office REIT and
10% by Reorganized CWOP.
25
Jamboree LLC will be governed by a board of member
representatives (the "Jamboree LLC Board") in accordance with the terms of the
New LLC Agreement. Upon obtaining the requisite consent of the representatives,
the Jamboree LLC Board will be authorized to act for Jamboree LLC. The Jamboree
LLC Board will consist of five members. The initial five members will be
designated one by Reorganized CWOP and four by the holders of Allowed
Certificateholder Secured Claims. The initial board members will be determined
prior to the Confirmation Hearing, and a notice containing their identities and
respective backgrounds will be distributed to all parties in interest.
Jamboree LLC will have a term of five and one-half years
from the Petition Date provided that the Property is not sooner sold or
otherwise transferred. A majority of the members of the Jamboree LLC Board must
approve (i) all operating decisions not designated as requiring unanimous
approval in the New LLC Agreement and (ii) termination for cause of the New
Management Agreement. Unanimous approval of the Jamboree LLC Board will be
required for (i) the commencement of a voluntary case under the Bankruptcy Code,
(ii) termination of the New Management Agreement without cause, (iii) sale of
all or any material portion of the Property within three years of the Effective
Date, (iv) except as otherwise provided in the New LLC Agreement, issuance of
additional units representing membership interests, (v) the authorization of
business activities other than the ownership and operation of the Property
within three years of the Effective Date and (vi) certain other matters as
provided in the New LLC Agreement.
The New LLC Agreement contains the following exhibits:
Exhibit A - Capital Contributions and Contributed Property (which will be
completed prior to execution and will be consistent with Paragraph 7.E of the
Plan (see Section IV.C.1); Exhibit B - Distribution of Percentage Interests;
Exhibit C - Legal Description of the Property; Exhibit D - Board Representatives
(which, as indicated above, will be completed prior to the Confirmation Hearing)
and Exhibit E - the dilution formula in the event that a member does not heed a
capital call.
The membership interests in Jamboree LLC will be represented
by units, 90% of which, the Class One Units, will initially be issued to
Jamboree Office REIT and 10% of which, the Class Two Units, will initially be
issued to Reorganized CWOP. The percentage of membership interests held by each
member may be adjusted from time to time based on the amount (if any) of
additional capital contributions that a member may make or fail to make. Any
distributions made by Jamboree LLC will be made to the members pro rata based on
their percentage membership interest on the record date for distribution. In
the absence of the unanimous consent of the Jamboree LLC Board, no new classes
of units may be created. The units in Jamboree LLC may not be transferred,
except that Reorganized CWOP may exchange its units for Jamboree Office REIT
Shares through the exercise of its exchange right under the New Property
Appreciation and Exchange Rights Agreement. The exchange right is designated as
the "New Tranche A Right" in that agreement.
▇. ▇▇▇▇▇▇▇▇ OFFICE REIT AND JAMBOREE
OFFICE REIT SHARES.
Jamboree Office REIT will be established on or before the
Effective Date and will be governed in accordance with the New Articles, in
substantially the form of Exhibit A to the Plan, and the New Bylaws, in
substantially the form of Exhibit B to the Plan. The initial board of directors
will be determined prior to the Confirmation Hearing, and a notice containing
their identities and respective backgrounds will be distributed to all parties
in interest. Jamboree Office REIT will be authorized to issue 10 million
shares, of which 6 million shares will be classified initially as common stock,
par value $0.01 per share (the "Jamboree Office REIT Shares"), 1 million shares
will be classified as preferred stock and 3 million shares initially classified
as "Excess Shares". Of those authorized shares, 810,000 Jamboree Office REIT
Shares will be issued on the Effective Date to the holders of Allowed
Certificateholder Secured Claims. Subject to the Excess Shares provisions,
26
holders of the Jamboree Office REIT Shares will be entitled to receive such
dividends, if any, as may declared from time to time by the board of
directors of Jamboree Office REIT in its discretion from funds legally
available therefor, and in the event of any liquidation, dissolution or
winding up of the affairs of Jamboree Office REIT, whether voluntary,
involuntary or otherwise, the holders of Jamboree Office REIT Shares will be
entitled, subject to the rights of any holders of preferred shares to share,
pro rata, in any property that may be available for distribution after the
satisfaction of all other claims. Subject to the Excess Shares provisions,
holders of Jamboree Office REIT Shares will be entitled to one vote per
share. Jamboree Office REIT Shares will have no preemptive or other
subscription rights (other than certain preemptive rights granted to
Reorganized CWOP in the New Property Appreciation and Exchange Rights
Agreement) and there will be no conversion rights or redemption or sinking
fund provisions with respect to such shares. All Jamboree Office REIT Shares
issued under the Plan will be fully paid and nonassessable upon issuance.
Pursuant to the New Articles, Jamboree Office REIT will be
authorized to reclassify unissued shares of capital stock and to issue one or
more series of preferred stock with the relative preferences and
voting powers, qualifications and/or special or relative rights or privileges,
as determined by the board of directors of Jamboree Office REIT. However, for
so long as Reorganized CWOP has not fully exercised the New Tranche C Property
Appreciation Right, the New Property Appreciation and Exchange Rights Agreement
will prohibit Jamboree Office REIT from issuing equity securities with
preferences, rights or privileges senior to the Jamboree Office REIT Shares
without the prior written consent of Reorganized CWOP. As required by the
Bankruptcy Code Section 1123, the New Articles will prohibit the issuance of any
non-voting equity security so long as such Bankruptcy Code prohibition is in
effect.
As more particularly described in Section VII.D hereof, for
Jamboree Office REIT to continue to qualify as a REIT under the Internal Revenue
Code, (i) not more than 50% in value of its outstanding common shares may be
owned, either directly or under the applicable attribution rules of the Internal
Revenue Code, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain nonnatural persons) during the last half of a taxable
year, (ii) the common shares must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year and (iii) Jamboree Office REIT must
meet certain other tests regarding the nature of its income and assets.
In order to ensure continued REIT status, the New Articles
contain certain restrictions on transfer and ownership. The articles generally
prohibit any individual (as defined in the Internal Revenue Code to include
certain non-natural persons) from beneficially or constructively owning equity
stock in excess of 8.3% (the "Ownership Limit") (determined assuming the
issuance of the maximum number of shares pursuant to any option, warrant,
property appreciation, subscription, preemptive, conversion, exchange or similar
right that would increase such individual's ownership), which ownership limit
may be increased if the Internal Revenue Code is amended to increase certain
ownership limits of REITs or such increase would not otherwise affect REIT
status. Transfers that would (i) result in any individual owning shares in
excess of the Ownership Limit, (ii) result in the equity stock being owned by
less than 100 persons, (iii) result in Jamboree Office REIT being "closely held"
within the meeting of Section 856(h) of the Internal Revenue Code or (iv) that
would otherwise cause Jamboree Office REIT to fail to qualify as a REIT, will be
void in an amount equal to the number of shares that cause such a result. If
notwithstanding these restrictions, a transfer (or a non-transfer event) results
in an individual owning in excess of the Ownership Limit or results in Jamboree
Office REIT being "closely held," then the shares in excess of the Ownership
Limit or that result in Jamboree Office REIT being "closely held," will be
automatically converted into an equal number of "Excess Shares." The Excess
Shares will be transferred to a trust for a beneficiary named by Jamboree Office
REIT and thereafter Jamboree Office REIT as trustee may designate a permitted
transferee for the Excess Shares.
27
Notwithstanding the foregoing, the Ownership Limit with
respect to any individual or individuals (as defined in the Internal Revenue
Code to include certain non-natural persons) pertaining to Reorganized CWOP will
be 16.6% with respect to any one individual, 24.9% with respect to any two
individuals, 33.2% with respect to any three individuals, 41.5% with respect to
any four individuals and 49.8% with respect to any five individuals. A failure
by any individuals pertaining to Reorganized CWOP to satisfy the Ownership Limit
could result in Reorganized CWOP being unable to exercise its rights under the
New Property Appreciation and Exchange Rights Agreement or in equity stock held
through Reorganized CWOP being converted into Excess Shares. Even if all
individuals pertaining to Reorganized CWOP satisfy this Ownership Limit with
respect to equity stock owned through Reorganized CWOP, if an individual or
individuals pertaining to Reorganized CWOP beneficially or constructively own
other equity stock that, in combination with the equity stock owned through
Reorganized CWOP, exceeds the Ownership Limit, then such individual's (or
individuals') equity stock held outside Reorganized CWOP that, so combined,
exceeds the Ownership Limit will be automatically converted into an equal number
of Excess Shares if acquired after equity stock beneficially or constructively
owned through Reorganized CWOP.
In order to ensure certain anticipated allocations with
respect to the liabilities of Jamboree LLC, the New Articles contain certain
supplementary restrictions on transfer and ownership relating to persons who are
holders of the New Notes. The New Articles prohibit any person who is a holder
of the New Notes from owning, either directly or under specified attribution
rules, 80 percent or more of the equity stock of Jamboree Office REIT (such
ownership, a "752 Violation"). Transfers that would result in any holder of the
New Notes owning shares that would cause a 752 Violation will be void in an
amount equal to the number of shares that cause that result. If notwithstanding
this restriction a transfer (or non-transfer event) results in a holder of the
New Notes owning shares that would cause a 752 Violation, then the shares being
transferred (or that are the subject of the non-transfer event) will be
automatically converted into an equal number of Excess Shares (and treated as
described above) to the extent necessary to prevent such a violation.
The Jamboree Office REIT shares will bear a legend setting
forth the above restrictions on transfer.
All persons who own, directly or by virtue of the
attribution provisions of the Internal Revenue Code, more than 5.0% (or such
lower percentage, as provided in the Treasury Regulations) of the equity stock
of Jamboree Office REIT will be required to give within 30 days after January 1
of each year a written statement to Jamboree Office REIT stating the name and
address of each beneficial owner, the number of shares beneficially owned and
how those shares are held. In addition, upon demand, each shareholder will be
required to disclose to Jamboree Office REIT such other information as Jamboree
Office REIT may reasonably request with respect to the ownership of the equity
stock to determine the effect of the ownership as REIT status.
28
Because such entities may be considered "underwriters" and
therefore not entitled to an exemption for resale of the Jamboree Office REIT
Shares (see Section VIII.B), Reorganized CWOP, certain named persons and any
person or entity that receives or is the transferee from the named persons of
10% or more of the aggregate number of the Jamboree Office REIT Shares
distributed under the Plan and any such person's affiliates (the "Restricted
Equity Holders") will receive the benefit of a registration rights agreement
(the "New Equity Registration Rights Agreement," substantially in the form of
Exhibit H to the Plan). The New Equity Registration Rights Agreement will
provide, among other things, and subject to the conditions provided therein,
that (a) any Restricted Equity Holder, with the written consent of the
Restricted Equity Holders of at least 40% of the outstanding Jamboree Office
REIT Shares held by Restricted Equity Holders that have not then been registered
or become eligible for sale under SEC Rule 144, may serve a request on Jamboree
Office REIT requesting it to prepare a registration statement and to use its
best efforts to cause such registration statement to become effective within 90
days (or 180 days if it is the first registration) of the date of the demand
notice and (b) if, after the Effective Date, Jamboree Office REIT proposes to
register any of its debt or equity securities (with certain exceptions),
Restricted Equity Holders will be able to include their Jamboree Office REIT
Shares in such registration, subject to certain limitations in the event that
Jamboree Office REIT's underwriter advises it that the inclusion of such shares
in an underwritten public offering is impracticable. The rights of the
Restricted Equity Holders under the New Equity Registration Rights Agreement
will be subject to customary provisions regarding share limitations, suspension
of registration rights, payment of expenses and indemnification.
D. DESCRIPTION OF NEW NOTES ISSUED BY JAMBOREE LLC.
The following discussion summarizes certain provisions of
the New Class A Senior Secured Notes (referred to in this Section IV.D as the
"Class A Notes") and the New Class B Senior Subordinated Secured Notes (referred
to in this Section IV.D as the "Class B Notes") to be issued pursuant to the
Plan.
1. NEW CLASS A SENIOR SECURED NOTES.
The Class A Notes will be issued pursuant to an indenture by
and between Jamboree LLC and IBJ ▇▇▇▇▇▇▇▇ Bank and Trust Company as Indenture
Trustee (the "Class A Trustee"). The following summaries of certain provisions
of the New Class A Senior Secured Notes Indenture (referred to in this Section
IV.D. as the "Class A Indenture") are qualified in their entirety by reference
to all of the provisions of the Class A Indenture, substantially in the form of
Exhibit C to the Plan. Capitalized terms used in this Section without
definition have the meanings of those terms in the Class A Indenture.
GENERAL. The Class A Notes represent senior secured
obligations of Jamboree LLC. The Class A Notes will be in aggregate principal
amount of $80,000,000. The Class A Notes are issuable only in registered form
in denominations of $1,000 and any integral multiple thereof.
MATURITY, INTEREST AND PRINCIPAL. The Class A Notes will
mature on March 27, 2002. Interest will accrue on the Class A Notes at a fixed
rate equal to 2.25% above the interest rate on United States Treasury Bonds or
Notes with a maturity closest to the maturity of the Class A Notes on the
Effective Date. Interest on the Class A Notes is payable in cash monthly in
arrears on the first day of each month, commencing on the first such date after
the Effective Date. Interest is computed on the basis of a 360-day year of
twelve 30-day months. Interest only will be payable monthly in arrears until
March 27, 1999; thereafter interest and principal will be payable monthly in
arrears with principal amortized on a straight-line basis, based on a 25-year
amortization. Interest will be payable, at the option of Jamboree LLC, in Class
A Notes until March 27, 1998.
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OPTIONAL REDEMPTION. Jamboree LLC will have the option to
redeem the Class A Notes, in whole or in part, upon not less than 30 nor more
than 60 days' notice, during the periods set forth below at a redemption price
(expressed as a percentage of par) set forth opposite such periods, PLUS accrued
and unpaid interest, if any, on such Class A Notes to the applicable redemption
date:
Period Percentage
------ ----------
Issue Date through March 27, 2000: 102.00%
March 28, 2000 through September 27, 2001: 101.00%
thereafter: 100.00%
PURCHASE AT OPTION OF HOLDERS OF CLASS A NOTES. Except as
otherwise set forth in the Class A Indenture, Jamboree LLC will not be required
to make mandatory redemption payments, sinking fund payments or mandatory
purchases with respect to the Class A Notes prior to maturity.
Excess Cash Flow Amounts are defined under the Class A
Indenture as, for any period, an amount determined by the Board of Members of
Jamboree LLC equal to all forms of cash or cash equivalents received by or on
behalf of Jamboree LLC generated by the Property from any source (other than
interest on certain accounts), during such period, minus the sum, without
duplication, of (1) amounts actually paid or retained in a reserve up to the
amount of the REIT Required Dividends during the applicable period, (2) interest
and regularly scheduled installments of principal actually paid during such
period under the terms of the Class A Notes, (3) interest and regularly
scheduled installments of principal actually paid during such period under the
terms of the Class B Notes, (4) certain operating expenses of the Jamboree LLC
with respect to Property actually paid during such period, including, without
limitation, amounts paid by Jamboree LLC pursuant to the REA and Settlement
Agreement, (5) certain Capital Expenditures actually made in cash (net of any
proceeds of related financing with respect to such Capital Expenditures),
(6) certain amounts retained in the Operating Disbursement Account in accordance
with the New Management Agreement, (7) certain amounts actually paid or retained
in the Tenant Improvement Reserve with respect to tenant improvements, (8)
certain amounts actually paid or retained in the Incentive Management Reserve
under the New Management Agreement with respect to incentive management fees,
(9) certain amounts determined by the Board of Members of Jamboree LLC and
retained in a reserve to pay projected debt service shortfalls in the future and
(10) reasonable amounts actually paid in connection with litigation to which
Jamboree LLC is a party. Under the Class A Indenture, at the option of each
holder, Excess Cash will be applied to the purchase of such holder's Class A
Note as set forth more fully below.
No later than 120 days after the end of each Fiscal Year
commencing with the Fiscal Year ending December 31, 1997, Jamboree LLC shall, at
the option of each holder, purchase the maximum principal amount of the Class A
Notes (in integral multiples of $1,000), that may be purchased with 100% of the
Excess Cash Flow Amount for such Fiscal Year, at a purchase price in cash equal
to 100% of the principal amount of such Class A Notes plus accrued and unpaid
interest thereon to the date of purchase.
Within 90 days after the occurrence of a Triggering Event,
at the option of each holder of Class A Notes, Jamboree LLC shall purchase all
of the outstanding Class A Notes, at a purchase price in cash equal to 100% of
the principal amount of all outstanding Class A Notes plus accrued and unpaid
interest to the date of purchase. A Triggering Event, as defined in the Class A
Indenture, will be deemed to have occurred upon (1) the sale, transfer,
conveyance or hypothecation of the Property or Improvements, or any material
portion of the Property or Improvements or interest therein, whether voluntary,
involuntary, by operation of law or otherwise, the execution of any installment
land sale contract or similar instrument affecting all or a material portion of
the Property or Improvements or, except in the ordinary course of business, the
lease of all or substantially all of the Property or Improvements, in one or in
a series of transactions, to any "person" or
30
"group" (as such terms are used in or defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended), (2) an event or series of
events (whether a stock purchase, merger, consolidation or other business
combination or otherwise) as a result of which (a) the REIT owns less than
51% of the combined voting power of the then outstanding securities of
Jamboree LLC ordinarily (and apart from rights accruing after the happening
of a contingency) having the right to vote in the election of members of
Jamboree LLC or to control Jamboree LLC's actions with respect to the
property subject to the lien of the deed of trust with respect to the Class A
Notes, or (b) Jamboree LLC's existence ceases or (iii) the aggregation of
Excess Loss Proceeds in excess of $8 million.
COVENANTS.
INVESTMENTS. Jamboree LLC will not be permitted
directly or indirectly, to make any Investment from and after the Effective Date
except Investments approved by the Board of Members of Jamboree LLC of cash in
certain permitted investments consisting of government and certain other liquid
securities. As defined in the Class A Indenture, Investments means any advance,
loan, extension of credit or capital contribution to, or purchase of any stocks,
bonds, notes, debentures or other securities of, or interest in, any person, any
purchase of any interest in real estate, any commitment or other obligation,
whether contingent or absolute, to do any of the foregoing, which commitment or
other obligation does not constitute a Contingent Obligation. Capital
Expenditures will not be deemed to constitute Investments.
LIENS. Jamboree LLC will not be permitted to create or
suffer to exist any Lien upon or with respect to any of its properties, whether
owned by Jamboree LLC as at the Effective Date or acquired later, or assign any
right to receive income, except as expressly provided in the Class A Indenture.
The Class A Indenture permits liens directly or indirectly created in favor of
the Class A Trustee or the Collateral Agent for the benefit of the holders of
the Class A Notes under the Class A Indenture, the Plan and the Collateral
Documents; certain liens arising by operation of law in favor of materialmen,
mechanics, warehousemen, carriers, lessors or other similar persons incurred by
Jamboree LLC in the ordinary course of business which secure its obligations to
such person; certain liens (excluding Environmental Liens) securing taxes,
assessments or governmental charges or levies; zoning restrictions, easements,
encroachments, licenses, reservations, restrictions on the use of real property
or minor irregularities incident thereto that do not cause, individually or in
the aggregate, a Material Adverse Effect; Existing Encumbrances (as defined in
the deed of trust securing the Class A Notes), including, without limitation,
liens in favor of the holders of the Class B Notes and any renewal, extension or
refunding of the Indebtedness represented by the Class B Notes; leases of space
in the Property (and related agreements and instruments) entered into in the
ordinary course of business; UCC-1 financing statements filed with respect to
tenant-owned fixtures and tenant-owned improvements; and certain liens on assets
acquired with certain Permitted Indebtedness.
INDEBTEDNESS. Jamboree LLC will not be permitted under
the Class A Indenture, directly or indirectly, to incur, create, assume or
suffer to exist or otherwise in any manner become or remain liable with respect
to any Indebtedness except Indebtedness represented by the Class A Notes and the
Class B Notes; Contingent Obligations constituting endorsements for collection
or deposit in the ordinary course of business of Jamboree LLC; current
liabilities in respect of (i) covenants, conditions and restrictions
constituting a lien permitted under the Class A Indenture; (ii) taxes,
assessments and governmental charges or levies incurred, or (iii) claims for
labor, materials, inventory, services, supplies and rentals incurred, or for
goods or services purchased, in the ordinary course of business; Indebtedness
arising under any performance bond reimbursement obligation entered into in the
ordinary course of business of Jamboree LLC; unimpaired indemnification claims
under the limited liability company agreement of Jamboree LLC; certain
Indebtedness incurred to finance the purchase price of property; and certain
other unsecured Indebtedness as specified in the Class A Indenture.
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LEASE OBLIGATIONS. Jamboree LLC will not be permitted
under the Class A Indenture to create or suffer to exist any obligations as
lessee for the rental or hire of real or personal property in connection with
any sale and leaseback transaction, or for the rental or hire of real or
personal property of any kind under other leases or agreements to lease having
an original term of one year or more that would cause the direct or contingent
liabilities of Jamboree LLC in respect of all such obligations to be increased
by more than $250,000 payable in any period of 12 consecutive months over the
amount existing on the Effective Date. Jamboree LLC is forbidden under the
Class A Indenture to become or remain liable as lessee or guarantor or other
surety with respect to any lease, whether an operating lease or a capitalized
lease, of any property, whether owned as at the Effective Date or acquired
thereafter, that Jamboree LLC has sold or transferred as of the Effective Date
or thereafter.
RESTRICTED PAYMENTS. Jamboree LLC will not be
permitted to (a) declare or make any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of or in
respect of any of its limited liability company interests, beneficial interests,
whether voting or non-voting, or any preferred interests which may be issued by
Jamboree LLC except REIT Required Dividends; provided however that Jamboree LLC
in no event may declare or make any such dividend payment or other distribution
(other than a REIT Required Dividends) if a Default or Event of Default has
occurred and is continuing or (b) purchase, redeem or otherwise acquire for
value any such interests, whether outstanding on the Effective Date or later
issued and outstanding.
TRANSACTIONS WITH AFFILIATES. Under the Class A
Indenture, Jamboree LLC will not be permitted to: (a) make any Investment in an
Affiliate of Jamboree LLC; (b) transfer, sell, lease, assign or otherwise
dispose of any assets to any Affiliate of Jamboree LLC; (c) merge into or
consolidate with or purchase or acquire assets from any Affiliate of Jamboree
LLC; (d) repay any Indebtedness to any Affiliate of Jamboree LLC (except under
existing retirement or deferred compensation plans); or (e) enter into any other
transaction directly or indirectly with or for the benefit of any Affiliate of
Jamboree LLC (including, without limitation, guaranties and assumptions of
obligations of any such Affiliate) except for (1) transactions in the ordinary
course of business, set forth in writing, on a basis no less favorable to
Jamboree LLC than would be obtained in a comparable arm's length transaction
with a person that is not an Affiliate of Jamboree LLC; PROVIDED that any
transaction or series of related transactions pursuant to which Jamboree LLC or
an Affiliate of Jamboree LLC will receive or render value exceeding $100,000,
will not be permitted unless, prior to consummation thereof, Jamboree LLC has
received an opinion of an independent financial advisor, that such transaction
or series of related transactions is on terms that are fair, from a financial
point of view, to Jamboree LLC, (2) certain salaries and other employee
compensation and benefits to officers of Jamboree LLC or its members (3)
out-of-pocket expenses of Jamboree LLC and its members with respect to
operations of Jamboree LLC and (4) any transaction required or otherwise
permitted by the Plan or the Class A Indenture or the New Management Agreement.
NEW SUBSIDIARIES. Under the Class A Indenture,
Jamboree LLC will not be permitted to incorporate or otherwise organize any
Subsidiary after the Effective Date.
RESERVE ACCOUNTS. Jamboree LLC may, from time to time
and at any time except during the continuation of an Event of Default, withdraw
amounts from the Operating Disbursement Account (as defined in the New
Management Agreement), the Approved Reserves and all other reserves or accounts
created in accordance with the New Management Agreement to pay the costs and
expenses for which such reserves and accounts were created. Jamboree LLC will
not be permitted to make any such withdrawals during the continuance of an Event
of Default without the written consent of the Class A Trustee. To the extent
that amounts then available from cash flow from operations of Jamboree LLC,
amounts in the Operating Disbursements Account, the Approved Reserves and all
other reserves or accounts created in accordance with the New Management
Agreement are not sufficient to pay such costs, Jamboree LLC will be permitted
to
32
withdraw funds from the Existing Reserve Account except during the
continuance of an Event of Default to pay the costs of tenant improvements,
REIT Required Dividends, Debt Service, Capital Expenditures required to
comply with law and Capital Expenditures reasonably necessary (as reasonably
determined by the Board of Members of Jamboree LLC) to maintain the Property.
EVENT OF LOSS. Promptly after any Event of Loss (as
defined herein) with respect to collateral for the Class A Notes with a fair
market value (or replacement cost, if greater) equal to or less than $1,000,000,
Jamboree LLC is required to apply the Net Loss Proceeds from such Event of Loss
to the rebuilding, repair, replacement or construction of improvements to the
Property. Promptly after any Event of Loss with respect to collateral for the
Class A Notes with a fair market value (or replacement cost if greater) in
excess of $1,000,000, Jamboree LLC is required to, subject to certain
conditions, apply the Net Loss Proceeds from such Event of Loss to the
rebuilding, repair, replacement or construction of improvements to the Property.
As defined in the Class A Indenture, Event of Loss means, with respect to any
property or asset (tangible or intangible, real or personal), any of the
following: (A) any loss, destruction or damage of such property or asset;
(B) any actual condemnation, seizure or taking by exercise of the power of
eminent domain or otherwise of such property or asset, or confiscation of such
property or asset or the requisition of the use of such property or asset; or
(C) any settlement in lieu of clause (B) above.
MERGER AND CONSOLIDATION. Under the Class A Indenture,
Jamboree LLC may not consolidate or merge with or into (whether or not Jamboree
LLC is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, another person (other than the REIT) unless,
among other conditions, (a) Jamboree LLC is the surviving entity, or the person
formed by or surviving any such consolidation or merger (if other than Jamboree
LLC) or to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Columbia, (b) the
person formed by or surviving any such consolidation or merger (if other than
Jamboree LLC), or the person to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made, assumes, pursuant to a
supplemental indenture and appropriate collateral documents in forms reasonably
satisfactory to the Class A Trustee, all of the obligations of Jamboree LLC
under the operative documents with respect to the Class A Notes, (c) immediately
before and immediately after giving effect to such transaction no Default or
Event of Default exists, (d) Jamboree LLC or the person formed by or surviving
any such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made after giving pro forma
effect thereto as of the end of the most recently completed fiscal quarter has a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
Jamboree LLC immediately preceding the transaction and (e) Jamboree LLC shall
have delivered to the Class A Trustee an officers' certificate and opinion of
counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture comply with the Class A Indenture.
OTHER COVENANTS. The Class A Indenture will also
contain covenants requiring Jamboree LLC to maintain certain insurance on its
properties, pay taxes, provide certain financial information to the holders of
the Class A Notes, provide certain indemnities and subrogation take certain
actions to preserve its business and goodwill, not become an investment company
and forego the benefit of stay, extension and usury laws.
EVENTS OF DEFAULT AND REMEDIES. The Class A Indenture will
define an Event of Default to have occurred whenever, among other things,
Jamboree LLC fails to make any payment in respect of principal of or premium on
the Class A Notes when the same becomes due and payable and such failure
continues for a period of 5 Business Days after the due date of such payment, or
fail to make any payment when due of interest on the Class A Notes and such
failure continues for a period of 10 days after the due date of such payment; or
certain statements made in this Disclosure Statement or the Collateral Documents
prove to contain any untrue
33
statement of a material fact or omit to state a material fact; or Jamboree
LLC fails to perform or observe certain terms, covenants or agreements
contained in the Class A Indenture, the Plan or the Collateral Documents,
subject, in certain instances to a 30 day cure period; or Jamboree LLC fails,
after any applicable grace period, to pay any principal of or premium, if
any, or interest on the Class B Senior Subordinated Secured Notes or any of
its other Indebtedness, in an amount exceeding $200,000 (excluding the Class
A Notes), when the same becomes due and payable; or any other event occurs or
condition exists under any agreement or instrument relating to any such
Indebtedness, if the effect of such event or condition is to accelerate the
maturity of such Indebtedness; or any such Indebtedness is declared to be due
and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof; or certain events
of bankruptcy, insolvency or reorganization occur with respect to Jamboree
LLC; or any final judgment or order for the payment of money in excess of
$100,000 amount is rendered against Jamboree LLC and either enforcement
proceedings have been commenced by any creditor upon such judgment or order
or 30 consecutive days shall have passed without a stay of such judgment or
order; or the Class A Indenture or the Collateral Documents, for any reason,
cease to create a valid first priority lien (except for liens expressly
permitted to be senior to the New Deed of Trust in the Class A Indenture and
the Collateral Documents) on collateral with respect to the Class A Notes
having a value in excess of $100,000; or Jamboree LLC fails to pay any
Imposition prior to delinquency or, if Jamboree LLC is prohibited by law from
paying such Imposition, Jamboree LLC fails to pay such Imposition within 180
days of Jamboree LLC's receipt of notice of such prohibition; or Jamboree LLC
shall fail to perform its obligations under the Plan.
ACCELERATION. If an Event of Default (other than a
bankruptcy Event of Default) occurs and is continuing, the Class A Trustee by
notice to Jamboree LLC may, or upon written notice from the holders of not less
than 25% in principal amount of the Class A Notes outstanding on the date of
determination must, or such holders by written notice to Jamboree LLC and the
Class A Trustee may, declare all the Class A Notes to be due and payable
immediately and upon such declaration, the principal of, premium, if any, and
interest on the Class A Notes will be due and payable immediately. If a
bankruptcy Event of Default occurs, such an amount will be immediately due and
payable without any declaration or other act on the part of the Class A Trustee
or any holder of Class A Notes. Holders of not less than 25% in principal
amount of the Class A Notes outstanding on the date of determination, by written
notice to the Class A Trustee, may on behalf of all of the holders of the Class
A Notes rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived. The holders of not less
than 25% in principal amount of the Class A Notes outstanding on the date of
determination by written notice to the Class A Trustee may on behalf of the
holders of all of the Class A Notes waive an existing Default or Event of
Default and its consequences under the Class A Indenture, except a continuing
Default or Event of Default in the payment of the principal of or interest.
AMENDMENT, SUPPLEMENT AND WAIVER. Under the Class A
Indenture, Jamboree LLC and the Class A Trustee may amend or supplement the
Class A Indenture, the Class A Notes and any other operative document under the
Class A Indenture without the consent of any holder of Class A Notes to cure any
ambiguity, defect or inconsistency; provide for uncertificated Class A Notes in
addition to or in place of certificated Class A Notes; provide for (i) the
assumption of Jamboree LLC's obligations to the holders of the Class A Notes in
the case of a merger or consolidation, and (ii) certain amendments to the
Collateral Documents expressly called for therein; to execute and deliver any
documents necessary or appropriate to release liens on any collateral with
respect to the Class A Indenture as permitted by the Class A Indenture; to make
any change that would provide any additional rights or benefits to the holders
of the Class A Notes or that does not materially adversely affect the legal
rights under the Class A Indenture of any holder of the Class A Notes; to comply
with requirements of the Securities and Exchange Commission in order to effect
or maintain the qualification of the Class A Indenture under the Trust Indenture
Act of 1939, as amended; or to evidence or effect the pledge of additional or
substitute collateral with respect to the Class A Indenture.
34
Under the Class A Indenture, Jamboree LLC and the Class A
Trustee may amend or supplement the Class A Indenture, the Class A Notes, or any
amended or supplemental Indenture with the written consent of holders of not
less than 51% in principal amount of the Class A Notes ("Required Holders") and,
subject to the rights of holders of the Class A Notes to receive payment of
principal of and interest on the Class A Notes, any existing Default or Event of
Default and its consequences or compliance with any provision of the Class A
Indenture or the Class A Notes may be waived with the consent of the holders of
not less than 25% in principal amount of the Class A Notes outstanding on the
date of determination. Jamboree LLC and the Class A Trustee may, with the
consent of holders of not less than 66 2/3% in principal amount of each of the
Class A Notes and the Class B Notes, respectively, outstanding on the date of
determination, directly or indirectly release liens on all or substantially all
of the collateral with respect to the Class A Indenture except in connection
with a Triggering Event. Jamboree LLC and the Class A Trustee may, with the
consent of holders of the principal amount of the Class A Notes whose holders
must consent to an amendment, supplement or waiver, reduce such principal amount
with respect to such amendment, supplement or waiver.
Without the consent of each holder of the Class Notes
affected, however, an amendment or waiver may not (with respect to any Class A
Notes held by a nonconsenting holder of the Class A Notes): reduce the principal
of or change the fixed maturity of any Class A Note or reduce the redemption
price of the Class A Notes; reduce the rate of or change the time for payment of
interest on any Class A Note; waive a Default or Event of Default in the payment
of principal of or interest on the Class A Notes (except a rescission of
acceleration of the Class A Notes by the Required Holders and a waiver of the
payment default that resulted from such acceleration); make any Class A Note
payable in money other than that stated in the Class A Notes; make any change in
certain sections of the Class A Indenture with respect to amendments and
payments of principal and interest; or waive a redemption payment with respect
to any Class A Note.
DEFEASANCE OF THE CLASS A INDENTURE. Jamboree LLC will be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes when Jamboree LLC irrevocably deposits with the Class A
Trustee cash or non-callable governmental securities sufficient to pay and
discharge the Class A Notes, Jamboree LLC has delivered to the Class A Trustee
an opinion of counsel confirming that the holders of the outstanding Class A
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if the defeasance of the Class A Notes had not occurred and Jamboree LLC
meets certain other conditions set forth in the Class A Indenture.
RELEASE OF COLLATERAL. No Collateral will be released from
the lien and security interest created by the Collateral Documents pursuant to
the provisions of the Collateral Documents or the Class A Indenture without the
prior written consent of the Class A Trustee and the Required Holders.
2. NEW CLASS B SENIOR SUBORDINATED SECURED NOTES.
The Class B Notes will be issued pursuant an indenture
between Jamboree LLC and Fleet National Bank, as trustee (the "Class B
Trustee"). The terms of the New Class B Senior Subordinated Secured Note
Indenture (the "Class B Indenture" substantially in the form of Exhibit D to the
Plan) are substantially identical to the terms of the Class A Indenture.
Differences between the Class B Indenture and the Class A Indenture include
differences in maturity, interest, amortization and principal amount. Also, the
Class B Notes will be subordinated to the Class A Notes.
GENERAL. The Class B Notes represent senior subordinated
secured obligations of Jamboree LLC. The Class B Notes will be in an aggregate
principal amount of $20,000,000.
35
MATURITY, INTEREST AND PRINCIPAL. The Class B Notes will
mature on March 27, 2002. Interest will accrue on the Class B Notes at a fixed
rate equal to 3.00% above the interest rate on United States Treasury Bonds or
Notes with a maturity closest to the maturity of the Class B Notes on the
Effective Date. Interest on the Class B Notes is payable monthly in arrears on
the first day of each month, commencing on the first such date after the
Effective Date. Interest is computed on the basis of a 360-day year of twelve
30-day months. Interest only will be payable monthly in arrears until March 27,
2000; thereafter interest and principal will be payable monthly in arrears with
principal amortized on a straight-line basis, based on a 25-year amortization.
Interest will be payable, at the option of Jamboree LLC, in Class B Notes until
March 27, 2001.
SUBORDINATION. The Class B Notes are subordinated in right
of payment to the prior payment in full in cash of all existing and future
Senior Indebtedness (as defined in the Class B Indenture) when due. Senior
Indebtedness is defined in the Class B Indenture as (x) all Obligations (as
defined in the Class B Indenture) of Jamboree LLC existing to pay the principal
of, and interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization to the extent a claim for post-
filing interest is allowed in such proceedings and any excess interest due as a
result of an event of default under the Senior Indebtedness) and premiums on,
any Indebtedness of Jamboree LLC with respect to the New Class A Senior Secured
Notes and the other operative documents with respect to the New Class A Senior
Subordinated Notes, whether outstanding on the date of the Class B Indenture or
thereafter created, incurred, assumed, guaranteed or in effect guaranteed by
Jamboree LLC and (y) all amounts paid to the holders of Senior Indebtedness or
their representative under any payment that is rescinded or otherwise required
to be restored by such holders of Senior Indebtedness, whether as a result of
any proceedings in bankruptcy, reorganization or otherwise.
No direct or indirect payment generally will be permitted to
be made by or on behalf of Jamboree LLC under the Class B Notes or any other
operative document with respect to such notes, or to acquire any Class B Notes
for cash, securities or other property, by set-off or otherwise, or to redeem,
retire, purchase, deposit moneys for defeasance of or to acquire any Class B
Notes, and no action will be permitted to be taken to accelerate or to enforce
the Class B Notes, and Jamboree LLC will not be permitted to segregate and hold
separate for the benefit of the holders of the Class B Senior Subordinated
Secured Notes any money for such payment or distribution, if (i) any of the New
Senior Indebtedness is not paid in cash when due or defeased or (ii) any other
default on the Senior Indebtedness occurs, unless, in either case, (x) the
default has been cured or waived or (y) such Senior Indebtedness as is then due
has been paid in full in cash or defeased. Jamboree LLC may, however, make any
such direct or indirect payment or take such other action under the Class B
Notes or any other operative document with respect to such notes without regard
to the foregoing if Jamboree LLC and the Class B Trustee receive prior written
consent of all of the holders of the Senior Indebtedness. Also, the holders of
the Class B Notes may receive shares of stock and debt securities that are
subordinated to the Senior Indebtedness to at least the same extent as the Class
B Notes are subordinate to the Senior Indebtedness and pursuant to the same or
more stringent terms. In the event that Jamboree LLC makes any payment to the
Class B Trustee pursuant to the Class B Notes after defeasance of the Senior
Indebtedness but prior to a date that is 100 days after such defeasance
("Preference Expiration Date"), such payment shall be held by the Class B
Trustee, in trust for the benefit of the holders of the Senior Indebtedness and
such payment shall promptly be paid over to such holders or their
representatives upon the filing of a petition in bankruptcy or, if no such
petition is filed prior to the Preference Expiration Date, such payment shall be
released to the benefit of the holders of the New Class B Senior Subordinate
Secured Notes; Jamboree LLC, however, will not be permitted to make any payment
to the holders of the Class B Notes after the Senior Indebtedness is defeased
and prior to the Preference Expiration Date.
3. SECURITY FOR THE NEW NOTES.
The payment of the principal and interest on the New Notes
will be secured by substantially all the property of Jamboree LLC pursuant to
the Collateral Documents described below. IBJ ▇▇▇▇▇▇▇▇ Bank &
36
Trust Company will act as Collateral Agent under those Collateral Documents.
The Collateral Documents include the following:
a. Amended and Restated Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing (the "New Deed of
Trust") attached as Exhibit B to the Class A Indenture and as
Exhibit G to the Plan to be executed by Jamboree LLC to IBJ
▇▇▇▇▇▇▇▇ Bank & Trust Company, as collateral agent (the
"Collateral Agent") for the benefit of the holders of the New
Notes, securing the payment in full of all amounts created and
evidenced by the New Notes and the performance of all obligations
under the Collateral Documents. The New Deed of Trust will
encumber the Property and all fixtures and personal property
located on it. The New Deed of Trust will have the same priority
as the Existing Deed of Trust and will be subject to "Existing
Encumbrances." Existing Encumbrances will include all valid
liens and encumbrances that were of record on the date the
Existing Deed of Trust was recorded.
b. Security Agreement attached as Exhibit G to the Class A
Indenture to be executed by Jamboree LLC and the Collateral
Agent, for the benefit of holders of the New Notes, securing the
payment in full of all amounts created and evidenced by the New
Notes and the performance of all obligations under the Collateral
Documents. The Security Agreement will grant a first priority
security interest in all personal property of Jamboree LLC and
the security interest granted thereunder will be perfected with
the filing of a UCC-1 Financing Statement with the California
Secretary of State's office.
c. Amended and Restated Assignment of Rents, Leases,
Income and Profits attached to as Exhibit C to the Class A
Indenture whereby Jamboree LLC will assign all leases affecting
the Property, and all rents and income derived from them, to the
Collateral Agent, for the benefit of the holders of the New
Notes. The holders of the New Notes will grant Jamboree LLC a
license to continue collecting rents so long as no Event of
Default has occurred. Upon an Event of Default, the holders of
the New Notes will have the right to revoke such license and
collect the rents.
d. Pledge and Security Agreement attached as Exhibit E to
the Class A Indenture to be executed by Reorganized CWOP to
Collateral Agent for the benefit of the holders of the New Notes.
Reorganized CWOP will pledge its Jamboree LLC Units as security
for the payment in full of all amounts created and evidenced by
the New Notes and the performance of all obligations under the
Collateral Documents.
e. Collateral Agency Agreement attached as Exhibit I to
the Class A Indenture to be executed by and between Jamboree LLC,
the Collateral Agent and Fleet Financial Group, Inc., appointing
the Collateral Agent as collateral agent for the holders of the
New Notes under the Class A Indenture and the Class B Indenture
and the Collateral Documents and setting forth the rights and
obligations of the Collateral Agent in such capacity.
f. Assignment of Deed of Trust, Financing Statement and
Security Agreement (with Assignment of Rents and Leases) to be
executed by the Servicing Agent or CWOP Note Administrator
L.L.C., assigning all of its right, title and interest under the
Existing Deed of Trust and the existing Assignment of Rents and
Leases to the Collateral Agent.
g. Assignment of Contracts attached as Exhibit D to the
Class A Indenture to be executed by CWOP, assigning all of its
right, title and interest under various agreements affecting the
Property to Jamboree LLC.
h. Reserve Account Agreement attached as Exhibit F to the
Class A Indenture to be executed by and between Jamboree LLC, the
Collateral Agent and a third party depositary, establishing
37
a reserve account and setting forth the type of investments
permitted to be made by Jamboree LLC from such reserve account.
4. NEW NOTES REGISTRATION RIGHTS AGREEMENTS.
Because such entities may be considered "underwriters" and
therefore not entitled to an exemption for the resale of the New Notes (see
Section VIII.B), certain named persons, and any person or entity that receives
or is the transferee from the named persons of 10% or more of the aggregate face
amount of the New Notes (with respect to each type of Note) distributed under
the Plan and any such person's affiliates (the "Restricted Note Holders") will
receive the benefit of registration rights agreements (the "New Notes
Registration Rights Agreements"). The New Class A Registration Rights Agreement
is substantially in the form of Exhibit J to the Plan, and the New Class B
Registration Rights Agreement is substantially in the form of Exhibit K to the
Pleadings. The New Notes Registration Rights Agreements will provide, among
other things, and subject to the conditions provided therein, that (a) any
Restricted Note Holder, with the written consent of the Restricted Holders of at
least 40% of then unregistered Class A Notes or Class B Notes, as the case may
be, held by Restricted Note Holders of such notes, respectively, that have not
then been registered or become eligible for sale under SEC Rule 144, may serve a
request on Jamboree LLC requesting it to prepare a registration statement for
the Class A Notes or Class B Notes, as the case may be, and to use its best
efforts to cause such registration statement for such notes to become effective
within 90 days (or 180 days if it is the first registration) of the date of the
demand notice and (b) if, after the Effective Date, Jamboree LLC proposes to
register (with certain exceptions), Restricted Note Holders will be able to
include their Class A Notes or Class B Notes in such registration, subject to
certain limitations, in the event that Jamboree LLC's underwriter advises it
that the inclusion of such Notes in an underwritten public offering is
impracticable. The rights of the Restricted Note Holders under the New Notes
Registration Rights Agreements will be subject to customary provisions regarding
share limitations, suspension of registration rights, payment of expenses and
indemnification. In addition, the New Notes Registration Rights Agreements will
provide blackout periods with respect to certain registrations made under the
New Equity Registration Rights Agreement, and, with respect to the New Class B
Notes Registration Rights Agreement, under the New Class A Notes Registration
Rights Agreement.
E. PROPERTY APPRECIATION RIGHTS AND EXCHANGE RIGHT.
The New Property Appreciation and Exchange Rights Agreement,
substantially in the form of Exhibit F to the Plan, provides for the issuance of
the New Property Appreciation Rights to Reorganized CWOP and provides for the
exchange of Reorganized CWOP's Jamboree LLC Units for Jamboree Office REIT
Shares. The New Property Appreciation Rights will be exercisable at any time
until the earlier of (i) the close of business on March 27, 2002, and (ii) any
change in control of Jamboree Office REIT occurring after March 27, 2000;
provided that the Reorganized CWOP may not exchange its Jamboree LLC Units for
Jamboree Office REIT Shares for one year after the Effective Date except in
certain circumstances.
In general, the New Tranche A Property Appreciation Right
grants Reorganized CWOP the right to exchange each of its Jamboree LLC Units
for one Jamboree Office REIT Share.
The New Tranche B Property Appreciation Right grants to
Reorganized CWOP a right to purchase for $10,888,888.89 a number of Jamboree
Office REIT Shares (the "Tranche B Shares") representing 10% (subject to
dilution) of the equity value of Jamboree LLC or, at the option of Jamboree
Office REIT, to receive a net cash payment equal to the difference between the
then current market value of the Tranche B Shares (assuming the exercise of all
such rights and all other rights under the New Property Appreciation and
Exchange Rights Agreement concurrently exercised) and such exercise price. The
New Tranche B Property Appreciation Right is exercisable at any time during the
exercise period described above that the fair market
38
value of the outstanding Jamboree Office REIT Shares equals or exceeds a
dollar amount that, when divided by Jamboree Office REIT's percentage equity
interest in Jamboree LLC, equals $98 million.
In addition, the New Tranche C Property Appreciation Right
grants to Reorganized CWOP a right to purchase for $152,777,777.78 a number of
Jamboree Office REIT Shares (the "Tranche C Shares") representing 55% (subject
to dilution) of the equity value of Jamboree LLC or, at the option of Jamboree
Office REIT, to receive a net cash payment equal to the difference between the
then current market value of the Tranche C Shares (assuming the exercise of all
such rights and all other rights under the New Property Appreciation and
Exchange Rights Agreement concurrently exercised) and such exercise price. The
New Tranche C Property Appreciation Right is exercisable at any time during the
exercise period described above that the fair market value of the outstanding
Jamboree Office REIT Shares equals or exceeds a dollar amount that, when divided
by Jamboree Office REIT's percentage equity interest in Jamboree LLC, equals
$125 million.
Reorganized CWOP may elect to exercise either of the New
Tranche B and Tranche C Property Appreciation Rights on a net issue or "cashless
basis" by surrendering a portion of the Tranche B Shares or Tranche C Shares, as
the case may be, in payment of the applicable exercise price. In any event, the
amount of the payment to be made or shares issued on account of the New Property
Appreciation Rights will be adjusted upon the occurrence of certain events at
set forth in the New Property Appreciation and Exchange Rights Agreement and
will be determined on a fully diluted basis giving effect to the exercise of
rights under the New Property Appreciation and Exchange Rights Agreement,
whichever one or more has been exercised at such time, and such other
outstanding options, warrants or other rights to purchase Jamboree Office REIT
shares as deemed appropriate by the appraiser.
To determine the fair market value of the Jamboree Office
REIT Shares for the purpose of the New Property Appreciation Rights, Jamboree
Office REIT will obtain an appraisal. If Reorganized CWOP disputes the
appraisal obtained by Jamboree Office REIT, it may obtain a second appraisal.
If the appraisals differ by less than 10%, then the value will be deemed to be
the average of the two determinations. If the appraisals differ by 10% or more,
then the two appraisers will select an appraiser to perform a third appraisal,
and the value will be deemed to be the value that constitutes the mid-point of
the range between the two determinations that are closest in amount.
If, after Reorganized CWOP exercises a Property Appreciation
Right, Jamboree Office REIT elects to declare a dividend of any cash paid upon
the exercise of the New Property Appreciation Rights, then the dividend will be
distributed to shareholders of Jamboree Office REIT based on their ownership
interests after giving effect to the exercise of the applicable right. In the
event that Reorganized CWOP has not exercised the New Tranche A Property
Appreciation Right at the time of exercise of the New Tranche B or the New
Tranche C Property Appreciation Right, the exercise price for the shares will be
reduced by 10%.
Each of the Property Appreciation Rights must be exercised
in whole by Reorganized CWOP. Reorganized CWOP's rights under the New Property
Appreciation and Exchange Rights Agreement are nontransferable except to an
affiliate of the Debtor. The Jamboree Office REIT Shares received by
Reorganized CWOP upon exchange or exercise of the New Property Appreciation
Rights will be "Registerable Securities" under the New Equity Registration
Rights Agreement.
F. FUTURE OPERATIONS, NEW MANAGEMENT AGREEMENT.
After the Effective Date, Jamboree LLC will retain WCM to
lease existing vacant space in the Property, as well as to re-lease space that
currently is leased but will become vacant prior to the maturity of the New
Notes. Jamboree LLC will continue to operate and manage the Property in a
manner similar to that in
39
which it currently is operated and managed, and to maintain the Property in a
condition consistent with other Class A office buildings in the Irvine area.
The Property will be managed and leased by pursuant to
the New Management and Leasing Agreement (the "New Management Agreement") to
be entered into as of the Effective Date by and between Jamboree LLC and WCM
and substantially in the form of Exhibit I to the Plan. WCM is 99% owned by
WCI and had contracted with CWOP prior to the Reorganization Case to manage
the Property pursuant to an agreement similar to the New Management
Agreement. (WCM subsequently assigned its duties under the prior management
agreement to its affiliate, Winthrop Management. Section III.A.4) Unless
terminated earlier for cause by Jamboree LLC or WCM, the New Management
Agreement will expire by its terms on the earlier of the fifth anniversary of
the Petition Date or the sale of the Property.
The New Management Agreement will require WCM to manage
and lease the Property in accordance with annual operating and capital
expense budgets submitted to and approved by Jamboree LLC (collectively, the
"Approved Budgets"). The costs of managing and leasing the Property that are
identified in the Approved Budgets will be paid from an operating account
maintained by WCM for Jamboree LLC. The Approved Budgets will describe
expenses for, among other things, the on-site personnel required to manage
the Property, the necessary repairs and maintenance of the Property and its
appurtenances and the anticipated improvements to the Property. The New
Management Agreement will also require WCM to, among other things, supervise
construction activities undertaken at the Property, prepare and maintain
certain financial records and reports related to the Property and its
management, maintain specified levels of insurance coverage related to the
performance of WCM's duties and seek and obtain Jamboree LLC's prior consent
to any third-party leases not meeting certain predetermined criteria set
forth in the New Management Agreement.
As set forth in more detail below, in consideration of
the performance of its duties under the New Management Agreement, WCM will
receive (a) a management fee equal to the sum of two percent (2%) of the
Gross Revenues (as defined in the New Management Agreement) generated by the
operation of the Property; (b) certain incentive fees based on reductions it
is able to achieve, if any, in certain operating and other expenses; and (c)
leasing commission payments, consistent with prevailing market rates, for all
third-party leases it procures for the Property.
The following is a summary of the economic differences
between the New Management Agreement, and the agreement between WCM and CWOP
for the management and leasing of the Property prior to the commencement of
the case (the "Prior Agreement").
MANAGEMENT FEE: Under the Prior Agreement, WCM was
entitled to a management fee equal to the sum of a) 5% of gross revenues
attributable to the Fluor lease, plus b) out of pocket and on-site personnel
costs as are payable as management reimbursement under the Fluor lease, plus
c) 4% of gross revenue attributable to space released from the Fluor lease,
plus d) other out of pocket and on-site personnel costs more fully described
in the Prior Agreement. Under the New Management Agreement, WCM is entitled
to a) a base management fee equal to 2% of gross revenues generated by the
Property, plus b) an incentive fee equal to 50% of the positive difference
(if any) between actual Operating Expenses for calendar year 1996 and actual
Operating Expenses incurred in any subsequent calendar year; provided that in
no event may the incentive fee exceed 2% of gross revenues generated by the
Property during the year in question. "Operating Expenses include all of the
items on the 1996 audited financial statements (see Exhibit 2) other than
management fees, real estate taxes and nonrecurring expenses in the amount of
$649,402. A schedule setting forth the calculation of the 1996 Operating
Expenses will be attached as Schedule 6 to the New Management Agreement.
REIMBURSEMENTS: Under the Prior Agreement, WCM was not
entitled to reimbursement for the costs of general accounting and reporting
services. Under the New Management Agreement, WCM is entitled
40
to reimbursement for the costs of such services, provided the services are
performed by on-site personnel and only to the extent such costs may be
passed through to tenants. For 1997, WCM believes approximately $70,000 will
be passed through to tenants for the onsite accountant. Under the New
Management Agreement, WCM is entitled to reimbursement for the costs and
expenses of any accountant retained in connection with Jamboree LLC's dispute
of WCM's calculation of its incentive fee. There was no provision for the
retention of such an accountant in the Prior Agreement.
LEASING COMMISSIONS: Under the Prior Agreement, WCM was
entitled to a leasing commission at market rates as agreed by WCM and CWOP
from time to time. For each lease for which no other broker was a procuring
cause, WCM was entitled to 100% of such commission. If another broker was a
procuring cause, WCM was entitled to 50% of such commission. Under the New
Management Agreement, WCM is entitled to a leasing commission calculated in
accordance with a leasing commission (Schedule 2) attached to the agreement.
The percentage of such commission to which WCM is entitled depending on the
involvement of other brokers is identical to the Prior Agreement.
CONSTRUCTION SERVICES FEE: Under the Prior Agreement,
WCM was entitled to a construction management fee equal to 10% of all soft
and hard costs of any work performed to prepare tenant space for occupancy.
Under the New Management Agreement, there is no construction management fee.
SUBORDINATION OF FEE: Under the Prior Agreement, WCM was
required to use revenue from the Property to pay, in full, amounts due all
third party creditors of Property prior to paying any amounts due WCM. Under
the New Management Agreement, WCM is entitled to use such revenue to pay such
amounts due creditors and amounts due WCM on a pro rata basis.
AUDIT: Under the Prior Agreement, if an audit by CWOP of
the books, records and files which WCM maintained for CWOP revealed an error
or discrepancy of more than $200,000, WCM was required to pay the first
$10,000 of the cost of the audit. Under the New Management Agreement, if any
such audit reveals error or discrepancies in excess of 4% of the amount
audited, WCM is required to pay the entire cost of the audit.
LEASING PARAMETERS: Under the Prior Agreement, all
leases were subject to CWOP's approval prior to submission to a proposed
tenant for execution. In addition, WCM was required to notify CWOP of all
leasing meetings, discussions and negotiations to allow for CWOP's
participation in such meetings. Under the New Management Agreement, WCM is
required to use a standard lease, the form of which will be attached to the
agreement and may, without the prior approval of Jamboree LLC, execute, on
behalf of Jamboree LLC, the following leases (or amendments and renewals
thereof):
1) leases covering 5,000 square feet or less that are
reasonably consistent with then current market terms. If any such lease
provides for tenant improvements in a certain dollar amount per foot (subject
to increase as set forth in the agreement), it must have a term in excess of
3 years; and
2) leases covering more than 5,000 square feet but less
than 25,000 on terms within the leasing parameters set forth on Schedule 1
attached to the agreement.
All other leases are subject to Jamboree LLC's approval
prior to execution by WCM on behalf of Jamboree LLC.
The New Management Agreement will contain the following
Exhibits and Schedules: Exhibit A - the legal description of the Property;
Exhibit B - the form of Approved Budget; Exhibit C - the form of monthly
reports; Exhibit D - a form of Statement of Income and Expenses and Balance
Sheet; Exhibit E - the
41
Standard Lease; Schedule 1 - a schedule of pre-approved leasing parameters;
Schedule 2 - a schedule of leasing commissions; Schedule 3 -schedule of
existing contracts with affiliates; Schedule 4 - the owner's Designated
Representatives; and Schedule 5 - a summary of pre-reorganization insurance
coverage; Schedule 6 - operating expense calculation. The Exhibits and
Schedules that are not attached will be completed prior to execution of the
New Management Agreement. Schedule 1 (pre-approved leasing parameters) and
Exhibit E (form of standard lease) will be provided to the Successor
Servicing Agreement but not filed with the Court because of the confidential
and competitively sensitive nature of the information contained in those
documents.
G. REORGANIZED CWOP.
After the Effective Date, the sole assets of Reorganized
CWOP will be an initial 10% of the Jamboree LLC Units and its rights under
the New Property Appreciation and Exchange Rights Agreement. The CWOP
Partnership Agreement will be amended by a fourth amendment, which is
attached to the Plan as Exhibit E (as amended, the "New CWOP Partnership
Agreement"). The fourth amendment amends the CWOP partnership agreement to
take into account the fact that CWOP no longer owns the Property and to add
certain provisions designed to specially allocate the burden of any Excess
Shares designation resulting from a violation of the ownership limitations
for Jamboree Office REIT to the person whose holding causes such designation.
The fourth amendment assumes that Crow has been converted
to a limited partner in accordance with the terms of Section 4.1(f) of the
existing CWOP partnership agreement, and that a third amendment has been
executed to document that conversion. If for any reason the proposed third
amendment is not executed prior to the Effective Date, the fourth amendment
will be renumbered and modified accordingly. Neither the fourth amendment
nor the Plan have the effect of converting Crow to a limited partner or CWOP
to a limited partnership.
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
A. INTRODUCTION.
The implementation of the Plan may have federal, state
and local tax consequences to CWOP and CWOP's creditors and partners. No tax
opinion has been sought or will be obtained with respect to any tax
consequences of the Plan. This Disclosure Statement does not constitute and
is not intended to constitute either a tax opinion or tax advice to any
person, and the summary contained herein is provided for informational
purposes only.
The discussion below summarizes only certain of the
federal income tax consequences associated with the Plan's implementation.
This discussion does not attempt to comment on all aspects of the federal
income tax consequences associated with the Plan, nor does it attempt to
consider various facts or limitations applicable to any particular creditor
or partner that may modify or alter the consequences described herein. This
discussion does not address state, local or foreign tax consequences or the
consequences of any federal tax other than the federal income tax.
The following discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
the regulations promulgated thereunder, existing judicial decisions and
administrative rulings. In light of the numerous recent amendments to the
Internal Revenue Code, no assurance can be given that legislative, judicial
or administrative changes will not be forthcoming that would affect the
accuracy of the discussion below. Any such changes could be material and
could be retroactive with respect to transactions entered into or completed
prior to the enactment or promulgation thereof. The tax consequences of
certain aspects of the Plan are uncertain due to the lack of applicable legal
authority and may be subject to judicial or administrative interpretations
that differ from the discussion below.
42
Tax legislation has been introduced in Congress which, if
enacted, would fundamentally alter the basic scheme of federal taxation by
replacing the federal income tax with a national retail sales tax or a form
of value added tax. Other proposed tax legislation would transform the
current graduated-rate federal income tax into an income-based flat tax.
Insofar as the discussion below addresses income tax consequences in 1997
and/or subsequent years, such discussion may be completely invalidated if tax
reform is enacted.
CREDITORS AND PARTNERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM AND TO CWOP OF THE
TRANSACTIONS CONTEMPLATED BY THE PLAN.
B. FEDERAL INCOME TAX CONSEQUENCES TO CWOP.
1. GENERAL.
Recently issued Treasury Regulations (the "Check-the-Box
Regulations") permit most unincorporated business entities to elect whether
to be taxed as partnerships or corporations for federal income tax purposes
without regard to the prior regulations' four-factor classification test.
Under the Check-the-Box Regulations most multi-member unincorporated domestic
entities will default to partnership classification without the need to make
an election. CWOP intends to take such steps as may be necessary to ensure
its classification as a partnership for federal income tax purposes. If CWOP
is classified as a partnership for federal income tax purposes, CWOP is not
itself a tax-paying entity but instead passes through to its partners all of
CWOP's items of income, gain, loss, deduction and credit for each taxable
year. CWOP's partners take into account on their own federal income tax
returns their distributive share of such items of income, gain, loss,
deduction and credit whether or not cash distributions with respect to such
items are made to the partners. If a CWOP partner is itself a partnership
for federal income tax purposes, such partnership passes through to its
partners their distributive share of items of income, gain, loss, deduction
and credit.
2. REDUCTION OF CWOP'S INDEBTEDNESS.
As a result of the Plan's implementation, the amount of
CWOP's aggregate outstanding indebtedness will be reduced substantially.
(The amount of discharged indebtedness for federal income tax purposes will
be referred to herein as a "Debt Discharge Amount.") In general, the Internal
Revenue Code provides that a taxpayer who realizes a discharge of
indebtedness must include the Debt Discharge Amount in its gross income in
the taxable year of discharge to the extent that the Debt Discharge Amount
exceeds any consideration given for such discharge. No income from the
discharge of indebtedness is realized to the extent that payment of the
liability being discharged would have given rise to a deduction.
The Internal Revenue Code establishes certain exceptions
to the general rule that a taxpayer who realizes a Debt Discharge Amount must
include such amount in his income. In the case of a partnership such as
CWOP, these exceptions apply at the partner level rather than the partnership
level. If a partner of a debtor partnership is itself a partnership, the
exceptions apply at the partner level of such higher-tier partnership,
assuming such partner is not another partnership (in which case the cycle is
repeated).
A CWOP partner (other than another partnership, as
discussed above) may be able to exclude from income such partner's
distributive share of CWOP's Debt Discharge Amount if the partner is in a
title 11 case or is insolvent. Further, a partner who is an individual or an
S corporation may be able to exclude from income all or a portion of its
distributive share of CWOP's Debt Discharge Amount by making an election
described in Internal Revenue Code section 108(c) relating to "qualified real
property business indebtedness." The ability of any CWOP partner (or
higher-tier partner, as applicable) to qualify for any exception to the
general rule of recognition of a Debt Discharge Amount will turn, in large
part, on such partner's particular tax
43
circumstances, including in certain cases such partner's timely filing of an
election with the Internal Revenue Service. Consequently, CWOP is unable to
express any view with respect to whether any partner of CWOP will qualify
under any of the foregoing exceptions to the recognition of CWOP's Debt
Discharge Amount.
The exclusion of debt-discharge income with respect to a
bankrupt or insolvent taxpayer triggers the reduction of various tax
attributes of the taxpayer, including a reduction in the basis of the
taxpayer's property. The tax attributes that must be reduced and the order of
their reduction are specified in Code section 108(b)(2). Notably, the
insolvency exception for nonbankrupt taxpayers is limited to the extent of
the taxpayer's insolvency before the discharge. The gross income exclusion
for qualified real property business indebtedness, on the other hand,
requires an election by the taxpayer to reduce the basis of its depreciable
real property under the rules of Code section 1017 rather than include the
debt-discharge amount in income. In either case, all or a portion of any
reduction in the basis of property pursuant to an exclusion of debt-discharge
income may be recaptured as ordinary income upon disposition of the property.
As discussed in Section VII.E, below, the allocation of items of Jamboree
LLC income, gain, loss and deduction with respect to certain items of
property may be governed by Internal Revenue Code section 704(c).
3. CONSTRUCTIVE DISTRIBUTION OF MONEY UNDER INTERNAL
REVENUE CODE SECTION 752.
Under Internal Revenue Code section 752, a decrease in a
partner's share of a partnership's liabilities is treated as a distribution
of money by the partnership to the partner. Such a constructive distribution
generally triggers the recognition of gain by a partner to the extent the
amount so constructively distributed exceeds the partner's adjusted basis in
his partnership interest. For this purpose, the partner's adjusted basis
will ordinarily include the amount of the increase in basis due to the
allocation to the partner of its distributive share of any Debt Discharge
Amount.
Partners of CWOP are expected to experience a reduction
in their share of the liabilities of CWOP as a result of Plan transactions.
Whether any such reduction will trigger the recognition of income by any
particular partner is dependent upon such partner's adjusted basis in its
partnership interest, as such basis may be increased by such partner's
distributive share of CWOP's Debt Discharge Amount.
C. FEDERAL INCOME TAX CONSEQUENCES TO CREDITORS.
The federal income tax consequences of the Plan's
implementation to a creditor will depend on the type of consideration
received by the creditor in exchange for its Claim, whether the creditor
reports income on the cash or accrual method, whether the creditor receives
consideration in more than one tax year of the creditor, and whether all the
consideration received by the creditor is deemed to be received by that
creditor in an integrated transaction.
1. CONSTRUCTIVE OR DEEMED EXCHANGE OF OLD DEBT
INSTRUMENT FOR NEW DEBT INSTRUMENT.
A modification of the terms of indebtedness can result in
a constructive or deemed exchange of the new modified debt for the old
unmodified debt. If a constructive or deemed exchange occurs, a creditor may
realize and recognize a gain or loss. Under Internal Revenue Code section
1001, the gain or loss from an exchange of property is determined by
reference to the amount realized by the creditor from the exchange and the
creditor's adjusted tax basis in the property as determined under Internal
Revenue Code section 1001. For this purpose, the amount realized by the
creditor likely is the "issue price" of the new modified debt instrument as
determined under the Internal Revenue Code's original issue discount
provisions.
44
Under newly-finalized Treasury Regulations, a
constructive or deemed exchange occurs with respect to a debt instrument if
the alteration of the terms of indebtedness constitutes a "significant
modification" as defined in the Regulations. The Regulations' approach is to
establish specific rules for determining the significance of certain types of
modifications and to provide a general rule for dealing with modifications
not otherwise addressed. The general rule broadly provides that a
modification is a significant modification only if, based on all facts and
circumstances, the legal rights or obligations that are altered and the
degree to which they are altered is economically significant. The specific
rules deal with (1) a change in yield, (2) a change in the timing of
payments, (3) a change in the identity of the obligor or the security for the
debt, (4) certain changes in the nature of the debt and (5) a change in
accounting or financial covenants.
A full and complete discussion of these specific rules is
beyond the scope of this Disclosure Statement. What follows is an overview
of certain specific rules. Creditors and other parties in interest should
consult their own tax advisors with respect to the application of the
Treasury Regulations' debt modification rules to the treatment of their
Claims under the Plan.
CHANGE IN YIELD. A change in yield is a significant
modification if the new yield (determined under rules promulgated in the
Treasury Regulations) varies from the annual yield on the unmodified debt
(determined as of the date of modification) by more than the greater of (i)
one-fourth of one percent (25 basis points) or (ii) 5 percent of the annual
yield of the unmodified debt.
CHANGES IN TIMING OF PAYMENTS. A modification that
changes the timing of one or more payments due under the terms of the debt is
a significant modification if it "results in the material deferral of
scheduled payments." The Regulations establish a safe harbor whereby the
deferral of one or more scheduled payments is not a material deferral if the
deferred payments are unconditionally payable no later than at the end of the
safe harbor period. The safe harbor period begins on the original due date of
the first scheduled payment that is deferred and extends for a period equal
to the lesser of five years or 50 percent of the original term of the debt.
CHANGE IN OBLIGOR OR SECURITY. The substitution of a new
obligor on a recourse debt generally is a significant modification. For this
purpose, the filing of a bankruptcy petition in and of itself does not result
in the substitution of a new obligor. A modification that releases,
substitutes, adds or otherwise alters the collateral for, a guarantee on, or
other form of credit enhancement for a recourse debt is a significant
modification if the modification results in a change in payment expectations.
A change in the priority of debt relative to other debt of the borrower is a
significant modification if it results in a change of payment expectations.
The substitution of a new obligor on a nonrecourse debt instrument generally
is not a significant modification.
CHANGES IN THE NATURE OF A DEBT INSTRUMENT. A
modification in the terms of a claim that results in an instrument or
property right that is not debt for federal income tax purposes is a
significant modification. For this purpose, any deterioration in the
financial condition of the obligor between the issue date of the debt and the
modification date generally is not taken into account.
ACCOUNTING AND FINANCIAL COVENANTS. A modification that
adds, deletes or alters customary accounting or financial covenants is not a
significant modification.
A modification described above that is effective only
upon the occurrence of a substantial contingency or that is effective on a
deferred basis is tested under the general rule rather than the specific
rules.
Modifications occurring pursuant to a plan of
reorganization generally are treated as occurring on the effective date of
the plan.
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The new final Treasury Regulations apply to any
alteration of the terms of debt occurring on or after September 24, 1996.
Taxpayers, however, may rely on these Regulations for alterations of debt
occurring after December 2, 1992 and before September 24, 1996.
2. TAX BASIS AND HOLDING PERIOD OF ITEMS RECEIVED.
Generally, the aggregate tax basis in the items of
property (other than cash) received by a creditor in an actual or deemed
exchange will equal the amount realized in respect of such property items
(other than amounts allocable to any accrued interest). The holding period
for property items received in the exchange will begin on the day following
the exchange.
3. WITHHOLDING.
Jamboree LLC or a disbursing agent will withhold any
amounts required by law from payments made to creditors. This may require
payments by certain creditors of the required withholding tax on any non-cash
consideration issuable under the Plan. In addition, creditors may be
required to provide general tax information to Jamboree LLC or a disbursing
agent.
D. FEDERAL INCOME TAXATION OF JAMBOREE OFFICE REIT.
Jamboree Office REIT will elect to be taxed as a
REIT under Internal Revenue Code sections 856 through 860 and the applicable
Treasury Regulations (the "REIT Requirements" or the "REIT Provisions"),
which are the requirements for qualifying as a REIT. As long as Jamboree
Office REIT qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary
income or capital gain that is distributed to shareholders. Such treatment
substantially eliminates the federal "double taxation" on earnings that
generally results from investment in a corporation. Jamboree Office REIT
intends to operate in such a manner as to qualify for taxation as a REIT
under the Internal Revenue Code, but no assurance can be given that it will
operate in a manner so as to qualify or remain qualified. Qualification as a
REIT involves the application of highly technical and complex Internal
Revenue Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters
and circumstances not entirely within Jamboree Office REIT's control may
affect its ability to qualify as a REIT. In addition, no assurance can be
given that legislation, new regulations, administrative interpretations, or
court decisions will not significantly change the tax laws with respect to
the qualification as a REIT or the federal income tax consequences of such
qualification; however, Jamboree Office REIT is not aware of any proposal in
Congress to amend the tax laws that would materially and adversely affect
Jamboree Office REIT's ability to operate as a REIT. The REIT Requirements
are highly technical and complex. The following discussion sets forth only
certain material aspects of those requirements. This summary is qualified in
its entirety by the applicable Internal Revenue Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
Even if Jamboree Office REIT qualifies for taxation
as a REIT under the REIT Provisions, Jamboree Office REIT may be subject to
federal income and excise tax as follows:
First, Jamboree Office REIT will be taxed at regular
corporate income tax rates on any undistributed REIT taxable
income, including undistributed net capital gains.
Second, under certain circumstances, ▇▇▇▇▇▇▇▇ Office
REIT may be subject to the "alternative minimum tax" on certain
of its items of tax preferences, if any.
46
Third, if Jamboree Office REIT has (i) net income from
the sale or other disposition of "foreclosure property" that is
held primarily for sale to customers in the ordinary course of
business or (ii) other nonqualifying net income from foreclosure
property, it will be subject to tax at the highest corporate rate
on such income.
Fourth, if Jamboree Office REIT has net income from
prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to
customers in the ordinary course of business, other than sales of
foreclosure property), such income will be subject to a 100% tax.
Fifth, if Jamboree Office REIT should fail to satisfy
the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its
qualifications as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which ▇▇▇▇▇▇▇▇
Office REIT fails the 75% or 95% test, multiplied by a fraction
intended to reflect Jamboree Office REIT's profitability.
Sixth, if Jamboree Office REIT should fail to
distribute, or fail to be treated as having distributed, with
respect to each calendar year, at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital
gain net income for such year, and (iii) any undistributed
taxable income from prior periods, Jamboree Office REIT would be
subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Jamboree Office REIT does not now intend to acquire
any appreciated assets from a corporation generally subject to full
corporate-level tax in a transaction in which its basis in assets would carry
over from the transferor. However, in the event of such an acquisition,
Jamboree Office REIT could, under certain circumstances, be subject to tax
upon disposition of such assets. (Under certain proposals made by the
Clinton Administration, such tax could be imposed upon acquisition of such
assets.)
1. REIT ORGANIZATIONAL REQUIREMENTS.
The Internal Revenue Code defines a REIT as a
corporation, trust, or association (a) that is managed by one or more
trustees or directors; (b) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest;
(c) that would be taxable as a domestic corporation, but for the REIT
Requirements; (d) that is neither a financial institution nor an insurance
company subject to certain provisions of the Internal Revenue Code; (e) the
beneficial ownership of which is held by 100 or more persons; (f) not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) at any time during the last half of each
taxable year; and (g) meets certain other tests, described below, regarding
the nature of its income and assets. The Internal Revenue Code provides that
conditions (a) through (d), inclusive, must be met during the entire taxable
year and that condition (e) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a taxable year of less
than 12 months. For purposes of condition (f), pension funds and certain
other tax-exempt entities are generally treated as individuals. Effective for
taxable years beginning after December 31, 1993, a pension trust that
qualifies under section 401(a) of the Internal Revenue Code generally will
not be treated as an individual for these purposes; instead the beneficiaries
of the pension trust will be treated as holding shares of the REIT in
proportion to their actuarial interests in the pension trust. Conditions (e)
and (f) will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. The holders of the Allowed
Certificateholder Claims believe that it will issue sufficient Jamboree
Office REIT Shares pursuant to the Plan to allow it to continue to satisfy
conditions (e) and (f) above. In addition, a corporation may not elect to
become a REIT unless its taxable year is the calendar year. Jamboree Office
REIT satisfies this requirement.
47
Regulations promulgated under Internal Revenue Code
section 856 provide that if a REIT invests in a partnership, notwithstanding
the allocation provisions set forth in the partnership agreement, for
purposes of determining whether the REIT qualifies under the various REIT
Requirements, the REIT will be deemed to own its "proportionate share" of
each of the assets of the partnership, and will be deemed to be entitled to
the income of the partnership attributable to such proportionate share.
Consequently, in order for Jamboree Office REIT to remain qualified as a
REIT, Jamboree LLC must comply with the income and asset requirements of a
REIT. Accordingly, the New LLC Agreement will contain provisions to ensure
Jamboree LLC's continued compliance with the REIT Requirements.
2. INCOME TESTS.
In order to maintain qualification as a REIT, Jamboree
Office REIT must satisfy annually three gross income requirements. First, at
least 75% of Jamboree Office REIT's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived, directly or
indirectly, from investments relating to real property or mortgages on real
property (as interest on obligations secured by mortgages, "rents from real
property" or as gain on the sale or exchange of such property), from certain
types of temporary investments or from certain other types of gross income.
Second, at least 95% of Jamboree Office REIT's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from such real property investments as aforesaid and from dividends,
interest, and gain from the sale or other disposition of stock or securities
and certain other types of gross income (or from any combination of the
foregoing). Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions, and gain on the sale
or other disposition of real property held for less than four years (apart
from involuntary conversions and sales of foreclosure property) generally
must represent less than 30% of Jamboree Office REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
For purposes of applying the 30% gross income test, the holding period of
properties acquired by Jamboree LLC in the formation transaction will be
deemed to have commenced on the date of acquisition.
Rents received or deemed to be received by Jamboree
Office REIT will qualify as "rents from real property" in satisfying the
gross income requirements for a REIT described above only if certain
conditions are met. First, the amount of rent must not be based in whole or
in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Second, the Internal Revenue Code provides
that rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if Jamboree Office REIT, or an
owner of 10% or more of Jamboree Office REIT, directly or constructively owns
10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property, leased in connection with a lease of real
property, is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Jamboree Office REIT does not
anticipate deriving rent attributable to personal property leased in
connection with real property in excess of the 15% limitation described
above. Finally, for rents received to qualify as "rents from real property,"
Jamboree Office REIT generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom Jamboree Office REIT derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent
the services provided by Jamboree Office REIT are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered "rendered to the occupant primarily for his
convenience." Jamboree Office REIT does not and will not (i) charge rent for
any property that is based in whole or in part on the income or profits of
any person (except by reason of being based on a percentage of receipts or
sales, as described above), (ii) rent any additional property to a Related
Party Tenant (unless the Board of Directors determines in its discretion that
the rent received from such Related Party Tenant is not material and will not
jeopardize Jamboree Office REIT's status as a REIT), (iii) derive rental
income attributable to personal property (other than personal property
48
leased in connection with the lease of real property, the amount of which is
less than 15% of the total rent received under the lease), or (iv) perform
services considered to be rendered to the occupant of the property, other
than through an independent contractor from whom Jamboree Office REIT derives
no revenue. (The operations and services provided tenants of the Property
are being reviewed to determine whether any changes are necessary to comply
with the REIT rules.) While Jamboree Office REIT believes that the services
rendered to its tenants are usually or customarily rendered in connection
with the rental of space, if challenged by the Service, it may not be able to
demonstrate that the extent to which such services are rendered by other
property owners is common enough to cause them to be "customarily rendered."
In the case of any services that are not "usual and customary" under the
foregoing rules, Jamboree Office REIT intends to employ independent
contractors to perform such services.
3. RELIEF PROVISIONS.
If Jamboree Office REIT fails to satisfy one or both of
the 75% or 95% gross income tests for any taxable year, it may nevertheless
qualify as a REIT for such year if it is entitled to relief under certain
provisions of the Internal Revenue Code. These relief provisions will be
generally available if Jamboree Office REIT's failure to meet such tests was
due to reasonable cause and not due to willful neglect, if Jamboree Office
REIT attaches a schedule of the sources of its income to its return and if
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
Jamboree Office REIT would be entitled to the benefit of these relief
provisions. As discussed above, even if these relief provisions apply, a tax
would be imposed with respect to Jamboree Office REIT's excess net income.
4. ASSET TESTS.
At the close of each quarter of its taxable year,
Jamboree Office REIT must satisfy three tests relating to the nature of its
assets. First, at least 75% of the value of Jamboree Office REIT's total
assets must be represented by real estate assets, cash, cash items, and
government securities. Second, not more than 25% of Jamboree Office REIT's
total assets may be represented by securities other than those in the 75%
asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by Jamboree Office REIT may not
exceed 5% of the value of Jamboree Office REIT's total assets, and Jamboree
Office REIT may not own more than 10% of any one issuer's outstanding voting
securities.
After initially meeting the asset tests at the close of
any quarter, Jamboree Office REIT will not lose its status as a REIT if it
fails to satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If the failure to satisfy the asset tests
results from an acquisition of securities or other property during a quarter,
the failure can be cured by disposition of sufficient nonqualifying assets
within 30 days after the close of that quarter. Jamboree Office REIT intends
to maintain adequate records of the value of its assets to ensure compliance
with the asset tests, and to take such action within 30 days after the close
of any quarter as may be required to cure any noncompliance.
5. ANNUAL REIT DISTRIBUTION REQUIREMENTS.
In order to be treated as a REIT, Jamboree Office REIT is
required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (a) the sum of (i) 95% of
Jamboree Office REIT's "REIT taxable income" (computed without regard to the
dividends paid deduction and Jamboree Office REIT's net capital gain) PLUS
(ii) 95% of the net income (after tax), if any, from foreclosure property in
excess of the special tax on income from foreclosure property, MINUS (b) the
sum of certain items of noncash income. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before Jamboree Office REIT timely files its tax return for such
year and if paid on or
49
before the first regular dividend payment after such declaration. To the
extent that Jamboree Office REIT does not distribute all of its net capital
gain or distributes at least 95%, but less than 100% of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary
and capital gains corporate tax rates. Furthermore, if Jamboree Office REIT
should fail to distribute during each calendar year at least the sum of (a)
85% of its REIT ordinary income for such year, (b) 95% of its REIT capital
gain net income for such year, and (c) any undistributed taxable income from
prior periods, Jamboree Office REIT would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed. Jamboree Office REIT intends to make timely distributions
sufficient to satisfy the annual distribution requirement. Jamboree Office
REIT anticipates that it will generally have sufficient cash or liquid assets
to enable it to satisfy the 95% distribution requirement. REIT taxable
income is taxable income computed under general principles, subject to the
following modifications: the corporate dividends received deductions are not
allowed; the deduction for dividends paid under Internal Revenue Code section
561 is computed without regard to that portion of the deduction that is
attributable to the amount excluded from REIT taxable income as net income
from foreclosure property; taxable income is computed without regard to the
rules under Internal Revenue Code section 443(b) relating to computation of
tax on change of annual accounting period; an amount equal to the net income
from foreclosure property is excluded; an amount equal to the tax imposed
under Internal Revenue Code section 857(b)(5) if certain REIT requirements
are not met is deducted; and an amount equal to any net income derived from
prohibited transactions is excluded ("REIT Taxable Income").
It is possible that, from time to time, Jamboree Office REIT may
not have sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between (a) the actual receipt of
income and actual payment of deductible expenses, (b) the inclusion of such
income and deduction of such expenses in arriving at the taxable income of
Jamboree Office REIT and (c) the use of cash to make nondeductible principal
payments on REIT debt. In the event that such an insufficiency or such
timing differences occur, Jamboree Office REIT may find it necessary to
arrange for borrowings, or to pay dividends in the form of taxable stock
dividends, if it is practicable to do so, to meet the 95% distribution
requirement.
Under certain circumstances, ▇▇▇▇▇▇▇▇ Office REIT may be able to
rectify a failure to meet the distribution requirement for a year by paying
"deficiency dividends" to shareholders in a later year, which may be included
in Jamboree Office REIT's deduction for dividends paid for the earlier year.
Thus, Jamboree Office REIT may be able to avoid being taxed on amounts
distributed as deficiency dividends; however, Jamboree Office REIT will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
6. FAILURE TO QUALIFY AS A REIT.
If Jamboree Office REIT fails to qualify for taxation as a REIT
in any taxable year, and the relief provisions described above do not apply,
Jamboree Office REIT will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which Jamboree Office REIT fails
to qualify will not be deductible by Jamboree Office REIT and they will not
be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and subject to certain limitations of the
Internal Revenue Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific
statutory provisions, Jamboree Office REIT will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost, and will not be permitted to requalify unless it
distributes any earnings and profits attributable to the period when it
failed to qualify. In addition, it will be subject to tax on any built-in
gains on property held during the period during which it did not qualify if
it sold such property within 10 years of requalification. It is not possible
to state whether in all circumstances Jamboree Office REIT would be entitled
to such statutory relief.
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7. TAXATION TO UNITED STATES SHAREHOLDERS OF DISTRIBUTIONS.
As long as Jamboree Office REIT qualifies as a REIT,
distributions up to the amount of Jamboree Office REIT's current or
accumulated earnings and profits (and not designated as capital gain
dividends) to a United States shareholder (I.E., a holder of New Common
Shares that is for United States federal income tax purposes (a) a citizen or
resident of the United States, (b) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of
any political subdivision thereof, or (c) an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source) will be taken into account by them as ordinary income and will not be
eligible for the dividends-received deduction for corporations.
Distributions that are designated by Jamboree Office REIT as capital gain
dividends will be treated as long-term capital gain (to the extent they do
not exceed Jamboree Office REIT's actual net capital gain) for the taxable
year without regard to the period for which the shareholder has held its
stock. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income pursuant to Internal
Revenue Code section 291(d). A distribution in excess of current or
accumulated earnings and profits will first be treated as a tax-free return
of capital, reducing the tax basis in the United States shareholder's New
Common Shares, and a distribution in excess of the United States
shareholder's tax basis in such New Common Shares will be treated as taxable
gain realized from the sale of such shares. Dividends declared by Jamboree
Office REIT in October, November or December of any year payable to a
shareholder of record on a specified date in any such month will be treated
as both paid by ▇▇▇▇▇▇▇▇ Office REIT and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by
Jamboree Office REIT during January of the following calendar year.
Shareholders may not claim the benefit of any tax losses of Jamboree Office
REIT on their own income tax returns.
Jamboree Office REIT will be treated as having sufficient
earnings and profits to treat as a dividend any distribution by Jamboree
Office REIT up to the amount required to be distributed in order to avoid
imposition of the 4% excise tax discussed above. As a result, shareholders
may be required to treat as taxable dividends certain distributions that
would otherwise result in a tax-free return of capital. Moreover, any
"deficiency dividend" will be treated as a "dividend" (an ordinary dividend
or a capital gain dividend as the case may be), regardless of Jamboree Office
REIT's earnings and profits.
A loss incurred on the sale or exchange of Jamboree Office REIT
Shares held for less than six months will be deemed a long-term capital loss
to the extent of any capital gain dividends received by the selling
shareholder with respect to such stock.
8. BACKUP WITHHOLDING.
Jamboree Office REIT will report to its United States
shareholders and the IRS the amount of dividends paid during each calendar
year, and the amount of tax withheld, if any. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A United States
shareholder that does not provide Jamboree Office REIT with its correct
taxpayer identification number may also be subject to penalties imposed by
the IRS. Any amount paid as backup withholding will be creditable against
the shareholder's income tax liability. In addition, Jamboree Office REIT
may be required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status.
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9. TREATMENT OF TAX-EXEMPT SHAREHOLDERS.
Distributions from Jamboree Office REIT to a tax-exempt employee
pension trust or other domestic tax-exempt shareholder will not constitute
"unrelated business taxable income" unless the shareholder has borrowed to
acquire or carry its shares of Jamboree Office REIT. A tax-exempt employee's
pension trust that holds more than 10% of the Jamboree Office REIT Shares
may, under certain circumstances, be required to treat a certain percentage
of dividends as unrelated business taxable income if Jamboree Office REIT is
"predominantly held" by qualified trusts. For these purposes, a qualified
trust is any trust defined under Internal Revenue Code section 401(a) and
exempt from tax under Internal Revenue Code section 501(a).
10. TAXATION OF FOREIGN SHAREHOLDERS.
The rules governing United States income taxation of
non-resident alien individuals, foreign corporations, foreign partnerships,
and foreign trusts and estates holding Jamboree Office REIT Shares
(collectively, "Foreign Shareholders") are complex, and no attempt will be
made herein to discuss such rules. A Foreign Shareholder should consult with
his or her own tax advisor to determine the effect of federal, state, and
local and country of tax residence income tax laws on an investment in
Jamboree Office REIT, including any reporting requirements.
E. FEDERAL INCOME TAXATION OF JAMBOREE LLC.
As explained above, the recently-enacted Check-the-Box Regulations
permit most unincorporated business entities to elect to be taxed as
partnerships or corporations for federal income tax purposes without regard
to the prior regulations' four-factor classification test. The New LLC
Agreement will authorize the members thereof to take such steps as may be
necessary to ensure Jamboree LLC's classification as a partnership under such
rules. As long as Jamboree LLC is classified as a partnership for federal
income tax purposes, its taxable income will flow through to its members. If
Jamboree LLC fails to qualify as a partnership for tax purposes, its taxable
income will be subject to tax at the regular corporate rate and distributions
by Jamboree LLC will be taxable as ordinary dividends to the members to the
extent of Jamboree LLC's earnings and profits and will not be deductible by
Jamboree LLC. Such treatment could also cause Jamboree Office REIT to fail
to satisfy certain of the income and asset tests applicable to REITs,
resulting in the unfavorable tax consequences described in Section VII.D.
above.
If Jamboree LLC is classified as a partnership for federal income
tax purposes, each member in Jamboree LLC must take into account its
distributive share of the LLC items of income, gain, loss, deduction and
credit in the member's taxable year in which the taxable year of the LLC
ends, whether or not cash distributions with respect to such items are made
to the member. Such LLC items will be allocated among the members in
accordance with the provisions of the New LLC Agreement. Under Internal
Revenue Code section 704(b), an allocation of income, gain, loss, deduction
or credit of the LLC to a member will not be respected for federal tax
purposes unless the allocation has "substantial economic effect." If an
allocation does not have "substantial economic effect," then each member's
distributive share of such item will be recalculated on the basis of such
member's "interest" in the LLC, taking into account all facts and
circumstances relating to the economic arrangement of the members. Although
the allocations of Jamboree LLC have been drafted in an attempt to comply
with Regulations promulgated under Internal Revenue Code section 704(b),
there can be no assurances that the IRS will not be able to successfully
challenge the allocations contained in the New LLC Agreement. Should any of
these allocations be found to be invalid, they would be disregarded and each
member's distributive share of income, gain, loss, deduction and credit would
be determined in accordance with his or her "interest" in Jamboree LLC, as
discussed above. This could result in additional tax liability, interest and
potential penalties to the members.
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Internal Revenue Code section 704(c) requires that income, gain,
loss and deduction attributable to appreciated or depreciated property that
is contributed to a partnership in exchange for an interest in the
partnership, must be allocated in a manner such that the contributing partner
is charged with, or benefits from, respectively, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to
the difference between the fair market value of contributed property at the
time of contribution and the adjusted tax basis of such property at such time
(a "Book-Tax Difference"). Such allocations are solely for federal income
tax purposes and do not affect the book capital accounts or other economic or
legal arrangements among the partners. Jamboree LLC will be formed by way of
contributions of property. Consequently, the New LLC Agreement requires that
such allocations be made in a manner consistent with Section 704(c) of the
Internal Revenue Code. In general, a contributing partner may be allocated
depreciation deductions for tax purposes that are lower than such deductions
would be if determined on a pro rata basis. In addition, in the event of the
disposition of any of the contributed assets that have a Book-Tax Difference,
all income attributable to such Book-Tax Difference will generally be
allocated to such contributing partner, and the non-contributing partner will
generally be allocated only its share of capital gains attributable to
appreciation, if any, occurring after the contribution. This will tend to
eliminate the Book-Tax Difference over the life of the partnership. The New
LLC Agreement will require the use of the "remedial allocation method," as
described in Regulations recently promulgated under Section 704(c) of the
Internal Revenue Code, in allocating income, gain, loss and deduction
attributable to any Book-Tax Difference.
It is anticipated that no ruling will be obtained regarding the
classification of Jamboree LLC as a partnership for federal income tax
purposes, the validity of the allocations set forth in the New LLC operating
Agreement, or any other tax matter. The tax consequences of ownership of an
interest in Jamboree LLC is therefore uncertain, and there can be no
assurance that the IRS will agree with the tax consequences described herein.
F. OTHER TAX CONSEQUENCES.
The parties may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatments may not conform to
the federal income tax consequences discussed above and each person should
consult such person's own tax advisor regarding the effect of state and local
tax laws.
EACH PERSON WHO WILL OR MAY RECEIVE AN INTEREST IN JAMBOREE LLC OR
JAMBOREE OFFICE REIT IS ADVISED TO CONSULT WITH SUCH PERSON'S OWN TAX ADVISOR
ABOUT THE POSSIBLE IMPACT OF JAMBOREE LLC AND JAMBOREE OFFICE REIT ON SUCH
PERSON'S OWN TAX SITUATION.
VIII. CERTAIN FEDERAL SECURITIES LAWS CONSEQUENCES
A. GENERAL DISCUSSION.
The Confirmation Order will authorize the issuance of the
Jamboree LLC Units, the New Notes, the New Property Appreciation Rights, the
Jamboree Office REIT Shares and the Jamboree Office REIT Shares to be issued
upon exercise of the New Property Appreciation Rights and Reorganized CWOP's
exchange of its Jamboree LLC Units. These instruments will be issued without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or under any state or local law, generally in reliance on the exemptions
set forth in Bankruptcy Code Section 1145.
53
In order for the issuance of securities to be exempt from
registration under Bankruptcy Code Section 1145(a), three principal
requirements must be satisfied: (a) the securities must be issued "under a
plan" of reorganization by a debtor, its successor under a plan of
reorganization, or an affiliate participating in a joint plan of
reorganization with the debtor; (b) each recipient of the securities must
hold a claim against the debtor, an interest in the debtor, or a claim for an
administrative expense against the debtor; and (c) the securities must be
issued entirely in exchange for the recipient's claim against or interest in
the debtor, or "principally" in such exchange and "partly" for cash or other
property.
The Debtor believes that the issuance of the Jamboree LLC Units,
the New Notes, the New Property Appreciation Rights, the Jamboree Office REIT
Shares and the Jamboree Office REIT Shares issuable upon exercise of the New
Property Appreciation Rights and Reorganized CWOP's exchange of its Jamboree
LLC Units will be eligible for the exemption provided by section 1145(a) of
the Bankruptcy Code because the issuance satisfies the exemption's
requirements: (a) the securities to be issued will be securities of Jamboree
LLC and Jamboree Office REIT, which are successors to the Debtor, and
issuance of the securities is specifically mandated under the Plan; (b) the
recipients of the securities hold claims against or interests in the Debtor;
and (c) the recipients will receive the securities in exchange for their
claims against and interests in the Debtor. The Debtor will include its
legal analysis of this issue in its memorandum of law in support of
confirmation of the Plan.
B. RESALE CONSIDERATIONS.
Pursuant to Section 1145 of the Bankruptcy Code, the resale
or disposition by the recipients of the Jamboree LLC Units, the New Notes, the
New Property Appreciation Rights, the Jamboree Office REIT Shares, and the
Jamboree Office REIT Shares to be issued upon exercise of the New Property
Appreciation Rights and Reorganized CWOP's exchange of its Jamboree LLC Units
will also be exempt from registration under the Securities Act and state and
local securities laws, unless the recipient is deemed to be an "underwriter"
under Bankruptcy Code Section 1145(b). Bankruptcy Code Section 1145(b) defines
four types of underwriters:
a. a person who purchases a claim against, interest
in, or claim for administrative expense in the case concerning a
debtor, with a view to distributing any security received in exchange
for that claim or interest;
b. a person who offers to sell securities offered or
sold under a plan for the holders of those securities;
c. a person who offers to buy those securities from
the holders of such securities, if the offer is (i) made with a view
to distribution of the securities, or (ii) made under an
agreement made in connection with the plan, its consummation or the
offer or sale of securities under the plan;
d. a person who is an "issuer" with respect to the
securities as the term "issuer" is defined in section 2(11) of the
Securities Act.
Under section 2(11) of the Securities Act, an "issuer" includes
any person directly or indirectly controlling or controlled by issuer of the
securities, or any person under direct or indirect common control with the
issuer of the securities (an "affiliate"). Any person or group of persons
who act in concert, who receive a substantial amount of securities pursuant
to the Plan, may be deemed to be an "issuer" under the foregoing definition
and, therefore, an "underwriter" under Section 1145(b). Whether a person
would be deemed to be an issuer and therefore an underwriter with respect to
the securities to be issued pursuant to the Plan for purposes of the
Bankruptcy Code will depend on a number of factors. These factors include:
(a) the person's equity
54
interest in Jamboree LLC or Jamboree Office REIT; (b) the distribution and
concentration of other equity interests in Jamboree LLC or Jamboree Office
REIT; (c) whether the person is an officer or director of Jamboree LLC or
Jamboree Office REIT; (d) whether the person, either alone or acting in
concert with others, has a contractual or other relationship giving that
person power over management policies and decisions of Jamboree LLC or
Jamboree Office REIT; and (e) whether the person actually has such power
notwithstanding the absence of formal indicia of control. Accordingly, the
Debtor expresses no view on whether any person would be an "underwriter" or
an "affiliate" with respect to the securities to be issued pursuant to the
Plan.
To the extent that a person receiving securities under the Plan
is deemed to be an "underwriter" of the securities of Jamboree LLC or
Jamboree Office REIT, resales by that person likely would not be exempted by
Bankruptcy Code Section 1145 from registration under the Securities Act, or
other applicable law, except in "ordinary trading transactions" (within the
meaning of Bankruptcy Code Section 1145(b)(1)).
The Bankruptcy Code does not define the term "ordinary trading
transactions," and the SEC has not given definitive guidance with respect to
the proper construction of the term. However, the Debtor believes that a
transaction will be an "ordinary trading transaction" if it is carried out on
an exchange or in the over-the-counter market at a time when Jamboree LLC or
Jamboree Office REIT is a reporting company under the Securities Exchange Act
of 1934 (the "Exchange Act") and does NOT involve any of the following
factors:
(i) either (x) concerted action by two or more
recipients of securities issued under a plan of
reorganization in connection with the sale of
those securities, or (y) concerted action by
distributors on behalf of one or more such
recipients in connection with sales, or (z) both;
(ii) the preparation or use of informational documents
concerning the offering of the securities to
assist in the resale of the securities, other than
the disclosure statement approved in connection
with the plan (and any supplement thereto) and
documents filed with the SEC by the debtors or the
reorganized company pursuant to the Exchange Act;
or
(iii) special compensation to brokers or dealers in
connection with the sale of the securities
designed as a special incentive to resell the
securities, other than compensation that
would be paid pursuant to arms-length
negotiations between a seller and a broker or
dealer, each acting unilaterally, not greater
than the compensation that would be paid for
a routine similar-sized sale of similar
securities of a similar issuer.
In addition, a person deemed to be an "underwriter" under
Bankruptcy Code Section 1145 solely because he is an affiliate (as defined in
the Securities Act) may be able to sell securities received under the Plan
without registration, in accordance with Rule 144 under the Securities Act,
which permits public sales of securities received pursuant to a plan by
statutory underwriters subject to the availability to the public of current
information regarding Jamboree LLC and/or Jamboree Office REIT, volume
limitations, and certain other conditions (without complying with the holding
period requirement of Rule 144(d)).
The Debtor does not expect, however, that the exemptions
discussed above for "ordinary trading transactions" by underwriters and for
sales under Rule 144 by affiliates will be available with respect to
securities issued under the Plan on the Effective Date because the
availability of current financial information under the Exchange Act about
Jamboree LLC and/or Jamboree Office REIT is a condition to both exemptions,
and the Debtor does not anticipate that either Jamboree LLC or Jamboree
Office REIT will have a class of securities registered under the Exchange Act
on the Effective Date.
55
Jamboree LLC and Jamboree Office REIT will execute registration
rights agreements in favor of Restricted Holders granting such Holders demand
and piggy-bank registration rights with respect to the New Notes and Jamboree
Office REIT Shares. See Sections VI.C and VI.D.3.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER
A PARTICULAR HOLDER MAY BE AN UNDERWRITER OR AN AFFILIATE, THE DEBTOR MAKES
NO REPRESENTATION CONCERNING THE RIGHT OF ANY PERSON TO TRANSFER THE JAMBOREE
LLC UNITS, THE NEW NOTES, THE JAMBOREE OFFICE REIT SHARES OR THE JAMBOREE
OFFICE REIT SHARES ISSUABLE UPON EXERCISE OF THE NEW PROPERTY APPRECIATION
RIGHTS OR REORGANIZED CWOP'S EXCHANGE OF ITS JAMBOREE LLC UNITS. THE DEBTOR
RECOMMENDS THAT POTENTIAL RECIPIENTS OF SECURITIES UNDER THE PLAN CONSULT
WITH THEIR OWN COUNSEL CONCERNING LIMITATIONS ON THEIR RIGHT TO TRANSFER
THOSE SECURITIES.
C. TRUST INDENTURE ACT.
Issuance of the New Notes requires compliance with the Trust
Indenture Act of 1939. The indentures for the New Notes will be qualified under
the Trust Indenture Act of 1939.
D. DELIVERY OF DISCLOSURE STATEMENT.
Under Bankruptcy Code Section 1145(a)(4), "stockbrokers" (as
that term is defined in the Bankruptcy Code) wishing to sell securities
received under the Plan qualify for the exemption from registration under
Bankruptcy Code Section 1145 for sales during the first 40 days after the
Effective Date of the Plan, provided that they deliver a copy of this
Disclosure Statement (and any supplement to it ordered by the Bankruptcy
Court) at or before the time of sale of any security issued under the Plan.
This requirement specifically applies to trading and other after-market
transactions in the securities issued under the Plan.
IX. CERTAIN FACTORS TO BE CONSIDERED REGARDING THE PLAN.
Creditors and partners of CWOP should consider the following
factors when deciding how to vote on the Plan.
A. BANKRUPTCY CONSIDERATIONS.
An objection to confirmation of the Plan could prevent
confirmation or delay confirmation for a significant period of time. In such
case, the Effective Date may not occur and payments to creditors may not
commence for several months.
B. GENERAL BUSINESS RISKS.
The projections included in Exhibit 4 are based on a variety of
assumptions which, if incorrect, could affect the accuracy of the projections.
While the attached projections included in Exhibit 4 incorporate
a series of assumptions reflecting future events at the Property and in the
Orange County leasing market, they do not incorporate a wide range of
potential risks that could impact the eventual performance of the Property.
These risks may include (i) the rejection of the Denny's leases for 158,362
square feet as part of Flagstar's reported restructuring, the outcome of
which could lead to lower achieved rents on this space, (ii) the development
of competitive office buildings on the Development Parcel, which could
negatively impact leasing efforts, (iii) the possibility of aggressive
overbuilding of competitive office product in the Orange County market, which
could
56
lead to depressed rental rates and increased vacancy rates, (iv) the
inability of management to find tenants willing to lease the sub-grade
concourse space at cost effective rents, (v) litigation related to the
surrounding Development Parcel, (vi) a general and pronounced downturn in the
local economy or continued mergers and consolidations in industries that are
major tenants in the Orange County marketplace and (vii) physical
catastrophes that might damage the Property and render it partially or fully
unfunctional.
In addition, the financial terms (including free rent periods
and tenant improvement allowances) may vary significantly from the
assumptions that underlie the projections attached as Exhibit 4. Tenants in
the Property may default under their leases or otherwise cease making rental
payments, thereby negatively affecting projected cash flow from the Property
and Jamboree LLC's ability to make payments on the notes issued under the
Plan. Moreover, projected expense figures for Property operations may be
lower than actual costs. Because the Property is now over 20 years old,
capital replacement and repair costs may significantly exceed those assumed
in the projections.
Finally, there is no assurance that Jamboree LLC will be able to
sell or refinance the Property for an amount sufficient to pay in full the
outstanding principal balance of the New Notes within five years.
Notwithstanding CWOP's conclusions that the restructuring as
effected through the Plan is feasible, there can be no assurance that
payments under the New Notes can be made if the real estate market declines
further or if recovery takes longer than expected. ALTHOUGH CWOP HAS
ATTEMPTED TO PROJECT ACCURATELY FUTURE CASH FLOWS (SUBJECT TO THE LIMITATIONS
SET FORTH UNDER "FINANCIAL PROJECTIONS"), THERE IS A RISK THAT JAMBOREE LLC
MAY NOT BE ABLE TO MEET THE REPAYMENT TERMS OF THE NEW NOTES. ADVERSE
CONDITIONS, SUCH AS THE CONTINUED DEPRESSION OF, OR A FURTHER DOWNTURN IN,
THE REAL ESTATE MARKET, ARE BEYOND THE ABILITY OF CWOP, REORGANIZED CWOP,
JAMBOREE LLC OR ANY OTHER ENTITY, TO PREDICT WITH CERTAINTY AND MAY AFFECT
JAMBOREE LLC'S ABILITY TO REPAY THE NEW NOTES.
C. RISK WITH RESPECT TO NEW SECURITIES.
No trading market currently exists for the New Notes or the
Jamboree Office REIT Shares. The Debtor does not anticipate that a trading
market will exist until after the Plan is confirmed and becomes effective. No
assurance can be given that a market for the New Notes and Jamboree Office REIT
Shares will develop after that date.
The Certificateholders have had limited ability to liquidate
their claims during the Reorganization Case. It is anticipated that, if a
trading market is established, there may initially be a large number of
holders that may wish to dispose of their new securities. As a result, the
trading market, if any, for these securities may be unstable for some period
of time following the Effective Date. The potential exercise of the New
Property Appreciation Rights for additional Jamboree Office REIT Shares may
result in a low market price for the Jamboree Office REIT Shares for some
period of time following the Effective Date and may adversely affect the
marketability of the Jamboree Office REIT Shares.
If the Plan is confirmed, ownership of a substantial number of
the New Notes and Jamboree Office REIT Shares will be concentrated in a
relatively small number of holders. Sales of or offers to sell a substantial
number of New Notes or Jamboree Office REIT Shares or the perception of
investors, investment professionals and securities analysts of the
possibility of such sales could adversely affect the market price of the New
Notes and the Jamboree Office REIT Shares.
57
Any sale of the New Notes may be at a substantial discount from
the principal amount. In addition, any recipient of the new securities who
is a "underwriter" under Bankruptcy Code Section 1145(b) may not be able to
resell any securities received under the Plan in that capacity without
registration under the Securities Act. See Section VIII for a summary
description of certain applicable securities laws issues.
In addition, while Jamboree Office REIT intends to operate in
such a manner as to qualify for taxation as a REIT under the Internal Revenue
Code, but no assurance can be given that it will operate in a manner so as to
qualify or remain qualified. Qualification as a REIT involves the
application of highly technical and complex Internal Revenue Code provisions
for which there are only limited judicial or administrative interpretations.
The determination of various factual matters and circumstances not entirely
within Jamboree Office REIT's control may affect its ability to qualify as a
REIT. In addition, no assurance can be given that legislation, new
regulations, administrative interpretations, or court decisions will not
significantly change the tax laws with respect to the qualification as a REIT
or the federal income tax consequences of such qualification. One
requirement that must be satisfied is that beneficial ownership of Jamboree
Office REIT must be held by 100 or more persons. Although this condition
will not apply until after the first taxable year, Jamboree Office REIT will
not meet this requirement on the Effective Date and no guarantee can be given
that it will achieve this level of ownership within the time required.
X. ALTERNATIVES TO CONFIRMATION OF THE PLAN.
The Debtor believes that the Plan provides a recovery to
creditors that is greater than or equal to the probable recoveries by
creditors and partners if the Debtor were liquidated under chapter 7 of the
Bankruptcy Code.
XI. ACCEPTANCE AND CONFIRMATION OF THE PLAN.
The Debtor believes that the Plan satisfies all of the
requirements for confirmation.
A. GENERAL CONFIRMATION REQUIREMENTS.
Bankruptcy Code Section 1129(a) contains several requirements
for confirmation of a plan. Among those requirements are that a plan be
proposed in good faith, that there be disclosed certain information regarding
payments made or promised to be made to insiders and that the plan comply
with the applicable provisions of chapter 11. The Debtor believes it has
complied with these requirements, as well as those requirements discussed
below.
B. BEST INTERESTS TEST.
Bankruptcy Code Section 1129(a)(7) requires that each holder of
a claim or interest in an impaired class must either (i) accept the plan or
(ii) receive or retain under the plan cash or property of a value, as of the
effective date of the plan, that is not less than the value such holder would
receive or retain if the debtor were liquidated under chapter 7 of the
Bankruptcy Code. The Debtor believes that the distributions under the Plan
equal or exceed the value that would be allocated to the holders in a
liquidation under chapter 7 of the Bankruptcy Code.
The only creditors impaired under the Plan are the Secured Tax
Claims, which are being paid in full under the Plan, and the
Certificateholders, both of which are not recourse to the general partners of
the Debtor. Accordingly, in a chapter 7 case, these creditors would be
entitled to recover only from the assets of
58
the Debtor. The Debtor believes that if CWOP were liquidated, the sale of
the Property under such circumstances could result in sale proceeds
significantly less than the value of the Property under the Plan. Moreover,
the delay and expense of liquidation would necessarily reduce the amount and
value of distributions.
The recovery to the Certificateholders under the Plan is
significantly more than such holders would receive in a chapter 7
liquidation. Assuming a value of the Property of $105 million, the estimated
gross proceeds through sale by a chapter 7 trustee would be approximately
$100 million (this estimate is based on the fact that the chapter 7 trustee
would not be capable of providing any continuing representations or
warranties in connection with the sale and would be selling the Property on a
truly as-is basis). Assuming legal, brokerage and other fees equaled to 3%
of the gross sale amount, or $3 million, the chapter 7 trustee's fees in
connection with the transaction would be $2,910,000 (3% of the proceeds
distributable to creditors in accordance with Bankruptcy Code Section
326(a)), or total proceeds available for distribution of $94,090,000. This
contrasts with a recovery of approximately $104.5 million to the
Certificateholders under the Plan ($100 million in the New Notes and $4.5
million in the equity value of Jamboree LLC). The Certificateholders receive
more under the Plan than they would in a chapter 7 liquidation even if the
Property is worth significantly more. If the Property were worth $150
million, the net proceeds available for distribution to the
Certificateholders would be $141,135,000 ($150 million less brokerage and
legal expenses of $4.5 million and chapter 7 trustee's fees of $4,365,000).
In contrast, the value of the Certificateholders' recovery under the Plan
would be $145 million ($100 million in New Notes and $45 million in equity
value of the Jamboree LLC).
C. FINANCIAL FEASIBILITY TEST.
In order to confirm a plan, the Bankruptcy Code requires
that the bankruptcy court find that confirmation of the plan is not likely to be
followed by liquidation or the need for further financial reorganization of the
debtor (the "Feasibility Test"). Thus, for a plan to meet the Feasibility Test,
the bankruptcy court must find that there is a reasonable likelihood that the
reorganized debtor will possess the working capital and other resources
necessary to operate profitably and will be able to meet its obligations under
the plan.
Based on the projections attached as Exhibit 6, the Debtor
believes that following confirmation of the Plan, there is a reasonable
likelihood that Jamboree LLC, successor to the Debtor, will be able to
perform its obligations under the Plan and operate the Property without the
need for further financial reorganization (see the projected financial
information described in Section VI.B and included in Exhibit 6).
D. ACCEPTANCE BY IMPAIRED CLASSES.
Bankruptcy Code Section 1129(a) requires that each class of
claims or interests that is impaired under a plan accept the plan (subject to
the "cramdown" exception contained in Bankruptcy Code Section 1129(b)). A
class of claims under a plan accepts the plan if the plan is accepted by
creditors that hold at least two-thirds in amount and more than one-half in
number of the allowed claims in the class that actually vote on the plan. A
class of interests accepts the plan if the plan is accepted by holders of
interests that hold at least two-thirds in amount of the allowed interests in
the class that actually vote on a plan.
A class that is not "impaired" under a plan is conclusively
presumed to have accepted the plan. Solicitation of acceptances from such a
class is not required. A class is "impaired" unless (i) the legal, equitable
and contractual rights to which a claim or interest in the class entitles the
holder are not modified or (ii) the effect of any default is cured and the
original terms of the obligation are reinstated. Under the Plan, Class 1
(Priority Claims), Class 3a (the Truck Secured Claim), Class 3b, (the Van
Secured Claim) and Class 3c (the Crow Secured Claims) and Class 6 (General
Unsecured Claims) are not impaired and are deemed to accept the Plan. All
other Classes of Claims and Interests under the Plan are impaired under the
Plan.
59
The Debtor believes that all impaired Classes will vote to
accept the Plan, and, therefore, the Plan will comply with this requirement
for confirmation. Nonetheless, if an impaired Class votes to reject the
Plan, the Debtor reserves its right to seek confirmation of the Plan pursuant
to Bankruptcy Code Section 1129(b), and will provide an analysis of the
Plan's compliance with the cramdown provisions in a memorandum of law in
support of confirmation of the Plan.
60
XII. CONCLUSION.
THE DEBTOR URGES YOU TO VOTE TO ACCEPT THE PLAN AND TO
RETURN YOUR BALLOTS SO THAT THEY WILL BE RECEIVED AT THE ADDRESS AND PURSUANT
TO THE PROCEDURES DESCRIBED IN SECTION II.C OF THIS DISCLOSURE STATEMENT, NO
LATER THAN 4:00 P.M. LOS ANGELES TIME ON AUGUST 25, 1997.
Dated: Los Angeles, California
July 23, 1997
Respectfully submitted,
▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING PARTNERSHIP
as Debtor
By: WINTHROP CALIFORNIA INVESTORS LIMITED
PARTNERSHIP
Its: General Partner
By: THREE WINTHROP PROPERTIES, INC.
Its: General Partner
By:
----------------------------
Its: President
O'MELVENY & ▇▇▇▇▇ LLP
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
By:
-----------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Attorneys for the Debtor
61
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
IN RE: ) Chapter 11
)
▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING ) Case No. SA 97-14512-JR
PARTNERSHIP, a Maryland )
general partnership )
) BALLOT ACCEPTING OR REJECTING
Debtor. ) THE DEBTOR'S THIRD AMENDED PLAN
) OF REORGANIZATION DATED
) JULY 23, 1997 (THE "PLAN")
)
) CLASS 4 SECURED CLAIMS OF HOLDERS OF
) MORTGAGE PARTICIPATION CERTIFICATES (THE
----------------------------------- "CERTIFICATEHOLDERS")
PLEASE READ AND FOLLOW THE INSTRUCTIONS ON THE REVERSE SIDE
CAREFULLY. THIS BALLOT MUST BE RECEIVED BY THE VOTING AGENT NO LATER THAN
4:00 P.M. LOS ANGELES TIME ON AUGUST 25, 1997, OR THE VOTE TRANSMITTED HEREBY
WILL NOT BE COUNTED AS ACCEPTING OR REJECTING THE PLAN.
ITEM 1. The amount of your Class 4 Claim for voting purposes is:
$____________*
ITEM 2. The undersigned holder of a Class 4 Claim votes (check one):
/ / To ACCEPT the Plan, / / To REJECT the Plan
ITEM 3. By signing this ballot, the undersigned (a) acknowledges receipt
of the Debtor's Disclosure Statement in support of the Plan and
other applicable solicitation materials and (b) certifies that
the undersigned is the claimant or has the power and authority to
accept or reject the Plan.
Name of Creditor:________________________________
(print or type)
Signature:_______________________________________
Title:___________________________________________
Tax I.D. or
Social Security Number:_________________________
Dated: __________________________________________
* Based upon orders of the Bankruptcy Court or provisions of the Bankruptcy
Code or Bankruptcy Rules, the amount for which your vote is counted may
differ from the indicated amount or final allowed amount for purposes of
distribution under the Plan.
VOTING INFORMATION AND INSTRUCTIONS
FOR COMPLETING THE BALLOT
1. IT IS IMPORTANT THAT YOU VOTE. THE PLAN CAN BE CONFIRMED
BY THE BANKRUPTCY COURT AND THEREBY MADE BINDING ON YOU IF IT IS ACCEPTED BY
THE HOLDERS OF TWO-THIRDS (2/3) IN AMOUNT AND MORE THAN ONE-HALF (1/2) IN
NUMBER OF CLAIMS IN EACH CLASS ACTUALLY VOTING ON THE PLAN. IN THE EVENT THE
REQUISITE ACCEPTANCES ARE NOT OBTAINED, THE BANKRUPTCY COURT MAY NEVERTHELESS
CONFIRM THE PLAN IF IT FINDS THAT THE PLAN ACCORDS FAIR AND EQUITABLE
TREATMENT TO THE CLASS OR CLASSES REJECTING IT AND OTHERWISE SATISFIES THE
REQUIREMENTS OF SECTION 1129(b) OF THE BANKRUPTCY CODE.
2. FOR YOUR VOTE TO BE COUNTED, YOU MUST: (A) INDICATE
ACCEPTANCE OR REJECTION OF THE PLAN BY MARKING THE APPROPRIATE BOX; (B) SIGN
THE BALLOT; AND (C) RETURN THE COMPLETED BALLOT BY EITHER MAIL, OVERNIGHT
MAIL OR HAND DELIVERY TO THE FOLLOWING ADDRESS:
▇▇▇▇ ▇▇▇▇▇
O'Melveny & ▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
TO BE COUNTED, YOUR COMPLETED BALLOT MUST BE RECEIVED NO LATER THAN 4:00 P.M.
LOS ANGELES TIME ON AUGUST 25, 1997.
3. The ballot is not a letter of transmittal and may not be used for
any purpose other than to transmit votes to accept or reject the Plan.
HOLDERS SHOULD NOT SURRENDER CERTIFICATES REPRESENTING OWNERSHIP IN THE
CERTIFICATES AT THIS TIME, AND NEITHER THE DEBTOR NOR ITS VOTING AGENT WILL
ACCEPT DELIVERY OF ANY SUCH CERTIFICATES TRANSMITTED WITH A BALLOT.
4. As noted above, your signature is required for your vote to be
counted. Names of all joint holders should be written even if signed by only
one of the joint holders. If the claim is held by a corporation, the ballot
should be executed in the name of the corporation by an authorized officer.
If the claim is held by a partnership, the ballot should be executed in the
name of the partnership by a general partner. If you are signing in a
representative capacity, indicate your title after your signature.
5. If you hold claims or interests in more than one class under the
Plan, you may receive more than one ballot, coded for different classes of
claims or interests. Each ballot votes only your claims or interests marked
on the ballot. Please complete and return each ballot you receive. A ballot
that partially accepts and partially rejects the Plan will not be counted. A
ballot that is incomplete or unsigned will not be counted.
6. For administrative convenience, ballots may be sent to all holders
of impaired claims. However, only holders of claims allowed under SECTION
502 of the Bankruptcy Code and applicable orders of the Court, or temporarily
allowed in an amount that the Court deems proper for the purposes of
accepting or rejecting the Plan, may accept or reject the Plan. If an
objection is or has been filed to your claim or if your claim is
unliquidated, disputed or contingent, your ballot will not be counted unless
the objection is resolved or your claim is allowed temporarily for voting
purposes under Federal Rule of Bankruptcy Procedure 3018(a). The amount of
your claim for the purpose of voting to accept or reject the Plan may differ
from the allowed amount of your claim for the purpose of receiving
distributions under the Plan.
7. The Agreement of Understanding dated as of November 27, 1996 does
not obligate any Certificateholder to vote for the Plan. All
Certificateholders (including the Certificateholders who signed the Agreement
of Understanding and the Certificateholders who agreed in writing to be bound
by the terms of the Agreement of Understanding when they purchased their
Certificates) are permitted to vote for the Plan or to vote against the Plan
or not to vote at all, without restraint and without breaching the Agreement
of Understanding regardless of which they choose to do.
8. The Debtor has indicated that it may seek to contend in the
Bankruptcy Court that the signatures to the Agreement of Understanding
constituted a valid prepetition vote in favor of the Plan that was made after
disclosure of adequate information to meet the requirements of section
1126(b) of the Bankruptcy Code. This reservation of rights does not in any
way affect the right of Certificateholders to vote against the Plan if they
choose to do so.
9. The Debtor may not have your tax identification or social security
number. It cannot make distributions without your number. If the claim is
held by an individual, please insert only your social security number. If
the claim is held by a corporation or partnership, please insert only that
entity's tax identification number.
10. The ballot is for voting purposes only and does not constitute and
shall not be deemed to constitute a proof of claim or an amendment to a proof
of claim.
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE
VOTING PROCEDURES, PLEASE CONTACT ▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING PARTNERSHIP
CHAPTER 11 ADMINISTRATION DEPARTMENT AT ▇▇▇▇ ▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇.
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re ) Case No. SA 97-14512-JR
)
▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING ) Chapter 11
PARTNERSHIP, a Maryland General )
Partnership, ) NOTICE OF (1) APPROVAL OF
) DISCLOSURE STATEMENT IN
Debtor and ) SUPPORT OF DEBTOR'S THIRD
Debtor in Possession ) AMENDED PLAN OF REORGANIZATION
) DATED JULY 23, 1997; (2)
) HEARING ON CONFIRMATION OF THE
) PLAN, (3) DEADLINE AND
) PROCEDURES FOR OBJECTING TO
------------------------------------------ CONFIRMATION OF THE PLAN AND
(4) VOTING DEADLINE AND RECORD
DATE FOR VOTING ON THE PLAN
PLEASE TAKE NOTICE that the Bankruptcy Court ordered the following:
I. APPROVAL OF DISCLOSURE STATEMENT IN SUPPORT OF DEBTOR'S THIRD
AMENDED PLAN OF REORGANIZATION DATED JULY 23, 1997
By its order entered July 24, 1997, the Bankruptcy Court approved
the Disclosure Statement in Support of the Third Amended Plan of
Reorganization Dated July 23, 1997 (the "Disclosure Statement"). The
Disclosure Statement describes the Third Amended Plan of Reorganization Dated
July 23, 1997 (the "Plan") for ▇▇▇▇ ▇▇▇▇▇▇▇▇ Operating Partnership ("CWOP").
The Disclosure Statement has been approved by the Bankruptcy Court as
containing adequate information for creditors and partners of CWOP to vote on
the Plan. Copies of the Disclosure Statement and Plan have been mailed to
all parties in interest.
II. HEARING ON CONFIRMATION OF THE PLAN
The hearing to consider confirmation of the Plan (the "Confirmation
Hearing") will commence on September 9, 1997 at 10:00 a.m., or as soon
thereafter as the parties may be heard, before the ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇,
United States Bankruptcy Judge, in the United States Bankruptcy Court for the
Central District of California, at Courtroom ▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇. The Confirmation Hearing may be continued from
time to time by announcing such continuance in open court, all without
further notice to parties in interest, and the Plan may be modified pursuant
to Bankruptcy Code section 1127(a) prior to, during or as a result of the
Confirmation Hearing.
III. DEADLINE AND PROCEDURES FOR OBJECTING TO CONFIRMATION OF
THE PLAN
The last day for filing and serving objections to the confirmation
of the Plan (the "Confirmation Objection Deadline") is no later than 4:00
p.m. Los Angeles Time on August 27, 1997. In order to be considered, any
objection, comments or response to confirmation of the Plan (including any
supporting memoranda) must be in writing and (A) filed with the United States
Bankruptcy Court, (B) served in accordance with Bankruptcy Rule 3020(b) and
this paragraph, and (C) accompanied by a memorandum of points and authorities
and specifying in detail: (i) the name and address of the party filing the
objection, (ii) the grounds of such objection, (iii) evidentiary support
therefor, in the nature of affidavits under oath or declarations submitted
under penalty of perjury, and (iv) the amount of the objector's claims or
such other grounds that give the objector standing to assert any objection to
the Plan. Specifically, to be considered, an objection must be (1) filed no
later than 4:00 p.m. Los Angeles Time on August 27, 1997 with the United
States Bankruptcy Court for the Central District of California, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, and (2) served, so that it is
received no later than 4:00 p.m. Los Angeles Time on August 27, 1997, by
O'Melveny & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.), Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (Attn: ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Esq.), and the United States Trustee, ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.). Replies
to such objection must be filed with the Bankruptcy Court and served on the
parties listed above and the objector so it is received no later than 4:00
p.m. Los Angeles Time on September 3, 1997. The Debtor's memorandum in
support of the Plan must be filed with the Bankruptcy Court and served on
parties in interest so it is received no later than 4:00 p.m. Los Angeles
Time on September 4, 1997.
Any objection to the ballots must be (1) filed no later than 4:00 p.m.
Los Angeles Time on September 5, 1997 with the United States Bankruptcy Court
for the Central District of California, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, and (2) served, so that it is received no later than 4:00
p.m. Los Angeles Time on September 5, 1997, by O'Melveny & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.),
Milbank, Tweed, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇,
2
California 90017 (Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.), and the United States
Trustee, ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.).
Objections that do not contain the information described above,
that are incomplete or unsigned, or that are not filed and served by the time
and date and in the manner set forth above may not be considered by the
Bankruptcy Court. Evidence that is not timely filed and served will be
stricken from the record and will not be considered in determining contested
matters at the Confirmation Hearing. All declarants or affiants must appear,
and be available, without need for subpoena for cross-examination at the
Confirmation Hearing (except for declarants making "Declarations of
Service"). The testimony of any declarant or affiant who is not present
himself or herself for cross-examination at the Confirmation Hearing will be
stricken from the record and will not be considered in determining contested
matters at the Confirmation Hearing.
IV. VOTING DEADLINE AND RECORD DATE FOR VOTING ON THE PLAN.
July 9, 1997, is the record date for purposes of determining
holders of claims entitled to vote to accept or reject the Plan. To be
counted, ballots for accepting or rejecting the Plan must be received by the
Voting Agent, ▇▇▇▇ ▇▇▇▇▇, Bankruptcy Coordinator with O'Melveny & ▇▇▇▇▇ LLP,
as set forth in the specific ballots, no later than 4:00 p.m. Los Angeles
Time on August 25, 1997 (the "Voting Deadline"). If you have any questions
concerning the procedures for voting, please call or write to O'Melveny &
▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇ ▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇. BALLOTS THAT ARE NOT RECEIVED BY THE VOTING
DEADLINE WILL NOT BE COUNTED.
DATED: July ___, 1997 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
O'MELVENY & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
By:_____________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Attorneys for Debtor
and Debtor in Possession
3
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
IN RE: ) Chapter 11
)
▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING ) Case No. SA 97-14512-JR
PARTNERSHIP, a Maryland )
general partnership )
) BALLOT ACCEPTING OR REJECTING
Debtor.) THE DEBTOR'S THIRD AMENDED PLAN
) OF REORGANIZATION DATED
) JULY 23, 1997 (THE "PLAN")
)
) CLASS 5 DEFICIENCY CLAIMS OF HOLDERS OF MORTGAGE
) PARTICIPATION CERTICATES (THE
------------------------- "CERTIFICATEHOLDERS")
PLEASE READ AND FOLLOW THE INSTRUCTIONS ON THE REVERSE SIDE CAREFULLY.
THIS BALLOT MUST BE RECEIVED BY THE VOTING AGENT NO LATER THAN 4:00 P.M. LOS
ANGELES TIME ON AUGUST 25, 1997, OR THE VOTE TRANSMITTED HEREBY WILL NOT BE
COUNTED AS ACCEPTING OR REJECTING THE PLAN.
ITEM 1. The amount of your Class 5 Claim for voting purposes is:
$____________*
ITEM 2. The undersigned holder of a Class 5 Claim votes (check one):
/ / To ACCEPT the Plan, / / To REJECT the Plan
ITEM 3. By signing this ballot, the undersigned (a) acknowledges receipt of
the Debtor's Disclosure Statement in support of the Plan and other
applicable solicitation materials and (b) certifies that the
undersigned is the claimant or has the power and authority to accept
or reject the Plan.
Name of Creditor:________________________________
(print or type)
Signature:_______________________________________
Title:___________________________________________
Tax I.D. or
Social Security Number:_________________________
Dated: __________________________________________
* Based upon orders of the Bankruptcy Court or provisions of the Bankruptcy
Code or Bankruptcy Rules, the amount for which your vote is counted may
differ from the indicated amount or final allowed amount for purposes of
distribution under the Plan.
VOTING INFORMATION AND INSTRUCTIONS
FOR COMPLETING THE BALLOT
1. IT IS IMPORTANT THAT YOU VOTE. THE PLAN CAN BE CONFIRMED BY THE
BANKRUPTCY COURT AND THEREBY MADE BINDING ON YOU IF IT IS ACCEPTED BY THE
HOLDERS OF TWO-THIRDS (2/3) IN AMOUNT AND MORE THAN ONE-HALF (1/2) IN NUMBER
OF CLAIMS IN EACH CLASS ACTUALLY VOTING ON THE PLAN. IN THE EVENT THE
REQUISITE ACCEPTANCES ARE NOT OBTAINED, THE BANKRUPTCY COURT MAY NEVERTHELESS
CONFIRM THE PLAN IF IT FINDS THAT THE PLAN ACCORDS FAIR AND EQUITABLE
TREATMENT TO THE CLASS OR CLASSES REJECTING IT AND OTHERWISE SATISFIES THE
REQUIREMENTS OF SECTION 1129(b) OF THE BANKRUPTCY CODE.
2. FOR YOUR VOTE TO BE COUNTED, YOU MUST: (A) INDICATE ACCEPTANCE OR
REJECTION OF THE PLAN BY MARKING THE APPROPRIATE BOX; (B) SIGN THE BALLOT;
AND (C) RETURN THE COMPLETED BALLOT BY EITHER MAIL, OVERNIGHT MAIL OR HAND
DELIVERY TO THE FOLLOWING ADDRESSES:
▇▇▇▇ ▇▇▇▇▇
O'Melveny & ▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
TO BE COUNTED, YOUR COMPLETED BALLOT MUST BE RECEIVED NO LATER THAN 4:00 P.M.
LOS ANGELES TIME ON AUGUST 25, 1997.
3. The summary ballot is not a letter of transmittal and may not be
used for any purpose other than to transmit votes to accept or reject the
Plan. HOLDERS SHOULD NOT SURRENDER CERTIFICATES REPRESENTING OWNERSHIP IN THE
CERTIFICATES AT THIS TIME, AND NEITHER THE DEBTOR NOR ITS VOTING AGENT WILL
ACCEPT DELIVERY OF ANY SUCH CERTIFICATES TRANSMITTED WITH A SUMMARY BALLOT.
4. As noted above, your signature is required for your vote to be
counted. Names of all joint holders should be written even if signed by only
one of the joint holders. If the claim is held by a corporation, the ballot
should be executed in the name of the corporation by an authorized officer.
If the claim is held by a partnership, the ballot should be executed in the
name of the partnership by a general partner. If you are signing in a
representative capacity, indicate your title after your signature.
5. If you hold claims or interests in more than one class under the
Plan, you may receive more than one ballot, coded for different classes of
claims or interests. Each ballot votes only your claims or interests marked
on the ballot. Please complete and return each ballot you receive. A ballot
that partially accepts and partially rejects the Plan will not be counted. A
ballot that is incomplete or unsigned will not be counted.
6. For administrative convenience, ballots may be sent to all holders
of impaired claims. However, only holders of claims allowed under SECTION
502 of the Bankruptcy Code and applicable orders of the Court, or temporarily
allowed in an amount that the Court deems proper for the purposes of
accepting or rejecting the Plan, may accept or reject the Plan. If an
objection is or has been filed to your claim or if your claim is
unliquidated, disputed or contingent, your ballot will not be counted unless
the objection is resolved or your claim is allowed temporarily for voting
purposes under Federal Rule of Bankruptcy Procedure 3018(a). The amount of
your claim for the purpose of voting to accept or reject the Plan may differ
from the allowed amount of your claim for the purpose of receiving
distributions under the Plan.
7. The Agreement of Understanding dated as of November 27, 1996 does
not obligate any Certificateholder to vote for the Plan. All
Certificateholders (including the Certificateholders who signed the Agreement
of Understanding and the Certificateholders who agreed in writing to be bound
by the terms of the Agreement of Understanding when they purchased their
Certificates) are permitted to vote for the Plan or to vote against the Plan
or not to vote at all, without restraint and without breaching the Agreement
of Understanding regardless of which they choose to do.
8. The Debtor has indicated that it may seek to contend in the
Bankruptcy Court that the signatures to the Agreement of Understanding
constituted a valid prepetition vote in favor of the Plan that was made after
disclosure of adequate information to meet the requirements of section
1126(b) of the Bankruptcy Code. This reservation of rights does not in any
way affect the right of Certificateholders to vote against the Plan if they
choose to do so.
9. The Debtor may not have your tax identification or social security
number. It cannot make distributions without your number. If the claim is
held by an individual, please insert only your social security number. If
the claim is held by a corporation or partnership, please insert only that
entity's tax identification number.
10. The ballot is for voting purposes only and does not constitute and
shall not be deemed to constitute a proof of claim or an amendment to a proof
of claim.
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE
VOTING PROCEDURES, PLEASE CONTACT ▇▇▇▇ ▇▇▇▇▇▇▇▇ OPERATING PARTNERSHIP
CHAPTER 11 ADMINISTRATION DEPARTMENT AT ▇▇▇▇ ▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇.