<PAGE> 1
Registration No. 33-96716
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
POST-EFFECTIVE AMENDMENT NO. 4 TO
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C>
New York 7011
(State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
16-1485632 100 Corporate Woods
- ---------------------------------------- Rochester, New York 14623
(IRS Employer ID No.) (716) 272-2300
-------------------------
(Address, including zip code, and telephone
number, including area code of registrant's
principal executive offices)
</TABLE>
Essex Partners Inc.
John E. Mooney, President
100 Corporate Woods
Rochester, New York 14623
(716) 272-2300
---------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to:
Thomas E. Willett, Esq.
Harris Beach & Wilcox, LLP
130 East Main Street
Rochester, New York 14604
(716) 232-4440
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective registration
statement for the same offering. [ ] ____.
If this Form is a post-effective amendment filed pursuant to Rule 462(C) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________.
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ]
<PAGE> 2
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission acting pursuant to Section 8(a), may
determine.
<PAGE> 3
Essex Hospitality Associates IV L.P.
Post-Effective Amendment No. 4 Dated
May ,1997 to Prospectus
Dated November 24, 1995
THIS AMENDMENT IS INTENDED TO MODIFY, AND MUST BE USED IN CONJUNCTION WITH, THE
PROSPECTUS OF ESSEX HOSPITALITY ASSOCIATES IV L.P. (THE "PARTNERSHIP") DATED
NOVEMBER 24, 1995 INCLUDED HEREIN IMMEDIATELY FOLLOWING THE PRIOR PERFORMANCE
TABLES. THE PROSPECTUS MUST BE READ IN CONJUNCTION WITH THIS AMENDMENT NO. 4.
This discussion contains forward-looking statements that involve substantial
risks and uncertainties. When used in the Prospectus, the words "anticipate",
"believe", "estimate", "expect" and similar expressions as they relate to the
Partnership or its management are intended to identify such forward-looking
statements. The Partnership's actual results, performance or achievements could
differ materially from those expressed in, or implied by, these forward-looking
statements as a results of, among other things, the factors set forth in the
section entitled "RISK FACTORS".
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership was formed on August 30, 1995. Since its formation, the
Partnership has been involved in raising capital pursuant to the Public
Offering, and the acquisition and construction of properties. The Partnership is
currently offering up to $6,000,000 of Subordinated Notes and up to $5,000,000
of Units for sale to investors pursuant to the Prospectus and, while the
Partnership may also offer up to $10,000,000 of Mortgage Notes, no Mortgage
Notes have been offered or sold. Gross offering proceeds of up to $21,000,000
may be raised through the Public Offering. Through April 23, 1997, the
Partnership has received gross offering proceeds of $7,471,000, including
$5,200,000 from the sale of Subordinated Notes and $2,271,000 from the sale of
Units.
The Partnership acquired a site in Solon, Ohio in December, 1995 and began
construction of a 103-room Hampton Inn in the fall of 1996. The Solon property
is situated on approximately 2.28 acres, owned in fee by the Partnership with no
encumbrances. The Hampton Inn is expected to open by mid-summer, 1997. See "THE
PARTNERSHIP'S BUSINESS -- The Specified Properties -- Solon Property." The
Partnership had originally intended to build a Hampton Inn & Suites in Solon,
however, the construction cost of the Hampton Inn & Suites was too high relative
to the room rates that could be charged in the Solon area. Based on its
knowledge of the Solon market, the General Partner believed a Hampton Inn could
be built and operated more successfully. The General Partner secured approval
from the Hampton Inn franchisor to change brand designations. The Solon property
is expected to cost about $6,900,000, including the cost of the land, cost of
construction, cost of furnishings, construction period interest, financing costs
(debt and equity) and all soft costs such as architectural costs, engineering,
franchise fee and working capital. The General Partner is in the process of
securing External Financing for the Solon property. No External Financing source
has issued a commitment to lend funds to the Partnership for construction or
permanent financing of the hotel. The Partnership currently does not have
sufficient funds to complete construction of the Solon property. Although
additional funding is not assured, based on the rate funds are being raised, the
timing of construction, and the expected availability of External Financing, the
Partnership anticipates sufficient funds will be available to pay for
construction and for future property acquisitions when required. See "THE
PARTNERSHIP'S BUSINESS" and "RISK FACTORS."
<PAGE> 4
The Partnership acquired a site in Warwick, Rhode Island in December, 1995, upon
which it intended to build a 80-92 room Homewood Suites hotel. The Warwick
property is situated on approximately 2.54 acres, owned in fee by the
Partnership with no encumbrances See "THE PARTNERSHIP'S BUSINESS -- The
Specified Properties -- Warwick Property." During 1996, the project was delayed.
The Partnership learned that additional new hotels are planned for the area of
the Partnership's site which would be directly competitive with the
Partnership's hotel. The Partnership is reviewing the market for the Warwick
area to determine if the demand exists to support the additional hotel rooms
before proceeding with construction. The Partnership expects to have the results
of the market study within the next two months, and will be determining whether
to proceed with the Warwick Homewood Suites by the end of the second quarter. If
the Partnership decides not to construct the Homewood Suites in Warwick, the
Partnership intends to sell the Warwick site and specify at least one more site
for development by the Partnership.
In 1996, the Partnership also purchased a 12.5 limited partnership units in
Essex Glenmaura for $1,250,000 ($100,000 per unit), for a limited partnership
equity interest of 54%. See "THE PARTNERSHIP'S BUSINESS -- The Specified
Properties -- The Essex Glenmaura Investment." Essex Glenmaura built a 120-room,
three story Courtyard by Marriott hotel outside of Scranton, Pennsylvania. The
Essex Glenmaura property opened in September, 1996. The total cost of the
project was $8.7 million, including the cost of the land, cost of construction,
cost of furnishings, construction period interest, financing costs (debt and
equity) and all soft costs such as architectural costs, engineering, franchise
fee and working capital. The project was funded with $2,300,000 of Partner
equity, $1,500,000 of unsecured notes and a $5,000,000 first mortgage loan from
GMAC Commercial Mortgage Corporation. The term of the first mortgage loan is for
four years with a one year extension available if the specified debt service
coverage is attained. Monthly payments of interest only accrue at 3% over the
LIBOR rate for the first year. Principal and interest payments are due
thereafter based on a twenty-five year loan amortization. Starting in the second
year of the loan, the Essex Glenmaura will be required to maintain a replacement
reserve escrow at 4% of room revenues.
The General Partner is evaluating other potential sites to be acquired by the
Partnership, however, it has not identified any additional property for
acquisition. See "RISK FACTORS."
DESCRIPTION OF THE HOTEL CONCEPTS
Courtyard by Marriott
- ---------------------
There are currently 300 Courtyard by Marriott hotels open and operating.
According to the Franchisor the average occupancy rate system-wide was 78.1% and
the average daily room rate was $77.37 in 1996. These results compared favorably
to those experienced by the mid-price segment with food and beverage, which
reported an average occupancy rate of 63.7% and an average daily room rate of
$61.91 in 1996. See "THE PARTNERSHIP'S BUSINESS -- Description of the Hotel
Concepts -- Courtyard by Marriott."
For franchise applications submitted after June 30, 1996, the franchise
application fee was increased to the greater of $40,000 or $400 per room, the
royalty fee was increased to 5.5% of gross room revenues and a pre-opening fee
of up to $60,000 will be charged. See "THE PARTNERSHIP'S BUSINESS -- Franchise
Agreements."
<PAGE> 5
Fairfield Inn by Marriott
- -------------------------
There currently are 282 Fairfield Inn hotels open and operating. According to
the Franchisor the average occupancy rate system-wide was 73.0% and the average
daily room rate was $52.18 in 1996. These results compared favorably to those
experienced by the economy segment which reported an average occupancy rate of
62.6% and an average daily room rate of $51.01 in 1996. See "THE PARTNERSHIP'S
BUSINESS -- Description of the Hotel Concepts -- Fairfield Inn by Marriott."
For franchise applications submitted after June 30, 1996, a pre-opening fee of
up to $21,000 will be charged. See "THE PARTNERSHIP'S BUSINESS -- Franchise
Agreements."
Hampton Inn
- -----------
Started in 1984, there were 620 Hampton Inns open and operating as of December
31, 1996. According to the Franchisor system-wide occupancy rates averaged 72.1%
and the average daily room rate was $60.84 in 1996. For 1996, the midscale hotel
segment not offering food and beverage reported an average occupancy rate of
68.5% and an average daily room rate of $56.67. See "THE PARTNERSHIP'S BUSINESS
- -- Description of the Hotel Concepts -- Hampton Inn."
Effective April 1, 1996, the franchise application fee was increased to the
greater of $45,000 or $45 per room. See "THE PARTNERSHIP'S BUSINESS -- Franchise
Agreements."
Homewood Suites
- ---------------
As of December 31, 1996 there were 37 Homewood Suites open and operating.
According to the Franchisor system-wide occupancy rates averaged 73.2% and the
average daily room rate was $90.40 in 1996. This compared to hotels in the
upscale hotel segment which reported an average occupancy rate of 68.4% and an
average daily room rate of $85.84 in 1996, and the upper tier of the extended
stay hotel segment which reported an average occupancy rate of 81.5% and an
average daily room rate of $88.95. See "THE PARTNERSHIP'S BUSINESS --
Description of the Hotel Concepts -- Homewood Suites."
Effective April 1, 1996, the franchise application fee was increased to the
greater of $45,000 or $45 per room. See "THE PARTNERSHIP'S BUSINESS -- Franchise
Agreements."
Hampton Inn & Suites
- --------------------
There were 16 Hampton Inn & Suites open and operating as of December 31, 1996.
According to the Franchisor system wide occupancy rates averaged 63.9% and the
average daily room rate was $73.41 in 1996. For 1996, the midscale hotel segment
not offering food and beverage reported an average occupancy rate of 68.5% and
an average daily room rate of $56.67. See "THE PARTNERSHIP'S BUSINESS --
Description of the Hotel Concepts -- Hampton Inn & Suites."
Effective April 1, 1996, the franchise application fee was increased to the
greater of $45,000 or $45 per room. See "THE PARTNERSHIP'S BUSINESS -- Franchise
Agreements."
Microtel Inn
- ------------
There were 28 Microtel Inns open and operating as of December 31, 1996.
According to the Franchisor system wide occupancy rates averaged 68.6% and the
average daily room rate was $38.37 in 1996. This compared to 1996 results for
the budget hotel sector which reported an average occupancy rate of 61.7% and an
average daily room rate of $38.48. See "THE PARTNERSHIP'S BUSINESS --
Description of the Hotel Concepts -- Microtel Hotel."
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following discussion analyzes the consolidated financial statements of the
Partnership as of December 31, 1996, which are attached. Since the Partnership
owns greater than 50% of Essex Glenmaura L.P., the consolidated financial
statements include all of the assets, liabilities and operating results of Essex
Glenmaura L.P. as well as the assets, liabilities and operating results of the
Partnership.
In 1996, consolidated total assets of the Partnership increased $10,300,000. The
increase was caused by several factors. Net investment in real estate increased
$7,800,000, $7,500,000 of which was from the construction of the Courtyard by
Marriott hotel by Essex Glenmaura, and the additional $300,000 from development
activities by the Partnership. Cash and cash equivalents increased $1,900,000
from proceeds of the Partnership's offering of Subordinated Notes and Units.
Debt issuance costs increased $489,000, $295,000 from costs incurred in the
Partnership's offering of Subordinated Notes, and $194,000 of costs associated
with obtaining the financing for the Essex Glenmaura property. Partnership
consolidated liabilities increased $10,000,000, for several reasons.
Subordinated Notes payable increased $3,200,000 from the issuance of
Subordinated Notes payable in the Partnership's offering. Notes payable
increased $1,500,000, representing the notes payable issued by Essex Glenmaura.
The construction loan payable of $4,300,000 represents construction financing on
the Courtyard by Marriott hotel, which was replaced by the $5,000,000 of
permanent first mortgage financing from GMAC Commercial Mortgage Corporation in
February, 1997. Accounts payable increased $440,000, primarily from outstanding
construction invoices. Since most construction activities commenced in 1996, the
accounts payable at the end of 1995 was much smaller. As Essex Glenmaura is
consolidated with the Partnership, the $640,000 minority interest of Essex
Glenmaura is presented separately in the Partnership's balance sheet. Limited
partners' equity increased $287,000 in 1996 from proceeds of the Partnership's
public offering of the Units, net of syndication costs and Partners' Notes, and
from the consolidation of the Partnership's interest in Essex Glenmaura L.P. In
1996, $1,500,000 Units were issued, which was offset by a decrease of $70,000 in
Partners' Notes, syndication costs of $170,000 and $114,000 of Distributions to
Partners. The consolidated net loss for the Partnership for 1996 of $867,000
also decreased partners' equity.
The Partnership incurred a consolidated net loss of $867,000 in 1996. The
primary revenue source was room revenues of $394,000 from Essex Glenmaura, which
was the only hotel in operation in 1996. Expenses in 1996, before interest and
depreciation, totaled $886,000, for a loss from operations before interest,
depreciation and amortization of $403,000.
As a result of the two month delay in opening caused by unanticipated
construction delays, Essex Glenmaura incurred significant expenses prior to
opening the hotel. The hotel was originally anticipated to open in July, 1996.
Employees were hired and activities planned anticipating the opening in July.
With the two month delay in opening, payroll costs of over $140,000 were
incurred prior to opening. In total, costs of over $300,000 (including payroll,
pre-opening advertising, employee training and initial supplies purchases) were
incurred by Essex Glenmaura prior to opening the hotel in September.
The Partnership's consolidated interest expense, net of interest income was
$475,000, representing interest incurred by Essex Glenmaura after opening in
September, and interest on the proceeds from the Subordinated Notes which were
not used for construction in 1996. Interest on debt proceeds, primarily from the
construction loan used in construction in 1996 was capitalized. Depreciation and
amortization expenses totaled $346,000, for a net loss of $1,223,000 before
allocating $357,000 of the net loss to the minority interest in Essex Glenmaura.
The consolidated net loss for the Partnership was $867,000. With
<PAGE> 7
the Courtyard open for all of 1997, and the expected Solon Hampton Inn opening
around the middle of 1997, consolidated revenues for 1997 are expected to
increase by 500% over 1996. Significant cash flow from operations is expected to
be generated in 1997 as well.
EXPERTS
The consolidated financial statements of Essex Hospitality Associates IV L.P.
and subsidiary as of and for the year ended December 31, 1996 and as of and for
the period from August 30, 1995 (date of inception) through December 31, 1995
and the financial statements of Essex Partners Inc. as of and for the years
ended December 31, 1996 and 1995 have been included herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
TAX CONSIDERATIONS
Discussion of Tax Consequences of Owning Limited Partnership Units
- ------------------------------------------------------------------
Tax Status of the Partnership
On December 18, 1996 the IRS revised and published in final form the "Check the
Box" regulations. Those regulations were issued in proposed form on May 13,
1996. See, generally, Treas. Reg. Sections 301.7701-1,-2 and -3. The "Check
the Box" regulations were effective as of January 1, 1997 and provide that an
entity shall be a partnership if it: (1) has at least two members; (2) is a
"business entity"; and (3) is not a "corporation."
As of January 1, 1997 the Partnership had more than two members.
A "business entity" is any recognized income tax entity that is not a trust
under Treas. Reg. Section 301.7701-4 and that is not otherwise subject to
special treatment under the Internal Revenue Code of 1986 ("Tax Code"). An
example of an entity subject to special treatment under the Tax Code is a real
estate mortgage investment conduit (or REMIC). Harris Beach & Wilcox, LLP is of
the opinion that the Partnership is a recognized income tax entity, is not
classified as a trust by Treas. Reg. Section 301.7701-4, and is not otherwise
subject to special treatment under the Tax Code. Accordingly, Harris Beach &
Wilcox, LLP is of the opinion that the Partnership is a "business entity."
A "corporation" is a business entity that meets at least one of eight criteria.
The only relevant criterion are: (1) a business entity organized under a State
law and described by the statute as incorporated, a corporation, a joint-stock
company, a joint-stock association, a body corporate, or a body politic; (2) a
business entity that is taxable as a corporation under a provision of the Tax
Code other than section 7701(a)(3); and (3) an "association" as defined in
Treas. Reg. Section 301.7701-3.
The Partnership was formed as a limited partnership under New York law.
Accordingly, it does not meet criteria (1) for treatment as a corporation.
Harris Beach & Wilcox, LLP is of the opinion that the Partnership is not taxable
as a corporation under a provision of the Tax Code other than section
7701(a)(3). Treas. Reg. Section 301.7701-3 provides that the Partnership can
elect (that is, check the box) to be taxed as a corporation but, in the absence
of an election, it shall be taxed as a partnership.
The General Partner has represented that it will not elect to have the
Partnership taxed as a corporation pursuant to Treas. Reg. Section 301-7701-3.
Based on the foregoing analysis and opinions, and the General Partner's
representation, Harris Beach & Wilcox, LLP is of the opinion that the
Partnership is properly classified as a partnership as of the taxable year
commencing January 1, 1997. See "TAX CONSIDERATIONS--Discussion of Tax
Consequences of Owning Limited Partnership Units--Tax Status of the
Partnership."
At Risk Rules
The Partnership's purchase of the Solon Property and the Warwick Property was
financed with funds raised from the sale of Units and Subordinated Notes, as was
the construction costs of the Hampton Inn being built on the Solon Property.
However, Essex Glenmaura L.P. financed the 120-room Courtyard by Marriott Hotel
with a $5,000,000 first mortgage loan from GMAC Commercial Mortgage Corporation
(the "Glenmaura GMAC Loan") and a $1,500,000 loan from approximately 45
investors (the "Glenmaura Subordinated Loan"). The terms of the Glenmaura
Subordinated Loan are similar to the terms of the Subordinated Notes. The
Glenmaura GMAC Loan allows the lender only limited recourse against the General
Partner and no recourse against the Limited Partners. The Glenmaura Subordinated
Loan is guaranteed by the General Partner.
The Partnership owns 54% of Essex Glenmaura L.P. Harris Beach & Wilcox, LLP is
of the opinion that the Glenmaura GMAC Loan, more likely than not, is without
recourse to the General Partner, that GMAC Commercial Mortgage Corporation is
actively engaged in the business of lending money and that each Partner may
deduct his or her pro-rata share of 54% of the Glenmaura GMAC Loan. See "TAX
CONSIDERATIONS--At Risk Rules."
Interest
Harris Beach & Wilcox, LLP is of the opinion that each Partner will be entitled
to deduct his or her pro-rata share of 54% of the interest accrued by Essex
Glenmaura L.P. with respect to the Glenmaura GMAC and Glenmaura Subordinated
Loans, subject to the passive loss limitation. See "TAX
CONSIDERATIONS--"Interest and The Passive Loss Rule."
<PAGE> 8
INDEX TO FINANCIAL STATEMENTS
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Financial Statements of the General Partner
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- - Independent Auditors' Report F-1
- - Balance Sheets as of December 31, 1996 and 1995 F-2
- - Statements of Income and Changes in Retained Earnings for
the years ended December 31, 1996 and 1995 F-3
- - Statements of Cash Flows for years ended December 31, 1996 and 1995 F-4
- - Notes to Financial Statements F-6
Financial Statements of the Partnership
- - Independent Auditors' Report F-13
- - Consolidated Balance Sheets as of December 31, 1996 and 1995 F-14
- - Consolidated Statements of Operations for the year ended December 31, 1996
and for the period August 30, 1995 (date of inception) through December 31, 1995 F-15
- - Consolidated Statements of Changes in Partners' Capital for the year ended
December 31, 1996 and for the period August 30, 1995 (date of inception)
through December 31, 1995 F-16
- - Consolidated Statements of Cash Flows for the year ended December 31, 1996 and for
the period August 30, 1995 (date of inception) through December 31, 1995 F-17
- - Notes to Consolidated Financial Statements F-19
</TABLE>
<PAGE> 9
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of
Essex Investment Group, Inc.)
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE> 10
Independent Auditors' Report
The Board of Directors of
Essex Partners Inc.:
We have audited the accompanying balance sheets of Essex Partners Inc. (a wholly
owned subsidiary of Essex Investment Group, Inc.) as of December 31, 1996 and
1995, and the related statements of income and changes in retained earnings and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Essex Partners Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick, LLP
Rochester, New York
February 21, 1997
F-1
<PAGE> 11
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Balance Sheets
December 31, 1996 and 1995
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Assets 1996 1995
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 84,643 915,433
Advances receivable from partnerships 815,825 355,546
Prepaid and other 5,682 33,391
---------- ---------
Total current assets 906,150 1,304,370
Noncurrent receivables from partnerships 533,825 210,927
Investments in partnerships 506,224 415,257
Deferred tax asset 48,000 48,000
Office furniture and equipment, less accumulated
depreciation of $74,560 in 1996 and $49,162 in 1995 87,479 100,466
---------- ---------
$2,081,678 2,079,020
========== =========
Liabilities and Stockholder's Investment
Current liabilities:
Accounts payable and accrued expenses 40,504 185,380
Due to affiliates, net 216,006 -
---------- ---------
Total current liabilities 256,510 185,380
Accrued partnership contributions 91,770 163,542
---------- ---------
348,280 348,922
---------- ---------
Commitments and contingencies (note 6)
Stockholder's investment:
Common stock, par value $.01, authorized 2,000,000
shares; 100 shares issued and outstanding 1 1
Paid-in capital 999 999
Retained earnings 1,732,398 1,729,098
---------- ---------
Total stockholder's investment 1,733,398 1,730,098
---------- ---------
$2,081,678 2,079,020
========== =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 12
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Statements of Income and Changes in Retained Earnings
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues:
Organization, property acquisition, disposition
and development fees $ 652,156 1,269,313
Management and administrative fees 1,139,551 995,237
Equity income (loss) of partnerships (11,290) 29,752
----------- ---------
Total revenues 1,780,417 2,294,302
----------- ---------
Operating expenses:
Personnel 1,136,218 1,192,018
Office operations 170,883 151,749
Occupancy 143,666 117,711
Sales and marketing 51,280 164,217
Professional fees 57,594 51,626
Provision for losses on receivables from partnerships 210,653 155,212
----------- ---------
Total operating expenses 1,770,294 1,832,533
----------- ---------
Income from operations 10,123 461,769
----------- ---------
Other income (expense):
Interest income 75,920 30,942
Interest expense (80,743) (102,282)
Loss on sale of hotel franchise rights - (150,000)
----------- ---------
(4,823) (221,340)
----------- ---------
Income before income taxes
and extraordinary item 5,300 240,429
Income taxes 2,000 111,000
----------- ---------
Income before extraordinary item 3,300 129,429
Extraordinary item - gain on forgiveness of debt,
net of income tax expense of $40,000 - 60,000
----------- ---------
Net income 3,300 189,429
Retained earnings, beginning of year 1,729,098 1,552,069
Adjustment pursuant to tax sharing arrangement - 137,600
Dividend to parent - (150,000)
----------- ---------
Retained earnings, end of year $ 1,732,398 1,729,098
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 13
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Statements of Cash Flows
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,300 189,429
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity (income) loss of partnerships 11,290 (29,752)
Depreciation 25,397 23,328
Provision for losses on receivables from
partnerships 210,653 155,212
Loss on sale of hotel franchise rights - 150,000
Deferred income taxes - (48,000)
Adjustment pursuant to tax sharing arrangement - 137,600
Extraordinary gain on forgiveness of debt - (100,000)
Cash provided (used) by changes in:
Prepaid and other current assets 27,709 (24,920)
Accounts payable and accrued expenses (144,876) 166,896
Accrued partnership contributions (71,772) (9,026)
----------- -------
Net cash provided by operating activities 61,701 610,767
----------- -------
Cash flows from investing activities:
Advances to partnerships, net (993,830) (116,849)
Investments in partnerships (242,500) (112,219)
Distributions from partnerships 140,243 54,831
Purchase of office furniture and equipment (12,410) (25,516)
Proceeds from sale of hotel franchise rights - 225,000
----------- -------
Net cash provided by (used in)
investing activities (1,108,497) 25,247
----------- -------
Cash flows from financing activities:
Advances from affiliates, net 216,006 87,038
Repayment of debt - (175,000)
Dividend to parent - (150,000)
----------- -------
Net cash provided by (used in)
financing activities 216,006 (237,962)
----------- -------
Net increase (decrease) in cash and
cash equivalents (830,790) 398,052
Cash and cash equivalents, beginning of year 915,433 517,381
----------- -------
Cash and cash equivalents, end of year $ 84,643 915,433
=========== =======
</TABLE>
(Continued)
F-4
<PAGE> 14
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $86,859 102,282
======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 15
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
December 31, 1996 and 1995
(1) Description of Business and Summary of Significant Accounting Policies
Essex Partners Inc. (the Company) is the managing general partner of real
estate partnerships. In addition to revenues earned as an investor, the
Company receives management, administrative, development and other fees for
services rendered to the partnerships.
The Company's parent, Essex Investment Group, Inc. (Essex), is an
integrated financial services and real estate company that develops and
markets a broad range of investment and insurance products and services for
individuals, businesses and individual pension accounts.
Cash Equivalents
Cash equivalents consist of money market accounts.
Investments in Partnerships
Investments in partnerships are accounted for by the equity method. Any
initial partnership capital contribution required by the Company which is
payable out of future distributions to the Company is accrued.
Income Taxes
Income taxes are accounted for under the asset and liability method whereby
deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the year in
which those temporary differences are expected to be recovered or settled.
The effect of deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period which includes the enactment date.
The Company is included in the consolidated federal and combined New York
State income tax returns of Essex. Essex allocates current federal and
state income taxes on a prorata basis to only its subsidiaries which have
taxable income. Any difference between current income taxes determined on a
separate company basis in accordance with the asset and liability method
and the amount allocated to the Company by Essex is reflected as an
adjustment of retained earnings.
F-6 (Continued)
<PAGE> 16
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(1) Description of Business and Summary of Significant Accounting Policies
(continued)
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(2) Partnership Investments and Advances Receivable
The Company is a general partner in partnerships which primarily own and
operate hotels, apartment buildings and manufactured home communities. The
Company also earns fees in connection with providing organization,
financing, acquisition, development, management, administration and due
diligence services to those partnerships. Such fees totaled $1,726,426 in
1996 and $2,192,192 in 1995.
The Company makes operating advances to those partnerships as well as in
connection with the acquisition and construction of real estate. Such
receivables, which are generally due on demand and unsecured, are
summarized as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Partnership 1996 1995
----------- ---- ----
<S> <C> <C>
Essex - Ashford River Oaks L.P.:
Mortgage note $ 270,000 -
Advances 472,372 267,086
Essex Microtel LeRay L.P. 313,084 -
Essex Geneseo Associates L.P. 173,293 101,211
Essex Albion Credits L.P. - 168,107
Others 360,901 270,069
---------- -------
1,589,650 806,473
Less allowance for uncollectible advances 240,000 240,000
---------- -------
1,349,650 566,473
Less current portion 815,825 355,546
---------- -------
$ 533,825 210,927
========== =======
</TABLE>
F-7 (Continued)
<PAGE> 17
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(2) Partnership Investments and Advances Receivable (continued)
Essex - Ashford River Oaks L.P. (River Oaks) owns and operates a 300-site
manufactured home community in Springfield, Illinois which the Company
began managing in September 1995. River Oaks has experienced deficit
operating cash flow. The Company has advanced $742,372 to fund operations,
debt service requirements and capital improvements. During 1996, the
Company secured $270,000 of the $742,372 advance with a second mortgage.
The mortgage is receivable on demand with interest only due monthly at
prime plus 1% per annum (9.25% at December 31, 1996). Although no repayment
terms have been set, management of the Company expects to receive repayment
of substantially all amounts in 1997 upon completion of a securitized debt
offering by River Oaks. Summarized financial information for River Oaks as
of and for the years ended December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets $ 2,530,000 2,978,000
Liabilities 2,380,000 2,660,000
Partners capital 150,000 318,000
Revenue 370,000 389,000
Net loss (168,000) (157,000)
</TABLE>
The Company also guarantees certain indebtedness of River Oaks (see note
6).
Essex Microtel LeRay L.P. (LeRay) owns and operates a 100-room Microtel
hotel located in LeRay, New York. During 1996, the Company advanced
$313,084 to LeRay, primarily to reduce outstanding mortgage debt. No
repayment terms have been set and management of the Company does not expect
to receive repayment until ultimate disposition of the property. Summarized
financial information for LeRay as of and for the years ended December 31,
1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets $ 2,170,000 2,240,000
Liabilities 1,780,000 1,629,000
Partners capital 390,000 611,000
Revenue 577,000 698,000
Net loss (221,000) (128,000)
</TABLE>
(3) Hotel Franchise Rights
In 1994, the Company purchased rights to 15 Microtel hotel franchises for
$375,000 in exchange for cash of $100,000 and a noninterest-bearing note
payable for $275,000. During 1995, the Company sold one franchise right for
$25,000 to an affiliate and the remaining 14 rights were resold to the
franchiser for $200,000, resulting in a loss of $150,000. The Company
repaid $175,000 of the related noninterest-bearing note payable and the
remaining $100,000 was forgiven, resulting in an extraordinary gain of
$60,000, net of the related income tax effect of $40,000.
F-8 (Continued)
<PAGE> 18
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(4) Related Party Transactions
The Company provides management and administrative services under contracts
with several other entities owned by officers of Essex, earning fees of
$65,281 in 1996 and $72,358 in 1995.
Essex allocated interest expense to the Company of $80,743 in 1996 and
$102,282 in 1995.
(5) Income Taxes
Total income taxes for 1996 and 1995 were allocated as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income from operations $2,000 111,000
Extraordinary item - 40,000
------ -------
$2,000 151,000
====== =======
</TABLE>
The components of income tax expense attributable to income from operations
are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1996:
Federal $ 1,500 - 1,500
State 500 - 500
-------- ------- -------
$ 2,000 - 2,000
======== ======= =======
1995:
Federal 119,800 (38,500) 81,300
State 39,200 (9,500) 29,700
-------- ------- -------
$159,000 (48,000) 111,000
======== ======= =======
</TABLE>
F-9 (Continued)
<PAGE> 19
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(5) Income Taxes (continued)
The difference between income tax expense and the amounts computed by
applying the U.S. Federal income tax rate of 34% to income before income
taxes and extraordinary item is primarily attributable to state income
taxes.
In 1996 and 1995, Essex allocated $2,000 and $21,400 of consolidated
current income tax expense to the Company pursuant to the inter-company tax
sharing arrangement. The difference between current income taxes allocated
to the Company under the tax sharing arrangement in 1995 and the amount
reflected above in accordance with the asset and liability method is
reflected in the accompanying statement of changes in retained earnings as
adjustments to retained earnings.
At both December 31, 1996 and 1995 the deferred tax asset of $96,000
results from temporary differences related to the allowance for
uncollectible receivables from partnerships, less a valuation allowance of
$48,000. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the projected future taxable income and
tax planning strategies in making this assessment. Based on the level of
historical taxable income and estimates of future taxable income over the
periods which the deferred tax assets are deductible, management believes
it is more likely than not that the Company will realize the benefits of
these deductible differences, net of the valuation allowance at December
31, 1996.
F-10 (Continued)
<PAGE> 20
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(6) Commitments and Contingencies
As the general partner in several partnerships, the Company may, subject to
partnership agreement restrictions, be held liable for all recourse debt
and obligations of such partnerships to the extent that the obligations are
not otherwise funded. The amounts of such contingent liabilities include
guarantees of the following partnership obligations at December 31, 1996:
<TABLE>
<S> <C>
Essex - Ashford River Oaks L.P.
Subordinated notes payable to private investors, secured by
a third mortgage on the property $1,000,000
Mortgage payable to bank, secured by a first mortgage on
the property 600,000
Essex Microtel Lehigh L.P.
Mortgage payable to bank, secured by a first mortgage on
the property 2,600,000
Essex Geneseo Associates L.P.
Mortgage payable to bank, secured by a first mortgage on
the property 2,983,350
Essex Real Estate Partnership Notes
Mortgage notes payable, secured by first mortgage on certain
properties 976,000
Essex Glenmaura L.P.
Subordinated notes payable to private investors, secured by
a second mortgage on the property 1,500,000
Essex Mobile Home Properties IX L.P.
Subordinated notes payable to private investors, secured by
a second mortgage on the property 1,200,000
Greenport L.L.C
Mortgage payable to bank, secured by a first mortgage on the property 135,000
</TABLE>
F-11 (Continued)
<PAGE> 21
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(6) Commitments and Contingencies (continued)
In February 1997, the Company guaranteed a $5,000,000 mortgage payable to a
bank for Essex Glenmaura L.P. The loan is secured by a first mortgage on
the property.
Although there is no current plan or intention to do so, the capital of the
Company is available for withdrawal by Essex. Summarized consolidated
financial information for Essex as of and for the years ended December 31,
1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets $ 6,400,000 5,100,000
Liabilities 5,200,000 4,700,000
Total stockholders' equity 1,200,000 400,000
Revenue 13,900,000 9,200,000
Net income 400,000 300,000
</TABLE>
The Company guarantees a term note payable of Essex to a bank of $645,000
at December 31, 1996.
F-12
<PAGE> 22
Independent Auditors' Report
The Partners
Essex Hospitality Associates IV L.P.:
We have audited the accompanying consolidated balance sheets of Essex
Hospitality Associates IV L.P. (a New York limited partnership) and subsidiary
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in partners' capital and cash flows for the year ended
December 31, 1996 and for the period from August 30, 1995 (date of inception)
through December 31, 1995. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Essex Hospitality
Associates IV L.P. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the year ended December 31,
1996 and for the period from August 30, 1995 (date of inception) through
December 31, 1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Rochester, New York
March 17, 1996
F-13
<PAGE> 23
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Investment in real estate, at cost:
Land $ 2,492,195 1,400,435
Land improvements 271,348 -
Buildings 4,961,102 -
Furniture, fixtures and equipment 1,280,352 -
Construction in progress 469,487 26,250
9,474,484 1,426,685
Less accumulated depreciation 231,420 -
----------- ---------
Net investment in real estate 9,243,064 1,426,685
Cash and cash equivalents 2,515,685 628,864
Due from affiliates 81,500 -
Other assets 147,512 5,153
----------- ---------
Deferred costs:
Debt issuance 743,075 253,841
Franchise fees 128,000 80,000
----------- ---------
871,075 333,841
Less accumulated amortization 191,324 -
----------- ---------
Net deferred costs 679,751 333,841
----------- ---------
$12,667,512 2,394,543
=========== =========
Liabilities and Partners' Capital
Liabilities:
Accounts payable - construction $ 335,914 155,400
Other accounts payable and accrued expenses 258,724 -
Due to affiliate - 64,495
Construction loan payable 4,294,243 -
Notes payable 1,500,000 -
Subordinated notes payable 4,920,000 1,744,000
---------- ---------
Total liabilities 11,950,249 1,963,895
---------- ---------
Minority interest in partnership 641,368 -
----------- ---------
Commitments and contingencies (notes 4 and 5)
Partners' capital 882,514 519,895
Less notes receivable from partners 165,251 89,247
----------- ---------
Net partners' capital 717,263 430,648
----------- ---------
$12,667,512 2,394,543
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 24
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Consolidated Statements of Operations
Year ended December 31, 1996 and
period from August 30, 1995 (date of inception) through December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenue:
Rooms $ 394,134 -
Food and beverage 54,048 -
Telephone and other commissions 34,880 -
----------- -------
483,062 -
----------- -------
Operating expenses:
Rooms 249,766 -
Administrative 155,429 -
Food and beverage 128,541 -
Marketing 89,240 -
Repairs and maintenance 82,573 -
Utilities 28,822 -
Management fees to affiliate 25,338 -
Telephone and other commissions 19,869 -
Royalty fees 15,766 -
Insurance 12,058 -
Property taxes 6,569 -
Miscellaneous 72,214 -
----------- -------
886,185 -
----------- -------
Loss from operations before interest, depreciation
and amortization (403,123) -
Interest:
Income 74,202 -
Expense (548,788) -
Depreciation and amortization (345,756)
----------- -------
Loss before minority interest in loss of
partnership (1,223,465) -
Minority interest in loss of partnership 356,524 -
----------- -------
Net loss $ (866,941) -
=========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 25
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Consolidated Statements of Changes in Partners' Capital
Year Ended December 31, 1996 and Period for
August 30, 1995 (date of inception) through December 31, 1995
<TABLE>
<CAPTION>
Net
Partners' Capital Notes Partners'
General Limited Total Receivable Capital
------- ------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at August 30, 1995
(date of inception) $ - - - - -
Capital contributions 6,574 650,898 657,472 (89,247) 568,225
Syndication costs - (137,477) (137,477) - (137,477)
Return of original limited
partners contribution - (100) (100) - (100)
---------- -------- ---------- -------- ----------
Balance at December 31, 1995 6,574 513,321 519,895 (89,247) 430,648
Capital contributions 15,120 1,496,830 1,511,950 (76,004) 1,435,946
Syndication costs - (168,799) (168,799) - (168,799)
Distributions to partners (1,136) (112,455) (113,591) - (113,591)
Net loss (8,669) (858,272) (866,941) - (866,941)
---------- -------- ---------- -------- ----------
Balance at December 31, 1996 $ 11,889 870,625 882,514 (165,251) 717,263
======== ========== ========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 26
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Consolidated Statements of Cash Flows
Year ended December 31, 1996 and
period from August 30, 1995 (date of inception) through December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from investing activities:
Cash received from customers $ 444,876 -
Cash paid to suppliers and employees (717,237) -
Interest received 55,016 -
Interest paid (519,717) -
----------- ----------
Net cash used in operating
activities (737,062)
----------- ----------
Cash flows used in investing activities:
Investment in real estate (6,094,996) (1,276,438)
Cash acquired with acquisition of controlling interest
in partnership 248,522 -
Other assets - deposits (34,528) -
Franchise fees paid - (80,000)
----------- ----------
Net cash used in investing activities (5,881,002) (1,356,438)
----------- ----------
Cash flows from financing activities:
Proceeds from construction loan 4,294,243 -
Proceeds from issuance of subordinated notes payable 3,176,000 1,744,000
Debt issuance costs (418,800) (192,737)
Proceeds from offering of limited partnership units 1,435,946 568,225
Proceeds from offering of subsidiary limited partnership
units, net 303,277 -
Syndication costs (172,190) (134,086)
Distributions to partners (113,591) -
Return of original partner's contribution - (100)
----------- ----------
Net cash provided by financing activities 8,504,885 1,985,302
----------- ----------
Net increase in cash and cash
equivalents 1,886,821 628,864
Cash and cash equivalents - beginning of period 628,864 -
----------- ----------
Cash and cash equivalents - end of period $ 2,515,685 628,864
=========== ==========
</TABLE>
(Continued)
F-17
<PAGE> 27
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Consolidated Statements of Cash Flows (continued)
For the Years ended December 31, 1996 and period
from August 30, 1995 (date of inception) through December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Reconciliation of net income to net cash used in
operating activities:
Net loss $ (866,941) -
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 345,756 -
Minority interest in net loss of partnership (356,524) -
Change in:
Other assets (72,896) -
Accounts payable and accrued expenses 213,543 -
----------- -------
Net cash used in operating
activities $ (737,062) -
=========== =======
Supplemental schedule of noncash investing and financing
activities:
Net assets acquired with acquisition of controlling
interest in partnership:
Investment in real estate $ 2,243,340 -
Cash 1,498,522 -
Deferred costs and other assets 518,749 -
Debt (1,500,000) -
Other liabilities (493,497) -
Minority interest $(1,017,114) -
=========== =======
Obligations incurred in connection with construction
in progress $ 180,514 150,247
=========== =======
Debt issuance and syndication costs due to affiliate $ - 64,495
=========== =======
Notes received from general and limited partners $ 76,004 89,247
=========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 28
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Organization
Essex Hospitality Associates IV L.P. (the Partnership) is a New York
limited partnership formed on August 30, 1995 for the purpose of acquiring
land and constructing, owning and operating a series of hotels. The
Partnership may also invest in and lend funds to other partnerships that
own hotels. The Partnership is financing its activities through a public
offering of notes and limited partnership units. The Partnership's general
partner is Essex Partners Inc. (Essex Partners), a subsidiary of Essex
Investment Group, Inc. (Essex).
The Partnership has acquired land in order to construct and operate hotels.
In December 1995, land was purchased in Solon, Ohio and Warwick, Rhode
Island in anticipation of the construction of a Hampton Inn and Suites
hotel and a Homewood Suites hotel, respectively. Construction was delayed
at both sites as a result of higher than projected construction costs and
change in market conditions. The Solon site is now under construction for a
Hampton Inn hotel while plans for the Warwick site have not yet been
resolved.
In January 1996, the Partnership acquired a 54% limited partnership
interest in Essex Glenmaura L.P. (Glenmaura) through the purchase of 12.5
limited partnership units for $1,250,000. The purchase price was equal to
the prorata portion of the fair value of the net assets acquired. Glenmaura
owns and operates a Courtyard by Marriott hotel near Scranton,
Pennsylvania. Construction of the hotel was completed during 1996 and
operations began on September 4, 1996.
A general description of the allocation of Partnership income, loss, and
distributions follows. For a more comprehensive description see the
Partnership Agreement.
Allocations of income from operations will be allocated 99% to the
limited partners and 1% to the general partner until the amount
allocated to the limited partners equals the cumulative annual return
of 8% of their contribution. Any remaining income from operations is
allocated 80% to the limited partners and 20% to the general partner.
Income on the sale of any or all of the hotels is allocated 99% to the
limited partners until each limited partner has been allocated income
in an amount equal to his or her pro rata share of the nondeductible
syndication expenses and sales commissions and 1% to the general
partner. Thereafter, income on the sale of any or all the hotels is
allocated in the same manner as income from operations.
F-19 (Continued)
<PAGE> 29
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Financial Statements
(1) Organization (continued)
Allocations of losses from operations will be allocated 80% to the
limited partners and 20% to the general partner in the amounts
sufficient to offset all income which was allocated 80% to the limited
partners. Thereafter, operating losses are allocated 99% to the
limited partners and 1% to the general partner. Loss on the sale of
any or all of the hotels will be first allocated in the same manner as
losses from operations, except that the allocation of such loss would
be made prior to allocations of income from operations. All other
losses are allocated 99% to the limited partners and 1% to the general
partner.
Cash distributions will initially be made 99% to the limited partners
and 1% to the general partner. After the limited partners have
received a cumulative annual return of 8% of their contribution,
additional distributions may then be made 80% to the limited partners
and 20% to the general partner. Distributions of the net proceeds of
sale or refinancing of any or all hotels will be made 1% to the
general partner and 99% to the limited partners pro rata in accordance
with the number of units held by each limited partner until the
limited partners have received distributions from sale or refinance of
hotels equal to $1,000 per unit. Thereafter, distributions shall next
be made 1% to the general partner and 99% to the limited partners
until each limited partner has received any unpaid cumulative return
accrued through the date of the distribution. Additional distributions
will then be made 20% to the general partner and 80% to the limited
partners.
Essex Partners and its affiliates are receiving substantial fees in
connection with the offering of notes and limited partnership units.
Additional fees will be paid to them in connection with the acquisition,
development and operation of the hotels and management of the Partnership
(see note 5).
In accordance with the Partnership agreement, the ratio of gross proceeds
from the offering of limited partnership units to total gross proceeds from
the public offering of notes and limited partnership units prior to the
termination of the offering may not be less than .15 to 1. At December 31,
1996, that ratio was .31 to 1.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Partnership were prepared on the accrual
basis of accounting in conformity with generally accepted accounting
principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Partnership and Glenmaura. All significant intercompany transactions and
balances have been eliminated in consolidation.
F-20 (Continued)
<PAGE> 30
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Financial Statements
(2) Summary of Significant Accounting Policies (continued)
Investment in Real Estate
Investment in real estate is stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
assets as each hotel commences operations.
Cash and Cash Equivalents
Cash investments with maturities of three months or less at the time of
purchase are considered to be cash equivalents.
Deferred Costs
Costs of issuing the subordinated notes payable are being amortized on a
straight-line basis over the term of the notes.
Franchise fees paid for the right to own and operate the hotels will be
amortized on a straight-line basis over the term of each franchise
agreement, as each hotel commences operations.
Syndication Costs
Selling commissions and legal, accounting, printing and other filing costs
totaling $306,276 related to the offering of the limited partnership units
were charged against the proceeds of the public offering.
Income Taxes
No provision for income taxes has been provided since any liability is the
individual responsibility of the partners.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the managing general partner to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
(3) Debt
Construction Loan
Glenmaura received construction financing from a bank in the amount of
$4,500,000, of which $4,294,243 has been drawn as of December 31, 1996. The
term is for twelve months and requires monthly payments of interest only at
a rate of 2.5% over the LIBOR rate (7.875% at December 31, 1996). The loan
is guaranteed by Essex Partners and collateralized by the related hotel
property. Additionally, covenants require minimum net worth and limit
distributions.
F-21 (Continued)
<PAGE> 31
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Financial Statements
(3) Debt (continued)
Construction Loan (continued)
On February 28, 1997, Glenmaura obtained permanent financing from GMAC
Corporation for $5,000,000, the proceeds of which were used to repay the
construction loan. The term of the loan will be for four years with a one
year extension available if certain debt service coverage is attained.
Monthly payments of interest only will be due at 3% over the LIBOR rate for
the first year. Principal and interest payments are due thereafter. The
commitment fee is $50,000 (1% of the loan proceeds) with 50% of the fee due
upon acceptance of the commitment. The additional 50% is payable at
closing. The loan will be collateralized by the real and personal property
and certain other assets.
Notes Payable
Glenmaura has $1,500,000 of unsecured notes requiring monthly payments of
interest only at 10.5% through June 1, 1998, at which time all principal
will be due unless Glenmaura exercises its two one-year extensions at
extension fees ranging from one-half to one percent. Glenmaura also has the
right to prepay the notes at face value. Essex Partners guarantees payment
of principal and interest on the notes.
Subordinated Notes Payable
Subordinated notes payable of the Partnership of $4,920,000 bear interest
at a rate of 10.5% per annum, payable monthly, and mature December_31,
2001, unless extended by the Partnership to December_31, 2002 upon payment
of an extension fee equal to .5% of the principal amount of the notes
outstanding. The notes are issued as unsecured obligations of the
Partnership.
In 1996, interest of $193,354, was capitalized in investments in real
estate as the notes were used to finance construction of the hotels. No
interest was capitalized in 1995.
F-22 (Continued)
<PAGE> 32
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Financial Statements
(4) Franchise Fees
In 1995, the Partnership entered into license agreements with Promus
Corporation (Promus) to operate a Homewood Suites hotel in Warwick, Rhode
Island and a Hampton Inn and Suites hotel in Solon, Ohio site. An initial
franchise fee of $40,000 was paid for each hotel. In addition, for each
hotel, the Partnership will be required to pay Promus a monthly royalty fee
of 4% of gross rooms revenues, a monthly marketing/reservation fee of 4% of
gross rooms revenue, an initial software license fee of $3,000 plus $85 per
guest room with a monthly maintenance charge of $200 to $400 per month, and
a monthly amount equal to any sales tax or similar tax imposed on Promus on
payments received under the license agreement. During 1996 Promus approved
the conversion of the Solon, Ohio agreement to a Hampton_Inn.
Promus requires the Partnership to establish a capital reserve escrow
account based on a percentage of gross revenues generated by each hotel
which will be used for product quality requirements of the hotel.
Cumulative funding of the reserve for the first five years increases from
1% to 5% of gross revenues and stabilizes at 5% for the term of the
agreement. The Promus franchise agreements impose certain restrictions on
the transfer of limited partnership units. Promus restricts the sale,
pledge or transfer of units in excess of 25% without their consent.
Glenmaura has a franchise agreement with Marriott International, Inc. Under
the terms of the agreement, Glenmaura paid an initial franchise fee of
$48,000 in 1995. The term and amortization period of the franchise
agreement is twenty years, with an option to renew for an additional
ten-year period. Glenmaura is required to pay a monthly royalty fee in an
amount equal to 4% of gross room rentals for the first two years of
operations and 5% during the remainder of the term of the agreement, a
marketing fee of 2 - 3% gross revenues, a reservation system fee and a
property management system fee. In 1996, fees totaled $15,766.
F-23 (Continued)
<PAGE> 33
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Financial Statements
(5) Related Party Transactions
A summary of fees earned by Essex Partners or its affiliates from the
Partnership and Glenmaura in 1996 and 1995 follows:
<TABLE>
<CAPTION>
Type of Fee Amount of Fee 1996 1995
----------- ------------- ---- ----
<S> <C> <C> <C>
Selling Commission Up to $80 per limited partnership
unit and $55 per $1,000 note sold $ 289,063 147,154
Organization and 3.4% of the gross proceeds
Offering Fee of the offering 158,876 81,423
Offering and Up to $40,000 if proceeds of
Organization Fee the offering of limited partnership
- Glenmaura units is $4,000,000, reduced by
any selling commissions paid 16,000 -
Acquisition Fee $110,000 per hotel site - 220,000
Development Fee $160,000 per hotel, plus 5% of the
total cost of the hotel in excess of
$2.7 million (not to exceed $325,000
per hotel) 108,000 -
Development Fee $285,000 (less $171,000 paid prior
- Glenmaura to the Partnership's purchase of a
controlling interest of Glenmaura) 114,000 -
Property
Management Fee 4.5% of gross operating revenues
from the hotels 21,718 -
Partnership
Management Fee .75% to 1.25% of gross operating
revenues from the hotels 3,620 -
Accounting Fee $800 per month 3,200 -
----------- ---------
$ 714,477 448,577
=========== =========
</TABLE>
F-24 (Continued)
<PAGE> 34
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Financial Statements
(5) Related Party Transactions (continued)
The above fees are reflected in the accompanying financial statements as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance sheets:
Investment in real estate $222,000 220,000
Deferred debt issuance costs 282,664 155,216
Partners' capital - syndication costs 165,275 73,361
-------- -------
$669,939 448,577
======== =======
Statements of operations:
Management fees to affiliate 25,338 -
Administrative expense 3,200 -
Miscellaneous expense 16,000 -
-------- -------
$ 44,538 -
======== =======
</TABLE>
Organization and offering fees are allocated to syndication costs and debt
issuance costs based on the pro-rata share of limited partners' units and
notes payable to the total offering.
In 1995, the Partnership paid a $110,000 acquisition fee in connection with
the Warwick, Rhode Island site. As it is unlikely that a hotel will be
constructed on the Warwick site, the amount of the fee is included in due
from affiliates at December 31, 1996.
Under the terms of the Partnership agreement, Essex Partners or its
affiliates will also earn other fees as follows:
<TABLE>
<CAPTION>
Type of Fee Amount of Fee
----------- -------------
<S> <C>
Investor Relations Fee .25% of the gross proceeds of the offering payable
annually in 1998 through 2001
Refinancing Fee 1% of the gross proceeds of re-financing any or all of
the hotels
Sales Fee 3% of the gross sale price of any or all of the hotels
(excluding the Glenmaura hotel which is 2.5%)
</TABLE>
F-25 (Continued)
<PAGE> 35
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Financial Statements
(5) Related Party Transactions
Glenmaura has made a non-refundable deposit of $55,000 pursuant to an
option to purchase a second parcel of land (the Second Project) adjacent to
the Project for purposes of constructing a second hotel. The option
agreement expired in December of 1996 but is currently being renegotiated.
In the event that Essex Partners elects to proceed with the Second Project
on behalf of Glenmaura, Essex Partners will receive additional compensation
related to the acquisition of the second parcel, construction of the Second
Project and securing additional equity and debt financing to fund such
activities. Such compensation will include an acquisition fee equal to
$50,000 for its services related to the acquisition of the second parcel
and a development fee up to $150,000 plus 3% of total construction, site
development and fixtures, furniture and equipment costs. In addition, as
compensation for arranging construction and permanent financing, Essex
Partners may receive a financing fee equal to 1% of the gross proceeds of
the financing.
The Partnership will also be subject to a number of conflicts of interest
arising from its relationships with the general partner, its owners and
affiliates and due to other activities and entities in which the general
partner and its affiliates have or may have a direct or indirect financial
interest.
F-26
<PAGE> 36
PRIOR PERFORMANCE TABLES
ESSEX PARTNERS INC. AND AFFILIATES
INTRODUCTION
Essex Partners Inc. has been a general partner in eleven real estate
syndications with investment objectives similar to the Partnership. The prior
partnerships were organized to provide capital appreciation and cash
distributions from investments in hotels. These syndications are:
Essex Microtel 1989 L.P.
Essex Microtel Associates L.P.
Essex Microtel Lehigh L.P.
Essex Microtel LeRay L.P.
Hagel-Essex Microtel L.P.
Essex Microtel Carrier Circle L.P.
Essex Charleston Associates L.P.
Essex Microtel Associates II L.P.
Essex Knoxville Associates L.P.
Essex Hospitality Associates III L.P.
Essex Glenmaura L.P.
Nine of the above partnerships involved construction of new facilities. Essex
Microtel Lehigh L.P. purchased a hotel that had been in operation for fifteen
months. Essex Microtel LeRay L.P. purchased a hotel after construction was
completed but before operations began.
This offering is the fourth publicly registered program sponsored by Essex
Partners Inc. or its affiliates.
<PAGE> 37
TABLE I
ESSEX PARTNERS AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING DECEMBER 31, 1996)
Table I sets forth information with respect to the offerings of real
estate limited partnership interests with similar investment objectives as the
Partnership in which Essex Partners or affiliates acted as general partners and
which closed in the three year period ending December 31, 1996.
<PAGE> 38
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Essex Essex Hospitality
Glenmaura L.P. (6) Glenmaura L.P. (6) Associates III L.P. (5)
------------------ ------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Dollar amount offered 2,500,000 1,500,000 13,986,320
Dollar amount raised 2,300,000 92.0% 1,500,000 100.0% 13,986,320 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 12,000 0.5% 60,000 4.0% 856,000 6.1%
Organizational and syndication
expenses (1) 15,400 0.7% 34,500 2.3% 767,000 5.5%
---------- ----- ---------- ----- ----------- -----
Available for investment $2,272,600 98.8% $1,405,500 93.7% $12,363,320 88.4%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- -- -- -- -- --
Cash downpayment (2) -- -- 1,033,600 68.9% 1,366,000 9.8%
Acquisition and Developer fees:
Paid to affiliates 256,500 11.2% 225,000 15.0% 870,000 6.2%
Paid to non-affiliates -- -- -- -- -- --
Other acquisition and development
expenses (2) 2,009,100 87.4% 143,900 9.6% 9,442,000 67.5%
---------- ----- ---------- ----- ----------- -----
Total acquisition cost $2,265,600 98.5% $1,402,500 93.5% $11,678,000 83.5%
Non-recurring management and
organization fees to affiliates 7,000 0.3% -- -- -- --
Other requirements (3) -- -- 3,000 0.2% 685,320 4.9%
---------- ----- ---------- ----- ----------- -----
Total $2,300,000 100.0% $1,500,000 100.0% $13,986,320 100.0%
Purchase price (including
brokerage fees) 8,381,000 8,381,000 11,679,000
Percent leverage (4) 77.6% 77.6% 85.6%
Date offering began 05/25/95 05/10/95 11/17/93
Length of offering (months) N/A 2 22
</TABLE>
<PAGE> 39
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Knoxville Essex Knoxville Essex Knoxville
Associates L.P. (7) Associates L.P. (7) Associates L.P. (7)
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Dollar amount offered 1,000,000 2,000,000 500,000
Dollar amount raised 1,000,000 100.0% 2,000,000 100.0% 500,000 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 20,000 2.0% 100,000 5.0% 27,500 5.5%
Organizational and syndication
expenses (1) 15,900 1.6% 39,800 2.0% 13,000 2.6%
---------- ----- ---------- ----- -------- -----
Available for investment $ 964,100 96.4% $1,860,200 93.0% $459,500 91.9%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- -- -- -- -- --
Cash downpayment (2) 430,000 43.0% -- -- -- --
Acquisition and Developer fees:
Paid to affiliates 200,000 20.0% -- -- -- --
Paid to non-affiliates -- -- -- -- -- --
Other acquisition and development
expenses (2) 304,100 30.4% 1,820,700 91.0% 396,600 79.3%
---------- ----- --------- ----- -------- -----
Total acquisition cost $ 934,100 93.4% $1,820,700 91.0% $396,600 79.3%
Non-recurring management and
organization fees to affiliates 30,000 3.0% 25,000 1.3% 25,000 5.0%
Other requirements (3) -- -- 14,500 0.7% 37,900 7.6%
---------- ----- ---------- ----- -------- -----
Total $1,000,000 100.0% $2,000,000 100.0% $500,000 100.0%
Purchase price (including
brokerage fees) 3,118,000 3,118,000 3,118,000
Percent leverage (4) 80.2% 80.2% 80.2%
Date offering began 12/03/92 06/22/93 05/24/94
Length of offering (months) 13 6 2
</TABLE>
<PAGE> 40
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Real Estate
Partnership Notes (8)
-------------------------
<S> <C> <C>
Dollar amount offered 976,000
Dollar amount raised 976,000 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 48,800 5.0%
Organizational and syndication
expenses (1) 27,200 2.8%
-------- -----
Available for investment $900,000 92.2%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- --
Cash downpayment (2) -- --
Acquisition and Developer fees:
Paid to affiliates -- --
Paid to non-affiliates -- --
Other acquisition and development
expenses (2) 95,000 9.7%
-------- -----
Total acquisition cost $ 95,000 9.7%
Non-recurring management and
organization fees to affiliates -- --
Other requirements (3) 805,000 82.5%
-------- -----
Total $976,000 100.0%
Purchase price (including
brokerage fees) --
Percent leverage (4) --
Date offering began 03/01/95
Length of offering (months) 2
</TABLE>
<PAGE> 41
TABLE I
ESSEX PARTNERS AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING DECEMBER 31, 1996)
(1) Includes any legal, accounting, blue sky and publication costs as
well as other fees incurred with the offering.
(2) The cash downpayment represents the land cost. Proceeds used in
property construction are included in other acquisition and
development expenses.
(3) Includes amounts of working capital reserves and other carrying
costs.
(4) For each partnership, percent leverage equals: (i) the total amount
of mortgages and other financing outstanding on the property owned
by the partnership, divided by (ii) the purchase price.
(5) Both limited partnership interests and debt were included in the
offerings by Essex Charleston Associates L.P. and Essex Hospitality
Associates III L.P..
(6) Essex Glenmaura L.P. was financed through two offerings, an equity
offering of $2,500,000 and a note offering of $1,500,000. Each
offering is presented separately in Table I.
(7) Essex Knoxville L.P. was financed through three offerings, an equity
offering of $1,000,000, a mortgage note offering of $2,000,000 and a
note offering of $500,000. Each offering is presented separately in
Table I.
(8) The Essex Real Estate Notes offering raised debt financing for three
real estate partnerships, Essex Microtel Associates L.P. and Essex
Microtel LeRay, which own hotel properties and Essex Geneseo
Associates, which owns non-hotel property. Of the total amount
raised, $434,000 was used for Essex Microtel Associates L.P. to
replace existing debt, $217,000 was used for Essex Microtel LeRay
L.P. to replace existing debt and provide working capital and
$325,000 was for Essex Geneseo Associates to replace existing debt
and complete construction of two apartment buildings.
<PAGE> 42
TABLE II
ESSEX PARTNERS INC. AND AFFILIATES
COMPENSATION TO SPONSOR
(THREE YEARS ENDING DECEMBER 31, 1996)
Table II provides information as to the cumulative compensation paid to
sponsors for a three year period ending December 31, 1996 (or from partnership
inception, if later) from both offering proceeds and property operations.
None of the programs for which information is presented in Table II has
been liquidated and there have been no sales or maturities of any of the
program's investments.
<PAGE> 43
TABLE II
ESSEX PARTNERS INC. AND AFFILIATES
COMPENSATION TO SPONSOR
(CUMULATIVE THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Hospitality Essex Knoxville Essex Microtel
Essex Associates III Associates L.P. Associates II
Glenmaura L.P. L.P. (1) (2) L.P.
-------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Date offering commenced var 11/17/93 var 11/18/92
Dollar amount raised 3,800,000 13,986,320 3,500,000 10,487,000
Amount paid to sponsor from proceeds of offering:
Underwriting fees 83,300 477,000 32,500 --
Acquisition and development fees
- real estate commissions -- -- -- --
- advisory fees 481,500 514,000 100,000 --
- other -- -- -- --
Organization fees 24,000 270,000 -- --
Other 10,000 -- 25,000 --
Dollar amount of cash generated from operations
before deducting payments to sponsor: (358,350) 223,800 379,800 800,800
Amount paid to sponsor from operations:
Property management fees 24,900 326,400 127,000 452,200
Partnership management fees 3,600 79,700 37,000 127,200
Reimbursements -- -- -- --
Leasing commissions -- -- -- --
Other -- -- -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- -- -- --
- cash -- -- -- --
- notes -- -- -- --
Amount paid to sponsor from property sales
and refinancing: -- -- -- --
- Real estate commissions -- -- -- --
- Incentive fees -- -- -- --
- Other -- -- -- --
</TABLE>
<PAGE> 44
TABLE II
ESSEX PARTNERS INC. AND AFFILIATES
COMPENSATION TO SPONSOR
(CUMULATIVE THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Microtel
Essex Charleston Carrier Circle Essex Microtel
Associates L.P. L.P. Associates L.P.
----------------- -------------- ---------------
<S> <C> <C> <C>
Date offering commenced 8/27/92 var 06/19/90
Dollar amount raised 3,390,000 3,400,000 3,083,000
Amount paid to sponsor from proceeds of offering:
Underwriting fees -- -- --
Acquisition and development fees
- real estate commissions -- -- --
- advisory fees 10,000 -- --
- other -- -- --
Organization fees -- -- --
Other -- -- --
Dollar amount of cash generated from operations
before deducting payments to sponsor: 444,700 380,500 983,500
Amount paid to sponsor from operations:
Property management fees 141,700 109,000 148,500
Partnership management fees 39,300 44,100 26,600
Reimbursements -- -- --
Leasing commissions -- -- --
Other -- -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- -- --
- cash -- -- --
- notes -- -- --
Amount paid to sponsor from property sales
and refinancing: -- -- --
- Real estate commissions -- -- --
- Incentive fees -- -- --
- Other -- -- --
</TABLE>
<PAGE> 45
TABLE II
ESSEX PARTNERS INC. AND AFFILIATES
COMPENSATION TO SPONSOR
(CUMULATIVE THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Microtel Hagel-Essex Essex Microtel
LeRay L.P. L.P. Lehigh L.P.
----------------- -------------- ---------------
<S> <C> <C> <C>
Date offering commenced 10/19/90 03/29/91 var
Dollar amount raised 1,531,254 1,012,750 $3,161,480
Amount paid to sponsor from proceeds of offering:
Underwriting fees -- -- --
Acquisition and development fees
- real estate commissions -- -- --
- advisory fees -- -- --
- other -- -- --
Organization fees -- -- --
Other -- -- --
Dollar amount of cash generated from operations
before deducting payments to sponsor: (204,435) 409,200 550,300
Amount paid to sponsor from operations:
Property management fees -- -- 126,000
Partnership management fees 10,265 36,500 38,400
Reimbursements -- -- --
Leasing commissions -- -- --
Other -- -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- -- --
- cash -- -- --
- notes -- -- --
Amount paid to sponsor from property sales
and refinancing: -- -- --
- Real estate commissions -- -- --
- Incentive fees -- -- --
- Other -- -- --
</TABLE>
<PAGE> 46
TABLE II
ESSEX PARTNERS INC. AND AFFILIATES
COMPENSATION TO SPONSOR
(CUMULATIVE THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Microtel Other
1989 L.P. Programs (3)
--------- ------------
<S> <C> <C>
Date offering commenced var
Dollar amount raised $2,687,000 7,346,460
Amount paid to sponsor from proceeds of offering:
Underwriting fees -- 512,100
Acquisition and development fees
- real estate commissions -- --
- advisory fees -- 285,000
- other -- --
Organization fees -- 107,200
Other -- 60,000
Dollar amount of cash generated from operations
before deducting payments to sponsor: 480,800 68,500
Amount paid to sponsor from operations:
Property management fees 137,700 9,000
Partnership management fees 38,400 900
Reimbursements -- --
Leasing commissions -- --
Other -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- --
- cash -- --
- notes -- --
Amount paid to sponsor from property sales
and refinancing: --
- Real estate commissions -- --
- Incentive fees -- --
- Other -- --
</TABLE>
<PAGE> 47
TABLE II
ESSEX PARTNERS INC. AND AFFILIATES
COMPENSATION TO SPONSOR
(CUMULATIVE THROUGH DECEMBER 31, 1996)
(1) Essex Hospitality Associates III opened one of its three properties
in September, 1994. The remaining properties opened in 1995.
(2) Essex Knoxville Associates had three offerings. The first commenced
in December, 1992 and raised $1,000,000 in equity financing. The
second commenced in June, 1993 and raised $2,000,000 in first
mortgage financing. The final offering commenced May, 1994 and
raised $500,000 in unsecured notes.
(3) This category includes all other programs syndicated by Essex
Partners from 1994 through 1996.
<PAGE> 48
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS
(Through December 31, 1996)
Table III presents operating information from the opening of
the property through December 31, 1996 for the programs in which Essex
Partners or affiliates acted as general partners and which closed in
the five year period ending December 31, 1996.
<PAGE> 49
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
--------------------------------------------------------
ESSEX MICROTEL ASSOCIATES II L.P.
--------------------------------------------------------
1992 1993
(1) (3 MOS) 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Gross Revenues -- 272.7 2,569.6 2,925.5 2,959.8
Profit on sale of properties -- -- -- -- --
Less: operating expenses 2.5 308.9 1,693.2 1,803.9 1,868.7
-------- -------- ------- ------- -------
Operating income (loss) (2.5) (36.2) 876.4 1,121.6 1,091.1
Less: interest expense -- 372.7 785.8 785.8 785.8
depreciation -- 255.1 676.1 687.0 690.0
-------- -------- ------- ------- -------
Net income (loss) (2.5) (664.0) (585.5) (351.2) (384.7)
Cash generated from operations (0.4) (452.2) 135.2 378.3 275.4
Cash generated from sales -- -- -- -- --
Cash generated from financing activities 3,707.6 5,304.0 (78.0) (312.9) (341.9)
Plus:cash distributions -- 100.2 273.5 315.5 341.9
--------------------------------------------------------
Cash generated from operations, sales and financing 3,707.2 4,952.0 330.7 380.9 275.4
Less: cash distributions to investors
--from operating cash flow -- -- 135.2 315.5 341.9
--from sales and financing activities -- 100.2 138.3 -- --
--from other -- -- -- -- --
--------------------------------------------------------
Cash generated (deficiency) after cash distributions 3,707.2 4,851.8 57.2 65.4 (66.5)
Less: special items - capital improvements (1,051.5) (6,830.8) (422.4) (75.0) (40.2)
--------------------------------------------------------
Cash generated (deficiency) after cash 2,655.7 (1,979.0) (365.3) (9.6) (106.6)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operation (0.9) (252.6) (222.7) (133.6) (146.3)
-- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- -- -- --
-- return of capital -- -- 104.0 120.0 130.0
Source: (on a cash basis) -- sales -- -- -- -- --
-- financing activities -- -- 52.6 -- --
-- operations -- -- 51.4 120.0 130.0
-- other -- -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program) 100%
--------------------------------------------------------
</TABLE>
<PAGE> 50
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
----------------------------------------------
ESSEX HOSPITALITY ASSOCIATES III (2)
----------------------------------------------
1993 1994
(1) (3 MOS) 1995 1996
----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues -- 128.7 2,498.8 3,741.1
Profit on sale of properties -- -- -- (67.2)
Less: operating expenses -- 167.1 1,849.4 2,664.9
-------- ------- ------- -------
Operating income (loss) -- (38.4) 649.4 1,008.9
Less: interest expense -- 242.4 750.4 1,000.0
depreciation -- 151.3 483.4 667.1
-------- ------- ------- -------
Net income (loss) -- (432.0) (584.5) (658.1)
Cash generated from operations -- (299.6) (67.9) 239.6
Cash generated from sales --
Cash generated from financing activities 1,593.0 7,026.1 3,258.6 (281.2)
Plus:cash distributions -- 62.3 314.4 423.3
---------------------------------------------
Cash generated from operations, sales and financing 1,593.0 6,788.8 3,505.2 381.7
Less: cash distributions to investors
--from operating cash flow -- -- -- 239.6
--from sales and financing activities -- 62.3 314.4 183.7
--from other -- -- -- --
--------------------------------------------
Cash generated (deficiency) after cash distributions 1,593.0 6,726.5 3,190.8 (41.6)
Less: special items - capital improvements (575.4) (5,195.2) (5,615.9) (54.4)
--------------------------------------------
Cash generated (deficiency) after cash 1,017.6 1,531.3 (2,425.1) (96.0)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations -- (202.4) (146.6) (165.1)
-- from recapture -- -- -- --
Capital gain -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- --
-- return of capital -- 29.2 78.9 106.2
Source: (on a cash basis) -- sales -- -- -- --
-- financing activities -- 29.2 78.9 46.1
-- operations -- -- -- --
-- other -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 99%
--------------------------------------------
</TABLE>
<PAGE> 51
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
ESSEX KNOXVILLE ASSOCIATES L.P. ESSEX HOSPITALITY
------------------------------- ASSOCIATES IV L.P. (3)
----------------------
1993 1994
(1) (5 MOS) 1995 1996 1995 1996
------------------------------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues 8.8 350.7 1,053.8 1,078.2 -- 483
Profit on sale of properties -- -- -- -- -- --
Less: operating expenses 0.5 237.1 658.9 696.1 -- 886.2
------- -------- ------- -------- --------- --------
Operating income (loss) 8.3 113.6 394.9 382.1 -- (403.1)
Less: interest expense -- 137.5 270.0 270.0 -- 474.6
minority interest -- -- -- -- -- 356.5
depreciation 8.9 145.7 252.1 218.9 -- 345.8
------- -------- ------- -------- --------- --------
Net income (loss) (0.6) (169.5) (127.2) (106.8) -- (866.9)
Cash generated from operations 7.8 (27.7) 149.6 117.6 -- (737.1)
Cash generated from sales -- -- -- -- -- --
Cash generated from financing activities 2,757.4 397.7 (132.5) (122.0) 1,985.3 8,504.9
Plus:cash distributions -- 30.0 121.0 123.2 -- 113.6
---------------------------------------- ---------------------
Cash generated from operations, sales and financing 2,765.2 400.0 138.1 118.8 1,985.3 7,881.4
Less: cash distributions to investors
--from operating cash flow -- -- 121.0 123.2 -- --
--from sales and financing activities -- 30.0 -- -- -- 113.6
--from other -- -- -- -- -- --
---------------------------------------- ---------------------
Cash generated (deficiency) after cash distributions 2,765.2 370.0 17.1 (4.4) 1,985.3 7,767.8
Less: special items - capital improvements (763.2) (2,323.7) (1.7) (22.0) (1,356.4) (5,881.0)
---------------------------------------- ---------------------
Cash generated (deficiency) after cash 2,002.0 (1,953.6) 15.4 (26.5) 628.9 1,886.8
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (0.6) (169.5) (127.2) (106.8) -- (403.7)
-- from recapture -- -- -- -- -- --
Capital gain -- -- -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- -- -- -- --
-- return of capital -- 30.0 121.0 123.2 -- 52.9
Source: (on a cash basis) -- sales -- -- -- -- -- --
-- financing activities -- 30.0 -- -- -- 52.9
-- operations -- -- -- -- -- 0
-- other -- -- -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 100% 100%
---------------------------------------- ---------------------
</TABLE>
<PAGE> 52
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
----------------------------------------------
ESSEX MICROTEL ASSOCIATES L.P.
----------------------------------------------
1992 1993 1994 1995 1996
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues 745.4 832.5 892.0 923.6 969.5
Profit on sale of properties -- -- -- -- --
Less: operating expenses 564.1 599.9 603.6 616.5 593.7
----- ------ ------ ------ ------
Operating income (loss) 181.4 232.6 288.4 307.1 375.8
Less: interest expense 41.6 46.5 47.2 43.3 44.4
depreciation 155.4 145.4 125.3 115.7 117.9
----- ------ ------ ------ ------
Net income (loss) (15.7) 40.8 115.9 148.1 213.4
Cash generated from operations 195.2 167.1 261.2 268.6 319.5
Cash generated from sales -- -- -- -- --
Cash generated from financing activities 125.0 (226.3) (240.0) (256.3) (266.5)
Plus:cash distributions 406.4 227.1 240.0 252.0 279.8
----------------------------------------------
Cash generated from operations, sales and financing 726.6 167.9 261.2 264.3 332.8
Less: cash distributions to investors
--from operating cash flow 144.2 179.7 240.0 252.0 279.8
--from sales and financing activities 262.2 47.4 -- -- --
--from other -- -- -- -- --
----------------------------------------------
Cash generated (deficiency) after cash distributions 320.2 (59.2) 21.2 24.3 53.0
Less: special items - capital improvements (463.4) (12.9) (5.3) (8.9) (26.7)
----------------------------------------------
Cash generated (deficiency) after cash (143.1) (72.2) 15.9 15.4 26.3
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (5.1) 13.2 37.6 48.0 69.2
-- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- -- -- --
-- return of capital 131.8 73.7 77.8 81.7 90.8
Source: (on a cash basis) -- sales -- -- -- -- --
-- financing activities 85.0 15.4 -- -- --
-- operations 46.8 58.3 77.8 81.7 90.8
-- other -- -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 100%
----------------------------------------------
</TABLE>
<PAGE> 53
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
-----------------------------------------------------
ESSEX CHARLESTON ASSOCIATES L.P.
-----------------------------------------------------
1992 1993
(1) (8 MOS) 1994 1995 1996
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues 13.3 483.2 829.1 866.0 916.0
Profit on sale of properties -- -- -- -- --
Less: operating expenses 2.2 339.3 577.1 578.0 629.1
--------- -------- ------ ------- ------
Operating income (loss) 11.1 143.9 252.0 288.0 286.9
Less: interest expense -- 116.7 175.0 175.0 175.0
depreciation 12.8 167.1 239.1 202.9 177.6
--------- -------- ------ ------ ------
Net income (loss) (1.7) (139.9) (162.1) (89.9) (65.7)
Cash generated from operations 10.4 (5.4) 84 118.5 113.5
Cash generated from sales -- -- -- -- --
Cash generated from financing activities 2,539.0 456.2 (68.0) (106.4) (110.0)
Plus:cash distributions -- 25.0 68.0 106.4 111.1
----------------------------------------------------
Cash generated from operations, sales and financing 2,549.4 475.8 84.0 118.5 114.6
Less: cash distributions to investors
--from operating cash flow -- -- 68.0 106.4 111.1
--from sales and financing activities -- 25.0 -- -- --
--from other -- -- -- -- --
----------------------------------------------------
Cash generated (deficiency) after cash distributions 2,549.4 450.8 16.0 12.1 3.5
Less: special items - capital improvements (901.0) (2,065.2) (16.3) (10.6) (25.4)
----------------------------------------------------
Cash generated (deficiency) after cash 1,648.4 (1,614.4) (0.3) 1.5 (21.9)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (1.1) (84.9) (98.3) (54.6) (39.9)
-- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- -- -- --
-- return of capital -- 15.2 41.3 64.6 67.4
Source: (on a cash basis) -- sales -- -- -- -- --
-- financing activities -- 15.2 -- -- --
-- operations -- -- 41.3 64.6 67.4
-- other -- -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 100%
----------------------------------------------------
</TABLE>
<PAGE> 54
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
-------------------------------------------------
ESSEX MICROTEL CARRIER CIRCLE L.P.
-------------------------------------------------
1992
(2 MOS) 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Gross Revenues 101.7 846.1 967.9 925.4 948.4
Profit on sale of properties -- (36.4) -- -- --
Less: operating expenses 88.2 560.3 615.5 587.9 634.1
---- ----- ----- ----- -----
Operating income (loss) 13.5 249.5 352.4 337.6 314.3
Less: interest expense 37.0 225.5 225.5 225.5 226.5
depreciation 77.2 247.6 218.2 197.5 187.5
---- ----- ----- ----- -----
Net income (loss) (100.6) (223.7) (91.3) (85.4) (99.7)
Cash generated from operations (13.9) 40.1 125.7 123.2 53.7
Cash generated from sales -- 66.0 -- -- --
Cash generated from financing activities 3,153.5 (66.3) (105.0) (117.1) (55.1)
Plus:cash distributions -- 66.3 105.0 117.1 91.5
--------------------------------------------------
Cash generated from operations, sales and financing 3,139.5 106.1 125.8 123.2 90.1
Less: cash distributions to investors
--from operating cash flow -- 40.1 67.0 117.1 91.5
--from sales and financing activities -- 26.2 38.0 -- --
--from other -- -- -- -- --
--------------------------------------------------
Cash generated (deficiency) after cash distributions 3,139.5 39.8 20.8 6.1 (1.4)
Less: special items - capital improvements (3,116.6) (2.2) (30.1) (16.9) (28.2)
--------------------------------------------------
Cash generated (deficiency) after cash 22.9 37.6 (9.3) (10.7) (29.6)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (75.8) (168.5) (68.8) (64.4) (75.1)
-- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- -- --
-- return of capital -- 50.0 79.1 88.2 68.9
Source: (on a cash basis) -- sales -- 19.7 28.6 -- --
-- financing activities -- -- -- -- --
-- operations -- 30.2 50.5 88.2 68.9
-- other -- -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 98%
--------------------------------------------------
</TABLE>
<PAGE> 55
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
--------------------------------------------------------
ESSEX MICROTEL 1989 L.P.
--------------------------------------------------------
1992 1993 1994 1995 1996
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues 1,148.2 1,105.3 1,036.0 1,025.0 1,058.9
Profit on sale of properties -- -- -- -- --
Less: operating expenses 644.6 660.3 634.5 636.4 625.3
----- ----- ----- ----- -----
Operating income (loss) 503.6 445.0 401.5 388.5 433.6
Less: interest expense 271.0 292.1 290.4 288.5 260.1
depreciation 172.5 190.7 192.2 168.7 152.7
----- ----- ----- ----- -----
Net income (loss) 60.1 (37.8) (81.1) (68.8) 20.8
Cash generated from operations 218.1 156.0 97.0 104.2 161.3
Cash generated from sales -- -- -- -- --
Cash generated from financing activities (253.9) (134.6) (112.7) (75.0) (106.5)
Plus:cash distributions 795.5 121.2 97.8 58.2 78.2
--------------------------------------------------------
Cash generated from operations, sales and financing 759.7 142.6 82.1 87.3 133.0
Less: cash distributions to investors
--from operating cash flow 253.9 121.2 97.8 58.2 78.2
--from sales and financing activities 541.6 -- -- -- --
--from other -- -- -- -- --
--------------------------------------------------------
Cash generated (deficiency) after cash distributions (35.8) 21.3 (15.7) 29.2 54.9
Less: special items - capital improvements (13.8) (8.6) (14.2) (10.3) (33.3)
--------------------------------------------------------
Cash generated (deficiency) after cash (49.6) 12.7 (29.8) 18.8 21.5
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations 40.1 (25.2) (54.1) (45.8) 13.9
-- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- -- -- --
-- return of capital 530.3 80.8 65.2 38.8 52.1
Source: (on a cash basis) -- sales -- -- -- -- --
-- financing activities 361.1 -- -- -- --
-- operations 169.3 80.8 65.2 38.8 52.1
-- other -- -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 100%
--------------------------------------------------------
</TABLE>
<PAGE> 56
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
---------------------------------------------------------
ESSEX MICROTEL LEHIGH L.P.
---------------------------------------------------------
1992 1993 1994 1995 1996
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues 1,144.7 1,164.8 1,121.6 1,105.5 1,074.3
Profit on sale of properties -- -- -- -- --
Less: operating expenses 690.4 716.6 707.3 683.1 698.6
------- ------- ------- ------- -------
Operating income (loss) 454.3 448.1 414.3 422.4 375.7
Less: interest expense 185.0 223.3 234.2 252.1 268.4
depreciation 162.1 176.0 166.2 169.5 193.4
------- ------- ------- ------ -------
Net income (loss) 107.2 48.9 13.9 0.7 (86.2)
Cash generated from operations 258.1 225.2 170.8 194.3 101.2
Cash generated from sales -- -- -- -- --
Cash generated from financing activities (233.8) (192.1) (189.9) (193.3) (72.1)
Plus:cash distributions 662.2 139.7 143.1 139.9 76.5
--------------------------------------------------------
Cash generated from operations, sales and financing 686.5 172.9 124.1 140.8 105.7
Less: cash distributions to investors
--from operating cash flow 233.8 139.7 143.1 139.9 76.5
--from sales and financing activities 428.4 -- -- -- --
--from other -- -- -- --
--------------------------------------------------------
Cash generated (deficiency) after cash distributions 24.3 33.1 (19.0) 1.0 29.2
Less: special items - capital improvements (21.0) (23.4) (15.8) (23.2) (41.5)
--------------------------------------------------------
Cash generated (deficiency) after cash 3.3 9.7 (34.8) (22.2) (12.3)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations 57.2 26.1 7.4 0.4 (46.0)
-- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (on a GAAP basis) -- investment income -- -- -- -- --
-- return of capital 353.2 74.5 76.3 74.6 40.8
Source: (on a cash basis) -- sales -- -- -- -- --
-- financing activities 228.5 -- -- -- --
-- operations 124.7 74.5 76.3 74.6 40.8
-- other -- -- -- -- --
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 100%
--------------------------------------------------------
</TABLE>
<PAGE> 57
TABLE III
ESSEX PARTNERS AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1996)
<TABLE>
<CAPTION>
ESSEX GLENMAURA L.P.
1995
(1) 1996
--- ----
<S> <C> <C>
Gross Revenues 2.4 486.3
Profit on sale of properties - -
Less: operating expenses 2.4 864.6
Operating income (loss) (0.0) (378.3)
Less: interest expense 5.5 162.8
depreciation - 273.5
Net income (loss) (5.5) (814.6)
Cash generated from operations (5.6) (381.3)
Cash generated from sales - -
Cash generated from financing activities 2068.6 5784.3
Plus:cash distributions - -
------ ------
Cash generated from operations, sales and financing 2063.0 5403.1
Less: cash distributions to investors
--from operating cash flow - -
--from sales and financing activities - -
--from other - -
------ ------
Cash generated (deficiency) after cash distributions 2063.0 5403.1
Less: special items - capital improvements (1814.5) (5623.4)
------ ------
Cash generated (deficiency) after cash 248.5 (220.4)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (5.8) (370.3)
-- from recapture - -
Capital gain - -
Cash distributions to investors
Source: (on a GAAP basis)-- investment income - -
-- return of capital 0.0 0.0
Source: (on a cash basis)-- sales - -
-- financing activities - -
-- operations 0.0 0.0
-- other - -
Amounts (in percentage terms) remaining invested in program
properties at the end of the last year reported in the table
(original total acquisition cost of properties retained divided
by original total acquisition cost of all properties in program). 100.0%
</TABLE>
NOTES
(1) These partnerships participated in fundraising and construction
activities in the year indicated. The properties owned by the
partnerships opened in the following year. If the property operated for
less than twelve months in its first year of operations, the number of
months the property was open is noted.
(2) There are three properties in Essex Hospitality Associates III L.P.
The first opened in September, 1994, the second in April, 1995 and the
third in September, 1995. The first full year of operations for all
properties is 1996.
(3) Essex Hospitality Associates IV is still in the fund raising and
development stage. Only one property was open in 1996, and it was a
hotel which opened in September, 1996 owned by a partnership in which
Essex Hospitality Associates IV owns a majority interest.
<PAGE> 58
TABLE IV
ESSEX PARTNERS INC. AND AFFILIATES
RESULTS OF COMPLETED PROGRAMS
Table IV presents a summary of operating and disposition results of the
prior partnerships sponsored by either Essex Partners or affiliates which have
sold all their properties as of December 31, 1996. Table IV presents tax, cash
distributions and holding period information with respect to the disposition of
such properties.
As of December 31, 1996, no hotel properties have been sold.
<PAGE> 59
TABLE V
ESSEX PARTNERS AND AFFILIATES
SALES AND DISPOSALS OF PROPERTIES
Table V presents information on the sales or dispositions of property for
the three years ending December 31, 1996 by programs in which Essex Partners or
affiliates acted as general partners and that have similar investment
objectives to the Partnership.
As of December 31, 1996, no hotel properties have been sold or disposed of.
<PAGE> 60
TABLE VI
ESSEX PARTNERS AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY PROGRAMS
Table VI presents information with respect to the acquisition and
development of properties during the three year period ending December 31, 1996
by programs in which Essex Partners or affiliates acted as general partners.
<PAGE> 61
ESSEX PARTNERS AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(THREE YEARS ENDING DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Essex Glenmaura
Essex Hospitality Associates III L.P. L.P.
------------------------------------- ----
Name Microtel Hampton Inn Microtel Courtyard
Location Birmingham, Rochester, Chattanooga, Scranton, PA
AL NY TN
<S> <C> <C> <C> <C>
Type of property hotel hotel hotel hotel
Number of units 102 118 100 120
Date of purchase 12/30/93 6/28/94 12/30/94 7/07/95
Debt financing 2,800,000 4,100,000 3,100,000 5,400,000
Cash downpayment 145,000 1,141,000 145,000 2,981,000
Contract purchase price plus
acquisition fee (1) 2,812,000 4,989,000 3,103,000 7,541,000
Other cash expenditures
expensed (2) 54,000 112,000 62,000 401,000
Other cash expenditures
capitalized (3) 133,000 252,000 142,000 439,000
Total acquisition cost 2,999,000 5,353,000 3,307,000 8,381,000
</TABLE>
<PAGE> 62
TABLE VI
ESSEX AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(1) For projects involving construction of new facilities, the contract
purchase price includes the cost of the land, the building construction
cost, cost for furniture and fixtures, architectural and engineering
costs and the costs of any permits.
(2) For projects involving construction of new facilities, the other cash
expenditures expensed includes any operating supplies, utilities costs
and payroll costs incurred prior to the opening of the property.
(3) For projects involving construction of new facilities, the other cash
expenditures capitalized includes taxes, insurance and interest costs
during construction, opening linen inventory, any travel costs and the
initial franchise fee.
<PAGE> 63
ESSEX HOSPITALITY ASSOCIATES IV L.P.
$1,980,000 Consisting of
Mortgage Notes, 10.5% Subordinated Notes, and Limited Partnership Units
(Minimum Amount Needed to Break Escrow)
Essex Hospitality Associates IV L.P. (the "Partnership") is a newly-organized
New York limited partnership formed to acquire undeveloped land in the eastern
United States and construct and operate a series of hotels (collectively, the
"Hotels," and individually, "Hotel," as more particularly described in the
Glossary), which may be operated under one or more, or a combination of one or
more, of the following hotel franchises: Courtyard by Marriott(R), Fairfield
Inn(R) by Marriott, Hampton Inn(R), Homewood Suites(R), Hampton Inn &
Suites(SM), or Microtel Inn ("Microtel(R)") hotels (collectively, the "Potential
Franchises"), as well as other franchises, which may be specified by the General
Partner in its sole discretion. The Hotels will be constructed and operated on
land acquired by the Partnership pursuant to franchises or licenses to be
obtained from the Potential Franchises or from such other franchises as may be
specified by the General Partner. As of the date of this Prospectus, the
Partnership has identified two sites for acquisition and the construction
thereon of a Homewood Suites(R) hotel and a Hampton Inn & Suites(SM) hotel. The
Partnership will also acquire a limited partnership interest in Essex Glenmaura
L.P. ("Essex Glenmaura"), a New York limited partnership in which the General
Partner is also the general partner, that intends to construct and operate a
Courtyard by Marriott(R) hotel. The Partnership may also loan funds on a secured
basis to other entities engaged in the business of owning and operating hotels
and motels. See "ESTIMATED USE OF PROCEEDS." The general partner of the
Partnership is Essex Partners Inc. (the "General Partner"). The minimum amount
needed to break escrow is $1,980,000 ("Minimum Offering Amount"). In order for
the Partnership to maintain its maximum permitted leverage requirement of .85 to
1.0, See "PROSPECTUS SUMMARY -- The Offering of Subordinated Notes," at least
$304,000, including the principal amount of any Partner Notes (as hereafter
defined), of the Minimum Offering Amount must be proceeds from the sale of
Units. See "THE OFFERING -- Volume and Timing Discounts."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ESSEX CAPITAL MARKETS INC.
The date of this Prospectus is November 24, 1995.
For information on matters occurring since the date of this Prospectus, see the
Supplement(s), if any, included herewith.
<PAGE> 64
The Partnership is seeking to raise a maximum amount of $21,000,000
("Maximum Offering Amount"). The Partnership will sell a combination of up to
$5,000,000 of Limited Partnership Units (the "Units"), up to $10,000,000 of the
Partnership's notes secured by first mortgage liens on Hotels, together with
improvements thereon (the "Mortgage Notes"), and up to $6,000,000 of the
Partnership's subordinated notes (the "Subordinated Notes"). Subject to certain
limitations described more fully herein, the Mortgage Notes will be secured by a
first mortgage lien on certain real property of the Partnership and, in the
event the Partnership leases or subleases real property, by a leasehold mortgage
in the Partnership's interest in the real property and improvements thereon. See
"DESCRIPTION OF THE NOTES -- Security for the Notes." The relative value of a
leasehold mortgage may be less than that of a fee mortgage. See "RISK FACTORS --
Financing Related Risks -- Security for Mortgage Notes may be Reduced or
Eliminated if Land or Leased or Subleased." The Mortgage Notes and the
Subordinated Notes will be referred to herein collectively, as the "Notes." The
minimum investment is $5,000, or $2,000 for IRAs, Keogh and qualified plans, in
each case without taking into account any available timing discounts. Investors
may invest in a combination of Units and Notes. The General Partner will accept
or reject subscriptions for Units or Notes within four business days after its
receipt by the Partnership. In the event a subscription is rejected or the
Minimum Offering Amount is not sold, subscribers will be refunded 100% of their
investment, plus interest. SEE "THE OFFERING." The Offering will terminate 24
months from the date of this Prospectus unless sooner terminated as provided
herein. See "THE OFFERING -- Subscription." The Offering Termination Date (as
herein defined) may not be extended.
THIS OFFERING INVOLVES CERTAIN RISKS INCLUDING THE FOLLOWING (SEE "RISK
FACTORS" AT PAGE 41).
- Only two properties have been identified for acquisition and
only two franchises have been identified for development. The
Partnership does not currently own any properties and has
obtained no commitment for a franchise.
- Total reliance on the General Partner.
- Minimum Offering Amount is insufficient to complete a Hotel
without additional funding of between $6.6 million and $7.0
million. If sufficient additional funding is not obtained, the
proceeds from a mortgage foreclosure would be insufficient to
repay the principal amount of the Mortgage Notes, and Limited
Partners and Holders of Notes, could lose the entire amount of
their investment.
- Front-End Fees are non-refundable and are payable out of
proceeds of the offering. Approximately 33.2% of the gross
proceeds from the Minimum Offering Amount and 15.2% from the
Maximum Offering Amount will be payable as Front-End Fees.
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<PAGE> 65
- Mortgage Notes, Subordinated Notes and Units are subject to
material restrictions on transfer and no public market in the
Mortgage Notes, Subordinated Notes or Units is expected to
develop.
- Limited net worth of General Partner (approximately $1,700,000
as of July 31, 1995) is substantially less than the potential
liabilities of the General Partner to the Partnership and to
other limited partnerships for which it acts as a general
partner.
- Risks relating to construction of the Hotels.
- High leverage and debt service obligations substantially in
advance of the opening of the first Hotel.
- Substantial fees are payable to the General Partner and its
affiliates whether or not the Partnership's business
objectives are realized. In addition to the payment of Front
End Fees, management and other fees are payable to the General
Partner and its affiliates.
- General Partner's and Trustee's liabilities are limited and
they are relieved of certain fiduciary duties that they would
otherwise have under applicable law, requiring investors to
prove bad faith or gross negligence to recover damages in a
legal action against them.
- Cash distributions to Partners and repayment of the Notes will
depend upon future Partnership performance and investors could
lose the entire amount of their investment if the Partnership
is unable to operate profitably.
ADDITIONAL RISKS ASSOCIATED WITH THE NOTES
- The General Partner is not personally liable for repayment of
the Notes.
- The mortgages securing repayment of the Mortgage Notes may be
inadequate or set aside in bankruptcy.
- There is no sinking fund for retirement of the Notes.
- Portions of the collateral underlying the Mortgage Notes may
be released in certain circumstances.
- The Subordinated Notes will be subordinated to the Mortgage
Notes and External Financing, there is no limit or restriction
on the amount of such indebtedness to which the Subordinated
Notes may be subordinated.
- A single trustee has been named for both the Subordinated
Notes and the Mortgage Notes and such trustee would have a
conflicting interest in the event of default, as a result of
which it might be required to resign as trustee.
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<PAGE> 66
ADDITIONAL RISKS ASSOCIATED WITH THE UNITS
- The Partnership must pay amounts due under the Notes before
Partners are entitled to receive distributions from the
Partnership. There can be no assurance as to when a Partner
will begin to receive distributions.
- Foreclosure of the mortgages could create taxable income for
Partners with no cash distribution to pay the tax.
<TABLE>
<CAPTION>
=======================================================================================
Price to Selling Proceeds to
Public[1] Commissions[1][3] Partnership[2][3]
=======================================================================================
<S> <C> <C> <C>
Per Mortgage Note $ 1,000 $ 55 $ 945
Per Subordinated Note 1,000 55 945
Per Unit 1,000 80 920
Total Minimum [3][4] 1,980,000 116,500 1,863,500
Total Maximum [3][4] 21,000,000 1,280,000 19,720,000
</TABLE>
(Footnotes continued on following pages)
[1] The minimum required purchase is $5,000 ($2,000 for IRAs, Keogh and
qualified plans). The Notes and Units are being offered through Essex
Capital Markets Inc. (the "Managing Dealer"), an affiliate of the
General Partner and a member of the National Association of Securities
Dealers, Inc. ("NASD"). The Managing Dealer will receive selling
commissions equal to 5.5% of the principal amount of each Note sold
and up to 8% of the price of each Unit sold. Volume discounts will be
given on purchases of 30 or more Units and timing discounts will be
given on purchases of Units on or before certain scheduled dates.
(See "THE OFFERING - Volume and Timing Discounts"). The Partnership
will pay to the Managing Dealer from operating revenues an Investor
Relations Fee for continued communications with investors concerning,
among other things, the Hotels and the Partnership's operations. The
Investors Relations Fee will be paid annually, beginning December 31,
1998 and continuing for the next three calendar years thereafter, in
an amount equal to .25% of total Gross Offering Proceeds from the sale
of Units and the Notes, but only if and to the extent that total
Dealer Compensation does not exceed 10% of Gross Offering Proceeds and
total Organization and Offering Expenses do not exceed 15% of Gross
Offering Proceeds. Payment of the Investor Relations Fee will be
deferred until the
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<PAGE> 67
Cumulative Return has been paid. The fee shall be deemed waived and
permanently extinguished in the event such deferral continues through
December 31, 2004. It should be noted that the Partnership is obligated
to file periodic reports with the Securities and Exchange Commission
relating to, among other things, the Hotels and the Partnership's
operations, regardless of whether the Partnership is required to pay
any Investor Relations Fee. The Managing Dealer is not obligated to
purchase any unsold Notes or Units. To the extent the Managing Dealer
uses the services of other broker/dealer firms, the commissions on
Notes and Units sold will be paid by the Managing Dealer from its
selling commissions. The General Partner will receive an Organization
and Offering Management Fee from the Partnership in an amount equal to
3.4% of the Gross Offering Proceeds. The General Partner may, in its
sole discretion, reallot an amount equal to up to 1% of the Gross
Offering Proceeds to the Managing Dealer or other broker-dealers. See
"THE OFFERING - PLAN OF DISTRIBUTION" and "COMPENSATION OF GENERAL
PARTNER AND MANAGING DEALER."
[2] These amounts represent the proceeds to the Partnership prior to the
payment of Organization and Offering Expenses (including the
Organization and Offering Management Fee to the General Partner) of
approximately $180,500 in the event that the Minimum Offering Amount
of $1,980,000 is sold and $890,600 in the event that the Maximum
Offering Amount of $21,000,000 is sold. Approximately 66.8% of the
Gross Offering Proceeds will be available for investment after
deduction of all Front-End Fees if the Minimum Offering Amount is
sold, and approximately 84.8% of the Gross Offering Proceeds will be
available for investment after deduction of such amounts if the
Maximum Offering Amount is sold. See "ESTIMATED USE OF PROCEEDS."
The term "Front-End Fees" (as defined in the Glossary) includes
selling commissions and offering expenses, organizational fees and
expenses, and acquisition and development fees.
[3] Due to the different percentage selling commissions for each type of
security that is being offered, the actual amount of net proceeds to
the Partnership and selling commissions cannot be determined until the
closing of the offering. The above table assumes, solely for purposes
of illustration, that the Minimum Offering Amount of $1,980,000 will
result from the sale of 320 Units ($304,000, after taking into account
timing discounts of 5%) and $1,676,000 of Notes. In the event the
Minimum Offering Amount is achieved solely from the sale of Units,
selling commissions could be as much as $158,400.
5
<PAGE> 68
[4] The General Partner and its affiliates may purchase up to $1,000,000 in
the aggregate of Notes and Units in the offering; up to $200,000 of any
such purchases may be counted toward the Minimum Offering Amount. See
"CONFLICTS OF INTEREST--Potential Conflicts Involving the Purchase of
Units by Affiliates and Other Persons Which Count Toward the Minimum
Offering Amount" and "THE OFFERING."
It is anticipated that the acquisition of the land and construction of the
Hotels, the purchase of a limited partnership interest in Essex Glenmaura, and
the creation of working capital for Partnership activities, will be financed
with a combination of the proceeds of this offering of the Notes and Units and
proceeds from financing obtained from sources other than the General Partner
and its affiliates, including loans from institutional lenders and Franchisors
or their affiliates, which financing will be secured by mortgage liens on the
Partnership's real properties and any improvements thereon ("External
Financing"). The minimum amount of capital which must be raised in order to
break escrow is $1,980,000. If only the Minimum Offering Amount is raised, net
proceeds of approximately $1,323,000 (excluding the principal amount of any
Partner Notes received from Limited Partners purchasing 20 or more Units, which
are payable upon demand by the General Partner at least six months after the
Limited Partner's subscription has been accepted) would remain after deducting
Front-End Fees. Approximately $891,000 of the net proceeds remaining will be
invested in Essex Glenmaura. The Partnership would, therefore, need to obtain
at least $6.7 Million of additional debt and/or equity financing in order to
fully invest in Essex Glenmaura, to acquire the Warwick Property (as herein
defined) and complete construction of a Homewood Suites(R) hotel thereon, and
pay all fees and expenses related to the Partnership's activities.
Alternatively, if the Partnership acquired the Solon Property (as herein
defined) and constructed a Hampton Inn & Suites(SM) hotel thereon, the
Partnership would need to obtain at least $6.3 Million of additional debt
and/or equity financing. The actual costs and, therefore, the actual amount of
additional funds necessary to acquire the Warwick Property and the Solon
Property (collectively, the "Specified Properties") and construct the
identified hotels will vary depending upon the source of the additional
financing. In addition, the cost of construction could be greater if a Hotel
other than a Homewood Suites(R) hotel or a Hampton Inn & Suites(SM) hotel were
constructed on either the Warwick Property or the Solon Property. Moreover,
the cost to construct a Hotel under any of the other Potential Franchises or
such other franchises as may be identified by the General Partner for
construction on the non-specified properties, could be more expensive than the
construction costs of a Hampton Inn & Suites(SM) hotel or a Homewood Suites(R)
hotel. There can be no assurance that any necessary additional financing will
be obtained. See "RISK FACTORS - Absence of Financing Commitment." The
General Partner believes that, if the Partnership is able to raise $21,000,000,
either through the offering of Notes and
6
<PAGE> 69
Units or the offering of Notes and Units and External Financing, the Partnership
will have sufficient funds to construct and operate at least three hotels,
purchase a limited partnership interest in Essex Glenmaura, and maintain a
working capital reserve to finance Partnership activities. The Maximum Offering
Amount is $21,000,000.
Interest on both the Mortgage Notes and the Subordinated Notes will be payable
monthly, commencing on the first day of the second complete calendar month after
the date that an investor's subscription proceeds have been released from
escrow. The entire principal amount of the Mortgage Notes and the Subordinated
Notes is due December 31, 2001, but this date may be extended through December
31, 2002 if the Partnership pays certain extension fees to the Holders. The
Mortgage Notes and the Subordinated Notes are redeemable at the option of the
Partnership, in whole or in part, at any time without payment of premium or
penalty. Repayment of the principal amount of the Mortgage Notes at maturity
will be secured by first mortgages on those hotel properties not secured by
External Financing.
All subscription moneys received from investors will be deposited in an escrow
account (the "Escrow Account") at Manufacturers and Traders Trust Company,
Buffalo, New York (the "Escrow Agent") until the subscriber is either admitted
as a Limited Partner (in the case of a subscription to purchase Units), a Note
is issued by the Partnership to the subscriber (in the case of a subscription
to purchase a Note) or the subscription is rejected. A subscriber may not
withdraw his or her subscription during the period in which subscription
proceeds are held in the Escrow Account. In the event that the Partnership has
not accepted subscriptions for the purchase of such combination of Notes and
Units as represents Gross Offering Proceeds of at least $1,980,000 in the
aggregate, excluding the principal amount of any Partner Notes, (the "Minimum
Offering Amount") within eighteen months from the date of this Prospectus (the
"Specified Minimum Date"), 100% of subscription proceeds deposited in the
Escrow Account, together with interest, if any, earned thereon (after reduction
for the fees and expenses of the Escrow Agent from any earnings) will be
promptly refunded to the subscribers. As of the date of this Prospectus,
interest will accrue on funds in the Escrow Account at a rate of 2.5% per
annum. If subscriptions for the Minimum Offering Amount are accepted by the
Specified Minimum Date, the General Partner may hold an initial closing (the
"First Closing") upon which all subscription proceeds then held in the Escrow
Account will be released to the Partnership for use as described herein. The
offering will continue until twenty-four months from the date of this
Prospectus unless all Notes and Units are sold or the General Partner for any
reason elects to terminate the offering at an earlier date (the "Offering
Termination Date"). The General Partner has not determined the bases for any
early termination of the offering. See "THE OFFERING - Subscription."
7
<PAGE> 70
The Partnership will distribute to each Limited Partner and Holder of the Notes
annual reports containing financial statements audited by the Partnership's
independent certified public accountants. See "REPORTS." The Partnership will
provide without charge to each person to whom this Prospectus is delivered, upon
the written or oral request of such person, a copy of the Indentures under which
the Notes will be issued, and the form of Mortgages under which the Mortgage
Notes will be secured after acquisition of one or more sites for construction of
Hotels that will be encumbered by said Mortgages, the terms of which are
incorporated by reference herein. Inquiries with respect to such documents
should be directed to Barbara J. Purvis, Essex Partners Inc., 100 Corporate
Woods, Rochester, New York 14623 (telephone: (716) 272-2300).
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROSPECTIVE INVESTORS WILL NOT HAVE THE OPPORTUNITY TO EVALUATE ALL OF THE REAL
PROPERTIES TO BE PURCHASED, LEASED OR SUBLEASED BY THE PARTNERSHIP BECAUSE THE
PARTNERSHIP PRESENTLY OWNS NO REAL PROPERTY AND, AS OF THE DATE HEREOF, HAS
ONLY IDENTIFIED TWO OF THE PROPERTIES IT INTENDS TO PURCHASE, LEASE OR
SUBLEASE. See "THE GENERAL PARTNER," "COMPENSATION OF GENERAL PARTNER AND
MANAGING DEALER," "TAX CONSIDERATIONS;" "CONFLICTS OF INTEREST," "RISK FACTORS"
AND "INVESTMENT OBJECTIVES AND POLICIES."
THE NOTES AND UNITS ARE SUBJECT TO MATERIAL RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND NO PUBLIC MARKET IN THE NOTES OR UNITS IS EXPECTED TO DEVELOP. THE
NOTES AND UNITS SHOULD BE PURCHASED ONLY FOR LONG TERM INVESTMENT. THIS
INVESTMENT IS SUITABLE ONLY FOR PERSONS WHO DO NOT ANTICIPATE THAT THEY WILL BE
REQUIRED TO SELL ANY INVESTMENT ACQUIRED HEREUNDER IN THE FORESEEABLE FUTURE
AND WHO UNDERSTAND OR HAVE BEEN ADVISED WITH RESPECT TO THE TAX CONSEQUENCES
OF, AND RISK FACTORS ASSOCIATED WITH, THIS INVESTMENT. SEE "INVESTOR
SUITABILITY STANDARDS," "RISK FACTORS" AND "SUMMARY OF THE PARTNERSHIP
AGREEMENT - RESTRICTIONS ON TRANSFER OF UNITS."
THE PARTNERSHIP WILL RECEIVE AN OPINION OF COUNSEL PRIOR TO EFFECTIVENESS OF
THE REGISTRATION STATEMENT WITH RESPECT TO ALL MATERIAL TAX ISSUES INVOLVED IN
THE PURCHASE OF NOTES AND UNITS FROM THE PARTNERSHIP. NO RULING OF THE
INTERNAL
8
<PAGE> 71
REVENUE SERVICE WILL BE SOUGHT. THE OPINION OF COUNSEL IS NOT BINDING ON THE
INTERNAL REVENUE SERVICE. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE TAX
BENEFITS ASSOCIATED WITH THIS OFFERING WILL BE AVAILABLE. SEE "RISK FACTORS."
THIS PROSPECTUS DOES NOT CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT
TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS MADE, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY ARE MADE, NOT MISLEADING. IT CONTAINS A FAIR
SUMMARY OF THE MATERIAL TERMS OF DOCUMENTS PURPORTED TO BE SUMMARIZED HEREIN.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO THE
CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY OF
ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THE PARTNERSHIP OR THE NOTES IS NOT PERMITTED. THE PROCEEDS OF
THIS OFFERING WILL BE RECEIVED AND HELD IN TRUST BY THE GENERAL PARTNER OF THE
PARTNERSHIP FOR THE BENEFIT OF THE PURCHASERS OF THE NOTES AND UNITS, TO BE
APPLIED AS REQUIRED FROM TIME TO TIME ONLY FOR THE PURPOSES SET, FORTH HEREIN.
UPON RECEIPT OF AND UNTIL ACCEPTANCE OF SUBSCRIPTIONS FOR A COMBINATION OF UNITS
AND NOTES FOR AT LEAST $1,980,000, SUCH PROCEEDS WILL BE HELD IN AN ESCROW
ACCOUNT WITH MANUFACTURERS AND TRADERS TRUST COMPANY, BUFFALO, NEW YORK, AS
ESCROW AGENT.
HAMPTON INN & SUITES(SM) IS A TRADEMARK OF, AND HOMEWOOD SUITES(R) AND HAMPTON
INN(R) ARE REGISTERED TRADEMARKS OF, PROMUS HOTEL CORPORATION AND ITS
SUBSIDIARIES; COURTYARD BY MARRIOTT(R) AND FAIRFIELD INN(R) BY MARRIOTT ARE
REGISTERED TRADEMARKS OF MARRIOTT INTERNATIONAL, INC.; AND MICROTEL(R) IS A
REGISTERED TRADEMARK OF U.S. FRANCHISE SYSTEMS INC. NONE OF THE FOREGOING
FRANCHISORS OR THEIR AFFILIATES HAS ENDORSED OR APPROVED THE OFFERING OR THE
MERITS OF THE INVESTMENT DESCRIBED HEREIN. A GRANT TO THE PARTNERSHIP OF A
FRANCHISE SHOULD NOT BE CONSTRUED AS AN APPROVAL OR ENDORSEMENT BY THE
FRANCHISOR (OR ITS AFFILIATES) OF THE PARTNERSHIP OR THIS OFFERING.
9
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTOR SUITABILITY STANDARDS............................................... 14
PROSPECTUS SUMMARY........................................................... 17
Essex Hospitality Associates IV L.P................................. 17
Description of the Hotel Concepts................................... 18
The Offering of Subordinated Notes.................................. 23
The Offering of Mortgage Notes...................................... 24
The Offering of Limited Partnership Units........................... 27
Summary of Risk Factors............................................. 30
Compensation of General Partner and Managing Dealer................. 37
The General Partner................................................. 40
DETERMINATION OF OFFERING PRICE.............................................. 41
RISK FACTORS................................................................. 41
Risks of Partially Specified Investments............................ 41
Financing Related Risks............................................. 42
Investment Risks Generally.......................................... 49
Conflicts of Interest............................................... 52
Specific Risks Related to the Hotels................................ 54
Environmental Risks................................................. 57
Tax Risks........................................................... 57
Risks of Joint Ventures............................................. 59
Purchases by the General Partner and Affiliates Count Toward
the Amount Needed to Break Escrow.......................... 59
COMPENSATION OF GENERAL PARTNER AND MANAGING DEALER.......................... 60
Fees to General Partner and Managing Dealer......................... 60
Expenses of the Partnership......................................... 65
Partnership Interest of the General Partner......................... 66
ESTIMATED USE OF PROCEEDS.................................................... 68
Specified Properties................................................ 71
Essex Glenmaura L.P................................................. 71
</TABLE>
10
<PAGE> 73
<TABLE>
<S> <C>
THE GENERAL PARTNER.......................................................... 72
Essex Investment Group, Inc......................................... 72
Essex Partners Inc.................................................. 75
Experience of Essex Partners and Affiliates......................... 77
Adverse Business Developments....................................... 87
Prior Performance of the General Partner and its Affiliates......... 88
The Managing Dealer................................................. 89
CONFLICTS OF INTEREST........................................................ 89
Limited Role of the Trustee......................................... 90
No Limitation on Activities of the General Partner.................. 91
Potential Conflict in Allocating Hotel Sites Among Affiliates....... 91
Potential Competition Among Hotels Owned by Affiliates.............. 92
Compensation of the General Partner and its Affiliates
Was Not Established Through Arm's Length Negotiations...... 92
Potential Conflicts Involving Sale of the Hotels or Merger or
Reorganization of the Partnership.......................... 93
Potential Conflicts in Making Additional Investments in
Essex Glenmaura............................................ 93
Potential Conflicts Involving Partnership Loans to Affiliates....... 94
Potential Conflicts Involving the Purchase of Property
from the General Partner................................... 94
Potential Conflicts Involving Joint Ventures........................ 96
Absence of Independent Due Diligence Review......................... 96
Potential Conflicts Involving Tax Matters........................... 96
Potential Conflicts Involving the Purchase of Units by
Affiliates and Other Persons Which Count Toward
the Minimum Offering Amount................................ 96
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER.............................. 97
THE PARTNERSHIP'S BUSINESS................................................... 99
General ........................................................... 99
Description of the Hotel Concepts................................... 100
Franchise Agreements................................................ 106
Construction of the Hotels.......................................... 110
Operation of the Hotels............................................. 111
Competition......................................................... 112
The Specified Properties............................................ 113
The Essex Glenmaura Investment...................................... 119
</TABLE>
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<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES........................................... 124
Principal Investment Objectives..................................... 124
Environmental Due Diligence......................................... 124
Capitalization and Use of Initial Funds............................. 125
Borrowing Policies.................................................. 125
Franchisor Financing................................................ 126
Business Development Plan........................................... 128
Maintenance and Repairs; Capital Improvements....................... 128
Sales and Refinancing............................................... 129
General Restrictions................................................ 129
TAX CONSIDERATIONS........................................................... 130
Summary of Material Tax Considerations.............................. 131
Discussion of Tax Consequences Of Owning Notes...................... 134
Discussion of Tax Consequences of Owning
Limited Partnership Units.................................. 136
SPECIAL CONSIDERATIONS FOR TAX EXEMPT INVESTORS.............................. 162
Unrelated Business Income Tax Considerations........................ 162
ERISA Considerations................................................ 164
DESCRIPTION OF THE NOTES..................................................... 167
Mortgage Notes and Subordinated Notes............................... 167
SUMMARY OF THE PARTNERSHIP AGREEMENT......................................... 177
Partnership Capital................................................. 177
Distributions....................................................... 178
Allocations of Income and Loss...................................... 179
Authority of the General Partner.................................... 179
Indemnification and Limitation on Liability of the General Partner.. 180
Liability of Partners to Third Parties.............................. 180
Meetings and Voting Rights of the Limited Partners.................. 181
Resignation of General Partner...................................... 182
Assignment of General Partner Interests............................. 182
Removal of General Partner.......................................... 182
Restrictions on Transfer of Units................................... 182
Dissolution......................................................... 183
Books and Records................................................... 183
</TABLE>
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<PAGE> 75
<TABLE>
<S> <C>
Partner's Independent Activities.................................... 184
Appointment of General Partner as Attorney-in-fact.................. 184
Amendments.......................................................... 184
Applicable Law...................................................... 184
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION................................................. 184
THE OFFERING................................................................. 187
Subscription........................................................ 187
Plan of Distribution................................................ 189
Timing and Volume Discounts......................................... 190
Supplemental Sales Literature....................................... 192
REPORTS .................................................................... 192
Reports to Limited Partners......................................... 192
Reports to Holders of Notes......................................... 193
LEGAL MATTERS................................................................ 193
EXPERTS .................................................................... 193
GLOSSARY .................................................................... 194
INDEX TO FINANCIAL STATEMENTS................................................ 202
</TABLE>
Exhibit A - Partnership Agreement
Exhibit B-1 - Form of Subordinated Note
Exhibit B-2 - Form of Mortgage Note
Exhibit C - Subscription Agreement and Partner Note
Exhibit D - Guaranty of Completion
Exhibit E - Prior Performance Tables
13
<PAGE> 76
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED BY THE PARTNERSHIP TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN AS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR OTHER JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED.
UNTIL FEBRUARY 22, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS.
INVESTOR SUITABILITY STANDARDS
The Notes and Units are a suitable investment only for certain
investors. Notes and Units should be acquired only by persons who: (a) are
financially able to commit capital to a long-term investment which is very
difficult to convert into cash; and (b) have resources sufficient to bear the
risk of loss of their investment.
Notes and Units will be sold to individuals, corporations,
partnerships and trusts which represent in the Subscription Agreement that they
satisfy one of the following conditions imposed by the states in which the
Partnership intends to offer the Notes and Units:
(i) they have a net worth, exclusive of home, home furnishings and
automobiles, of at least $100,000; or
(ii) they have a net worth, exclusive of home, home furnishings and
automobiles, of at least $35,000 and an annual gross income of
at least $35,000.
In the case of partnerships, corporations and certain trusts, the suitability
standards will also be satisfied if each of the partners, in the case of a
partnership, each of the shareholders, in the case of a corporation, or each of
the beneficiaries, in the case of certain trusts, satisfy the suitability
standards set forth in (i) or (ii) above.
No sales of the Notes or Units will be made to nonresident aliens or
to any other persons subject to back-up income tax withholding.
14
<PAGE> 77
NO OFFERS OR SALES OF THE NOTES OR UNITS MAY BE MADE IN ANY STATE
BEYOND THE PERIOD OF EFFECTIVENESS OF THE REGISTRATION OR QUALIFICATION IN SUCH
STATE.
By executing the Subscription Agreement, investors represent that they
meet the suitability standards applicable to them as set forth above (or in any
supplement hereto) and in the Subscription Agreement, and agree that such
standards may be applied to any proposed transferee of their Notes or Units.
The minimum investment requirement for a purchaser of Notes or Units
is $5,000, except that the minimum investment for individual retirement
accounts ("IRAs"), Keogh and qualified plans is $2,000, in each case without
taking into account any available timing discounts. Upon satisfying the
applicable minimum investment requirement, investors may increase their
investment in increments of $1,000, or smaller amounts in the event that timing
discounts are received in connection with the purchase of Units on or before
specified dates or volume discounts are received in connection with the
purchase of 30 or more Units. See "THE OFFERING."
In addition to restrictions on transfer imposed by the Partnership
Agreement and the Indentures under which the Notes will be issued, investors
seeking to transfer their Notes or Units subsequent to their initial investment
may be subject to the securities laws of the state in which transfers take
place. Under the laws of certain states investors may transfer their Notes or
Units only to transferees who meet the suitability standards applicable in
connection with their initial sale pursuant to this offering. Accordingly, the
Partnership may require assurances at that time that such standards are met
before agreeing to any transfers of such Notes or Units. See "SUMMARY OF THE
PARTNERSHIP AGREEMENT - Restrictions on Transfer of Units," "DESCRIPTION OF THE
NOTES - Transfer and Exchange" and "RISK FACTORS - Lack of Liquidity of Notes
and Units."
In considering an investment in the Units, tax exempt investors should
consider, among other things, the extent to which the Partnership will produce
unrelated business taxable income. See "SPECIAL CONSIDERATIONS FOR TAX EXEMPT
INVESTORS." In addition, investors should consider that an investor in the
Units will be required to file state income tax returns in jurisdictions where
the Partnership is doing business, which includes New York State as well as the
states where the Partnership owns property. An investor in Units may,
therefore, be required to file income tax returns in a number of states in
addition to the state in which they reside. See "TAX CONSIDERATION -- Tax
Consequences of Owning Limited Partnership Units."
15
<PAGE> 78
The foregoing standards are minimum requirements. Neither the
Partnership nor the General Partner undertakes to render any investment or tax
advice to any prospective investor. Therefore, prospective investors should
consult their own tax or financial advisor.
16
<PAGE> 79
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO,
AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS. FOR DEFINITIONS OF CERTAIN CAPITALIZED TERMS
USED IN THIS PROSPECTUS. SEE "GLOSSARY."
ESSEX HOSPITALITY ASSOCIATES IV L.P.
Essex Hospitality Associates IV L.P. (the "Partnership") is a New York
limited partnership formed on August 30, 1995 and which, unless sooner
dissolved, will continue until December 31, 2035. The primary purposes of the
Partnership are to purchase, lease or sublease undeveloped land and construct,
own and operate a series of Hotels under one or more, or a combination of one
or more, of the Potential Franchises or such other franchises as may be
specified by the General Partner in its sole discretion, on sites acquired by
the Partnership. As of the date of this Prospectus, the General Partner has
identified the Specified Properties as potential sites for acquisition by the
Partnership, and has identified a Hampton Inn & Suites(SM) hotel and a Homewood
Suites(R) hotel for construction on the Solon Property and the Warwick Property
respectively. The General Partner has recently been advised that its
application for a license to operate a Hampton Inn & Suites(SM) hotel on the
Solon Property has been approved and the General Partner expects to enter into
a written commitment with Promus Hotel Corporation, pursuant to which Promus
Hotel Corporation will issue a license to operate a 100-room Hampton Inn &
Suites(SM) hotel on the Solon Property upon satisfactory completion of
construction (the "Hampton Commitment"). The General Partner intends to assign
the Hampton Commitment and any license issued thereunder to the Partnership.
See "THE PARTNERSHIP'S BUSINESS -- The Specified Properties -- Solon Property."
None of the franchisors of the Potential Franchises or such other
franchises as may be specified by the General Partner (collectively, the
"Franchisors") is an affiliate of the Partnership or the General Partner nor
does any Franchisor have any interest in the Partnership or the proceeds of
this offering. The General Partner will determine, in its sole discretion,
which of the Potential Franchises or other type of franchises will be developed
on the non-specified properties when such sites are acquired by the
Partnership. Since 1989 the General Partner has sponsored eight private and
three publicly registered limited partnerships which own Microtel(R) hotels and
one Hampton Inn(R) hotel. See EXHIBIT E -- Prior Performance Tables. There
can be no assurance that the Partnership will achieve results comparable to the
results achieved to date by any of the affiliated hotel partnerships cited in
the Prior Performance Tables. See "THE PARTNERSHIP'S BUSINESS."
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In addition to owning and operating hotels, the Partnership intends to
acquire up to 12.5 limited partnership units, at a purchase price of $100,000
per unit ($1,250,000) of Essex Glenmaura L.P. ("Essex Glenmaura"), a New York
limited partnership that intends to construct and operate a Courtyard by
Marriott(R) hotel near Scranton, Pennsylvania. See "ESTIMATED USE OF PROCEEDS"
and "THE PARTNERSHIP'S BUSINESS - The Essex Glenmaura Investment." The
Partnership may also loan certain proceeds from this offering on a secured
basis to other partnerships engaged in the business of owning and operating
hotels.
While the Partnership intends to finance its acquisition of sites and
construction of Hotels, purchase of a limited partnership interest in Essex
Glenmaura, and provision of financing to other partnerships, primarily through
the sale of Notes and Units, the Partnership also may secure External
Financing. The Partnership will need to secure External Financing to finance
the acquisition of a site and the development and construction of a Hotel if
only the Minimum Offering Amount is raised. The ability of the Partnership to
pay the monthly interest payments due under the Notes and thereafter to make
distributions to Limited Partners will depend primarily upon whether its hotel
operations are profitable. The ability of the Partnership to repay the
principal amount of the Notes at maturity and return the capital contributions
of the Limited Partners will depend upon whether sufficient net proceeds are
generated from a sale or refinancing of the Hotels or from partnership
investments or loans. See "DESCRIPTION OF THE NOTES - General." Before the
first Hotel is opened for business, the Partnership intends to pay interest
payments under the Notes and, if sufficient capital is raised, make certain
initial distributions to Limited Partners from the proceeds of this offering.
The average construction period for a Hotel is estimated to be between six and
nine months. The Partnership has included $1,600,000 in its estimated uses of
funds from the Maximum Offering Amount to pay the interest on up to $16,000,000
of Notes for an 18-month period and to make a $200,000 initial distribution to
Limited Partners. The Partnership has included $151,000 in its estimated uses
of funds from the Minimum Offering Amount to pay the interest on up to
$1,676,000 of Notes for a 10-month period. No amount has been included in the
Minimum Offering Amount for an initial distribution to Limited Partners, and
there can be no assurance that any such distribution will be paid. See
"ESTIMATED USE OF PROCEEDS." If acquisition and/or construction is delayed,
the continuing debt service requirements under the Notes could have an adverse
effect on the Partnership's financial condition.
DESCRIPTION OF THE HOTEL CONCEPTS
The General Partner believes good investment opportunities exist in
the extended stay and limited service segments of the lodging industry and have
identified
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<PAGE> 81
franchises in those markets which they believe have certain competitive
advantages that should position them for better than average performance.
The extended stay segment of the lodging market is one of the fastest
growing in the lodging industry. The General Partner believes the Homewood
Suites(R) hotel is one of the premier extended stay hotel chains, as is
reflected in its better than average performance.
Demand for quality limited service properties is growing as more
business and leisure travelers seek to maximize value from their travel
budgets. In addition, because they offer few amenities, these properties are
less expensive to build and to operate. The General Partner believes that
Microtel(R) hotels, while a relatively new concept, has demonstrated solid
operating performance by offering comfortable lodging at rates below much of
its competition. Courtyard by Marriott(R), Fairfield Inn(R) by Marriott, and
Hampton Inn(R) hotels are more established chains and have been successfully
targeting the economy to moderate sectors of the limited service market.
Hampton Inn & Suites(SM) hotel is a unique blend of the limited service and
extended stay hotel, combining the best and most flexible features of both.
The Homewood Suites(R) hotel is oriented toward the business travel
market. Homewood Suites(R) hotels are designed for business travelers who are
away from home for several consecutive nights as a result of corporate
relocation, field assignments or training programs. Each Homewood Suites(R)
hotel features a unique "community concept" with a complex of residential style
suites built around landscaped gardens and a central hospitality center. Each
apartment-style suite features separate sleeping and living areas, as well as
fully equipped kitchens. Started in 1989, there were 26 Homewood Suites(R)
hotels open and operating in 17 states at the end of 1994, and 7 new Homewood
Suites(R) hotels are expected to open in 1995.
The Hampton Inn & Suites(SM) hotel is an extended stay, all-suite hotel
oriented toward both the business and the leisure travel markets. Hampton Inn &
Suites(SM) hotels offer the best features of the limited service hotels and
extended stay hotels at a moderate price. Each Hampton Inn & Suites(SM) hotel
combines standard guest rooms with a large block of two-room suites at moderate
prices. Started in 1993, there were 2 Hampton Inn & Suites(SM) hotels open and
operating as of August 31, 1995, and 4 additional new Hampton Inn & Suites(SM)
hotels are expected to open in 1995.
The Hampton Inn(R) hotel is a high quality hotel with limited amenities
and moderate prices. Hampton Inn(R) hotels are located in high-visibility, high
traffic areas, usually near full-service restaurants. Hampton Inn(R) hotels are
designed to maintain affordability by offering a superior product with those
select services most valued by
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travelers, but without the extraneous amenities, such as full-service
restaurants and room service, that can inflate prices. Hampton Inn(R) hotels are
designed primarily to accommodate business travelers with limited expense
accounts, non-destination business and leisure travelers and value-conscious
vacationers. Most Hampton Inn(R) hotels offer a lobby/breakfast area, small
meeting rooms, a swimming pool, and a selection of room types. The selected
services offered by Hampton Inn(R) hotels include a free, self-serve continental
breakfast in the lobby, free local telephone calls, frequent travelers' discount
programs, and an unconditional 100% Satisfaction Guarantee. A toll-free number
provides access to a nationwide reservation system. Started in 1984, there were
437 Hampton Inn(R) hotels open and operating in 44 states and 2 internationally
at the end of 1994. According to the Franchisor, a total of 79 new Hampton
Inn(R) hotels are expected to open in 1995.
Courtyard by Marriott(R) hotel is considered one of the strongest
affiliations in the upper mid-market segment of the lodging industry.
Courtyard by Marriott(R) hotels are designed to offer consistently superior
lodging at a moderate price with an appealing, friendly, residential character.
Courtyard by Marriott(R) hotels are typically found in suburban markets near
metropolitan cities, near industrial parks, airports, malls and entertainment
attractions. Courtyard by Marriott(R) hotels feature high quality rooms
supported by services tailored to meet the needs of frequent business and
pleasure travelers. Typical features of Courtyard by Marriott(R) hotels
include, meeting rooms, a restaurant and lounge, a swimming pool, exercise
room, and complimentary coffee in each guest room. Started in 1983, there were
238 Courtyard by Marriott(R) hotels open and operating as of December 31, 1994.
Current franchisees own and operate 38 hotels.
Fairfield Inn(R) by Marriott hotel is an economy lodging facility
providing business and pleasure travelers with high quality lodging at an
economical price. Fairfield Inn(R) by Marriott hotels offer those services and
amenities most valued by travelers at moderate prices. Typical features of
Fairfield Inn(R) by Marriott hotels include, a swimming pool, complimentary
continental breakfast each morning, free local phone calls, a fax machine, a
copier, vending machines, and smoking and non-smoking rooms. Some hotels offer
meeting rooms. The first Fairfield Inn hotel was opened in 1987, and there
were 190 Fairfield Inns open and operating at the end of 1994. According to
the Franchisor, an additional 43 new hotels are expected to be opened in 1995.
The Microtel(R) hotel offers downsized rooms with higher quality
furnishings at rates below those available at competing national lodging
chains. The growth strategy for Microtel(R) hotels is to locate in areas where
other budget motels are operating successfully, typically along major highways,
and to compete primarily on
20
<PAGE> 83
the basis of price. Single rooms are generally priced at approximately $35 per
night, which the General Partner believes is typically 15% to 25% below that of
most other budget motel chains, depending upon the location of the hotel. The
rate is economically feasible since the standardized, compact design of
Microtel(R) hotels and the elimination of nonessential amenities, such as
meeting rooms, swimming pools, restaurants and large lobbies, results in reduced
construction, operating and overhead costs. Twenty two Microtel(R) hotels are
open and operating as of August, 1995, of which 13 are owned by affiliates of
the General Partner. According to the Franchisor, 2 additional Microtel(R)
hotels are expected to be opened in 1995. The Microtel(R) hotels owned by
affiliates of the General Partner have consistently outperformed the industry
averages. See "THE PARTNERSHIP'S BUSINESS -- Description of the Hotel Concepts."
Under the terms of this offering, the General Partner may specify a
type of hotel to be constructed on the non-specified properties as well as the
Specified Properties different from the Potential Franchises. There can be no
assurance that the reputation, operating experience or cost of developing
hotels under franchises other than the Potential Franchises will be comparable
to the information set forth in this Prospectus with respect to the Potential
Franchises. It is the intention of the General Partner to develop hotels under
one or more of the Potential Franchises unless none of the Potential Franchises
is available for a particular site or other market conditions exist which are
particularly favorable to another franchise.
SPECIFIED AND NON-SPECIFIED HOTELS
The Partnership does not own or have an interest in any real property
and, as of the date of this Prospectus, has only identified two properties which
it intends to acquire. The Partnership intends to acquire real property located
in Solon, Ohio (the "Solon Property") at an estimated purchase price of
$588,240, plus estimated closing costs of $15,000, and construct a 100-110-room
Hampton Inn & Suites(SM) hotel, and to acquire real property in Warwick, Rhode
Island (the "Warwick Property") at an estimated purchase price of $496,900 plus
estimated closing costs of $20,000, and construct a 80-92-room Homewood
Suites(R) hotel. See "ESTIMATED USE OF PROCEEDS" and "THE PARTNERSHIP'S BUSINESS
- -- The Specified Properties." As of the date of this Prospectus, the Partnership
has not obtained a commitment from the Franchisor of Hampton Inn & Suites(SM) or
Homewood Suites(R) for a franchise or license. See "RISK FACTORS -- Inability to
Obtain Potential Franchises." The General Partner has, however, entered into
real estate purchase contracts for the purchase of the Warwick Property and the
Solon Property, and has been notified its application for a license to construct
a 100-room Hampton Inn & Suites(SM) hotel on the Solon Property has been
approved. The real estate purchase contracts and the
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Hampton Commitment are assignable to the Partnership. It is anticipated that the
General Partner will assign the real estate purchase contracts and the Hampton
Commitment to the Partnership as soon as practicable after the Partnership has
raised sufficient funds to acquire the Specified Properties from this offering,
or from a combination of this offering and External Financing. The Partnership
has not identified any other properties it has determined to be suitable for
purchase, lease or sublease by the Partnership or obtained any commitment from
any Franchisor to enter into a Franchise Agreement. However, the General Partner
is presently seeking and evaluating properties which may be suitable for the
Partnership's purposes. The General Partner believes that the hotel franchise
market is favorable because of the slow down in new hotel construction from
1991-1994 and the gradual increase in the demand for lodging. The Partnership
expects to begin property acquisitions and construction after the First Closing
of the offering. Prior to the First Closing, the Partnership may obtain control
over and begin architectural and engineering work with the proceeds of a
short-term loan from the General Partner. See "INVESTMENT OBJECTIVES AND
POLICIES -- General Partner Loans." The General Partner anticipates that the
non-specified Hotels will be constructed in the eastern half of the United
States. This Prospectus will be supplemented whenever a reasonable probability
arises that a specified real property investment will be made by the
Partnership. There can be no assurance, however, that properties identified for
purchase, lease or sublease will in fact be acquired by the Partnership or that,
after the admission of Limited Partners into the Partnership and the issuance of
Notes by the Partnership, the transaction as described in any supplement will
not change materially prior to the actual date of purchase, lease or sublease of
particular properties. See "RISK FACTORS - Risks of Partially Specified
Investments" and "INVESTMENT OBJECTIVES AND POLICIES."
ACQUISITION OF LIMITED PARTNERSHIP INTERESTS
The Partnership will acquire a limited partnership interest in Essex
Glenmaura. The Partnership's investment will not be less than 8.91 units of
limited partnership interests and is not expected to be greater than 12.5
units, or 54% of limited partnership interests, in the event the Maximum
Offering Amount is raised. The Partnership does, however, reserve the right to
invest up to $1,500,000 in limited partnership units of Essex Glenmaura. In no
event, however, will the Partnership's interest in Essex Glenmaura exceed 45%
of the Partnership's assets at any one time. Essex Glenmaura owns 4.5 acres of
real property located near the City of Scranton, Pennsylvania, specifically in
the Glenmaura Corporate Center, which is the intended site for the construction
of a 120-room Courtyard by Marriott(R) hotel. The general partner of Essex
Glenmaura, which is also the General Partner of the Partnership, received
franchise approval for the construction and operation of a 120-room
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<PAGE> 85
Courtyard by Marriott(R), which has been assigned to Essex Glenmaura.
Construction of the Courtyard by Marriott(R) hotel commenced in October, 1995
and the hotel is expected to open in June, 1996. See "THE PARTNERSHIP'S BUSINESS
- -- The Essex Glenmaura Investment" and "ESTIMATED USE OF PROCEEDS."
POTENTIAL LENDING ACTIVITIES
The Partnership may loan a portion of the offering proceeds or proceeds
from the sale or refinancing of the Hotels to other entities, including
affiliates of the General Partner, engaged in the business of owning and
operating hotels. Loans that may be made by the Partnership will be selected by
the General Partner. Except insofar as any such loans will be made on a secured
basis, the General Partner has not adopted any formal policies regarding the
percentage of the offering proceeds that may be made available for loans to
other partnerships, or identified any entities to which it intends to loan
funds. No vote of the Limited Partners is necessary for the making of such
loans. See "CONFLICTS OF INTEREST -- Potential Conflicts Involving Partnership
Loans to Affiliates."
THE OFFERING OF SUBORDINATED NOTES
Issuer:
Essex Hospitality Associates IV L.P. The General Partner will have no personal
liability for any amounts payable under the Subordinated Notes.
Face Amount:
The face amount of each Subordinated Note will be equal to 100% of the amount
invested.
Interest Rate:
10.5% per annum, payable monthly.
Principal:
Up to $6,000,000 in the aggregate, payable at maturity.
Maturity:
December 31, 2001 unless extended by the Partnership to December 31, 2002, upon
payment to Holders of an extension fee equal to .5% of the principal amount of
the Subordinated Notes outstanding.
Optional and
Mandatory
Redemption:
The Subordinated Notes may be redeemed in whole or in part, at the option of the
Partnership, at any time without payment of any premium or penalty, together
with accrued interest to the redemption date.
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Maximum Permitted Leverage:
The ratio of Gross Offering Proceeds from the sale of Notes, plus the principal
balance of External Financing to the greater of: (i) Gross Offering Proceeds
from the sale of the Notes and Units, including the principal amount of any
Partner Notes, or (ii) the aggregate fair market value of the Partnership's
Hotels and Substitute Collateral (as herein defined), plus the Partnership's
limited partnership interest in Essex Glenmaura, shall not be more than .85 to
1.0. The goal of the General Partner is to achieve a ratio of not more than .8
to 1.0. There can be no assurance, however, that such goal can be achieved. The
Partnership will not accept subscriptions for Subordinated Notes unless the
Partnership has previously accepted sufficient subscriptions for Units to
satisfy the minimum equity requirement of $304,000. If a sufficient amount of
equity is not raised, the Partnership may be unable to complete an initial
closing of the offering or, after an initial closing, accept further
subscriptions for Subordinated Notes which would otherwise be available as a
source of funding. The potential for a highly-leveraged capital structure
increases the risks that a Limited Partner could lose his or her investment upon
a default under the Notes. See "RISK FACTORS - Limited Partners Could Lose Their
Entire Investment if the Partnership Defaults Under the Notes."
Security for Repayment:
The Subordinated Notes will be issued as unsecured obligations of the
Partnership.
Trustee:
Manufacturers and Traders Trust Company, a bank chartered under the laws of the
State of New York.
For further information, See "DESCRIPTION OF THE NOTES," "RISK FACTORS" and
"ESTIMATED USE OF PROCEEDS."
THE OFFERING OF MORTGAGE NOTES
Issuer:
Essex Hospitality Associates IV L.P. The General Partner will have no personal
liability for any amounts payable under the Mortgage Notes.
Face Amount:
The face amount of each Mortgage Note will be equal to 100% of the amount
invested.
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Interest Rate:
A fixed rate between 9.5% and 10% per annum, payable monthly. The actual
interest rate will be established prior to the issuance of Mortgage Notes and
will be reflected in a supplement to this Prospectus.
Principal:
Up to $10,000,000 in the aggregate, payable at maturity.
Maturity:
December 31, 2001 unless extended by the Partnership to December 31, 2002, upon
payment to Holders of an extension fee equal to .5% of the principal amount of
the Mortgage Notes outstanding. In the event that the Partnership sells or
refinances any of the Hotels securing the Mortgage Notes, the site and Hotel
sold or refinanced may be released from the lien of the mortgage securing the
Mortgage Notes, and the Partnership will have the right to set aside the net
proceeds from such sale or refinance and reinvest the proceeds in additional
hotel properties, including the real property and improvements thereon whether
owned by the Partnership or third parties; provided, however, that the
Partnership may only reinvest the proceeds from the sale or refinancing of any
particular Hotel once prior to maturity of the Mortgage Notes; and further
provided, that the Partnership identify the real property to be acquired or
financed with the proceeds within six months of the sale or refinance and
reinvest such funds within twelve months from the date such real property is
identified. The Mortgage Notes will be secured by a first mortgage on the
additional hotel properties financed with funds from the sale or refinance of
the Hotels. In the event that the Partnership subsequently sells or refinances
such additional hotel properties, the Partnership will pay to the Holders of the
Mortgage Notes, on a pro rata basis, as a reduction of principal, that
percentage of the Mortgage Notes allocable to such additional hotel properties.
See "RISK FACTORS" and "DESCRIPTION OF THE NOTES -- Use of Proceeds from the
Sale or Refinance of Hotels and Security for the Notes."
Optional and Mandatory Redemption:
The Mortgage Notes may be redeemed in whole or in part, at the option of the
Partnership, at any time without payment of any premium or penalty, together
with accrued interest to the redemption date.
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Maximum Permitted Leverage:
The ratio of Gross Offering Proceeds from the sale of Mortgage Notes, plus the
principal balance of External Financing to the greater of (i) Gross Offering
Proceeds from the sale of Notes and Units, including the principal amount of any
Partner Notes or, (ii) the aggregate fair market value of the Partnership's
Hotels and Substitute Collateral, plus the Partnership's limited partnership
interest in Essex Glenmaura, shall not be more than .8 to 1.0. The goal of the
General Partner is to achieve a ratio of not more than .75 to 1.0. There can be
no assurance, however, that such goal can be achieved. The Partnership will not
accept subscriptions for Mortgage Notes unless the Partnership has previously
accepted sufficient subscriptions for Units to satisfy the minimum equity
requirement. If a sufficient amount of equity is not raised, the Partnership may
be unable to complete an initial closing of the offering or, after an initial
closing, accept further subscriptions for Mortgage Notes which would otherwise
be available as a source of funding. The potential for a highly-leveraged
capital structure increases the risks that a Limited Partner could lose his or
her investment upon a default under the Notes. See "RISK FACTORS - Limited
Partners Could Lose Their Entire Investment if the Partnership Defaults Under
the Notes."
The goal of the General Partner is to raise the Minimum Offering Amount of
$1,980,000 from the sale of Subordinated Notes and Units, and obtain the
additional funds needed for the construction of the Hotels from External
Financing. It is presently anticipated that the Partnership will only offer and
sell Mortgage Notes if the Partnership is unable to secure External Financing.
Security for Repayment:
The Mortgage Notes will be issued as unsecured obligations of the Partnership
until a site is purchased, leased or subleased for construction of a Hotel
without reliance upon External Financing. If a site is purchased by the
Partnership without reliance upon External Financing, the Mortgage Notes will be
secured by a first mortgage ("Fee Mortgage") against that site and the Hotel
constructed thereon and a first lien on fixtures and personal property relating
to the Hotel. If a site is leased or subleased without reliance upon External
Financing, the Mortgage Notes will be secured by a mortgage ("Leasehold
Mortgage") of the tenant's interest in the lease or sublease, including the
tenant's ownership rights in the building during the term, and a first lien on
personal property relating to the
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Hotel. The Fee Mortgage and the Leasehold Mortgage are referred to collectively
as the "Mortgages." The Mortgages and liens will be held by the Trustee for the
equal and ratable benefit of the Holders of the Mortgage Notes, without
preference on account of the dates that Mortgage Notes are issued by the
Partnership.
Trustee:
Manufacturers and Traders Trust Company, a bank chartered under the laws of the
State of New York.
For further information, See "DESCRIPTION OF THE NOTES," "RISK FACTORS -
Security for Notes may be Reduced or Eliminated if Land is Leased or Subleased"
and "ESTIMATED USE OF PROCEEDS."
THE OFFERING OF LIMITED PARTNERSHIP UNITS
Number of Units Offered:
Up to 5,000 Units at $1,000 per Unit.
Purchase Price of Units:
Payable in cash upon subscription, except that for investors purchasing 20 or
more Units, the purchase price is payable 50% in cash upon subscription and 50%
under a non-interest bearing note ("Partner Note"). The Partner Note is
generally payable upon demand by the General Partner, made at least six months
after acceptance of the subscription of the Limited Partner, based on the need
of the Partnership for additional cash in connection with the acquisition of a
site or construction of a Hotel. The Partner Note is due no later than the
earlier of two years from the date that the Limited Partner is admitted as a
Limited Partner or three years from the Effective Date of the Registration
Statement. Timing discounts ranging from 5% to 1% of the per Unit purchase price
will be given on purchases of Units on or before certain specified dates. Volume
discounts will be given on purchases of 30 or more Units. An investor may
qualify for both a timing and a volume discount, in which case the price per
Unit could be as low as $931 per Unit. See "THE OFFERING-Timing and Volume
Discounts."
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Timing Discount
<TABLE>
<CAPTION>
Commissions Proceeds to the
Purchase Payable to Partnership Per
Time Price Per Managing Unit, Net
of Unit to Dealer by of Selling
Purchase Investors Partnership Commissions
- -------- --------- ----------- -----------
<S> <C> <C> <C>
First Closing (5% of Unit Purchase Price) $950 $76.00 $874.00
March 31, 1996 (4% of Unit Purchase Price) $960 $76.80 $883.20
June 30, 1996 (3% of Unit Purchase Price) $970 $77.60 $892.40
September 30, 1996 (2% of Unit Purchase Price) $980 $78.40 $901.60
December 31, 1996 (1% of Unit Purchase Price) $990 $79.20 $910.80
</TABLE>
Volume Discounts
<TABLE>
<CAPTION>
Commissions Proceeds to the
Number Purchase Payable to Partnership Per
of Price Per Managing Unit, Net
Units Unit to Dealer by of Selling
Purchased Investors Partnership Commissions
- --------- --------- ----------- -----------
<S> <C> <C> <C>
1-29 $1,000 $80 $920
30-59 $ 990 $70 $920
60 Units and Over $ 980 $60 $920
</TABLE>
Cash Distributions From Operations:
The General Partner has discretion in making cash distributions and establishing
reserves in connection with the operation of the Hotels. After the General
Partner determines the amount of cash available for distribution, the cash is
divided among the General Partner and the Limited Partners in accordance with
the rules set forth in the Partnership Agreement. Available cash generated from
the operation of the Hotels will be distributed 1% to the General Partner and
99% to the Limited Partners until the Limited Partners have received their
Cumulative Return. The Cumulative Return is an annual return equal to 8% of the
Limited Partner's original investment, reduced by any capital returned as a
result of Distributions from a Sale or Refinance of Hotels (as such term is
herein defined). The amount payable under the Partner Notes shall not be
entitled to the Cumulative Return. Limited Partner's who receive timing or
volume discounts in connection with the purchase of Units are treated as if they
had paid $1,000 per Unit, even though their actual purchase price may have been
lower. See "THE OFFERING -- Timing and Volume Discounts." Limited Partners
receiving timing and volume discounts will be specially allocated
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taxable income in the amount of their timing and volume discounts in order to
equalize the capital accounts of the Limited Partners on a per Unit basis, which
allocation will generally occur in the year that the Partnership is liquidated.
See "THE OFFERING - Timing and Volume Discounts."
If sufficient capital is raised, the Partnership intends to pay all or portion
of the Cumulative Return from the date of the First Closing to March 31, 1997
(the "Initial Distribution Period") to those persons who are Limited Partners
during that period. Such payments will commence on or about March 31, 1996. The
distribution would be an amount up to the Cumulative Return accruing to each
Limited Partner, without regard to any timing or volume discounts, but only as
to that portion of the Per Unit Purchase Price paid at the time of subscription.
For the remaining 9 months of calendar year 1997, the General Partner will
subordinate up to 50% of the Property Management Fee payable to it to the
Cumulative Return accruing to the Limited Partners during that 9 month period.
Any unpaid portion of the Property Management Fees subordinated will accumulate
and shall be payable to the General Partner after the Cumulative Return has been
paid to the Limited Partners. There can be no assurance that sufficient capital
will be raised to pay any distribution during the Initial Distribution Period or
that any further distribution will be paid.
After the Cumulative Return due through the date of the distribution has been
paid, additional cash distributions from operations will be made 20% to the
General Partner and 80% to the Limited Partners pro rata in accordance with the
number of Units held by each Limited Partner.
Distributions From a Sale or Refinancing:
Distributions from the net proceeds of a sale or refinancing of any or all of
the Hotels, or the distribution of proceeds received by the Partnership from
Essex Glenmaura resulting from a sale or a refinance of hotel properties of
Essex Glenmaura (collectively, "Distributions from a Sale or Refinance of
Hotels"), will be made 1% to the General Partner and 99% to the Limited pro rata
in accordance with the number of Units held by each Limited Partner until the
Limited Partners have received Distributions from a Sale or Refinance of Hotels
equal to $1,000 per Unit. Distributions from a Sale or Refinance of Hotels shall
next be made 1% to the General
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Partner and 99% to the Limited Partners in proportion to their unpaid Cumulative
Return until each Limited Partner has received any unpaid Cumulative Return
accrued through the date of the distribution. Thereafter, additional
Distributions from a Sale or Refinance of Hotels will be made 20% to the General
Partner and 80% to the Limited Partners pro rata in accordance with the number
of Units held by each Limited Partner.
Allocations Income and Loss:
The rules governing allocations of income and loss among the Partners are set
forth in the Partnership Agreement and are generally intended to reflect the
distribution rules described above and to comply with the requirements of the
substantial economic effect safe harbor rules set forth in the Treasury
Regulations promulgated under Section 704(b) of the Internal Revenue Code of
1986, as amended (the "Code"). These rules are summarized in detail under "TAX
CONSIDERATIONS - Allocations of Income and Loss."
For further information, See "SUMMARY OF THE PARTNERSHIP AGREEMENT" and
"COMPENSATION OF GENERAL PARTNER AND MANAGING DEALER - Partnership Interest of
the General Partner."
SUMMARY OF RISK FACTORS
Risks of Partially Specified Investments
As of the date of this Prospectus, the Partnership has identified only
two real properties for acquisition. Except for the Hampton Commitment, which
will be assigned to the Partnership, the Partnership has not obtained a
commitment from any Franchisor to enter into a Franchise Agreement for the
construction and operation of a Hotel on any properties. As a result, the
uncertainty and risk of an investment is increased because investors must place
total reliance on the ability of the General Partner to acquire the Specified
Properties, as well as to (I) select and acquire additional properties, (ii)
select the most suitable franchise under which to develop a Hotel on the
unidentified properties, and (iii) obtain a franchise or license to construct
and operate a hotel under the franchise selected. Investors will be unable to
evaluate for themselves the additional properties which may be acquired. In
addition, because only two properties have been identified as potential sites
for the construction of Hotels, there may be substantial delays between the
sale of the securities and application of the total net proceeds of the
offering allocable for the construction of Hotels.
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<PAGE> 93
Financing Related Risks
- The Minimum Offering Amount of $1,980,000 is insufficient to
acquire property and commence construction of a single Hotel
without additional funds from External Financing. If External
Financing cannot be obtained, the Partnership will be required
to hold such proceeds, continue to seek External Financing, and
continue this offering. There can be no assurance that the
necessary additional funding to complete construction of one or
more Hotels will be obtained.
- The entire principal amount of the Notes is payable at maturity
and the Partnership is not obligated to establish any sinking
or similar fund with respect to such payment. Therefore, the
Partnership's ability to pay the Notes at maturity will be
entirely dependent upon its ability to refinance or sell the
Hotels.
- The Subordinated Notes will be unsecured obligations of the
Partnership and are subordinated to the indebtedness of the
Mortgage Notes and External Financing; accordingly, upon any
distribution of assets of the Partnership in connection with
any dissolution, winding up, or liquidation, secured creditors
(including Holders of Mortgage Notes and sources of External
Financing) will first be entitled to receive payment in full of
their obligations, before the Holders of Subordinated Notes are
entitled to receive any payment upon the principal of or
interest on the Subordinated Notes.
- The General Partner is not liable for repayment of the Notes.
- There can be no assurance that the net proceeds from a
foreclosure of the mortgages securing the Mortgage Notes or a
judgment against the Partnership would be sufficient to pay the
amounts due under the Mortgage Notes.
- The mortgages securing the Mortgage Notes may be set aside in a
federal bankruptcy or state insolvency proceeding as a
"voidable preference," in which event the Holders of the
Mortgage Notes would be pari passu with the Holders of
Subordinated Notes, and accordingly would be general unsecured
creditors of the Partnership without recourse against the
General Partner for any unpaid amounts due under the Notes.
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<PAGE> 94
- If the Partnership leases or subleases a site, the relative
value of the Leasehold Mortgage upon a foreclosure may be
substantially less than a mortgage on the same property if it
were owned by the Partnership. In addition, if the
Partnership's lease or sublease was terminated, the Partnership
would lose the right to possession of the land and the Hotel
constructed thereon, the Leasehold Mortgage would be
extinguished, the Mortgage Notes would be pari passu with the
Subordinated Notes and general unsecured obligations of the
Partnership, and the Limited Partners could lose all or a
substantial portion of the value of their investment. There can
be no assurance that events will not occur which would cause
any lease or sublease to be terminated.
- Although the General Partner has agreed to enter into the
Guaranty of Completion upon the acquisition of each Hotel site
by the Partnership, there can be no assurance that the General
Partner will have sufficient financial resources to provide for
completion of construction as scheduled or that construction
delays or cost overruns will not adversely affect the
Partnership. The Trustee will not supervise construction.
Certain procedures which would protect the lender in a typical
commercial construction loan (such as holding loan proceeds in
escrow until all necessary funding for the Hotels has been
raised and requiring disbursement of all equity proceeds before
making advances) will not be instituted.
- The Partnership will be highly leveraged and the Partnership
will have debt service obligations substantially in advance of
the time it will open its first Hotel. If payments are not made
when due under the Notes, the Limited Partners may sustain the
loss of their equity investment as a result of foreclosure of
the mortgages securing the Mortgage Notes and the foreclosure
might result in the realization of taxable income without a
corresponding cash distribution to pay the tax. The Partnership
must pay amounts due under the Notes before the Limited
Partners are entitled to receive distributions from the
Partnership.
- The Trustee has not, and will not, evaluate or analyze the
offering or related documents or any assets which may be
pledged or mortgaged to secure repayment of the Notes.
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<PAGE> 95
Investment Risks Generally
- Investors will have no right to take any part in the control of
the Partnership's business. A prospective investor should not
purchase Notes or Units unless he or she is willing to entrust
all aspects of the management of the Partnership and the Hotels
to the General Partner.
- The Notes and Units will not be listed on a securities exchange
and, as a result of certain restrictions on transferability, no
public market will develop for these securities. The
transferability of the Units may be further restricted by the
Franchise Agreements. Therefore, investors will not be able to
convert their investment into cash in the event of a need to do
so, and the Notes and Units should be considered only as a
long-term investment.
- The net worth of the General Partner is limited and a
substantial portion of such net worth consists of assets which
would be very difficult to convert into cash. The potential
liabilities of the General Partner to the Partnership and the
other limited partnerships for which it acts as a general
partner could exceed its ability to pay, which could result in
an early termination and liquidation of the Partnership that
would be adverse to the interests of the Limited Partners. See
"SUMMARY OF THE PARTNERSHIP AGREEMENT -- The Net Worth of the
General Partner."
- The amount of capital that is ultimately raised by the
Partnership will be a factor in determining how many Hotels
will be constructed by the Partnership. The geographic
diversification of the Partnership's operations will depend
upon the number of Hotels constructed; to the extent that fewer
Hotels are developed, the operations of the Partnership will be
less geographically diversified.
- No Holder of any Note will have the right to commence a lawsuit
to enforce any right or remedy under his or her Note or, in the
case of the Mortgage Notes, the Mortgages. To direct the
Trustee to take such action, the Holder must obtain the consent
of the Holders of a majority in principal amount of like Notes
outstanding and meet the other requirements set forth in the
Indentures, including providing satisfactory indemnification to
the Trustee.
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<PAGE> 96
Conflicts of Interest
The business of the Partnership will involve transactions between the
Partnership and the General Partner, and affiliates of the General Partner,
which result in conflicts of interest, including the following:
- The compensation payable to the General Partner and its
affiliates pursuant to the Partnership Agreement and the
Management Agreement has not been established through arm's
length negotiations. The General Partner and its affiliates
will receive substantial fees regardless of whether the
Partnership's business objectives are realized.
- The General Partner has the right to sell the Hotels to an
Affiliated Person or any third party without obtaining the
consent of the Limited Partners or the Trustee. In connection
with such a transaction, a Mortgage on a particular Hotel sold,
may continue as a first lien on the Hotel and the purchaser may
be substituted for the Partnership as the person responsible
for payment of the Mortgage Notes. In addition, the General
Partner, upon obtaining the approval of a majority in interest
of the Limited Partners, may cause the Partnership to be merged
into an Affiliated Person or reorganized.
- The terms of the Notes were structured by the General Partner
and are not the result of arm's length negotiations between the
Partnership and an independent lender.
- The Trustee will not supervise construction or review or
negotiate leases or other documents on behalf of Holders of
Notes. Therefore, investors must entrust these activities to
the discretion of the General Partner. The Trustee has acted as
trustee with respect to four prior private placements and two
public offering of mortgage notes by affiliated limited
partnerships of the General Partner.
- The Trustee is the trustee under Indentures for both
Subordinated Notes and Mortgage Notes and, as a result, might
have a conflicting interest. Such conflict might be disabling
should there be a default under the Notes and the Trustee might
be required to resign as Trustee.
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<PAGE> 97
- There is no limitation on the right of the General Partner and
its affiliates to engage in any business, including the
development of other hotels, and such activities may conflict
with the operations of the Partnership.
- The Managing Dealer is an affiliate of the General Partner and
there has been no independent due diligence review of the
offering by an unaffiliated underwriter.
- The Partnership Agreement limits the liability of the General
Partner and relieves it of certain fiduciary duties that they
would otherwise have under the New York partnership law. In
addition, the Indentures limit the liability of the Trustee and
relieve it of certain fiduciary duties that it would otherwise
have under applicable law. These limitations may require an
investor to prove bad faith or gross negligence in order to
recover damages in a legal action against the General Partner
or the Trustee for breach of their fiduciary duties.
- The Partnership may make loans to affiliates under the
direction and pursuant to the management authority of the
General Partner.
Specific Risks Related to the Hotels
- A default under any of the Franchise Agreements could result in
substantial liquidated damages and a termination of the
Partnership's right to operate the Hotel as part of the
Franchisor's hotel chain. Either of such events would have a
material adverse effect on the value of the assets securing the
Mortgage Notes and the value of an equity investment in the
Partnership.
- The Franchise Agreements do not grant the Partnership an
exclusive territory.
- The Hotels may compete with hotels and motels that may have
greater name recognition and greater financial resources than
the Franchisor or the Partnership.
Environmental Risks
There can be no assurance that pre-purchase investigations by the
General Partner will uncover any or all potential environmental liabilities.
Environmental
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<PAGE> 98
liabilities (including liability under government programs such as Superfund)
could cause the Partnership to incur significant expenses, including the
obligation to remedy or clean up hazardous substances or other pollutants,
regardless of fault. Such liabilities could exceed the Partnership's cost of
acquiring a property and could have a significant adverse effect on the value of
the security for the Mortgage Notes and the value of the Units.
Tax Risks
- Any losses allocated to Limited Partners by the Partnership may
be deducted only against taxable income generated by the
Partnership in later years or "passive income" from other
sources, such as income from limited partnerships, S
corporations or other businesses in which the investor does not
materially participate.
- The Partnership may be determined to be a publicly traded
partnership, or otherwise not to qualify as a partnership for
federal income tax purposes, which would cause Partnership
taxable income to be taxed at corporate rates, cash
distributions to the Limited Partners to be treated as
dividends and deductions of the Partnership not to be passed
through to the Limited Partners.
- Tax exempt investors purchasing Units should be aware that
income from Hotel operations will constitute unrelated business
taxable income. Tax exempt investors purchasing Notes should
also be aware that if they borrow funds to pay for the purchase
of a Note, the interest on the Note will constitute unrelated
business taxable income.
- Tax exempt investors should be aware that, although the
Partnership has been structured to qualify for an exemption
from the Department of Labor's "plan asset" rules, there can be
no assurance that such exemption will be available to the
Partnership.
- Tax exempt investors purchasing Notes should be aware that
investing in Notes may constitute a "prohibited transaction"
under ERISA if a party in interest holds an equity interest in
the Partnership.
- During some years of the Partnership the tax liabilities of
individual Limited Partners may exceed their cash distributions
from the
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<PAGE> 99
Partnership, and on sale or other disposition of Units or
of the Hotels, the tax liability to the Limited Partners may be
greater than their share of the cash proceeds.
- Investors purchasing Units may be subject to income taxes in
the states in which the Hotels are located on portions of their
income from the Partnership regardless of their state of
residence.
See "RISK FACTORS" and "CONFLICTS OF INTEREST" for a more detailed
description of these and other risk factors and conflicts of interest which
should be considered in evaluating an investment in the Notes or Units.
COMPENSATION OF GENERAL PARTNER AND MANAGING DEALER
The General Partner and its affiliates will receive substantial fees
in connection with this offering and the management of the Partnership and may
receive substantial fees from the sale, refinancing and operation of the
Hotels, including the following:
<TABLE>
<CAPTION>
Type of Compensation
and Recipient Estimated Maximum Amount of Compensation
- -------------------- ----------------------------------------
Organization and Offering Stage
<S> <C>
Selling Commissions to Up to $80 per Unit and $55 per $1,000 Note sold.
Essex Capital Markets Inc. The aggregate amount will not exceed $158,400
if only the Minimum Offering Amount is sold
and $1,280,000 if the Maximum Offering Amount
is sold.
Organization and Offering 3.4% of the Gross Offering Proceeds. The
Management Fee aggregate to Essex Partners amount will not
exceed $67,320 if only the Minimum Offering
Amount is sold and $714,000 if the Maximum
Offering Amount is sold.
</TABLE>
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<PAGE> 100
<TABLE>
<CAPTION>
Acquisition and Development Stage
<S> <C>
Acquisition Fee to Essex $110,000 per Hotel.
Partners
Development Fee to Essex $160,000 per Hotel increased by 5% of total
Partners construction, site development and furniture,
fixture and equipment costs in excess of $2.7
million, but not to exceed $325,000 per Hotel.
In view of the differing development costs for
different types of Hotels, the aggregate
amount is likely to be $250,000 (but not to
exceed $325,000) if only the Minimum Offering
Amount is sold.
</TABLE>
<TABLE>
<CAPTION>
Operating Stage
<S> <C>
Property Management Fee to 4.5% of gross operating revenues from the Hotels.
Essex Partners
Partnership Management Fee to .75% of gross operating revenues from the Hotels.
Essex Partners
Investor Relations Fee to .25% of Gross Offering Proceeds from the sale
Essex Capital Markets of Units and Notes, payable annually from
operating revenues commencing December 31,
1998 and continuing on the 31st day of
December in each of the next three calendar
years thereafter, but only if and to the
extent that total Dealer Compensation does not
exceed 10% of Gross Offering Proceeds and
total Organization and Offering Expenses do
not exceed 15% of Gross Offering Proceeds.
Payment of the Investor Relations Fee is
deferred until the Cumulative Return has been
paid and the fee shall be deemed paid to the
extent that such deferral continues through
December 31, 2004. No Investor Relations Fee
will be paid if only the Minimum Offering
Amount is sold and such fee will not exceed
$210,000 if the Maximum Offering Amount is
sold.
</TABLE>
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<PAGE> 101
<TABLE>
<S> <C>
Accounting Fee to $800 per month.
Essex Partners
Financing Fee to Essex 1% of gross loan proceeds of any financing or
Partners refinancing from institutional lenders of any
or all of the Hotels. No fee will be payable,
however, upon the conversion of construction
financing to permanent financing except to the
extent such permanent financing shall exceed
the original principal amount of the
construction loan. Additionally, no fee will
be payable to the General Partner in the event
any refinancing occurs within 24 months from
the closing of the original financing or a
prior refinancing of a particular Hotel. Essex
Partners and the Managing Dealer are also
entitled to receive the fees and sales
commissions customarily charged by them if the
refinancing involves the sale of promissory
notes to investors in a private placement
which is exempt from registration under the
Securities Act of 1933, as amended, or a
public offering similar to the offering of
Notes pursuant to the Prospectus.
</TABLE>
<TABLE>
<CAPTION>
Liquidation Stage
<S> <C>
Sales Fee to Essex Partners 3% of gross sales price on a sale of any or
all of the Hotels.
</TABLE>
<TABLE>
<CAPTION>
Interest in Partnership
<S> <C>
Partnership Interest of A 1% interest, which increases up to 20% of
General Partner all cash distributions after the Cumulative
Return and certain other distributions have
been paid to Limited Partners. The General
Partner's capital contribution for this
interest is an amount equal to 1/99 times the
aggregate capital contributions of the Limited
Partners, which is payable from distributions
or upon liquidation of the Partnership.
</TABLE>
39
<PAGE> 102
See "COMPENSATION OF THE GENERAL PARTNER AND MANAGING DEALER" for a
more detailed description of the fees payable to the General Partner and its
affiliates.
THE GENERAL PARTNER
Essex Partners Inc. ("Essex Partners" or the "General Partner"), a New
York corporation with offices at 100 Corporate Woods, Rochester, New York 14623
(telephone (716) 272-2300), is the sole General Partner of the Partnership.
The Partnership's principal executive offices are located at the offices of the
General Partner. Management of the Partnership and the Hotels will be the sole
responsibility of the General Partner. For example, the General Partner will
determine the amount of cash available for distribution to Partners, which
properties will be acquired, sold or refinanced by the Partnership, which
Franchisor(s) will be selected, Hotel room rates and Partnership tax matters.
See "SUMMARY OF THE PARTNERSHIP AGREEMENT" "THE PARTNERSHIP'S BUSINESS -
Operation of the Hotels."
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<PAGE> 103
DETERMINATION OF OFFERING PRICE
The price at which the Units are being offered to investors and the
method of calculating the Cumulative Return have been determined arbitrarily.
The offering price for the Units does not bear any relationship to the General
Partner's contribution to the capital of the Partnership or the price at which
a Unit might be resold. The terms of the Notes were structured by the General
Partner and are not the result of arm's length negotiations between the
Partnership and an independent lender.
RISK FACTORS
Investing in Notes and Units involves a substantial degree of risk and
is suitable only for persons of adequate means who have no need for liquidity
of their investment. Therefore, prospective investors should consider, in
addition to the factors set forth elsewhere in this Prospectus, the following
matters before making a decision to subscribe for Notes or Units.
RISKS OF PARTIALLY SPECIFIED INVESTMENTS
As of the date of this Prospectus, the Partnership has only identified
two properties for acquisition. The Hampton Commitment related to the Solon
Property will be assigned to the Partnership. The Partnership has not obtained
a commitment from any Franchisor to enter into a Franchise Agreement for the
construction and operation of a Hotel on the Warwick Property. In addition,
while it is presently anticipated that the Partnership will construct a Hampton
Inn & Suites(SM) hotel on the Solon Property and a Homewood Suites(R) hotel on
the Warwick Property, the General Partner may specify alternate properties to
the Specified Properties, or the General Partner may specify one of the other
Potential Franchises or some other franchise for the Warwick Property or any
alternate locations, or the Franchisor of the Homewood Suites(R) hotel may
decline to grant the Partnership a Franchise for that hotel. Investors will
not have an opportunity to evaluate the non-specified properties or any
alternate properties to the Specified Properties, which the Partnership may
purchase, lease or sublease, or the terms of the Partnership's investment
therein. As a result, the uncertainty and risk of investment in the
Partnership is increased to the extent that investors are unable to evaluate
for themselves the economic merit of properties which may be acquired, and
investors in the Mortgage Notes will be unable to evaluate the adequacy of the
security for the Mortgage Notes. There can be no assurance that the General
Partner will be able to locate properties which meet the Partnership's
objectives or that properties (including the Specified Properties) can be
purchased, leased or subleased on satisfactory terms. In addition, because the
Partnership has identified only two properties to be acquired for the
development of Hotels as of the
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<PAGE> 104
date hereof, there may be a delay between the sale of the Notes and Units and
application of the aggregate net proceeds of the offering allocable to the
acquisition of land and the construction of the non-specified Hotels. The
offering of Notes and Units may continue to a date not later than twenty-four
months from the date of this Prospectus. See "INVESTMENT OBJECTIVES AND POLICIES
- - Type of Investments."
FINANCING RELATED RISKS
Absence of Financing Commitment
The Partnership estimates that the aggregate gross proceeds received
from the sale of Units and Notes, in combination with External Financing must
equal approximately $8.6 Million in order to have sufficient funds to purchase
the intended number of limited partnership units of Essex Glenmaura, to acquire
the Solon Property, and to construct a Hampton Inn & Suites(SM) hotel and pay
fees and expenses related to the Partnership's activities. If, instead, the
Partnership acquires the Warwick Property, the General Partner estimates that
approximately $9.0 million of debt and equity financing or a combination
thereof from offering proceeds and/or funds from External Financing will be
required to invest in Essex Glenmaura, acquire the Warwick Property and to
construct a Homewood Suites(R) hotel and pay fees and expenses related to the
Partnership's activities. To purchase the intended number of units in Essex
Glenmaura, to acquire both the Solon Property and the Warwick Property, and to
construct hotels on both sites and pay all fees and expenses, the General
Partner estimates that aggregate proceeds received from this Offering, together
with any external financing, must equal approximately $16 million. The actual
amount of financing required will depend upon the source and type of financing
and the cost associated therewith. If the Partnership is unable to secure
External Financing, the cost of additional financing from the sale of Notes
will increase incrementally with the costs associated with the offering.
Proceeds of the offering will be advanced to the Partnership to pay fees and
expenses before the full amount necessary to pay such costs has been received.
If only the Minimum Offering Amount of $1,980,000 is sold, the Partnership will
need to obtain approximately $7.0 Million of additional offering proceeds from
the sale of Units and Notes, or approximately $6.3 Million of additional
financing from a combination of offering proceeds and External Financing, in
order to purchase the intended number of limited partnership units of Essex
Glenmaura and to acquire the Solon Property and complete construction of a
Hampton Inn & Suites(SM) hotel thereon. Alternatively, the Partnership will need
to obtain approximately $7.4 Million of additional offering proceeds from the
sale of Units and Notes, or approximately $6.7 Million of additional financing
from a combination of offering proceeds and External Financing, in order to
purchase the intended number of limited partnership units of
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<PAGE> 105
Essex Glenmaura and to acquire the Warwick Property and complete construction of
a Homewood Suites(R) hotel thereon. Although it is the intent of the Partnership
to seek External Financing for the construction of the Hotels, there can be no
assurances that such financing will be available or, if available, will be on
favorable terms to the Partnership and the Limited Partners. No commitments
have been received as of the date of this Prospectus for such External
Financing.
The General Partner has agreed to (i) refund the face amount of the
Notes without interest to Holders of Notes and the amount of cash paid for the
Units to Limited Partners if a site is not acquired by the Partnership for any
reason within 24 months from the effective date of the Registration Statement,
and (ii) provide a Guaranty of Completion to the Partnership with respect to
completion of construction of each Hotel upon the purchase, lease or sublease
by the Partnership of each site. There can be no assurance, however, that the
General Partner will have the financial resources necessary to refund such
amounts or to cause completion of one or more of the Hotels if additional
financing is required and cannot be obtained. The General Partner would not be
obligated as a result of such agreement to refund any offering proceeds after
an initial Hotel site has been acquired, even if additional financing would be
necessary to commence or complete construction. If any additional financing is
required and is not obtained, the proceeds from the foreclosure against the
land or the Partnership's leasehold interest would be insufficient to repay the
principal amount of the Mortgage Notes. The Holders of Subordinated Notes and
the Limited Partners could lose the entire value of their investment upon a
mortgage foreclosure.
Repayment of Notes at Maturity Dependent Upon Ability to Sell or
Refinance the Hotels
The entire aggregate principal amount of the Notes will be payable at
maturity. The Partnership is not obligated to establish any sinking or similar
fund with respect to such payment. The ability of the Partnership to pay the
entire principal amount of the Notes when it comes due will be dependent upon
the value of the Hotels at that time and the Partnership's ability to obtain
adequate refinancing or sell the Hotels. There is no assurance that the final
principal payment will be paid or refinanced when due. See "DESCRIPTION OF THE
NOTES."
Subordination of Subordinated Notes
The Subordinated Notes will be unsecured obligations of the
Partnership, and will be subordinated to all indebtedness of the Partnership
which is evidenced by the Mortgage Notes or arises as a result of External
Financing. There is no limitation or restriction in the Subordinated
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<PAGE> 106
Notes or the Indenture governing the Subordinated Notes on the creation of
Senior Indebtedness by the Partnership or on the amount of such Senior
Indebtedness to which the Subordinated Notes may be subordinated. There is also
no limitation on the creation of or the amount of indebtedness which is pari
passu with (i.e. having no priority of payment over and not subordinated in
right of payment to) the Subordinated Notes ("Pari Passu Indebtedness").
Accordingly, upon any distribution of assets of the Partnership in connection
with any dissolution, winding up, liquidation or reorganization of the
Partnership, the holders of all Senior Indebtedness will first be entitled to
receive payment in full of the principal and premium, if any, thereof and any
interest due thereon, before the Holders of the Subordinated Notes are entitled
to receive any payment upon the principal of or interest on the Subordinated
Notes, and thereafter payments to Holders of Subordinated Notes will be pro rata
with payments to holders of Pari Passu Indebtedness. See "DESCRIPTION OF
NOTES-Subordination."
Notes are Non-Recourse Obligations
The General Partner is not liable for repayment of the Notes. If the
Partnership fails to make any payment when due under the Notes or fails to
perform any obligation thereunder or under the Indentures, the sole remedy of
the Trustee and the Holders of both the Subordinated Notes and the Mortgage
Notes is against the Partnership and, in the case of the Mortgage Notes,
against the collateral securing the Mortgage Notes. There can be no assurance
that the net proceeds from a judgment against the Partnership would be
sufficient to pay the amounts due under the Subordinated Notes and Mortgages
Notes, or that a foreclosure sale would be sufficient to pay the amounts due
under the Mortgage Notes. In the event of a default on the Notes, the Holders
of the Mortgage Notes will be general unsecured creditors of the Partnership to
the extent their claims exceed the value of the assets covered by their
mortgage at that time and, therefore, will share in any remaining unencumbered
assets of the Partnership on the same basis as all other unsecured creditors,
including the Holders of the Subordinated Notes. See "DESCRIPTION OF THE
NOTES."
Mortgages May be Set Aside in Bankruptcy
The Mortgage Notes will be issued as unsecured obligations of the
Partnership until such time as a site for construction of a Hotel is purchased,
leased or subleased by the Partnership without reliance upon External
Financing. In such an event, a mortgage will be signed and recorded after
completion of the purchase, lease or sublease of each site for a Hotel
developed without reliance upon External Financing. Due to the anticipated
delay between the making of the loan represented by the Mortgage Notes and the
recording of each mortgage, the lien of any of the mortgages may be set aside
in a federal bankruptcy or state insolvency proceeding as a "voidable
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<PAGE> 107
preference" if the Partnership were to file for bankruptcy, make an assignment
for the benefit of creditors or commence a similar insolvency proceeding under
state law within the applicable preference period commencing upon the recording
of the mortgage. The applicable preference period under federal bankruptcy law
for Holders of Mortgage Notes who are not affiliates of the General Partner is
90 days. If the mortgage were set aside in a bankruptcy or insolvency
proceeding, the Holders of the Mortgage Notes would be general unsecured
creditors of the Partnership without recourse against the General Partner for
any unpaid amounts due under the Mortgage Notes.
Security for Mortgage Notes may be Reduced or Eliminated if Land is
Leased or Subleased
@ If one or more of the Hotel sites securing the Mortgage Notes
is leased or subleased by the Partnership instead of being
owned in fee, the Mortgage Notes will be secured by a mortgage
covering the Partnership's interest as tenant under the lease
or sublease ("Leasehold Mortgage"). The relative value of a
Leasehold Mortgage upon a foreclosure or assignment of the
lease or sublease will be less than the value of a fee mortgage
on the same property, which difference may be material
depending upon the length of the lease term and the other terms
and conditions of the lease or sublease, none of which can be
determined as of the date of this Prospectus.
@ The Partnership will be primarily liable for the payment of
rent and the performance of any other obligations of the tenant
under a lease or sublease of a Hotel site. However, after a
default by the Partnership which is not cured by the
Partnership or the General Partner, the lease may be terminated
unless the Trustee or the Holders of the Mortgage Notes secured
by the particular Hotel site, cures all defaults and continue
to perform the tenant's obligations under the lease and, in the
case of a sublease, the Partnership's sublease and all senior
subleases with respect to the property, until such time as the
leasehold or sub-leasehold interest of the Partnership may be
sold pursuant to a foreclosure of the Leasehold Mortgage. If
the Partnership's lease or sublease was terminated, the
Partnership would lose the right to possession of the land and
any Hotel constructed thereon, the Leasehold Mortgage would be
extinguished, the Mortgage Notes would be general unsecured
obligations of the Partnership (without recourse against the
General
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<PAGE> 108
Partner) and the Limited Partners and Holders of Mortgage Notes
could lose all or a substantial portion of the value of their
investment.
@ The Trustee will have the right under the Mortgages to collect
any revenue generated by the Hotels. However, neither the
General Partner nor the Trustee will be obligated to advance
its own funds to pay rent or to cure any other default by the
Partnership under any lease or sublease. The Partnership is not
required to establish any rent reserve or other fund which
would be available for the Trustee to pay rent following a
default. There can be no assurance, therefore, that the General
Partner, the Trustee or any of the Holders of the Mortgage
Notes would take the necessary action within the applicable
cure period, which cannot be determined as of the date of this
Prospectus, to keep the Partnership's lease or sublease from
being terminated. The Trustee will not negotiate or review the
terms of any lease or sublease.
@ If a Hotel site were subleased by the Partnership, a
termination of the underlying lease would cause the
Partnership's sublease to be terminated. The Partnership will
attempt to obtain a recognition agreement from the owner of the
land to allow the Partnership to cure defaults by the tenant
under the lease so as to prevent the underlying lease from
being terminated. There can be no assurance, however, that such
an agreement can be obtained nor that it would not be
disaffirmed in a bankruptcy involving the owner of the land.
@ If the owner of the land were to grant a mortgage on the fee,
the Partnership's lease or sublease could also be terminated
pursuant to a foreclosure of the fee mortgage unless such
mortgage was subordinated to the lease or sublease. There can
be no assurance that an effective subordination from the holder
of any fee mortgage will be obtained. The adverse effects of
termination of the Partnership's lease are described in the
preceding paragraph.
@ The General Partner does have an incentive to ensure that the
terms of the lease or sublease are not burdensome to potential
buyers of the Hotels and will not negatively affect such
buyers' ability to obtain financing. As of the date of this
Prospectus, however, there can be no assurance as to the terms
of any lease or sublease. Therefore, a prospective investor
should not purchase Notes or Units
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unless he or she is willing to entrust the terms of such
documents and the value of the security for the Mortgage Notes
completely to the discretion of the General Partner. See
"CONFLICTS OF INTEREST" and "DESCRIPTION OF THE NOTES -
Security for the Notes."
Risks Associated with Substitute Collateral
Under the terms of the Mortgage Notes, the Partnership has the option
to sell or refinance each of the Hotels securing the Mortgage Notes once prior
to maturity, and to reinvest the proceeds from such sale in or refinance of
additional hotel properties. In the event of a sale, the Mortgage Notes will be
secured by a mortgage on the new hotel properties ("Substitute Collateral")
financed by the Partnership. There can be no assurances that the value of the
Substitute Collateral will be of equal value to the Hotel sold or refinanced, or
that the proceeds from a mortgage foreclosure on the Substitute Collateral will
be sufficient to repay the principal amount of the Mortgage Notes secured by the
Substitute Collateral.
Construction Risk
The General Partner has agreed to provide a Guaranty of Completion to
the Partnership upon the purchase, lease or sublease by the Partnership of each
site for construction of a Hotel. The purpose of the Guaranty of Completion is
to provide assurance to the Holders of Mortgage Notes secured by a particular
Hotel that contractors will be paid and mechanic's liens will be bonded or paid
by the General Partner in the event that the Partnership fails to pay such
amounts. Payments made by the General Partner under the Guaranty of Completion
are advances which must be repaid by the Partnership with interest thereon as
provided in the Partnership Agreement. The repayment of such advances is
subordinated to the prior payment of all amounts due and owing under the
Mortgage Notes. If the Partnership became insolvent, the General Partner would
be liable for any construction cost overruns. There can be no assurance that
the General Partner will have sufficient financial resources to provide for
completion of construction as scheduled; and, while the General Partner has
overseen the construction and completion of thirteen hotels without
experiencing significant cost overruns or delays, there can be no assurance
that construction delays or cost overruns will not occur in connection with the
construction of the Hotels, and materially adversely affect the value of a
Hotel and cause a termination of the Franchise Agreement. If the Partnership
and the General Partner are unable to pay the construction cost of a Hotel,
unpaid contractors may file mechanics liens against the Hotel and impair the
ability of the Partnership to complete construction, and such liens would be
superior to the liens of the mortgages securing
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the Mortgage Notes. In addition, the equity of the Partnership could be reduced
or eliminated through foreclosure by unpaid contractors. The Trustee will not
supervise construction of the Hotels. Certain procedures which would protect the
lender in a typical commercial construction loan (such as holding loan proceeds
in escrow until all necessary funding for the Hotels has been raised and
requiring disbursement of all equity proceeds before making advances) are not
required by the mortgages to be granted to the Trustee on behalf of Holders of
Mortgage Notes or the Indentures.
Limited Partners Could Lose Their Entire Investment if the Partnership
Defaults Under the Notes
The Partnership will be highly leveraged. If the Maximum Offering
Amount is sold, the General Partner estimates that approximately 85.4% of the
aggregate Investment in Hotels (as herein defined) (including fees paid to the
General Partner relating to acquisition of the sites and construction of the
Hotels) will be financed by the Notes and External Financing (which will in all
likelihood require that such debt be secured by, among other things, a mortgage
on one or more of the Hotels) of which up to 53.3% will be outstanding under the
mortgages to be granted to the Holders of the Mortgage Notes. If only the
Minimum Offering Amount is sold, the amount of leverage permitted under the
Partnership Agreement after the closing of the offering could be as high as
99.6% of such costs if External Financing is obtained. Principal and interest
payments on the Notes and any External Financing must be made regardless of
levels of income from the Hotels. If payments are not made when due, the Limited
Partners may sustain the loss of their equity investment as a result of
foreclosure. Such foreclosure might also result in the realization of taxable
income by the Limited Partners without a corresponding distribution of cash to
pay the tax. The Limited Partners' right to receive distributions from the
Partnership is subordinated to the rights of Holders of Notes to receive amounts
due under the Notes.
Holders of Notes Must Rely Upon the Discretion of the General Partner
Because of the Trustee's Limited Role
Manufacturers and Traders Trust Company, as Trustee, has not, and will
not, negotiate any provisions of any mortgages, leases, subleases on behalf of
the Holders of Mortgage Notes, or any provisions of the Indentures, Franchise
Agreements or related documents on behalf of the Holders of the Notes. The
Trustee has not, and will not, evaluate or analyze the offering, or related
documents, or any assets securing repayment of the Notes on behalf of the
Holders of the Notes. More specifically, as examples and not by way of
limitation, the Trustee has not, and will not, call for or review any appraisals
with respect to any of such assets, make any environmental assessment or review
of any of the Hotel properties or the use thereof, review or
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approve of any contractors, architects, engineers, insurers or any other persons
with respect to the offering or any of the Hotel properties, evaluate or monitor
any of the construction or the use by the Partnership of any of the Note
proceeds or take responsibility for the condition, value, adequacy or perfection
of any of the assets securing repayment of the Mortgage Notes. The only duties
expected to be undertaken by the Trustee on behalf of the Holders of the Notes
will be as specifically set forth in the Indentures and the Escrow Agreement.
INVESTMENT RISKS GENERALLY
Total Reliance on Management
The Holders of Notes and Limited Partners will have no right to take
any part in the control of the Partnership business, except that the Partnership
Agreement authorizes the Limited Partners, without concurrence of the General
Partner, to vote on certain matters, including amendment of the Partnership
Agreement, the removal of the General Partner and election of a successor
General Partner. The General Partner will have exclusive authority and control
over the management of the Partnership's business. Accordingly, the General
Partner will select the Franchisors and determine the terms on which Hotel sites
are purchased, leased or subleased and Hotels are constructed and operated, and
may cause the Partnership to sell one or more of its Hotels, to refinance a
Hotel or otherwise incur indebtedness (subject to certain limitations) and to
take other actions which may substantially affect the Partnership's operations.
A prospective investor should not purchase Notes or Units unless he or
she is willing to entrust all aspects of the management of the Partnership to
the General Partner. See "SUMMARY OF THE PARTNERSHIP AGREEMENT."
Lack of Liquidity of Notes and Units
Pursuant to the Partnership Agreement, the transferability of the
Units will be subject to certain restrictions. As a result of such
restrictions and other factors, no public trading market will develop for the
Notes or Units. Holders of Notes and Units may not, therefore, be able to
convert their investment into cash in the event of an emergency, and Notes and
Units may not be readily accepted as security for a loan. Consequently, the
Notes and Units should be considered only as a long-term investment. See
"SUMMARY OF THE PARTNERSHIP AGREEMENT" and "DESCRIPTION OF THE NOTES - Transfer
and Exchange."
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The current Microtel(R) Franchise Agreement provides that no transfers
of more than a 50% equity interest in a single transaction or transfers of less
than a 50% equity interest in a single transaction which has the effect of
transferring control in the Partnership, may be made without the prior written
consent of the Franchisor, which may not be unreasonably withheld, and
compliance with the conditions set forth in the Franchise Agreement. In
addition, the current Hampton Inn(R), Hampton Inn & Suites(SM) and Homewood
Suites(R) Franchise Agreements provide that for "publicly-traded equity
interests," no consent of the Franchisor is required with respect to any
transfers of less than a 25% interest in the Partnership unless the transferee
owns, or would own after the transfer is completed, an interest in the
Partnership of 25% or more. The Promus Hotel Corporation has advised the
Partnership that, solely for the purposes of the Franchise Agreement, the Units
would be considered "publicly-traded equity interests" under the Franchise
Agreement. Additional transfer restrictions may be imposed by other
Franchisors. See "THE PARTNERSHIP'S BUSINESS - Franchise Agreements."
Cancellation of Offering
If, by the Specified Minimum Date, the Partnership has not accepted
subscriptions for the Minimum Offering Amount, all subscriptions will be
cancelled and all subscription payments will be repaid and all subscription
documents will be promptly returned. While any interest earned on funds held in
the Escrow Account will be paid to subscribers, after payment of escrow
expenses, on the basis of the respective amounts of their cash subscriptions and
the number of days during the period that such funds were on deposit, the amount
of interest otherwise payable to subscribers will be reduced by fees and
expenses payable to the Escrow Agent. See "THE OFFERING -- Subscription."
Accordingly, a subscriber may receive a low rate of return on such funds, and
may have lost other possible investment opportunities for such funds.
Limited Net Worth of the General Partner
The net worth of the General Partner as of July 31, 1995 was
approximately $1,700,000. While the General Partner is not permitted to reduce
its net worth below its present amount through the payment of dividends or
other payments to its shareholders, See "SUMMARY OF THE PARTNERSHIP AGREEMENT
- -- The Net Worth of the General Partner," a significant portion of the General
Partner's aggregate net worth consists of assets which would be very difficult
to convert into cash. Should such net worth be materially reduced in the
future, the General Partner's ability to satisfy its obligations to the
Partnership, including the obligations of the General Partner: (I) to refund
the face amount of the Notes and the amount paid for the Units, if an initial
Hotel site is not acquired within 24 months from the effective date of the
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Registration Statement and (ii) under the Guaranty of Completion, could be
impaired. In addition, in the event the General Partner's net worth were to be
materially reduced, the Partnership might be deemed to have the characteristic
of limited liability thereby jeopardizing its treatment as a partnership for
federal income tax purposes. See "TAX CONSIDERATIONS -- Tax Status of the
Partnership." Moreover, the Partnership's ability to obtain financing may be
negatively affected as a result of a reduction in the General Partner's net
worth and the illiquid nature of the General Partner's assets. The Partnership's
ability to obtain External Financing may also be negatively affected by any
reduction in the General Partner's net worth or by illiquidity of its assets.
The General Partner is also a general partner of other limited partnerships; as
such, it would be liable for the debts and obligations of such partnerships if
the partnerships were unable to pay them. Such potential liability may exceed
the net worth of the General Partner. If the General Partner is forced into
bankruptcy or receivership and the Limited Partners did not elect to continue
the Partnership, dissolution of the Partnership could result at a time when such
dissolution would be adverse to the interests of the Limited Partners. See "THE
GENERAL PARTNER," "EXHIBIT E - Financial Statements of General Partner" and "TAX
CONSIDERATIONS."
Lack of Diversification of Investment
The Partnership will receive Gross Offering Proceeds of up to
$21,000,000 if the Maximum Offering Amount is sold. The number of Hotels that
the Partnership may construct will depend in part on the amount of capital that
is raised and the ability of the Partnership to secure External Financing. To
the extent that fewer Hotels are developed by the Partnership, the performance
of any single Hotel will have an increased impact on the Partnership. In
addition, the results of operations of the Partnership would then be subject to
economic conditions in fewer geographic areas, exposing the Partnership's
operations to greater risk than if the Partnership's investments were
geographically diversified. See "INVESTMENT OBJECTIVES AND POLICIES -
Capitalization and Use of Initial Funds."
Action by Individual Holders of Notes Restricted
No Holder of any Note will have the right to commence a lawsuit to
enforce any right or remedy under his or her Note or, with respect to Holders of
Mortgage Notes, the Mortgages. In order to direct the Trustee to take action on
his or her behalf, the Holder must obtain the consent of the Holders of a
majority in principal amount of like Notes outstanding and meet the other
requirements set forth in the Indentures, including providing satisfactory
indemnity to the Trustee. See "DESCRIPTION OF THE NOTES - Individual Action by
Holder Restricted."
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Potential Liability of Limited Partners
The liability of a Limited Partner who does not take part in the
control of the business of the Partnership is limited to his or her investment
in the Partnership and his or her share of the undistributed profits of the
Partnership. However, if the Partnership would be insolvent after giving effect
to a distribution, a Limited Partner who received such distribution and knew at
the time thereof that such distribution would render the Partnership insolvent
would be obligated to return the amount distributed. The Partnership is a New
York limited partnership and the Partnership Agreement, by its express terms,
provides that it is to be governed by New York law. The Partnership Agreement
grants the Limited Partners certain voting rights with respect to the removal of
the General Partner, the amendment of the Partnership Agreement and other
matters. Under New York law, the exercise of such voting rights will not cause
the Limited Partners to be deemed to be taking part in the management or control
of the Partnership's business. However, if a court in another state where the
Partnership does business determined that the law of such state, rather than New
York law, should apply, it is possible that such court might also conclude that
the possession or exercise of the voting rights provided for in the Partnership
Agreement would cause the Limited Partners to be liable as general partners. See
"SUMMARY OF THE PARTNERSHIP AGREEMENT."
CONFLICTS OF INTEREST
The business of the Partnership will involve transactions between the
Partnership and the General Partner, and affiliates of the General Partner,
which result in conflicts of interest, including the following:
@ The compensation payable to the General Partner and its
affiliates pursuant to the Partnership Agreement and the
Management Agreement has not been established through arm's
length negotiations. The General Partner and its affiliates
will receive substantial fees regardless of whether the
Partnership's business objectives are realized.
@ The General Partner has the right to sell the Hotels to an
Affiliated Person (or any third party) without obtaining the
consent of the Limited Partners or the Trustee, provided that
the terms of such transaction are fully disclosed and
competitive with those which could be obtained from a third
party. In connection with such transaction, a Mortgage secured
by such property will remain as a first lien on the Hotel
premises and, if the new owner assumes the
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Partnership's obligations under the Mortgage Notes and the
Partnership is not in default under the Mortgage Notes, the
Partnership will be relieved of its obligations under the
Mortgage Notes. In addition, the General Partner, upon
obtaining the approval of a majority in interest of the Limited
Partners, may cause the Partnership to be merged into an
Affiliated Person or reorganized.
@ The terms of the Notes were structured by the General Partner
and are not the result of arm's length negotiations between the
Partnership and an independent lender.
@ The Trustee will not supervise construction or review or
negotiate leases or other documents on behalf of Holders of
Notes. Therefore, investors must entrust these activities to
the discretion of the General Partner. The Trustee has acted as
trustee with respect to four prior private placements and one
public offering of mortgage notes by affiliated limited
partnerships of the General Partner.
@ The Trustee is the trustee under indentures for both
Subordinated Notes and Mortgage Notes and, as a result, might
have a conflicting interest. Such conflict might be disabling
should there be a default under the Notes and the Trustee might
be required to resign.
@ There is no limitation on the rights of the General Partner and
its affiliates to engage in any business, including the
development of other hotels, and such activities may conflict
with the operations of the Partnership.
@ The Managing Dealer is an affiliate of the General Partner.
Therefore, there has been no independent due diligence review
of the offering by an unaffiliated underwriter.
@ The Partnership Agreement limits the liability of the General
Partner and relieves it of certain fiduciary duties that it
would otherwise have under the New York partnership law. In
addition, the Indentures limit the liability of the Trustee and
relieve it of certain fiduciary duties that it would otherwise
have under applicable law.
@ The General Partner has the right to loan Partnership funds to
an Affiliated Person (or any third party) without obtaining the
consent of the Limited Partners or the Trustee, provided that
the terms of
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such loans are fully disclosed and are, in the opinion of the
General Partner, beneficial to the Partnership.
SPECIFIC RISKS RELATED TO THE HOTELS
Termination of Franchise Agreement Would Adversely Affect the Value of
the Hotels
The Hotels will be operated under certain Franchise Agreements. The
Potential Franchisors which may be selected by the Partnership include Marriott
International, Inc. (Courtyard by Marriott(R) and Fairfield Inn(R) by Marriott),
Promus Hotel Corporation and its subsidiaries (collectively, the "Promus Hotel
Corporation") (Hampton Inn(R), Hampton Inn & Suites(SM) and Homewood Suites(R))
and Microtel Inns and Suites Franchising, Inc. (Microtel(R)), or any combination
of the foregoing. There can be no assurance as to the terms of the Franchise
Agreement available from any additional hotel franchisor or that the terms of
the current Franchise Agreements of the Potential Franchisors will not vary,
perhaps materially, from the terms available to the Partnership at the time that
a site is acquired. The term of the current Fairfield Inn(R) by Marriott,
Hampton Inn(R), Hampton Inn & Suites(SM), Homewood Suites(R), and Microtel(R)
Franchise Agreements is 20 years and is not renewable. The term of the current
Courtyard by Marriott(R) Franchise Agreement is 20 years and may be renewed for
an additional 10 years subject to the satisfaction of certain conditions
precedent. If the Partnership defaults under any of the Franchise Agreements for
any reason (including the failure to upgrade the Hotel from time to time to meet
the Franchisor's then current standards) and the Trustee is unable or unwilling
to cure such default to the reasonable satisfaction of the Franchisor and locate
a substitute franchisee acceptable to the Franchisor within 30 days after
receipt of notice thereof from the Franchisor, the Franchise Agreement may be
terminated by the Franchisor. Upon termination or expiration of any Franchise
Agreement, the Partnership must immediately cease using the Franchisor's service
marks, reservation system and all confidential methods, procedures and
techniques provided by the Franchisor and remove and discontinue using all
signs, advertising and other materials which could cause the Partnership's
business to be associated with the Franchisor. The security for the Mortgage
Notes could lose all or a substantial portion of its value and the Partners
could also lose all or a substantial portion of the value of their investment if
any Franchise Agreement were terminated or expired without renewal. In addition,
the proceeds received from a foreclosure sale could be substantially reduced as
a result of certain conditions (including payment of all accrued monetary
obligations of the Partnership to the Franchisor and any affiliates of the
Franchisor relating to the Hotel and substantial liquidated damages) which the
Trustee or the purchaser may be
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required to pay in order to continue operating the Hotel as a franchise. See
"THE PARTNERSHIP'S BUSINESS - Franchise Agreements."
Absence of Exclusive Territory
The Franchise Agreements do not grant the Partnership an exclusive
territory. Therefore, there can be no assurance that a particular Franchisor
will not develop itself or license others to operate one or more franchised
hotels in the vicinity of any or all of the Hotels. See "THE PARTNERSHIP'S
BUSINESS - Franchise Agreements" "CONFLICTS OF INTEREST" and "THE GENERAL
PARTNER."
Competition
The operation of hotels and motels is a highly competitive business.
The Partnership may develop Hotels to be operated under one or more, or a
combination of one or more, of the Potential Franchises, or other franchises,
depending upon the amount of capital that is raised, the location of any site
which is acquired and other factors which may be considered by the General
Partner. Each of the Hotels may be required to compete with hotels and motels
that may have greater name recognition, and greater financial resources, and may
have personnel with more experience than a particular Franchisor or the
Partnership. Some of these hotels could have service and architectural features
similar to the Hotels and may offer rates comparable to or lower than those
estimated by the Partnership. Furthermore, there can be no assurance that, after
the construction and successful operation of a Hotel, competitors will not offer
lower room rates, or that additional limited service or extended stay hotels
which offer similar rooms, services and rates in competition with the Hotels
will not be developed near the Hotels, and that such development will not have
an adverse effect on occupancy rates and profitability. See "THE PARTNERSHIP'S
BUSINESS - Competition."
Inability to Obtain Potential Franchises
As of the date of this Prospectus, the General Partner has obtained
only the Hampton Commitment, and has not obtained any other commitments for a
franchise or license to construct and operate a Hotel under the Potential
Franchises. In the event that the Partnership is unable to obtain a franchise or
license for any additional Potential Franchises, the Partnership will be
required to seek a franchise or license from other Franchisors. Such other
franchises or licenses may require a greater initial investment, and/or may not
have the reputation or financial resources as the Potential Franchises.
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Limited Operating History
As of October 1, 1995, 3 Hampton Inn & Suites(SM) hotels and 27
Homewood Suites(R) hotels had been completed and opened to the public. The
General Partner has not developed a Homewood Suites(R) hotel, a Hampton Inn &
Suites(SM) hotel or any other extended stay hotel. The General Partner believes
that, based on its other hotel management experience and the extensive support
provided by the Franchisors, it can operate a Hampton Inn & Suites(SM) hotel,
Homewood Suites(R) hotel, or other extended stay hotel with profitable results.
There can be no assurance, however, that any or all of the Hotels, once
constructed, will operate profitably. See "THE PARTNERSHIP'S BUSINESS."
General Partner Not Required to Fund Operating Deficits
The General Partner and its affiliates are not obligated to advance to
the Partnership funds needed to meet any operating expenses or operating
deficits (although it may, in its sole discretion, make such loans on the terms
set forth in the Partnership Agreement). Accordingly, in the event of operating
deficits (for example, by reason of operating income being insufficient to meet
operating expenses, rent and debt service on mortgage loans) neither the General
Partner nor its affiliates are obligated to provide any additional funds, and if
the Partnership does not have, or is not able to borrow, sufficient funds to
meet such obligations, any mortgages on the Hotels may be foreclosed, in which
case the Limited Partners could lose their entire investment and may suffer
serious adverse tax and other consequences. See "INVESTMENT OBJECTIVES AND
POLICIES - Borrowing Policies."
Risks Relating to Continuing Repairs and Capital Expenses
To meet competition in the hotel industry and to maintain economic
values, continuing expenditures must be made for modernizing, refurbishing and
maintaining existing Hotel facilities prior to the expiration of their
anticipated useful lives. The Partnership intends to pay for such expenditures
entirely out of operating revenues. In the event that the proceeds from the
operation of the Hotels are insufficient to pay for the cost of such
expenditures, the Partnership may be unable to protect its investment in the
Hotels unless additional funds are provided by the Partnership from other
sources, such as borrowing. In addition, the payment of such expenditures out of
operating revenue could result in the realization of taxable income by the
Limited Partners without a corresponding distribution of cash to pay the tax
because a portion of such expenditures may not give rise to a current deduction.
See "INVESTMENT OBJECTIVES AND POLICIES - Maintenance and Repairs; Capital
Improvements."
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ENVIRONMENTAL RISKS
Federal and state environmental laws can impose liability on owners and
operators of real estate without regard to fault, even when other parties are or
were responsible for the environmental impairment. The General Partner will
cause an environmental due diligence review to be performed before acquiring any
site. Such review may include the retention of experts to perform soil testing,
surface and/or ground water testing and/or other investigations. There can be no
assurance that these investigations will uncover any or all potential
environmental liabilities. Environmental liabilities (including liability under
government programs such as Superfund) could cause the Partnership to incur
significant expenses, including the obligation to remedy or clean up hazardous
substances or other pollutants, regardless of fault. Such liabilities could
exceed the Partnership's cost of acquiring a property and could have a
significant adverse effect on the value of the security for the Mortgage Notes
and the value of the Subordinated Notes and Units. The Holders of the Mortgage
Notes are not owners or operators of the real property. If, however, an
undetected environmental impairment of the real property existed and the Trustee
were to foreclose upon or take possession or control of the real property
following an Event of Default, the Trustee and the Holders of Mortgage Notes
could become responsible for certain environmental liabilities. Because of the
potential risk to itself and the Holders of Mortgage Notes, the Trustee is
likely to act very cautiously before taking any such actions. The Trustee has
the right, under the mortgages to be granted to the Holders of the Mortgage
Notes during the continuance of an Event of Default, to have the Hotels
inspected at the Partnership's expense, for compliance with environmental laws
and regulations. See "INVESTMENT POLICIES AND OBJECTIVES - Environmental Due
Diligence."
TAX RISKS
Limited Partners will be able to deduct losses, if any, from the
Partnership only to the extent that they have "passive income" from other
sources, such as income from limited partnerships, S corporations or other
businesses in which the investor does not materially participate, or to the
extent in later years that the Partnership generates taxable income.
Furthermore, future regulations under the passive loss rules may recharacterize
income attributable to the Cumulative Return as portfolio income, such as
interest income and dividends, which would be taxable to the investor and would
not be reduced by any losses from the Partnership. In addition, investors should
consider the following tax risks:
@ the Partnership may be determined to be a publicly traded
partnership, or otherwise not to qualify as a partnership for
federal
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income tax purposes, which would cause Partnership taxable
income to be taxed at corporate rates, cash distributions to
the Limited Partners to be treated as dividends and deductions
of the Partnership not to be passed through to the Limited
Partners;
@ tax exempt investors purchasing Units should be aware that
income from Hotel operations will constitute unrelated
business taxable income;
@ tax exempt investors purchasing Units should be aware that if
the Partnership were subject to the Department of Labor's
"plan asset" rules, an investment in the Partnership could
result in a violation by the fiduciary of several provisions
of ERISA including an improper delegation of the duty of the
fiduciary to manage such assets of the plan and a failure to
hold the plan assets in trust. However, the regulations
contain exemptions from the treatment of limited partnership
assets as plan assets. Although there can be no assurance
that the Partnership Agreement and the terms of the offering
have been structured so that any one of the exemptions
contained in the regulations would apply to the Partnership,
the General Partner will use its best efforts to structure the
sales of the Units and the operations of the Partnership to
attempt to qualify for the possible exemptions. Accordingly,
an investment by a tax exempt investor in Units should not be
deemed an investment in the assets of the Partnership.
@ tax exempt investors purchasing Notes should be aware that
investing in Notes may constitute a "prohibited transaction"
under ERISA if a party in interest holds an equity interest in
the Partnership;
@ tax exempt investors purchasing Notes should also be aware
that if they borrow funds to pay for the purchase of a Note,
the interest on the Note will constitute unrelated business
taxable income;
@ during some years of the Partnership the tax liabilities of
individual Limited Partners may exceed their cash
distributions from the Partnership, and on sale or other
disposition of Units or of the Hotels, the tax liability to
the Limited Partners may be greater than their share of the
cash proceeds;
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@ investors purchasing Units may be subject to income taxes in
the states in which the Hotels are located on portions of
their income from the Partnership regardless of their state of
residence. See "TAX CONSIDERATIONS" for a further discussion
of these risks.
RISKS OF JOINT VENTURES
Some of the Partnership's investments may be owned by joint venture
partnerships between the Partnership and another partnership or entity
sponsored by the General Partner or its affiliates or other persons not
affiliated with the General Partner. Investments in joint venture partnerships
which own properties may involve risks not otherwise present, including, for
example, the risk that the Partnership's co-venturer might become bankrupt,
that such co-venturer may at any time have economic or business interests or
goals which may be inconsistent with the interests or goals of the Partnership,
that such co-venturer may be in a position to take action contrary to the
Partnership's goals, policies or objectives.
PURCHASES BY THE GENERAL PARTNER AND AFFILIATES COUNT TOWARD THE AMOUNT NEEDED
TO BREAK ESCROW
The General Partner and its affiliates may purchase such combination
of Units and Notes in this offering as represent Gross Offering Proceeds of up
to $1,000,000, of which $200,000 may be counted in determining whether the
required Minimum Offering Amount has been met. The per Unit Purchase Price
payable by the General Partner is equal to the $1,000 per Unit Purchase Price,
less commissions that would otherwise be payable and less Organization and
Offering fees payable to the General Partner (3.4% of Gross Offering Proceeds).
In addition, other persons who will receive fees, compensation or other gain
dependent upon the success of the offering may purchase Units or Notes, and up
to $200,000 of any such purchases will be counted in determining whether the
Minimum Offering Amount has been met. Therefore, the sale of the Minimum
Offering Amount, while necessary to the business operations of the Partnership,
should not be relied upon by investors as an indication that their investment
decision is shared by others who are exercising independent investment
discretion. Each investor must make his own investment decision as to the
merits of this offering. See "THE OFFERING" and "CONFLICTS OF INTEREST."
DEFAULT UNDER PARTNER NOTES
If a Limited Partner purchasing 20 or more Units defaults on the
payment of his or her Partner Note, the Partnership may purchase such Limited
Partner's Unit for a price equal to the amount of cash per Unit contributed by
such Limited Partner less
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the amount of expenses incurred by the Partnership in purchasing or reselling
the Unit (including reasonable attorneys' fees and a sales commission to the
Managing Dealer in the amount of $50 per Unit that is resold), payable at the
option of the General Partner by a non-interest bearing note due five years from
the date of the default. Because the Partner Notes given by the Limited Partners
will not be secured by any collateral, the Partnership may be unable to generate
sufficient funds from the resale of such Units to meet its obligations.
GENERAL ECONOMIC RISKS
The major risk of owning or leasing income-producing property is the
possibility that the property will not generate income sufficient to meet
operating expenses and debt service. The net income from Hotel properties may
be affected by many factors, including: (a) reduced gross receipts due to an
inability to maintain high occupancy levels; (b)adverse changes in general
economic conditions and adverse local conditions; (c) adverse changes in real
estate zoning laws or in health, safety and environmental laws and regulations;
(d) the need for renovations, refurbishment and improvements; (e) unanticipated
increases in utility, insurance or other operating costs; (f) increases in real
estate taxes; (g) legal restrictions on the use of signs, billboards and other
forms of roadside advertising typically utilized in marketing hotel properties;
and (h) natural disasters such as earthquakes, floods and tornados and other
factors beyond the reasonable control of the owner or operator. To the extent
that it becomes necessary for the Partnership to obtain secondary debt
financing, high fixed interest rates or increases in floating interest rates
may adversely affect the Partnership's ability to meet its payment obligations
under the Notes. See "THE PARTNERSHIP'S BUSINESS."
COMPENSATION OF GENERAL PARTNER AND MANAGING DEALER
FEES TO GENERAL PARTNER AND MANAGING DEALER
The General Partner and its affiliates will receive substantial fees
and other compensation from the Partnership in connection with this offering
and the operation of the Hotels. These arrangements were not determined by
arm's length negotiations. The General Partner believes that the fees are
reasonable based on the level of service required and the fees that it has
charged for comparable services in other limited partnerships and three prior
limited partnership public offerings. See "CONFLICTS OF INTEREST."
As compensation for its services in connection with the formation and
reorganization of the Partnership and the offering of Notes and Units pursuant
to the
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Prospectus, the General Partner will receive an Organization and Offering
Management Fee equal to 3.4% of the Gross Offering Proceeds, including the
principal amount of any Partner Notes contributed by Limited Partners,
resulting in a maximum fee of $714,000 if Gross Offering Proceeds of $21
million are raised. The Organization and Offering Management Fee, if any, will
be paid at the time of each closing of this offering. The General Partner may,
in its sole discretion, reallow from such fee and pay to the Managing Dealer or
Soliciting Dealers an amount equal to up to 1% of the Gross Offering Proceeds.
See "THE OFFERING - Plan of Distribution."
As compensation for its services in selecting and purchasing, leasing
or subleasing the land upon which the Hotels will be constructed, the General
Partner will receive an Acquisition Fee of $110,000 for each Hotel site that is
acquired by the Partnership. The Acquisition Fee shall be payable $35,000 upon
execution of a valid purchase, lease or sublease agreement (which amount shall
be refunded to the Partnership if the transaction does not close) and the
remainder upon the closing of the purchase, lease or sublease.
As compensation for its services in connection with the development of
the Hotels, the General Partner will receive a Development Fee of $160,000 per
Hotel, increased by 5% of total construction, site development and furniture,
fixtures and equipment costs in excess of $2.7 million, but not to exceed
$325,000 per Hotel. The Development Fee for each Hotel shall be payable 15
percent (15%) per month beginning on the last day of the month in which the
General Partner formally solicits bids for general contractor services and
continuing for a term not to exceed six months, with the unpaid balance thereof
payable upon the obtaining of a certificate of occupancy for the Hotel.
The Partnership shall pay to the General Partner (or any subsequent
property manager) a Property Management Fee of 4.5% of gross operating revenues
under the Management Agreement. The property manager will also receive an
accounting fee of $800 per month pursuant to the Management Agreement. As
compensation for its services in connection with the management of the
Partnership, the General Partner will receive a Partnership Management Fee of
.75% of gross operating revenues relating to the Hotels, beginning upon the
issuance of a certificate of occupancy for the first Hotel. The Partnership
Management Fee will be payable at the end of each calendar month. See "THE
PARTNERSHIP'S BUSINESS - Operation of the Hotels."
The General Partner may be required to waive or reallow a portion of
its Acquisition Fee or Development Fee if necessary to commit a percentage of
the Gross Offering Proceeds to Investment in Hotels and in Essex Glenmaura
which is at least equal to the greater of: (i) 80% of Gross Offering Proceeds
reduced by .1625% for
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each 1% of indebtedness encumbering Partnership properties; or (ii) 67% of Gross
Offering Proceeds. Investment in Hotels includes amounts expended for the
purchase, lease or sublease, development, construction or improvement of Hotels,
but excludes any acquisition fees or development fees payable to any affiliate
of the General Partner.
The General Partner will also receive fees for services in connection
with the financing or refinancing from institutional lenders, including the
Franchisors or their affiliates, of any or all of the Hotels. Upon the closing
of any financing or refinancing of any Hotel, the General Partner will receive
a fee equal to 1% of the gross loan proceeds of such financing; provided,
however, the General Partner will not receive a fee on the conversion of
construction financing to permanent financing, except to the extent such
permanent financing exceeds the original principal amount of such construction
loan. In the event any refinancing occurs 24 months from the closing of the
original financing or a prior refinancing of a particular Hotel, the General
Partner will not be entitled to payment of a fee. In addition, if the
refinancing involves the sale of promissory notes to investors in a private
placement which is exempt from registration under the Securities Act of 1933,
as amended, or a public offering similar to the offering of Notes pursuant to
the Prospectus, the General Partner and the Managing Dealer are expressly
authorized to receive from the Partnership the fees and sales commissions
customarily charged by the General Partner and Managing Dealer for rendering
comparable services on competitive terms.
The General Partner will receive a sales fee upon the closing of a
sale of each Hotel in the amount of 3% of the gross sales price, provided that
the sum of such fee and any competitive real estate commission paid by the
Partnership with respect to such sale does not exceed 6% of the gross sale
price and that the General Partner renders substantial services in connection
with the sale of the Hotel.
A summary of the compensation to be received by the General Partner
and its affiliates in connection with this offering and the operation of the
Hotels is as follows:
Type of Compensation
and Recipient Estimated Maximum Amount of Compensation
Organization and Offering Stage
Selling Commissions to
Essex Capital Markets Inc.
Up to $80 per Unit and $55 per $1,000 Note sold. The aggregate amount will not
exceed $158,400 if only the Minimum Offering Amount is sold and
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$1,280,000 if the Maximum Offering Amount is sold.
Organization and Offering Management Fee to Essex Partners
3.4% of the gross proceeds of the offering. The aggregate amount will not exceed
$67,320 if only the Minimum Offering Amount is sold and $714,000 if the Maximum
Offering Amount is sold.
Acquisition and Development Stage
Acquisition Fee to Essex Partners
$110,000 per Hotel.
Development Fee to Essex Partners
$160,000 per Hotel, increased by 5% of the total construction, site development
and furniture, fixtures and equipment costs in excess of $2.7 million, but not
to exceed $325,000 per Hotel. In view of the differing development costs for
different types of Hotels, the aggregate amount is likely to be $250,000 (but
not to exceed $325,000) if only the Minimum Offering Amount is sold.
Operating Stage
Property Management Fee to Essex Partners
4.5% of gross operating revenues from the Hotels.
Partnership Management Fee To Essex Partners.
.75% of gross operating revenues from the Hotels.
Investor Relations Fee to
Essex Capital
.25% of Gross Offering Proceeds from the sale of Units and Notes, payable
annually from operating revenues beginning December 31, 1998 and continuing on
the 31st day of December in each of the next three calendar years thereafter,
but only if and to the extent that total Dealer Compensation does not exceed 10%
of Gross Offering Proceeds and total Organization and Offering Expenses do not
exceed 15% of Gross
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Offering Proceeds. Payment of the Investor Relations Fee is deferred until the
Cumulative Return has been paid and the fee shall be deemed paid to the extent
that such deferral continues through December 31, 2004. No Investor Relations
Fee will be paid if only the Minimum Offering Amount is sold and such fee
payable will not exceed $210,000 if the Maximum Offering Amount is sold.
Accounting Fee to Essex Partners
$800 per month.
Financing Fee to Essex Partners
1% of gross loan proceeds of any financing or refinancing from institutional
lenders of any or all of the Hotels. No fee will be payable, however, upon the
conversion of construction financing to permanent financing except to the extent
such permanent financing shall exceed the original principal amount of the
construction loan. Additionally, no fee will be payable to the General Partner
in the event any refinancing occurs within 24 months from the closing of the
original financing or a prior refinancing of a particular Hotel. Essex Partners
and the Managing Dealer are also entitled to receive the fees and sales
commissions customarily charged by them if the refinancing involves the sale of
promissory notes to investors in a private placement which is exempt from
registration under the Securities Act of 1933, as amended, or a public offering
similar to the offering of Notes pursuant to the Prospectus.
Liquidation Stage
Sales Fee to Essex Partners
3% of gross sales price on a sale of any or all of the Hotels.
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Interest in Partnership
Partnership Interest of General Partner
A 1% interest, which increases up to 20% of all cash distributions after the
Cumulative Return and certain other distributions have paid to Limited Partners.
The General Partner's capital contribution for this interest is an amount equal
to 1/99 times the aggregate capital contributions of the Limited Partners, which
is payable from distributions or upon liquidation of the Partnership.
The following table and footnotes illustrates the effect of the number
of Notes and Units sold on the maximum possible compensation of the General
Partner and the Managing Dealer:
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
----------- ----------
<S> <C> <C>
Selling Commissions[1] $116,500 $1,280,000
Organization and Offering
Management Fee 67,320 714,000
Acquisition Fee 110,000 330,000
Development Fee [2] 250,000 975,000
-------- ----------
TOTALS: $543,820 $3,229,000
======== ==========
</TABLE>
[1] Assumes no timing or volume discounts for purposes of the Maximum
Offering Amount. Assumes the sale of 304 Units without timing or
volume discounts, or the sale of 320 Units, with timing discounts of
5%, and 1,676 Notes for purposes of the Minimum Offering Amount.
[2] The above table assumes, solely for purposes of illustration, that one
Hampton Inn & Suites(SM) will be developed if the Minimum Offering
Amount is sold, and an aggregate of three hotels will be developed if
the Maximum Offering Amount is sold.
EXPENSES OF THE PARTNERSHIP
All expenses of the Partnership will be billed directly to and paid by
the Partnership. However, the General Partner and its affiliates may be
reimbursed for (I) organizational and offering expenses; (ii) salaries, travel
expenses and other employee expenses for services that could be performed
directly for the Partnership by
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independent parties, including legal, accounting, transfer agent, data
processing, duplicating and administration of investor accounts; (iii) the cost
of all Partnership reports and communications to investors; and (iv) any other
direct expenses incurred by the General Partner or its affiliates relating to
the purchase, lease, sublease, construction, development, management, operation
or disposition of the Hotels and the administration of the Partnership, subject
to limitations set forth in Section 4.10 of the Partnership Agreement. These
reimbursements will be paid out of the gross proceeds of the offering and/or the
gross revenues from the operation of the Hotels. No reimbursement will be
permitted, however, for (I) salaries or fringe benefits incurred by the
executive officers or directors of the General Partner or its affiliates, and
(ii) any indirect expenses incurred in performing services for the Partnership
such as rent or depreciation, utilities, and other unallocable administrative
items. Notwithstanding the foregoing, no reimbursement will be permitted for
services for which the General Partner or its affiliates are entitled to
compensation by way of a separate fee.
In no event will any amount charged by the General Partner as
reimbursable expenses for goods and materials exceed the actual cost to the
General Partner of such goods or materials. Further, in no event will any
amount charged by the General Partner as a reimbursable expense for services
rendered by employees of the General Partner or its affiliates exceed the
lesser of the actual cost of such services or the amount that the Partnership
would be required to pay to independent parties for comparable services in the
same geographic location. The Partnership's annual report to the Limited
Partners will contain financial statements with an itemized breakdown of
expenses reimbursed to the General Partner and its affiliates during the year
covered by the report, and such financial statements will be audited by the
Partnership's independent certified public accountants, who will furnish their
report thereon.
PARTNERSHIP INTEREST OF THE GENERAL PARTNER
Under Section 3.05 of the Partnership Agreement, the General Partner
will receive 1% of all distributions to Partners from Partnership operations
until all Limited Partners have received, from cash flow, their Cumulative
Return due through the date of the distribution and any unpaid Cumulative
Return from prior years. The General Partner will receive one percent of all
Distributions from a Sale or Refinance of Hotels until all Limited Partners
have received Distributions from a Sale or Refinance of Hotels equal to (a)
their capital contributions; plus (b) any unpaid Cumulative Return due through
the date of the distribution.
The General Partner will receive 20% of all additional distributions
to Partners from cash flow of the Hotels and 20% of all additional
Distributions from a Sale or Refinance of Hotels. See "SUMMARY OF THE
PARTNERSHIP
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AGREEMENT" and "TAX CONSIDERATIONS - Discussion of Tax Consequences
of Owning Limited Partnership Units, Allocations of Income and Loss."
Allocations of income and loss among the Partners will be made in
accordance with the rules set forth in Section 3.01 of the Partnership
Agreement and are generally intended to reflect the distribution rules
described above and to comply with the requirements of the substantial economic
effect safe harbor set forth in the Treasury Regulations promulgated under
Section 704(b) of the Code. These rules are summarized in detail under "TAX
CONSIDERATIONS - Discussion of Tax Consequences of Owning Limited Partnership
Units, Allocations of Income and Loss."
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ESTIMATED USE OF PROCEEDS
The following table illustrates the intended uses by the Partnership
of the gross proceeds of this offering, all of which are to be paid by the
Partnership and not by the Holders of the Notes. Approximately 66.8% of the
Gross Offering Proceeds will be available for Investment if the Minimum
Offering Amount is sold and approximately 84.8% of the Gross Offering Proceeds
will be available for investment if the Maximum Offering Amount is sold. Under
the assumptions described below, the total amount of fees to be paid to the
General Partner and its affiliates from the Gross Offering Proceeds of this
offering would be $543,820 (27.5%) if only the Minimum Offering Amount is sold
and $2,996,600 (14.3%) if the Maximum Offering Amount is sold. The amounts set
forth below are estimates only, and consequently should not be relied upon as
an assurance of the actual use of the proceeds of this offering.
<TABLE>
<CAPTION>
Minimum Offering Amount Maximum Offering Amount
$1,980,000 Percent $21,000,000 Percent
Source
- ------
<S> <C> <C> <C> <C>
Units [1] 304,000 15.4% 4,900,000 23.4%
Subordinated Notes 1,676,000 84.6% 6,000,000 75.9%
Mortgage Note 0 .0% 10,000,000 47.8%
---------- ----- ----------- -----
Gross Offering
Proceeds [2][3] $1,980,000 100.0% $20,900,000 100.0%
========== ===== =========== =====
Uses
Public Offering Expenses:
Selling Commissions [3] 116,500 5.9% 1,272,000 6.1%
Organization and
Offering Expenses [4] 180,500 9.1% 890,600 4.3%
Interest in Essex
Glenmaura L.P. 891,000 45.0% 1,250,000 6.0%
Construction,
Furnishings, Fees
And Expenses [5] 241,000 12.2% 14,521,000 69.5%
Construction Period
Interest 151,000 7.6% 1,440,000 6.9%
Working Capital
Reserve 0 0.0% 392,400 1.9%
Franchise Fees [6] 40,000 2.0% 120,000 0.6%
Acquisition Fee [7] 110,000 5.6% 330,000 1.6%
Development Fee [8] 250,000 12.6% 684,000 3.3%
---------- ----- ----------- -----
Total Use of Proceeds $1,980,000 100.0% $20,900,000 100.0%
========== ===== =========== =====
Total Amount Available $1,323,000 66.8% $17,723,400 84.8%
for Investment ---------- ----- ----------- -----
</TABLE>
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[1] Assumes 320 Units sold in the Minimum Offering Amount and 3,500 Units
of the 5,000 Units sold in the Maximum Offering Amount qualify for
timing discounts ranging from 1% to 5%.
[2] The actual amount of the Gross Offering Proceeds cannot be determined
until the termination of the offering. All proceeds of the offering
will be held in trust for the benefit of the purchasers of the Notes
and Units to be used only for the purposes set forth above and under
the caption "INVESTMENT OBJECTIVES AND POLICIES."
[3] The Managing Dealer, an affiliate of the General Partner, will receive
selling commissions equal to 5.5% of the principal amount of each Note
sold and up to 8% of the price of each Unit sold (assuming that no
volume discounts are received with respect to Units sold). The
Managing Dealer may, but is not obligated to, reallot all or a portion
of each commission to Soliciting Dealers. Due to the different
percentage selling commissions for each type of security that is being
offered and the discounts available on the sale of the Units, the
actual amount of selling commissions cannot be determined until the
closing of the offering. The above table assumes, solely for purposes
of illustration, that the Minimum Offering Amount of $1,980,000 will
result from the sale of 320 Units ($1,000 per Unit) and $1,676,000 of
Notes.
[4] Consists of fees payable to the Trustee, the Securities and Exchange
Commission, the NASD and applicable state securities authorities and
estimated legal, accounting, printing, filing fees and other expenses
relating to the organization of the Partnership and the offering of
the Notes and Units (other than selling commissions and any additional
selling commissions), including preparation of this Prospectus. The
table includes an Organization and Offering Management Fee payable to
the General Partner equal to 3.4% of the Gross Offering Proceeds. The
General Partner may, in its sole discretion, reallot from such fee and
pay to the Managing Dealer or Soliciting Dealers an amount equal to up
to 1% of the Gross Offering Proceeds. The General Partner has agreed
to pay Organization and Offering Expenses of the Partnership and
selling commissions to the extent that the aggregate of such expenses
and commissions exceed 15% of the Gross Offering Proceeds.
[5] The table assumes, solely for purposes of illustration, that the
Partnership will use the Gross Offering Proceeds, in combination with
External Financing to purchase land, construct and equip one 105-room
Hampton Inn & Suites(SM) in the event that the Minimum Offering Amount
of $1,980,000 is sold, and one Hampton Inn & Suites(SM) (105 rooms)
(estimated project cost of $5.4 million),
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one Homewood Suites(R) (80 rooms) (estimated project cost of $6.3
million), and one Fairfield Inn(R) by Marriott (80 rooms) (estimated
project cost of $3.1 million) hotel in the event that the Maximum
Offering Amount of $21 million is sold. The net proceeds of the Minimum
Offering Amount will not be sufficient to construct a single Hotel. The
Partnership will have to secure additional financing. See "RISK FACTORS
-- Absence of Financing Commitment." The table includes estimated land
purchase, site development (i.e., expenditures for earthwork,
installation of underground utilities, curbs and sidewalks, land
clearing and landscaping) and architectural and engineering costs and
the estimated cost of construction and furnishings for each Hotel. The
General Partner anticipates that the construction of one or more of the
Hotels will commence during the offering period. These construction
costs may be financed in part with the proceeds of a loan from the
General Partner or an unaffiliated lender. Estimated interest on such a
loan has been included in the above table. The amount shown in the
above table in Construction, Furnishings, Fees and Expenses and under
the headings Working Capital Reserve, Franchise Fees, and limited
partnership interest in Essex Glenmaura represent the amount of the
Partnership's investment in the purchase, lease or sublease,
development, construction and improvement of properties ("Investment in
Hotels"). Investment in Hotels shall not include any fee paid to any
affiliate of the General Partner in connection with the purchase, lease
or sublease and development of properties. The Partnership Agreement
requires the General Partner to commit a percentage of Gross Offering
Proceeds to Investment in Hotels which is at least equal to the greater
of: (I) 80% of Gross Offering Proceeds reduced by .1625% for each 1% of
indebtedness encumbering Partnership properties; or (ii) 67% of Gross
Offering Proceeds.
[6] The Partnership will pay an initial franchise fee of $40,000 per
Hampton Inn & Suites(SM) and Homewood Suites(R) to the Franchisor. See
"THE PARTNERSHIP'S BUSINESS - Franchise Agreements."
[7] The Partnership will pay an Acquisition Fee to the General Partner of
$110,000 per Hotel that is developed by the Partnership.
[8] The Partnership will pay a Development Fee to the General Partner of
$160,000 per Hotel site that is acquired by the Partnership increased
by 5% of total construction, site development and furniture, fixtures
and equipment costs in excess of $2.7 million, but not to exceed
$325,000 per Hotel.
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SPECIFIED PROPERTIES.
The Partnership expects to acquire approximately 2.28 acres of real
property in Solon, Ohio, at a purchase price of $258,000 per each acre
determined by a final survey, for an anticipated purchase price of $588,240,
plus estimated closing costs of approximately $20,000 (the "Solon Property").
The Partnership also expects to acquire approximately 2.535 acres of real
property in Warwick, Rhode Island at a purchase price of $496,900, plus
estimated closing costs of approximately $20,000 (the "Warwick Property"). The
Solon Property and Warwick Property will be purchased by the Partnership
pursuant to real estate purchase contracts entered into by the General Partner
which will be assigned to the Partnership. The Partnership intends to construct
a Hampton Inn & Suites(SM) hotel on the Solon Property and a Homewood Suites(R)
hotel on the Warwick Property. The Partnership will obtain, by assignment from
the General Partner, a commitment from the Promus Hotel Corporation to issue a
license to operate a Hampton Inn & Suites(SM) hotel on the Solon Property upon
satisfactory completion of construction. See "THE PARTNERSHIP'S BUSINESS --- The
Specified Properties."
ESSEX GLENMAURA L.P.
The Partnership intends to purchase not less than 8.91 limited
partnership units and, in the event the Maximum Offering Amounts is sold, 12.5
limited partnership units in Essex Glenmaura. The Partnership reserves the right
to purchase up to a maximum of $1,500,000 in value of such limited partnership
units. The Partnership will have an approximate 54.4% limited partnership
interest in Essex Glenmaura if it purchases 12.5 limited partnership units. In
no event, however, will the Partnership's investment in Essex Glenmaura exceed
at any one time more than 45% of the proceeds from this offering or 45% of the
value of its assets. Essex Glenmaura has been formed by affiliates of the
Partnership to acquire undeveloped land and construct, own, and operate a
120-room Courtyard by Marriott(R) hotel to be located in the Borough of Moosic,
near the City of Scranton, Pennsylvania under a franchise from Marriott
International Inc. The General Partner is the general partner of Essex
Glenmaura. See "THE PARTNERSHIP'S BUSINESS -- The Essex Glenmaura Investment."
SHORT TERM INVESTMENTS
Pending investment of the net proceeds as specified above, the
Partnership plans to invest such proceeds in highly liquid sources, such as
interest-bearing bank accounts, bank certificates of deposit or other short
term money market instruments. It is presently anticipated that such short term
investments would be for a period not
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<PAGE> 134
in excess of twelve months, although such time could be extended if appropriate
sites are not identified for development of Hotels.
THE GENERAL PARTNER
Essex Partners Inc. is the General Partner of the Partnership. The
Partnership Agreement provides that management of the Partnership shall be the
sole responsibility of the General Partner, except for certain voting rights of
the Limited Partners. See "SUMMARY OF `THE PARTNERSHIP AGREEMENT.'"
ESSEX INVESTMENT GROUP, INC.
Essex Partners is a wholly-owned subsidiary of Essex Investment Group,
Inc. ("Essex"), a New York corporation that was formed in December, 1986, by
combining the management of a series of affiliated companies. Essex is an
integrated financial services company which develops and markets a broad range
of investment and insurance products and services for individuals, pension
accounts, businesses and not-for-profit organizations. Essex is a privately
held company, with approximately 87% of its common stock held by current
employees. The company has also issued preferred stock which is held by a
diverse group of primarily non-affiliated investors.
Principal Officers and Directors of Essex Investment Group, Inc.
John E. Mooney - President, Chief Executive Officer and Director.
Mr. Mooney, age 50, received a B.S. in Mathematics from LeMoyne
College in 1966 and a M.B.A. from the University of Rochester in 1969. He held
positions as Assistant Vice President and Loan Officer of the First National
Bank of Chicago and Vice President and Assistant to the Chairman of A.G.
Becker, a New York City investment banking firm. Mr. Mooney was the founder,
Chief Executive Officer, and Director of the MM&S group of companies, a
forerunner of Essex. He has served as a principal partner in over 45 real
estate investments, including most of the company's hotel investments, and in
three venture capital funds. Mr. Mooney is directly involved in all facets of
Essex's hotel activities. He also is Chairman of the Board of Genesee Capital,
Inc., a Rochester-based Small Business Investment Company, and is a Director of
Moscom Corporation, Performance Technologies, Inc., and St. John Fisher
College. Mr. Mooney was a Co-Founder of Essex.
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Thomas W. Blank - Senior Vice President.
Mr. Blank, age 46, received a B.A. degree from Hartwick College in
1970 and a LLB/JD from Union University, Albany Law School in 1973. He was a
partner in charge of commercial and residential real estate with Weidman,
Jordan, Mackey & Blank, until 1985, when he joined JTS Computer Services, Inc.
as General Counsel. Mr. Blank worked at JTS Computer Services, Inc. until
1990. He joined Essex in July 1990, and has overseen the development of 12
hotels. He is currently responsible for Essex's Hotel Division, and directly
oversees all hotel development and construction activities.
James A. Young - Vice President.
Mr. Young, age 45, received a B.S. Degree in Education from West
Chester State University in 1970. From 1970 to 1983 he held a number of
positions in education and business. He joined the Marriott Corporation in
1983 and until 1991 served in various management capacities with Courtyard by
Marriott(R), most recently as Area Manager with total profit and loss
responsibility for 11 properties. From 1990 to 1991 he was the General Manager
of the Georgetown University Hotel and Conference Center. From 1991 to 1993 he
served as the Executive Director of Auxiliary Services of Georgetown
University, with full administrative responsibility for many of the
university's services, including the motel and conference center. He joined
Essex in 1993, and is responsible for hotel management and operations.
Jerald P. Eichelberger - Executive Vice President, Secretary and
Director.
Mr. Eichelberger, age 51, received a B.S. in Engineering from the
United States Military Academy at West Point in 1965 and a M.B.A. in Finance
and Marketing from the University of Rochester in 1979. He was the co-founder
of a privately held construction and land development firm, and he was the
Executive Vice President, Secretary/Treasurer and a Director of MM&S group of
companies, a forerunner of Essex. Mr. Eichelberger was a Co-Founder of Essex
and has served as a principal partner in several real estate investments and
one venture capital fund. He is a Director of Genesee Capital, Inc. Mr.
Eichelberger has been responsible for the selection of Essex's hotel sites
since 1989.
Salvatore A. Messina - Executive Vice President and Director.
Mr. Messina, age 36, received a BA in Economics from Princeton
University in 1981. He joined Dean Witter Reynolds as a securities broker in
1981 and was promoted to assistant manager in 1984. In 1985 he became branch
manager of Advest,
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Inc., a northeast regional brokerage firm. While at Advest, Mr. Messina was a
member of the firm's Advisory Council. He currently serves on the Board of
Compeer. Mr. Messina joined Essex in 1988 and is responsible for its Financial
Services Division.
Richard C. Brienzi - Vice President, Chief Financial Officer and
Treasurer
Mr. Brienzi, age 37, received a B.S. from St. John Fisher College in
1981 and is a Certified Public Accountant licensed in New York State. From
1981 to 1985 he was with the national accounting firm of Coopers and Lybrand in
Rochester, N.Y. From 1985 to 1988 he was with The Cabot Group, a real estate
development company, as Controller of the Development Division and Director of
Acquisitions. From 1988 to 1993 Mr. Brienzi was Chief Financial Officer of
DiMarco Constructors Corp. While at DiMarco he established Baldwin Real Estate
Corp., a subsidiary which manages the properties of the DiMarco Group. Mr.
Brienzi is a member of the New York Society of Certified Public Accountants,
American Institute of Certified Public Accountants, and Construction Financial
Management Association. He joined Essex in March, 1993, and oversees all
corporate and real estate budgeting and financial reporting.
David J. Whitaker - Vice President.
Mr. Whitaker, age 53, attended Union College and joined Security Trust
Company in 1965. During his tenure of nearly 20 years with Security Trust
Company, he held numerous management positions in marketing, equipment leasing
and in the Commercial Loan and the Trust Division. He was also president of the
equipment leasing affiliate of the bank's holding company. Mr. Whitaker joined
Essex's predecessor in 1984 and currently is responsible for the management of
most non-hotel real estate projects. Mr. Whitaker is Chairman of the Board of
Bearium Metals Corporation and is a past president of the Al Sigl Center and
the Rochester Friendly Home. Mr. Whitaker has been an officer of Essex since
its formation in 1986.
Barbara J. Purvis - Vice President.
Ms. Purvis, age 41, received her B.S. Degree in Biology and Chemistry
from Northern Arizona University in 1975 and a M.B.A. in Finance and Applied
Economics from the University of Rochester in 1983. From 1976 to 1981, she was
involved in biochemical research at the University of Rochester Medical Center.
Ms. Purvis joined the MM&S group of companies in 1983 as a financial analyst
and has been responsible for structuring, financing, and managing a series of
real estate projects. She has been an officer of Essex since its formation in
1986, and is primarily responsible for structuring and securing equity and debt
capital for Essex's hotel investments.
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Ms. Purvis is a director of Genesee Capital, Inc., and serves on the board of
directors of a number of not-for-profit agencies.
Lorrie L. LoFaso - Vice President and Assistant Secretary.
Ms. LoFaso, age 38, received a B.S. degree in Accounting in 1979 from
Indiana University in Bloomington, Indiana, and the Certified Public Accountant
designation in 1982 from the Commonwealth of Massachusetts. From 1979 until
1983, she worked for the Cincinnati and Boston offices of Peat, Marwick,
Mitchell & Co. as a Supervising Senior Auditor. From 1984 until 1989, she
worked at Horsley Keogh & Associates, Inc., a venture capital firm in
Rochester, New York, as Information Systems Manager. She joined Essex in June,
1989, and is responsible for partnership administration and property management
accounting.
ESSEX PARTNERS INC.
Essex Partners Inc., the General Partner of the Partnership, is a New
York corporation which was formed in December, 1986 for the general purpose of
acting as managing general partner for limited partnerships formed to own real
estate and other investments. In addition to acting as General Partner of the
Partnership, the General Partner is also a general partner of other limited
partnerships and, as such, it may be held liable for all recourse debt and
obligations of such limited partnerships to the extent that the obligations are
not paid by the limited partnerships. As of December 31, 1994, the amount of
such contingent liabilities was $2,900,000. See "EXHIBIT E -- Financial
Statements of General Partner." The General Partner has a net worth of
approximately $1,700,000 as of July, 31 1995. See "SUMMARY OF THE PARTNERSHIP
AGREEMENT -- The Net Worth of the General Partner." The audited financial
statements of the General Partner as of and for the year ended December 31,
1994, and the unaudited balance sheet of the General Partner as of July 31,
1995, are attached hereto as Exhibit E. The Notes will not be obligations
payable by the General Partner. See "DESCRIPTION OF THE NOTES - Non-Recourse
Obligation."
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THE FOLLOWING ORGANIZATIONAL CHART SHOWS THE RELATIONSHIP BETWEEN THE GENERAL
PARTNER AND ITS AFFILIATES:
ESSEX INVESTMENT GROUP, INC.
ESSEX PARTNERS, INC. [1] [2]
ESSEX CAPITAL MARKETS INC. [2]
Managing Dealer
ESSEX HOSPITALITY ASSOCIATES IV L.P.
Registrant
[1] Essex Partners Inc. Is the General Partner of the Registrant, a New
York limited partnership. The General Partner has a 1% interest in
the Partnership, which increases to 20% of all cash distributions
after the Cumulative Return and certain other distributions have been
paid to Limited Partners.
[2] Essex Partners Inc. And Essex Capital Markets Inc. Are New York
corporations the capital stock of which is wholly owned by Essex
Investments Group, Inc.
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THE OFFICERS AND DIRECTORS OF ESSEX PARTNERS ARE AS FOLLOWS:
John E. Mooney - President, Chief Executive Officer and Director.
Thomas W. Blank - Senior Vice President and Director.
James A. Young - Vice President of Hotel Operations.
Jerald P. Eichelberger - Executive Vice President, Secretary and
Director.
Richard C. Brienzi - Vice President, Treasurer and Director.
David J. Whitaker - Vice President and Director.
Barbara J. Purvis - Vice President and Director.
Lorrie L. LoFaso - Vice President and Assistant Secretary.
EXPERIENCE OF ESSEX PARTNERS AND AFFILIATES
Since 1982, Essex Partners Inc. (the "General Partner") and its
affiliates have sponsored 59 limited partnerships and limited liability
companies having real estate interests and have raised over $105 million from
3,700 investors. These limited partnerships have invested in an aggregate of
more than 59 properties, valued at approximately $174 million, based on the
purchase price of such properties. These properties are located primarily in
the eastern half of the United States, and are concentrated in the northeastern
and midwestern part of the United States. Approximately 66% of the properties,
based on acquisition costs, are comprised of residential properties and the
remainder are commercial properties, including hotel properties, which comprise
30% of such commercial properties. Based on acquisition costs, approximately
50% of the properties were existing, 44% were constructed by the limited
partnerships, and the remaining 7% were acquired newly built. To date, 13 of
the properties have been sold. Of the 59 limited partnerships and limited
liability companies sponsored by the General Partner and its affiliates, 3 were
public and raised an aggregate of $28 million from 1,600 investors. These
limited partnerships have constructed 7 new hotels at a cost of $23 million,
exclusive of working capital reserves.
With respect to limited partnerships having similar objectives to
those of the Partnership, since 1982, the General Partner has raised
approximately $50 million from over 2,100 investors to build and/or acquire 14
hotels at an aggregate acquisition cost of approximately $53 million, exclusive
of working capital reserves. Based on acquisition costs, 88% of these
properties were constructed by the limited partnerships, 7% were existing, and
5% were acquired newly built. None of the properties have been sold. As
described below, three of the 19 hotel related offerings were public programs.
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<PAGE> 140
The following is a summary of these partnerships, including the
partnership name, a description of the properties acquired and the total amount
raised in each offering.
<TABLE>
<CAPTION>
TOTAL AMOUNT
NAME OF PARTNERSHIP TYPE OF PROPERTY AND LOCATION RAISED
- ------------------- ----------------------------- ------------
<S> <C> <C>
Essex Diversified Formed to acquire interests in a $1,680,000
Equities-I limited partnership owning an apartment
project in Atlanta, Georgia and in at
least two other unspecified real estate
limited partnerships.
Essex Water's Edge Formed to become sole limited partner 575,000.*
Associates L.P. in a partnership developing a condominium
project in Buffalo, New York.
Essex-Ashford Formed to acquire, own, operate, further 1,050,000
Countryside L.P. develop and dispose of a mobile home park
located in the Township of McKean, Erie
County, Pennsylvania.
Essex-Ashford Royal Formed to acquire, own, operate and dispose 735,000
Park L.P. of a mobile home park located in the Township
of Canton, Washington County, Pennsylvania.
</TABLE>
* Essex Diversified Equities-I invested $375,000 of this amount.
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<PAGE> 141
<TABLE>
<CAPTION>
TOTAL AMOUNT
NAME OF PARTNERSHIP TYPE OF PROPERTY AND LOCATION RAISED
- ------------------- ----------------------------- ------------
<S> <C> <C>
Essex Geneseo Formed to construct, own and operate a 1,950,000
Associates L.P. 110-unit apartment project located in
the Village of Geneseo, Livingston County,
New York.
The Partnership also completed an offering 325,000
of unsecured notes in order to refinance debt
and pay costs of additional construction.
Essex-Ashford Formed to acquire, own, operate, further 950,000
LaPorte L.P. develop and dispose of a mobile home park
located in LaPorte County, Indiana.
Essex-Ashford Formed to acquire, own, operate and 1,075,000
Greentree L.P. dispose of mobile home parks located in
Conneaut, Ohio; Columbus, Ohio; and
Falconer, New York.
Essex Windsor Formed to acquire 2/3 of the limited 1,829,000
Parke-I L.P. partnership interests of Windsor Parke Gold
Limited Partnership, which was formed to
acquire, develop, own and manage an 18 hole
golf course located in Jacksonville, Florida.
Essex-Ashford Formed to acquire, own, operate and 1,300,000
River Oaks L.P. dispose of a mobile home park located in
Springfield, Illinois.
</TABLE>
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<TABLE>
<CAPTION>
TOTAL AMOUNT
NAME OF PARTNERSHIP TYPE OF PROPERTY AND LOCATION RAISED
- ------------------- ----------------------------- ------------
<S> <C> <C>
Essex Microtel Formed to construct, own and operate 1,487,500
1989 L.P. a 100-room Microtel(R) hotel in the Town
of Lancaster, New York.
The partnership also completed an offering 1,200,000
of second mortgage notes the proceeds of
which were used to prepay a portion of the
mortgage indebtedness and to make
distributions to its limited partners.
Essex Windsor Formed to acquire, own, operate, and 1,232,445
Park-II L.P. develop 20 acres of land located in
Jacksonville, Florida for the construction
of single family homes.
An offering of Notes to develop lots for 846,000
single family homes and to construct two
homes in a Jacksonville, Florida golf
course development and to pay related
accrued expenses.
Essex Village Formed to acquire, own, operate, further 1,360,000
Park L.P. develop and dispose of a mobile home park
located in Greensboro, North Carolina.
Essex Evansdown Formed to develop and operate a low-income 2,750,013
Associates housing project in LeRay, New York.
</TABLE>
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<TABLE>
<CAPTION>
TOTAL AMOUNT
NAME OF PARTNERSHIP TYPE OF PROPERTY AND LOCATION RAISED
- ------------------- ----------------------------- ------------
<S> <C> <C>
Essex Microtel Formed to acquire, own and operate 1,871,480
Lehigh L.P. a 99-room Microtel(R) hotel located
in the Town of Henrietta, near
Rochester, New York.
The partnership also completed an 1,290,000
offering of second mortgage notes the
proceeds of which were used to prepay
a portion of the mortgage indebtedness
and to make distributions to its limited
partners.
Essex-Ohio Formed to acquire interests in two 540,000
Properties L.P. limited partnerships formed to develop and
operate a low-income housing project
located in Mt. Gilead, Ohio and a low-
income housing project located in
Salem, Ohio.
Essex Microtel Formed to acquire, own and operate a 100- 1,531,254
LeRay L.P. room Microtel(R) hotel in the Town of
LeRay, near Watertown, New York.
Essex Microtel LeRay L.P. completed an 217,000
offering of second mortgage notes to
repay debt and provide working capital
Essex Microtel Formed to construct, own and operate 3,083,000
Associates L.P. up to four Microtel(R) hotels.
Essex Microtel Associates L.P. also 434,000
completed an offering of first mortgage
notes to refinance its first mortgage.
Hagel-Essex Formed to develop, own and operate a 1,012,750
Microtel L.P. Microtel(R) hotel in the Town of
Tonawanda, New York.
</TABLE>
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<PAGE> 144
<TABLE>
<CAPTION>
TOTAL AMOUNT
NAME OF PARTNERSHIP TYPE OF PROPERTY AND LOCATION RAISED
- ------------------- ----------------------------- ------------
<S> <C> <C>
Essex Avalon L.P. Formed to acquire, own, operate, further 500,000
develop and dispose of a mobile home
park located in Middletown, Ohio. [1]
Essex Microtel Formed to construct, own and operate 1,327,000
Carrier Circle L.P. a 100-room Microtel(R) hotel near Syracuse,
New York.
The partnership also completed an offering 2,200,000
of first mortgage notes which were used to
pay for a portion of the hotel construction
cost.
Essex Charleston Formed to construct, own and operate a 3,390,000
Associates L.P. 102-room Microtel(R) hotel located in the
City of South Charleston, West Virginia.
The partnership completed a combined
offering of limited partnership interests
and first mortgage notes.
Essex Microtel A public program formed to construct, own 10,487,000
Associates II L.P. and operate an 87-room Microtel(R) hotel
located in Kingsport, Tennessee; a 92-room
Microtel(R) hotel located in Boardman, a
suburb of Youngstown, Ohio; and a 101-room
Microtel(R) hotel located in Erie, Pennsylvania.
Essex Hospitality A public program formed to construct, own 14,000,000
Associates III L.P. and operate a 102-room Microtel(R) hotel
located in the City of Homewood, a suburb of
Birmingham, Alabama, a 116-room Hampton Inn(R)
in the Town of Greece, a suburb of Rochester,
New York and a 100-room Microtel(R) hotel in
Chattanooga, Tennessee.
</TABLE>
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<TABLE>
<CAPTION>
Total Amount
Name of Partnership Type of Property and Location Raised
- ------------------- ----------------------------- ------------
<S> <C> <C>
Essex Knoxville A Delaware limited partnership formed to construct, 1,000,000
Associates L.P. own and operate a 105-room Microtel(R) hotel in the
City of Knoxville, Tennessee.
The partnership also completed an offering of first 2,000,000
mortgage notes which were needed to pay a portion of
the hotel construction costs.
The partnership also completed an offering of 500,000
12% Notes.
Essex Honeoye A Delaware limited partnership formed to acquire, own 325,000
Valley L.P. and operate a mobile home park located in the Town of
Canadice, near Rochester, New York.
Essex Elmira A New York limited partnership formed to purchase the 3,425,000
Credits L.P. sole limited partnership interest in an operating
partnership which rehabilitated, owns and operates a
complex consisting of 66 apartments and approximately
19,400 square feet of commercial space in Elmira,
New York.
Essex Greenport A New York limited liability company formed to 1,200,000
L.L.C. complete, own and operate an 81-unit apartment project
in Greenport, New York.
</TABLE>
- ------------
[1] This partnership no longer owns property and is expected to be dissolved by
the end of 1996.
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Essex Partners is a general partner of Essex Glenmaura L.P., which was
formed to develop, own and operate a 120-room hotel in the Borough of Moosic,
Pennsylvania under a Courtyard by Marriott(R) franchise. The partnership has
issued $1,500,000 principal amount of its subordinated notes and has received
aggregate capital commitments of $1,050,000.
Essex Partners is a general partner of Essex Albion Credits L.P. which
was formed to purchase the sole limited partnership interest in an operating
partnership which will own and operate a new 24 unit apartment complex in
Albion, New York which will be rented to low income families. This offering,
which seeks to raise a maximum of $1,183,000, is currently in process.
Essex Partners and John E. Mooney were general partners of Essex
Strategic Opportunities Fund L.P., a Delaware limited partnership formed to
invest in limited partnerships which would have invested in distressed
apartment and hotel/motel properties acquired from financial institutions and
agencies. The general partners abandoned the concept and no proceeds were
raised for this partnership.
Essex Investment Group, Inc., the sole shareholder of Essex Partners,
was one of two general partners of Essex Shire Developers, the general partner
of The Pavilion Partners, L.P., a New York limited partnership formed to
develop, own and operate a major retail and commercial project on the Buffalo,
New York waterfront. The total dollar amount raised was $2,380,000, $555,000
of which was represented by notes issued by the limited partners.
Essex Investment Group, Inc., the sole shareholder of Essex Partners,
is the sole common shareholder of Essex Microtel International Lodging, Inc.
("EMILI"), an Ontario company formed to acquire master franchise rights from
Microtel Franchise and Development Corporation to develop, own and operate
motels and to grant franchises to operate motels in Canada under a Master
Franchise Agreement. $749,500 was raised through a private offering of Series
A Preferred Stock.
Essex Investment Advisors Inc., a wholly-owned subsidiary of Essex
Investment Group, Inc., and John E. Mooney are general partners of Essex
Diversified Credits L.P., a Delaware limited partnership formed to acquire
interests in low-income housing that qualifies for the low-income housing tax
credit. The total dollar amount raised was $1,620,500. The officers and
directors of Essex Investment Advisors Inc. are Barbara J. Purvis, President
and Director, and Jerald P. Eichelberger, Treasurer, Secretary and Director.
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<PAGE> 147
Essex Investment Advisors Inc. is one of two general partners of Essex
Diversified Equities-II, which was formed to acquire interests in other
partnerships owning real estate. A total of $1,001,250 was raised for this
partnership.
Prior to the formation of Essex Partners, John E. Mooney, Jerald P.
Eichelberger, Barbara J. Purvis and David J. Whitaker were involved in real
estate syndications through MM&S Resources, Inc.
MM&S was formed by John E. Mooney in 1980 and has been a general
partner in seventeen real estate offerings since January, 1982, most of which
have involved the purchase of apartment projects in the upstate New York
region. Six of these partnerships own a total of 436 apartment units and
limited partnership interests and the remaining eleven partnerships are no
longer in business. The following is a list of these partnerships, a
description of the properties acquired and the total amount raised in each
offering.
<TABLE>
<CAPTION>
Total Amount
Name of Partnership Type of Property and Location Raised
- ------------------- ----------------------------- ------------
<S> <C> <C>
173 North Street 129 unit apartment building in Buffalo, New York. $ 900,000
Associates
MM&S Sunbelt/ Unimproved residential and commercial property in 1,465,200
Energy Properties Phoenix, Arizona. [1]
- - 1982
MM&S Eastview 60 unit apartment project in Victor, New York. [1] 443,800
Associates
MM&S Northtowne 50 unit apartment project in Greece, New York. [1] 520,200
Associates
MM&S Tudor Lane 56 unit apartment project in Lockport, New York. [1] 396,500
Associates
MM&S Spanish 221 unit apartment project in Greece, New York. [1] 2,119,000
Garden Associates
MM&S Dohr 112 unit apartment project in Greece, New York 1,680,000
Associates
</TABLE>
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<TABLE>
<CAPTION>
Total Amount
Name of Partnership Type of Property and Location Raised
- ------------------- ----------------------------- ------------
<S> <C> <C>
MM&S Sunbelt Unimproved land in Arizona; net lease of model 1,926,410
Properties - 1983 homes in residential developments in Arizona and
California. [1]
MM&S Brighton 260 units in two apartment projects in Brighton, 3,359,000
Associates New York. [1]
MM&S Carriage 115 unit apartment project in Syracuse, New York. 1,405,560
House Associates
MM&S Triad 96 apartment units and 24,550 sq. ft. of commercial 961,920
Associates space in Williamsville, New York. [1]
MM&S Brook Hill 192 unit apartment project in Penfield, New York. [1] 2,932,000
Associates
MM&S Crossroads 150 unit apartment project in Spencerport, 2,244,320
Associates New York. [1]
MM&S Diversified Formed to acquire interests in other limited 1,650,000
Properties-1985 partnerships owning apartment projects.
MM&S Diversified Formed to acquire interests in other limited 2,500,000
Properties-1985 II partnerships owning apartment projects.
</TABLE>
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<TABLE>
<CAPTION>
Total Amount
Name of Partnership Type of Property and Location Raised
- ------------------- ----------------------------- ------------
<S> <C> <C>
Diversified Formed to acquire interests in other limited 187,250
Properties III partnerships owning apartment projects. [1]
Essex Walden Associates 80 unit apartment project in Batavia, New York. 700,000
</TABLE>
- ----------------
[1] This partnership no longer owns properties and has been dissolved or is
expected to be dissolved by the end of 1995.
ADVERSE BUSINESS DEVELOPMENTS
The General Partner and its affiliates have sponsored, collectively, 59
prior real estate syndications since 1982. See "EXHIBIT E -- Prior Performance
Tables -- Table III." Of these transactions, delays or other adverse
developments have occurred with respect to the following transactions.
Essex Microtel International Lodging, Inc.'s development activity in
Canada experienced delays as a result of adverse Canadian market conditions. The
master franchise agreement with Microtel Franchise and Development Corp. had
been amended to extend the development schedule and terms for payment of the
master franchise fee. In connection with the recent grant by Microtel of
worldwide franchise rights to U.S. Franchise Systems, Inc., all of this entity's
franchise rights were terminated.
MM&S Brighton Associates sold the two apartment projects it owned in
early 1992. The mortgage and unsecured note to the bank were paid in full,
however, there were no proceeds available for distribution to the limited
partners. Brighton had investment objectives that were heavily tax oriented, and
investors received tax benefits which approximated original projections. The
limited partners did incur a substantial amount of taxable gain as a result of
the sale.
MM&S Sunbelt Properties 1983 was unable to sell certain model homes
after the expiration of the net lease due to the downturn in the Phoenix,
Arizona real estate market. Negotiations with the bank which held the mortgages
were halted when the bank was taken over by the Resolution Trust Corporation
("RTC"). The partnership
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was able to negotiate discounted mortgages and sold two model homes for the
mortgages; however, the RTC was unwilling to cooperate with future sales, and
auctioned off the remaining homes at deep discounts. Sunbelt had investment
objectives that were heavily tax oriented and investors received substantial tax
benefits. Investors also received a return of 54% of their original investment
in cash distributions, which was 58% of original projections.
The Pavilion Partners L.P. was formed to develop a mixed-use project on
the Buffalo waterfront. Since the project's original conception, the commercial
office and retail markets in the Buffalo area were adversely affected by the
economy, causing the partnership to abandon the Pavilion project. The general
partners and limited partners lost their entire investment.
Essex Water's Edge Associates L.P. is the sole limited partner in Twin
Lakes Associates L.P. ("Twin Lakes"), a partnership formed to develop a 58-unit
condominium project on the waterfront in Buffalo, New York. The developer of
the project was only able to partially complete the project due to the sluggish
market conditions for luxury condominiums in Buffalo and the construction
lender subsequently foreclosed on the project. Water's Edge did not receive
any proceeds from the foreclosure sale or from future development on the site.
Water's Edge is pursuing its remedies under the personal guarantees provided by
principals of Twin Lakes to pay to Water's Edge certain unpaid distributions
totalling $450,000. It appears unlikely Water's Edge will be able to collect a
significant portion of the amount due.
PRIOR PERFORMANCE OF THE GENERAL PARTNER AND ITS AFFILIATES
The "Prior Performance" tables set forth as Exhibit G provide
information with respect to various real estate limited partnerships in which
the General Partner is a general partner and which have business and investment
objectives similar to those of the Partnership. The General Partner has
sponsored three prior publicly registered programs, Essex Microtel Associates
L.P., which constructed and is operating a Microtel(R) hotel in Columbus, Ohio,
Essex Microtel Associates II L.P., which constructed and is operating
Microtel(R) hotels in Erie, Pennsylvania, Kingsport, Tennessee, and Boardman a
suburb of Youngstown, Ohio, and Essex Hospitality Associates III L.P., which
constructed and is operating Microtel(R) hotels in the City of Homewood, a
suburb of Birmingham, Alabama and Chattanooga, Tennessee and a Hampton Inn(R)
in the Town of Greece, a suburb of the City of Rochester, New York.
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The "Prior Performance" information is provided solely to enable investors to
better evaluate the real estate investment experience of the General Partner.
INVESTORS SHOULD NOT INFER FROM THIS INFORMATION THAT COMPARABLE RESULTS WILL
BE ACHIEVED BY THE PARTNERSHIP. See "EXHIBIT E -- Prior Performance Tables."
ACQUISITIONS OF PROPERTIES
The General Partner or its affiliates have acquired 10 properties, of
which 9 have been developed and 1 is being developed, as hotel properties during
the three year period ending August 31, 1995. All 10 properties are located in
the eastern United States. Of these properties, only one, the Courtyard by
Marriott(R) hotel located in Scranton, Pennsylvania, expects to utilize
financing from external sources in combination with proceeds from the sale of
equity and debt securities. The other properties were acquired and developed
with proceeds from the sale by the affiliate of its equity or debt securities.
See "EXHIBIT E - Prior Performance Tables -- Table VI."
THE MANAGING DEALER
Essex Capital Markets Inc., a New York corporation which is a
wholly-owned subsidiary of Essex Investment Group, Inc., will act as the
Managing Dealer in connection with the offering of Notes and Units of the
Partnership. The Managing Dealer has acted as the sales agent for the General
Partner and MM&S in connection with the offering of limited partnership
interests in several other limited partnerships. The Managing Dealer may enter
into arrangements with other broker-dealer firms which are NASD members
("Soliciting Dealers") to assist in the sale of Notes and Units. Should the
Managing Dealer engage any Soliciting Dealer to assist it in the offering and
sale of Notes and Units, the Managing Dealer will arrange for the payment from
its selling commissions of any commissions or fees of such Soliciting Dealer.
The General Partner may also pay a portion of its Organization and Offering
Management Fee to the Managing Dealer or Soliciting Dealers. See "THE OFFERING
- -- Plan of Placement."
CONFLICTS OF INTEREST
The Partnership will be subject to a number of conflicts of interest
arising from its relationships with the General Partner, its owners and
affiliates and because of other activities and entities in which the General
Partner and its affiliates have or may have a direct or indirect financial
interest. This Prospectus attempts to highlight those conflicts of interest, but
a potential investor should be aware that, because of future activities or
events not now foreseen, the description herein may not be complete.
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SINGLE TRUSTEE
Manufacturers and Traders Trust Company (the "Trustee") will act as
Trustee under Indentures for both the Mortgage Notes and the Subordinated Notes.
Since the Notes are not pari passu, the interests of the Holders of the
Subordinated Notes will not always be aligned with those of the Holders of the
Mortgage Notes. Under the Trust Indenture Act of 1939, moreover, the Trustee
will be deemed to have a conflicting interest if either the Mortgage Notes or
the Subordinated Notes are in default. In such event, the Trustee would be
required to either eliminate the conflicting interest or resign, in which case
the Partnership shall be required to promptly appoint a successor Trustee or
Trustees.
LIMITED ROLE OF THE TRUSTEE
The terms of the Notes were structured by the General Partner of the
Partnership and are not the result of arm's length negotiations between the
Partnership and an independent lender. The General Partner owes fiduciary duties
to the Limited Partners of the Partnership, but does not owe any fiduciary
duties to the Holders of the Notes. The Trustee was retained by the Partnership
to serve as paying agent and registrar with respect to the Notes and to hold the
Mortgages on behalf of the Holders of the Mortgage Notes. The Trustee will not
supervise the construction of the Hotels and it is anticipated that the Trustee
will not inquire into the construction or operation of the Hotels unless the
Trustee becomes aware of an Event of Default under the Notes. Although the
General Partner is obligated to notify the Trustee of the occurrence of an Event
of Default, in view of its position as guarantor under the Guaranty of
Completion, it may not be in the General Partner's best interest to do so. The
Trustee will have the right to enforce the Guaranty of Completion only if the
Partnership fails to enforce its rights thereunder for a period of 30 days after
notice and demand from the Trustee. If one or more Hotel sites are leased or
subleased by the Partnership, it is anticipated that the Trustee will not
negotiate or review the terms of the lease or sublease on behalf of the Holders
of the Mortgage Notes. Therefore, the Holders of Mortgage Notes must entrust the
terms of the lease to the discretion of the General Partner, which does not have
the same economic interest that an independent lender would have in negotiating
a mortgageable lease or sublease. However, the General Partner does have an
incentive to insure that the terms of the lease or sublease are not burdensome
to potential buyers of the Hotels and will not negatively affect such buyers'
ability to obtain financing. The Trustee has acted as trustee with respect to
five prior private placements of mortgage notes and two publicly-registered
mortgage note offerings by limited partnerships which are affiliated with the
General Partner and may continue to do so with respect to other transactions.
The Trustee is also the principal lender to the General Partner and its sole
shareholder, Essex Investment Group, Inc.
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The Indentures limit the duties of the Trustee to only those duties as
are specifically set forth in the Indentures and the Mortgage, and provide that
the Trustee will not be liable to the Holders of Notes or the Partnership for
any losses or damages unless the loss or damage arises from the active
negligence, willful misconduct or willful default of the Trustee.
NO LIMITATION ON ACTIVITIES OF THE GENERAL PARTNER
There is no limitation on the rights of the General Partner or its
affiliates to engage in any business or to render services of any kind to any
entity. The General Partner and its affiliates act in the same capacity with
respect to several other limited partnerships and corporations and expect to
continue to do so. The General Partner and its affiliates may, therefore, have
conflicts in allocating their time, attention and efforts among the various
partnerships and corporations. In particular, the General Partner is the general
partner of 12 limited partnerships formed to own and operate hotels, which
programs and partnerships have investment objectives similar to those of the
Partnership. In addition, the General Partner or its affiliates expect to form
one or more limited partnerships to develop additional hotels which may have
investment objectives substantially the same as those of the Partnership. See
"THE PARTNERSHIP'S BUSINESS -- The Essex Glenmaura Investment." These franchise
operations or other investment programs established by the General Partner and
its affiliates may conflict with those of the Partnership. Neither the General
Partner nor its affiliates are obligated to afford the Partnership an
opportunity to participate in any such programs. Conflicts of interest may exist
if and to the extent that other owners of hotels affiliated with the General
Partner seeks to refinance or sell their hotels at the same time as the
Partnership. During the construction period, the General Partner and its staff
expects to devote approximately 80 hours per week toward the development of each
Hotel. After construction has been completed, the General Partner and its staff
expects to devote up to approximately 40 hours per week toward the operation of
the Hotels.
POTENTIAL CONFLICT IN ALLOCATING HOTEL SITES AMONG AFFILIATES
If the General Partner or its affiliates are presented with a potential
investment which might be made by more than one investment entity which it
advises or manages, priority will be given to the partnership or entity having
uninvested funds for the longest period of time. Other factors which may be
considered in connection with the decisions as to the suitability of the
property for investment include: (I) the effect of the acquisition on the
diversification of each entity's portfolio; (ii) the amount of funds available
for investment; (iii) cash flow; and (iv) the estimated income tax effects of
the purchase and subsequent disposition. It is believed that the aforementioned
factors
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will help to lessen the competition or conflicts with respect to the purchase or
lease of properties by other partnerships and the Partnership. The directors of
the General Partner will apply these rules in resolving conflicts which may
arise in the event that a potential investment is suitable for more than one
investment entity. Except for these rules, no formal provisions have been
adopted for the resolution of such potential conflicts. No conflicts exist with
respect to Specified Properties.
POTENTIAL COMPETITION AMONG HOTELS OWNED BY AFFILIATES
In addition to conflicts which may arise in connection with the
determination of which entity will acquire a particular property, conflicts of
interest will exist to the extent that, in the future, other hotels owned or
operated by the General Partner or its affiliates compete, or are in a position
to compete, with the Partnership in providing lodging to customers within the
market areas in which the Partnership's Hotels will be located. The General
Partner and its affiliates will avoid acquiring or developing new hotels which
would compete with the Partnership's Hotels if the anticipated effect on either
the Partnership's Hotels or the new properties would be materially adverse. In
deciding whether a new hotel owned or operated by the General Partner or its
affiliates would compete with one of the Partnership's Hotels, the directors of
the General Partner will consider the location of the Hotel and the room demand
generators in the market area served by the Hotel.
Further conflicts of interest may exist if and to the extent that other
owners of hotels affiliated with the General Partner seek to refinance or sell
their hotels at the same time as the Partnership. The directors of the General
Partner intend to resolve such conflicts by allocating refinancing opportunities
on the basis of the other available opportunities for refinancing and the
investment objectives and policies and relative financial health of each hotel
program. The Partnership intends that if the above factors have been evaluated
and the opportunity is deemed generally suitable for more than one program, then
the properties will be refinanced in the order that they were acquired, with the
property held for the longest period being refinanced first. The General Partner
will also seek to reduce any such conflicts as may arise with respect to hotels
available for sale by making prospective purchasers aware of all such hotels
available for sale.
COMPENSATION OF THE GENERAL PARTNER AND ITS AFFILIATES WAS NOT ESTABLISHED
THROUGH ARM'S LENGTH NEGOTIATIONS
Under the Partnership Agreement, the General Partner and its affiliates
will be entitled to receive compensation from the Partnership for a variety of
services and undertakings. This compensation has not been established through
arm's length
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negotiations. In addition, the structure and timing of this compensation will
create certain conflicts of interest. For example, the General Partner is
entitled to a sales fee equal to 3% of the gross sales price from the sale of
any or all of the Hotels and also may be entitled to 1% of the gross proceeds of
any refinancing of any or all of the Hotels. The General Partner and the
Managing Dealer may also receive certain additional fees and commissions in
connection with obtaining financing for the construction and development of the
Hotels and with refinancing the Hotels. The General Partner may have an economic
interest in arranging both a refinancing and a sale when a sale alone may be in
the best interest of the Partnership. The directors of the General Partner will
decide whether to refinance or sell any of the Hotels and such decision will be
subject to the fiduciary duties described in the following section of this
Prospectus. In general, the General Partner does not expect to refinance any
Hotel unless the Partnership is likely to hold the Hotel for at least two years
thereafter.
POTENTIAL CONFLICTS INVOLVING SALE OF THE HOTELS OR MERGER OR REORGANIZATION OF
THE PARTNERSHIP
The General Partner has the right under Section 4.02(c) of the
Partnership Agreement to cause the merger or reorganization of the Partnership
upon obtaining the approval of the transaction by a Majority Vote of the Limited
Partners. In connection with any such transaction, the Limited Partners may
receive securities issued by an Affiliated Person in exchange for their Units.
The General Partner may have conflicts in structuring any such transaction or
recommending it to the Limited Partners for approval because of differing
interests of the Partnership and the Affiliated Person participating in the
transaction. In addition, under Section 4.06(b) of the Partnership Agreement,
the Partnership may sell all or substantially all of the assets of the
Partnership to an Affiliated Person, provided that the transaction is fully
disclosed and on terms competitive with those which may be obtained from persons
other than Affiliated Persons. Consent of the Limited Partners is not required
with respect to any such sale transaction. The General Partner may have
conflicts in structuring any such sale transaction because of differing
interests of the Partnership and the affiliated buyer. The General Partner will
attempt to reduce these potential conflicts by basing the sale price on an
independent appraisal of the Partnership's assets.
POTENTIAL CONFLICTS IN MAKING ADDITIONAL INVESTMENTS IN ESSEX GLENMAURA
The General Partner is also the sole general partner of Essex Glenmaura
and will, among other things, be solely responsible for determining whether
Essex Glenmaura should proceed with additional investment opportunities of Essex
Glenmaura, See THE PARTNERSHIP'S BUSINESS -- The Essex Glenmaura Investment." In
addition, under the Partnership Agreement, the General Partner shall
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determine, in its sole and absolute discretion, investments to be made by the
Partnership. In the event the General Partner determines that Essex Glenmaura
should proceed with additional investment opportunities, the General Partner
must also determine whether it would be in the best interest of the Partnership
to exercise its right of first refusal to increase its equity interest in Essex
Glenmaura. The General Partner may have conflicts in determining whether the
Partnership should increase its equity investment in Essex Glenmaura. In an
effort to minimize these potential conflicts, the General Partner will consider
a number of factors including: (I) a determination of the availability of funds,
(ii) estimation of future capital reserve requirements for operation of the
Hotels, and (iii) the existence of any unpaid Cumulative Returns.
POTENTIAL CONFLICTS INVOLVING PARTNERSHIP LOANS TO AFFILIATES
The General Partner may have conflicts in recommending Partnership
Loans to Affiliated Persons because, while the General Partner may recognize
pecuniary gain as a result of Partnership Loans to such entities, it may be in
the best interest of the Partnership and the Limited Partners to loan its funds
to third party non-affiliates. No formal provisions have been adopted for the
resolution of such potential conflicts. The General Partner will not recognize
any pecuniary gain from loans made by it to the Partnership. See "INVESTMENT
OBJECTIVES AND POLICIES -- General Partner Loans."
POTENTIAL CONFLICTS INVOLVING THE PURCHASE OF PROPERTY FROM THE GENERAL PARTNER
Pursuant to Section 4.06(a) of the Partnership Agreement, the General
Partner may purchase property in its own name from an Affiliated Person or a
third party, and assume loans in connection therewith, and temporarily hold
title thereto for the purpose of facilitating the acquisition of such property,
the borrowing of money or obtaining of financing for the Partnership, or
completion of construction of one or more of the Hotels, or any other purposes
related to the business of the Partnership. The Partnership Agreement provides
that any such property may be purchased by the Partnership provided that the
price is no greater than the cost of such property to the General Partner or, if
the General Partner acquires the property from an Affiliated Person, the cost to
any such Affiliated Person (which may include the purchase price plus carrying
costs), except for compensation paid in accordance with the Partnership
Agreement; there is no increase in the interest rates of the loans secured by
the property at the time acquired by the General Partner and at the time
acquired by the Partnership; and the General Partner does not receive any other
benefit arising out of such transaction, except for compensation paid in
accordance with the Partnership Agreement. A conflict of interest may arise in
connection with the General Partner's determination of which properties, if any,
will be purchased by the Partnership
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pursuant to this provision. The directors of the General Partner will resolve
this conflict by considering all of the relevant facts and circumstances,
including the cost of the property, the cost to complete construction, the funds
available to the Partnership and the investment objectives and policies of the
Partnership.
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POTENTIAL CONFLICTS INVOLVING JOINT VENTURES
The Partnership may invest in general partnerships or limited
partnerships or enter into joint venture arrangements with other persons who may
be an Affiliated Persons, provided that approval by the General Partner and a
Majority Vote of the Limited Partners is obtained. With respect to any of these
partnership or joint venture arrangements, conflicts of interest could arise
between the Partnership and its affiliated co-venturer because of differing
interests or economic circumstances of the Partnership and such co-venturer. The
General Partner will attempt to minimize these potential conflicts by selecting
a co-venturer who is financially secure and has investment objectives which are
similar to those of the Partnership.
ABSENCE OF INDEPENDENT DUE DILIGENCE REVIEW
Essex Capital Markets Inc., the Managing Dealer, is an affiliate of the
General Partner. Thus, there has been no independent due diligence review of
this offering by an unaffiliated underwriter.
POTENTIAL CONFLICTS INVOLVING TAX MATTERS
Situations may arise in which the General Partner as Tax Matters
Partner (as defined in the Partnership Agreement) may be required to act on
behalf of the Partnership in administrative and judicial proceedings involving
the Internal Revenue Service or other regulatory or enforcement authorities.
Such proceedings may involve or affect other partnerships for which the General
Partner or one of its affiliates acts as general partner. In such situations,
the positions taken by the General Partner may have differing effects on the
Partnership and on these other partnerships. Any decisions made by the General
Partner with respect to such matters will be made in good faith consistent with
the General Partner's fiduciary duties both to the Partnership and the Limited
Partners and to any other partnership for which it or an affiliate may be acting
as a general partner.
POTENTIAL CONFLICTS INVOLVING THE PURCHASE OF UNITS BY AFFILIATES AND OTHER
PERSONS WHICH COUNT TOWARD THE MINIMUM OFFERING AMOUNT
The General Partner and its affiliates may purchase Units in the
offering and, if they do so, they would have the right to vote as Limited
Partners on certain matters in which they may have interests which are different
than those of the other Limited Partners. Such matters may include the removal
of a General Partner, the amendment of the Partnership Agreement, the transfer
of the interests of the General Partner and the dissolution of the Partnership.
Such potential conflict is minimized by the fact that
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the General Partner and its affiliates are not permitted to acquire Units which
represent more than $1,000,000 of the total gross capital contributions of the
Limited Partners upon which such voting rights are based.
Harris Beach & Wilcox, LLP, who have passed upon certain legal matters
in connection with the formation of the Partnership and this Prospectus, also
acts as counsel to affiliates of the General Partner and may act as counsel to
the General Partner. Harris Beach & Wilcox, LLP does not represent the Holders
of the Notes or Limited Partners with respect to this offering. Partners and
employees of Harris Beach & Wilcox, LLP may purchase Notes and Units and, if
they do so, will be treated the same as any other investor. Up to $200,000 of
any such purchases will be counted toward the Minimum Offering Amount. There is
no agreement between any partners or employees of Harris Beach & Wilcox, LLP and
the General Partner to purchase any Notes or Units in the offering in order to
meet the Minimum Offering Amount and, therefore, no Notes or Units will be
purchased specifically for that purpose.
In resolving any of these conflicts, the General Partner will be
subject to the fiduciary duties described below.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The General Partner is accountable to the Partnership and to the
Limited Partners as fiduciaries and consequently must exercise good faith and
prudence in handling Partnership affairs. The General Partner does not owe
fiduciary duties to the Holders of the Notes.
The Partnership Agreement defines and limits these general duties by
providing that the General Partner and its affiliates shall not be liable,
responsible, or accountable in damages or otherwise to the Partnership or to any
of the Limited Partners for any act or omission performed or omitted by them in
good faith, within the scope of their authority, and which they believed to be
in the best interest of the Partnership, except for conduct constituting fraud,
bad faith or gross negligence. The General Partner and its affiliates are also
indemnified by the Partnership against and for any loss, liability or damages
(including all judgments, costs and attorneys' fees and amounts expended in the
settlement of any claims of liability or damages) incurred by them in good faith
and in a manner reasonably believed by them to be in the Partnership's best
interests and within the scope of their authority, arising from any act or
omission in connection with the business of the Partnership, provided that the
course of conduct which caused the loss or liability is not attributable to
fraud, bad faith or gross negligence with respect to any such act or omission.
Such indemnification is recoverable only out of the assets of the Partnership
and not from Limited Partners.
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Indemnification is not recoverable from additional assessments on the Limited
Partners. Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to the General Partner and its affiliates as outlined
above, the Partnership has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore unenforceable.
The New York limited partnership law provides that a limited partner
may institute legal action on behalf of a partnership (a partnership derivative
action) to recover damages from a third party where the general partner has
failed to institute the action or where an effort to cause the general partner
to do so is not likely to succeed. In addition, the statutory or case law of
certain jurisdictions may permit a limited partner to institute legal action on
behalf of himself or all other similarly situated limited partners (a class
action) to recover damages from a general partner for violations of its
fiduciary duties to the limited partners. The Partnership Agreement contains
various provisions, described in the preceding paragraph, that have the effect
of restricting the fiduciary duties owed by the General Partner to the
Partnership and the Limited Partners, and which could be asserted as defenses in
a legal action brought by a Limited Partner. Thus, the General Partner will not
be liable for errors of judgment or for any acts or omissions if it acted in
good faith and in the best interest of the Partnership. The General Partner
could be indemnified for its negligent acts.
The Partnership Agreement also provides that neither the General
Partner nor any of its affiliates shall be indemnified against any liabilities
arising under federal or state securities laws, rules or regulations in
connection with the sale of Units or Notes, unless (I) the person seeking
indemnification is successful in defending such action on the merits of each
count involving alleged securities law violations, (ii) a court dismisses each
count involving alleged securities law violations with prejudice as to the
person seeking indemnification, or (iii) a court approves a settlement of such
action (subject to court approval of litigation and/or settlement costs) and,
before seeking court approval for such indemnification, the person seeking
indemnification advises the court as to the position of the Securities and
Exchange Commission and any state securities administrators in any state in
which the Notes or Units were offered or sold pursuant to the Prospectus or in
which Limited Partners or Holders of Notes then reside regarding indemnification
for violations of securities laws.
A successful claim by the General Partner or its affiliates for
indemnification by the Partnership would deplete Partnership assets by the
amount paid. The Partnership shall not pay for any insurance covering liability
of the General Partner or any other persons for actions or omissions for which
indemnification is not permitted by the Partnership Agreement, provided,
however, that the General Partner or its
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affiliates may be named as additional insured parties on policies obtained for
the benefit of the Partnership to the extent that there is no additional cost to
the Partnership.
The fiduciary responsibilities of general partners in limited
partnerships is a rapidly developing and changing area of the law and
prospective investors who have questions concerning the duties of the General
Partner should consult with their own counsel.
THE PARTNERSHIP'S BUSINESS
GENERAL
The Partnership's primary business will be to purchase, lease or
sublease undeveloped land and construct and operate a series of hotels on land
acquired by the Partnership. The Partnership has identified the Courtyard by
Marriott(R), Fairfield Inn(R) by Marriott, Hampton Inn(R), Homewood Suites(R),
Hampton Inn & Suites(SM), or Microtel(R) as possible hotel franchises (the
"Potential Franchises") under which to construct and operate the Hotels. The
General Partner may, however, in its sole discretion, identify other hotel
franchises for construction and operation. The Hotels will be operated pursuant
to franchises or licenses to be obtained from the Franchisors of such hotels. As
of the date of this Prospectus, the Partnership has identified two sites for
acquisition and construction of a Hampton Inn & Suites(SM) hotel and a Homewood
Suites(R) hotel. See "THE PARTNERSHIP'S BUSINESS -- The Specified Properties."
The General Partner believes good investment opportunities exist in the
extended stay and the limited service segments of the lodging industry and that
the Potential Franchises have certain competitive advantages that should
position them for better than average performance. The extended stay segment is
one of the fastest growing segments of the lodging industry. As a greater number
of business persons are required to travel away from home and stay extended
periods of time, the need for extended stay hotels has increased, and the demand
for quality limited service hotels is growing as more business and leisure
travelers seek to maximize value from their travel budgets.
The hotel franchises ultimately selected for development by the
Partnership will depend on a number of factors, including the size and location
of the site, the terms of the then-current Franchise Agreement and the hotel
designs available from the Franchisor at the time that a site is identified, and
the size, type and strength of the surrounding market and the competitive
properties nearby. The General Partner anticipates that the Franchisors will
provide some assistance in assessing the feasibility
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of a particular site for their particular hotels. None of the Franchisors is an
affiliate of the Partnership or the General Partner nor does any Franchisor have
any interest in the Partnership or the proceeds of the offering.
The Partnership will also acquire a limited partnership interest in
Essex Glenmaura, a New York limited partnership formed to acquire land,
construct, own and operate a Courtyard by Marriott(R) in the Borough of Moosic,
near the City of Scranton, Pennsylvania. See "THE PARTNERSHIP'S BUSINESS -- The
Essex Glenmaura Investment" and "ESTIMATED USE OF PROCEEDS."
The Partnership may also make loans to other partnerships, including
affiliates, that are engaged in the business of developing, owning, and
operating hotels and motels. Any such loans will be made on a secured basis.
HAMPTON INN & SUITES(SM) IS A TRADEMARK OF, AND HOMEWOOD SUITES(R) AND
HAMPTON INN,(R) ARE REGISTERED TRADEMARKS OF, PROMUS HOTEL CORPORATION AND ITS
SUBSIDIARIES; COURTYARD BY MARRIOTT(R) AND FAIRFIELD INN(R) BY MARRIOTT ARE
REGISTERED TRADEMARKS OF MARRIOTT INTERNATIONAL, INC.; AND MICROTEL(R) IS A
REGISTERED TRADEMARK OF U.S. FRANCHISE SYSTEMS INC. NONE OF THE FOREGOING
FRANCHISORS OR THEIR AFFILIATES HAS ENDORSED OR APPROVED THE OFFERING OR THE
MERITS OF THE INVESTMENT DESCRIBED HEREIN. A GRANT TO THE PARTNERSHIP OF A
FRANCHISE SHOULD NOT BE CONSTRUED AS AN APPROVAL OR ENDORSEMENT BY THE
FRANCHISOR (OR ITS AFFILIATES) OF THE PARTNERSHIP OR THIS OFFERING.
DESCRIPTION OF THE HOTEL CONCEPTS
Courtyard By Marriott(R)
Courtyard by Marriott(R) Hotel is considered one of the strongest
affiliations in the upper mid-market segment of the lodging industry. Courtyard
by Marriott(R) hotels are designed to offer consistently superior lodging at a
moderate price with an appealing, friendly, residential character. Courtyard by
Marriott(R) hotels feature high quality rooms supported by services tailored to
meet the needs of frequent business and pleasure travelers. The small size of
the Courtyard by Marriott(R) property and the simplified scale of operations
allow for personalized attention to each guest.
Courtyard by Marriott(R) hotels include, meeting rooms, a
limited-service restaurant and lounge, room service, a swimming pool, exercise
room, spa,
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complimentary coffee in each guest room, a fax machine, a copier, laundry
facilities, vending machines and smoking and non-smoking rooms. Guest room
amenities include a work desk with an upholstered chair, separate seating and
dressing areas, and a king-sized bed and sofa bed or two double beds, an
individually-operated heating and cooling system, remote control television with
free cable stations, a long cord telephone, a security system, and an AM/FM
alarm clock radio.
Started in 1983, there were 238 Courtyard by Marriott(R) hotels open
and operating as of December 31, 1994, of which 38 hotels were owned and
operated by franchisees. The average occupancy rate for 1994 was 79.7%, and the
average daily room rate for 1994 was $68.04. These results compared favorably to
those experienced by the mid-price segment, which reported an average occupancy
rate of 63% at an average daily room rate of $56.44 in 1994.
Courtyard by Marriott(R) hotels are typically found in suburban markets
near metropolitan cities, near industrial parks, airports, malls and
entertainment attractions. Courtyard by Marriott(R) hotels are designed to be
operated by fewer employees than a full service hotel. A toll-free number
provides access to a nationwide reservation system.
The Franchise Application fee for a Courtyard by Marriott(R) hotel is
the greater of $30,000 or $400 per guest room.
Fairfield Inn(R) by Marriott
Fairfield Inn(R) by Marriott hotel is an economy lodging facility,
providing business and pleasure travelers with high quality lodging at an
economical price. Fairfield Inn(R) by Marriott hotels offer those services and
amenities most valued by travelers at moderate prices. A Fairfield Inn hotel is
typically comprised of a three-story building of between 63 and 105 rooms.
Room amenities generally include a work desk with an upholstered chair
and a king-sized bed or two double beds. Typical features of Fairfield Inn(R) by
Marriott hotels include, a swimming pool, complimentary continental breakfast
each morning, free local phone calls, a fax machine, a copier, vending machines,
and smoking and non-smoking rooms. Some hotels offer meeting rooms. A toll-free
number provides access to a nationwide reservation system. Further, Fairfield
Inn's reservation system is linked to all major airlines and the result is over
35% of Fairfield Inn's sales are generated through the national reservations
system.
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The first Fairfield Inn hotel was opened in 1987 and there were 190
Fairfield Inns open and operating at the end of 1994. According to the
Franchisor, an additional 43 new hotels are expected to be opened in 1995. The
Franchisor has advised that the average daily room rate for 1994 was $47.85 and
that the average occupancy rate for 1994 was 75.5%.
The Franchise Application fee for a Fairfield Inn(R) by Marriott hotel
is the greater of $40,000 or $375 per guest room.
Hampton Inn(R)
Hampton Inn(R) hotel is a high quality hotel with limited amenities and
moderate prices. Hampton Inn(R) hotels are designed primarily to accommodate
business travelers with limited expense accounts, non-destination business and
pleasure travelers and value-conscious vacationers. Hampton Inns(R) hotels are
generally two to six stories with 50 to 150 rooms and are located in high
traffic areas, typically near full-service restaurants.
Hampton Inn(R) hotel has a strong commitment to guest satisfaction, and
according to the Franchisor was the first national hotel chain to offer its
guests an unconditional 100% Satisfaction Guarantee. A toll-free number provides
access to a nationwide reservation system. Hampton Inn(R) hotel offers a
national advertising and marketing program and is widely promoted on television,
in magazines and trade publications and through direct mail, which increases
travelers' awareness and trial usage. Major emphasis also is placed on corporate
and travel agent markets.
Hampton Inn(R) hotels offer selected services and amenities, including
a free, self-serve continental breakfast in the lobby, free local telephone
calls, a free in-room movie channel, and senior citizens' and frequent
travelers' discount programs. Most hotels offer a lobby/breakfast area and a
variety of room types: rooms with one or two double beds and rooms with king bed
configurations. Most Hampton Inn(R) hotels offer a swimming pool and a
hospitality suite, a multi-purpose room that doubles as a guest room or a small
gathering facility.
Started in 1984, there were 422 franchised Hampton Inn(R) hotels and 15
company owned Hampton Inn(R) hotels open and operating throughout the United
States at the end of 1994. The Franchisor projects that 79 new franchised hotels
and no company owned Hampton Inn(R) hotels will open in 1995. As of July, 1995,
46 new franchised Hampton Inn(R) hotels had opened. The Franchisor has advised
the Partnership that system-wide occupancy rates averaged 74.3 % in 1994 as
compared to 73.0% in 1993, with an average daily rate of approximately $53.36 in
1994 as
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compared to $50.81 in 1993. Hampton Inn(R) hotels started in the upper economy
segment, but over time as its average daily rate has risen it has been able to
cross over into the mid-scale segment, and repeatedly exceeds the industry
averages for both segments. For the year 1994, the upper economy segment
reported an average occupancy rate of 64.4% and an average daily rate of $45.51,
and the mid-scale segment reported an average occupancy rate of 63.0% and an
average daily rate of $56.44.
The Application fee for a Hampton Inn(R) hotel is $400 per guest room,
with a minimum fee of $40,000.
Essex opened its first Hampton Inn(R) hotel in Rochester, New York in
April, 1995.
Homewood Suites(R)
Homewood Suites(R) hotel is an extended stay, all-suite hotel oriented
toward the business travel market. Homewood Suites(R) are designed for business
travelers who are away from home for several consecutive nights as a result of
corporate relocation, field assignments or training programs. Homewood Suites(R)
hotels are located in suburban areas surrounding large metropolitan markets;
they also target secondary cities with active industrial or commercial areas.
The Homewood Suites(R) hotels currently available feature a unique
"community concept" with a complex of typically 60 to 120 residential style
suites built around landscaped gardens and a central hospitality center. Each
apartment-style suite features "home-like" amenities, such as a separate
sleeping and living areas, as well as fully equipped kitchens. Each Homewood
Suites(R) hotel has a "Lodge", or hospitality center, which is the site of a
free daily limited breakfast and an evening social function every week night.
The Lodge also offers a convenience store, laundry facilities, an exercise
center, often with a swimming pool and whirlpool, and a complete executive
center with meeting space and office equipment. Homewood Suites(R) hotel has a
strong commitment to guest satisfaction, and according to the Franchisor was the
first national extended stay hotel chain to offer its guests an unconditional
100% Satisfaction Guarantee. A toll-free number provides access to a nationwide
reservation system.
Started in 1989, as of December 31, 1994, there were 26 Homewood
Suites(R) hotels open and operating, and 7 new Homewood Suites(R) hotels are
expected to open in 1995. The Franchisor has advised the Partnership that
Homewood Suites(R) hotels average daily rate in 1994 was approximately $76.38,
slightly higher than the national
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average of $75.06 for all extended stay hotels in the lower, upscale segment,
and that system-wide the occupancy rate averaged approximately 78.1% in 1994,
compared to a 70.1% average occupancy for hotels in the lower upscale market.
The Application fee for a Homewood Suites(R) hotel license is $400 per
guest room, with a minimum fee of $40,000.
Hampton Inn & Suites(SM)
Hampton Inn & Suites(SM) hotel is oriented toward the business and the
pleasure travel markets. Hampton Inn & Suites(SM) hotel offer the best features
of limited service and extended stay hotel at a moderate price. Each Hampton Inn
& Suites(SM) hotel combines standard guest rooms with a significant block of
two-room suites in a single hotel property. Typical locations for a Hampton Inn
& Suites(SM) hotel include suburban office parks and commercial, destination and
resort markets.
Standard Hampton Inn & Suites(SM) hotels will typically be 3 or 4
stories with 95-127 guest rooms. The exterior will have a residential character
lending brick, siding and stucco finishes with colors to compliment the general
character of the hotel's location. The room mix will feature prototypical
Hampton Inn(R) rooms that will comprise of at least 50% but not more than 75% of
all guest units. The remainder of the units will be prototypical suites offered
in the Homewood Suites(R) product. Added flexibility will be attained by
providing connecting doors between the standard rooms and the suites. The
Hampton Inn & Suites(SM) will offer a central lodge which will include a guest
reception area, big screen television, an exercise room, convenience shop,
meeting/hospitality room, and coin laundry. The lodge will also serve an
expanded complimentary continental breakfast buffet to all guests daily plus
provide manager's specials around the dinner hour several days each week. An
indoor pool will also be available for guests.
Started in 1993, as of October 1, 1995, there were 3 Hampton Inn &
Suites(SM) hotels open and operating. The Franchisor projects that 4 additional
franchised hotels will be opened in 1995. The General Partner estimates that the
average daily rate will be approximately $65-$69, and that average occupancy
rate will be approximately 75%. These estimates are based on the weighted
averages of the Hampton Inn(R) hotel and Homewood Suites(R) hotel daily
occupancy rates.
The Application fee for a Hampton Inn & Suites(SM) license is $400 per
guest room, with a minimum fee of $40,000.
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Microtel(R) Hotel
Microtel(R) hotel is a relatively new economy lodging chain. The
Microtel(R) hotel offers downsized rooms with higher quality furnishings at
rates below those available at competing national lodging chains. The growth
strategy for Microtel(R) hotels is to locate in areas where other budget motels
are operating successfully, typically along major highways, and to compete
primarily on the basis of price. Single rooms are generally priced at 15% to 25%
below that of most other economy lodging chains. The rate is economically
feasible since the standardized, compact design of Microtel(R) hotels and the
elimination of nonessential amenities, such as meeting rooms, swimming pools,
restaurants and large lobbies, results in reduced construction, operating and
overhead costs. Microtel(R) hotels offer the value conscious traveler
consistent, affordable and high quality accommodations.
Each Microtel(R) hotel is of standardized new construction in
accordance with prototype plans developed by the Franchisor and furnished to
each franchisee. Typically two or three stories, Microtel(R) hotels are
constructed of either wood or metal frame. Each Microtel(R) hotel is
Williamsburg blue and incorporates a New England type architecture, with
clapboard-like vinyl siding and gabled roofs, producing a hotel product with a
warm, comfortable appeal. The guest rooms are 30% smaller than those of average
economy hotels, however, the each contain the features travelers expect of
higher priced hotels. Each guest room will contain a queen size bed, bay window
with window seat, remote control color television, telephone with extra long
cord, built-in desk and bureau and a standard size motel bathroom with tub and
shower combination, all packaged in a modern and attractive design. In 1993,
Microtel(R) hotel rooms were redesigned to accommodate rooms with two double
beds to better serve guests in certain geographic areas and markets. As an added
bonus for families, 25% or more of the rooms are connecting. In 1995 the
Microtel Suites and Microtel Inn & Suites brands were added by the Franchisor.
The first Microtel(R) hotel opened in 1989, and through August 1995, 22
Microtel(R) hotels were open and operating in eight states. An additional 2 are
expected to open in 1995. Of the 22 operating properties, 13 are owned by
affiliates of the General Partner. The Microtel(R) hotels owned by affiliates
have consistently outperformed the industry averages. Affiliate owned
Microtel(R) hotels opened for twelve months had an average occupancy rate of
71.5% in 1994 and 73% in 1993, with an average daily rate of $33.42 in 1994 and
$33.54 in 1993. These averages compare favorably to the industry averages for
the economy lodging segment, which reported an average occupancy rate of 61.6%
in 1994 and 59% in 1993, with an average daily rate of $33.99 in 1994, and
$33.68 in 1993.
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The Application fee for a Microtel(R) hotel is the greater of $35,000
or $350 per guest room.
Essex began development of its first Microtel(R) hotel in the fall of
1989, and since that time has developed twelve Microtel hotels. Currently, Essex
affiliates own 13 Microtel(R) hotels located in six eastern states.
On October 6, 1995, Microtel Franchise and Development Corporation
announced the completion a joint venture transaction with U.S. Franchise Systems
Inc., a new company founded by Michael Leven, former president and chief
operating officer of Holiday Inn Worldwide. U.S. Franchise Systems Inc. has
assumed worldwide franchising and administration for the Microtel budget inn
chain of hotels. The Microtel(R) trademarks have been transferred to U.S.
Franchise Systems for its exclusive use in franchising the hotel chain. Microtel
Inns and Suites Franchising, Inc., a wholly-owned subsidiary of U.S. Franchise
Systems, Inc., is the franchisor and licensor of the Microtel Franchise System
and Microtel(R) trademarks. Microtel Franchise and Development Corporation will
change its name and operate under Hudson Hotels, and will be responsible for
building and managing the hotel properties.
Unspecified Hotels
The General Partner has the right, in its sole discretion, to specify
hotel franchises other than the Potential Franchises and to cause the
Partnership to construct, equip and operate one or more Hotels as a franchisee
of such chain. There can be no assurance that the reputation and operating
experience of any such Franchisor or the cost of developing any such Hotel will
be comparable to a Courtyard by Marriott(R), Fairfield Inn(R) by Marriott,
Hampton Inn & Suites(SM), Homewood Suites(R), Hampton Inn(R), or Microtel(R).
FRANCHISE AGREEMENTS
The General Partner has the right, in its sole discretion, to enter
into a Franchise Agreement with any one or all of the Potential Franchises in
connection with the development of the Hotels. Except for the Hampton
Commitment, See "THE PARTNERSHIP'S BUSINESS -- The Specified Properties -- Solon
Property," no commitments have been obtained from any other Franchisor to enter
into a Franchise Agreement and there can be no assurance as to the terms of any
Franchise Agreement which may be available from any Franchisor which may
hereafter be specified by the General Partner. The size and design of any of the
Hotels may vary depending on site and market conditions and other factors at the
time that a property is specified for acquisition by the Partnership. The
following is a summary of some of the principal
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terms of Franchise Agreements currently being used by the Franchisors of the
Potential Franchises. Such terms may vary, perhaps materially, from the terms
available to the Partnership at the time that a site is acquired.
Pursuant to each such Franchise Agreement, the Franchisor will provide
to the Partnership certain prototype plans and specifications, operations
manuals and consulting and advisory services in connection with the construction
and operation of the Hotel. The Partnership is also granted a license during the
term of such Franchise Agreement to use the service marks designated by the
Franchisor. None of such Franchise Agreements grant to the Partnership an
exclusive territory. There can be no assurance, therefore, that the Franchisor
will not operate or license others to operate one or more competing hotels in
the vicinity of any or all of the Hotels.
In addition to initial franchise or license application fees, the
Partnership is required to pay continuing monthly royalty fees of between 4% and
6%, and marketing fees of between 2% and 4% of gross room revenues. Such
Franchise Agreements require the Partnership to maintain certain insurance
coverage, to meet certain standards of the Franchisor with respect to furniture,
fixtures, maintenance and repair and to refurbish and upgrade the Hotel to
conform to the Franchisor's then-current standards. Under the current Hampton
Inn & Suites(SM), Homewood Suites(R), and Hampton Inn(R) Franchise Agreements,
the Partnership is required to pay a software license fee of $3,000 plus $85 per
guest room, and monthly maintenance ranging from $200 per month to $350 per
month. Under the current Courtyard by Marriott(R) Franchise Agreement, the
Partnership is required to pay a software license fee of $5,800, plus a monthly
maintenance fee equal to the lesser of $3 per guest room or $400. Additionally,
Courtyard by Marriott(R) franchisees are required to pay monthly reservation
fees equal to 1.25% of gross room revenues plus $2.90 for each reservation
confirmed by the hotel, and a communication support fee equal to the lesser of
$4.00 per guest room or $600 a month. The current Fairfield Inn(R) by Marriott
Franchise Agreement would require the Partnership to pay a software license fee,
plus a monthly maintenance fee. In addition, Fairfield Inn(R) by Marriott
franchisees are required to pay monthly reservation fees equal to 1% of gross
room revenues plus $2.45 for each reservation confirmed. The fees summarized
herein are subject to change by the Franchisors.
The term of the current Hampton Inn & Suites(SM), Homewood Suites(R),
Hampton Inn(R), Fairfield Inn(R) by Marriott(R) and Microtel(R) Franchise
Agreements is 20 years, and is not renewable. The term of the current Courtyard
by Marriott(R) Franchise Agreement is 20 years with an option to renew the
franchise for an additional 10 years subject to compliance with certain
conditions, which include substantial compliance with all of the terms and
conditions of the Courtyard by
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Marriott(R) Franchise Agreement during the term, satisfaction of all monetary
obligations owed to the Franchisor, completion of upgrades to the hotel to
conform to the then-current standards and specifications and training of the
staff to comply with the then-current training requirements, and payment of a
renewal fee equal to 50% of the then-current initial franchise fee. None of such
Franchise Agreements may be voluntarily terminated by the Partnership without
incurring substantial liquidated damages, payable in a lump sum equal to the
amount of monthly fees paid during the preceding 24 or 36 months.
All rights of the Partnership under such Franchise Agreements
automatically terminate upon the happening of certain events, which include (i)
bankruptcy, insolvency or dissolution of the Partnership, (ii) execution by a
creditor of the Partnership against any asset of the Partnership, (iii)
commencement of an action to foreclose a lien or mortgage against any asset of
the Partnership or entry of a judgment against the Partnership which is not
dismissed within 60 or 90 days, (iv) loss of possession of the Hotel by the
Partnership, (v) conviction of a felony by the Partnership or any of its
principals or the maintenance of false books and records by the Partnership or
(vi) breach of the provisions in the Franchise Agreement which restrict
transfers of interests in the Partnership (including, a change in the identity
of the General Partner).
The Franchisor has the option to terminate such Franchise Agreements
upon the happening of certain other events, which include: (i) failing to
complete construction of the Hotel within a specified period after the
commencement of construction; (ii) unauthorized disclosure of the Franchisor's
proprietary information or the misuse or unauthorized use of the Franchisor's
trademarks; (iii) failing to pay any monies owed to the Franchisor, after
receipt of notice and after a reasonable period to cure (which cure period may
be between 10 to 30 days); (iv) ceasing to do business at any Hotel location for
any reason, including condemnation, fire or other casualty (provided that with
the Franchisor's approval, which may not be unreasonably withheld, the
Partnership shall have a period of 6 months or 24 months in which to reconstruct
the Hotel in the event that the Partnership was not at fault); and (v) allowing
a continued violation of any law, rule, regulation or ordinance to occur for a
period of 30 days after receipt of notice.
Upon termination or expiration of such Franchise Agreements the
Partnership is required to immediately cease using the Franchisor's service
marks and all confidential methods, procedures and techniques provided by the
Franchisor and to remove and discontinue using all signs, fixtures, advertising
materials, stationery, supplies and other articles which could cause the
business to be associated with the Franchisor. In addition, if the termination
occurs for reasons other than condemnation,
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the Partnership may be required to pay a termination fee in a lump sum equal to
the amount of monthly fees paid during the preceding 24 or 36 months.
The Franchisor of Microtel(R) hotels has agreed that the Trustee shall
have a period of 30 days after receipt of notice from such Franchisor in which
to cure any default under the Microtel Franchise Agreement. Such Franchisor has
further agreed that a sale of a Hotel following foreclosure by the Trustee will
not result in a default and termination under the Microtel Franchise Agreement
if certain conditions are satisfied, including the following: (i) all monies
owed to the Franchisor and affiliates with respect to the Hotel must have been
paid; (ii) the Partnership must not be in default under any provision of the
Microtel Franchise Agreement; (iii) the Partnership must execute a general
release in favor of the Franchisor and the transferee must assume the
obligations of the Partnership under the Franchise Agreement; (iv) the
transferee must satisfy such Franchisor's educational, managerial and business
standards; (v) if requested by such Franchisor, the transferee must agree to
execute such Franchisor's then-current franchise agreement at the expiration of
the Franchise Agreement; and (vi) the Partnership must pay a $7,500 transfer
fee.
The Franchisor of Hampton Inn & Suites(SM), Homewood Suites(R), Hampton
Inn(R) hotels has historically agreed that the Trustee shall have a period of 30
days after receipt of notice from such Franchisor in which to cure any default
under its Franchise Agreement, and the General Partner believes it will agree in
connection with any additional franchise granted to the Partnership. If the
Partnership loses possession of the Hotel, however, the Franchise Agreement will
be terminated and the Hotel may no longer be operated as a Hampton Inn(R) hotel
or Homewood Suites(R) hotel unless the Trustee locates a purchaser and the
purchaser applies for and obtains a new Franchise Agreement (and pays a new
initial franchise fee) from the Franchisor. The effect of this provision may be
to cause the Trustee to delay commencement of foreclosure proceedings until such
a purchaser can be located.
The current Franchise Agreements for Potential Franchisors all restrict
the transfer of any interest in the Franchise, the Partnership (including, with
respect to Hampton Inn & Suites(SM), Homewood Suites(R), Hampton Inn(R) and
Microtel(R) hotel franchises, the transfer of limited partnership interests) and
the General Partner.
The current Franchise Agreements for Hampton Inn & Suites(SM), Homewood
Suites(R), and Hampton Inn(R) hotel franchises provide that for "publicly-traded
equity interests," no consent of the Franchisor is required with respect to any
transfers of less than a 25% interest in the Partnership unless the transferee
owns, or would own after the transfer is completed, an interest in the
Partnership of 25% or more. These Franchisors have advised the Partnership that,
solely for purposes of the Franchise
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Agreement, the Units would be considered "publicly-traded equity interests"
since they will have been sold in a large real estate syndication transaction.
The current Microtel Franchise Agreement provides that transfers of more than a
50% equity interest in the Partnership in a single transaction, or transfers of
less than a 50% equity interest in a single transaction which has the effect of
transferring control in the Partnership, requires the Franchisor's prior written
consent, which may not be unreasonably withheld.
The current Courtyard by Marriott(R), Fairfield Inn(R) by Marriott, and
Microtel Franchise Agreements also provide that no sale, transfer, conveyance,
mortgage, or other encumbrances may occur with respect to a substantial portion
of the assets of the Partnership relating to the Hotel (including the Hotel and
real estate) without the prior written consent of the Franchisor, which may not
be unreasonably withheld.
CONSTRUCTION OF THE HOTELS
Each of the Hotels will be constructed by the Partnership in accordance
with plans and specifications provided by the Franchisor. Each Hotel will
contain between 60 and 150 rooms and will be constructed on a parcel of
approximately 1.8 to 3.5 acres, depending on the size of the Hotel and the
properties available for purchase, lease or sublease by the Partnership. The
General Partner estimates that construction of a Hotel typically will be
completed within six to nine months, depending upon the size and type of Hotel
and the weather conditions during the construction period. Construction
techniques and materials will depend upon the specifications relating to each
Hotel design and also local building codes. Construction of a Microtel(R) hotel
involves a two or three story wood frame construction only. The Franchisors of
the other Potential Franchises will typically allow the franchisee to choose
between wood frame construction or reinforced concrete with masonry walls for
any property not in excess of three stories in height. Hotels in excess of three
stories will require reinforced concrete construction with masonry walls
although non-load-bearing interior walls may be of frame construction. Estimated
construction costs for the Potential Franchises including estimated land cost
range from a low of $29,000 per guest room for a Microtel(R) hotel to as much as
$70,000 per guest room for a Homewood Suites(R) hotel. These costs may also vary
significantly depending upon the size and type of construction and the specific
location of each hotel.
The General Partner intends to hire an unaffiliated construction
manager to provide an on-site supervisor who will be responsible for selecting
and supervising subcontractors to complete various portions of the construction
of the Hotels. It is anticipated that the construction manager will enter into a
standard A.I.A. contract and receive a competitive fee for its services and may
receive additional compensation at
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stated rates in the event that additional services are requested by the General
Partner. There can be no assurance that the amount of time actually required to
complete construction of one or more of the Hotels or the actual cost of
construction will not exceed the above estimates. See "ESTIMATED USE OF
PROCEEDS."
OPERATION OF THE HOTELS
The Partnership will be entering into a Management Agreement upon
completion of each Hotel with the Property Manager, Essex Partners Inc., or its
assigns. The Management Agreement will provide that the Property Manager will
investigate, hire, pay, supervise and discharge the personnel necessary to
properly maintain and operate the Hotels. All such personnel will be employees
of the Partnership and compensation of such personnel will be an expense of the
Partnership. After the initial opening of a Hotel, which will require a
significant amount of support from the Property Manager in connection with the
establishment of operating, accounting and management procedures, it is
anticipated that personnel of the Property Manager will devote approximately 40
hours per week to the management of the Hotels.
The Management Agreement will require the Property Manager to maintain
the building and grounds, to pay insurance premiums with respect to the Hotel,
to apply for, obtain and maintain all required licenses and permits, to pay
certain expenses on behalf of the Partnership, to maintain a comprehensive
system of office records and books and to annually prepare an operating budget.
In addition, the Property Manager will have the authority to enter into service
contracts and other contracts reasonably necessary or desirable in connection
with the operation of the Hotels, with the approval of the Partnership in some
cases. As compensation for these services, the Property Manager will receive a
fee equal to 4.5% of the gross revenues from the Hotels, consisting of room
rentals, telephone charges, cable charges and any other miscellaneous charges
collected from guests. The Property Manager will also receive an accounting fee
equal to $800 per month.
Each Management Agreement will have an initial term of five years with
a series of one (1) year renewal terms. The Management Agreement may be earlier
terminated (I) by either the Partnership or the Property Manager in the event of
a default under the Management Agreement which is not cured within 60 days after
written notice thereof, (ii) by the Property Manager, upon the failure of the
Partnership to pay compensation due to the Property Manager, (iii) by either
party upon the bankruptcy or insolvency of the other party, (iv) by either party
upon the Partnership's failure to repair or restore the subject Hotel within 120
days after all or any portion of such Hotel is damaged or destroyed by fire or
other casualty, or (v) by either party if
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all or any portion of the subject Hotel is condemned and the remaining
facilities are insufficient for the efficient and profitable operation of such
Hotel. During any renewal term the Management Agreement may be terminated at any
time on 120 days written notice.
Each Management Agreement will require the Property Manager to devote
such of its time as it deems necessary to manage the subject Hotel; however, it
does not impose any limitations on the Property Manager's other business
activities, including other commercial and residential real estate ventures
which may compete with such Hotel. Pursuant to the Management Agreement, all
expenses incurred thereunder shall be obligations of the Partnership and the
Property Manager will receive its management fee notwithstanding that the
Partnership may not have earned a profit or may be operating at a loss and that
the Limited Partners may not have received any distributions.
The Partnership has agreed to a broad indemnity of the Property Manager
from liabilities it may incur in connection with its services under the
Management Agreement.
COMPETITION
The operation of hotels/motels is a highly competitive business.
Competition in the lodging industry is primarily based on price, location,
quality of facilities and overall range of services. Courtyard by Marriott(R)
and Hampton Inn(R) hotels compete primarily in the moderately priced, upper-tier
of the limited service segment of the lodging industry. Fairfield Inn(R) by
Marriott and Microtel(R) hotels compete primarily in the economy sector of the
lodging industry. It is expected that Courtyard by Marriott(R), Fairfield Inn(R)
by Marriott, Hampton Inn(R), and Microtel(R) hotels will be located in areas
that contain other competitive limited service lodging facilities. Microtel(R)
hotels generally seek to compete by providing conveniently located, limited
service lodging at below market prices. Fairfield Inn(R) by Marriott hotels,
which offer more amenities than Microtel(R) hotels, Courtyard by Marriott(R),
and Hampton Inn(R) hotels, with their selected services and amenities, target
the moderate to upper tiers of the limited service segment of the lodging
industry. Competitors in the overall limited service lodging area include Days
Inn, Comfort Inn, Holiday Inns, LaQuinta, Red Roof Inn, EconoLodge, Super 8,
Motel 6 and Travelodge and in addition the Potential Franchises compete with
each other. These national chains have name recognition and operating advantages
like reservation systems, and typically have significant financial resources;
characteristics shared by Courtyard by Marriott(R), Fairfield Inn(R) by
Marriott, and Hampton Inn(R) hotels, but not by Microtel(R) hotels.
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The Homewood Suites(R) hotel will compete primarily in the extended
stay segment of the market. This segment is one of the fastest-growing in the
lodging industry. According to the Franchisor, approximately one-third of all
hotel rooms each night are booked to travelers staying five or more consecutive
nights. While other all-suite hotels may target the long-stay traveler, most are
not specifically designed for extended-stay use. Competitors in the extended
stay segment of the lodging market include the full service hotels, and
specifically Residence Inn(R) by Marriott and Hawthorne Suites.
Hampton Inn & Suites(SM) hotel can expect to encounter competition from
all of the above mentioned franchises, as it will compete in both the limited
service and extended stay segments of the market.
Some of these hotels/motels in either the limited service or the
extended stay segments could have services and architectural features similar to
the Hotels of the Potential Franchises, and may offer rates comparable to or
lower than those estimated by the Partnership. Furthermore, there can be no
assurance that, after the construction and successful operation of a Hotel,
competitors will not offer lower room rates or that additional hotels which
offer similar rooms, services and rates in competition with the Hotels will not
be developed near the Hotels and that such development will not have an adverse
effect on occupancy rates and profitability.
THE SPECIFIED PROPERTIES
WARWICK PROPERTY
General. The Partnership has identified a site in Warwick, Rhode Island
for acquisition and as a possible location for the construction and operation of
a Homewood Suites(R) hotel. Warwick is located in the center of Rhode Island
just south of the city of Providence. Route I-95, which runs through the center
of Warwick, connects Providence and Warwick to Boston, Massachusetts, which is
55 miles to the north of Warwick, and New York City, New York, which is 175
miles southwest of Warwick. Warwick is also served by excellent rail service and
a state airport, the T.F. Green Airport. The T.F. Green Airport is currently in
the process of being expanded and is a major factor in the development and
growth of Warwick's business and industrial markets. In addition to acting as a
reliever for Logan Airport in Boston, Massachusetts, much of Warwick's business
and industrial development is centralized in the airport area.
The Providence-Warwick Pawtucket Metropolitan Statistical Area ("MSA")
is the major metropolitan area in Rhode Island with population in 1993 of
921,000.
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During the 1980's, the area emerged as a hub of the financial services industry,
particularly banking and insurance. This occurred as a natural outgrowth of its
location relative to New York City, New York, Boston, Massachusetts, and
Hartford, Connecticut. The area also benefits from the presence of Brown
University, as well as Providence College, the University of Rhode Island, and
Rhode Island School of Design. Major employers in the MSA include Fleet
Financial Group, Metropolitan Life Insurance Co., Hasbro, Inc., Citizens
Financial Group, Inc. and Bank of Boston Corporation.
As with all of New England, the area felt the impact of the economic
downturn in the late 1980's and early 1990's. Employment in the MSA declined
from 512,600 in 1989 to 483,700 in 1994 with the largest decline being in
manufacture employment. More recently the economic situation has stabilized and
the unemployment rate for the MSA was 6.7% in 1995.
The Warwick Property. The General Partner has entered into a Real
Estate Purchase Contract (the "Purchase Contract") with a non-affiliated
individual to purchase a parcel of land containing approximately 2.535 acres
(the "Warwick Property") for a purchase price of $496,900 plus estimated closing
costs of approximately $20,000. The General Partner has agreed to assign the
Purchase Contract to the Partnership as soon as practicable after the First
Closing.
The Partnership proposes to build an 80 to 92 room Homewood Suites(R)
hotel on the Warwick Property. The Partnership's purchase of the Warwick
Property is subject to the terms of the Purchase Contract which contain
conditions that must be satisfied prior to the closing of the acquisition. These
conditions include, by way of illustration, receiving good and marketable fee
simple title to the Warwick Property, obtaining government approvals including a
special use permit for the construction of a hotel on the Warwick Property, and
obtaining a license for the construction and operation of a Homewood Suites(R)
hotel from Promus Hotel Corporation. The Partnership will also need to comply
with the "Protective Controls Adopted by Altieri Associates, Inc. - Metro Center
South, Warwick, RI" which, among other things, requires approval of landscaping
and architectural plans. The seller of the Warwick Property has made no
representations or warranties to the Partnership regarding the suitability of
the Warwick Property for hotel development or compliance with zoning or
governmental permit requirements. The seller of the Warwick Property has
provided the General Partner with an Environmental Phase I Assessment, which was
completed in May, 1995. The General Partner intends to have the Assessment
updated and to also obtain a geotechnical report and an appraisal on the Warwick
Property. The Partnership anticipates that the Warwick Property will be
purchased by the end of 1995 and construction of the Homewood Suites(R) hotel
will begin as soon as possible
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thereafter. There can be no assurance, however, that the conditions to closing
of the acquisition will be satisfied, that the Warwick Property will be
purchased by the Partnership, or that, in the event the Warwick Property is
purchased, a license to construct and operate a Homewood Suites(R) hotel will be
granted to the Partnership.
Market and Competition. The Warwick Property is located in Metro Center
South, a business park which is located approximately one mile from the
intersection of Route 113 and Route I-95. The Warwick Property is also visible
from the Airport Connector which connects Route I-95 directly into T.F. Green
Airport. The area in immediate proximity to the Airport Connector and the T.F.
Green Airport, is characterized by a mix of professional office buildings and
light industrial facilities. A Residence Inn hotel is located directly across
from the Airport Connector in the Metro Center North Business Park.
There are several local restaurants within a 0.75 mile radius of the
Warwick Property. Rhode Island's major retail area is located approximately two
miles from the Warwick Property, beginning at the intersection of Route 113 and
Route 2. The corridor along Route 2 includes two major shopping malls, numerous
other retail enterprises and numerous restaurants including national chain
facilities such as TGI Friday's, Applebees, Red Lobster, Chili's and The Olive
Garden.
There are five other lodging facilities consisting in the aggregate of
approximately 875 rooms within 0.5 miles of the Warwick Property. The lodging
facilities include the Residence Inn hotel with 96 suites, which is located just
across the Airport Connector from the Warwick Property which has an average
daily rate of approximately $85-$89; a 265 room Holiday Inn hotel, which is
located close to the intersection of Route 113 and Route I-95 which has an
average daily rate of approximately $80-$84; and three lodging facilities
located on Post Road, which runs parallel and adjacent to the T.F. Green
Airport. There is also, a 207 room Sheraton Tara hotel which has an average
daily rate of approximately $70-$74; an 111 Radisson hotel which has an average
daily rate of approximately $70-$74; and a 196 room Comfort Inn hotel which has
an average daily rate of approximately $55-$59. The Radisson hotel also serves
as an adjunct facility of Johnson and Wales University where students studying
hotel management, culinary arts, and the hospitality industry receive hands on
experience. The current average occupancy rates for these hotels are estimated
to range from 65% to 94% with an overall average of 76%. The General Partner
anticipates that the proposed Homewood Suites(R) hotel to be constructed on the
Warwick Property will achieve a stabilized average daily rate of between $84 and
$86 expressed in constant 1995 dollars, at an average occupancy rate of between
76% and 78%.
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SOLON PROPERTY
General. The Partnership has identified a site in Solon, Ohio, a
southeast suburb of Cleveland, for acquisition and as a possible location for
the construction and operation of a Hampton Inn & Suites(sm) hotel. Cleveland is
located in northeastern Ohio on the shore of Lake Erie. The city and surrounding
area are served by an extensive transportation network including highway, water,
rail and an international airport. Cleveland is the largest city in Ohio and is
located in the Cleveland/Lorain/Elyria MSA. In 1993 the MSA had a population of
2,227,000 of which 1,410,000 resided in Cuyahoga County in which the Cities of
Cleveland and Solon are located. The Cleveland economy has rebounded from the
smoke stack industry decline of the 1970's. Despite problems which are common to
many large urban areas, the Cleveland economy has benefited from a diversified
employment base bolstered by the continuing presence of a number of Fortune 500
corporations, including Eaton Industries, American Greetings, Sherwin Williams,
Parker Hanefin, NAACO Industries, Ferro Corporation and Standard Products. The
unemployment rate of Cuyahoga County was 4.4% in 1994.
The image of Cleveland and its desirability as a place to visit have
been enhanced by a series of development and redevelopment projects including
the construction of Jacobs Field, the new home of the Cleveland Indians; the
redevelopment of The Flats along the Cuyagoga River into a first class
entertainment district; the redevelopment of the Terminal Tower/ Tower City Rail
Station into The Avenues Shopping Mall which is connected to the recently built
Gund Arena, home of the Cleveland Cavaliers; the Rock and Roll Hall of Fame,
which opened in early September, 1995; and a number of other projects that are
currently underway, including redevelopment of Cleveland's Warehouse District.
The Solon Property. The General Partner has entered into a Real Estate
Purchase Contract ("Purchase Contract") with a non-affiliated limited liability
company to purchase a parcel of land containing approximately 2.28 acres (the
Solon Property), at a purchase price of $258,000 per acre or, as determined by a
final survey, for an aggregate purchase price of approximately $588,240, plus
estimated closing costs of approximately $15,000. The Partnership will also
acquire legal title to half of a lake adjacent to the site (approximately 1.25
acres) at no additional cost. The lake is fed continuously throughout the year
by a stream that also serves as a detention area for storm water run off from
the Solon Commons (as herein described). The Partnership will be responsible for
half the costs of maintenance of the lake, however, these costs are not expected
to be material. The General Partner has agreed to assign the Purchase Contract
to the Partnership as soon as practicable after the First Closing.
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The Partnership proposes to build a 100-110 room Hampton Inn &
Suites(SM) hotel on the Solon Property. The General Partner has recently been
notified that is application to operate a Hampton Inn & Suites(SM) hotel on the
Solon Property has been approved and the General Partner expects to enter into a
written commitment agreement with Promus Hotel Corporation for a license to
operate a 100-room Hampton Inn & Suites(SM) hotel on the Solon Property, upon
satisfactory completion of construction. The General Partner will assign the
Hampton Commitment to the Partnership. The Partnership's purchase of the Solon
Property is subject to the terms of the Purchase Contract which include, by way
of illustration, receiving good and marketable fee simple title to the Solon
Property and a license from Promus Hotel Corporation to operate a Hampton Inn &
Suites(SM) hotel on the Solon Property, containing at least 100 guest rooms. The
seller of the Solon Property has made no representations or warranties to the
Partnership regarding the suitability of the Solon Property for hotel
development or compliance with zoning or governmental permit requirements. As of
this date, the General Partner has obtained a favorable Phase I Environmental
Assessment, and is in the process of obtaining geotechnical reports and an
appraisal on the Solon Property. The General Partner anticipates that the Solon
Property will be purchased in late 1995, and that construction of a Hampton Inn
& Suites(sm) hotel will commence as soon as practical thereafter, and will be
completed by the fall of 1996. No assurances can be given that the Solon
Property will be purchased by the Partnership, or that if purchased, the
Partnership will be granted a license to construct and operate a Hampton Inn &
Suites(SM) hotel on the Solon Property.
Market and Competition. The Solon Property is located in the City of
Solon which had an estimated population of 21,000 in 1993, which represents an
increase from a population of 18,548 in 1990. The Solon Property is located in
the Solon Commons, which is located just south of Route 43. The Solon Commons is
less than 1 mile from US Route 422, which a divided limited access freeway. US
Route 422 terminates approximately 2 miles to the west at the junction of Route
I-480 and Route I-271 and provides primary access to Solon from Cleveland and
other points west. To the east 422 continues as mostly a four-lane highway to
Warren, Ohio. The General Partner is attempting to obtain signage on Route 422
through the Ohio Department of Transportation. The commercial area of Solon is
located approximately 1 mile to the east and can be easily accessed by Route 43.
Sea World of Ohio and Geauga Lake Amusement Park are nearby adjacent attractions
located approximately 6 miles to the southeast from the Solon Property on Route
43. While Sea World is the dominant attraction, both parks constitute a major
regional draw and Route 43 provides the access for a significant number of
motorists en route to the parks. Sea World of Ohio has been particularly
successful; during its months of operations, Sea World of Ohio's attendance
peaks attendance at Sea World of Orlando, Sea World of San Antonio, and Sea
World of San Diego.
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The Solon Commons is a 27 acre mixed use development, designed to
service the nearly 2,200 acres of business and industrial park development
surrounding the Solon Commons. The Solon Commons currently has a 10 theater
movie complex, a 10 bay food court, a Ground Round Restaurant, an office of the
Aetna Health Plan, a small retail strip center, a day care center and a branch
bank. Two restaurant sites remain undeveloped, however, one such site is under
lease by Longhorn Steak House. Construction on a Longhorn Steak House is in
progress and it is expected to open in November, 1995. Only 300 acres of the
2,200 acres of business and industrial park development surrounding Solon
Commons remain undeveloped. Solon is the United States headquarters for Nestle
and the world headquarters of its Stouffer Foods Subsidiary. Other Solon
headquarters are Agency Rent-A-Car and Renaissance Hotels. Other major employers
include Matrix Essentials, which was recently acquired by Bristol Myers,
Kennametal and Antenna Specialists among others. The City of Solon continues to
aggressively pursue employers and offers a wide range of financial incentives.
An area in the southwest portion of Solon has been designated as an urban job
and enterprise zone by the State of Ohio. In addition to the remaining
undeveloped land in the City of Solon itself, a large area of land zoned for
industrial and business park development and served by the necessary utilities
is located immediately to the south of Solon in Glen Willow less than 2 miles
from the Solon Commons.
The Solon Property is the only available land currently zoned for a
hotel in the City of Solon. In 1994 the City of Solon voted to have all future
zoning changes approved by referendum. The only other hotel currently in Solon
is the Midwestern Inn located near the intersection of US Route 422 and Route
91, which is approximately 1/2 miles from the Solon Commons. The Midwestern Inn
is an independent 2-story exterior corridor motel which is approximately 17
years old and offers an outdoor pool and no meal service. The Midwestern Inn has
137 rooms and annual occupancy is estimated to range between 50-55% with an
average daily rate of between $45 - $49. The Midwestern Inn is not expected to
be competitive with the Partnership's Hotel. The majority of the business
traveler demand and also those leisure and group travelers seeking better
accommodations, migrate to Beachwood, Ohio, which is approximately 6 miles from
the Solon Commons. In Beachwood at Chagrin Boulevard and I-271 there are 4
lodging facilities containing an aggregate of 608 rooms with which the
Partnership's Hotel will be competitive. These lodging facilities consist of a
Travelodge with an average daily rate of between $55 - $59, a Radisson Inn with
an average daily rate of between $60 - $64, a Holiday Inn with an average daily
rate of between $65 - $70, and a Courtyard by Marriott(R) hotel with an average
daily rate of between $70-$74. The current average occupancy rates for these
hotels are estimated to range between 70 and 84%. Also located in the same area
are a Marriott Hotel and an Embassy Suites Hotel, however, neither of these
lodging facilities is expected to compete directly with the Partnership's Hotel.
Except for a
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rumor that an additional Travelodge may be constructed, the General Partner is
not aware of any additional hotels contemplated for construction in Beachwood,
Ohio or Solon, Ohio. The General Partner anticipates that the proposed Hampton
Inn & Suites(sm) hotel to be constructed on the Solon Property will achieve a
stabilized average daily rate of between $66 and $68 expressed in constant 1995
dollars, at an average occupancy rate of between 74% and 76%.
THE ESSEX GLENMAURA INVESTMENT
General Essex Glenmaura L.P. ("Essex Glenmaura"), is a New York limited
partnership formed in May, 1995, for the purpose of acquiring undeveloped land
and constructing, owning, and operating a Courtyard by Marriott(R) hotel. The
general partner of Essex Glenmaura is the General Partner.
Essex Glenmaura will construct a 120-room, three story Courtyard by
Marriott(R) hotel in the Glenmaura Corporate Center in the Borough of Moosic,
Pennsylvania, just southeast of the City of Scranton. The hotel will be operated
under a Courtyard by Marriott(R) franchise, and is expected to have a restaurant
which will serve a full breakfast and a buffet lunch, two meeting rooms, a
lounge, an indoor pool and spa, and an exercise room.
Description and Financing of the Hotel Project. The total cost of the
Courtyard by Marriott(R) hotel project is estimated to be $8.3 million. Essex
Glenmaura intends to fund land acquisition and construction costs, and all
related fees and expenses of the Courtyard by Marriott(R) hotel project with
$2.3 million of equity, $1.5 million of unsecured notes, and $4.5 million from
commercial bank financing of construction and permanent mortgage loan.
The Partnership will acquire a limited partnership interest in Essex
Glenmaura. The Partnership's investment will not be less than 8.91 units of
limited partnership interests and is not expected to be greater than 12.5 units,
or 54% of limited partnership interests, in the event the Maximum Offering
Amount is raised. The Partnership does, however, reserve the right to invest up
to $1,500,000 in limited partnership units of Essex Glenmaura. In no event,
however, will the Partnership's interest in Essex Glenmaura exceed 45% of the
Partnership's assets at any one time. The purchase price per limited partnership
units is $100,000 and is payable in cash upon subscription.
Prior to the commencement of this offering, Essex Glenmaura received
aggregate capital commitments of $1,050,000 from the sale of partnership
interests and issued $1,500,000 principal amount of its unsecured notes (the
"Glenmaura Notes") in
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a private offering. The Glenmaura Notes bear interest at a rate of 10.5% per
annum, and mature on June 1, 1998, unless extended to June 1, 1999 or December
1, 1999, upon payment of extension fees. Monthly interest payments only are due
and payable until maturity. The principal balance of the Glenmaura Notes is due
and payable upon maturity (June 1, 1998, unless extended). The Glenmaura Notes
are unsecured obligations of Essex Glenmaura, without recourse. Essex Partners,
however, has guaranteed payment of interest and principal of the Glenmaura
Notes. Essex Glenmaura is currently attempting to secure construction financing
from two commercial banks. As of the date of this Prospectus, however, no
commitment to lend funds for construction of the Project has been obtained.
Marriott International Capital Corp., a wholly owned subsidiary of Marriott
International, Inc., the Franchisor, has indicated that it may provide permanent
financing which will be secured by a first mortgage lien on the real property,
together with all improvements thereon (the Courtyard by Marriott(R) hotel). No
commitment for such financing has, however, been issued.
Essex Glenmaura has purchased a 4.5-acre parcel of property from a
non-affiliated seller for a purchase price of $987,000, plus closing costs of
approximately $10,000. In addition, Essex Glenmaura has agreed to pay Essex
Partners $225,000 in consideration for its assignment of the purchase contract
for the land, an option contract for an adjacent parcel, and the franchise
agreement with Marriott International Capital Corp. Site work on the property is
completed, and construction of the three story Courtyard by Marriott(R) hotel
commenced in October, 1995. The hotel will be constructed in accordance with
plans and specifications provided by Marriott International, Inc.; and, it is
expected to be constructed of reinforced concrete with masonry walls.
Construction of the hotel is expected to be completed within eight months of its
commencement. Essex Partners or its designees will manage the hotel; it is
anticipated that Essex Glenmaura will pay a fixed monthly management fee equal
to 4.5% of gross revenues and accounting fee of $800 per month.
Essex Partners expects to make a capital contribution of $100,000 in
Essex Glenmaura and also loaned Essex Glenmaura the necessary funds to acquire
the property and proceed with the construction of the hotel. The loan has been
repaid.
In addition to the acquisition of the property upon which the Courtyard
by Marriott(R) hotel is to be constructed, Essex Glenmaura has also acquired an
option to purchase approximately 3.1 acres of land adjacent to the hotel
property, upon which a second hotel or restaurant may be built. The option
expires in August, 1997.
If Essex Glenmaura elects to proceed with the development of the
adjacent property, it will need to secure additional sources of equity and debt
financing to fund
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the acquisition costs, construction costs, and pay related fees and expenses.
The decision of whether to build, and what to build as, a second project will be
in the sole and absolute discretion of Essex Partners. See "CONFLICTS OF
INTEREST -- Potential Conflicts in Making Additional Investments in Essex
Glenmaura." The decision will depend upon a number of factors, including future
market conditions.
If Essex Glenmaura elects to proceed with the second project it may
need additional financing to fund the acquisition of the adjacent parcel,
construct the second project and pay related fees and expenses. Investors in
Essex Glenmaura will own an interest in the second project based on the value of
their interest in the Courtyard by Marriott(R) hotel project, and will have a
right of first refusal to purchase additional units of limited partnership
interests if additional equity is required. The decision as to whether the
Partnership will acquire additional units of limited partnership interests in
Essex Glenmaura will be made by Essex Partners. See "CONFLICTS OF INTEREST --
Potential Conflicts in Making Additional Investments in Essex Glenmaura."
Market and Competition The Scranton/Wilkes-Barre/Hazelton MSA is
located in northeastern Pennsylvania and encompasses a four county region,
including Lackawanna County. Scranton is the county seat for Lackawanna County.
The area is served by four interstate highways and the northeast extension of
the Pennsylvania Turnpike, all providing access to major markets in the United
States and Canada. Interstate 84 from the east and the Northeast Extension of
the Pennsylvania Turnpike from Philadelphia both terminate in the Scranton area.
New York City, Philadelphia and Hartford, Connecticut, are less than 2.5 hours
away. The Wilkes-Barre/Scranton International Airport is a full service facility
which provides scheduled service to the regional hubs of most domestic airline
carriers and is located nine miles south of downtown Scranton.
In addition to distribution access to major markets in the northeast,
the Scranton area offers a low cost of living, low wage rates and a highly
skilled and well-trained work force. The population of Lackawanna County in
1994 was estimated at 214,000, a decline of 2.4% since 1990, of which 80,000
lived in the City of Scranton. Lackawanna County reported an unemployment rate
of 7.5% in 1994.
Major employers in Lackawanna County with work forces exceeding 1,000
include, Specialty Records Corporation Division of WEA Manufacturing a division
of Time Warner Company, Mercy Hospital, Community Medical Center, Allied
Services (a not-for-profit health care system and rehabilitation center),
Lackawanna County, Pennsylvania State Offices, Thompson Consumer Electronics,
NatWest Services, Inc., Technagelas, University of Scranton and the U.S.
Government. Some major
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employment additions include Prudential Asset Management (500 jobs with plans to
expand to 800 jobs) and J.C. Penney Telemarketing (425 jobs).
Glenmaura Community The Courtyard by Marriott(R) hotel project will be
located in the 220-acre Glenmaura Corporate Center, which is part of the
Glenmaura Community, a new 1,028-acre planned mixed use community development.
The Glenmaura Community is located five miles from downtown Scranton on Montage
Mountain, just off Exit 51 of Interstate 81, near Montage Mountain Ski Resort
and Lackawanna Stadium which is the home of the Philadelphia Phillies triple A
affiliate. The Wilkes-Barre/Scranton International Airport is four miles south.
At Exit 51, I-81 has a daily count of over 70,000 vehicles. In order to handle
the increased activity at this location, the Exit 51 Interchange will be
undergoing major improvements which will significantly improve Glenmaura's
access on and off I-81.
The Glenmaura Corporate Center, the newest office park in the area, is
to contain a mix of office, hotel, restaurant and limited retail space. It will
be served by modern utility systems, including fiber optic lines, and will be
redundant backup systems for power and telecommunications. It is expected to
attract companies requiring headquarter and back office facilities for credit
card and data processing, telemarketing, and accounting functions. Ultimately,
the Glenmaura Corporate Center is to include 2 million square feet of office
space, in addition to attendant service facilities.
After an extensive national search, National Westminster Bancorp
(NatWest) chose to move its back-office operations from New York and New Jersey
to a 40-acre site in Glenmaura. NatWest is a $24 billion, wholly-owned
subsidiary of National Westminster Bank PLC, a $227 billion, London-based
international banking and financial services organization and one of the largest
financial services institutions in the world. In September, 1995, NatWest took
occupancy of a new $33 million, 300,000 square foot facility in the Glenmaura
Corporate Center.
There are seven hotels containing an aggregate of approximately 853
rooms within a 12 mile radius of Glenmaura that are considered to be
competitive. These include a 129-room Hampton Inn(R) hotel, which is located
approximately 1/2 mile from the site of the Courtyard by Marriott(R) hotel
project and is also accessible by Exit 51 on I-81. This property has an
estimated averaged daily rate of $55-$59. There is a 140-room Holiday Inn, which
has an average daily rate of $60-$64, as well as a 90-room Day's Inn which has
an average daily rate of $50-$54. Both of these hotels are located less than 5
miles to the north in the Town of Dunmore. In addition, there is a 103-room
Victoria Inn with an average daily rate of $40-$44, which is located
approximately 5 miles to the south in the Town of Pittston and a 148-room
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Lackawanna Station Hotel which is located approximately 5 miles away in downtown
Scranton with an average daily rate of $50-$54. Two other lodging facilities are
located further to the north in Clarks Summit, which is approximately 12 miles
from the Property. They are The Inn at Nichols Village which has 134 rooms and
an average daily rate of $70-$74 and the Ramada Inn which has 108 rooms and an
average daily rate of $50-$54. With the exception of the Lackawanna Station
Hotel, all of these properties can be accessed fairly easily from exits on I-81.
The current average occupancy rates for these hotels are estimated to range from
60% to 79% with an overall average of 70%.
Management of Essex Glenmaura. The General Partner is also the general partner
of Essex Glenmaura. See "THE GENERAL PARTNER -- Essex Partners Inc." In addition
to the officers of the General Partner the following individual is also directly
involved in the Essex Glenmaura hotel project:
Irene K. Doktor, Director of Sales and Marketing - Hotels
Ms. Doktor, age 29, received a BS degree in Hotel Resort Management
from Rochester Institute of Technology in 1989. From 1989 to 1990 she was Senior
Sales Manager at a Radisson Inn. She joined Courtyard by Marriott in 1990 where
she served as Regional Sales Manager and later as Operations Manager. In 1993
she became Manager, Business Travel Sales with a large Mariotte Franchisee, E.J.
Delmonte Corporation. She joined Essex in 1994 and directs all sales and
marketing activities of the hotel properties.
SUMMARY OF AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT.
Essex Glenmaura is to continue until December 31, 2045, unless
dissolved earlier under the terms of the limited partnership agreement.
Management of the Essex Glenmaura will be the sole responsibility of Essex
Partners.
Generally, losses of Essex Glenmaura will be allocated among Essex
Partners and limited partners as follows: first, to make the balances in the
partners' capital accounts proportionate to their respective capital
contributions; next, proportionately based on the partners' pro rata interest in
Essex Glenmaura's equity; and finally, to Essex Partners. In general, income of
Essex Glenmaura will be allocated amount the partners first, to eliminate losses
allocated exclusively to Essex Partners; next, proportionately based on the
partners' pro rata share in Essex Glenmaura's equity in an amount equal to any
losses allocated based on Essex Glenmaura's equity in its assets; next, to the
partners with negative capital accounts in order to eliminate the negative
balances; and finally, according to the partners' pro rata shares in Essex
Glenmaura's
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equity. Distributions of income and loss will be made to the partners at such
times and in such amounts as Essex Partners shall determine. Distributions,
whether from the operations or sale of refinancing of proceeds, will be made
proportionately to the partners based on their respective pro rata shares in
Essex Glenmaura's equity. Essex Partners will receive no carried interest in
Essex Glenmaura.
INVESTMENT OBJECTIVES AND POLICIES
PRINCIPAL INVESTMENT OBJECTIVES
The principal objectives of the Partnership are to: (i) preserve,
protect and return the Partnership's invested capital and to meet debt service
requirements; (ii) provide quarterly distributions of available cash to the
Limited Partners in an aggregate annual amount which will equal or exceed their
Cumulative Return; and (iii) provide appreciation in the market value of the
Hotels which may be realized through their sale or refinancing. The
Partnership's ability to achieve its investment objectives will be subject to
the inherent risks associated with the ownership and operation of the Hotels and
there can be no assurance that all or any of the investment objectives will be
achieved.
ENVIRONMENTAL DUE DILIGENCE
Federal and state environmental laws can impose substantial liability
on owners and lessees of real estate without regard to fault, even when other
parties are or were responsible for the environmental impairment. The General
Partner will cause an environmental due diligence review to be performed before
acquiring a given parcel of land. Such review may include the retention of
experts to perform soil testing, surface and/or ground water testing and/or
other investigations. The Partnership will pay for such activities. There can be
no assurance that such activity will uncover any or all potential environmental
liabilities.
Environmental liabilities (including liability under government
programs such as Superfund) could cause the Partnership to incur significant
expenses, including the obligation to remedy or clean up hazardous substances or
other pollutants, regardless of fault. Such liabilities could exceed the
Partnership's cost of acquiring a property and could also require the
Partnership to dispose of a property at a loss, which could be substantial.
Because the Partnership has not yet identified the land which it may purchase
lease or sublease, potential investors will be unable to evaluate for themselves
the environmental risk of the real properties which may be acquired.
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CAPITALIZATION AND USE OF INITIAL FUNDS
If the Partnership raises less than the Maximum Offering Amount, it may
be less able to achieve diversification of its investment in the Hotels, the
results of operating and selling any particular Hotel will have a greater impact
upon the Partnership and the Partnership will also have paid higher
Organizational and Offering Expenses per Unit than if it receives the Maximum
Offering Amount. Whether or not the Partnership raises the Maximum Offering
Amount, it will seek to obtain additional financing for the construction and
development of one or more of the Hotels.
BORROWING POLICIES
The Partnership will purchase, lease or sublease properties as
appropriate sites are identified and construction of the Hotels will begin as
soon as practicable after the sites are acquired. One or more Hotels may be
under construction after the First Closing. See "THE PARTNERSHIP'S BUSINESS -
Construction of the Hotels." Prior to First Closing, the Partnership may obtain
control over potential sites and begin architecture and engineering work. It is
anticipated that interim financing for such development will be provided by the
General Partner or an unaffiliated lender. Any such General Partner loan will
bear interest at a rate equal to the General Partner's cost of funds and will be
due not more than four years after the loan is incurred. However, the General
Partner is not obligated to loan any funds to the Partnership.
The objective of the Partnership is to invest in limited partnership
Units of Essex Glenmaura, and to construct and operate a series of Hotels. The
General Partner intends to first utilize the proceeds from the sale of
Subordinated Notes and Units in combination with External Financing to pursue
such activities. In the event External Financing is not available, or is not
available upon terms which the General Partner, in its sole discretion,
determines to be reasonable, the Partnership will offer and sell the Mortgage
Notes.
The Partnership's objective is that the ratio of Gross Offering
Proceeds from the sale of Notes, plus the principal balance of External
Financing to the greater of (i) Gross Offering Proceeds from the sale of Notes
and Units, including the principal amount of any Partner Notes, or (ii) the
aggregate fair market value of the Partnership's Hotels and Substitute
Collateral, plus the Partnership's limited partnership interest in Essex
Glenmaura will not be more than .8 to 1.0, but in no event shall be more than
.85 to 1.0, and that the ratio of Gross Offering Proceeds from the sale of
Mortgage Notes, plus the principal balance of External Financing to the greater
of (i) Gross Offering Proceeds from the sale of Notes and Units, including the
principal amount of any Partner Notes, or (ii) the aggregate fair market value
of the Partnership's Hotels and
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Substitute Collateral, plus the Partnership's limited partnership interest in
Essex Glenmaura will not be more than .75 to 1.0, but in no event shall be more
than .8 to 1.0.
FRANCHISOR FINANCING
The Partnership will seek to obtain financing from the Franchisors, or
their affiliates, for the construction of the Hotels. Currently, the only
Potential Franchisors that offer financing are the Franchisors of Hampton Inn &
Suites(sm), Homewood Suites(R), Hampton Inn(R), Courtyard by Marriott(R), and
Fairfield Inn(R) by Marriott hotels. The following is a summary of the principal
terms of the financing programs currently offered by the Franchisors of Hampton
Inn & Suites(sm), Homewood Suites(R), Hampton Inn(R), Courtyard by Marriott(R),
and Fairfield Inn(R) by Marriott hotels. Such terms may vary, perhaps
materially, from the terms available to the Partnership at the time financing is
sought.
Hospitality Capital Group ("HCG"), a joint venture between Promus Hotel
Corporation, the Franchisor of Hampton Inn & Suites(sm), Homewood Suites(R), and
Hampton Inn(R) hotels, IDC (America) Corporation and Nissho Iwai American
Corporation, provides first mortgage construction/mini-perm financing for the
franchised development of Hampton Inns(R), Hampton Inn & Suites(sm) and Homewood
Suites(R) hotels. Financing is available for amounts ranging from $3 Million to
$8 Million per project. HCG's underwriting criteria include minimum equity, net
worth, and other typical criteria. Loan maturity is typically 5 years and the
financing program offers competitive commercial financing terms.
Promus Hotel Corporation provides secured secondary financing to
qualified franchisees. Financing, however, is not available for hotel
operations. The loans are typically for a term of five years at an annual
interest rate of 10% or 2% over the applicable prime rate, whichever is greater.
Interest only is payable during the term of the loan, with payment of the
principal in full upon maturity. In the event the loan is not repaid in full at
maturity, the Franchisor is entitled to receive a default rate of interest of
12% or 3% over the applicable prime rate, whichever is greater, plus 2% of the
gross revenues of the Hotel. Upon default, the Franchisor may accelerate the
entire amount due and require the Partnership to pay all attorney's fees and
other costs of collection. The loan may be prepaid at any time without penalty.
The amount of financing available from the Franchisor will not be greater than
the Partnership's equity and will in no event exceed $1,500,000 for a Homewood
Suites(R) hotel project, $1,000,000 for either a Hampton Inn(R) hotel project or
a Hampton Inn & Suites(sm) project. The financing is generally secured by a
second mortgage lien on the Hotel and
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a security interest in all the personal property of the Partnership located on
the Hotel premises.
Marriott International Capital Corp., a wholly owned subsidiary of
Marriott International, Inc., the Franchisor of Courtyard by Marriott(R) and
Fairfield Inn(R) by Marriott hotels offers financing for the acquisition of real
property and (but not solely land loans), renovation of hotel premises, and
purchase of equipment, furniture, fixtures, inventory and supplies to establish
the franchise. Financing by Marriott International Capital Corporation is not
generally available for any other purpose. Marriott International Capital
Corporation currently offers a first mortgage and a junior mortgage financing
program. The term of such financing is typically between 3 to 5 years. Security
for the first mortgage loan typically include, a first mortgage on the real
property and improvements and a first security interest in the furniture,
fixtures, and equipment of the hotel property. Junior mortgage financing is
typically secured by a second mortgage on the real property and improvements. In
the event of default under either financing program, Marriott International
Capital Corporation may accelerate payment of the loan balance.
GENERAL PARTNER LOANS
The Partnership may obtain financing from the General Partner to cover
acquisition, construction, and operation costs. It is anticipated that loans
from the General Partner will be used as bridge financing, until such time as
the Partnership is able to obtain External Financing. General Partner loans will
bear interest at a rate equal to the General Partner's cost of fund, will be
unsecured, and will be due not more than four year after the loan is incurred.
LENDING POLICIES
While not presently contemplated, the Partnership reserves the right to
make secured loans to other partnerships, including affiliates of the General
Partner, engaged in the business of owning and operating hotels and motels.
Loans that may be made by the Partnership will be selected by the General
Partner. Except insofar as any such loans will be made on a secured basis, the
General Partner has not adopted any formal policies regarding the percentage of
the offering proceeds that may be made available for loans to other
partnerships, or identified any entities to which it intends to loan funds. No
vote of the Limited Partners is necessary for the making of such loans. See
"CONFLICTS OF INTEREST -- Potential Conflicts Involving Partnership Loans to
Affiliates."
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BUSINESS DEVELOPMENT PLAN
The Partnership intends to focus its initial marketing efforts on the
sale of large blocks of Units and Subordinated Notes and anticipates that the
investors purchasing securities at the First Closing will consist primarily of
Limited Partners purchasing 20 or more Units and Holders of Subordinated Notes.
These Limited Partners are expected to provide the "seed" equity which will be
used by the Partnership to pay for the cost of purchasing or bringing potential
Hotel sites under control during the offering period. The offering may continue
for up to two years from the Effective Date of the Registration Statement.
A Limited Partner, including the General Partner, its affiliates, and
partners and employees of Harris Beach & Wilcox, LLP, purchasing 20 or more
Units may pay for 50% of the purchase price in cash upon subscription and the
remaining 50% under a non-interest bearing Partner Note. The Partner Note is
payable upon demand by the General Partner, after a period of six months in the
event that the Partnership has a need for additional cash in connection with the
acquisition of a Hotel site or construction of a Hotel. The Partner Note is
payable in any event no later than the earlier of two years after acceptance of
the subscription or three years following the Effective Date of the Registration
Statement. The deferred payments of capital under the Partner Note are intended
to provide a source of funds which bears a reasonable relationship to the
capital needs of the Partnership. The General Partner believes that providing
the deferred payments will assist the Partnership in raising the necessary
equity capital during the early stages of the offering. The Partner Notes are
binding, recourse obligations of the Limited Partners which may not be
discounted or assigned by the Partnership. The form of Partner Note is attached
to the Subscription Agreement, included as Exhibit C to this Prospectus. If any
Limited Partner defaults under his or her Partner Note the Partnership may be
unable to obtain sufficient funds from an action against the defaulting Limited
Partners or from the resale of their Partner Notes to meet its obligations. See
"RISK FACTORS - Default Under Partner Notes."
MAINTENANCE AND REPAIRS; CAPITAL IMPROVEMENTS
In order to maintain the overall quality of the Hotels and to remain
competitive, each Hotel must be regularly maintained and repaired and
periodically must undergo refurbishings and capital improvements. The General
Partner intends to apply a portion of the proceeds from the operation of the
Hotels to the repair and maintenance of the Hotels and to the periodic
replacement and improvement of furniture, fixtures and equipment and to
establish a reserve for such expenditures from operating revenues. The amount of
such reserve is expected to equal up to 4% of gross
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receipts from Hotel operations. In the event that revenues from operations are
insufficient to pay for such expenditures for maintenance and repairs and
capital improvements, the Partnership may be unable to protect its investment in
the Hotels unless additional funds are provided by the Partnership from other
sources, such as borrowing.
SALES AND REFINANCING
The Hotels will be held by the Partnership until the General Partner
determines that a sale or other disposition of any or all of the Hotels or the
Partnership's leasehold interest therein would be advantageous, in light of the
Partnership's objectives. In deciding whether to sell or refinance any or all of
the Hotels, the General Partner will consider factors such as performance of the
Hotels, market conditions and the federal income tax considerations, including
possible adverse federal income tax consequences to the Limited Partners. The
General Partner currently intends to seek to sell the Hotels between the fifth
and tenth years following the completion of construction. The Hotels will likely
be marketed separately over a period of time. The General Partner is not
obligated to sell any of the Hotels at any particular time. Pursuant to the
Partnership Agreement, the General Partner is authorized to sell the Hotels
without approval by the Limited Partners or the Trustee. None of the Hotels may
be sold, however, without the consent of the Franchisor and compliance with
certain conditions set forth in the Franchise Agreement.
In connection with a sale of any or all of the Hotels, the Partnership
may take a purchase money installment obligation as part of the sale proceeds.
To that extent, distributions to Limited Partners of proceeds from the sale may
be delayed and paid over the course of the term of such obligation.
GENERAL RESTRICTIONS
The Partnership will not (i) issue any Units after the termination of
this offering or in exchange for property, (ii) purchase or lease any real
property from, or sell or lease any real property to the General Partner or its
affiliates except the purchase of one or more Hotel properties from the General
Partner at cost pursuant to Section 4.06(a) of the Partnership Agreement or the
sale of all or substantially all of the assets of the Partnership to an
Affiliated Person, provided that the transaction is fully disclosed to all
Limited Partners and on terms competitive with those which may be obtained from
persons other than Affiliated Persons, or (iii) confer upon the General Partner
or any affiliate of the General Partner an exclusive right to sell or exclusive
employment to sell the Hotels. For a description of additional investment
limitations, see Article IV of the Partnership Agreement.
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The Partnership Agreement requires that all real property acquisitions
be supported by an independent land appraisal. Each such appraisal will be
available for inspection and duplication by any Limited Partner. The Partnership
Agreement also requires the General Partner to obtain a written guarantee of
completion or other arrangements satisfactory to the General Partner to provide
assurance that any Hotel being constructed by the Partnership will be completed
at the price contracted.
The Partnership Agreement provides that neither the General Partner nor
its affiliates will receive any kickback or rebate in connection with the
Partnership's operations and that neither the General Partner nor its affiliates
will participate in reciprocal business arrangements that circumvent this
prohibition. The General Partner will not commingle the Partnership's funds with
those of any other person or entity. Notwithstanding the foregoing, the
Partnership may place its funds in a master fiduciary account with a
nonaffiliated financial institution pursuant to which separate subtrust accounts
are established with funds of other persons, including affiliates of the General
Partner; provided, however, that the Partnership's funds are protected from
claims of such other persons or their creditors.
TAX CONSIDERATIONS
The following paragraphs summarize the material Federal income tax
aspects of investing in the Partnership. Although the Partnership has been and
will be advised by professional tax advisors, there can be no assurance that
positions taken by the Partnership will not be challenged by the Internal
Revenue Service (the "IRS").
THE INCOME TAX INFORMATION SET FORTH BELOW IS BASED ON EXISTING
STATUTES. In addition, the Partnership has relied on regulations, including
proposed regulations, rulings, and judicial decisions, any of which could be
changed at any time. Such changes, if they occur, may apply to transactions
entered into or completed prior to the effective date of the change.
The tax consequences of investing in the Partnership will depend on the
actual results of the Partnership. The Partnership has not entered into an
agreement for the construction of any Hotel. Thus, it is possible to discuss the
tax consequences of these activities only in the abstract.
The tax consequences will also vary among the Limited Partners and
Holders of Notes depending on their individual tax situations. Those investors
subscribing to purchase only Notes should see "Discussion of Tax Consequences of
Owning Notes" below. Prospective Limited Partners and Holders of Notes should
not invest in the
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Partnership without analyzing the information summarized below, and the
anticipated tax consequences of an investment in the Partnership.
EACH INVESTOR IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR FOR MORE
DETAILED INFORMATION WITH RESPECT TO THE FEDERAL AND STATE TAX CONSEQUENCES OF
AN INVESTMENT IN THE PARTNERSHIP.
SUMMARY OF MATERIAL TAX CONSIDERATIONS
Tax Consequences of Owning Notes
- If an investor holds a Note, the interest paid to him or her
will be treated as ordinary interest income for Federal income
tax purposes.
- If an investor disposes of a Note, the investor may recognize
taxable gain or loss on the disposition of the Note. However,
if the investor holds a Note until it is fully paid at
maturity, the investor's only taxable income should be the
interest income the investor received during the term of the
Note.
- Investors will be required to supply a Form W-9 with their tax
identification number. If an investor fails to do this, he or
she may be subject to back-up income tax withholding on the
interest paid on the Note.
- If an investor is subject to income tax imposed by a nation
other than the United States (e.g., he or she is either a
citizen or a resident of another country), he or she should
consider the foreign tax consequences of holding the Note and
how interest will be taxed by the other country.
Tax Consequences of Owning Limited Partnership Units
- The Partnership will obtain an opinion of Harris Beach &
Wilcox, LLP, prior to the effective date of the Registration
Statement, with respect to the material income tax aspects of
purchasing a Note or a Unit.
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- The Partnership will be registered as a tax shelter and there
maybe a somewhat greater risk of the IRS auditing your income
tax return if you invest in the Partnership.
- It is important from an income tax perspective that the
Partnership be taxed as a partnership and not as a
corporation. Harris Beach & Wilcox, LLP is of the opinion that
the Partnership will be a partnership for federal income tax
purposes. If the Partnership is taxed as a corporation for
Federal income tax purposes, Partnership losses will not flow
through to Partners, Partnership income will be subject to tax
at a corporate level, and any distributions will be taxed
again as dividends, resulting in a higher overall income tax
burden if the Partnership is profitable.
- Partnership income or loss generally will be treated as
passive income or loss for federal income tax purposes.
Therefore, you will not be able to deduct any losses from the
Partnership unless you have an offsetting amount of other
passive income. It is anticipated that most partners will not
be able to deduct currently losses generated by the
Partnership and that Partnership income in later years will be
offset by losses that were suspended as a result of the
passive loss rules. Furthermore, future regulations under the
passive loss rules may recharacterize income attributable to
the Cumulative Return as portfolio income, such as interest
income and dividends, which would be taxable to the investor
and not reduced by any losses from the Partnership.
- A significant portion of Partnership tax deductions will be
generated as a result of depreciation deductions claimed by
the Partnership with respect to improvements constructed by
the Partnership. Harris Beach & Wilcox, LLP is of the opinion
that the depreciation lives and methods to be selected by the
Partnership should be respected by the IRS.
- In the event a Partner is able to use losses from the
Partnership under the passive loss rules, that Partner will
also have to be concerned with the at risk rules, which
generally provide that Partners cannot take losses in excess
of the amount they are at risk. Inasmuch as it is expected
that most partners will not be able to take losses, it is not
anticipated that the at risk rules will effect many investors.
For those impacted by the at risk rules, Harris Beach &
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Wilcox, LLP is of the opinion that the at risk amount should
include the cash contributed to the Partnership plus the
principal amount of each Partner Note and the Partner's share
of any non-recourse debt. See "TAX CONSIDERATIONS -- At Risk
Rules."
- Interest paid by the Partnership on debt incurred to construct
Partnership properties would generally contribute to the
passive loss of the Partnership and/or reduce the passive
income. In the event the Partnership borrows money to make a
distribution to Partners, Partners need to be concerned with
how they invest or spend distributions. To the extent
distributions are spent on personal items, interest paid by
the Partnership may not be deductible by those Partners. As a
general matter, it will be important for Partners to keep
track of how they spend and/or invest distributions from the
Partnership, to the extent those distributions are paid with
borrowed funds.
- Harris Beach & Wilcox, LLP is of the opinion that the
allocations of income and loss for federal income tax purposes
under the Partnership Agreement have substantial economic
effect and it is not anticipated that the IRS would be
successful in challenging the Partnership's method of
allocating income and loss for Federal income tax purposes.
- As a general matter a Partner cannot deduct losses from the
Partnership or receive tax deferred distributions from the
Partnership in excess of his or her basis in his or her
Partnership Unit. Harris Beach & Wilcox, LLP is of the opinion
that each Limited Partner should be able to include in his or
her tax basis, cash contributed to the Partnership for his or
her Unit plus an appropriate share of any non-recourse debt.
- If the Partnership disposes of its property, either
voluntarily or involuntarily, Partners will realize gain or
loss on the disposition. Taxable gain may be greater than the
cash available for distribution from the Partnership.
- If a Partner disposes of his or her Unit in the Partnership,
the Partner will in most instances recognize gain or loss upon
the disposition.
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- Investing in the Partnership may have an impact upon the
alternative minimum tax calculation on an individual Partner's
income tax return.
- The Partnership intends to deduct or amortize a number of fees
and expenses it has incurred in organizing and going forward
with the Partnership. Harris Beach & Wilcox, LLP is of the
opinion that the proposed tax treatment of fees and expenses
is reasonable but has declined to express any opinion on the
amount allocated to each expense because the issue is factual.
- Each Partner will be required to file state income tax returns
in jurisdictions where the Partnership is doing business. This
will include states where the Partnership owns property as
well as the state where the Partnership's principal place of
business is located. Therefore Partners may be required to
file income tax returns in a number of states in addition to
the state in which they reside.
- The tax treatment of an investment in Partnership Units could
be impacted by Federal or state income tax legislation.
See "TAX CONSIDERATIONS - Discussion of Tax Consequences Of Owning
Notes", and "Discussion of Tax Consequences of Owning Limited Partnership
Units," for a more detailed description of these and other tax considerations.
DISCUSSION OF TAX CONSEQUENCES OF OWNING NOTES
The following discussion is a general summary of the principal Federal
income tax matters of general application expected to apply to the purchase,
ownership and disposition of the Notes. This summary provides general
information only and does not purport to address all of the Federal income tax
consequences which may be applicable to any particular holder. The Federal
income tax treatment of a holder of a Note may vary depending on his particular
situation. Legislative, judicial or administrative changes or interpretations
may be forthcoming that could affect the Federal income tax consequences to
holders of the Notes.
EACH PROSPECTIVE HOLDER OF A NOTE IS URGED TO CONSULT HIS OR HER TAX
ADVISOR WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW AND
ANY OTHER FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE NOTES.
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Stated Interest Payments
Interest payments under the Notes will be treated as ordinary interest
income. Each Holder of a Note will receive a Form 1099 for his or her share of
interest income paid by the Partnership.
Disposition of Notes
If an initial Holder of Notes receives cash in payment of a Note at the
stated maturity date, upon the earlier redemption of the Note, or upon an Event
of Default, gain would only be recognized by the Holder to the extent that a
redemption premium is received because the adjusted tax basis of the Note would
be equal to the payment received.
In the event of the sale or other taxable disposition of a Note prior
to the stated maturity date, gain is measured by the excess of the net proceeds
of the sale or other disposition over the Holder's adjusted tax basis. Any gain
on sale will be capital gain if the Note is held as a capital asset.
Loss will be recognized upon disposition of a Note in exchange for an
amount less than the Holder's adjusted basis in the Note. If the Note is held as
a capital asset, the deductibility of the loss may be limited by the rules
contained in the Code relating to restrictions upon the deductibility of capital
loss. In addition, a sale to a related party could result in limitations upon
the deductibility of loss under Section 267 of the Code. For Holders other than
initial holders, gain recognized upon the maturity or earlier disposition of a
Note may be affected by the provisions of the Code governing market discount.
Possible Withholding
Payments of interest and premium, if any, made by the Partnership on a
Note and proceeds from the sale of a Note to or through certain brokers may be
subject to a back-up withholding tax at a rate of 28%, unless the holder
complies with certain reporting and/or certification procedures. All amounts
withheld on such payments will be allowable as a credit against the holder's
Federal income tax liability.
The Partnership will provide each initial holder with a Form W-9 (or a
substitute Form W-9) on which the holder can provide the information required to
avoid back-up withholding.
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Tax Treatment of Resident and Nonresident Alien Holders
Notes are not being offered, and it is not expected that Notes will be
issued, to nonresident aliens, but Notes may be issued to resident aliens.
Resident alien individuals should consider the foreign tax consequences of the
purchase, ownership and disposition of the Notes, and the effect on those
foreign tax consequences of a change in status from a resident to a nonresident
allen.
The U.S. income tax consequences of purchasing, owning and disposing of
the Notes by a nonresident alien will vary depending upon the nonresident alien
investor's particular circumstances. In general, interest paid under a Note to a
nonresident alien investor will be subject to United States withholding tax at a
30% rate (or a lower rate as may be prescribed by an applicable tax treaty).
EACH RESIDENT ALIEN AND NONRESIDENT ALIEN INVESTOR IS URGED TO CONSULT
HIS OR HER OWN TAX ADVISOR REGARDING THE UNITED STATES AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES.
DISCUSSION OF TAX CONSEQUENCES OF OWNING LIMITED PARTNERSHIP UNITS
Opinion of Counsel
The Partnership will not seek a ruling from the IRS with respect to the
material tax issues relating to the proposed operations of the Partnership.
Rather, the Partnership will rely upon the opinion of Harris Beach & Wilcox,
LLP. This opinion will not be binding on the IRS, and the IRS will be free to
challenge it. The opinion represents only counsel's best legal judgment based
upon the law and the facts as they exist at the time the opinion is given and,
unlike a ruling from the IRS has no official status of any kind. No assurance
can be given that the conclusions reached in the opinion will be sustained by a
court, if contested.
IRS Audit of Tax Shelters
Since the Partnership will be registered as a tax shelter, the IRS may
view the Partnership as requiring special scrutiny for audit purposes. If the
Partnership is audited, the information returns filed by the Partnership may
lead to an audit of the individual returns of one or more Limited Partners, and
the audit of a Limited Partner's return may involve issues unrelated to the
Partnership.
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Under the rules for the audit of partnership returns, a partnership
must advise each partner of his or her share of the partnership's income, gain,
loss, deductions and credits by furnishing to the partner a report on Form K-1.
Each Partner must then either follow the K-1 prepared by the partnership or
advise the IRS that his or her own income tax return is inconsistent with the
K-1.
If the Partnership is audited, the General Partner is authorized to
take such actions and enter into such agreements with the IRS as it deems to be
in the best interests of the Limited Partners who hold more than 50 percent of
the outstanding Units. If the IRS and the General Partner reach agreement on
adjustments to the Partnership's return, each Partner generally will be bound by
the agreement. However, any Partner may participate in the audit proceeding and
any Partner having at least a one percent interest in the profits of the
Partnership (and any group of Partners having, in the aggregate, at least a five
percent profits interest) are entitled to negotiate their own settlements with
the IRS. The General Partner may bind any Partner with less than a one percent
profits interest in the Partnership to a settlement with the IRS unless the
Partner elects, by filing a statement with the IRS after receiving notice of the
audit, not to give such authority to the General Partner. The General Partner
may seek judicial review (to which all Partners are bound) to a final
Partnership administrative adjustment and, if the General Partner fails to seek
judicial review, such review may be sought by any Partner having at least a one
percent interest in the profits of the Partnership (and by any group of Partners
having, in the aggregate, at least a five percent profits interest). Only one
judicial proceeding will go forward, however, and each Partner with an interest
in the outcome may participate.
Tax Status of the Partnership
The Internal Revenue Code of 1986 (the "Code"), and the Treasury
Regulations and other administrative rulings promulgated thereunder, set forth
the characteristics that distinguish a corporation from a partnership for
Federal income tax purposes. The Partnership will not be subject to Federal
income tax if it is treated as a partnership for Federal income tax purposes.
However, if the Partnership is treated as an association taxable as a
corporation: (1) it will be required to pay tax at corporate rates on its
income; (2) items of deduction will be allowed only to the Partnership and will
not be passed through to the Limited Partners; and (3) distributions to the
Limited Partners will be taxable to them as dividends (at ordinary income rates
to the extent of the entity's earnings and profits) and will not be deductible
by the Partnership. Dividends received by the Limited Partners from the
Partnership would be portfolio income rather than passive income. See "The
Passive Loss Rules" below.
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In general, an organization will be treated as a partnership rather
than as an association taxable as a corporation for Federal income tax purposes
if it has associates and an objective to carry on business for joint profit and
if two or more of the following characteristics are present:
(1) the organization lacks continuity of life;
(2) the ownership interests in the organization are not freely
transferable;
(3) at least one member of the organization is personally liable for
the debts of the organization; and
(4) the organization does not have centralized management.
An organization lacks continuity of life if the retirement, death,
insanity, bankruptcy or resignation of a general partner will dissolve the
partnership unless the remaining partners agree to continue it. Regulations
under Section 7701 of the Code state that a limited partnership subject to a
statute corresponding to the Uniform Limited Partnership Act ("ULPA") lacks
continuity of life. The New York Revised Limited Partnership Act corresponds to
ULPA, varying only in immaterial detail. In addition, Rev. Proc. 94-46, 1994-2
C.B. 688, states that the IRS ordinarily will rule that a partnership lacks
continuity of life if not less than a majority in interest of the limited
partners may elect a new general partner. The Partnership Agreement permits the
limited partners, by majority vote, to elect a new general partner. Based in
part on the foregoing, Harris Beach & Wilcox, LLP is of the opinion that the
Partnership lacks continuity of life.
The Regulations provide that an organization lacks the corporate
characteristic of free transferability of interests if members owning
substantially all of the interests in the organization are unable to transfer
all the attributes of their interests in the organization without the consent of
another member. Interests are not freely transferable under the Regulations if a
member of an organization can, without the consent of another member, transfer
only their right to share in profits but not their right to participate in
management. Section 5.07 of the Partnership Agreement provides that the
transferee of a limited partnership interest may be admitted to the Partnership
only with the consent of the General Partner, which consent may be withheld in
the General Partner's discretion. Unless admitted to the Partnership, a
transferee is only entitled under the Partnership Agreement to receive and have
allocated his share of the distributions and income or loss of the Partnership.
Therefore, Harris Beach & Wilcox, LLP is of the opinion that the limited
partnership interests in the Partnership are not freely transferable.
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Rev. Proc. 89-12, 1981-1 C.B. 798. states that a partnership will
generally lack limited liability if the net worth of the general partner equals
at least 10 percent of the total contributions to the limited partnership and if
the general partner's net worth is expected to remain at the level throughout
the life of the partnership. The offering of Units is limited to $5 million and
the General Partner's net worth, as show on Exhibit E, is in excess of $1
million. Accordingly, Harris Beach & Wilcox, LLP is of the opinion that the
Partnership lacks the corporate characteristic of limited liability.
For purposes of issuing advance rulings, the IRS requires that the
general partners must maintain capital account balances (computed in the manner
specified in Treas. Reg. Section 1.704-1(b)(2)(iv)) (a section of the Income Tax
Regulations and hereinafter referred to as the "Regulations") at all times
during the life of the partnership equal to one percent of the aggregate capital
account balances of all partners in the partnership. Rev. Proc. 89-12, 1981-1
C.B. 798. Although the Partnership Agreement requires the General Partner to
make capital contributions equal to one percent of the aggregate capital
contributions to the Partnership, the General Partner's contributions are to be
paid solely out of distributions to the General Partner from the Partnership.
Accordingly it is expected that the Partnership will not satisfy the requirement
of Rev. Proc. 89-12 with respect to the maintenance of minimum general partner
capital account balances. However, under Section 2.06 of the Partnership
Agreement, the General Partner is obligated to pay the balances due, if any, on
their capital contribution obligations not later than the date the Partnership
is liquidated or their respective interests in the Partnership are liquidated.
Furthermore, the standards set forth in the IRS' advance ruling requirements do
not define, as a matter of law, whether the Partnership will be treated as a
partnership for Federal income tax purposes. Harris Beach & Wilcox, LLP believes
that the Partnership's failure to meet the requirements of Rev. Proc. 89-12
described above is not significant in view of the facts that: (1) the General
Partner is obligated to pay any unpaid capital contributions no later than the
time its interest in the Partnership is liquidated; and (2) the General Partner
has a significant interest in the Partnership -- in general, it will receive
twenty percent of profits of the Partnership in excess of the Cumulative Return
to the Limited Partners.
Based upon the foregoing, the Partnership has three of the four
characteristics of a partnership, and, in the opinion of Harris Beach & Wilcox,
LLP, is as a partnership for Federal income tax purposes.
Section 7704 of the Code, which was enacted as part of the Revenue Act
of 1987 (the "1987 Tax Act"), provides that any publicly traded partnership
(with certain exceptions not relevant to the Partnership) will be taxed as a
corporation. A publicly
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traded partnership is a partnership whose interests are: (1) traded on an
established securities market; or (2) readily tradable on a secondary market (or
the substantial equivalent thereof). The legislative history accompanying the
1987 Tax Act provides that the substantial equivalent of a secondary market will
be considered to exist if an identifiable market maker exists or if a partner
otherwise has a regular and ongoing opportunity to sell or exchange his or her
interest through a public means of obtaining or providing information.
In its Notice 88-75, 1988-2 C.B. 386, the IRS announced that
regulations to be issued interpreting Section 7704 of the Code will provide
certain safe harbor guidelines defining circumstances in which partnership
interests will not be considered to be readily tradable on a secondary market or
the substantial equivalent thereof. The safe harbor guidelines of Notice 88-75
provide, among other things, that partnership interests will not be considered
readily tradable on a secondary market or the substantial equivalent thereof for
a taxable year of the partnership if no more than 2 percent of the total
interest in partnership capital or profits are transferred during the taxable
year (disregarding the nontrading transfers described below and also
disregarding transfers made pursuant to a "matching service" or a qualifying
"redemption or repurchase agreement" as those terms are defined in Notice
88-75). For purposes of the 2 percent safe harbor, the following transfers are
not included: (a) transfers at death; (b) transfers between members of a family
(as defined in Section 267(c)(4) of the Code); (c) transfers in which the
transferee's basis in the partnership interest is determined (at least in part)
by reference to the transferor's basis in such interest; and (d) transfers by a
partner within any thirty day period of more than 5 percent of the total
interest in partnership capital or profits.
Proposed regulations under Section 7704 of the Code were issued on May
2, 1995. In general, the proposed regulations substantially restrict the safe
harbors of Notice 88-75, but they do not restrict the 2 percent safe harbor
described above. The proposed regulations are not applicable until they become
final regulations and Notice 88-75 is applicable in the meantime.
In order to comply with the existing and expected future rules for
determining whether the Partnership is a "publicly traded partnership" for
income tax purposes, the Partnership Agreement allows the General Partner to
prohibit any assignment of one or more Units if: (1) it determines in its sole
discretion that the assignment would create a risk of the Partnership being a
"publicly traded partnership"; (2) the Partnership is unable to satisfy any safe
harbor test existing under then-applicable rules; or (3) the Partnership is
unable to obtain an opinion of counsel or an IRS ruling that the assignment will
not result in the Partnership being classified as a publicly traded partnership
within the meaning of Section 7704 of the Code. In addition, the
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General Partner has agreed in the Partnership Agreement to take all actions
reasonably available (and the Partnership Agreement grants broad authority to
the General Partner) to prevent the trading of Partnership interests by third
parties on an established securities market or a secondary market (or the
substantial equivalent thereof) and to ensure that safe harbor guidelines are
met. Based upon the foregoing, the General Partner does not anticipate that
interests in the Partnership will be traded on an established securities market
or be readily tradable on a secondary market or the substantial equivalent
thereof.
Assuming that the Partnership complies with the above-described
provisions of the Partnership Agreement at all times during the existence of the
Partnership, and relying upon representations of the General Partner that no
publicly available market now exists for interests in the Partnership under
which offers to buy or sell Partnership interests would be accepted in a time
frame comparable to that available in a secondary market, Harris Beach & Wilcox,
LLP is of the opinion that the Partnership is not a publicly traded partnership
for purposes of Section 7704 of the Code. There can be no assurance, however,
that a person other than the Partnership or the General Partner will not act
subsequent to this offering of the Units, in violation of the Partnership
Agreement, to create, facilitate or recognize the trading of Units on a
secondary market or the substantial equivalent thereof, or that some other
action or event beyond the control of the Partnership and the General Partners
would not otherwise cause the Partnership to be treated as a publicly traded
partnership for purposes of Section 7704 of the Code. In any such event, the
Partnership would be classified as an association taxable as a corporation and,
as a result, would be taxed as a corporation for federal income tax purposes.
Assuming that the Partnership is taxed as a partnership for Federal
income tax purposes, each Partner will be required to report on his or her own
return for his or her taxable year, with or within which the Partnership's
taxable year ends, his or her share of the income or loss of the Partnership for
the Partnership's taxable year. The amount of income or loss reported by a
Partner with respect to the Partnership will depend upon his or her allocated
share of Partnership income and not upon the presence or absence of cash
distributions by the Partnership. Thus, cash distributions made in years when
the Partnership sustains losses will not be taxable to a Partner. Likewise, in
years when the Partnership generates taxable income, Partners will be taxed on
their share of such income even though cash distributions may be less than the
amount of income that is taxed to them.
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The Passive Loss Rule
Under Section 469 of the Code, losses from passive activities generally
are suspended to the extent that they exceed income from passive activities
(exclusive of portfolio income, as that term is described below). Suspended
losses may be carried forward (but not back) and treated as deductions from
passive activities in the next taxable year.
Even if the underlying activity with respect to a particular investment
involves the conduct of an active trade or business, the activity will be
treated as a passive activity if an investor does not materially participate in
the activity. Except for very limited circumstances, limited partners do not
materially participate in a partnership's underlying activities. When a taxpayer
disposes of his or her entire interest in a passive activity in a fully-taxable
disposition, any suspended loss from the activity is allowable in full.
Any interest expense that is taken into account in determining a
taxpayer's income and loss from passive activities is treated as passive and is
not treated as investment interest for purposes of the investment interest
limitations. Similarly, income and loss from passive activities generally are
not treated as investment income and loss in calculating the amount of the
investment interest limitation.
A Limited Partner's interest in the Partnership will be treated as a
passive activity for purposes of the passive loss rule. Thus, all Partnership
taxable losses are expected to be treated as passive losses subject to the above
restrictions. Deduction by a Limited Partner of interest expenses allocated to
him by the Partnership is subject to limitation under the passive loss rule, and
not under the investment interest rule. In addition, interest paid by a Limited
Partner on any amounts borrowed to purchase a Unit (other than amounts borrowed
under a loan which would be treated as home equity indebtedness within the
meaning of Section 163(h)(3) of the Code) will be subject to the passive loss
rule.
Although interest expense generally will be treated as passive,
interest income earned by the Partnership generally will be treated as
portfolio, not passive, income. For example, interest earned on any Partnership
bank account will give rise to portfolio income. Further, any imputed interest
income received by the Partnership will give rise to portfolio income. See
"Interest" below. A proportionate share of the Partnership's portfolio income
will be separately allocated to each Limited Partner and must be reported as
portfolio income. Thus, a Partner may have tax due on portfolio income generated
by the Partnership during a Fiscal Period even though the Partnership also
generated net passive losses during the same Fiscal Period. Except for
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interest income paid to persons holding Notes, it is expected that portfolio
income generated by the Partnership will be minimal.
The Partnership will incur interest expense on the Notes, and that
interest expense must be allocated in accordance with the use of the proceeds of
the Notes. The Partnership will expend its debt proceeds attributable to the
Notes, and any other debt primarily in the acquisition of property for the
Hotels, in the construction and holding of the Hotels, and possibly for the
servicing of the Notes. Accordingly, the bulk of the interest expense on the
Notes will be allocable to the Hotel activity, which will reduce any net income
from a passive activity.
A Limited Partner who also holds one or more Notes will be required to
include in income interest paid to him on the Note. Except as discussed below,
this income will be treated entirely as portfolio income. The Treasury
Department has issued proposed regulations which address the appropriate
treatment of a taxpayer's interest income under the passive loss rules when the
income is derived from a loan to a pass through entity (such as a partnership)
which must treat the corresponding interest expense as a passive activity
deduction (the "Self-Charged Interest Rule"). In general, the proposed
regulations permit a lending partner to recharacterize as passive income that
amount of the interest paid to him which is not in excess of his distributive
share of that amount of the interest paid to all partners which is treated as a
passive activity deduction by the partnership. An investor may invest
selectively in either Units or Notes and is not required to invest in both. The
selection of an investment in either Notes or Units, or any sale or other
transfer of Notes by a Limited Partner to a non-partner, will affect the amount
of interest income from the Notes that may be recharacterized as passive income.
Accordingly, application of the Self-Charged Interest Rule to a Limited Partner
who also holds Notes is uncertain.
There is some doubt as to whether the existence of the Cumulative
Return to the Limited Partners will result in a recharacterization of income
attributable to the Cumulative Return or to income arising from the preferred
return of the Limited Partners' capital contributions as portfolio income rather
than passive income. The Regulations do not presently contain any such
recharacterization rules. In a preamble to the Regulations, however, the IRS
disclosed that it may issue regulations in the future which would recharacterize
as portfolio income a limited partner's gross income attributable to a preferred
return. The IRS has stated that such regulations might apply retroactively,
regardless of when the investment was made, to income generated after the
effective date of the Regulations. The effect of such recharacterization would
be to prevent the utilization of Partnership deductions or losses against that
portion of a Limited Partner's gross income that is treated as portfolio income.
This could cause a negative impact on the Limited Partner's return on his
investment in the Partnership
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by delaying the utilization by the Limited Partner of deductions or losses, but
would not prevent the eventual use of such deductions and losses against
Partnership passive income from operations or sale.
Harris Beach & Wilcox, LLP is of the opinion that under present law the
taxable income to be generated by the Partnership, other than that derived from
interest, dividends and other types of portfolio income, will be passive income.
DUE TO THE DIFFERING TAX CONSEQUENCES THAT INDIVIDUAL INVESTORS MAY
EXPERIENCE UNDER THE PASSIVE LOSS RULE AS A RESULT OF THEIR PARTICULAR
CIRCUMSTANCES, INVESTORS ARE STRONGLY ADVISED TO CONSULT WITH THEIR TAX ADVISORS
ON THIS MATTER.
Allocations of Income and Loss
In general, the Code provides that a Partner's allocable share of
income, gain, loss, deduction or credit is determined by the Partnership
Agreement. However Section 704(b) of the Code provides that an allocation will
be respected only if it either has "substantial economic effect" or is in
accordance with the Partner's "interest in the Partnership." To the extent an
allocation of income, gain, loss, deduction or credit contained in the
Partnership Agreement does not have substantial economic effect or is not in
accordance with the Partners' interests in the Partnership, the tax items will
be reallocated by the IRS in accordance with such interests, taking into account
all relevant facts and circumstances.
Section 3.01 through 3.04 of the Partnership Agreement govern
allocations of taxable income and loss to the Partners. Section 3.05 governs
distributions of cash. In general, both allocations of taxable income and loss
and distributions are divided between operation of the Hotels, on the one hand,
and Distributions from a Sale or Refinance of Hotels, on the other.
Operating cash is distributed 99 percent to the Limited Partners and
one percent to the General Partner until the Limited Partners receive their
aggregate Cumulative Return. Thereafter, operating cash is distributed 80
percent to the Limited Partners. Distributions from a Sale or Refinance of
Hotels are paid 99 percent to the Limited Partners until they have received a
return of their capital investment ($1,000 per Unit) plus their Cumulative
Return. Thereafter 80 percent of the Distributions from a Sale or Refinance of
Hotels are paid to the Limited Partners. The General Partner receives the
remaining cash.
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Allocations of taxable income and loss generally follow the rules for
distributing cash. Under Section 3.01, operating income is first allocated 99
percent to the Limited Partners and 1 percent to the General Partner in the
amounts, and in the relative proportions, necessary to reverse any loss from
operations allocated under the final operating loss allocation rule described
below. Thereafter, operating income is allocated 99 percent to the Limited
Partners (in proportion to their respective unpaid Cumulative Returns) and 1
percent to the General Partner until the amount allocated to the Limited
Partners under this rule equals the cumulative amount distributed, or accrued
but not yet distributed, to the Limited Partners as their respective Cumulative
Returns. Any remaining income from operations is allocated 80 percent to the
Limited Partners in accordance with each Limited Partner's Pro Rata Share and 20
percent to the General Partner.
Taxable income on the sale of any or all of the Hotels (including
income from the sale of hotel properties of Essex Glenmaura) is allocated 99
percent to the Limited Partners until each Limited Partner has been allocated
income in an amount equal to his or her pro rata share of the nondeductible
Syndication Expenses and Sales Commissions. Thereafter income on the sale of any
or all the Hotels (including income from the sale of hotel properties of Essex
Glenmaura) is allocated in the same manner as operating income.
Any tax loss from Partnership operations is first allocated 80 percent
to the Limited Partners and 20 percent to the General Partner in the amounts,
and in the relative proportions, necessary to offset all Income which was
allocated 80 percent to the Limited Partners. Thereafter operating losses are
allocated 99 percent to the Limited Partners and 1 percent to the General
Partner. Tax loss on the sale of any or all of the Hotels (including loss on the
sale of hotel properties of Essex Glenmaura) is first allocated in the manner
described above with respect to allocations of loss from Partnership operations,
except that allocations on the sale of Hotels (including loss on the sale of
hotel properties of Essex Glenmaura) will be made prior to allocations of income
from operations. All other loss is allocated 99 percent to the Limited Partners
and 1 percent to the General Partners in proportion to the Partners' respective
capital contributions (taking into account for this purpose the face amount of
any Partner Note).
The Partnership Agreement contains many complex exceptions to the
general allocation rules summarized above, many of which are required by the
Regulations. The exceptions contained in Section 3.02 of the Partnership
Agreement include a partnership minimum gain chargeback, a partner minimum gain
chargeback, and a qualified income offset provision, each of which are drafted
to comply with the Regulations and are described in more detail below in
connection with the discussion
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of the Regulations. As required in the Regulations, partnership nonrecourse
deductions (as described below and defined in the Partnership Agreement) are
allocated 99 percent to the Limited Partners in accordance with each Limited
Partner's Pro Rata Share and 1 percent to the General Partner and partner
nonrecourse deductions are allocated to the Partner or Partners who bear the
economic risk of loss with respect to the partner nonrecourse debt to which such
deductions are attributable. As required by Treas. Reg. Section
1.704-1(b)(2)(ii)(d), allocations of loss or deduction to a Limited Partner are
not allowed to the extent such allocations would cause or increase a deficit
balance in the Limited Partner's capital account (after the making of certain
adjustments) in excess of the amount which the Limited Partner is, or is deemed
to be, required to restore. If, notwithstanding this limit on loss allocations,
an excess deficit capital account balance is created for any reason, items of
gross income are allocated to the Limited Partner in order to eliminate the
excess deficit balance as quickly as possible. Finally, in Section 3.03 of the
Partnership Agreement, the General Partner is given authority to allocate items
of income and loss subsequent to the making of the allocations described in this
paragraph and required by the Regulations (the "Regulatory Allocations"), to the
extent possible, to cause aggregate distributions to the Partners to be made in
accordance with the rules of Section 3.05 of the Partnership Agreement without
giving effect to the Regulatory Allocations.
Four additional exceptions to the above general allocation rules are
that: (1) income or loss for any fiscal period during which an interest in the
Partnership is transferred or a Partner is admitted to the Partnership will be
allocated among the Partners to reflect their varying interests during that
fiscal period; (2) income will be allocated to the General Partner or to any
other Partner in an amount equal to the fees or other amounts paid to the
General Partner or to any other Partner that are determined to be a distribution
of profits from the Partnership for Federal income tax purposes, and loss will
be allocated to the General Partner (or its allocated share of income reduced)
in an amount equal to the amount of any Distribution that is determined for
Federal income tax purposes to be a fee paid to the General Partner; (3) in
accordance with Section 704(c) of the Code, income or loss with respect to any
asset contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners to take account of any variation
between the adjusted basis of the property to the Partnership and its fair
market value at the time of contribution; and (4) to the extent any
discrepancies in Capital Account balances (as determined on a per Unit basis)
exist among the Limited Partners as a result of the volume discounts described
in this Prospectus (see "THE OFFERING - Volume Discounts"), items of partnership
gross income and gain will be allocated to Limited Partners who are granted
volume discounts, generally in the year of the liquidation of the Partnership,
in the amount of such volume discounts in order to equalize the Capital Accounts
of the Limited Partners on a per Unit basis.
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The Regulations under Section 704(b) of the Code contain guidelines as
to whether partnership allocations have substantial economic effect. The
Regulations provide that an allocation to a partner generally has economic
effect only if: (1) a partner's capital account is maintained in accordance with
the prescribed set of guidelines contained in the Regulations; (2) liquidating
distributions are, throughout the term of the partnership, to be made in
accordance with the partner's capital account balance; and (3) the partnership
agreement contains a requirement that any partner with a deficit balance in his
or her capital account following the liquidation of his or her interest in the
partnership or the distribution of liquidation proceeds restore the amount of
such deficit to the partnership, which amount shall be distributed to partners
in accordance with their positive account balances or paid to creditors. If
requirements (1) and (2) are met but requirement (3) is not, an allocation to a
partner may nevertheless have economic effect to the extent the allocation does
not cause or increase a deficit in the partner's capital account in excess of
the amount, if any, which he or she is or is considered obligated to restore,
provided that the partnership agreement contains a "qualified income offset"
provision. A "qualified income offset" provision causes a partner to be
allocated items of gross income where and to the extent by reason of a
distribution or certain other factors, a deficit balance in his or her capital
account has been created or increased beyond the amount, if any, which he or she
is or is considered to be obligated to restore.
Under the Regulations, allocations contained in the Partnership
Agreement which satisfy the requirements of the preceding paragraph, and thus
have economic effect, will nonetheless not be respected if they fail to satisfy
the substantiality test contained in the Regulations. In determining whether the
economic effect of an allocation is substantial, the magnitude of the shift in
the economic consequences to a partner must be weighed against the shifting of
tax consequences resulting from the allocation. Thus, for example, an allocation
that may improve the after-tax economic position of one partner, but with
respect to which there is a strong likelihood, in present value terms, that the
after-tax consequences to no partners will be substantially diminished would not
be substantial.
The Regulations specifically provide that allocations of loss or
deduction attributable to nonrecourse debt do not have economic effect because,
in the event there is an economic burden which corresponds to them, this burden
is borne solely by the lender. Nevertheless, allocations attributable to
nonrecourse debt will be deemed to be in accordance with the partners' interests
in the partnership if, in addition to the requirements listed above: (1) the
partnership agreement provides for allocations of nonrecourse deductions among
the partners in a manner that is reasonably consistent with allocations which
relate to significant items attributable to the property securing the
nonrecourse liabilities and which have substantial economic effect; (2) the
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partnership agreement contains the "minimum gain chargeback" provisions
described below; and (3) all other material allocations and capital account
adjustments under the partnership agreement are made in accordance with the
Regulations. The concept of partnership "minimum gain" -- that is, gain which
will be recognized by a partnership upon a disposition of its assets because the
nonrecourse debt secured by the assets exceeds the basis of the assets -- is key
to these regulations. Minimum gain may arise if: (1) there is an increase in the
amount of nonrecourse debt secured by a partnership asset; or (2) the basis of
an asset securing nonrecourse debt is reduced, for example, by depreciation.
Under the Regulations, all increases in partnership minimum gain for any Fiscal
Period (reduced by the amount of the proceeds of a nonrecourse debt which are
distributed to the partners in such Fiscal Period) will be associated with an
equivalent amount of the partnership's deductions. The Regulations require that
these deductions (known as nonrecourse deductions) be allocated among the
partners consistently with allocations of other items which have substantial
economic effect.
To the extent partners are allocated nonrecourse deductions, the
corresponding minimum gain is also in effect earmarked and each partner is
allocated income or gain equal to his or her share of the net decrease in
partnership minimum gain in future years. The Regulations are intended to assure
that each partner is eventually taxed on his or her share of partnership minimum
gain.
The Regulations also address the treatment of deductions and
distributions attributable to debt which is nonrecourse to the partnership but
recourse to one or more partners. Such debt, which the Regulations term "partner
nonrecourse debt," may involve, for example, a nonrecourse debt loaned to the
partnership by a partner or by person related to a partner. The Regulations
provide, in the case of partner nonrecourse debt, a set of rules comparable to
those which apply to partnership minimum gain. Deductions and distributions
corresponding to partner nonrecourse debt result in earmarked minimum gain, and
net decreases in minimum gain attributable to partner nonrecourse debt trigger a
minimum gain chargeback provision. Minimum gain attributable to partner
nonrecourse debt is separate from partnership minimum gain, and an event which
causes one to increase may cause the other to decrease. The Regulations are
intended to ensure that losses and deductions attributable to partner
nonrecourse debt, as well as the corresponding partner minimum gain, are
allocated to the partner who bears the economic risk of loss with respect to the
debt.
In general, for purposes of the foregoing rules, the Notes will be
treated as: (1) partnership Nonrecourse Debt when held by a person who is not a
Limited Partner (or an affiliate or related person); and (2) partner nonrecourse
debt, when held by a Limited Partner (or an affiliate or related person).
thereof.
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The Partnership Agreement contains a qualified income offset provision
and minimum gain chargeback provisions, and allocates nonrecourse deductions and
partner nonrecourse deductions in the manner prescribed in the Regulations.
Furthermore, the Partnership Agreement requires that liquidating distributions
be made in accordance with each Partner's Capital Account balance. In the
opinion of Harris Beach & Wilcox, LLP it is more likely than not that the
Partnership Agreement complies with the safe harbor provisions in the
Regulations under Section 704(b) of the Code and that all material allocations
thereunder will be respected. The Regulations are extremely complex and subject
to varying interpretations. Thus, there can be no assurance that the IRS will
not assert that the Partnership Agreement is not in compliance with the
Regulations and that its allocations do not have substantial economic effect and
are not in accordance with the Partners' interests in the Partnership.
Depreciation
The Code generally allows an owner of depreciable property to take
depreciation deductions based on the entire cost of the property and any
improvements to the property, even though the property and improvements are
financed in part with borrowed money. For convenience of reference and to avoid
confusion, the term "depreciation" as used throughout this Prospectus refers to
the deductions allowable under the Modified Accelerated Cost Recovery System
("MACRS") established by Section 168 of the Code. A lessee of property is
entitled to claim depreciation with respect to buildings constructed or other
permanent improvements made by a lessee on leased property provided that the
depreciable life of the improvements is equal to or shorter than the remaining
term of the lease. The General Partner anticipates that, if the land upon which
one or more of the Hotels is constructed is leased rather than purchased, the
term of the lease will be at least equal to the depreciable life of the Hotel
and other improvements made by the Partnership on the leased property.
The Partnership intends to depreciate the costs of construction
attributable to the Hotel building or buildings to be constructed (including
professional fees and construction period interest attributable to the
construction of the building) over a 39-year life using straight-line
depreciation. Also to be included in the basis of a Hotel are any architectural
and engineering fees attributable to the construction of the Hotel, the
development fee, and the construction management fee paid or accrued with
respect to the Hotel. The Partnership intends to depreciate the cost of certain
land improvements made as part of the Hotels (including roadways, curbs,
sidewalks and parking areas) over a 15-year period, and to depreciate the cost
of furniture and fixtures to be used in the Hotels over a 7-year period.
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Harris Beach & Wilcox, LLP is of the opinion that a Hotel building
should qualify for 39-year straight-line depreciation, the land improvements in
connection with the Hotel should qualify for 15-year straight-line depreciation,
and the furniture and fixtures purchased for use in the Hotel should qualify for
7-year straight-line depreciation. Harris Beach & Wilcox, LLP expresses no
opinion on any allocation of costs between or among the land, the Hotel
buildings and other improvements since the issue is factual.
At Risk Rules
Section 465 of the Code precludes individual taxpayers and certain
closely-held corporations from deducting losses from certain activities in
excess of amounts "at risk" in the activity. The passive activity loss
limitations (see "The Passive Loss Rules," above) are applied to a Limited
Partner's share of Partnership losses for a taxable year only after determining
that the Partnership losses in question satisfy the applicable "at risk"
limitations.
A Limited Partner will not be able to deduct taxable losses
attributable to the Hotels (or to any improvements or other real property that
the Partnership may subsequently acquire) in excess of that Partner's investment
in the property (the amount "at risk"). Generally, a Partner's investment in
real property will include the cash invested in the Partnership, amounts
borrowed with respect to real property for which the Partner is personally
liable, and the Partner's proportionate share of the Partnership's "qualified
nonrecourse financing." Qualified nonrecourse financing includes a loan made by
a bank or any other person actively and regularly engaged in the business of
lending money which is secured by real property used in the activity, provided
that no person is personally liable for repayment of the loan. The Notes
generally will not constitute qualified nonrecourse financing. It is not
presently known whether the Partnership will incur other debt to finance the
cost of construction of one or more Hotels, nor are the possible terms of any
such debt known at this time. Accordingly, it is not possible to predict whether
any Partner's amount at risk with respect to the Hotels may be increased by a
portion of the amount of financing of the Hotels which may be obtained.
The IRS has issued proposed regulations which provide that the amount
at risk for a Limited Partner who lends the Partnership money will be increased
by the amount by which the Limited Partner's basis in the Partnership is
increased under the tax basis rules of Section 752 of the Code. As described
below, a Limited Partner's tax basis in his Unit generally will increase by the
amount of the Notes held by such Partner. See "Tax Basis in Units" below.
Accordingly, a Limited Partner's amount at risk generally will increase by the
same amount.
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The IRS has issued proposed regulations which provide that a partner's
amount at risk is not increased by a recourse note payable to a partnership
until the proceeds of the note are actually used in the partnership's business.
Accordingly, the IRS may assert that a Limited Partner's obligation to pay a
Partner Note will not increase his or her amount at risk until the Partnership
uses the proceeds in its Hotel business. However, case law indicates that an
obligation by a partner to make additional capital contributions to a
partnership will increase the partner's amount at risk if the obligation is not
contingent and illusory. Harris Beach & Wilcox, LLP is of the opinion that a
obligation of a Limited Partner to pay a Partner Note is neither contingent nor
illusory since the Partner Note must be satisfied with payments of principal no
later than two years from the date that the Limited Partner is admitted as a
Limited Partner or three year's from the Effective Date of the Registration
Statement. See "INVESTMENT OBJECTIVES AND POLICIES - Business Development Plan."
A taxpayer's amount at risk with respect to an activity is increased by
net income from the activity and is reduced by deductions of net losses and by
distributions from the Partnership. Losses not deductible because of the at-risk
limitation may be carried forward to succeeding years. In addition, if a Partner
has deducted net losses and his or her amount at risk is subsequently reduced to
less than zero (e.g., by distributions of cash from the activity in excess of
income), the Partner must "recapture" as income an amount equal to the lesser of
the previously allowable losses or the amount by which the at-risk amount is
negative.
Harris Beach & Wilcox, LLP is of the opinion that a Limited Partner's
amount at risk is the sum of: (1) the amount contributed by the Limited Partner
to the Partnership; (2) the amount by which the tax basis of a Limited Partner's
Unit is increased by reason of holding a Note; and (3) the principal amount of a
Limited Partner's Partner Note.
Interest
Section 163 of the Code allows a deduction for all interest paid or
accrued within a taxable year on indebtedness incurred in conducting a trade or
business. Except for construction period interest, the Partnership intends to
deduct all interest incurred by the Partnership in connection with the financing
of the Hotels, including interest attributable to the Notes. Harris Beach &
Wilcox, LLP is of the opinion that this interest cost should be deductible for
Federal income tax purposes, subject to the passive loss limitation. See "The
Passive Loss Rules" above.
The 1986 Tax Act limits the deduction of interest expense on debt
incurred by individuals for personal expenditures. Since the enactment of the
1986 Tax Act, the
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IRS has issued temporary regulations and three notices which deal with the
treatment of debt incurred by a partnership to make distributions. Although the
matter is not entirely clear, the Partnership may be required to separately
state interest on the portion of the refinancing debt incurred to make
distributions to the Partners. The Partnership will attempt to make elections
necessary to minimize the amount of interest that must be separately stated. If
interest is separately stated, Limited Partners will be required to identify how
they spent distributions of refinancing proceeds when determining whether the
interest is deductible. For example, if the proceeds of a distribution were
spent by a Limited Partner on personal items, the interest incurred to make this
distribution would be personal interest to that Partner. However, if the
proceeds of a distribution were spent for investment activity, the interest will
be deductible subject to the limitations on deduction of investment interest or
to the applicable limitations on deductibility of passive losses.
In addition, a Limited Partner may choose to finance the purchase of
his or her interest in the Partnership. Harris Beach & Wilcox, LLP is of the
opinion that interest paid by a Limited Partner on a loan incurred to purchase
his or her interest in the Partnership should be deductible for federal income
tax purposes, subject to the passive loss limitation (except for of certain home
equity indebtedness). See "The Passive Loss Rules" above.
Limited Partners purchasing 20 or more Units may execute a Partner Note
reflecting the obligation to make future capital contributions to the
Partnership. The Partner Notes are non-interest bearing. If a Partner Note is
treated by the IRS as property given in exchange for a Unit, the imputed
interest and original issue discount rules of Sections 483, 1274 or 7872 of the
Code may apply. If Section 483 applies, a portion of each payment on a Partner
Note will be treated as imputed interest and the remainder will be treated as
imputed principal. If either Section 1274 or 7872 applies, the Partnership will
recognize original issue discount income with respect to the Partner Notes. In
general, original issue discount is the amount by which the principal amount of
a debt obligation exceeds its issue price. The amounts of imputed interest and
original issue discount with respect to the Partner Notes will be income of the
Partnership. The Partnership Agreement provides that the total amount of any
imputed interest and original issue discount be specially allocated to the
Limited Partners issuing Partner Notes in accordance with the ratio that the
imputed interest income and original issue discount attributable to each
Partner's Partner Note bears to the total amount of imputed interest and
original issue discount recognized by the Partnership and attributable to all
Partners' Partner Notes. Accordingly, it is intended that any deduction to which
a Limited Partner issuing a Partner Note is entitled that is attributable to
imputed interest and original issue discount under a Partner Note be offset with
a matching amount of imputed interest and original issue discount, subject
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to the applicable limitations on deductibility of passive losses. It is possible
that, due to the passive loss rules, a Limited Partner issuing a Partner Note
would be allocated imputed interest or original issue discount income that is
treated as portfolio income which could not be offset by the Limited Partner's
passive activity deduction attributable to imputed interest or original issue
discount, and that the portfolio income could exceed any cash distributions to
the Limited Partner in the Fiscal Period.
Section 267(a)(2) of the Code provides that an accrual basis
partnership, such as the Partnership, may not deduct amounts owed to a cash
basis partner or an affiliate or related person thereof until actual payment is
made. Accordingly, absent evidence that Notes are held by a non-partner or an
unrelated party, the Partnership will not deduct interest on the Notes until
actual payment is made.
Volume and Timing Discounts
The selling commissions payable to the Managing Dealer by purchasers of
30 or more Units will be reduced and the reduction credited to the purchaser (by
reducing the Unit purchase price). The proceeds to the Partnership per Unit will
not be affected by volume discounts. The per Unit discount is $10 for investors
purchasing between 30 and 59 Units and $20 for investors purchasing 60 or more
Units.
The price of Units purchased on or prior to certain dates will be
reduced. The per Unit reduction is $50 for investors that purchase Units on or
before the First Closing, $40 for investors that purchase Units on or before
March 31, 1996, $30 for investors that purchase Units on or before June 30,
1996, $20 for investors that purchase Units on or before September 30, 1996, and
$10 for investors that purchase Units on or before December 31, 1996. The
commissions payable to the Managing Dealer will be 8% of the net purchase price
of the Unit after deducting the timing reduction. Thus, 92% of any reduction
will reduce the proceeds payable to the Partnership.
All investors will be deemed to have contributed the same amount per
Unit to the Partnership for purposes of determining a Limited Partner's Pro Rata
Share. Most tax allocations and distributions (including the Cumulative Return)
are based on a Limited Partner's Pro Rata Share. If the Partnership is
profitable, an investor qualifying for a volume or timing discount will receive
a slightly higher return on his or her investment in the Partnership than
investors who do not qualify for discounts. Investors receiving Units subject to
volume or timing discounts will also be specially allocated taxable income in
the amount of the timing or volume discounts in order to equalize the Capital
Accounts of the investors on a per Unit basis. The special allocation will
generally occur in the year the liquidation of the Partnership occurs or
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the year the partner's interest in the Partnership is redeemed, whichever occurs
earlier. If the Partnership is not profitable, an investor qualifying for a
volume or timing discount may receive slightly more losses than other investors.
These losses would slightly reduce the amount of cash the investors receive at
the liquidation of the Partnership.
Tax Basis in Units
A Limited Partner may not deduct losses from the Partnership in excess
of the Partner's tax basis. The Limited Partner may carry forward any excess
loss to such time, if any, as the Limited Partner's tax basis is sufficient to
absorb the loss. Distributions to a Limited Partner by the Partnership will not
be taxable to the Limited Partner except to the extent distributions exceed the
Limited Partner's tax basis.
The initial tax basis of a Limited Partner's Unit is the cash
contributed to the Partnership plus the Partner's share of the liabilities of
the Partnership. This share includes his or her share of any Partnership debts
with respect to which no Partner bears the economic risk of loss (the
"Partnership Nonrecourse Debt"). Under regulations recently issued by the IRS, a
Partner's share of the Partnership Nonrecourse Debt generally equals that
Partner's percentage interest in the Partnership's profits, as determined by
taking into account all facts and circumstances relating to the economic
arrangements between the Partners. The Regulations further provide that the
Partnership Agreement may specify each Partner's interest in Partnership profits
solely for purposes of determining the Partners' proportionate shares of the
Nonrecourse Debt of the Partnership, and provides that such specification will
be respected so long as it is reasonably consistent with allocations (that have
substantial economic effect under the Section 704(b) Regulations) of some other
significant item of partnership income or gain. In accordance with this
Regulation, paragraph 3.04(e) of the Partnership Agreement provides that, solely
for purposes of determining the Partners' proportionate shares of the
Partnership Nonrecourse Debt, the Partners' interests in Partnership profits are
as follows: 99 percent to the Limited Partners in accordance with each Limited
Partner's Pro Rata Share and 1 percent to the General Partner.
A Limited Partner's share of the liabilities of the Partnership also
includes the portion of any Partnership debts for which the Limited Partner
bears the economic risk of loss (the "Partner Nonrecourse Debt"). A Partner
generally bears the economic risk of loss for a Partner Nonrecourse Debt to the
extent that the Partner (or an affiliate or a person related to the Partner)
makes a nonrecourse loan to the Partnership and the economic risk of loss is not
borne by another Partner.
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In general, for purposes of the foregoing rules, the Notes will be
treated as: (1) Partnership Nonrecourse Debt when held by a person who is not a
Limited Partner (or an affiliate or related person); and (2) Partner Noncourse
Debt when held by a Limited Partner (or an affiliate or related person).
A Limited Partner purchasing 20 or more Units will be entitled to
increase the tax basis of his or her Units by principal paid on each Partner
Note. However, part of the payments made to the Partnership with respect to a
Partner Note may be treated by the IRS as imputed interest or original issue
discount (with only the remainder treated as principal). See "Interest" above.
In such an event, only the portion of the payment treated as imputed principal
will increase the basis of a Limited Partner's Unit.
Each year, a Limited Partner's tax basis in his Unit increases by his
or her allocable share of the Partnership's taxable income for the year and
decreases by his or her allocable share of the Partnership's taxable loss for,
and any cash distributions during, the year. If a Limited Partner's tax basis in
his or her Unit is reduced to zero, any cash distribution to the Partner (and
any reduction in a Partner's share of Partnership liabilities) in excess of the
Partner's share of the income of the Partnership for a year will be taxable to
the Partner in the same manner as a sale of the Unit. See "Tax Treatment on
Disposition of Units" below.
Harris Beach & Wilcox, LLP is of the opinion that each Limited Partner
should include in the tax basis of his or her Units the cash contributed to the
Partnership in exchange for his or her Units, and, with respect to a Limited
Partner purchasing 20 or more Units, payments of principal on a Partner Note.
This amount would be increased by the Limited Partner's share (determined as
described above) of any Partnership Nonrecourse Debt and Partner Nonrecourse
Debt. Because it is not presently known what will be the amount of Notes
acquired by holders, or whether the Partnership will incur debt in connection
with the construction of the Hotels in addition to the Notes, or on what terms
such debt might be incurred, it is impossible to determine whether a Partner's
tax basis in his Unit may be increased by a portion of such debt. Each Limited
Partner's actual basis is a factual matter as to which Harris Beach & Wilcox,
LLP expresses no opinion.
Tax Treatment of Sale of Partnership Property
If the Partnership sells any or all of the Hotels or if one or more of
the Hotels is destroyed by a casualty (and the insurance proceeds are not
re-invested in a replacement property), the Partnership will realize gain or
loss equal to the difference between the amount realized and the Partnership's
tax basis in the Hotels sold or destroyed. The amount realized will include any
indebtedness to which the Hotel is
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subject. The foreclosure of a mortgage on one or more of the Hotels will also be
treated as a sale, and the amount realized will be the amount of the
indebtedness to which the Hotel is subject at the time of foreclosure.
If the amount realized on the sale, casualty or foreclosure exceeds the
Partnership's tax basis in the Hotel, the resulting gain will generally be
treated as long-term capital gain under Section 1231 of the Code. If the amount
realized on the sale, casualty or foreclosure is less than the Partnership's tax
basis in the Hotel, the resulting loss will generally be deductible as a Section
1231 loss.
The 1986 Tax Act repealed the capital gain deduction for all
transactions occurring on or after January 1, 1987. Long-term capital gain is
currently subject to a maximum 28 percent effective marginal rate. However, a
substantial gain allocated to a Partner may result in the phase-out of certain
exemptions and deductions which would increase the effective income tax rate on
the Partner's ordinary income. Proposals are pending in the Congress to
reinstate the capital gain deduction.
Tax Treatment of Disposition of Units
Section 5.04 of the Partnership Agreement places certain restrictions
on the transfer of Limited Partnership Units. See "SUMMARY OF THE PARTNERSHIP
AGREEMENT - Restrictions on Transfer of Units." Even if these restrictions are
satisfied, the General Partners believe that it is unlikely that a market for
the Units will develop. Gain or loss on a sale or exchange will be based on the
difference between the amount realized (which would include the Partner's share
of the debt of the Partnership determined in the manner described above under
the heading "Tax Basis in Units") and the Limited Partner's tax basis in the
Unit. Based upon present law, the resulting gain will be capital gain which
would be taxed at the maximum 28 percent effective marginal rate. However, a
substantial gain allocated to a Partner may result in the phase-out of certain
exemptions and deductions which would increase the effective income tax rate on
the Partner's ordinary income. Because of earlier cash distributions and
deductions previously taken for interest and depreciation, it is possible that
the tax imposed on the sale or exchange will exceed the cash proceeds realized.
On the transfer of a Unit, the Partnership may, but is not obligated
to, adjust the basis of its properties as provided in Section 754 of the Code.
Once the Section 754 election is made, it will apply to all subsequent transfers
of Units by sale, exchange or death, even if the effect of the election is to
decrease the basis of Partnership property with respect to a transferee Limited
Partner.
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The Section 754 election requires the Partnership to adjust the basis
of its property (with respect only to the transferee Partner) so that the
transferee Partner's proportionate share of the adjusted basis of the
Partnership property equals the basis of his Partnership interest. As a result,
if a transferee acquires his interest at a cost greater than the transferor's
share of the Partnership's basis in its property, and the Section 754 election
is made, the transferee Partner will generally recognize less income (or more
loss) on the sale of the Partnership property than if the election were not
made. The transferee Partner may also be entitled to larger depreciation
deductions each year than the Partner would be entitled to if the election were
not made. On the other hand, if a transferee Partner acquires his interest at a
cost less than the transferor's share of the Partnership's basis in the
property, the transferee Partner will generally recognize more income or less
loss on the sale of Partnership property than if the election were not made.
Furthermore, the transferee Partner may be entitled to smaller depreciation
deductions than he would be entitled to if the election were not made.
AS A RESULT OF THE COMPLEXITIES AND ADDED EXPENSE OF THE TAX ACCOUNTING
REQUIRED TO IMPLEMENT A SECTION 754 ELECTION, THE GENERAL PARTNER DOES NOT
ANTICIPATE MAKING A 754 ELECTION. See the definition of "Income or Loss" in
Article I of the Partnership Agreement.
Alternative Minimum Tax
The Code contains an alternative minimum tax on individuals of up to
28% of alternative minimum taxable income ("AMTI") in excess of certain
exemption amounts. This tax may reduce the benefit to a particular Limited
Partner from an investment in the Partnership. The alternative minimum tax is
payable to the extent that it exceeds the "regular" Federal income tax payable
for that year. No credits other than the foreign tax credit may be applied
against the alternative minimum tax.
AMTI generally is computed by adding specified tax preference items to
adjusted gross income and subtracting specified deductions. In determining
adjusted gross income for AMTI purposes, a less beneficial, alternative method
of depreciation must be used for certain property. Furniture and fixtures are
depreciated for AMTI purposes using the 150% declining balance method switching
to the straight-line method over the asset's class life. The Hotels must be
depreciated using the straight line method over 40 years. Certain deductions
permitted for regular tax purposes are not permitted in calculating AMTI. For
example, state and local income tax and some other itemized deductions do not
reduce a taxpayer's AMTI.
The interaction of the alternative minimum tax rules with the passive
activity loss rules is complex. The alternative minimum tax provisions require
the application
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of the passive activity loss rules when determining AMTI, except that in
determining the amount of income and losses for AMTI purposes, the minimum tax
rules are applied. This required recomputation may, with respect to each
activity: (1) decrease the amount of loss generated for AMTI purposes; (2)
create income for AMTI purposes where there were losses for regular tax
purposes; or (3) increase the amount of income for AMTI purposes. The General
Partner anticipates that the interaction of the AMTI rules and the passive
activity loss rules will not be significant if a Limited Partner uses any losses
allocated to him or her from the Partnership only against future Partnership
income.
If a taxpayer pays alternative minimum tax, the excess of the tax over
his or her regular tax liability (except to the extent attributable to exclusion
preferences such as tax-exempt interest) may be carried forward as a credit
against any subsequent-year regular tax in excess of minimum tax.
The amount of alternative minimum tax imposed depends upon factors
particular to each taxpayer and the extent, if any, to which this tax may
adversely affect any Limited Partner cannot be predicted. Each prospective
Limited Partner should consult his or her tax advisor to determine whether an
investment in the Partnership might cause or increase his or her liability for
alternative minimum tax. It should be noted that some states also impose a
minimum tax on items of tax preference.
Tax Treatment of Fees and Related Expenditures
The Partnership will pay fees, commissions, and other items to the
General Partner and others in connection with this offering. See "ESTIMATED USE
OF PROCEEDS" and "COMPENSATION OF GENERAL PARTNER AND MANAGING DEALER."
Section 707(a) of the Code provides that, if a partner engages in a
transaction with a partnership other than in his capacity as a member of the
partnership, the transaction is considered as occurring between the partnership
and one who is not a partner. Section 707(c) of the Code permits a partnership
to deduct payments to a partner for services or the use of capital to the extent
the payments are made without regard to the income of the partnership and would
be deductible if made to a non-partner.
The Partnership will neither deduct nor amortize the Selling
Commissions (up to $80 per Unit and $55 per $1,000 Note sold), Investor
Relations Fee, any other expenditures connected with the issuing and marketing
of interests in the Partnership (including the Organization and Offering
Management Fee to Essex Partners (3.4% of
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Gross Offering Proceeds)) or those portions of the legal fees for securities and
tax advice and the accounting fees that are attributed to sale of partnership
interests, because Section 709 of the Code prohibits a deduction for amounts
paid in connection with the sale of partnership interests. However, the IRS may
take the position that the amounts allocated to these services are unreasonably
low and should be increased. If so, the portion of the total fees that is
neither deductible nor amortizable would be increased.
Section 709 of the Code allows the Partnership to amortize partnership
organization expenses over a period no shorter than 60 months, beginning with
the month in which the partnership begins business. The Partnership intends to
amortize the costs and fees incurred in connection with the organization of the
Partnership, a portion of the Organization and Offering Management Fee and
portions of the legal fees for partnership organization.
The cost of architectural and engineering services for the Hotels, the
Development Fees ($160,000 per Hotel, increased by 5% of total construction,
site development and furniture, fixtures and equipment costs in excess of $2.7
million, but not to exceed $325,000 per Hotel), the construction management fees
and the legal fees related to the purchase of the Hotels will be added to the
Partnership's cost basis in the Hotels and depreciated over a 39-year period.
The Acquisition Fee ($110,000 per Hotel) will be added to the Partnership's
basis in the land, or in any lease of the land, on which the Hotels are located,
and thus will not be depreciated. The Partnership intends to amortize any
refinancing fee paid to the General Partner for the refinancing of any debt
attributable to a Hotel (1% of the gross proceeds of any refinancing) over the
term of the refinanced debt.
The Partnership intends to treat the property management fee payable to
Essex Partners (4.5% of the gross operating revenues from each Hotel) and the
Partnership Management Fee payable to Essex Partners (3/4 of 1% of the gross
operating revenues from each Hotel) as ordinary business expenses in the year
they are incurred. The Partnership intends to amortize the Franchise Fees over
15 years as required by Section 197 of the Code.
Any sales fee paid to the General Partner (up to 3% of the gross sales
price of each Hotel) will be added to the Partnership's basis in the Hotel sold.
See "Tax Treatment of Sale of Partnership Property" above.
The IRS could challenge the treatment of a Partnership expense on the
grounds that the amount of an expense is unreasonable in relation to the value
of the services performed. The IRS could similarly assert that a fee or other
item should be
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excluded from the depreciable base of the Hotels because it is unreasonable. If
the deduction or amortization of part or all of any fee were disallowed, there
could be an increase in the amount of taxable income or a decrease in the amount
of taxable loss allocable to the Limited Partners.
Harris Beach & Wilcox, LLP believes that the Partnership's proposed tax
treatment of fees and related expenses is reasonable. However, it will express
no opinion whether the amount indicated for each item is appropriate because
that determination is factual.
State and Local Taxes
In addition to the Federal income tax consequences described above,
prospective Limited Partners should consider potential state and local tax
consequences of an investment in the Partnership. Some states may impose a tax
on nonresident as well as resident Limited Partners based on their allocable
shares of Partnership income derived from property located in those states.
Partners may be subject to filing obligations and income, franchise, estate,
inheritance or other taxes in the states and localities where the Hotels are
situated, as well as in their own places of residence or domicile. EACH INVESTOR
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
AN INVESTMENT IN THE PARTNERSHIP IN HIS OR HER OWN STATE.
Tax Treatment of Resident and Nonresident Alien Investors
Units are not being offered, and it is not expected that Units will be
sold, to nonresident aliens, but Units may be sold to resident aliens (i.e.,
United States residents who are not United States citizens). Resident alien
individuals should consider the foreign tax consequences of an investment in
Units, and the effect on those foreign tax consequences of a change in status
from a resident to a nonresident alien.
The U.S. income tax consequences of an investment in Units by a
nonresident alien will vary depending upon the nonresident alien investor's
particular circumstances. In any event, a nonresident alien who owns Units would
be subject to U.S. income tax on his or her distributive share of Partnership
income (subject to any applicable income tax treaty) and may in certain
circumstances be subject to U.S. withholding tax on his or her share of
Partnership income and distributions.
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EACH RESIDENT ALIEN AND NONRESIDENT ALIEN INVESTOR IS URGED TO CONSULT
HIS OR HER OWN TAX ADVISOR REGARDING THE UNITED STATES AND FOREIGN TAX
CONSEQUENCES OF AN INVESTMENT IN UNITS.
Gift Taxes
The transfer by gift of a Unit may be subject to Federal gift tax. If
property is transferred by gift, the recipient of the gift receives a basis
equal to the donor's basis in the property (if the fair market value of the
property equals or exceeds its basis). If the basis of the property exceeds its
fair market value, the recipient generally receives a basis equal to the donor's
basis (except that the recipient receives a basis equal to the property's fair
market value for purposes of determining loss).
A Limited Partner will generally be entitled to a Federal income tax
deduction in the case of a charitable gift of a Unit. The amount of the
deduction will generally be the fair market value of the Unit at the time of the
gift to charity.
A gift of a Unit to a charitable organization will be treated as a
bargain sale to the charity. Rev. Rul. 75-194, 1975-1 C.B. 80. The donor Limited
Partner will be deemed to have received consideration in the amount of his share
of Partnership liabilities. The Limited Partner's tax basis in the Unit for the
purposes of determining gain on the bargain sale will be equal to his basis in
the Unit multiplied by the ratio of the Limited Partner's portion of the
Partnership's liabilities to the fair market value of his or her Unit.
Harris Beach & Wilcox, LLP expresses no opinion as to the tax
consequences of a charitable gift of a Partnership Unit because the tax
consequences of a charitable gift will vary depending on the particular facts
involved. INVESTORS SHOULD CONSULT WITH THEIR TAX ADVISORS IN CONNECTION WITH
MATTERS RELATING TO A CHARITABLE GIFT OF A UNIT.
Estate Taxes
The property of a decedent is valued at its fair market value on either
the date of death or the alternate valuation date, whichever is applicable. The
basis of estate assets is "stepped up" (or stepped down) to the fair market
value of the assets, except to the extent the fair market value is attributable
to an item of income in respect of a decedent. Items of income in respect of a
decedent may include earned but undistributed ordinary income and certain
unrealized capital gains on installment sales. Under the partnership provisions
of the Code, the estate is permitted to include its share
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of partnership liabilities in the basis of its partnership interest. The fair
market value of a Limited Partner's interest will be included in his or her
gross estate for Federal estate tax purposes and will be subject to Federal
estate tax, which tax must be paid by the Limited Partner's estate. In addition,
some state estate taxes, which are not discussed in this Prospectus, may also be
due and payable.
If an estate or beneficiary holds a deceased Limited Partner's Unit,
the estate or beneficiary will be required to report income or loss from the
Partnership in the same manner as would the Limited Partner if he or she were
still alive and holding the Unit. INVESTORS SHOULD CONSULT WITH THEIR ESTATE
PLANNING ADVISORS IN CONNECTION WITH MATTERS RELATING TO THE EFFECT OF AN
INVESTMENT IN THE PARTNERSHIP ON THEIR PERSONAL ESTATE PLANNING.
Possible Changes in Law
Future changes in the tax laws and their interpretation may have an
adverse impact on the tax liabilities of Limited Partners. For example, if a
Limited Partner is able to currently utilize passive losses generated by the
Partnership and if marginal tax rates increase, the Limited Partners may suffer
an adverse impact if the Partnership later generates taxable income.
THE FOREGOING DISCUSSION OF THE MATERIAL TAX CONSEQUENCES AFFECTING THE
PARTNERSHIP AND THE LIMITED PARTNERS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL
TAX PLANNING, PARTICULARLY SINCE THE TAX CONSEQUENCES OF AN INVESTMENT IN THE
PARTNERSHIP ARE COMPLEX AND NOT THE SAME FOR ALL TAXPAYERS. ACCORDINGLY,
PROSPECTIVE PURCHASERS OF UNITS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS
AND/OR PURCHASER REPRESENTATIVES WITH SPECIFIC REFERENCE TO THEIR OWN SITUATIONS
AND RECENT OR POTENTIAL CHANGES IN THE TAX LAWS.
SPECIAL CONSIDERATIONS FOR TAX EXEMPT INVESTORS
UNRELATED BUSINESS INCOME TAX CONSIDERATIONS
Tax exempt investors, including employee pension and profit sharing and
Keogh plan trusts exempt from income tax under Section 401(a) of the Code and
individual retirement accounts ("IRAs") exempt from income tax under Section 408
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of the Code, are subject to tax under Section 511 of the Code on their unrelated
business taxable income ("UBTI") in excess of $1,000 per year. Trusts and IRAs
are taxed at rates ordinarily applicable to trusts; other tax exempt investors
are taxed at corporate rates.
UBTI is defined in Section 512 of the Code to include income which is
earned from the active conduct, by an otherwise tax exempt organization, of a
trade or business which is unrelated to its exempt purpose. In the case of a tax
exempt organization investing as a limited partner, the determination of whether
the investment constitutes an unrelated trade or business is made at the
partnership level. That is, to the extent the activities of the partnership
would constitute an unrelated trade or business if carried on directly by the
partner, the income and deductions of the partnership allocated to the partner
will be items of unrelated business income to that partner.
Certain types of income are specifically excluded from UBTI. The types
of income excluded from UBTI include all interest, dividends, rental payments
attributable to real property, and gain from the sale or other disposition of
property (other than inventory). Payments for the use or occupancy of rooms and
other space where services are also rendered to the occupant, such as for the
use or occupancy of rooms in motels, motor courts and hotels, do not constitute
rental payments attributable to real property. Since virtually all of the
Partnership's operating income will be derived from rental payments received for
the use of motel rooms, operating income of the Partnership is not expected to
qualify for the exclusion from UBTI for rental payments attributable to real
property. Therefore, the General Partner expects that a tax exempt entity owning
Units will be subject to tax on income allocable to its interest in the
Partnership.
Section 512 of the Code, however, generally excludes interest income
from the definition of unrelated business taxable income. Therefore, income
derived by a tax exempt investor's ownership of Notes will not be treated as
unrelated business taxable income, except to the extent it is attributable to
debt-financed property (within the meaning of Section 514 of the Code).
Similarly, gain from the sale of the Notes held by a tax exempt investor will
not be treated as unrelated business taxable income, except to the extent it is
attributable to debt-financed property or to the extent the tax exempt investor
is a dealer.
The tax on UBTI is imposed directly on and paid out of the assets of
the plan or other tax exempt entity. If the gross unrelated business income does
not exceed $1,000 per year, it is neither taxable nor reportable for federal
income tax purposes.
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Even though a portion of the income of a tax exempt entity is UBTI,
income from other investments that is not UBTI will continue to be exempt from
federal income tax. Thus, the receipt of UBTI generally will not affect the tax
exempt status of Limited Partners which are tax exempt entities. For certain
types of tax exempt entities, however, the receipt of any unrelated business
income may have extremely adverse consequences. For example, if a charitable
remainder annuity trust or a charitable remainder unitrust (as defined in
Section 664 of the Code) receives UBTI during the year, all of its income from
all sources in that year will be taxable. In addition to possible federal income
taxation, any UBTI may be subject to state and local income taxation, which may
differ in method of computation and amount from the federal tax.
EMPLOYEE BENEFIT PLANS, IRAS AND OTHER TAX EXEMPT ORGANIZATIONS ARE
STRONGLY URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING THE POSSIBLE
APPLICATION OF UNRELATED BUSINESS INCOME TAX AND THE FILING AND REPORTING
REQUIREMENTS THAT MAY APPLY TO THEM.
ERISA CONSIDERATIONS
Fiduciaries of pension, profit-sharing, and stock bonus plans or other
plans governed by the Employee Retirement Income Security Act of 1974 ("ERISA")
are required by ERISA to consider: (a) whether the investment is permitted under
the governing instrument for the plan and is an appropriate investment for the
plan, based on examination of its overall investment portfolio; (b) whether the
investment satisfies the diversification requirements of Section 404(a)(1)(C) of
ERISA; (c) whether the investment is prudent; (d) whether the investment is for
the exclusive purpose of providing benefits to participants; and (e) whether the
investment is made solely in the interests of the participants. Fiduciaries
should be aware that ERISA requires that assets of a plan be revalued at least
once each plan year, and that valuation of partnership interests may be
difficult because of the lack of a resale market.
Section 406 of ERISA and Section 4975 of the Code provide that the
fiduciary of a plan governed by ERISA (including IRAs and Keogh plans) may not
cause the plan to become involved in a "prohibited transaction." The fiduciary
must ensure that the General Partner and its affiliates are not "parties in
interest" with respect to the plan before investing in a partnership. This
determination includes insuring that members of the family of persons acting in
a fiduciary capacity with respect to the plan, as well as businesses and trusts
associated with such fiduciaries, are not closely related by business or family
ties to the General Partner or its affiliates.
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A "prohibited transaction" includes a transaction in which a plan lends
money to a "party in interest." A "party in interest" is broadly defined to
include parties such as plan fiduciaries, plan beneficiaries, persons providing
services to the plan, and businesses, affiliates and relatives of such parties.
A "prohibited transaction" could arise if an individual purchased Notes through
his pension, profit-sharing or other plan when the individual also owned an
equity interest in the Partnership. Additionally, if a plan purchased Notes when
the plan fiduciary owned an interest in the Partnership, this purchase could
also result in "prohibited transaction." Section 4975 of the Code imposes a tax
on "prohibited transactions."
Those persons proposing to purchase Units on behalf of plans governed
by ERISA should also consider whether a purchase of one or more Units will cause
the Partnership's assets to be deemed to be "plan assets" for purposes of the
fiduciary responsibility and the prohibited transaction provisions of ERISA and
the Code. Neither ERISA nor the Code defines "plan assets," however, the
Department of Labor's regulations relating to the definition of "plan assets"
require that the assets of certain pooled investment vehicles, including certain
partnerships, be treated as "plan assets." If the assets of the Partnership were
deemed to be "plan assets" of an employee benefit plan the General Partner (and
any other entity with discretion over the Partnership's assets') is treated as a
fiduciary of that employee benefit plan. This increases the risk that
transactions involving the assets of the Partnership and "parties in interest"
or "disqualified persons" with respect to such plans might be prohibited under
Section 406 of ERISA and Section 4975 of the Code. A "prohibited transaction"
imposes personal liability upon fiduciaries of an ERISA plan, and results in the
imposition of an excise tax under Section 4975 of the Code.
The Partnership's assets will not be categorized as plan assets if the
Partnership is a "real estate operating company," as that term is defined in the
Department of Labor regulations. In order to constitute such an operating
company, 50% of the Partnership's assets (except assets held in short-term
investments pending long-term commitment) must be invested in real estate. This
50% requirement is tested at specific points in time on an annual basis. It is
the General Partner's intent that this 50% requirement will be met within the
time frames set out in the regulations, both for the initial determination of
real estate operating company status and for subsequent annual determinations.
The 50% requirement may not be satisfied at the time of the Partnership's
initial investment in other than short-term investments pending long-term
commitment. In addition to the 50% requirement, the Partnership must also
satisfy a management requirement. During each annual determination period, the
Partnership must, in the ordinary course of its business, engage directly in
real estate management or development activities. The General Partner intends to
satisfy this management requirement through its Management Agreement with the
Partnership under which the
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General Partner will directly manage the Partnership's real estate. While the
General Partner intends to satisfy both the 50% requirement and the management
requirement, subsequent developments could prevent the General Partner from
doing so and could preclude characterization of the Partnership as a real estate
operating company.
If the Partnership fails to attain real estate operating company
status, the Partnership's assets will escape plan asset characterization if the
Partnership and the Units qualify for the "publicly offered security" exemption.
An entity will qualify for this exemption if the security is: (i) part of a
class of securities which are registered under the Securities Exchange Act of
1934, as amended, or sold as part of an offering pursuant to an effective
registration statement so long as the securities are subsequently registered
within the designated time frame; (ii) widely held; and (iii) freely
transferable. Under the Department of Labor's regulations, a class of securities
will be considered widely held if it is owned by 100 or more investors who are
independent of the issuer and of each other. Although the determination of
whether a class of securities is considered freely transferable is based on all
of the facts and circumstances of the situation, the Department of Labor has
indicated that so long as the minimum investment is $10,000 or less the
existence of certain restrictions (similar to the restrictions on transfer in
5.04 of the Partnership Agreement) will not prevent a security from being
considered freely transferable. The General Partner has represented that it is
likely that there will be 100 or more independent investors and that it will use
its best efforts to insure that there will be the requisite number of
independent investors. Based on this representation, the other facts surrounding
the situation and the assumption that there will be 100 or more independent
investors, and if the Partnership registers under the Securities Act of 1934, as
amended, Harris Beach & Wilcox, LLP is of the opinion that the Partnership would
more likely than not meet the publicly offered security exemption.
If the Partnership fails to attain real estate operating company status
or to obtain 100 or more independent investors (or otherwise fails to qualify
for the publicly offered security exemption), the Partnership could still
qualify for exemption from plan asset characterization if the total investment
by "benefit plan investors" is not "significant." Under the Department of Labor
regulations, the total investment will be significant if at any time after the
acquisition of equity interests in the Partnership, benefit plan investors own
25% or more of the value of any class of equity security. Because the
availability of this exemption involves a factual question which cannot be
determined at this time, this exemption cannot be relied upon to prevent plan
asset status, although the General Partner represents that, if no other
exemption is available, it will attempt to structure the sales of the Units to
meet this exemption by limiting or delaying sales to benefit plan investors.
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ALL FIDUCIARIES ARE ENCOURAGED TO CONSULT THEIR TAX AND LEGAL ADVISORS
FOR THE IRAS AND BENEFIT PLANS THEY REPRESENT TO INSURE THAT AN INVESTMENT IN
THE PARTNERSHIP IS APPROPRIATE.
DESCRIPTION OF THE NOTES
The Mortgage Notes will be issued under an Indenture, dated as of
November 1, 1995, between the Partnership and Manufacturers and Traders Trust
Company, as Trustee (the "Trustee"), and the Subordinated Notes will be issued
under an Indenture dated as of November 1, 1995 between the Partnership and
Manufacturers and Traders Trust Company, as Trustee (collectively, the
"Indentures") the forms of which have been filed as exhibits to the Registration
Statement. See "RISK FACTORS -- Conflicts of Interest." Initially, both the
Subordinated Notes and the Mortgage Notes will be issued as unsecured
obligations of the Partnership. When Property is acquired for construction of a
Hotel without reliance upon External Financing, such property will be subject to
a mortgage pursuant to the terms of a mortgage and security agreement (the "Fee
Mortgage") if the property is purchased, or a leasehold mortgage and security
agreement (the "Leasehold Mortgage") if the property is leased or subleased, the
forms of which have been filed as exhibits to the Registration Statement. The
Fee Mortgage and the Leasehold Mortgage are referred to collectively as the
"Mortgages." After a property, which has been acquired, and a Hotel which has
been constructed thereon, without reliance upon External Financing, becomes
subject to the Mortgages, the Mortgage Notes will become secured obligations of
the Partnership. The following summaries of certain provisions of the Notes,
Indentures, and the Mortgages do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Notes, Indentures, and the Mortgages, including the definitions therein of
certain terms. Wherever particular Sections or defined terms of the Notes,
Indentures, or the Mortgages are referred to, they are incorporated herein by
reference.
MORTGAGE NOTES AND SUBORDINATED NOTES
GENERAL
The aggregate principal amount of the Mortgage Notes will be not more
than $10,000,000. The Mortgage Notes will bear interest at a rate per annum
(computed on the basis of a 360-day year and twelve 30-day months) to be
established by the General Partner, accruing from the date that subscription
proceeds are released to the Partnership from escrow ("Closing Date"). Interest
will be payable monthly in arrears
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beginning on the first day of the second complete calendar month following the
subscriber's Closing Date.
The interest rate on the Mortgage Notes will be established by the
General Partner prior to the issuance of Mortgage Notes and will be reflected in
a supplement to this Prospectus. The rate, which will be between 9.5% and 10%,
will be established based upon the level of long term interest rates, mortgage
rates and other factors.
The aggregate principal amount of the Subordinated Notes will be not
more than $6,000,000. The Subordinated Notes will bear interest at the rate of
10.5% per annum (computed on the basis of a 360-day year and twelve 30-day
months), accruing from the date that subscription proceeds are released to the
Partnership from escrow on the Closing Date. Interest will be payable monthly in
arrears beginning on the first day of the second complete calendar month
following the subscriber's Closing Date.
The principal amount of the Mortgage Notes and the Subordinated Notes
will not be payable until maturity. The Notes mature on December 31, 2001 unless
extended by the Partnership for up to one year thereafter. Written notice of any
extension shall be mailed by the Partnership to the Trustee and each Holder at
least 30 days before the scheduled maturity date. The Partnership is required to
pay a fee of .5% of the principal amount of the Mortgaged Notes or the
Subordinated Notes then outstanding to extend the maturity date to December 31,
2002.
The Partnership intends to pay interest payable on the Notes from
operating income, and to pay the principal amount of the Notes at maturity from
proceeds realized on the sale or refinancing of the Hotels. Neither the Mortgage
Notes nor the Subordinated Notes will be entitled to the benefit of any sinking
or similar fund.
Principal of, premium, if any, and interest on the Notes will be
payable by the Trustee. Payments of interest will be mailed by the Trustee to
the address of the Holder set forth in his or her Note or such other address as
the Holder may in writing designate by notice to the Trustee at least 10 days
before interest is due. If payment to the Trustee is overdue in excess of 15
days, a late charge of $.04 of each $1.00 overdue will be payable by the
Partnership.
REDEMPTION PROVISIONS
The Notes are redeemable at the Partnership's option, in whole or in
part, without payment of any premium or penalty, together with accrued interest
to the redemption date.
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Prior to the redemption date, the Partnership is required to deposit
with the Trustee money sufficient to pay the redemption price of and accrued
interest on all Notes to be redeemed on that date. Provided that notice of
redemption has been given as provided in the Indentures and such deposit has
been made, the Notes will cease to bear interest on and after the date fixed for
redemption. Upon surrender of the Notes to the Trustee on or after the
redemption date, the redemption price plus accrued interest to the redemption
date will be payable to the Holder by the Trustee.
If a partial redemption is made, the Trustee shall select the Notes to
be redeemed so as to maintain the pro rata principal amount holdings of Holders
of like Notes. Upon surrender of a Note that is redeemed in part only, the
Partnership will issue to the Holder a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
USE OF PROCEEDS FROM THE SALE OR REFINANCE OF HOTELS NOT DEVELOPED WITH
EXTERNAL FINANCING.
The Partnership shall have the right, prior to the maturity date of the
Mortgage Notes (December 31, 2001 or December 31, 2002, in the event the
maturity date is extended by the Partnership), to reinvest the net proceeds
received from any sale or refinancing of any one or more of the Partnership's
Hotels, other than those Hotels constructed or developed with funds from
External Financing, in additional hotel properties, including the real property
and improvements thereon, whether owned by the Partnership or third parties (the
"Substitute Collateral"). In the event of such sale or refinancing, the Hotel
sold or refinanced will be released from the lien of the Mortgage and the
Substitute Collateral will become subject to the lien of the Mortgage, to the
extent the Hotel property released secured such Mortgage. While the Partnership
will segregate the net proceeds from a sale or refinancing until such time as
Substitute Collateral has been identified, it does NOT intend to place such
proceeds in escrow for the benefit of the holders of the Mortgage Notes. The
Partnership's right to "recycle" the Mortgage Notes is available only once per
each Hotel; provided, the Partnership identifies the Substitute Collateral
within six months of the closing of the sale or refinancing transaction and
reinvests the net proceeds from such sale or refinancing within twelve months
from the date the Substitute Collateral has been identified by the Partnership.
In the event that the Partnership subsequently sells or refinances the
Substitute Collateral, the Partnership will pay to the Holders of Mortgage
Notes, as a reduction in the principal balance of the Mortgage Notes, on a pro
rata basis, proceeds received from such sale or refinance equal to the
percentage of the proceeds of the Mortgage Notes allocable to the Substitute
Collateral. See DESCRIPTION OF THE NOTES -- Security for the Notes." Therefore,
in the event the Partnership determines that a Hotel represents 30% of the
proceeds of the Mortgage Notes, the Hotel is sold
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and Substitute Collateral is purchased with the proceeds of such sale, and the
Substitute Collateral is sold, the Partnership will pay to each Holder of a
Mortgage Note $300 (30% of $1,000) per Mortgage Note.
SECURITY FOR THE NOTES
Mortgage Notes. The Mortgage Notes will be issued as unsecured
obligations of the Partnership until a site for construction of a Hotel is
purchased, leased or subleased without reliance upon External Financing. The
lien of the Mortgages securing the Mortgage Notes will not extend to Hotels
constructed and developed using External Financing secured with first mortgage
liens.
While the Mortgage Notes will be secured by the Partnership's Hotels
constructed and developed without reliance upon External Financing, when a site
is acquired, the Partnership will determine, based on costs associated with a
particular Hotel, what percentage of the proceeds of the Mortgage Notes is
allocable to such real property and the improvements thereon. If a site is
purchased and/or a Hotel is constructed thereon by the Partnership without
reliance upon External Financing, the Mortgage Notes will be secured by a first
mortgage against the site and the Hotel to be constructed thereon and a first
lien on fixtures and personal property relating to the Hotel. If a site is
leased or subleased by the Partnership without reliance upon External Financing,
the Mortgage Notes will be secured by a mortgage covering the Partnership's
interest as tenant under the lease or sublease, including the tenant's ownership
rights in the building and fixtures during the term, and a first lien on
personal property relating to the Hotel. The value of any Leasehold Mortgage
will depend upon the terms of the underlying lease or sublease. The Partnership
anticipates that the term of any lease or sublease to be negotiated with respect
to a Hotel site generally would not be less than 50 years (except in the case of
a lease or sublease with a satisfactory purchase option) and that mortgagee
leasehold title insurance would be required. There can be no assurance, however,
as to the terms of any lease or sublease to be negotiated by the General
Partner. The Trustee will not negotiate or review any lease or sublease on
behalf of the Holders of the Mortgage Notes. The Trustee will not be obligated
to advance its own funds to pay rent or to cure any defaults by the Partnership
or others, and the Partnership will not be required to establish any rent
reserve or other fund which would be available for the Trustee to pay rent under
a lease or sublease following a default. There can be no assurance that any site
will be acquired by the Partnership or that the assets of the Partnership will
provide adequate security for repayment of the obligations of the Partnership
under the Mortgage Notes. See "RISK FACTORS -- Mortgages May be Set Aside in
Bankruptcy," "-- Notes are Non-Recourse Obligations" and "-- Security for Notes
may be Reduced or Eliminated if the Land is Leased or Subleased."
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The Fee Mortgage would prohibit the Partnership from further mortgaging
or encumbering the Hotels except for the permitted refinancing described above
and Permitted Liens, which include (A) secondary mortgage financing provided
that the ratio of (i) projected Partnership revenue from operations in excess of
expenses for the next twelve months, as determined by the General Partner, to
(ii) combined debt service payments under the Mortgage Notes and the junior
mortgage for the next twelve months, is at least 1.3 to 1, and (B) a junior
mortgage retained by the seller of a Hotel site. The Trustee shall conclusively
rely upon a certificate of the General Partner and will not make any
investigation with respect to such projections and debt service payments. The
Leasehold Mortgage would permit the Partnership to grant a junior mortgage to
the lessor or sublessor of the Hotel site in connection with the lease of the
site. See "RISK FACTORS -- Security for Notes may be Reduced or Eliminated if
the Land is Leased or Subleased."
In the event that the Partnership fails to pay taxes or insurance
premiums when due with respect to any Hotel or amounts payable under the
Mortgage Notes, the Trustee may (but shall have no obligation to) pay such
charges. Advances by the Trustee and legal expenses incurred by the Trustee
following an Event of Default are deemed secured by the Mortgages and are given
a preference in payment over the Mortgage Notes, as provided in Section 6.10 of
the Indenture covering the Mortgage Notes. Except during the continuance of an
Event of Default, the Partnership will have full power and authority in respect
of the Hotels for all purposes which are not inconsistent with the provisions of
the Mortgages and the Indentures. The Mortgages will be held by the Trustee for
the equal and ratable benefit of the Holders of the Mortgage Notes, without
preference on account of the dates that Mortgage Notes are issued by the
Partnership.
Subordinated Notes; Subordination. The Subordinated Notes are general
unsecured obligations of the Partnership limited to $6,000,000 principal amount.
The Subordinated Notes will be subordinated in payment of principal and interest
to all Senior Indebtedness. The term "Senior Indebtedness" is defined in the
Indenture governing the Subordinated Notes to mean all indebtedness of the
Partnership, whether outstanding on the date of the Indenture or thereafter
created, which is evidenced by the Mortgage Notes or arises as a result of
External Financing. There is no limitation or restriction in the Subordinated
Notes or the Indenture governing the Subordinated Notes on the creation of
Senior Indebtedness by the Partnership or on the amount of such Senior
Indebtedness to which the Subordinated Notes may be subordinated. There is also
no limitation on the creation or amount of indebtedness which is pari passu with
(i.e. having no priority of payment over and not subordinated in right of
payment to the Subordinated Notes)("Pari Passu Indebtedness").
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Upon any distribution of assets of the Partnership in connection with
any dissolution, winding up, liquidation or reorganization of the Partnership,
the holders of all Senior Indebtedness will first be entitled to receive payment
in full of the principal and premium, if any, thereof and any interest due
thereon, before the holders of the Subordinated Notes are entitled to receive
any payment upon the principal of or interest on the Subordinated Notes, and
thereafter payments to Holders of Subordinated Notes will be pro rata with
payments to holders of Pari Passu Indebtedness. In the absence of any such
events, the Partnership is obligated to pay principal of and interest on the
Subordinated Notes in accordance with their terms.
NON-RECOURSE OBLIGATIONS
The Notes are non-recourse obligations of the General Partner.
Therefore, the General Partner is not liable to the Trustee or the Holder of any
Note for repayment of any amounts payable under the Notes or the performance of
any obligations set forth therein or in the Mortgages. The General Partner has
agreed, however, to refund to Holders of Notes the face amount of their Notes
without interest if for any reason the Partnership does not purchase, lease or
sublease a site for construction of at least one Hotel (the "Initial Site")
within 24 months from the initial effective date of the Registration Statement,
and the Partnership is unable to refund such amount. After each site has been
purchased, leased or subleased by the Partnership, the General Partner will
execute and deliver the Guaranty of Completion to the Partnership with respect
to the construction of the Hotel on such site. There can be no assurance,
however, that the General Partner will have sufficient financial resources to
pay for the cost of completion if adequate financing cannot be obtained or that
the General Partner will have sufficient funds to make any refund required if
the Partnership does not acquire the Initial Site. See "ESTIMATED USE OF
PROCEEDS" and "RISK FACTORS - Absence of Financing Commitment" and "Limited Net
Worth of the General Partner." Upon an Event of Default, any recovery by the
Trustee or the Holders of the Notes will be limited to an action against the
Partnership and, in the case of Holders of Subordinated Notes, an action against
the General Partner for the Interest Guaranty, and in the case the case of
Holders of Mortgage Notes, the remedies provided in the Mortgages. No deficiency
judgment will be available against the General Partner in any foreclosure or,
other than in an action for recovery of the Interest Guaranty, other actions.
COVENANTS
The Notes provide that the Partnership will not make any distribution
to its Partners while the Notes are outstanding unless (i) no Event of Default
(as defined in the Subordinated Notes, and in the Mortgages for purposes of the
Mortgage Notes) has
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occurred and is continuing and (ii) the Partnership has established an adequate
reserve to pay any amounts payable under the Notes during the month in which any
such proposed distribution is to occur. The General Partner has the right to
sell the Hotels to an affiliate without obtaining the consent of the Limited
Partners or the Trustee, provided that the terms of such transaction are fully
disclosed and competitive with those which could be obtained from a third party.
In connection with such transaction, any Mortgage on such Hotel will remain as a
first lien on the Hotel premises and, if the new owner assumes the Partnership's
obligations under the Mortgage Notes and the Partnership is not in default under
the Mortgage Notes, the Partnership will be discharged of its obligations under
the Mortgages Notes.
The Partnership has agreed to deliver audited financial statements to
the Holders of the Notes within 150 days after the end of each fiscal year
accompanied by a statement of the General Partner advising whether any Event of
Default exists, or whether any event has occurred which would constitute an
Event of Default with the giving of notice or lapse of time, or both, and, if
so, the nature thereof, its period of existence and the action being taken by
the Partnership to correct the situation.
The Mortgages contain covenants of the Partnership relating to the
Hotels, including covenants to maintain casualty insurance in an amount equal to
the greater of the replacement value of the Hotels or the unpaid principal
balance of the Mortgage Notes; to maintain and repair the Hotels and pay taxes
and assessments thereon; not to remove, demolish or structurally alter any
building or fixtures (except for obsolete or unfit building service equipment
and furnishings) thereon without the prior written consent of the Trustee; and
not to sell the Hotels or any interest therein.
EVENTS OF DEFAULT
Mortgage Notes. The Events of Default under the Mortgages include the
following:
(i) failure to pay the principal of any Mortgage Note when due,
continued for 30 days;
(ii) failure to pay any interest or premium on any Mortgage Note
when due, continued for 30 days;
(iii) failure to pay taxes or insurance premiums after notice and
demand from the Trustee or deliver certain statements,
receipts or other documents to the Trustee after demand from
the Trustee, continued for 30 days;
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(iv) notice to the Partnership from the Trustee that the
Partnership has failed to keep, observe and perform any other
representations, warranties, covenants, conditions or
agreements contained in the Mortgages, the Indenture or the
Mortgage Notes, continued for 30 days before notice or after
notice without being cured;
(v) notice to the Partnership from the Trustee of a default under
any mortgage or other lien on or lease relating to any Hotel,
continued for 30 days before notice or after notice without
being cured;
(vi) certain events in bankruptcy, insolvency or reorganization
with respect to the Partnership; and
(vii) the occurrence of an Event of Default under the Subordinated
Notes.
Subordinated Notes. The Events of Default under the Subordinated Notes
include the following:
(i) Failure to pay the principal of any Subordinated Note when
due, continued for 30 days;
(ii) Failure to pay any interest or premium on any Subordinated
Note when due, continued for 30 days;
(iii) certain events in bankruptcy, insolvency or reorganization
with respect to the Partnership;
(iv) notice to the Partnership from the Trustee that the
Partnership has failed to keep, observe and perform its
representations, warranties, covenants, conditions or
agreements contained in the Indenture or the Subordinated
Notes, continued for 30 days before notice or after notice
without being cured; or
(v) the occurrence of an Event of Default under the Mortgage
Notes.
Any default (other than one curable by the payment of money) under
either the Mortgage Notes or the Subordinated Notes will not constitute an Event
of Default and the period in which to cure such default may be extended beyond
30 days if the default may be cured and the Partnership has commenced to cure
promptly within such 30-day period and, in the judgment of the Trustee, the
delay in curing does not (i) result in the inability of the Partnership to meet
its monetary obligations under the
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Notes, or (ii) adversely affect the availability of any remedies available under
the Indentures and, with respect to the Mortgage Notes, under the Mortgages.
Subject to the provisions of the Indentures relating to the duties of
the Trustee, upon the occurrence of an Event of Default, the Trustee shall
provide Holders with notice of such default, to the extent known by the Trustee,
within 90 days occurrence thereof. In case an Event of Default shall occur and
be continuing, the Trustee shall be under no obligation to exercise any of its
rights or powers under the Mortgages or the Indentures at the request or
direction of the Holders, unless such Holders have offered to the Trustee
satisfactory indemnity. After such indemnity has been provided, the Holders of a
majority in principal amount of like Notes outstanding will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. If an Event of Default shall occur and be continuing, the Trustee may,
and upon the written direction of the Holders of a majority in principal amount
of like Notes outstanding and receipt of satisfactory indemnity shall, by
written notice to the Partnership, accelerate the maturity of all Notes and
enforce any available remedy under the Mortgages; provided, however, that the
Holders of a majority in principal amount of like Notes outstanding may waive
certain Events of Default. For information as to waiver of defaults, See
"DESCRIPTION OF THE NOTES -- Modification and Waiver." If the Notes are not paid
at maturity, interest will continue to accrue until the principal amount of the
Notes is paid in full. In addition, if the principal payment due at maturity is
overdue in excess of 15 days, a late charge will be incurred by the Partnership
as described above. The late charge will be paid to the Trustee who will then
distribute such amount to the Holders as provided in the Indentures.
INDIVIDUAL ACTION BY HOLDER RESTRICTED
No Holder of any Note will have any right to institute any proceeding
with respect to the Indentures or, in the case of a Holder of a Mortgage Notes,
with respect to any of the Mortgages or for any remedy thereunder, unless such
Holder shall have previously given to the Trustee written notice of a continuing
Event of Default and unless the Holders of at least a majority in aggregate
principal amount of like Notes outstanding shall have made written request, and
offered indemnity as provided in the Indentures, to the Trustee to institute
such proceeding, and the Trustee shall have failed to institute such proceeding
within 60 days. In order to be entitled to proceed, such Holders must also be
joined as parties in such proceeding. No one or more Holders shall have any
right to enforce any right under the Indentures or, in the case of Holders of
Mortgage Notes, the Mortgages, so as to prejudice the rights of another Holder
of like Notes, or to enable such Holder or Holders to obtain a preference or
priority over
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another Holder of like Notes, except Holders of Mortgage Notes have preference
and priority over Holders of Subordinated Notes.
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures, the Mortgages or the
Notes may be made by the Partnership with the consent of the Holders of a
majority in aggregate principal amount of like Notes outstanding; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each outstanding Note affected:
(i) reduce the amount of Notes whose Holders must consent to an
amendment, modification or waiver;
(ii) reduce the rate of or extend the time for payment of interest
on any Note;
(iii) reduce the principal of or extend the stated time of payment
of any Note;
(iv) impose any condition with respect to the payment of the
principal of or interest on any Note;
(v) reduce the redemption price of any Note; or
(vi) with respect to Holders of Mortgage Notes, materially modify
the security provided by any of the Mortgages, or permit the
creation of any lien ranking prior to or on a party with the
lien of the Mortgages, except as expressly permitted by the
Mortgages.
Holders of a majority in aggregate principal amount of like Notes
outstanding may waive any past default under the Indentures, except a default in
the payment of principal or interest.
TRANSFER AND EXCHANGE
The Indentures provide that a Holder may transfer or exchange Notes in
accordance with the term of the Indentures. The Partnership may require a
Holder, among other things, to furnish an opinion of counsel as to compliance
with applicable state securities law requirements and appropriate endorsements
and transfer documents, and to pay any taxes and fees required by law or
permitted by the
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Indentures. The Trustee is not required to transfer or exchange any Note
selected for redemption. The registered Holder of a Note will be treated as its
owner for all purposes. The Notes will not be registered on any securities
exchange and it is expected that no public trading market for the Notes will
develop. Accordingly, the Notes should be considered only as a long-term
investment.
SUMMARY OF THE PARTNERSHIP AGREEMENT
The Amended and Restated Limited Partnership Agreement (the
"Partnership Agreement") is included in full as Exhibit A to this Prospectus.
The Partnership Agreement will be executed on behalf of each subscriber for
Units upon his or her admission to the Partnership by the General Partner acting
pursuant to the power of attorney contained in the Subscription Agreement. The
following is a brief summary of certain provisions of the Partnership Agreement.
It is recommended that each prospective purchaser read the Partnership Agreement
in its entirety. All capitalized terms used below shall have the meanings given
to such terms in the Partnership Agreement.
PARTNERSHIP CAPITAL
The General Partner shall make a contribution to the capital of the
Partnership in an amount equal to 1/99 times the Capital Contributions of the
Limited Partners, which amount shall be payable by the General Partner out of
Distributions from the Partnership. The purchase price of $1,000 per Unit shall
be payable in cash upon subscription, except that any Limited Partner acquiring
20 or more Units in this offering shall be permitted to pay one-half of the
purchase price in cash upon subscription and the balance under a Partner Note.
The minimum investment for Units is $5,000, $2,000 for IRAs, Keogh and qualified
plans, in each case without taking into account any available timing discounts.
Fractional Units may be issued for investments in excess of the minimum purchase
requirement in the discretion of the General Partner.
With respect to the General Partner's Capital Contribution, if prior to
liquidation the Distributions made to the General Partner and refunded to the
Partnership do not equal or exceed the Capital Contribution required, the
General Partner shall be liable to the Partnership for the balance due. The
obligation of the General Partner to make Capital Contributions shall not bear
interest.
No Partner will be entitled to interest on his or her Capital
Contribution or his or her Capital Account. Except as otherwise provided in the
Partnership Agreement, no Partner has the right to withdraw, or to receive any
return of, his or her Capital
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Contribution. Neither the Partnership nor the General Partner shall have
personal liability for any Distribution to, or for the return of the Capital
Contribution of, any Limited Partner.
DISTRIBUTIONS
Distributions shall be made to the Partners at such times and in such
amounts as the General Partner shall determine after payment of fees and
expenses, including fees owed to the General Partner and its affiliates pursuant
to the Partnership Agreement. Distributions from operations will be made 1% to
the General Partner and 99% to the Limited Partners until the Limited Partners
have received an annual cumulative return through the date of the distribution
(the "Cumulative Return") in an amount equal to 8% of the Limited Partner's
original investment (reduced by any capital returned through Distributions from
a Sale or Refinance of Hotels). The Cumulative Return begins to accrue for each
Limited Partner from the date upon which he or she is admitted to the
Partnership. In calculating the Cumulative Return, Limited Partners who receive
timing and volume discounts are treated as if they paid $1,000 per Unit, even
though their actual purchase price may have been less. See "THE OFFERING--Timing
and Volume Discounts." The Cumulative Return will not, however, include any
amounts owed under the Partner Notes. All investors will be deemed to have
contributed the same amount per Unit to the Partnership for purposes of
determining a Limited Partner's Pro Rata Share. Investors receiving Units
subject to timing and volume discounts will be specially allocated taxable
income in the amount of the timing and volume discounts in order to equalize the
Capital Accounts of the investors on a per Unit basis, which allocation will
generally occur in the year that the Partnership is liquidated. See "THE
OFFERING -- Timing and Volume Discounts."
If sufficient capital is raised, the Partnership intends to pay all or
a portion of the Cumulative Return from the date of the First Closing to March
31, 1997 (the "Initial Distribution Period") to those persons who are Limited
Partners during that period. The General Partner anticipates that payments of
the Cumulative Return will commence on or about March 31, 1996. The initial cash
distribution would be paid in quarterly installments. The source of the initial
cash distribution will be offering proceeds. There can be no assurance that
sufficient capital will be raised to pay any such distribution or that any
further distribution will be paid.
After the Cumulative Return due through the date of the distribution
and any Cumulative Return due to Limited Partners for prior years has been paid,
additional distributions from operations will be made 20% to the General Partner
and 80% to the Limited Partners in accordance with each Limited Partner's Pro
Rata Share.
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Distributions from a Sale or Refinance of Hotels will be made 1% to the General
Partner and 99% to the Limited Partners in accordance with each Limited
Partner's Pro Rata Share until the Limited Partners have received Distributions
from a Sale or Refinancing of Hotels equal to: (a) $1,000 per Unit held by the
Limited Partners plus (b) any unpaid Cumulative Return through the date of
distribution. Additional Distributions from a Sale or Refinance of Hotels will
be made 20% to the General Partner and 80% to the Limited Partners in accordance
with each Limited Partner's Pro Rata Share. See "COMPENSATION OF GENERAL PARTNER
AND MANAGING DEALER -- Partnership Interest of the General Partner.
All distributions made by March 15 of any year based upon cash on hand
as of December 31 of the previous year will be deemed made as of such December
31.
The price at which the Units are being offered to investors and the
method of calculating the Cumulative Return have been determined arbitrarily.
The offering price for the Units does not bear any relationship to the General
Partner's contribution to the capital of the Partnership or the price at which a
Unit might be resold.
ALLOCATIONS OF INCOME AND LOSS
The rules governing allocations of income and loss among the Partners
are set forth in Section 3.01 of the Partnership Agreement and are generally
intended to reflect the Distribution rules described above and to comply with
the Regulations. These rules are summarized in detail under "TAX CONSIDERATIONS
- -- Allocations of Income and Loss."
AUTHORITY OF THE GENERAL PARTNER
Management of the Partnership and the Hotels will be the sole
responsibility of the General Partner. It will have the authority to do all
things which in its sole judgment, are necessary, proper or desirable to operate
and manage the Partnership. The Limited Partners shall have no right or power to
take part in the management of, or to bind, the Partnership, with the exception
of certain voting rights referred to below in "SUMMARY OF THE PARTNERSHIP
AGREEMENT -- Meetings and Voting Rights of the Limited Partners." The General
Partner will have authority in dealing with the Internal Revenue Service to take
actions and enter into agreements that may be binding on the Partners.
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THE NET WORTH OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner shall not
declare dividends or make other payments to its shareholders if the dividends or
payments would reduce its net worth below its current net worth, or any lesser
amount which may subsequently be required by the IRS or by law for a corporation
acting as sole general partner of a limited partnership to qualify the
partnership for the benefits of taxation as a partnership and not as an
association taxable as a corporation.
INDEMNIFICATION AND LIMITATION ON LIABILITY OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner and its
affiliates will not be liable for loss or damage incurred by reason of certain
acts or omissions and requires the Partnership to indemnify the General Partner
and its affiliates under certain circumstances. See "CONFLICTS OF INTEREST."
LIABILITY OF PARTNERS TO THIRD PARTIES
The General Partner will be liable for all recourse obligations of the
Partnership to the extent not paid by the Partnership. The net worth of the
General Partner is limited, however, and a significant portion thereof consists
of assets which would be very difficult to convert into cash. The bankruptcy or
insolvency of the General Partner is an event of withdrawal under the
Partnership Agreement, which could result in a dissolution of the Partnership
under the New York limited partnership law. See "SUMMARY OF THE PARTNERSHIP
AGREEMENT -- Dissolution".
The Partnership Agreement provides that no Limited Partner will be
personally liable for the debts of the Partnership beyond the amount of his or
her committed Capital Contribution and his or her share of the undistributed
profits of the Partnership. Under New York law, a limited partnership may not
make a distribution to a partner to the extent that, after giving effect to the
distribution, the limited partnership would be insolvent. A Limited Partner who
receives a distribution might be obligated to return the distribution to the
Partnership if, at the time of such distribution, the Limited Partner knew that
the Partnership would be insolvent after giving effect to the distribution. For
the purposes of these rules, the Partnership will be deemed insolvent if, after
giving effect to the distribution, all liabilities of the Partnership, other
than non-recourse liabilities and liabilities to Partners on account of their
Partnership interests, exceed the fair value of the assets of the Partnership
other than that portion of the fair value of property that is subject to
nonrecourse liability.
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The Partnership is a New York limited partnership and the Partnership
Agreement, by its express terms, provides that it is to be governed by New York
law. The Partnership Agreement grants the Limited Partners certain voting rights
with respect to the removal of the General Partner, the amendment of the
Partnership Agreement and other matters. Under New York law, the exercise of
such voting rights will not cause the Limited Partners to be deemed to be taking
part in the management or control of the Partnership's business. However, if a
court in another state where the Partnership does business determined that the
law of such state, rather than New York law, should apply, it is possible that
such court might also conclude that the possession or exercise of the voting
rights provided for in the Partnership Agreement would cause the Limited
Partners to be liable as general partners.
MEETINGS AND VOTING RIGHTS OF THE LIMITED PARTNERS
Meetings of the Limited Partners may be called at any time by a General
Partner or by one or more Limited Partners who own more than 10% of the
outstanding Units. Limited Partners can vote at any meeting and the Limited
Partners can act without a meeting by written consent, provided that certain
procedures and requirements are met.
Limited Partners, with the affirmative vote of those who own more than
50% of the outstanding Units, without the concurrence of the General Partner,
may take action on the following matters:
(1) Amendment of the Partnership Agreement, except that any amendment
which modifies the compensation or distributions to which a General Partner is
entitled or enlarges the obligations or liabilities of a General Partner shall
be effective as to such General Partner only with his or her prior written
consent, and except that certain matters specified in Section 4.01(b) of the
Partnership Agreement may be amended by the General Partner acting alone;
(2) Removal of a General Partner and election of one or more
replacement General Partners; and
(3) Election of a new General Partner upon the removal, dissolution,
withdrawal, bankruptcy or insolvency of a General Partner ("Event of
Withdrawal"), provided there is a remaining General Partner.
By Majority Vote, the Limited Partners may elect to continue the
Partnership and elect a new General Partner upon the occurrence of an Event of
Withdrawal with respect to the last remaining General Partner. The General
Partner is required to obtain
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approval of the Limited Partners who own more than 50% of the outstanding Units
in order to authorize any dissolution, merger or other reorganization of the
Partnership. The General Partner is authorized, however, to sell or refinance
any or all of the Hotels without obtaining the consent of any Limited Partners,
and may sell all or substantially all of the assets of the Partnership to an
Affiliated Person provided that the transaction is fully disclosed to all
Limited Partners and on terms competitive with those which may be obtained from
a non-affiliated person.
RESIGNATION OF GENERAL PARTNER
The General Partner may not resign or withdraw as a general partner of
the Partnership without the affirmative vote of Limited Partners who own more
than 50% of the outstanding Units, which shall not be unreasonably withheld, and
an opinion of counsel that resignation or withdrawal would not subject the
Partnership to federal income taxation as a corporation and not a partnership.
ASSIGNMENT OF GENERAL PARTNER INTERESTS
A General Partner may not transfer, assign, grant, convey or mortgage
or otherwise encumber its interest as a General Partner in the Partnership.
REMOVAL OF GENERAL PARTNER
A General Partner may be removed as such by a vote of a majority in
interest of the Limited Partners. The Limited Partners may also by such vote
elect a new General Partner or General Partners to replace any removed General
Partner. Upon such removal, the Partnership may, in its discretion, either cause
the removed General Partner to retain his interest in the Partnership as a
Limited Partner (without commensurate voting rights) or it may terminate the
General Partner's interest in the Partnership and pay to him the fair market
value of such interest. The fair market value of a removed General Partner's
interest in the Partnership will be determined by agreement of the Partnership
and the removed General Partner or settled in accordance with the rules of the
American Arbitration Association, if necessary.
RESTRICTIONS ON TRANSFER OF UNITS
There are a number of restrictions on the transferability of Units,
including, among others, the following: (i) an assignment may only be made
effective on the first day of a fiscal quarter of the Partnership; (ii) a
purported assignment of a fractional part of a Unit or less than 5 Units will
not be permitted or recognized (except in cases of inheritance and family
dissolution, and except for assignments of all of a Limited
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Partner's Units); (iii) no Units may be assigned if the proposed assignment
would, in the opinion of counsel for the Partnership, result in the termination
of the Partnership or a reclassification of the Partnership as an association
taxable as an association for federal or state tax purposes; and (iv) no Units
may be assigned unless, in the opinion of counsel for the Partnership, such
proposed assignment would not result in the characterization of the Partnership
as "publicly traded" under Section 7704 of the Code. Further restrictions on the
assignment of Units are imposed under state securities laws upon the residents
of such states, including the requirement of certain states that the suitability
standards applied to initial purchasers of the Units be applied to assignees
where the assignment involves residents of such states. In addition, the
Franchise Agreements impose certain restrictions on the transfer of Units. See
"INVESTMENT OBJECTIVES AND POLICIES - Franchise Agreements." It is not
anticipated that a public market for the Units will develop.
DISSOLUTION
The Partnership is to continue until December 31, 2035, but may be
dissolved earlier as provided in the Partnership Agreement or by law. The
Partnership Agreement provides that the withdrawal of a General Partner will
dissolve the Partnership unless a remaining General Partner elects to continue
the business of the Partnership, or, if there is no remaining General Partner,
within a period of 90 days from the effective date of such withdrawal the
Limited Partners by Majority Vote elect to continue the business of the
Partnership and elect a new General Partner. The Partnership will also be
dissolved upon the election by Majority Vote of the Limited Partners to do so,
or upon the sale or other disposition of all or substantially all of the
Partnership's interests in the Hotels. In the event that the Partnership is
dissolved, its assets will be liquidated and the proceeds distributed first to
pay the debts and liabilities of the Partnership and the expenses of
liquidation, second to provide for contingent liabilities, third to the Partners
in accordance with the first two rules for the allocation of proceeds of
Distributions from a Sale or Refinance of Hotels, except to the extent that such
a distribution would cause or increase a negative capital account balance for
any Partner, and finally to the Partners in accordance with their respective
capital account balances as required by the Regulations.
BOOKS AND RECORDS
The General Partner is required to maintain full and accurate books and
records for the Partnership. All of the Partnership's books and records are
required to be maintained in the Partnership's principal office in Rochester,
New York and all Limited Partners shall have the right to inspect and examine
such books and records at all reasonable times and upon prior notice. A list of
the names and addresses of and
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number of Units held by all Partners will be mailed to any Limited Partner
within a reasonable period following the receipt by the General Partner of a
written request therefor.
PARTNER'S INDEPENDENT ACTIVITIES
The Partnership Agreement provides that each Partner may have other
business interests and may engage in any other business, trade, profession, or
employment whatsoever, on his own account or in partnership, or as an employee,
officer, director, or stockholder of any other entity.
APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT
Each Limited Partner irrevocably constitutes and appoints the General
Partner as his or her true and lawful attorney-in-fact, with full power and
authority in such Partner's name, place and stead to make, execute, acknowledge
and file any amendments to the certificate of limited partnership, the
Partnership Agreement and any other certificate or document which may be
required to be filed by the Partnership under the laws of any state or by any
governmental agency, or which the General Partner deems advisable to file or
execute, to reflect actions properly taken by the Partners and any continuation,
dissolution or termination of the Partnership.
AMENDMENTS
Except as provided in Sections 4.01(b) and 5.01(a) of the Partnership
Agreement, the Partnership Agreement may be amended only with the affirmative
written consent of the General Partner and the Majority Vote of the Limited
Partners.
APPLICABLE LAW
The Partnership was formed as a limited partnership under the laws of
the State of New York on August 30, 1995. The Partnership Agreement provides
that it is to be construed and enforced in accordance with the laws of the State
of New York.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
The Partnership was formed on August 30, 1995 for the primary purpose
of acquiring undeveloped land for the construction and operation of Hotels
thereon. See "THE PARTNERSHIP'S BUSINESS." As of the date of this Prospectus,
the Partnership's sole asset consists of $100 of cash contributed by Barbara J.
Purvis, the
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original limited partner, which will be returned to her upon the First Closing.
The Partnership has had no operating revenues, sales of assets or other
significant activities since it was formed. As of the date of this Prospectus,
the Partnership has not made any commitments which could impact its liquidity or
capital resources. The Partnership will be incurring certain liabilities in
connection with the formation of the Partnership and the offering. At August 30,
1995, the Partnership had no liabilities. See "EXHIBIT F -- Financial Statement
of the Partnership."
The General Partner has entered into purchase contracts for the
purchase of the Specified Properties, which the General Partner has agreed to
assign to the Partnership as soon as practicable after the First Closing. The
aggregate purchase price of the Solon Property is estimated to be $588,240, plus
estimated closing costs of $15,000, and the purchase price of the Warwick
Property is $496,900 plus estimated closing costs of $20,000. The Partnership
intends to build a Hampton Inn & Suites(sm) hotel on the Solon Property and a
Homewood Suites(R) hotel on the Warwick Property. See "THE PARTNERSHIP'S
BUSINESS -- The Specified Properties."
The General Partner believes good investment opportunities exist in the
extended stay and limited service segments of the lodging industry. The extended
stay and limited service segments of the lodging industry have experienced
significant growth in recent years as a greater number of business persons
require lodging facilities to stay away from home for extended periods of time
and as more business and leisure travelers seek to maximize value. The General
Partner believes that the continued success of the lodging industry will depend
upon, among other things, the continued demand for lodging facilities by both
business and leisure travelers, which such demand is affected by general
economic conditions, including, costs of labor and materials, unemployment,
inflation and interest rates. In addition to, but directly affected by, economic
trends, is the availability of financing on favorable terms for the construction
and operation of hotels. In recent years a limited number of institutional
lenders have been more willing to provide financing for hotel construction and
operations, and Franchisors or their affiliates have established financing
programs for construction and operation of the Franchisors' particular hotels.
In addition to these industry considerations, the success of the
Partnership's Hotels will depend upon the hotel franchises developed and
operated by the Partnership, as well as the location of the Hotels. See "THE
PARTNERSHIP'S BUSINESS." The Partnership intends to finance the cost of
acquiring undeveloped properties and constructing and operating Hotels thereon
through a combination of offering proceeds and institutional financing,
including financing from Franchisors or their affiliates. As of the date of this
Prospectus, the Partnership has not obtained any
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commitments and the Partnership has made no material commitments for capital
expenditures.
The rules governing allocations of income and loss, and distributions
of cash, among the Partners are summarized in detail under "TAX CONSIDERATIONS
- -- Allocations of Income and Loss." In general, operating cash is distributed
99% to the Limited Partners and 1% to the General Partner until the Limited
Partners receive their aggregate Cumulative Return. Thereafter, operating cash
is distributed 80% to the Limited Partners and 20% to the General Partner.
Distributions from a Sale or Refinance of Hotels are paid 99% to the Limited
Partners until they have received a return of their capital investment ($1,000
per Unit) plus their Cumulative Return and 1% to the General Partner. Thereafter
80% of Distributions from a Sale or Refinance of Hotels are paid to the Limited
Partners and 20% to the General Partner. Operating income is first allocated 99%
to the Limited Partners and 1% to the General Partner in the amounts, and in the
relative proportions, necessary to reverse any operating loss allocations.
Thereafter, operating income is allocated 99% to the Limited Partners and 1% to
the General Partner until the cumulative amount allocated to the Limited
Partners equals the cumulative amount distributed, or accrued but not yet
distributed, to the Limited Partners as their respective Cumulative Returns. Any
remaining income from operations is allocated 80% to the Limited Partners in
accordance with each Limited Partner's Pro Rata Share and 20% to the General
Partner.
Taxable income on the sale of any or all of the Hotels (including
income from the sale of hotel properties of Essex Glenmaura) is allocated 99% to
the Limited Partners until each Limited Partner has been allocated income in an
amount equal to his or her pro rata share of the nondeductible Syndication
Expenses and Sales Commissions. Thereafter income on the sale of any or all the
Hotels (including income from the sale of hotel properties of Essex Glenmaura)
is allocated in the same manner as operating income.
Losses from Partnership operations is first allocated 80% to the
Limited Partners and 20% to the General Partner in the amounts, and in the
relative proportions, necessary to offset all income which was allocated 80% to
the Limited Partners. Thereafter operating losses are allocated 99% to the
Limited Partners and 1% to the General Partner. Loss on the sale of any or all
of the Hotels (including loss on the sale of hotel properties of Essex
Glenmaura) is first allocated in the same manner as losses from Partnership
operations, except that allocations on the sale of Hotels (including loss on the
sale of hotel properties of Essex Glenmaura) will be made prior to allocations
of income from operations. All other losses are allocated 99% to the
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Limited Partners and 1% to the General Partner in proportion to the Partners'
respective capital contributions (taking into account for this purpose the face
amount of any Partner Note).
THE OFFERING
SUBSCRIPTION
The Notes and Units are being offered to qualified investors through
the Managing Dealer, an affiliate of the General Partner and a member of the
NASD. The Minimum Offering Amount is such combination of Notes and Units as
represent aggregate Gross Offering Proceeds of at least $1,980,000 in cash and
the Maximum Offering Amount is such combination of Notes and Units as represent
aggregate Gross Offering Proceeds of $21,000,000. The Managing Dealer is not
required to purchase any unsold Notes or Units. The purchase price is $1,000 per
Unit, subject to the timing and volume discounts described below. The minimum
initial purchase is $5,000, except that the minimum initial purchase is $2,000
for IRAs, Keoghs and qualified plans, in each case without taking into account
any available timing discounts. Upon satisfying the applicable minimum
investment requirement, investors may increase their investment in Units or
Notes in increments of $1,000. Fractional Units may be issued for investments in
excess of the minimum purchase requirement in the discretion of the General
Partner. The Managing Dealer may, but is not obligated to, enlist the services
of Soliciting Dealers to assist in the sale of the Notes and Units. The Managing
Dealer and the Soliciting Dealers are not obligated to obtain any subscriptions,
and there is no assurance that any Notes or Units will be sold. See "THE
OFFERING -- Plan of Distribution" below.
The Power of Attorney contained in the Subscription Agreement
authorizes the General Partner to sign on behalf of the subscriber the
Partnership Agreement in substantially the form attached as Exhibit A.
Therefore, by executing the Subscription Agreement, the subscriber is agreeing
to all the terms of the Partnership Agreement.
To subscribe to purchase Notes or Units, a subscriber must transmit the
following to the Managing Dealer prior to the termination of the offering:
(a) a check or money order payable to "M&T Bank as Escrow Agent for
Essex Hospitality Associates IV L.P." in the amount of (i) $1,000 per Unit
subscribed, less any applicable discounts (except that one-half of the purchase
price may be paid by the execution and delivery of a Partner Note in connection
with the purchase of 20 or more Units), and (ii) the principal amount of any
Note subscribed (in increments of $1,000); and
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(b) an executed and completed Subscription Agreement in the form
included as Exhibit C hereto.
NO SUBSCRIPTION AGREEMENT SIGNED BY A BROKER-DEALER ON BEHALF OF A
SUBSCRIBER WILL BE ACCEPTED.
All subscription moneys received from investors will be deposited in
the Escrow Account until such time as subscriptions for the Minimum Offering
Amount are accepted. A subscriber shall have no right to withdraw his or her
subscription during the period in which subscription proceeds are held in the
Escrow Account. The Escrow Agent shall invest the subscription proceeds in bank
money market accounts. There can be no assurance with respect to the amount of
interest, if any, that may be earned by any such investment. The Escrow Agent
shall draw its fees and expenses against any interest earned on the subscription
proceeds. As of the date of this Prospectus, interest will accrue on funds in
the Escrow Account at a rate of 2.5% per annum. The General Partner has agreed
to reimburse the Escrow Agent for such fees and expenses to the extent that such
interest is insufficient to pay them. The subscription proceeds will be released
to the Partnership at the First Closing. Except with respect to any rejected
subscription, any interest earned on the subscription proceeds (calculated as
described below) will not be released to the Partnership until the Offering
Termination Date. The Partnership will promptly distribute any such interest
(after reduction for the fees and expenses of the Escrow Agent) to the Holders
of Notes and Limited Partners on the basis of the respective amounts of their
cash subscriptions and the numbers of days during the period that such amounts
were on deposit, commencing from the date the subscriber's proceeds were
deposited in the Escrow Account.
The General Partner will promptly notify in writing each subscriber
whose subscription is accepted or rejected. The General Partner will accept or
reject each subscription for Units within four business days after its receipt
by the Partnership. The General Partner will accept or reject each subscription
for Notes within four business days after its receipt by the Partnership or such
later time as the General Partner has accepted sufficient subscriptions for
Units to satisfy the minimum equity requirements of the offering. Subscriptions
will be rejected for failure to conform to the suitability requirements of the
offering, insufficient documentation, over-subscription of the offering or such
other reasons as the General Partner may in its sole discretion determine to be
in the best interests of the Partnership. Subscriptions will be irrevocable
until the Offering Termination Date. If a subscription is rejected at any time
by the General Partner, the funds of such subscriber deposited in the Escrow
Account will be promptly refunded to him or her, together with interest, if any,
earned
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thereon to the date of rejection (calculated as described above and after
reduction for a pro rata portion of the fees and expenses of the Escrow Agent).
In the event that the General Partner has not accepted subscriptions
for the Minimum Offering Amount on or before the Specified Minimum Date, all
subscription proceeds deposited in the Escrow Account will be promptly refunded
to the subscribers, together with interest, if any, earned thereon (after
reduction for the fees and expenses of the Escrow Agent as described above). If
subscriptions for the Minimum Offering Amount are accepted within such time
period and a closing has occurred, all subscription proceeds then held in the
Escrow Account will be released to the Partnership for use as described herein
and the offering will continue until twenty-four months from the date of this
Prospectus unless all Notes and Units are sold or the General Partner, for any
reason, elects to terminate the offering at an earlier date.
The First Closing, at which subscribers whose subscriptions have been
accepted by the General Partner will be issued Notes or admitted as Limited
Partners of the Partnership, may be held at any time after the Minimum Offering
Amount has been subscribed. Thereafter, if additional Notes or Units are
subscribed, additional Notes may be issued and additional Limited Partners may
be admitted from time to time until the Offering Termination Date. A Note will
be issued to the Holder and a Limited Partner will be recognized as such not
later than 15 days after an interim or final closing of the offering. The
General Partner and its affiliates may purchase such combination of Notes and
Units in the offering as represent gross offering proceeds of up to $1,000,000
in the aggregate. Up to $200,000 of such purchases may be counted in determining
whether the Minimum Offering Amount has been achieved. Any such purchases will
be made for investment purposes only and not with a view toward immediate
resale.
Units will be non-assessable. Accordingly, once a subscription has been
paid in full, there is no obligation to make additional contributions to the
Partnership's capital.
PLAN OF DISTRIBUTION
The Managing Dealer has agreed to offer the Notes and Units to
qualified investors. Subject to the volume discounts described below, the
Managing Dealer will receive as compensation selling commissions equal to 5.5%
of the principal amount of each Note sold and up to 8% of the price of each Unit
sold. The Partnership will also pay to the Managing Dealer an Investor Relations
Fee equal to .25% of Gross Offering Proceeds from the sale of Units and Notes.
The Investor Relations Fee is payable annually from operating revenues,
beginning December 31, 1998 and will
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continue for the next three calendar years thereafter, but only if and to the
extent that total Dealer Compensation does not exceed 10% of Gross Offering
Proceeds and total Organization and Offering Expenses do not exceed 15% of Gross
Offering Proceeds. Payment of the Investor Relations Fee will be deferred until
the Cumulative Return has been paid. In the event such deferral continues
through December 31, 2004, the Investor Relations Fee shall be deemed waived and
permanently extinguished. See "COMPENSATION OF THE GENERAL PARTNER AND MANAGING
DEALER." The Managing Dealer is not obligated to purchase any unsold Notes or
Units. To the extent that the Managing Dealer uses the services of Soliciting
Dealers, the commissions on Notes and Units sold will be paid by the Managing
Dealer from its selling commissions. In addition to the payment of selling
commissions, the General Partner may, in its sole discretion, reallow from its
Organization and Offering Management Fee an amount equal to up to 1% of the
gross proceeds of the offering to the Managing Dealer and Soliciting Dealers.
The Partnership has agreed to indemnify the Managing Dealer and
Soliciting Dealers against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "FIDUCIARY RESPONSIBILITY OF ThE GENERAL
PARTNER."
TIMING AND VOLUME DISCOUNTS
Timing Discount
The purchase price payable per Unit will be reduced by an amount equal
to a percentage of the Unit purchase price depending upon when the Units are
purchased. The proceeds to the Partnership per Unit will be reduced by an amount
equal to the reduction in price credited to such purchaser's purchase price. The
following table sets forth the timing discounts which will be applied to a
purchaser's entire purchase:
<TABLE>
<CAPTION>
Time Purchase Commissions Proceeds to
of Price Per Payable to the Partnership
Purchase Unit to Managing Unit, Net Per
Investors Dealer by of Selling
Partnership Commissions
<S> <C> <C> <C>
First Closing (5% of Unit Purchase Price) $950 $76.00 $874.00
March 31, 1996 (4% of Unit Purchase Price) $960 $76.80 $883.20
June 30, 1996 (3% of Unit Purchase Price) $970 $77.60 $892.40
September 30, 1996 (2% of Unit Purchase Price) $980 $78.40 $901.60
December 31, 1996 (1% of Unit Purchase Price) $990 $79.20 $910.80
</TABLE>
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Volume Discounts
In connection with sales of 30 or more Units to a "purchaser" (as
defined below), the selling commissions payable to the Managing Dealer by a
purchaser will be reduced and such reduction will be credited to the purchaser
by reducing the Unit purchase price payable by such purchaser to the
Partnership. The proceeds to the Partnership per Unit will not be affected by
the volume discounts because, although the purchase price is lower, the selling
commissions payable are also proportionately reduced. The following table sets
forth the volume discounts which will be applied to a purchaser's entire
purchase:
<TABLE>
<CAPTION>
Number Purchase Commissions Proceeds to the
of Price Per Payable to Partnership Per
Units Unit to Managing Unit, Net
Purchased Investors Dealer by of Selling
Partnership Commissions
<S> <C> <C> <C>
1-29 $1,000 $80 $920
30-59 $ 990 $70 $920
60 Units and Over $ 980 $60 $920
</TABLE>
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser" as that term is
defined below. Any request to combine more than one subscription must be made in
writing on a form to be supplied by the Managing Dealer, and must set forth the
basis for such request. The Partnership may require that all of the Units which
may be counted toward achieving the level of purchases necessary to obtain a
volume discount be subscribed for and purchased at the same closing of the
offering. Any such request will be subject to verification by the Managing
Dealer that all of such subscriptions were made by a single "purchaser" as
defined below.
For the purposes of such volume discounts, "purchaser" includes: (i) an
individual, his or her spouse and their children under the age of 21, who
purchases the Units for his or her or their own accounts and all IRA, Keogh and
qualified plans or trusts established by each such individual; (ii) a
corporation, partnership or trust which has been in existence for at least six
months before purchasing the Units and was formed for a purpose other than to
purchase the Units at a discount; and (iii) such other investors as the General
Partner determines to be sufficiently related so as to constitute a "purchaser."
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Notwithstanding the timing and volume discounts, all investors will be
deemed to have contributed the same amount per Unit to the Partnership for
purposes of determining a Limited Partner's Pro Rata Share. Most tax allocations
and distributions (including the Cumulative Return) are based on a Limited
Partner's Pro Rata Share. If the Partnership is profitable, an investor
qualifying for a timing or volume discount therefore will receive a slightly
higher return on his or her investment in the Partnership than other investors
who do not qualify for such discounts. Investors receiving Units subject to
timing or volume discounts will also be specially allocated taxable income in
the amount of the volume discounts in order to equalize the Capital Accounts of
the investors on a per Unit basis, which special allocation will generally occur
in the year the liquidation of the Partnership occurs or the year the partner's
interest in the Partnership is redeemed, whichever occurs earlier. If the
Partnership is not profitable, an investor qualifying for a volume discount may
receive slightly more losses than other investors, which losses would slightly
reduce the amount of cash such investors receive at the liquidation of the
Partnership compared to other investors.
An investor may qualify for both timing and volume discount. As a
result, the price per Unit payable by an investor may be as low as $931 per
Unit.
SUPPLEMENTAL SALES LITERATURE
An offer to sell the Notes or Units may be made only by means of this
Prospectus. However, the Partnership may utilize certain sales materials in
connection with the offering of the Notes or Units in addition to and apart from
this Prospectus. In certain jurisdictions such sales material may not be
available. This material may include a brochure, question-and-answer booklet, a
speech and slide presentation for public seminars, invitations to seminars, news
articles and public advertisements.
The Partnership will use only sales material which has been approved by
such appropriate regulatory bodies as may be required. The information contained
in such sales material shall not conflict with any of the information contained
in this Prospectus or the registration statement of which this Prospectus is a
part, or as incorporated by reference in this Prospectus or said registration
statement.
REPORTS
REPORTS TO LIMITED PARTNERS
Within 75 days after the close of each fiscal year of the Partnership,
the General Partner will deliver to each Limited Partner the information
necessary for the preparation of the Partner's federal income tax return and
state income tax returns (state
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income tax information will be provided for New York and states in which the
Hotels are located). Within 150 days after the end of each fiscal year, the
General Partner will deliver to each Limited Partner an annual report which will
include financial statements of the Partnership audited by independent certified
public accountants on an accrual basis in accordance with generally accepted
accounting principles. The financial statements will include a balance sheet and
statements of income, Partners' equity, and cash flow. The annual report for
each year will report on the Partnership's activities for that year and identify
the source of Partnership distributions.
The General Partner will also prepare and deliver to Limited Partners,
at least semi-annually, a report on the operation of the Hotels.
REPORTS TO HOLDERS OF NOTES
Within 150 days after the close of each fiscal year of the Partnership,
the Partnership will deliver to each Holder of audited financial statements of
the Partnership accompanied by a statement of the General Partner advising
whether any Event of Default under the Notes exists, or whether any event has
occurred which would constitute an Event of Default with the giving of notice or
the lapse of time, or both, and, if so, the nature thereof, its period of
existence and the action being taken by the Partnership to correct the Event of
Default.
LEGAL MATTERS
Certain legal matters with respect to the Notes and Units offered
hereby, including the tax consequences of the Notes and Units, will be passed
upon for the Partnership by Harris Beach & Wilcox, LLP, as counsel to the
Partnership and the General Partner. Harris Beach & Wilcox, LLP may represent
the General Partner and certain of its affiliates on matters unrelated to this
offering, and may in the future represent the General Partner and its affiliates
on various other matters. Partners of Harris Beach & Wilcox, LLP may purchase
Units and Notes.
EXPERTS
The balance sheet of Essex Hospitality Associates IV L.P. as of August
31, 1995 and the financial statements of Essex Partners Inc. as of and for the
years ended December 31, 1994 and 1993 included herein have been included herein
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
193
<PAGE> 256
The balance sheet of Essex Glenmaura L.P. as of August 30, 1995 has
been included herein in reliance upon the report of Coopers & Lybrand, LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
GLOSSARY
ACQUISITION EXPENSES. Expenses (including but not limited to legal fees
and expenses, travel and communication expenses, costs of appraisals,
non-refundable option payments on properties not acquired, accounting fees and
expenses, title insurance, and miscellaneous expenses) related to the selection
and acquisition, lease, or sublease of a property whether or not the property is
actually acquired by the Partnership.
ACQUISITION FEES. Fees payable by the Partnership to the General
Partner in the amount of $110,000 per Hotel site that is acquired by the
Partnership.
AFFILIATED PERSON. The General Partner and any Person who, directly or
indirectly, through one or more intermediaries, controls, or is controlled by or
is under common control with, the General Partner. The term "control" (including
the terms "controlled by" and "under common control with") includes the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
CAPITAL CONTRIBUTION. The money (including principal payments on
Partner Notes but not the principal amount of the Partner Notes) and the fair
market value of property contributed by a Partner (with value of property
determined by the contributing Partner and the General Partner) in accordance
with Section 2.06 of the Partnership Agreement.
CLOSING DATE. Any date upon which an investor's subscription is
accepted and his or her subscription proceeds are released from the Escrow
Account.
CODE. The Internal Revenue Code of 1986.
CUMULATIVE RETURN. A Distribution to the Limited Partners on a Pro Rata
basis, commencing for each Limited Partner on the date the Partner is admitted
to the Partnership, in an annual amount equal to 8% of the Capital Contribution
of each Limited Partner (less any Distributions made pursuant to Section 2.08 or
subparagraph 3.05(b)(i) of the Partnership Agreement), calculated without regard
to
194
<PAGE> 257
any discounts described in the Prospectus. The Cumulative Return shall be
pro-rated for the years in which a closing of the offering of the Units occurs
and which a sale or refinancing of any or all of the Hotels occurs.
DEALER COMPENSATION. The total amount of Sales Commissions, selling
commissions, investor relations fees and any other fees and reimbursements paid
to the Manager Dealer and Soliciting Dealers in connection with the offering of
Notes and Units, however designated.
DEVELOPMENT FEE. A fee payable by the Partnership to the General
Partner in the amount of $160,000 per Hotel that is developed by the
Partnership, increased by 5% of total construction, site development and
furniture, fixtures and equipment costs in excess of $2.7 million, but not to
exceed $325,000 per Hotel. The Development Fee for each Hotel shall be payable
15% per month, beginning with the month in which the General Partner formally
solicits bids for construction of a Hotel and continuing for a term not to
exceed six months. The unpaid balance shall be paid upon the obtaining of a
certificate of occupancy for the Hotel.
DISTRIBUTION. Any transfer of money or other property to a Partner, in
the Partner's capacity as a Partner, from the Partnership. The term
"Distribution" shall not include fees paid to the General Partner or to other
Affiliated Persons pursuant to Article IV of the Partnership Agreement. Property
is to be valued at its fair market value on the date of transfer.
DISTRIBUTIONS FROM A SALE OR REFINANCE OF HOTELS. Distributions to
Partners from a sale or refinance of any or all of the Hotels, or the
distribution of proceeds received from a sale or refinance of properties of
Essex Glenmaura.
ERISA. Employee Retirement Income Security Act of 1974.
ESCROW ACCOUNT. The interest-bearing account established by the
Partnership with the Escrow Agent for the purpose of depositing initial proceeds
from the sale of Units and Notes as described in paragraph 2.06(c) of the
Partnership Agreement.
ESCROW AGENT. Manufacturers and Traders Trust Company, Buffalo, New
York, or another bank, which is not an Affiliated Person, selected by the
General Partner.
ESSEX GLENMAURA. Essex Glenmaura L.P., a New York limited partnership,
an Affiliated Person, which is developing a Courtyard by Marriott(R) hotel near
Scranton, Pennsylvania.
195
<PAGE> 258
ESSEX. Essex Investment Group, Inc., a New York corporation which is
the sole shareholder of the General Partner.
ESSEX PARTNERS. Essex Partners Inc., a New York corporation.
EXTERNAL FINANCING. Financing obtained from sources other than the
General Partner and its Affiliates, including loans from institutional lenders
and Franchisors or their affiliates, which financings are secured by mortgage
liens on the Partnership's real properties and any improvements thereon.
FIRST CLOSING. That date after the Specified Minimum Date (assuming the
Minimum Offering Amount has been sold), as determined by the General Partner, on
which all subscription proceeds held in escrow will be released to the
Partnership.
FEE MORTGAGE. A mortgage and security agreement covering the
Partnership's interest in real property which it has purchased.
FRANCHISE AGREEMENT. The Franchisor's then-current version of its
standard franchise or license agreement to be entered into by the Partnership
and any of the Franchisors under which the Partnership would have the right to
develop and operate Hotels.
FRANCHISORS. Microtel Inns and Suites Franchising, Inc., a Georgia
corporation; Promus Hotel Corporation, a Delaware Corporation; Marriott
International, Inc., a Delaware Corporation; and/or a hotel franchisor to be
specified by the General Partner, in its sole discretion.
FRONT-END FEES. Fees and expenses paid for any services rendered in
connection with the Partnership's organizational or acquisition phases,
including all expenses of the Partnership's organization, expenses related to
the offering of Units and Notes pursuant to the Prospectus, Acquisition Fees (as
defined in the Partnership Agreement), Acquisition Expenses, Development Fees
and Organization and Offering Expenses.
GENERAL PARTNER. Essex Partners Inc., a New York corporation and any
successor duly elected by the Limited Partners.
GLENMAURA NOTES. $1,500,000 of Essex Glenmaura's unsecured notes,
maturing June 1, 1998, unless extended to December 1, 1999.
196
<PAGE> 259
GROSS OFFERING PROCEEDS. The gross cash proceeds and the aggregate
principal amount of the Partner Notes received by the Partnership from the sale
of the Units and Notes.
GUARANTY OF COMPLETION. A guaranty to be issued by the General Partner
to the Partnership with respect to the construction of a Hotel on a site, in
substantially the form of Exhibit D.
HAMPTON COMMITMENT. Advice from Promus Hotel Corporation that the
General Partner's application for a license to operate a Hampton Inn &
Suites(sm) hotel on the Solon Property has been approved, as a result of which
the General Partner expects to enter into a written commitment agreement with
Promus Hotel Corporation pursuant to which Promus Hotel Corporation will issue a
license to operate a 100-room Hampton Inn & Suites(sm) hotel on the Solon
Property upon satisfactory completion of construction.
HOLDERS. The purchasers of Notes or their successors.
HOTELS. Lodging facilities to be constructed by the Partnership and
operated under franchise or license agreements with Franchisors selected by the
General Partner. "Hotel" shall mean any one of the lodging facilities.
INDENTURES. The Indenture dated as of November 1, 1995 between the
Partnership and the Trustee covering the Mortgage Notes, and the Indenture dated
as of November 1, 1995 between the Partnership and the Trustee covering the
Subordinated Notes.
INITIAL SITE. First site purchased, leased, or subleased by the
Partnership for a construction of a hotel.
INVESTMENT IN HOTELS. The amount of Gross Offering Proceeds actually
paid or allocated to the purchase, lease, sublease, development, construction or
improvement of the Hotels to be constructed by the Partnership, including the
purchase price of the land, lease deposit, the initial working capital reserves
allocable to the Hotels (but not reserves in excess of 5 percent of the Gross
Offering Proceeds), franchise fees paid to the Franchisor, construction
management and development fees paid to Persons who are not Affiliated Persons
and other cash payments such as interest and taxes, but excluding Front-End
Fees. Investment in Hotels shall also include the amount of Gross Offering
Proceeds used to purchase limited partnership interests in Essex Glenmaura.
197
<PAGE> 260
IRAs. Individual retirement accounts.
IRS. The Internal Revenue Service.
LEASEHOLD MORTGAGE. A mortgage covering the Partnership's interest as
tenant under a lease or sublease.
LIMITED PARTNERS. Those Persons listed on Schedule A to the Partnership
Agreement as Limited Partners and their successors.
MAJORITY VOTE. The affirmative vote or written consent of Limited
Partners then owning of record more than 50 percent of the outstanding Units.
MM&S. MM&S Resources, Inc., an Affiliated Person.
MANAGEMENT AGREEMENT. An agreement to be entered between the
Partnership and the General Partner setting forth the terms and conditions
according to which the General Partner shall operate and maintain the Hotels on
behalf of the Partnership.
MANAGING DEALER. Essex Capital Markets Inc., an Affiliated Person.
MINIMUM OFFERING AMOUNT. Such combination of Notes and Units as
represent Gross Offering Proceeds of at least $1,980,000 in the aggregate.
MORTGAGES. Fee Mortgage(s) and Leasehold Mortgage(s) on Hotel
properties acquired without reliance upon External Financing and securing the
Mortgage Notes.
MORTGAGE NOTES. Up to $10,000,000 of the Partnership's notes secured by
first mortgage liens or leasehold mortgage liens on the Partnership's real
properties and improvements thereon, maturing December 31, 2001, unless extended
to December 31, 2002.
NASD. The National Association of Securities Dealers, Inc.
NOTES. The Mortgage Notes and the Subordinated Notes.
ORGANIZATION AND OFFERING EXPENSES. Those expenses incurred in
connection with preparing the Partnership for registration and subsequently
offering and distributing the Units and Notes to the public, including all
advertising expenses.
198
<PAGE> 261
ORGANIZATION AND OFFERING MANAGEMENT FEE. A fee payable by the
Partnership to the General Partner equal to 3.4% of the Gross Offering Proceeds.
PARI PASSU INDEBTEDNESS. Indebtedness of the Partnership having no
priority of payment over and not subordinated in right of payment to the
Subordinated Notes.
PARTNER. Any General or Limited Partner.
PARTNER NOTE. A non-interest bearing promissory note payable to the
Partnership and executed by a Limited Partner in connection with the purchase of
20 or more Units.
PARTNERSHIP. Essex Hospitality Associates IV L.P., a New York limited
partnership.
PARTNERSHIP AGREEMENT. The Amended and Restated Limited Partnership
Agreement of the Partnership.
PARTNERSHIP MANAGEMENT FEE. A fee payable by the Partnership to the
General Partner equal to .75% of the gross revenues from each Hotel.
PERSON. An individual, a corporation, a partnership, a trust, an
unincorporated organization or a government or an agency or political
subdivision thereof.
POTENTIAL FRANCHISES. Courtyard by Marriott(R), Fairfield Inn(R) by
Marriott, Hampton Inn(R), Homewood Suites(R), Hampton Inn & Suites(sm), and
Microtel(R) hotels.
PRO RATA SHARE. The Pro Rata Share of each Limited Partner shall be 99%
multiplied by a fraction, the numerator of which is the number of Units held by
the Limited Partner, and the denominator of which shall be the aggregate number
of Units held by all the Limited Partners. That portion of any Unit for which a
Partner Note remains outstanding shall not be included in either the numerator
or the denominator in such calculation. The Pro Rata Share of the General
Partner is 1%.
PROMUS HOTEL CORPORATION. Promus Hotel Corporation (inclusive of its
subsidiaries), franchisor of Hampton Inn(R), Hampton Inn & Suites(sm), and
Homewood Suites(R) hotels.
PROPERTY MANAGEMENT FEE. A fee payable by the Partnership to the
General Partner equal to 4.5% of the gross revenues from each Hotel.
199
<PAGE> 262
PROSPECTUS. The Partnership's prospectus as included in the
Registration Statement.
REGISTRATION STATEMENT. The registration statement on file with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, for the registration of Units and Notes to be sold by the Partnership
at the time the Registration Statement becomes effective. If the Partnership
files a post-effective amendment to the Registration Statement or a new
Registration Statement and the Prospectus included therein may be used by the
Partnership pursuant to Rule 424 under the Securities Act of 1933 (or any
corresponding provision of succeeding rules or regulations of the Securities and
Exchange Commission), the term "Registration Statement," from and after the
declaration of the effectiveness of the post-effective amendment of the new
Registration Statement refers to the Registration Statement as amended by the
post-effective amendment thereto or the then-effective Registration Statement,
as the case may be.
REGULATIONS. The Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as amended from time to time (including
corresponding provisions of succeeding regulations). Reference is made to a
specific Regulation in the following manner: "Treas. Reg. Section 1.709-2."
SALES COMMISSIONS. Sales commissions of up to $80 per Unit and $55 per
$1,000 Note sold pursuant to this Prospectus, payable by the Partnership to the
Managing Dealer.
SENIOR INDEBTEDNESS. All indebtedness of the Partnership, whether
outstanding on the date of the Indenture governing the Subordinated Notes or
thereafter created, which is evidenced by the Mortgage Notes or arises as a
result of External Financing.
SOLICITING DEALERS. Broker-dealer firms which are NASD members whose
services are enlisted by the Dealer to assist in the sale of the Notes and
Units.
SOLON PROPERTY. Approximately 2.28 acres of real property located in
Solon, Ohio and identified for acquisition by the Partnership.
SPECIFIED MINIMUM DATE. Eighteen months from the date of the
Prospectus.
SPECIFIED PROPERTIES. The Solon Property and the Warwick Property.
200
<PAGE> 263
SUBSTITUTE COLLATERAL. New hotel properties, whether owned by the
Partnership or third parties, and financed by the Partnership with proceeds from
the sale or refinance of a Hotel developed without reliance upon External
Financing, and securing the Mortgage Notes previously secured by the Hotel that
was sold or refinanced.
OFFERING TERMINATION DATE. The date designated by the General Partner
for the termination of the Partnership's offering of Unites and Notes, which
date shall not be later than twenty-four months after the initial date of
effectiveness of the Registration Statement.
TRUSTEE. Manufacturers and Traders Trust Company, Buffalo, New York, or
its successor.
SUBORDINATED NOTES. Up to $6,000,000 of the Partnership's unsecured
notes, maturing December 31, 2001, unless extended to December 31, 2002.
UNITS. The interest of the Limited Partners in the Partnership shall be
divided into 5,000 Limited Partnership Units.
WARWICK PROPERTY. Approximately 2.535 acres of real property located in
Warwick, Rhode Island and identified for acquisition by the Partnership.
201
<PAGE> 264
INDEX TO FINANCIAL STATEMENTS
Financial Statements of the General Partner
<TABLE>
<S> <C>
- - Report of Independent Auditors - 1994 and 1993 F-1
- - Balance Sheets as of December 31, 1994 and 1993 F-2
- - Statements of Income and Changes in Retained Earnings for
the years ended December 31, 1994 and 1993 F-3
- - Statements of Cash Flows for years ended December 31, 1994 and 1993 F-4
- - Notes to Financial Statements F-6
- - Balance Sheet (Unaudited) as of July 31, 1995, including notes thereto F-11
Financial Statements of the Partnership
- - Report of Independent Auditors F-15
- - Balance Sheet as of August 30, 1995 F-16
- - Notes to Balance Sheet F-17
Financial Statements of Essex Glenmaura, LP
- - Report of Independent Auditors F-21
- - Balance Sheet as of August 31, 1995 F-22
- - Notes to Balance Sheet F-23
</TABLE>
202
<PAGE> 265
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Essex Partners Inc.:
We have audited the accompanying balance sheets of Essex Partners Inc. (a wholly
owned subsidiary of Essex Investment Group, Inc.) as of December 31, 1994 and
1993, and the related statements of income and changes in retained earnings and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Essex Partners Inc. as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
March 3, 1995
F-1
<PAGE> 266
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 517,381 389,903
Advances receivable from partnerships 434,901 408,110
Prepaid and other 8,471 9,450
---------- ---------
Total current assets 960,753 807,463
---------- ---------
Noncurrent receivables from partnerships 169,935 301,970
Due from parent 87,038 366,191
Office furniture and equipment, less accumulated
depreciation of $26,000 in 1994 and $14,000 in 1993 98,278 25,806
Hotel franchise rights 375,000 --
Investments in partnerships 328,117 326,467
---------- ---------
$2,019,121 1,827,897
========== =========
Liabilities and Stockholder's Investment
----------------------------------------
Current liabilities:
Current portion of long-term debt -- 80,000
Accounts payable and accrued expenses 18,484 40,901
Accrued partnership contributions 11,000 25,000
---------- ---------
Total current liabilities 29,484 145,901
---------- ---------
Noncurrent accrued partnership contributions 161,568 146,054
Long-term debt, excluding current portion 275,000 558,500
---------- ---------
436,568 704,554
---------- ---------
Commitments and contingencies (note 7)
Stockholder's investment:
Common stock, par value $.01, authorized 2,000,000
shares; 100 shares issued and outstanding 1 1
Paid-in capital 999 999
Retained earnings 1,552,069 976,442
---------- ---------
Total stockholder's investment 1,553,069 977,442
---------- ---------
$2,019,121 1,827,897
========== =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 267
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Statements of Income and Changes in Retained Earnings
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Revenues:
Organization, property acquisition and
development fees $ 1,084,292 1,260,440
Management and administrative fees 758,249 368,955
Equity income of partnerships 352,952 53,963
----------- ---------
Total revenues 2,195,493 1,683,358
----------- ---------
Operating expenses:
Personnel 1,037,386 903,909
Office operations 118,810 104,306
Occupancy 91,445 92,098
Sales and marketing 71,379 81,115
Professional fees 83,174 53,921
Provision for losses on investments in and
receivables from partnerships 135,140 35,929
----------- ---------
Total operating expenses 1,537,334 1,271,278
----------- ---------
Income from operations 658,159 412,080
Interest expense (82,532) (71,556)
----------- ---------
Income before income taxes 575,627 340,524
Income taxes 245,000 130,000
----------- ---------
Net income 330,627 210,524
Retained earnings, beginning of year 976,442 635,918
Adjustment pursuant to tax sharing arrangement 245,000 130,000
----------- ---------
Retained earnings, end of year $ 1,552,069 976,442
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 268
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Statements of Cash Flows
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 330,627 210,524
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,670 5,014
Current income tax liability forgiven via
tax sharing arrangement 245,000 130,000
Equity income of partnerships (352,952) (53,963)
Provision for losses on investments in and
receivables from partnerships 135,140 35,929
Cash provided (used) by changes in:
Prepaid and other current assets 979 52,978
Accounts payable and accrued expenses (22,417) 19,545
--------- --------
Net cash flows provided by operating activities 348,047 400,027
--------- --------
Cash flows from investing activities:
Repayments received from (advances to) partnerships, net (29,897) 495,822
Distributions from partnerships 387,863 37,385
Contributions to partnerships (35,046) (6,913)
Purchase of office furniture and equipment (84,142) (20,442)
Purchase of hotel franchise rights (100,000) --
Net payments received from parent 279,153 21,361
--------- --------
Net cash flows provided by investing activities 417,931 527,213
--------- --------
Cash flows used in financing activities:
Repayment of long-term debt (638,500) (971,897)
--------- --------
Net increase (decrease) in cash and
cash equivalents 127,478 (44,657)
Cash and cash equivalents, beginning of year 389,903 434,560
--------- --------
Cash and cash equivalents, end of year $ 517,381 389,903
========= ========
</TABLE>
(Continued)
F-4
<PAGE> 269
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid $ 82,532 69,556
======== =======
Supplemental schedule of noncash investing and
financing activities:
Note issued in connection with acquisition
of hotel franchise rights $275,000 --
Accrued partnership contributions $ 36,560 103,840
======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 270
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
December 31, 1994 and 1993
(1) Description of Business and Summary of Significant Accounting Policies
Essex Partners Inc. (the Company) is the managing general partner of real
estate partnerships. In addition to revenues earned as an investor, the
Company receives management, administrative, development and other fees for
services rendered to the partnerships.
The Company's parent, Essex Investment Group, Inc. (Essex), is an
integrated financial services company that develops and markets a broad
range of investment and insurance products and services for individuals,
businesses and individual pension accounts.
Cash Equivalents
Cash equivalents consist of money market accounts with an initial term of
three months or less.
Hotel Franchise Rights
Hotel franchise rights are accounted for at the lower of cost or net
realizable value. Adjustments to carrying value of such rights that result
from subsequent declines in value are charged to operations in the period
in which the declines occur.
Investments in Partnerships
Investments in partnerships are accounted for by the equity method. Any
initial partnership capital contribution required by the Company which is
payable out of future distributions to the Company is accrued. Any residual
interest in partnership assets (which may range up to an additional 20%
interest) is not recorded until received.
Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 (SFAS 109). There was no
significant cumulative effect of the change in the method of accounting as
of that date. Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the year in which those
temporary differences are expected to be recovered or settled. Under SFAS
109, the effect of deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period which includes the enactment
date.
(Continued)
F-6
<PAGE> 271
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(1) Description of Business and Summary of Significant Accounting Policies
(continued)
The taxable income of the Company is included in the consolidated federal
and combined New York State income tax returns of Essex. Essex allocates
current federal and state income taxes on a prorata basis to only its
subsidiaries which have taxable income. Any difference between income taxes
determined in accordance with SFAS 109 and the amount allocated to the
Company by Essex is deemed to be an adjustment of retained earnings.
Reclassifications
Certain amounts in the 1993 financial statements have been reclassified to
conform with the 1994 presentation.
(2) Advances Receivable from Partnerships
The Company makes advances to partnerships in connection with the
acquisition and construction of real estate and certain partnership
operations. The Company also earns management and administrative fees from
the partnerships. Such receivables, which are generally due on demand and
unsecured at December 31, 1994 and 1993, are summarized as follows:
<TABLE>
<CAPTION>
Partnership Advances 1994 1993
-------------------- ---- ----
<S> <C> <C>
Essex Geneseo Associates L.P. $ 124,628 15,000
Essex-Ashford River Oaks L.P. 100,786 56,211
Essex Avalon L.P. -- 199,735
Essex Microtel LeRay L.P. 140,015 16,000
Others 339,407 449,134
--------- --------
704,836 736,080
Allowance for uncollectible advances (100,000) (26,000)
--------- --------
604,836 710,080
Less current portion (434,901) (408,110)
--------- --------
$ 169,935 301,970
========= ========
</TABLE>
(Continued)
F-7
<PAGE> 272
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(3) Hotel Franchise Rights
In 1994, the Company purchased rights to 15 Microtel hotel franchises for
$375,000 in exchange for cash of $100,000 and a noninterest-bearing note
payable for $275,000. The repayment terms of the note require that, upon
exercising a franchise right, the Company is generally obligated to make a
principal payment of $25,000. Any outstanding amount of the note is payable
in full on April 30, 2000.
Generally, each franchise right, upon exercising, requires the user to pay
a continuing monthly royalty fee of 2.5% of gross room revenues. The
monthly royalty fee increases to 3% of gross room revenues in the event
between 50 and 100 Microtel hotels are opened for business by franchisees
and to 3.5% in the event 100 or more Microtel hotels are opened. In the
event that the franchisor establishes a system of advertising for its
franchisees, the user is required to contribute an additional 1% of gross
room revenues to pay for the cost of such a system. The franchise agreement
also requires the user to maintain certain insurance coverage, to meet
certain standards with respect to furniture, fixtures, maintenance and
repair, and to refurbish and upgrade the hotel not more than once every 5
years to conform to Microtel hotel's then-current public image. The term of
the agreement is 10 years upon exercising the right, with an option to
renew for an additional 10 years, subject to compliance with certain
conditions.
(4) Investments in Partnerships
The Company invests in partnerships which primarily own and operate hotels,
apartments and mobile home parks. In 1994, one of the partnerships sold its
investment in a mobile home park at a gain. Equity income of partnerships
in 1994 includes $363,874 related to that transaction.
The Company earns fees in connection with providing organization,
financing, acquisition, development, management, administration and due
diligence services to the partnerships in which the Company is general
partner. These fees totaled $1,688,995 in 1994 and $1,520,115 in 1993. In
addition, the Company provides managerial and administrative services under
contracts with several entities owned by officers of Essex, earning fees of
$153,546 in 1994 and $109,280 in 1993.
(Continued)
F-8
<PAGE> 273
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(5) Long-Term Debt
As of December 31, 1994, an unsecured noninterest-bearing note payable for
$275,000 was outstanding. See note 3 for terms of the debt.
In 1994, the Company repaid the amounts outstanding under bank lines of
credit.
(6) Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current:
Federal $183,000 98,000
State 62,000 32,000
-------- -------
$245,000 130,000
======== =======
</TABLE>
Income tax expense differs from the amounts computed by applying the U.S.
Federal income tax rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Computed "expected" tax expense $196,000 116,000
Increase (decrease) resulting from:
State taxes, net of federal income tax benefit 40,900 21,100
Effect of graduated federal tax rate -- (11,400)
Other 8,100 4,300
-------- -------
$245,000 130,000
======== =======
</TABLE>
In 1994 and 1993, income taxes otherwise currently payable by the Company
were offset by losses of other members of the consolidated Essex group.
Therefore, no income tax expense was allocated to the Company pursuant to
the consolidated tax sharing arrangement. An amount equal to current income
taxes reflected above is, therefore, reflected in the financial statements
as an adjustment to retained earnings.
(Continued)
F-9
<PAGE> 274
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Financial Statements
(7) Commitments and Contingencies
As the Company is a general partner in several partnerships, it may,
subject to partnership agreement restrictions, be held liable for all
recourse debt and obligations of such partnerships to the extent that the
obligations are not funded by the partnerships. The amounts of such
contingent liabilities include guarantees of the following partnership
obligations at December 31, 1994:
<TABLE>
<S> <C>
Essex Microtel Lehigh L.P.
--------------------------
Mortgage payable to bank, secured by a first
mortgage on the property $ 1,275,000
Essex Geneseo Associates L.P.
-----------------------------
Mortgage payable to bank, secured by a first
mortgage on the property 1,625,000
</TABLE>
Although there is no current plan or intention to do so, the capital of the
Company is available for withdrawal by Essex. Summarized consolidated
financial information for Essex as of and for the years ended December 31,
1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Assets $4,100,000 3,300,000
Liabilities 3,350,000 2,500,000
Minority interest - convertible preferred stock
of subsidiary of Essex 701,000 701,000
Total stockholders' equity 68,000 95,000
Revenue 7,650,000 6,730,000
Net income 228,000 605,000
</TABLE>
On behalf of Essex, the Company guarantees a term note payable to bank of
$1,266,669 at December 31, 1994.
F-10
<PAGE> 275
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Balance Sheet
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents $ 90,997
Advances receivable from partnerships 386,201
Prepaid expenses and other 10,992
----------
Total current assets 488,190
----------
Noncurrent receivables from partnerships 317,402
Due from parent 649,901
Office furniture and equipment, at cost,
less accumulated depreciation of $36,460 99,118
Investments in partnerships 332,594
----------
$1,887,205
==========
Liabilities and Stockholders' Investment
----------------------------------------
Current liabilities:
Accounts payable and accrued expenses 7,408
Accrued partnership contributions 11,000
----------
Total current liabilities 18,408
----------
Non-current accrued partnership contributions 150,517
----------
Commitments and contingencies Stockholder's investment:
Common stock, par value $.01, authorized 2,000,000
shares; 100 shares issued and outstanding 1
Paid-in capital 999
Retained earnings 1,717,280
----------
Total stockholder's investment 1,718,280
----------
$1,887,205
==========
</TABLE>
** See accompanying notes to balance sheet **
F-11
<PAGE> 276
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Balance Sheet
July 31, 1995
(Unaudited)
1) Description of Business and Summary of Significant Accounting Policies
Essex Partners Inc. (the Company) is the managing general partner of real
estate partnerships. In addition to revenues earned as an investor, the
Company receives management, administrative, development and other fees for
services rendered to the partnerships.
The Company's parent, Essex Investment Group, Inc. (Essex), is an integrated
financial services company that develops and markets a broad range of
investment and insurance products and services for individuals, businesses
and individual pension accounts.
Cash Equivalents
Cash equivalents consist of money market accounts with an initial term of
three months or less.
Investments in Partnerships
Investments in partnerships are accounted for by the equity method. Any
initial partnership capital contribution required by the Company which is
payable out of future distributions to the Company is accrued. Any residual
interest in partnership assets (which may range up to an additional 20%
interest) is not recorded until received.
Income Taxes
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for, the estimated future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect of, deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period which includes the enactment date.
The taxable income of the Company is included in the consolidated federal and
combined New York State income tax returns of Essex. Essex allocates current
federal and state income taxes on a prorata basis to only its subsidiaries
which have taxable income. Any difference between income taxes determined in
accordance with SFAS 109 and the amount allocated to the Company by Essex is
deemed to be an adjustment of retained earnings.
Interim Results
All adjustments, consisting only of normal recurring accruals, necessary to
fairly present a balance sheet as of July 31, 1995, in management's
judgement, have been made.
F-12
<PAGE> 277
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Balance Sheet
July 31, 1995
(Unaudited)
2) Advances Receivable from Partnerships
The Company makes advances to partnerships in connection with the acquisition
and construction of real estate and certain partnership operations. The
Company also earns management and administrative fees from the partnerships.
Such receivables, which are generally due on demand and unsecured at July 31,
1995, are summarized as follows:
<TABLE>
<S> <C>
Partnership Advances
Essex Glenmaura LLC $225,000
Essex Geneseo Associates L.P. 101,211
Essex Albion Credits L.P. 93,537
Essex-Ashford River Oaks L.P. 126,787
Other Limited Partnerships 265,068
--------
811,603
Allowance for uncollectible advances -108,000
--------
703,603
Less current portion 386,201
--------
$317,402
========
</TABLE>
3) Hotel Franchise Rights
In 1994, the Company purchased rights to 15 Microtel hotel franchises for
$375,000 in exchange for cash of $100,000 and a noninterest-bearing note
payable for $275,000. During 1995, the Company sold one franchise right for
$25,000 to an affiliate and the remaining 14 rights were resold to the
franchisor for $200,000 resulting in a loss of $150,000. The Company repaid
$175,000 of the related noninterest-bearing note payable. The remaining
outstanding balance of $100,000 was forgiven, resulting in an extraordinary
gain.
4) Investments in Partnerships
The Company invests in partnerships which primarily own and operate hotels,
apartments and mobile home parks. The Company earns fees in connection with
providing organization, financing, acquisition, development, management,
administration and due diligence services to the partnerships in which the
Company is general partner. These fees totaled $1,176,165 for the seven
months ended July 31, 1995. In addition, the Company provides managerial and
administrative services under contracts with several entities owned by
officers of Essex, earning fees of $298,766 for the seven months ended July
31, 1995.
5) Long-Term Debt
During 1995, the company repaid $175,000 of the related non-interest bearing
note payable and the remaining outstanding balance of $100,000 was forgiven.
See Note 3.
F-13
<PAGE> 278
ESSEX PARTNERS INC.
(A Wholly Owned Subsidiary of Essex Investment Group, Inc.)
Notes to Balance Sheet
July 31, 1995
(Unaudited)
6) Commitments and Contingencies
As the Company is a general partner in several partnerships, it may, subject
to partnership agreement restrictions, be held liable for all recourse debt
and obligations of such partnerships to the extent that the obligations are
not funded by the partnerships. The amounts of such contingent liabilities
include guarantees of the following partnership obligations at July 31, 1995:
<TABLE>
<S> <C>
Essex Microtel Lehigh L.P.
Mortgage payable to bank, secured by a first mortgage on the property $1,275,000
Essex Geneseo Associates L.P.
Mortgage payable to bank, secured by a first mortgage on the property $1,625,000
</TABLE>
Essex has entered into two real estate contracts for the purchase of a
property in Warwick, Rhode Island and a property in Solon, Ohio. Essex
intends to assign the purchase contracts to Essex Hospitality Associates IV,
L.P. at the first closing of the offering or as soon as practicable,
thereafter. The purchase price of the properties are estimated at $496,900
for the Warwick site and $588,300 for the Solon site.
Although there is no current plan or intention to do so, the capital of the
Company is available for withdrawal by Essex. Summarized consolidated
financial information for Essex as of and for the year ended December 31,
1994 follows:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Assets 4,115,048
Liabilities 3,346,219
Convertible preferred stock - minority interest 700,836
Total stockholders' equity 67,993
Total stockholders' equity and convertible preferred stock - minority interest 768,829
Revenue 7,647,307
Operating Income 371,192
Net Income 227,877
</TABLE>
Included in Essex's $3,346,219 liabilities above is a term note payable to
bank which is guaranteed by the company. The outstanding amount under the
note is $1,100,000 at July 31, 1995.
F-14
<PAGE> 279
INDEPENDENT AUDITORS' REPORT
The Partners
Essex Hospitality Associates IV L.P.:
We have audited the accompanying balance sheet of Essex Hospitality Associates
IV L.P. (a New York limited partnership) as of August 30, 1995. This financial
statement is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Essex Hospitality Associates IV
L.P. as of August 30, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Rochester, New York
September 1, 1995
F-15
<PAGE> 280
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Balance Sheet
August 30, 1995
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash $100
====
Partners' Capital
-----------------
Partners' capital $100
====
</TABLE>
See accompanying notes to the balance sheet.
F-16
<PAGE> 281
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Balance Sheet
August 30, 1995
(1) Organization
Essex Hospitality Associates IV L.P. (the Partnership) is a New York
limited partnership formed on August 30, 1995 for the purpose of acquiring
land and constructing, owning and operating a series of hotels. The
Partnership will also acquire a limited partnership interest in another
partnership which will construct, own and operate a Marriott Courtyard
near Scranton, Pennsylvania. The Partnership may also lend funds to other
partnerships that own hotels.
The Partnership has had no operations and additional capital will be
necessary before operations can be commenced. The Partnership's ability to
begin operation is, among other things, dependent on the success of the
public offering of limited partnership units, mortgage notes and unsecured
notes (notes). The public offering requires $2 million in gross offering
proceeds, prior to the deduction of any discounts, to initiate the
purchase of land and construction of one motel.
The Partnership's general partner is Essex Partners Inc. (Essex Partners),
a subsidiary of Essex Investment Group, Inc. (Essex).
Under the Partnership agreement, prior to the admission of the limited
partners under the public offering, the general partner and original
limited partner shall receive the percentage of the profits and losses of
the Partnership as follows: Essex Partners Inc., general partner - 99%;
and Barbara J. Purvis, limited partner - 1%. Upon admission of limited
partners, the original limited partner has the right to withdraw from the
Partnership. The following is a general description of the allocation of
income, loss and distributions after admission of limited partners under
the public offering; for a more comprehensive description, see the
Partnership Agreement:
Allocations of income from operations will be allocated 99% to the
limited partners and 1% to the general partner until the amount
allocated to the limited partners equals the cumulative annual return
of 8% of their contribution. Any remaining income from operations is
allocated 80% to the limited partners and 20% to the general
partners. Income on the sale of any or all of the hotels is allocated
99% to the limited partners until each limited partner has been
allocated income in an amount equal to his or her pro rata share of
the nondeductible syndication expenses and sales commissions and 1%
to the general partners. Thereafter, income on the sale of any or all
the hotels is allocated in the same manner as income from operations.
(Continued)
F-17
<PAGE> 282
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Balance Sheet
(1) Organization (continued)
Allocations of losses from operations will be allocated 80% to the
limited partners and 20% to the general partner in the amounts
sufficient to offset all income which was allocated 80% to the
limited partners. Thereafter, operating losses are allocated 99% to
the limited partners and 1% to the general partner. Loss on the sale
of any or all of the hotels will be first allocated in the same
manner as losses from operations, except that the allocation of such
loss would be made prior to allocations of income from operations.
All other losses are allocated 99% to the limited partners and 1% to
the general partners.
Distributions will initially be made 99% to the limited partners and
1% to the general partners. After the limited partners have received
a cumulative annual return of 8% of their contribution, additional
distributions may then be made 80% to the limited partners and 20% to
the general partners. Distributions of the net proceeds of sale or
refinancing of any or all hotels will be made 1% to the general
partner and 99% to the limited partners pro rata in accordance with
the number of units held by each limited partner until the limited
partners have received distributions from sale or refinance of hotels
equal to $1,000 per unit. Thereafter, distributions shall next be
made 1% to the general partner and 99% to the limited partners until
each limited partner has received any unpaid cumulative return
accrued through the date of the distribution. Additional
distributions will then be made 20% to the general partner and 80% to
the limited partners.
Essex Partners and its affiliates will receive substantial fees in
connection with the offering of notes and limited partnership units.
Additional fees will be paid to them in connection with the acquisition,
development and operation of the hotels and management of the Partnership
(see note 3).
(2) Summary of Significant Accounting Policies
Basis of Accounting
The balance sheet of the Partnership was prepared in conformity with
generally accepted accounting principles.
(Continued)
F-18
<PAGE> 283
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Balance Sheet
(2) Summary of Significant Accounting Policies (continued)
Investments in Partnerships
Investments in partnerships with a 50% or less ownership interest will be
accounted for by the equity method. Ownership interests exceeding 50% will
be accounted for under the consolidated method.
Income Taxes
No provision for income taxes has been provided since any liability is the
individual responsibility of the partners.
Statement of Operations and Statement of Cash Flows
The Partnership has had no operations and, accordingly, no statement of
operations is required.
The only cash flow has been the receipt of the limited partner's initial
capital contribution and, accordingly, no statement of cash flows is
considered necessary. The Partnership has not incurred liabilities since
its inception.
(3) Related Party Transactions
A summary of the fees to be earned by Essex Partners or its affiliates
under the terms of the Partnership agreement follows:
<TABLE>
<CAPTION>
Type of Fee Amount of Fee
----------- -------------
<S> <C>
Selling Commission Up to $80 per limited partnership
unit and $55 per $1,000 note sold
Organization and Offering Up to 3.4% of the gross proceeds
Fee of the offering
Investors' Relations Fee .25% of the gross proceeds of the
offering
Acquisition Fee Up to $110,000 per hotel site
</TABLE>
(Continued)
F-19
<PAGE> 284
ESSEX HOSPITALITY ASSOCIATES IV L.P.
(A New York Limited Partnership)
Notes to Balance Sheet
(3) Related Party Transactions (continued)
<TABLE>
<CAPTION>
Type of Fee Amount of Fee
----------- -------------
<S> <C>
Development Fee $160,000 per hotel, plus 5% of
the total cost of the hotel in
excess of $2.7 million (not to
exceed $325,000 per hotel)
Property Management 4.5% of gross operating revenues
Fee from the hotels
Partnership Management .75% of gross operating revenues
Fee from the hotels
Refinancing Fee 1% of the gross proceeds of re-
financing any or all of the hotels
Sales Fee 3% of the gross sale price of any or
all of the hotels
Accounting Fee $800 per month
</TABLE>
The Partnership will also be subject to a number of conflicts of interest
arising from its relationships with the general partner, its owners and
affiliates and due to other activities and entities in which the general
partner and its affiliates have or may have a direct or indirect financial
interest. This Prospectus (see discussion of conflicts of interest)
attempts to highlight those conflicts of interest, but a potential
investor should be aware that, because of future activities or events not
now foreseen, the description therein may not be complete.
(4) Commitments and Contingencies
Essex Partners has entered into two real estate contracts for the purchase
of a property in Warwick, Rhode Island, and a property in Solon, Ohio.
Essex Partners intends to assign the purchase contracts to the Partnership
at the first closing of the offering or as soon as practicable,
thereafter. The purchase prices of the properties are estimated at
$496,900 for the Warwick site and $588,300 for the Solon site. The
assignment of the purchase contracts will result in a payable to Essex
Partners.
F-20
<PAGE> 285
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Essex Glenmaura L.P.
We have audited the accompanying balance sheet of Essex Glenmaura L.P. as of
August 31, 1995. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on the
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Essex Glenmaura L.P. as of August
31, 1995, in conformity with generally accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
---------------------------
Rochester, New York
October 24, 1995
F-21
<PAGE> 286
ESSEX GLENMAURA L.P.
Balance Sheet
August 31, 1995
ASSETS
<TABLE>
<S> <C>
Investments in real estate, at cost:
Land $ 1,223,636
Development costs 124,185
-----------
Total investments in real estate 1,347,821
-----------
Current assets:
Cash and cash equivalents 184,637
Accounts receivable 5,000
-----------
Total current assets 189,637
-----------
Other assets:
Deposit 35,000
Intangible assets 151,874
-----------
$ 1,724,332
===========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 1,500,000
-----------
Current liabilities:
Accounts payable 11,779
Accrued interest 12,950
Due to general partner 100,000
-----------
Total current liabilities 124,729
-----------
Partners' capital:
Limited partners 774,603
Less, subscriptions receivable - limited partners (675,000)
-----------
Total partners' capital 99,603
-----------
$ 1,724,332
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE BALANCE SHEET.
F-22
<PAGE> 287
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Scope of Business
The partnership is a New York Limited Partnership formed to construct, own and
operate a 120 room hotel, Courtyard by Marriott, Southeast of Scranton,
Pennsylvania under a franchise agreement with Marriott International, Inc. (the
Project). The Partnership is in negotiations with a contractor and with lendors
related to the construction and permanent financing for which there are
currently no formal agreements.
The Partnership was formed on May 18, 1995 and will terminate on the earlier of
December 31, 2045 or the date the Partnership is terminated pursuant to the
partnership agreement or by law.
Allocations of Income or Loss
The partnership agreement provides that net losses of the Partnership be first
allocated among the partners to the extent of the positive balances in the
partners' capital accounts, to make the respective balances equal to the
distributions that would have been made had the aggregate balances in all
partners' capital accounts been distributed in accordance with each Partner's
pro rata share. Losses are next allocated in accordance with each Partner's pro
rata share in an amount equal to the difference between nonrecourse debt of the
Partnership and the adjusted basis of the partnership property securing such
nonrecourse debt. All additional losses are allocated to the General Partner.
Net income is allocated first to the General Partner in an amount equal to the
loss allocated to the General Partner as described above. Next, income is
allocated in accordance with each Partner's pro rata share in an amount equal to
the loss allocated to the Partners as described above. Income is then allocated
to those Partners with negative balances in their capital accounts. All
additional income is then allocated in accordance with each Partner's pro rata
share.
Cash and Cash Equivalents
For the purposes of the balance sheet, cash and cash equivalents include money
market funds and commercial savings accounts.
Method of Accounting
The Partnership has prepared its balance sheet on the accrual method of
accounting.
Income Taxes
The taxable income or loss of the Partnership will be included in the income tax
returns of the individual partners. Accordingly, the effect of income taxes has
not been included in the accompanying balance sheet.
Organization Costs
Organization costs will be amortized over a period of sixty months.
F-23
<PAGE> 288
Essex Glenmaura L.P.
Notes to Balance Sheet
August 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Debt Acquisition Fees
Debt acquisition fees will be amortized over the three-year life of the notes.
Distributions
Distributions shall be made in accordance with each Partner's Pro Rata Share at
an amount and time determined by the General Partner.
2. DEPOSIT
The Partnership has made a deposit of $35,000 pursuant to an option to purchase
a second parcel of land (the Second Project) adjacent to the Project for
purposes of constructing a second hotel. If the parcel is acquired before May
31, 1996, the purchase price will be $613,000. If the parcel is acquired after
May 31, 1996, the option requires an additional payment of $40,000 due and
payable June 1, 1996. Thereafter until August 31, 1997, the price is $665,000.
The deposit is non-refundable.
3. INTANGIBLE ASSETS
Intangible assets consist of the following as of August 31, 1995:
<TABLE>
<S> <C>
Organization costs $ 10,000
Franchise fee 48,000
Debt acquisition costs 93,874
--------
Total $151,874
========
</TABLE>
4. DUE TO GENERAL PARTNER
The General Partner, Essex Partners Inc., is owed $100,000 from the Partnership.
There are no stated repayment terms nor is interest being charged on this
amount.
F-24
<PAGE> 289
Essex Glenmaura L.P.
Notes to Balance Sheet
August 31, 1995
5. NOTES PAYABLE
Notes payable consist of $1,500,000 of notes due requiring monthly installments
of interest only at 10.5% per annum. The notes mature on June 1, 1998 upon which
all principal will be due unless the Partnership exercises its early repayment
or notes extension options. After June 30, 1996, the Partnership has the right
to repay the notes at face value. The Partnership also has the option to
exercise two one-year extensions at extension fees ranging from one-half to one
percent. Essex Partners Inc. guarantees payment of principal and interest on the
notes.
6. OFFERING OF LIMITED PARTNERSHIP UNITS
The Partnership intends to raise a minimum of $300,000 and a maximum of
$1,000,000 through the sale of not less than 3 or more than 10 Limited
Partnership Units (the "Units"). The purchase price is $100,000 per Unit. Essex
Partners Inc. may at any time during the offering period increase the size of
the offering to the Extended Maximum Offering of $2,500,000, or 25 Units. Essex
Capital Markets Inc., an affiliate of the General Partner, will receive a 2% fee
in connection with the sale of these Units. As of August 31, 1995, 8 Units have
been sold.
7. SUBSCRIPTIONS RECEIVABLE - LIMITED PARTNERS
In connection with the sale of $800,000 of Limited Partnership Units (net of
syndication costs of $25,397), the Limited Partners executed $675,000 of
non-interest bearing promissory notes which are due on demand.
8. RELATED PARTY TRANSACTIONS
For arranging the note financing, Essex Partners Inc. received a financing fee
of $10,000 and Essex Capital Markets Inc. received selling commissions of
$60,000 and due diligence fees of $11,250.
The General Partner shall receive an offering and organization fee in the amount
of $20,000 if the minimum offering amount is raised, or up to $40,000 if the
extended maximum offering amount is raised, for services rendered and expenses
incurred in connection with the formation and reorganization of the Partnership
and the offering of Units. This fee will be reduced by the amount of any fees
paid to Essex Capital Markets Inc. in connection with the placement of Units. As
of August 31, 1995, the General Partner has received $11,000 and Essex Capital
Markets has received $7,000 in connection with the sale of these Units.
As compensation for its assignment of the purchase contract for the land, the
option contract
F-25
<PAGE> 290
Essex Glenmaura L.P.
Notes to Balance Sheet
August 31, 1995
8. RELATED PARTY TRANSACTIONS - CONTINUED
and the franchise agreement, Essex Partners Inc. will receive $225,000. Of this
amount, $125,000 has been paid as of August 31, 1995.
The General Partner shall contribute to the Partnership an amount equal to at
least the greater of (i) $50,000 or (ii) 1% of the aggregate of the capital
contributions of all Partners.
In the future, the Partnership will also pay to the General Partner, Essex
Partners Inc., the following:
a) as compensation for services in development of the project, the Partnership
will pay a development fee to Essex Partners Inc. in the amount of $285,000
payable in monthly installments of $42,750 beginning when the general contractor
is engaged. The balance will be due upon completion of construction as indicated
by issuance of the certificate of occupancy. At the balance sheet date, no
development fees were recorded.
b) a property management fee equal to 4.5% of gross operating revenues, a
monthly accounting fee of $800, and reimbursement of certain expenses incurred
by Essex Partners Inc. in connection with the management of the project.
c) a partnership management fee of .75% of gross operating revenues.
d) a refinancing fee upon the closing of a refinancing of the Project, in the
aggregate amount of 1% of the gross proceeds of the refinancing.
e) a sales fee upon the closing of a sale of the Project, in the aggregate
amount of 2.5% of the gross sales price, provided that the sum of such fee and
any competitive real estate commission paid by the Partnership with respect to
such sale does not exceed 5% of the gross sale price, and that Essex Partners
Inc. renders substantial services in connection with the sale.
f) In the event the General Partner elects to proceed with the Second Project on
behalf of the Partnership, Essex Partners Inc. will receive additional
compensation related to the acquisition of the second parcel, construction of
the Second Project and securing additional equity and debt financing to fund
such activities. Such compensation will include an acquisition fee equal to
$50,000 for its services related to the acquisition of the second parcel and a
development fee of an amount up to $150,000 plus 3% of total construction, site
development and fixtures, furniture and equipment costs, as compensation for its
services related to the development of the Second Project. In addition, as
compensation for arranging construction and permanent financing for the Second
Project, Essex Partners Inc. may receive a financing fee equal to 1% of the
gross proceeds of the financing. Essex Partners Inc. also will receive an
additional property management fee and partnership
F-26
<PAGE> 291
Essex Glenmaura L.P.
Notes to Balance Sheet
August 31, 1995
8. RELATED PARTY TRANSACTIONS - CONTINUED
f) management fee calculated as described in paragraphs (a) and (b) above based
on the gross operating revenues of the Second Project. If the Second Project is
sold and/or refinanced, Essex Partners Inc. will receive additional sales and/or
refinancing fees calculated as described in paragraphs (c) and (d) above based
on the gross sales and/or refinancing proceeds of the Second Project.
g) Essex Partners Inc. and it affiliates also will receive offering-related fees
for services in connection with (i) the offering of additional partnership
interests and/or notes, or (ii) the possible refinancing of the Project or the
Second Project to fund the acquisition of the land and/or construction or one or
both of those projects. Essex Partners Inc. and its affiliates are expressly
authorized to receive from the Partnership the fees and sales commissions
customarily charged by Essex Partners Inc. and its affiliates for rendering
comparable services on competitive terms.
9. FRANCHISE FEES
The Partnership has entered into a franchise agreement with Marriott
International Inc. Under the terms of the agreement, the Partnership was
required to pay an initial franchise fee of $48,000. The term and amortization
period of the franchise agreement is twenty years, with an option to renew for
an additional ten-year period.
The Partnership is also required to pay a monthly royalty fee in an amount equal
to 4% of gross room rentals for the first two years of operations and 5% during
the remainder of the term of the agreement, a marketing fee of 2-3% of gross
revenues, a reservation system fee and a property management system fee.
10. CAPITALIZED INTEREST
Interest capitalized during the development phase amounted to $29,199 as of
August 31, 1995.
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EXHIBIT A
PARTNERSHIP AGREEMENT
<PAGE> 293
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
ESSEX HOSPITALITY ASSOCIATES IV L.P.
<PAGE> 294
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS
Acquisition Expenses............................................... 1
Acquisition Fees................................................... 1
Adjusted Capital Account Deficit................................... 2
Advance .......................................................... 2
Affiliated Person.................................................. 2
Agreement.......................................................... 3
Capital Account.................................................... 3
Capital Contribution............................................... 3
Code .......................................................... 3
Cumulative Return.................................................. 3
Distribution....................................................... 4
Escrow Account..................................................... 4
Escrow Agent....................................................... 4
Escrow Agreement................................................... 4
Escrow Unit Days................................................... 4
Fiscal Period...................................................... 4
Front-End Fees..................................................... 5
General Partner.................................................... 5
General Partner Residual Interest.................................. 5
Gross Offering Proceeds............................................ 5
Hotels .......................................................... 5
Income Or Loss..................................................... 5
Income or Loss from Disposition of a Hotel......................... 6
Investment In Hotels............................................... 6
Limited Partners................................................... 6
Majority Vote of Limited Partners.................................. 7
Management Agreement............................................... 7
Managing Dealer.................................................... 7
Mortgage Notes..................................................... 7
Net Escrow Earnings................................................ 7
Net Offering Proceeds.............................................. 7
Net Proceeds of Sale or Refinancing................................ 7
Nonrecourse Deductions............................................. 7
Nonrecourse Liability.............................................. 7
Notes .......................................................... 7
Organization And Offering Expenses................................. 8
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Original Agreement............................................. 8
Original Limited Partner....................................... 8
Partner ...................................................... 8
Partner Minimum Gain........................................... 8
Partner Nonrecourse Debt....................................... 8
Partner Nonrecourse Deductions................................. 8
Partner Note................................................... 8
Partnership.................................................... 8
Partnership Minimum Gain....................................... 9
Person ...................................................... 9
Pro Rata Share................................................. 9
Prospectus..................................................... 9
Registration Statement......................................... 9
Regulations.................................................... 9
Regulatory Allocations......................................... 10
Safe Harbor.................................................... 10
Sales Commissions.............................................. 10
Syndication Expenses........................................... 10
Subordinated Notes............................................. 10
Termination Date............................................... 10
Units ...................................................... 10
ARTICLE II - ORGANIZATION
Section 2.01 Formation......................................... 10
Section 2.02 Name.............................................. 11
Section 2.03 Purpose........................................... 11
Section 2.04 Principal Office.................................. 11
Section 2.05 Term.............................................. 11
Section 2.06 Capital Contributions............................. 11
Section 2.07 Admission Of Additional Limited Partners.......... 14
Section 2.08. Return Of Non-Utilized Capital................... 14
ARTICLE III - ALLOCATIONS AND DISTRIBUTIONS
Section 3.01 Allocations Of Income Or Loss..................... 15
Section 3.02 Special Allocations............................... 17
Section 3.03 Curative Allocations.............................. 19
Section 3.04 Other Allocation Rules............................ 20
Section 3.05 Distributions..................................... 22
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ARTICLE IV - THE GENERAL PARTNER
Section 4.01 Powers Of The General Partner....................... 23
Section 4.02 Duties Of The General Partner....................... 24
Section 4.03 Partnership Tax Matters............................. 26
Section 4.04 Indemnification Of The General Partner.............. 26
Section 4.05 Authority Of The General Partner.................... 28
Section 4.06 Contracts With Affiliated Persons................... 28
Section 4.07 Compensation Of Affiliated Persons.................. 29
Section 4.08 Withdrawal Of The General Partner................... 32
Section 4.09 Assignment Of The General Partner Interest.......... 32
Section 4.10 Expenses Of The Partnership......................... 32
Section 4.11 Purchase Of Units................................... 36
ARTICLE V - THE LIMITED PARTNERS
Section 5.01 Powers Of Limited Partners.......................... 37
Section 5.02 Liability Of Limited Partners....................... 37
Section 5.03 Meetings Of Limited Partners........................ 38
Section 5.04 Assignment Of Units................................. 39
Section 5.05 Form Of Assignment.................................. 40
Section 5.06 Rights Of Assignee.................................. 42
Section 5.07 Admission Of Limited Partners....................... 42
ARTICLE VI - DISSOLUTION
Section 6.01 Dissolution......................................... 43
Section 6.02 Liquidation......................................... 46
Section 6.03 Final Statement..................................... 46
ARTICLE VII - BOOKS, REPORTS AND FISCAL MATTERS
Section 7.01 Books And Records................................... 46
Section 7.02 Reports............................................. 47
Section 7.03 Bank Accounts....................................... 48
ARTICLE VIII - GENERAL
Section 8.01 Other Business Interests............................ 48
Section 8.02 Notices............................................. 48
Section 8.03 Captions............................................ 48
Section 8.04 Pronouns and Plurals................................ 49
Section 8.05 Entire Agreement.................................... 49
Section 8.06 Further Action...................................... 49
Section 8.07 Binding Effect...................................... 49
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Section 8.08 Creditors.......................................... 49
Section 8.09 Validity........................................... 49
Section 8.10 Governing Law...................................... 49
Section 8.11 Accounting Method................................. 49
Section 8.12 Amendment.......................................... 49
Section 8.13 Power Of Attorney.................................. 50
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AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
ESSEX HOSPITALITY ASSOCIATES IV L.P.
This Amended and Restated Limited Partnership Agreement (this
"Agreement") amends and restates an agreement of limited partnership entered
into on August 24, 1995 by the General Partner and the Original Limited Partner
(the "Original Agreement").
This Agreement admits the Limited Partners to the Partnership and
provides for the withdrawal of the Original Limited Partner. The General Partner
and the Limited Partners agree to make the contributions required by, and
otherwise agree to the terms of, this Agreement.
In consideration of the mutual covenants hereinafter expressed, the
Partners agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
indicated:
ACQUISITION EXPENSES. Expenses (including but not limited to legal fees
and expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on properties not acquired, accounting fees and
expenses, title insurance, and miscellaneous expenses) related to the selection
and acquisition, lease or sublease of a property whether or not the property is
actually acquired by the Partnership.
ACQUISITION FEES. The total of all commissions and similar fees paid by
any Person, including the General Partner and any other Affiliated Person, in
connection with the purchase, lease, sublease, development or construction of
any Hotel by the Partnership, however designated and including a real estate
commission, a selection
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fee, and a non-recurring management or loan fee. Acquisition Fees do not include
any construction or developers fees paid to a Person who is not an Affiliated
Person in connection with the actual construction or development of a Hotel
after acquisition of the land by the Partnership.
ADJUSTED CAPITAL ACCOUNT DEFICIT. The deficit balance, if any, in a
Partner's Capital Account as of the end of any Fiscal Period after the Partner's
Capital Account has been decreased by the items described in Treas. Reg.
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) and increased by any amounts which
the Partner: (a) is obligated to restore pursuant to the terms of this
Agreement; (b) is otherwise treated as being obligated to restore under Treas.
Reg. Section 1.704-1(b)(2)(ii)(c); or (c) is deemed to be obligated to restore
pursuant to the penultimate sentences of Treas. Reg. Section 1.704-2(g)(1) and
1.704-2(I)(5). Adjusted Capital Account Deficit is intended to comply with the
provisions of Treas. Reg. Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
ADVANCE. Any transfer of money by an Affiliated Person to the
Partnership, and any amount paid on behalf of the Partnership by an Affiliated
Person, in the form of a loan or otherwise, in excess of the General Partner's
Capital Contribution. Advances shall bear interest at the rate charged by any
lending institution providing the funds to the Affiliated Person for the purpose
of making the Advance or, if there is no such lending institution, at an annual
rate of one percent above the prime rate as established from time to time by
Manufacturers and Traders Trust Company, Buffalo, New York or its successor. If
the Advance is made in connection with a particular Hotel, the interest rate
payable to an Affiliated Person shall in no event exceed the rate which would be
charged by lending institutions on comparable loans for the same purpose in the
locality of the Hotel. No prepayment charge or penalty shall be required on an
Advance. No Affiliated Person shall be under any obligation to make any Advance
to the Partnership.
AFFILIATED PERSON. Any Person who is the General Partner or who,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by or is under common control with, the General Partner. For purposes
of this Section , the term "control" (including the terms "controlled by" and
"under common control with") includes the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
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AGREEMENT. As defined in the Preamble.
CAPITAL ACCOUNT. The amount of cash contributed by each Partner
pursuant to Section 12.06:
(a) increased by the amount of: (I) any other cash and the fair market
value of any other property (determined by the contributing Partner and the
General Partner) contributed by the Partner as a Capital Contribution; (ii)
money paid to reduce the principal amount of any Partner Note; (iii) Income
allocated to the Partner and any items in the nature of income or gain specially
allocated to the Partner pursuant to Sections 3.02, 3.03 and 3.04 (except as
provided in the last sentence of paragraph 3.04(d)); and (iv) any Partnership
liabilities assumed by the Partner or which are secured by Partnership property
distributed to the Partner; and
(b) decreased by the amount of: (I) cash and the fair market value of
any Partnership property (determined by the contributing Partner and the General
Partners) distributed to the Partner as a Distribution; (ii) Losses allocated to
the Partner and any items in the nature of expenses or losses specially
allocated pursuant to Sections 3.02, 3.03 and 3.04 (except as provided in the
last sentence of paragraph 3.04(d)); and (iii) any liabilities of the Partner
assumed by the Partnership or which are secured by any property contributed by
the Partner to the Partnership as a Capital Contribution.
Capital Accounts shall be maintained and adjusted in accordance with the
provisions of Treas. Reg. Section 1.704-1(b)(2)(iv). In the event that any
interest in the Partnership is transferred in accordance with this Agreement,
the transferee shall succeed to the Capital Account of the transferor to the
extent it relates to the interest transferred. This Agreement is intended to
comply with Treas. Reg. Section 1.704-1(b), and shall be interpreted and applied
in a manner consistent with that Regulation.
CAPITAL CONTRIBUTION. The money (including principal payments on
Partner Notes but not the principal amount of the Notes) and the fair market
value of property contributed by a Partner (with the value of property
determined by the contributing Partner and the General Partners) in accordance
with Section 2.06.
CODE. The Internal Revenue Code of 1986.
CUMULATIVE RETURN. A Distribution to the Limited Partners on a Pro Rata
basis, commencing for each Limited Partner on the date the Partner is admitted
to the
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Partnership, in an annual amount equal to 8 percent of the Capital Contribution
of each Limited Partner (less any Distributions made pursuant to Section 2.08 or
subparagraph 3.05(b)(I), calculated without regard to any volume discounts
described in the Prospectus. The Cumulative Return shall be pro-rated for the
years in which a closing of the offering of Units occurs and in which a sale or
refinancing of any or all of the Hotels occurs.
DISTRIBUTION. Any transfer of money or other property to a Partner, in
the Partner's capacity as a Partner, from the Partnership. The term
"Distribution" shall not include fees paid to the General Partner or to other
Affiliated Persons pursuant to Article IV. Property is to be valued at its fair
market value on the date of transfer.
ESCROW ACCOUNT. The interest-bearing account established by the
Partnership with the Escrow Agent for the purpose of depositing initial proceeds
from the sale of Units and Notes as described in paragraph 2.06(c).
ESCROW AGENT. Manufacturers and Traders Trust Company, Buffalo, New
York, or another bank, which is not an Affiliated Person, selected by the
General Partner.
ESCROW AGREEMENT. An agreement entered into between the Partnership and
the Escrow Agent setting forth the terms and conditions according to which the
Escrow Agent shall maintain the Escrow Account.
ESCROW UNIT DAYS. In the case of a purchaser of Units, the gross cash
proceeds received by the Partnership from the purchaser in connection with the
sale of Units multiplied by the number of days during the period commencing on
the date that the gross cash proceeds attributable to the Units were deposited
in the Escrow Account and ending on the Termination Date. In the case of a
purchaser of Notes, the principal amount of the Notes purchased by the holder
multiplied by the number of days during the period commencing on the date that
the holder's subscription proceeds attributable to the Notes were deposited in
the Escrow Account and ending on the Termination Date.
FISCAL PERIOD. From January l to December 31 of each year or such
portion thereof as the Partnership shall be in existence.
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FRONT-END FEES. Fees and expenses paid by any party for any services
rendered in connection with the Partnership's organizational or acquisition
phases, including all expenses of the Partnership's organization, expenses
related to the offering of Units and Notes pursuant to the Prospectus,
Acquisition Fees, Acquisition Expenses, Development Fees, and Organization and
Offering Expenses.
GENERAL PARTNER. Essex Partners Inc., a New York corporation or any
successor duly elected by the Limited Partners.
GENERAL PARTNER RESIDUAL INTEREST. The amount of any Distribution which
the Managing General Partner is entitled to receive from the Partnership under
subparagraphs 3.05(a)(ii) and 3.05(b)(iii).
GROSS OFFERING PROCEEDS. The gross cash proceeds and the aggregate
principal amount of the Partner Notes received by the Partnership from the sale
of the Units and Notes.
HOTELS. Lodging facilities to be constructed by the Partnership and
operated under franchises or license agreements with national lodging chains
selected by the General Partner as described in the Prospectus, and "Hotel"
shall mean any one of the lodging facilities.
INCOME OR LOSS. The Partnership's taxable income or loss for each
Fiscal Period determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(a) Sales Commissions and Syndication Expenses allocated pursuant to
paragraphs 3.02(h) and 3.02(I) shall not be taken into account;
(b) any expenditures of the Partnership described in Section
705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(I), shall be subtracted from
such taxable income or loss;
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(c) any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Income or Loss shall be
added to Income or Loss;
(d) any gain or loss which would have been realized by the Partnership
on the sale of assets distributed in kind to Partners, determined with reference
to the fair market value and the adjusted tax basis of the property for federal
income tax purposes immediately prior to the distribution, shall be added to or
subtracted from Income or Loss;
(e) Income or Loss does not include any amount allocated pursuant to
paragraph 3.04(d); and
(f) all computed without regard to any adjustment to the adjusted tax
basis of a Partnership asset resulting from an election under Section 754 of the
Code (except to the extent required by Treas. Reg. Section
1.704-1(b)(2)(iv)(m)).
INCOME OR LOSS FROM DISPOSITION OF A HOTEL. The gain or loss recognized
by the Partnership with regard to the sale, exchange, condemnation or other
disposition of any Hotel.
INVESTMENT IN HOTELS. The amount of Gross Offering Proceeds actually
paid or allocated to the purchase, lease, sublease, development, construction or
improvement of the Hotels to be constructed by the Partnership, including the
purchase price of the land, lease deposit, the initial working capital reserves
allocable to the Hotels (but not reserves in excess of 5 percent of the Gross
Offering Proceeds), franchise fees paid to the Partnership's franchisor,
construction management and development fees paid to Persons who are not
Affiliated Persons and other cash payments such as interest and taxes, but
excluding Front-End Fees. Investment in Hotels shall also include the amount of
Gross Offering Proceeds used to purchase limited partnership interests in Essex
Glenmaura, L.P., as more particularly described in the Prospectus.
LIMITED PARTNERS. Those Persons listed on Schedule A as Limited
Partners and their successors.
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MAJORITY VOTE OF LIMITED PARTNERS. The affirmative vote or written
consent of Limited Partners then owning of record more than 50 percent of the
outstanding Units.
MANAGEMENT AGREEMENT. An agreement to be entered between the
Partnership and the General Partner setting forth the terms and conditions
according to which the General Partner shall operate and maintain the Hotels on
behalf of the Partnership.
MANAGING DEALER. Essex Capital Markets Inc., an Affiliated Person.
MORTGAGE NOTES. The promissory notes of the Partnership in the
aggregate principal amount of up to $10 million to be offered and sold pursuant
to the Prospectus and as more particularly described therein.
NET ESCROW EARNINGS. The interest earned on the proceeds from the sale
of the Units and Notes while held in the Escrow Account, reduced by fees and
expenses of the Escrow Agent and by the interest earnings paid to a subscriber
whose subscription is not accepted.
NET OFFERING PROCEEDS. Gross Offering Proceeds reduced by Front-End
Fees.
NET PROCEEDS OF SALE OR REFINANCING. The net cash realized by the
Partnership from the sale, refinancing or other disposition of one or more
Hotels, after retirement of existing mortgage debt and the payment of all
expenses related to the transaction.
NONRECOURSE DEDUCTIONS. For any Fiscal Period, an amount equal to the
excess, if any, of the net increase, if any, in the amount of Partnership
Minimum Gain during that Fiscal Period over the aggregate amount of any
Distributions during that Fiscal Period of proceeds of a Nonrecourse Liability
that are allocable to an increase in Partnership Minimum Gain, determined
according to Treas. Reg. Section 1.704-2.
NONRECOURSE LIABILITY. Any Partnership liability (or portion thereof)
for which no Partner bears the economic risk of loss, determined according to
Treas. Reg. Section 1.704-2(b)(3).
NOTES. The Mortgage Notes and the Subordinated Notes.
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ORGANIZATION AND OFFERING EXPENSES. Those expenses incurred in
connection with preparing the Partnership for registration and subsequently
offering and distributing the Units to the public, including all advertising
expenses.
ORIGINAL AGREEMENT. As defined in the Preamble.
ORIGINAL LIMITED PARTNER. Barbara J. Purvis, the Vice President of
Essex Partners Inc.
PARTNER. Any General or Limited Partner.
PARTNER MINIMUM GAIN. An amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if the
Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined
according to Treas. Reg. Section 1.704-2(I)(3).
PARTNER NONRECOURSE DEBT. Any Nonrecourse Liability of the Partnership
for which any Partner bears the economic risk of loss, determined in according
to Treas. Reg. Section 1.704-2(b)(4).
PARTNER NONRECOURSE DEDUCTIONS. For any Fiscal Period, an amount with
respect to a Partner Nonrecourse Debt equal to the excess, if any, of the net
increase, if any, in the amount of Partner Minimum Gain attributable to Partner
Nonrecourse Debt during that Fiscal Period over the aggregate amount of any
Distributions during that Fiscal Period to the Partner that bears the economic
risk of loss for Partner Nonrecourse Debt to the extent the Distributions are
from the proceeds of Partner Nonrecourse Debt and are allocable to an increase
in Partner Minimum Gain attributable to Partner Nonrecourse Debt, determined in
accordance with Treas. Reg. Section 1.704-2(I)(2).
PARTNER NOTE. A non-interest bearing promissory note payable to the
Partnership and executed by a Limited Partner in connection with the purchase of
20 or more Units, providing for payments as described in Section 2.06.
PARTNERSHIP. The limited partnership formed by the Original Agreement
and continued by this Agreement.
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PARTNERSHIP MINIMUM GAIN. The amount determined by computing, with
respect to each Nonrecourse Liability, the amount of gain, if any, that would be
realized by the Partnership if it disposed of (in a taxable transaction) the
Partnership property subject to the Nonrecourse Liability in full satisfaction
thereof (and for no other consideration), and by then aggregating the amounts so
computed. It is intended that Partnership Minimum Gain be determined in
accordance with Treas. Reg. Section 1.704-2(d).
PERSON. An individual, a corporation, a partnership, a trust, an
unincorporated organization or a government or an agency or political
subdivision thereof.
PRO RATA SHARE. The Pro Rata Share of each Limited Partner shall be
ninety-nine percent multiplied by a fraction, the numerator of which is the
number of Units held by the Limited Partner and the denominator of which is the
aggregate number of Units held by all Limited Partners. That portion of any Unit
for which a Partner Note remain outstanding shall not be included in either the
numerator or denominator in such calculation. The Pro Rata Share of the General
Partner is one percent.
PROSPECTUS. The Partnership's prospectus as included in the
Registration Statement.
REGISTRATION STATEMENT. The registration statement on file with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, for the registration of Units and Notes to be sold by the Partnership
at the time the registration statement becomes effective. If the Partnership
files a post-effective amendment to the Registration Statement or a new
Registration Statement and the Prospectus included therein may be used by the
Partnership pursuant to Rule 424 under the Securities Act of 1933 (or any
corresponding provision of succeeding rules or regulations of the Securities and
Exchange Commission), the term "Registration Statement," from and after the
declaration of the effectiveness of the post-effective amendment or the new
Registration Statement, refers to the Registration Statement as amended by the
post-effective amendment thereto or the then-effective Registration Statement,
as the case may be.
REGULATIONS. The Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as amended from time to time (including
corresponding provisions of succeeding regulations). Reference is made to a
specific Regulation in the following manner: "Treas. Reg. Section 1.709-2."
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REGULATORY ALLOCATIONS. The allocations set forth in paragraphs (c),
(d) and (e) of Section 3.02.
SAFE HARBOR. Any one of the "safe harbors" set forth in Internal
Revenue Service Notice 88-75, 88-2 C.B. 386 (or such other guidance subsequently
published by the Internal Revenue Service setting forth safe harbors under which
limited partnership interests will not be treated as "readily tradable on a
secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code).
SALES COMMISSIONS. Sales commissions of up to $80 per Unit and $55 per
$1,000 Note sold pursuant to the Prospectus and payable by the Partnership to
the Managing Dealer.
SYNDICATION EXPENSES. All expenditures, other than Sales Commissions
and the investor relations fee described in Section 4.07(b), connected with the
issuing and marketing of interests in the Partnership within the meaning of
Treas. Reg. Section 1.709-2(b).
SUBORDINATED NOTES. The promissory notes of the Partnership in the
aggregate principal amount of up to $6 million to be offered and sold pursuant
to the Prospectus and as more particularly described therein.
TERMINATION DATE. The date designated by the General Partner for the
termination of the Partnership's offering of Units and Notes, which shall not be
later than twenty-four months after the initial date of effectiveness of the
Registration Statement.
UNITS. The interest of the Limited Partners in the Partnership shall be
divided into up to 5,000 Limited Partnership Units. Fractional Units shall be
rounded to the nearest 100th.
ARTICLE II
ORGANIZATION
SECTION 2.01 FORMATION. The Partnership was formed as a limited
partnership under the laws of the State of New York by execution and filing of
the
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Certificate of Limited Partnership on August 30, 1995 with the Secretary of
State of the State of New York.
SECTION 2.02 NAME. The name of the Partnership is Essex Hospitality
Associates IV L.P. The Partnership may also do business under such other names
as the General Partner may designate by written notice to all Partners.
SECTION 2.03 PURPOSE. The purpose of the Partnership is to construct,
hold and operate the Hotels with a view to preserving capital and generating
Distributions and long-term capital appreciation, to dispose of the Hotels, and
to perform any acts necessary or appropriate to accomplish the foregoing.
SECTION 2.04 PRINCIPAL OFFICE. The principal office of the Partnership
shall be located at 100 Corporate Woods, Rochester, New York 14623, or at such
other place as the General Partner may designate by written notice to all
Partners.
SECTION 2.05 TERM. The Partnership commenced on August 30, 1995 and
shall continue, unless sooner dissolved in accordance with the terms of this
Agreement or the laws of the State of New York, through December 31, 2035.
SECTION 2.06 CAPITAL CONTRIBUTIONS.
(a) The General Partner shall contribute as its Capital Contribution to
the Partnership an amount equal to 1/99 of the Capital Contributions of the
Limited Partners. The Capital Contributions of the General Partner shall be
payable out of Distributions to the General Partner from the Partnership. If
Distributions to the General Partner do not equal or exceed the Capital
Contribution required to be made by that General Partner under this paragraph
2.06(a) prior to liquidation of the Partnership or the liquidation of the
General Partner's interest in the Partnership, the General Partner shall pay to
the Partnership the balance due on its Capital Contribution: (I) in the case of
the liquidation of the Partnership, not later than the date that the Partnership
is liquidated in accordance with paragraph 6.02(a); and (ii) in the case of the
liquidation of the General Partner's interest in the Partnership, not later than
the end of the Fiscal Period in which the General Partner's interest is
liquidated (or, if later, within 90 days after the date of liquidation). The
obligation of the General Partner to make its Capital Contribution shall not
bear interest.
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(b) Upon the formation of the Partnership, the Original Limited Partner
contributed $100 to the capital of the Partnership. Upon the effective date of
this Agreement, the Original Limited Partner shall withdraw from the Partnership
and the Partnership shall return her Capital Contribution.
(c) Each Limited Partner acquiring 20 or more Units pursuant to the
offering described in the Prospectus shall contribute to the capital of the
Partnership: (I) $500 for each Unit purchased (subject to reduction for
discounts as described in the Prospectus), payable by check or money order at
the time the subscription is accepted by the General Partner; and (ii) a Partner
Note in the principal amount of $500 for each Unit purchased (subject to
reduction for discounts as described in the Prospectus). The Partner Note shall
be payable at the earliest of: (x) thirty days after demand by the General
Partner made at least six months after acceptance of the subscription of the
Limited Partner, provided that: (a) a property has been identified for
acquisition by the Partnership and a date for closing of the purchase has been
scheduled and, within 30 days prior to the scheduled closing date, the
Partnership has insufficient cash gross offering proceeds to consummate the
purchase and commence construction of the Hotel; or (b) one or more properties
have been acquired and funds are needed for the completion of construction of a
Hotel; (y) two years from the date that the Limited Partner is admitted as a
Limited Partner; or (z) three years from the Effective Date of the Registration
Statement. Each Limited Partner acquiring less than 20 Units pursuant to the
offering described in the Prospectus shall contribute to the capital of the
Partnership $1,000 for each Unit purchased payable by check or money order at
the time the subscription is accepted by the General Partner. No sale of Units
shall be made to any Person of fewer than five Units, except that IRAs, Keogh
and qualified plans may purchase two Units. The General Partner may accept
subscriptions to purchase fractional Units, in its sole discretion, after the
purchaser has satisfied the minimum investment requirements for the offering. No
sale of Units shall be consummated unless and until the General Partner shall
have received and accepted subscriptions for the purchase of Units and Notes
which represent, in the aggregate, Gross Offering Proceeds of at least
$1,978,100. All subscription proceeds shall be kept by the General Partner
separate and apart from all other funds, and shall be deposited and held in
trust in the Escrow Account, until such time as the subscriber is: (vi) admitted
as a Limited Partner and the offering pursuant to the Prospectus is terminated
or the subscription is rejected by the General Partner; or (vii) a Note is
issued by the Partnership payable to the subscriber and the offering pursuant to
the Prospectus is terminated or the subscription is rejected by the General
Partner.
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(d) No Partner shall have any right of partition with respect to the
assets of the Partnership.
(e) Neither the Partnership nor the General Partners shall have
personal liability for any Distribution to, or for the return of the Capital
Contribution of, any Limited Partner. No Partner shall be entitled to interest
on their Capital Contribution or their Capital Account.
(f) No Partner shall be personally liable for, or required to make up,
any deficit in the Partner's Capital Account, except that the General Partner
shall be liable for the balance due on its Capital Contribution obligations as
provided in paragraph 2.06(a).
(g) No Units except those Units issued by the Partnership pursuant to
the initial public offering described in the Prospectus shall be offered for
sale or issued by the Partnership without the written consent of the General
Partner and a Majority Vote of the Limited Partners.
(h) Upon the occurrence of an event of default under any Partner Note,
the General Partner, acting for and on behalf of the Partnership, by written
notice to the defaulting Limited Partner, shall have the right to purchase from
the defaulting Limited Partner his Units for a price equal to the amount of cash
paid by such Limited Partner for his Units, including the amount of the
principal payments, if any, made on any Partner Note (less the expenses incurred
by the Partnership in purchasing and reselling the Units, including reasonable
attorney's fees and a sales commission to the Managing Dealer in the amount of
$50 per Unit that is resold), in which event the defaulting Limited Partner
shall cease to have any interest in the Partnership with respect to such Units
(including, without limitation, any Cumulative Return which accrued from the
date the defaulting Limited Partner's subscription was accepted by the Managing
General Partner) and the Partner Note of the defaulting Limited Partner shall be
cancelled. Any such sale shall be deemed effective as of the date of the
occurrence of the event of default under the Partner Note. The Partnership may,
at the option of the General Partner, pay any or all of the price by giving a
note payable without interest on a date five years from the occurrence of the
event of default. The General Partner shall have the right to resell any Unit
repurchased by the Partnership pursuant to this paragraph 2.06(h) upon such
terms as it deems advisable and to admit the purchaser of any such Unit as a
Limited Partner upon satisfaction of the requirements set forth in Section 5.07
of this Agreement. None of the proceeds from
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a resale shall be payable to the defaulting Limited Partner. The General Partner
shall not resell any Unit repurchased by the Partnership pursuant to this
paragraph 2.06(h) to any Affiliated Person unless the Unit has first been
offered to the non-defaulting Limited Partners who are not Affiliated Persons.
The foregoing rights are in addition to and not in limitation of any other right
or remedy of the Partnership, and the failure of the General Partner to require
a sale hereunder shall not be deemed a waiver of any other rights or remedies
available to the Partnership on account of a default under a Partner Note.
SECTION 2.07 ADMISSION OF ADDITIONAL LIMITED PARTNERS. The General
Partner may admit additional Limited Partners or permit an increase in the
number of Units held by any Limited Partner at any time on or prior to the
Termination Date, provided that the total number of Units held by all Limited
Partners shall not exceed 5,000. Additional Limited Partners shall be admitted
to the Partnership pursuant to this Section 2.07 upon the execution of an
amendment to this Agreement adding to Schedule A the names and addresses of the
additional Limited Partners and the number of Units held by the additional
Limited Partners.
SECTION 2.08. RETURN OF NON-UTILIZED CAPITAL.
(a) If, within 24 months from the initial effective date of the
Registration Statement, no property upon which a Hotel is to be constructed has
been purchased, leased or sub-leased, the Partnership shall: (I) refund to each
Limited Partner the cash portion of the purchase price paid for Units; (ii)
refund any amounts received under any Partner Notes; and (iii) cancel any
outstanding Partner Notes.
(b) Except as permitted under Section 4.08, no Partner other than the
Original Limited Partner shall have any right to withdraw as a Partner or make a
demand for withdrawal of the Partner's Capital Contribution (or the capital
interest reflected in the Partner's Capital Account) until the full and complete
winding up and liquidation of the business of the Partnership.
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ARTICLE III
ALLOCATIONS AND DISTRIBUTIONS
SECTION 3.01 ALLOCATIONS OF INCOME OR LOSS.
(a) Except as provided in paragraph 3.01(b) and Sections 3.02, 3.03 and
3.04, Income shall be allocated:
(i) first 99 percent to the Limited Partners and one percent
to the General Partner in the same proportion as the cumulative Loss for all
prior years was allocated among the Partners pursuant to subparagraph
3.01(c)(iv), until the cumulative Income allocated pursuant to this subparagraph
3.01(a)(I) is equal to the cumulative Loss allocated in all prior years pursuant
to subparagraph 3.01(c)(iv).
(ii) next 99 percent to the Limited Partners, in proportion to
each Limited Partner's respective Cumulative Return, and one percent to the
General Partner until the cumulative Income allocated pursuant to subparagraphs
3.01(b)(iii) and (iv) and this subparagraph 3.01(a)(ii) is equal to the
cumulative amount distributed, or which would have been distributed if adequate
funds had been available for distribution, pursuant to subparagraphs 3.05(a)(I)
and 3.05(b)(ii); and
(iii) thereafter 80 percent to the Limited Partners in
accordance with each Limited Partner's Pro Rata Share and 20 percent to the
General Partner.
For purposes of applying this paragraph 3.01(a), Income on the sale of any or
all of the Hotels for any Fiscal Period shall be allocated only after Income
from all other sources for such Fiscal Period has been allocated pursuant to
this paragraph 3.01(a).
(b) Income from Disposition of a Hotel shall be allocated:
(i) first, 99 percent to the Limited Partners and one percent
to the General Partner, in the same proportion as the cumulative Syndication
Expenses and the cumulative Loss (if any) for all prior years was allocated
among the Partners pursuant to paragraph 3.02(I), until the cumulative Income
allocated pursuant to paragraph 3.02(I) and this subparagraph 3.01(b)(I) is
equal to the sum of the cumulative Syndication Expenses and the cumulative Loss
allocated in all prior years pursuant to paragraph 3.02(I);
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(ii) next, 99 percent to the Limited Partners, in the same
proportion as the amount of Sales Commissions were paid with respect to the
Units acquired by each Limited Partner and one percent to the General Partner,
until the cumulative Income allocated pursuant to this subparagraph 3.01(b)(ii)
is equal to the cumulative Sales Commission allocated in all prior years
pursuant to paragraph 3.01(h); and
(iii) finally, as provided in paragraph 3.01(a).
(c) Except as provided in paragraph 3.01(d) and Sections 3.02, 3.03 and
3.04, Loss shall be allocated:
(i) first, 80 percent to the Limited Partners and 20 percent
to the General Partners, in the same proportions as the cumulative Income (if
any) for all prior years was allocated 80 percent to the Limited Partners and 20
percent to the General Partner, until the cumulative Loss allocated pursuant to
subparagraph 3.01(d)(ii) and this subparagraph 3.01(c)(I) equals the cumulative
amount distributed pursuant to subparagraphs 3.05(a)(ii) and 3.05(b)(iii);
(ii) next, 99 percent to the Limited Partners and one percent
to the General Partner, in the same proportions as the cumulative Income (if
any) for all prior years was allocated among the Partners pursuant to
subparagraph 3.01(a)(ii), until the cumulative Loss allocated pursuant to this
subparagraph 3.01(c)(ii) is equal to the amount by which the cumulative Income
allocated pursuant to subparagraph 3.01(a)(ii) exceeds the cumulative amounts
distributed pursuant to subparagraph 3.05(a)(I) and 3.05(b)(ii); and
(iii) thereafter, 99 percent to the Limited Partners, in the
same proportions as the Capital Contributions were made by the Limited Partners
(taking into account for this purpose the principal amount of the Partner
Notes), and one percent to the General Partner.
(d) Loss from Disposition of a Hotel shall be allocated:
(i) first, 80 percent to the Limited Partners and 20 percent
to the General Partner, in the same proportion as the cumulative Income from
Disposition of a Hotel (if any) for all prior years was allocated 80 percent to
the Limited Partners and 20 percent to the General Partner, until the cumulative
Loss allocated pursuant to
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subparagraph 3.01(c)(I) and this subparagraph 3.01(d)(I) is equal to the amount
by which the cumulative Income allocated pursuant to subparagraph 3.01(a)(iii)
exceeds the cumulative amount distributed pursuant to subparagraph 3.05(b)(iii);
(ii) next, 80 percent to the Limited Partners and 20 percent
to the General Partner, in the same proportions as the cumulative Income from
Disposition of a Hotel (if any) for all prior years was allocated 80 percent to
the Limited Partners and 20 percent to the General Partner, until the cumulative
Loss allocated pursuant to subparagraph 3.01(c)(I) and this subparagraph
3.01(d)(ii) is equal to the amount by which the cumulative Income allocated
pursuant to subparagraph 3.01(a)(iii) exceeds the cumulative amount distributed
pursuant to subparagraph 3.05(a)(ii); and
(iii) finally, as provided in paragraph 3.01(c).
SECTION 3.02 SPECIAL ALLOCATIONS. The following special allocations
shall be made in the following order:
(a) Notwithstanding any other provision of this Article III, if there
is a net decrease in Partnership Minimum Gain during any Fiscal Period, each
Partner shall be specially allocated items of Partnership income and gain for
that Fiscal Period (and, if necessary, subsequent Fiscal Periods) in an amount
equal to the Partner's share of the net decrease in Partnership Minimum Gain
during that Fiscal Period, determined in accordance with Treas. Reg.
Section 1.704-2(g). It is intended that items so allocated be determined and the
allocations made in accordance with the minimum gain chargeback requirement of
Treas. Reg. Section 1.704-2(f), and this paragraph 3.02(a) shall be interpreted
consistently therewith.
(b) Notwithstanding any other provision of this Article III except
paragraph 3.02(a), if there is a net decrease in Partner Minimum Gain during any
Fiscal Period, each Partner who has a share of the net decrease in Partner
Minimum Gain, determined in accordance with Treas. Reg. Section 1.704-2(I)(5),
shall be specially allocated items of Partnership income and gain for that
Fiscal Period (and, if necessary, subsequent Fiscal Periods) in an amount equal
to the Partner's share of the net decrease in Partner Minimum Gain during that
Fiscal Period, determined in accordance with Treas. Reg. Section 1.704-2(I)(4).
It is intended that the items so allocated be determined and the allocations
made in accordance with the minimum gain chargeback requirement of
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Treas. Reg. Section 1.704-2(I)(4), and this paragraph 3.02(b) shall be
interpreted consistently therewith.
(c) In the event any Partner unexpectedly receives in any Fiscal Period
any adjustments, allocations or distributions described in Treas. Reg. Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall
be specially allocated to that Partner in such Fiscal Period (and, if necessary,
in subsequent Fiscal Periods) in an amount and manner sufficient to eliminate,
to the extent required by the Regulations, the Adjusted Capital Account Deficit
of that Partner as quickly as possible, provided that an allocation pursuant to
this paragraph 3.02(c) shall be made if and only to the extent that the Partner
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article III have been tentatively made as if paragraph
3.02(e) and this paragraph 3.02(c) were not in this Agreement.
(d) No Loss or item of Partnership deduction for any Fiscal Period
shall be allocated to any Partner to the extent the allocation: (I) would cause
the Partner to have an Adjusted Capital Account Deficit; or (ii) would increase
the Partner's Adjusted Capital Account Deficit. Any Loss or item of Partnership
deduction which cannot be allocated as a result of the restrictions contained in
this paragraph 3.02(d) shall be allocated to the General Partner.
(e) In the event that any Partner has a deficit Capital Account at the
end of any Fiscal Period that is in excess of the sum of: (I) the amount that
Partner is obligated to restore; and (ii) the amount that Partner is deemed to
be obligated to restore pursuant to the penultimate sentences of Treas. Reg.
Sections 1.704-2(g)(I) and 1.704-2(I)(5), each such Partner shall be
specially allocated items of Partnership gross income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
paragraph 3.02(e) shall be made if and only to the extent that such Partner
would have a deficit Capital Account in excess of such sum after all other
allocations provided for in this Article III have been tentatively made as if
paragraph 3.02(c) and this paragraph 3.02(e) were not in this Agreement.
(f) Nonrecourse Deductions for any Fiscal Period shall be specially
allocated 99 percent to the Limited Partners in accordance with each Limited
Partner's Pro Rata Share and one percent to the General Partner.
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(g) Any Partner Nonrecourse Deductions for any Fiscal Period shall be
specially allocated to the Partner who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treas. Reg. Section
1.704-2(I)(1).
(h) Sales Commissions paid by the Partnership with respect to any Unit
shall be allocated 99 percent to the Limited Partner who acquired the Unit and
one percent to the General Partner.
(i) Syndication Expenses for any Fiscal Period shall be allocated 99
percent to the Limited Partners in the same proportions as the Capital
Contributions were made by the Limited Partners (taking into account for this
purpose the face amount of any Partner Note) and one percent to the General
Partner. If Limited Partners are admitted to the Partnership pursuant to
Sections 2.06 and 2.07 on different dates, all Syndication Expenses allocated to
the Limited Partners shall be divided among the Limited Partners from time to
time so that, to the extent possible, total Syndication Expenses are allocated
to each Unit in the manner set forth in the preceding sentence of this
subparagraph 3.02(I). In the event the General Partner determines that such
result is not likely to be achieved through the allocation of future Syndication
Expenses, the Managing General Partner may allocate Income or Loss so as to
achieve the same effect on the Capital Accounts of the Limited Partners.
(j) To the extent that any discrepancies in Capital Accounts (as
determined on a per Unit basis) exist among the Limited Partners at the date of
admission of Limited Partners, solely as a result of the volume discounts
described in the Prospectus, items of Partnership gross income and gain shall be
specially allocated to the Limited Partners in proportion to such discrepancies
until such discrepancies are eliminated in the earlier of the year that the
liquidation of the Partnership occurs or the year that a Partner's Unit is
redeemed by the Partnership; provided, however, to the extent that special
allocations pursuant to paragraph 3.02(c) or 3.02(d) made in a prior year have
eliminated such discrepancies, no special allocation shall be made pursuant to
this paragraph 3.02(j).
SECTION 3.03 CURATIVE ALLOCATIONS. The Regulatory Allocations are
intended to comply with certain requirements of Treas. Reg. Section 1.704-1(b).
Notwithstanding any other provisions of this Article III (other than paragraphs
3.02(a) through (g) and paragraphs 3.04(c) through (e)), the General Partner
shall, to the extent possible, make allocations of Income or Loss simultaneously
with or subsequent to such Regulatory
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Allocations to the extent necessary so that the aggregate Distributions from the
Partnership will be consistent with those that would have been made under
Section 3.05, computed as if Section 6.02 did not apply.
SECTION 3.04 OTHER ALLOCATION RULES.
(a) Upon the admission of the Limited Partners and in the event of an
assignment of a Unit pursuant to Sections 5.04 and 5.05 in any Fiscal Period,
Income or Loss for that Fiscal Period shall be allocated among the Partners to
reflect their varying interests during the Fiscal Period. For purposes of
computing the varying interests of each Partner, the Partnership shall make an
interim closing of its books as of the effective date of the admission of a
Partner or the assignment of a Unit and compute the items of Income or Loss
applicable to the period of time before and after that date using the accrual
method of accounting. Any assignment of a Unit shall be effective as of the
first day of the calendar month nearest the date of assignment.
(b) If Limited Partners are admitted to the Partnership pursuant to
Section 2.06 or 2.07 on different dates, Loss allocated to the Limited Partners
for such Fiscal Period (and, if necessary, each subsequent Fiscal Period) shall
be divided among the Persons owning Units from time to time during such Fiscal
Periods, in accordance with paragraph 3.04(a) and in the manner selected by the
General Partner in its discretion, so that, to the extent possible, the
cumulative Loss per Unit allocated to each Limited Partner as of the end of each
Fiscal Period is the same.
(c) If any fees or other payments made to the General Partner are
determined to be a distribution of profits of the Partnership for federal income
tax purposes, gross income of the Partnership in an amount equal to the amount
of the fee or other payment determined to be a distribution of profits shall be
allocated to the General Partner. To the extent that any Distribution to the
General Partner is determined for federal income tax purposes to be a fee paid
to the General Partner, the General Partner's allocated share of Loss shall be
increased, or its share of Income reduced, by an amount equal to the
Distribution.
(d) Except as provided in the following sentence, for federal income
tax purposes each item of income, gain, loss or deduction shall be allocated in
the same manner as the corresponding item is allocated for Capital Account
purposes. In accordance with Sections 704(c) and 704(b) of the Code and the
Regulations thereunder, items of income, gain, loss or deduction with respect to
any asset
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contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account any variation between the
adjusted basis of the property to the Partnership for federal income tax
purposes and the fair market value of the property at the time of contribution,
as determined by the contributing Partner and the Partnership. The amount of
income, gain, loss or deduction allocated under the immediately preceding
sentence of this paragraph 3.04(d) shall not increase or decrease the Capital
Account of the contributing Partner to the extent that the fair market value of
the property has been previously added to the Partner's Capital Account.
(e) Solely for the purpose of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Partnership within the
meaning of Treas. Reg. Section 1.752-3(a)(3), the Partners' interest in
Partnership profits is as follows: 99 percent to the Limited Partners in
accordance with each Limited Partner's Pro Rata Share and one percent to the
General Partner.
(f) If the obligation of the General Partner to make its Capital
Contribution pursuant to paragraph 2.06(a), or the obligations of any Limited
Partner to pay the principal due on a Partner Note, are determined at any time
during the term of the Partnership to be subject to the provisions of Section
483, 1274 or 7872 of the Code (or any other similar provision or successor
provisions thereto) and as a result the Partnership is (or would but for actions
taken pursuant to this paragraph 3.04(f) be) determined to have received or to
be receiving imputed interest income or original issue discount, the imputed
interest income or original issue discount recognized by the Partnership in any
Fiscal Period shall be specially allocated to the Partners in accordance with
the ratio that the imputed interest income or original issue discount
attributable to each Partner bears to the total amount of imputed interest
income or original issue discount recognized by the Partnership for that Fiscal
Period. Alternatively, at the option of the General Partner, if the Partnership
is, as a result of the General Partner's Capital Contribution obligation or the
obligations of any Limited Partner to pay the principal due on a Partner Note,
determined to have received or to be receiving imputed interest income or
original issue discount, the General Partner and the Limited Partners are hereby
authorized to pay to the Partnership as interest on their respective Capital
Contribution obligations the amount necessary to prevent the Partnership from
recognizing imputed interest income or original issue discount as a result of
such Capital Contribution obligations, in which event: (I) gross income of the
Partnership shall be specially allocated to the General Partner and the Limited
Partners issuing Partner Notes in accordance with their Pro Rata Share for any
Fiscal Period in
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an amount equal to the full amount of income recognized by the Partnership
during that Fiscal Period as a result of the receipt of such payments from the
General Partner and the Limited Partners; and (ii) cash of the Partnership in an
amount equal to the amount of such payments received by the Partnership in any
Fiscal Period shall be distributed to the General Partner and the Limited
Partners for such Fiscal Period in accordance with their respective Pro Rata
Shares prior to the making of any other Distributions pursuant to Section 3.05.
SECTION 3.05 DISTRIBUTIONS.
(a) Except as provided in paragraph 3.05(c), Distributions shall be at
such times and in such amounts as the General Partner shall determine. All
Distributions made by March 15 of a year, based upon cash on hand as of December
31 of the previous year, will be treated for purposes of this Article III as
having been made on December 31 of the previous year. Except as provided in
subparagraph 3.04(f)(ii) and in paragraphs 3.05(b), 3.05(c) and 6.02(b),
Distributions shall be made:
(i) first, 99 percent to the Limited Partners, in proportion
to their unpaid Cumulative Return, and one percent to the General Partner until
each Limited Partner has received the Cumulative Return due to the Limited
Partner through the date upon which the Distribution is made plus any unpaid
Cumulative Return due to the Limited Partner for prior years; and
(ii) thereafter, 80 percent to the Limited Partners, in
accordance with each Limited Partner's Pro Rata Share, and 20 percent to the
General Partner.
(b) Except as provided in subparagraph 3.04(f)(ii) and in paragraphs
3.05(c) and 6.02(b), the Net Proceeds of Sale or Refinancing shall be
distributed:
(i) first, 99 percent to the Limited Partners, in accordance
with each Limited Partner's Pro Rata Share, and one percent to the General
Partner until each Limited Partner has received aggregate Distributions under
this subparagraph 3.05(b)(I) equal to $1,000 per Unit;
(ii) next, 99 percent to the Limited Partners, in proportion
to their unpaid Cumulative Return, and one percent to the General Partner until
each Limited Partner has received the Cumulative Return due to the Limited
Partner through
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the date on which the Distribution is made plus any unpaid Cumulative Return due
to the Limited Partner for prior years; and
(iii) thereafter, 80 percent to the Limited Partners, in
accordance with each Limited Partner's Pro Rata Share, and 20 percent to the
General Partner.
(c) The Net Escrow Earnings received by the Partnership shall be
promptly distributed to the Limited Partners and Note holders in proportion to
each Limited Partner's or Note holder's relative Escrow Unit Days.
ARTICLE IV
THE GENERAL PARTNER
SECTION 4.01 POWERS OF THE GENERAL PARTNER.
(a) Except as required by paragraph 4.02(d), the General Partner shall
have complete discretion in the management and control of the business of the
Partnership. In addition to powers provided by law, the General Partner is
hereby authorized to (I) expend Partnership funds in furtherance of the purpose
of the Partnership; (ii) acquire, sell, transfer, convey, lease (as lessor or
lessee) or otherwise deal with any or all of the assets of the Partnership;
(iii) incur obligations for and on behalf of the Partnership in connection with
Partnership business; (iv) invest the capital of the Partnership; (v) borrow
moneys for and on behalf of the Partnership on such terms and conditions as the
General Partner may deem advisable and proper and pledge the credit and mortgage
or encumber assets of the Partnership for such purposes; (vi) repay in whole or
in part, refinance, recast, modify or extend any security interest affecting the
assets of the Partnership, and in connection therewith execute for and on behalf
of the Partnership any or all extensions, renewals, or modifications of such
security interests; (vii) determine the terms of the offering of Units,
including the manner of complying with applicable law, and in connection
therewith execute for and on behalf of the Partnership any registration
statement or other document required under any federal or state securities law
and take any additional action as it shall deem necessary or desirable to
effectuate the offering of such Units; (viii) employ such agents, employees,
independent contractors, attorneys and accountants as the General Partner deems
reasonably necessary; (ix) obtain insurance for the proper protection of the
Partnership, the General Partner and the Limited Partners; (x) commence, defend,
compromise or settle any claims, proceedings, actions or litigation for and on
behalf
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of the Partnership (including claims, proceedings, actions or litigation
involving the General Partner in its capacity as a general partner) and retain
legal counsel in connection therewith and pay out of the assets of the
Partnership any and all liabilities and expenses (including fees of legal
counsel) incurred in connection therewith; (xi) make such decisions and enter
into such agreements as it may reasonably believe to be necessary; and (xii)
prepare, execute, file and deliver any document, or take such other action, as
may be necessary or desirable to carry out the purpose of the Partnership.
(b) The General Partner, acting for and on behalf of the Partnership,
is expressly authorized to amend this Agreement without the consent or vote of
any of the Limited Partners to: (I) reflect the addition or deletion of Limited
Partners or the return of capital to Partners; (ii) add to the representations,
duties or obligations of the General Partner or to surrender any right or power
granted to the General Partner for the benefit of Limited Partners; (iii) cure
any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provisions herein, or to add any other provisions
with respect to matters or questions arising under this Agreement which will not
be inconsistent with the provisions of this Agreement; (iv) change the name of
the Partnership; or (v) delete or add any provision from or to this Agreement
requested to be so deleted or added by the staff of the Securities and Exchange
Commission or by a state regulatory agency, the deletion or addition of which
provision is deemed by the regulatory agency to be for the benefit or protection
of the Limited Partners. No amendment shall be adopted pursuant to this
paragraph 4.01(b) unless the adoption thereof: (x) does not adversely affect the
rights of the Limited Partners; and (y) does not adversely affect the status of
the Partnership as a partnership for federal income tax purposes.
SECTION 4.02 DUTIES OF THE GENERAL PARTNER.
(a) The General Partner shall devote such of its time as it deems
necessary to the affairs of the Partnership.
(b) The ratio of total Gross Offering Proceeds from the sale of Notes
to the greater of (I) Gross Offering Proceeds from the sale of Notes and Units,
including the principal amount of Partner Notes, or (ii) the aggregate fair
market value of the Partnership's Hotels, plus the Partnership's interest in
Essex Glenmaura L.P., shall not be more than .85 to 1.0.
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(c) The General Partner shall not cause the merger or other
reorganization of the Partnership or dissolve the Partnership without a Majority
Vote of Limited Partners approving the action.
(d) The General Partner shall observe the following policies in
connection with Partnership operations: (I) the Partnership shall not acquire
property in exchange for Units; (ii) the Partnership shall not acquire real
property unless supported by a land appraisal prepared by a competent,
independent appraiser, which appraisal shall be maintained in the General
Partner's records and shall be available for inspection and duplication by
Limited Partners; (iii) except with respect to the Partnership's investment in
Essex Glenmaura L.P., which is expressly approved, investments by the
Partnership in general partnership or limited partnership interests of, or joint
venture arrangements with, other Persons shall be prohibited unless approved by
the General Partner and a Majority Vote of Limited Partners; (iv) the
Partnership shall not invest in junior trust deeds and similar obligations
except for junior trust deeds which arise from the sale of Hotels; (v) the funds
of the Partnership shall not be commingled with the funds of any other Person,
provided that the foregoing shall not prohibit the General Partner from
establishing a master fiduciary account pursuant to which separate subtrust
accounts are established for the benefit of affiliated limited partnerships of
the General Partner so long as the Partnership funds are protected from claims
of other partnerships and their creditors; (vi) the General Partner shall have
fiduciary responsibility for the safekeeping and use of all funds and assets of
the Partnership, whether or not in its possession or control, and, except as
otherwise provided herein, shall not employ, or permit another to employ, such
funds or assets in any manner except for the exclusive benefit of the
Partnership; (vii) the General Partner shall not create for the Units a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code or otherwise permit, recognize, or facilitate the
trading of Units on any such market, or permit any Affiliated Persons to take
such actions, if as a result thereof the Partnership would be taxed for federal
income tax purposes as an association taxable as a corporation; (viii) neither
the General Partner nor any other Affiliated Person shall: (a) receive for their
account any kickbacks or rebates with respect to expenditures made by or on
behalf of the Partnership; (b) enter into any reciprocal arrangement that has
the effect of circumventing this subparagraph 4.02(d)(viii); or (c) directly or
indirectly, pay or award any commissions or other compensation to any Person for
encouraging or inducing any other Person to purchase Units (nothing herein shall
prohibit the payment of normal sales commissions and fees to broker-dealers
including, without limitation, the Managing Dealer) in connection with an
offering of interests in the Partnership;
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and (ix) the General Partner shall not cause the Partnership to enter into any
contract to construct or develop any Hotel without a specific price being
guaranteed by a written guarantee of completion by the General Partner.
SECTION 4.03 PARTNERSHIP TAX MATTERS. The General Partner is the tax
matters partner of the Partnership. In carrying out its responsibilities as tax
matters partner, the General Partner shall have authority to make such elections
(including but not limited to making an election under Section 754 of the Code
and selecting any reasonable method to allocate income pursuant to Section
704(c) of the Code), take such actions and enter into such agreements as it
deems in the best interests of the Limited Partners who own more than 50 percent
of the outstanding Units. Any expense incurred by the Partnership in contesting
with the Internal Revenue Service or any state income tax authority any change
in Income or Loss or the allocation of Income or Loss to any Partner shall be an
expense of the Partnership.
SECTION 4.04 INDEMNIFICATION OF THE GENERAL PARTNER.
(a) The Partnership, its receiver or its trustee, shall indemnify, save
harmless and pay all judgements and claims against the General Partner, and any
other Affiliated Person who performs services for the Partnership, from any
liability, loss or damage incurred by reason of any act performed or omitted to
be performed when acting in connection with the business of the Partnership as
described in this Agreement, including costs and attorney's fees and any amounts
expended in the settlement of any claims or liability, loss or damage.
Notwithstanding the preceding sentence: (I) if such liability, loss or claim
arises out of any action or inaction of the General Partner or Affiliated
Person, the General Partner or Affiliated Person must have determined in good
faith that such course of conduct was in the best interest of the Partnership
and the action or inaction in fact did not constitute fraud, bad faith or gross
negligence by the General Partner or Affiliated Person; and (ii) any
indemnification shall be recoverable only from the assets of the Partnership and
not from the assets of the Limited Partners. All judgments against the
Partnership and the General Partner wherein the General Partner is entitled to
indemnification must first be satisfied from Partnership assets before the
General Partner may be held responsible. Persons entitled to indemnification
under this paragraph 4.04(a) shall be entitled to receive advances for
attorney's fees and other legal costs and expenses arising out of claims made
against them, provided that no advance shall be made with respect to any claim
unless the action relates to the performance of duties or services by the
indemnified party on behalf of the Partnership and the indemnified party
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undertakes in writing prior to receipt of the advance to repay in full the
advance in the event that, upon the ultimate disposition of the claim, the party
would not be entitled to indemnification under this paragraph 4.04(a). Nothing
in this paragraph 4.01(a) shall constitute a waiver by a Limited Partner of any
right which the Limited Partner may have against any party under federal or
state securities laws. Affiliated Persons will be indemnified only for
liabilities arising out of activities in which they engage on behalf of the
Partnership or in connection with its business which are within the scope of
activities permitted to be performed by the Affiliated Person under this
Agreement and which are duly authorized by the General Partner.
(b) Notwithstanding paragraph 4.04(a), neither the General Partner nor
any other Affiliated Persons performing services for the Partnership shall be
indemnified from any liability, loss or damage incurred in connection with any
claim or settlement involving violations of federal or state securities laws by
the General Partner or by any Affiliated Person or any liability for fraud, bad
faith or gross negligence. Notwithstanding the preceding sentence,
indemnification will be allowed for settlements and related expenses of lawsuits
alleging securities law violations, and for expenses incurred in successfully
defending such lawsuits, if: (I) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the party
seeking indemnification; (ii) a court dismisses each count involving alleged
securities law violations with prejudice as to the party seeking
indemnification; or (iii) a court approves the settlement and finds that
indemnification of any payment in settlement and related costs should be made
and, before seeking court approval for indemnification, the party seeking
indemnification shall place before the court the position of the Securities and
Exchange Commission and any state securities administrators of any state in
which the Notes or Units were offered or sold pursuant to the Prospectus or in
which Limited Partners or holders of Notes then reside with respect to the issue
of indemnification for securities law violations.
(c) The Partnership shall not pay for any insurance covering liability
of the General Partner or any other Affiliated Person for actions or omissions
for which indemnification is not permitted hereunder. Notwithstanding the
preceding sentence, nothing contained herein shall preclude the Partnership from
purchasing and paying for such types of insurance, including extended coverage
liability and casualty and worker's compensation, as would be customary for any
Person owning comparable properties and engaged in a similar business or from
naming the General Partner and any other Affiliated Person as additional insured
parties thereunder (if such addition does not add to the premiums payable by the
Partnership).
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(d) No contract or agreement entered into by a Limited Partner will
reduce or eliminate the fiduciary duty owed to the Limited Partner by the
General Partner.
SECTION 4.05 AUTHORITY OF THE GENERAL PARTNER. In no event shall any
Person (other than an Affiliated Person) dealing with the General Partner with
respect to any property of the Partnership be obligated to see that the terms of
this Agreement have been complied with, or be obligated to inquire into the
necessity or expediency of any act or action of the General Partner, and every
contract, agreement, lease, promissory note, mortgage or other instrument or
document executed by the General Partner with respect to the assets of the
Partnership shall be conclusive evidence in favor of any and every Person (other
than an Affiliated Person) relying thereon or claiming thereunder that: (a) at
the time of the execution or delivery thereof, the Partnership was in full force
and effect; (b) the instrument or document was duly executed in accordance with
the terms and provisions of this Agreement and is binding upon the Partnership
and all of the Partners; and (c) the General Partner was duly authorized and
empowered to execute and deliver any and every such instrument or document for
and on behalf of the Partnership.
SECTION 4.06 CONTRACTS WITH AFFILIATED PERSONS.
(a) The Partnership shall not purchase or lease property in which the
General Partner or any other Affiliated Person has an interest nor shall it
purchase or lease any property from any entity in which the General Partner or
any other Affiliated Person has an interest. Notwithstanding the preceding
sentence, the General Partner may purchase property in its own name from an
Affiliated Person or a third party (and assume loans in connection therewith)
and temporarily hold title thereto for the purpose of facilitating the
acquisition of property, the borrowing of money or obtaining of financing for
the Partnership, the completion of construction of one or more of the Hotels, or
any other purposes related to the business of the Partnership provided that
neither the General Partner nor any Affiliated Person realize any benefit from
the transaction apart from compensation otherwise permitted by this Article IV.
The General Partner shall not sell property to the Partnership pursuant to this
paragraph 4.06(a) if the cost of the property would exceed the funds reasonably
anticipated to be available to the Partnership to purchase the property. The
General Partner will consider all of the relevant facts and circumstances in
deciding which properties, if any, will be purchased by the Partnership from the
General Partner pursuant to this paragraph 4.06(a), including the cost of the
property, the cost to complete construction, the funds
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available to the Partnership, and the investment objectives and policies of the
Partnership.
(b) The Partnership shall not sell or lease property to the General
Partner or any other Affiliated Person except: (I) the rental of Hotel rooms in
the ordinary course of business; and (ii) the sale of all or substantially all
of the assets of the Partnership to an Affiliated Person, provided that the
transaction is fully disclosed to all Limited Partners and on terms competitive
with those which may be obtained from persons other than Affiliated Persons.
(c) No loans may be made by the Partnership to the General Partner or
any other Affiliated Person except to the extent that the General Partner has
determined that such loan is beneficial to the Partnership.
(d) The Partnership shall not borrow any money from the General Partner
or any Affiliated Person if the principal amount is scheduled to be repaid over
more than 48 months or if less than 50 percent of the principal amount is
scheduled to be repaid during the first 24 months.
(e) The General Partner shall commit a percentage of the Gross Offering
Proceeds to Investment in Hotels which is not less than the greater of 80
percent of the Gross Offering Proceeds, reduced by .1625 percent for each 1
percent of the aggregate purchase price of the Hotels represented by mortgage
indebtedness secured by such Hotels, or 67 percent of the Gross Offering
Proceeds. Further, the aggregate amount of Front-End Fees incurred in connection
with the Hotels shall not exceed the normal and competitive rate customarily
charged by others rendering similar services in the geographical location where
the services are performed.
SECTION 4.07 COMPENSATION OF AFFILIATED PERSONS.
(a) Other than as provided in this Section 4.07, no Affiliated Persons
shall be compensated for goods or services provided to the Partnership.
(b) The General Partner is expressly authorized to pay, on behalf of
the Partnership, the Sales Commissions. The Partnership shall pay to the
Managing Dealer, beginning on December 31, 1998, and continuing through December
31 of the next three Fiscal Periods thereafter (the last such date is referred
to herein as the "Final Payment Date"), an annual investor relations fee payable
from operating revenues in
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an amount equal to one quarter of one percent of the total gross offering
proceeds from the sale of Units (including the aggregate principal amount of any
Partner Notes) and one quarter of one percent of the total gross offering
proceeds from the sale of Notes. Notwithstanding the preceding sentence, the
investor relations fee shall be paid only if and to the extent that: (I) the
total amount of selling commissions (including Sales Commissions and all
investor relations fees), fees and reimbursements paid to the Managing Dealer
and any registered broker-dealers retained by the Managing Dealer in connection
with the offering does not exceed ten percent of the Gross Offering Proceeds;
and (ii) Organization and Offering Expenses (including Sales Commissions and all
investor relations fees) do not exceed fifteen percent of Gross Offering
Proceeds. The investor relations fee shall be deferred until the Limited
Partners have received the Cumulative Return due through the date of payment
thereof plus any unpaid Cumulative Return due to the Limited Partners for prior
years and shall be abated to the extent that the deferral continues after the
third anniversary of the Final Payment Date.
(c) The Partnership shall also pay to the General Partner (or any
subsequent property manager) a property management fee of four and one-half
percent of Gross Operating Revenues and any other amounts payable as provided in
the Management Agreement. The Partnership shall pay a partnership management fee
to the General Partner of one and one-quarter percent of Gross Operating
Revenues, commencing with the month of issuance of a certificate of occupancy
for the first Hotel and payable at the end of each calendar month thereafter. As
used in this paragraph 4.07(c), "Gross Operating Revenues" shall mean all
revenues and income from sales of any kind, whether derived directly or
indirectly from any source relating to the Hotels and over which the Partnership
has any direct or indirect responsibility, including, but not limited to, rental
of rooms, food and beverage sales, sales from gift or other shops which are
operated under the direction of the Partnership, and vending machine and cable
television revenue. The term "Gross Operating Revenues" shall not include
gratuities which the Partnership is obligated to pay over to employees and
excise, sales and use taxes collected from patrons or guests as part of the
sales price of any goods or services, such as gross receipts, administration,
and cabaret taxes.
(d) For its services in connection with the formation and
reorganization of the Partnership and the offering of Units and Notes, the
General Partner shall receive from the Partnership an organization and offering
management fee equal to 3.4 percent of Gross Offering Proceeds. The General
Partner may, in its sole discretion, pay all or a portion of that fee to the
Managing Dealer or other registered broker-dealers retained
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by the Managing Dealer in connection with the offering of the Units and Notes,
provided that the total amount of selling commissions, fees, and reimbursements
paid to the Managing Dealer and other broker-dealers in connection with the
offering shall not exceed ten percent of the Gross Offering Proceeds.
(e) For its services in selecting and purchasing, leasing or subleasing
the land upon which the Hotels will be constructed, the General Partner shall
receive from the Partnership an acquisition fee of $110,000 per Hotel site
acquired by the Partnership. The acquisition fee shall be payable $35,000 upon
execution of a valid purchase, lease or sublease agreement (which amount shall
be refunded to the Partnership if the transaction does not close) and the
remainder upon the closing of the purchase, lease or sublease by the Partnership
of the land upon which a Hotel is to be constructed.
(f) For its services in connection with the development of each Hotel
the General Partner shall receive from the Partnership a developer's fee of
$160,000 per Hotel, increased by 5 percent of total construction, site
development and furniture, fixtures and equipment costs in excess of $2 million,
but not to exceed $300,000 per Hotel (the "Development Fee"). The Development
Fee for each Hotel shall be payable 15 percent per month beginning on the first
day of the month following the commencement of construction and continuing for a
term not to exceed six months. The unpaid balance shall be paid upon the
obtaining of a certificate of occupancy for the Hotel.
(g) For its services in connection with the financing or refinancing of
any Hotel, the General Partner shall receive from the Partnership a refinancing
fee of one percent of the gross proceeds of the refinancing. In addition, if the
refinancing involves the sale of promissory notes to investors in a private
placement which is exempt from registration under the Securities Act of 1933, as
amended, or a public offering similar to the offering of Notes pursuant to the
Prospectus, the General Partner and the Managing Dealer shall receive from the
Partnership the fees and sales commissions customarily charged by the General
Partner and Managing Dealer for rendering comparable services on competitive
terms.
(h) Upon the closing of a sale of each Hotel, the Partnership shall pay
the General Partner a sales fee of three percent of the gross sales price,
provided that: (I) the fee and any other real estate commission paid by the
Partnership with respect to the sale do not exceed six percent of the gross sale
price; and (ii) the General Partner
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provides substantial services in connection with the sale of the Hotel. The
Partnership shall not enter into any exclusive agreement with any Affiliated
Person for the sale of any Hotel.
(I) Should the General Partner be removed as general partner of the
Partnership pursuant to a vote of the Limited Partners as provided in
subparagraph 5.01(b)(ii), any portion of the fees or commissions described in
this Section 4.07, unreimbursed expenses payable pursuant to the provisions of
Section 4.10, and other fee or commission payable to the General Partner or
other Affiliated Person pursuant to this Agreement which is then accrued and
due, but not yet paid, shall be paid by the Partnership to the General Partner
or other Affiliated Person within 30 days of the date of removal, unless such
amount is included in the purchase price of the General Partner's interest in
the Partnership as determined under paragraph 6.01(c).
SECTION 4.08 WITHDRAWAL OF THE GENERAL PARTNER. The General Partner
shall not resign or withdraw from the Partnership without obtaining a Majority
Vote of the Limited Partners.
SECTION 4.09 ASSIGNMENT OF THE GENERAL PARTNER INTEREST. The General
Partner may not transfer, assign, grant, convey, mortgage or otherwise encumber
its interest as general partner of the Partnership.
SECTION 4.10 EXPENSES OF THE PARTNERSHIP.
(a) Subject to paragraph 4.10(c), the Partnership shall pay:
(i) all expenses incurred in the organization of the
Partnership and sale of the Units, including
Organization and Offering Expenses;
(ii) all expenses incurred in the acquisition,
construction and development of the Hotels
(including, without limitation, up to $25,000 per
site, but not to exceed $60,000 in the aggregate, for
due diligence expenses paid by the General Partner to
third parties with respect to a site which is not
acquired by the Partnership);
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(iii) all expenses incurred in the administration of the
Partnership and the ownership, operation or
improvement of the Hotels (including all property
management fees and franchise or similar fees payable
in connection with the Hotels); and
(iv) all expenses incurred in the sale, refinancing or
other disposition of the Hotels (including real
estate commissions, legal and accounting fees and
escrow fees).
(b) Operational expenses payable by the Partnership shall include the
actual cost of goods, materials and services used for or by the Partnership
whether incurred directly by the Partnership, by Affiliated Persons or
non-affiliates of the General Partners in performing the following general
functions:
(I) Partnership operations, which shall include without
limitation: implementation of Partnership investment
policies, refinancing of Hotels, implementation of
periodic physical inspections and informal market
surveys, direction and review of the work of managers
of the Partnership's Hotels, payment of fees and
expenses paid to independent contractors, mortgage
brokers, real estate brokers, consultants and other
agents, property management fees payable to any
property manager engaged by the Partnership to manage
one or more of the Hotels, payment of expenses
relating to the day-to-day operation of the Hotels,
including employee wages, utilities, insurance, real
estate taxes, maintenance and repair costs,
implementation and review of Partnership reserves and
working capital and recommendations with respect to
changes thereto, conducting, supervising and
reviewing Hotel operations, including marketing,
maintenance and refurbishment, initiation and
implementation of any other action necessary to
obtain the optimal potential ownership benefits for
the Partnership, supervision and expenses of
professionals employed by the Partnership in
connection with any of the above, review and analysis
of the local, regional and national lodging markets
and initiation of
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recommendations to sell the Hotels on acceptable
terms of sale, and preparation and dissemination of
documentation relating to the potential sale,
financing or other disposition of the Hotels;
(ii) Partnership accounting, which shall include without
limitation, preparation and documentation of
Partnership accounting and audits, preparation and
documentation of budgets, economic surveys, cash flow
projections and capital requirements, preparation of
regulatory reports, and acquisition of any equipment
necessary for the maintenance of the books and
records of the Partnership;
(iii) Investor communications, which shall include without
limitation, initiation, review and approval of
Partnership reports and communications to Limited
Partners, expenses in connection with distributions
made by the Partnership to, and communications,
bookkeeping and clerical work necessary in
maintaining relations with, Limited Partners,
including the costs of design, production, printing
and mailing reports of the Partnership, conducting
elections in any circumstance requiring a vote of the
Limited Partners, holding meetings with Limited
Partners, preparing proxy statements and soliciting
proxies, and preparing and mailing reports to Limited
Partners for tax reporting and such other purposes as
the General Partner (including reports required to be
filed with the Securities and Exchange Commission and
other federal or state regulatory agencies); and such
other purposes as the General Partner deems to be in
the best interest of the Partnership;
(iv) Investor documentation, which shall include without
limitation, printing, engraving and other expenses
and taxes in connection with the issuance,
distribution, transfer, registration and recordation
of documents evidencing ownership of Units;
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(v) Legal services, which shall include without
limitation, revising and amending this Agreement or
converting, modifying or terminating the Partnership,
monitoring costs incurred in litigation in which the
Partnership is involved as well as any examination,
investigation, or other proceeding conducted by any
regulatory agency with regard to the Partnership, and
qualifying or licensing the Partnership;
(vi) tax services, which shall include without limitation
the preparation and documentation of Partnership
federal and state tax returns;
(vii) computer services, which shall include without
limitation any computer equipment or services used
for or by the Partnership, including maintenance of
investor records and processing of accounting records
related to the Partnership;
(viii) risk management, which shall include without
limitation, inspection services, special consultant
fees, premiums, loss adjustments, and such other
expenses of insurance as required in connection with
the business of the Partnership; and
(ix) such other related expenses as are necessary to the
prudent operation of the Partnership.
(c) The General Partner or other Affiliated Persons shall bear or pay:
(I) all costs incurred in the organization of the Partnership and sale of the
Units, including Organization and Offering Expenses, to the extent they exceed
fifteen percent of the Gross Offering Proceeds; (ii) costs for services for
which the General Partner or other Affiliated Persons are entitled to
compensation by way of a separate fee; (iii) costs for services other than
administrative services necessary to the prudent operation of the Partnership
which meet the requirements of paragraph 4.10(e); (iv) costs of goods and
materials purchased from Affiliated Persons; (v) any rent, depreciation,
utilities, capital equipment, or other administrative items relating to the
operations of the General Partner or other Affiliated Persons; (vi) salaries or
fringe benefits incurred by or allocated to any director or executive officer of
the Managing
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General Partner or any other Affiliated Persons; and (vii) all other expenses
which are unrelated to the business of the Partnership.
(d) Actual costs of goods and materials to the General Partner, as used
in this Section 4.10, means the actual costs to the General Partner or other
Affiliated Persons of goods and materials used for or by the Partnership and
obtained from entities not affiliated with the General Partner.
(e) Actual costs of services, as used in this Section 4.10, means the
pro rata cost of personnel (as if such persons were employees of the
Partnership) associated therewith. The costs of such services to be reimbursed
to the General Partner or other Affiliated Persons by the Partnership shall be
at the lower of the General Partner's actual cost or the amount of the
Partnership would be required to pay to independent parties for comparable
services in the same geographic location. The obligation of the Partnership to
reimburse the General Partner or other Affiliated Persons for services (other
than for services previously rendered) may be terminated at any time by the
Partnership without penalty on 60 days' notice.
(f) Each annual report to Partners will contain a breakdown of the
costs reimbursed to the General Partner and other Affiliated Persons by the
Partnership. Within the scope of the annual audit of the financial statements of
the Partnership, the independent public accountants shall review the allocation
of such costs to the Partnership. The method of review shall at minimum provide:
(I) a review of the time records of individual employees; (ii) the costs of
whose services were reimbursed; and (iii) a review of the specific nature of the
work performed by each such employee. The method of review shall be in
accordance with generally accepted auditing standards and shall accordingly
include such tests of the accounting records and such other auditing procedures
which the independent public accountants consider appropriate in the
circumstances. The additional costs of such review will be itemized by the
accountants on an entity-by-entity basis and may be reimbursed to the General
Partners or other Affiliated Persons by the Partnership in accordance with this
paragraph 4.10(f) only to the extent that such reimbursement, when added to the
cost for administrative services rendered, does not exceed the competitive rate
for such services.
SECTION 4.11 PURCHASE OF UNITS. The General Partner, and any officer,
director, shareholder or employee of the General Partner or any Affiliated
Person, may purchase Units and will be treated for all purposes as a Limited
Partner under this Agreement with respect to the Units so purchased.
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ARTICLE V
THE LIMITED PARTNERS
SECTION 5.01 POWERS OF LIMITED PARTNERS.
(a) The Limited Partners shall take no part in the management of the
business or transact any business for the Partnership and shall have no power to
sign for or bind the Partnership.
(b) Notwithstanding paragraph 5.01(a), the Limited Partners, by a
Majority Vote of Limited Partners and without the concurrence of the General
Partner, shall have the right to: (I) amend this Agreement, but not as to the
matters specified in Section 4.01(b), which matters the General Partner alone
may amend without vote of the Limited Partners; and (ii) remove the General
Partner and elect one or more replacement general partners.
(c) As provided in paragraph 6.01(b), the Limited Partners may, by
unanimous vote, elect to continue the Partnership and elect one or more new
general partners upon an event of withdrawal with respect to the General
Partner.
(d) Notwithstanding paragraph 5.01(b), this Agreement shall in no event
be amended to modify the compensation or distributions to which the General
Partner is entitled or enlarge the obligations or liabilities of the General
Partner without the consent of the General Partner. The Limited Partners shall
have no voting rights and shall not be otherwise empowered to make any
determination on behalf of the Partnership except as expressly set forth in this
Agreement.
(e) No Limited Partner shall pledge, mortgage or otherwise encumber his
or her Units.
SECTION 5.02 LIABILITY OF LIMITED PARTNERS. Performance of one or more
of the acts described in Section 5.01 shall not cause a Limited Partner to be
subject to the liabilities of a general partner or impose any personal liability
on a Limited Partner. No Limited Partner shall be obligated to make any
contribution to the capital of the Partnership in addition to that Limited
Partner's Capital Contribution or to make up any deficit in his or her Capital
Account. No Limited Partner shall be obligated to make loans to the Partnership.
No Limited Partner have any personal liability with respect
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to the liabilities or obligations of the Partnership unless the obligation is
set forth in a writing signed by the Limited Partner.
SECTION 5.03 MEETINGS OF LIMITED PARTNERS.
(a) Meetings of the Limited Partners, to vote upon any matters as to
which the Limited Partners are authorized to take action under this Agreement,
may be called at any time by either of the General Partner or by Limited
Partners who own ten percent or more of the outstanding Units. The meeting shall
be called by delivering written notice to the Limited Partners entitled to vote
at the meeting that a meeting will be held at a designated time and place fixed
by the caller(s) of the meeting. Such meetings shall be held at a time which is
not less than 15 days nor more than 60 days after the giving of notice. Included
with the notice of a meeting shall be a detailed statement of action proposed by
the caller(s) of the meeting, including a verbatim statement of the wording of
any resolution proposed for adoption by the Limited Partners and of any proposed
amendment to this Agreement. All expenses of the meeting and notification shall
be borne by the Partnership.
(b) Any matter as to which the Limited Partners are authorized to take
action under this Agreement or under law may be acted upon by the Limited
Partners without a meeting and the action so taken shall be as valid and
effective as action taken by the Limited Partners at a meeting, if written
consents to the action so taken are signed by Limited Partners entitled to vote
upon the action so taken and holding the number of Units required to authorize
the action.
(c) Limited Partners present in person or by proxy who then own in
excess of fifty percent of the outstanding Units shall constitute a quorum at
any meeting. Attendance by a Limited Partner at any meeting and voting in person
shall revoke any written proxy submitted with respect to action proposed to be
taken at such meeting.
(d) The General Partner shall be responsible for enacting all needed
rules of order for conducting all meetings, including setting the record date
for determining the Limited Partners who will be entitled to vote at a meeting,
and shall keep, or cause to be kept, at the expense of the Partnership, an
accurate record of all matters discussed and action taken at all meetings or by
written consent. The records of all meetings and written consents shall be
maintained at the principal place of business of the Partnership and shall be
available for inspection by any Partner at reasonable times.
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SECTION 5.04 ASSIGNMENT OF UNITS.
(a) A Limited Partner shall have the right to assign his or her Units
without obtaining the consent of any other Partner, provided that:
(i) no assignment of a Unit may be made effective other than
on the first day of a fiscal quarter of the Partnership;
(ii) no assignment of any Unit may be made to any Person
unless: (a) any required consent of the Partnership's franchisor is obtained
pursuant to the terms of the franchise or similar agreement to be entered into
by the Partnership and its franchisor; and (b) the assignor pays any necessary
transfer fee and otherwise satisfies the terms and conditions of the franchise
agreement relating to such assignment;
(iii) the General Partner may prohibit any assignment of a
Unit if, in the opinion of legal counsel to the Partnership, the assignment
would violate any federal or state securities laws (including any investment
suitability standards) or regulations applicable to the Partnership or the
Units;
(iv) no purported assignment by a Limited Partner of any
fractional part of a Unit or less than five Units will be permitted or
recognized, except for assignments by inheritance or family dissolution, and
except for assignments of all of a Limited Partner's Units;
(v) no assignment of a Unit may be made if the assignment
would, in the opinion of legal counsel for the Partnership, result in the
Partnership being deemed to have been terminated or reclassified as an
association taxable as a corporation for federal or state tax purposes; and
(vi) the General Partner may prohibit any purported assignment
if: (a) it determines in its sole discretion that the transfer would create a
risk of the Partnership being a "publicly traded partnership" for income tax
purposes; (b) the Partnership is unable to satisfy one of the safe harbors or
corresponding sections of regulations or other controlling administrative
releases promulgated under Section 7704 of the Code, for the Partnership's
taxable year in which such transfer otherwise would be effective; or (c) the
Partnership is unable to obtain an opinion of counsel satisfactory to the
General Partner or a ruling from the Internal Revenue Service that
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the assignment will not result in the Partnership being classified as a
"publicly traded partnership" for income tax purposes.
In the event that an assignment is not permitted as a result of any of the
restrictions set forth in subparagraph 5.04(a)(v), the General Partner will so
notify the assignor and will permit the assignment to become effective as of the
first day of the next succeeding calendar quarter as of which such assignment
may occur without causing a termination of the Partnership for federal tax
purposes or reclassification of the Partnership as an association taxable as a
corporation for federal or state tax purposes, provided that the other
conditions of this Section 5.04 are still met as of the date of such assignment
becoming effective.
(b) The restrictions in paragraph 5.04(a) shall not apply if the
General Partner determines in its reasonable discretion that such restriction
will result in the Partnership being deemed to hold plan assets for purposes of
ERISA. The General Partner shall incur no liability to any Partner, prospective
investor or assignee for any action or inaction in connection with the preceding
sentence, provided that the General Partner acted in good faith. The General
Partner shall, from time to time, review the limitations and restrictions on the
assignment of Units then in effect and the federal income tax law, regulations,
and rulings applicable thereto, and shall eliminate or modify any the limitation
or restriction to make it less restrictive on assignment of Units if counsel to
the Partnership opines that the elimination or modification may be made without
causing the Partnership to fail to meet at least one of the Safe Harbors or be
considered an association taxable as a corporation under the applicable federal
income tax laws.
(c) Upon the bankruptcy, assignment for the benefit of creditors,
dissolution, death, disability or legal incapacity of any Limited Partner, the
Units held by that Limited Partner shall descend to and vest in his or her
successors, trustees, receivers, assignees for the benefit of creditors, heirs,
legatees or other legal representatives. The occurrence of any one of the
foregoing events shall not terminate or dissolve the Partnership.
SECTION 5.05 FORM OF ASSIGNMENT.
(a) No assignment of any Unit, though otherwise permitted by Section
5.04, shall be valid and effective, and the Partnership shall not recognize the
same for the purpose of Distributions or for the allocation of Income or Loss
with respect to
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such Unit, until there is filed with the General Partner at least fifteen days
before the first day of a fiscal quarter of the Partnership an instrument in
writing in substantially the following form, with blanks appropriately filled in
and subscribed by both parties to the conveyance:
I, ___________________, hereby assign to ________________ all of my
right, title and interest in and to ___ Units of ESSEX HOSPITALITY ASSOCIATES IV
L.P., a limited partnership organized under the laws of the State of New York,
and direct that all future distributions and allocations of income or loss on
account of such Units be paid or allocated to the assignee.
_____________________ as assignee, hereby accepts the Units subject to
and agrees to be bound by all terms, covenants and conditions of the Amended and
Restated Limited Partnership Agreement dated _______, 19___ as amended through
the date hereof and agree that I will not, directly or indirectly, create for
any of the Units, or facilitate the trading of any Units on, a "secondary market
or substantial equivalent thereof" within the meaning of Section 7704 of the
Internal Revenue Code.
Dated: _______________ _________________________________
Assignor
_________________________________
Assignee
_________________________________
Assignee's Address
_________________________________
Assignee's Social Security Number
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STATE OF _____________)
COUNTY OF ____________) SS.:
On this ____ day of _________, 19___, before me personally appeared
___________________ and _______________________ to me known and known to me to
be the individuals described in, and who executed, the foregoing instrument and
they duly acknowledged to me that they executed the same.
_______________________________
Notary Public
(b) After receiving an executed assignment, in the form prescribed in
paragraph 5.05(a), and upon compliance with all of the conditions set forth in
paragraph 5.04(c), the Partnership shall make all further Distributions and
allocate any Income or Loss to the assignee with respect to the Units assigned,
regardless of whether the assignment, as between the parties thereto, is or is
intended to be by way of pledge, mortgage, encumbrance or other hypothecation,
until such time as the Units assigned shall be further assigned in accordance
with the provisions of this Agreement.
SECTION 5.06 RIGHTS OF ASSIGNEE. Unless admitted to the Partnership as
a Limited Partner in accordance with Section 5.07, the transferee of Units in
the Partnership, by assignment, bequest, operation of law or otherwise, shall
not be entitled to any of the rights, powers, or privileges of his or her
predecessor in interest, except that he or she shall be entitled to receive and
have allocated his or her share of Distributions and of Income or Loss.
SECTION 5.07 ADMISSION OF LIMITED PARTNERS. The transferee of any Units
in the Partnership may be admitted to the Partnership as a Limited Partner upon
obtaining the consent of the General Partner, which consent may be withheld in
the General Partner's discretion, and furnishing to the General Partner:
(a) an acceptance, in form satisfactory to the General Partner, of all
the terms of this Agreement;
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(b) if the transferee is a corporation or similar organization, a
certified copy of a resolution of the transferee's board of directors or
comparable body authorizing it to become a Limited Partner under the terms of
this Agreement; and
(c) payment of reasonable expenses that may be incurred in connection
with his admission as a Limited Partner.
ARTICLE VI
DISSOLUTION
SECTION 6.01 DISSOLUTION.
(a) In addition to any other causes stated herein, the Partnership
shall be dissolved upon:
(i) disposal of all or substantially all of the
Partnership's assets, provided that, if the
Partnership receives non-cash consideration in
connection with the disposal, the Partnership shall
continue until the non-cash consideration is
converted into cash;
(ii) Majority Vote of the Limited Partners to dissolve and
terminate the Partnership;
(iii) occurrence of an event of withdrawal, as defined by
the New York Revised Limited Partnership Act, with
respect to a General Partner unless the Limited
Partners, within a period of 90 days from the date of
the event of withdrawal, by Majority Vote of Limited
Partners elect to continue the Partnership and elect
a successor general partner, as provided in paragraph
6.01(b); or
(iv) expiration of the term of the Partnership.
(b) If, upon the occurrence of an event of withdrawal as specified in
subparagraph 6.01(a)(iii), there is no remaining general partner, a meeting of
the Limited Partners shall be held at the principal place of business of the
Partnership (or,
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if no meeting is held, a vote of the Limited Partners shall be taken) within 90
days after the happening of the event of withdrawal to consider whether to: (I)
continue the Partnership on the same terms and conditions as are contained in
this Agreement; or (ii) wind up the affairs of the Partnership, liquidate its
assets and distribute the proceeds therefrom in accordance with Section 6.02.
The Partnership may be continued by the unanimous vote at such meeting of all of
the Limited Partners, or by unanimous written consent of the Limited Partners if
no meeting is held. If the Partnership is continued pursuant to the preceding
sentence, the Limited Partners may, by vote of all the Limited Partners or by
unanimous written consent of the Limited Partners if no meeting is held, elect a
new general partner or general partners for the Partnership.
This Agreement shall be amended to reflect any such action.
(c) Upon the occurrence of any event of withdrawal with respect to the
General Partner, the General Partner shall cease to be a general partner of the
Partnership. The Partnership shall be required to pay the terminated General
Partner any amounts then accrued and owing to it under this Agreement as of the
date of the event of withdrawal. In addition, upon the occurrence of an event of
withdrawal, the Partnership shall have the right, but not the obligation, to
terminate the General Partner's interest in Partnership capital, Income and
Loss, and Distributions upon payment to the General Partner of an amount equal
to the value of the interest as of the date of the event of withdrawal. The
payment shall be based upon the market value of the assets of the Partnership
determined as if the assets were sold for cash on the date of the event of
withdrawal, less the amount, if any, which the terminated General Partner would
be required to pay the Partnership pursuant to paragraph 2.06(a) if the
Partnership was liquidated on the date of the event of withdrawal. If the amount
which the terminated General Partner is required to pay to the Partnership
pursuant to paragraph 2.06(a) is in excess of the value of the terminated
General Partner's interest in the Partnership, the General Partner shall pay to
the Partnership an amount equal to the excess. In the event the terminated
General Partner (or its representative) and the Partnership (or its
representative appointed by a Majority Vote of the Limited Partners) cannot
mutually agree upon the value of the General Partner's interest in the
Partnership, then within 90 days following the event of withdrawal the value
shall be determined by arbitration before a panel of three appraisers, one of
whom shall be selected each by the General Partner (or its representative) and
the Partnership (or its representative appointed by a Majority Vote of the
Limited Partners) and the third of whom shall be selected by the two appraisers
so selected by the parties. The arbitration shall take place in Rochester, New
York and shall be in accordance with the rules and regulations of the American
Arbitration Association then obtaining. The cost of any
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such arbitration shall be borne equally by the Partnership and the terminated
General Partner.
(d) Payment to the General Partner of the value of its interest in
Partnership Income, Losses, Distributions and capital shall, at the option of
the Partnership, be made either: (I) in cash within 30 days following
determination of the value thereof; or (ii) by delivery of an unsecured
promissory note coming due in no less than 5 years and bearing interest at a
rate equal to the lesser of the prime rate as established from time to time by
Manufacturers and Traders Trust Company, Buffalo, New York or the maximum rate
permissible under applicable law, with interest payable annually and principal
payable, if at all, only from any cash distributions which the General Partner
would otherwise have been entitled to receive pursuant to this Agreement had its
Partnership interest not been so terminated. Notwithstanding the foregoing, in
the case of a terminated General Partner who has voluntarily withdrawn from the
Partnership, any promissory note delivered in payment of the General Partner's
interest in the Partnership shall not bear interest.
(e) In the event that the Partnership elects not to terminate the
General Partner's interest in Partnership capital, Income and Loss, and
Distributions, the General Partner (or its representative) shall: (I) retain the
same interest in Partnership capital, Income and Loss, and Distributions to
which it was entitled under this Agreement, but the interest shall then be held
as a limited partner; (ii) not be personally liable for the Partnership debts
incurred after the General Partner ceases to be a general partner; (iii) not be
entitled to vote as a Limited Partner on any matters; and (iv) have its interest
reduced pro rata with all other Partners to provide both compensation to and an
interest in the Partnership to a new general partner.
(f) Upon any event of withdrawal with respect to the General Partner,
all executory contracts between the Partnership and the General Partner or any
Affiliated Person (unless the Affiliated Person is an affiliate of a remaining
or new general partner or general partners) may be terminated and cancelled by
the Partnership without prior notice or penalty. The terminated General Partner
or any Affiliated Person of a General Partner (unless the Affiliated Person is
an affiliate of a remaining or new general partner or general partners) may also
terminate and cancel any executory contract effective upon 60 days' prior
written notice to each new general partner or the Partnership.
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SECTION 6.02 LIQUIDATION.
(a) Upon dissolution of the Partnership, the General Partner (which
terms, for the purpose of this Section 6.02, shall include any trustee, receiver
or other person required by law or selected by Majority Vote of the Limited
Partners to wind up the affairs of the Partnership) shall liquidate the assets
of the Partnership.
(b) All proceeds from liquidation and all proceeds from a sale of all
or substantially all of the assets of the Partnership shall be distributed in
the following order of priority: (I) first to the payment of the debts,
liabilities and obligations of the Partnership and the expenses of liquidation;
(ii) next to the establishment of such reserves as the General Partner may
reasonably deem necessary for any contingent liabilities of the Partnership; and
(iii) the balance, if any, to the Partners in accordance with their Capital
Account balances (determined after giving effect to all allocations of Income or
Loss for all Fiscal Periods of the Partnership and to all prior Distributions).
The liquidation of the Partnership shall be carried out in conformity with the
timing requirements of Treas. Reg. Section 1.704-1(b)(2)(b).
(c) If there shall be a deficit balance in any Partner's Capital
Account (after giving effect to all contributions, distributions and allocations
for all Fiscal Periods, including the Fiscal Period in which liquidation
occurs), the Partner shall have no obligation to make any contribution to the
capital of the Partnership with respect to the deficit balance.
SECTION 6.03 FINAL STATEMENT. As soon as practicable after the
dissolution of the Partnership, a final statement of its assets and liabilities
shall be prepared by an independent certified public accountant and furnished to
all Partners.
ARTICLE VII
BOOKS, REPORTS AND FISCAL MATTERS
SECTION 7.01 BOOKS AND RECORDS.
(a) The General Partner shall keep or cause to be kept books of account
in which shall be entered fully and accurately the transactions of the
Partnership. All books and records, and this Agreement and all amendments
thereto, shall at all times be maintained at the principal office of the
Partnership and each Partner may inspect,
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examine and copy any of them at his or her own expense at reasonable times on 24
hours notice. A list of the names and addresses and the number of Units held by
all of the Limited Partners shall be maintained as part of the books and records
and shall be mailed to any Limited Partner following receipt by the General
Partner of a written request therefor. A reasonable charge for copy work may be
charged by the Partnership.
(b) The Partnership shall maintain, or shall require the Managing
Dealer or other broker-dealers to maintain, records of the suitability of those
persons purchasing Units pursuant to the public offering described in the
Prospectus.
SECTION 7.02 REPORTS.
(a) Within 150 days after the end of each fiscal year, the General
Partner shall send to each Person who was a Limited Partner or assignee at any
time during the fiscal year then ended a report in narrative form summarizing
the status of the Partnership's investments and containing: (I) a balance sheet
as of the end of such fiscal year with related statement of income, statement of
Partners' equity, and statement of cash flow for such fiscal year, all of which
shall be prepared in accordance with generally accepted accounting principles
and accompanied by an auditor's report containing an opinion of independent
public accountants; (ii) a report of the activities of the Partnership for such
year; (iii) a statement (which need not be audited) of the distributions for
such year separately identifying distributions from: (a) cash flow from
operations during such year, (b) cash flow from operations during prior years,
(c) proceeds from disposition of the Hotels, (d) proceeds from refinancing of
the Hotels, and (e) reserves from the Gross Offering Proceeds.
(b) The General Partners shall cause to be prepared and timely filed
with appropriate state and federal regulatory and administrative bodies, at the
Partnership's expense, reports required to be filed with such entities under
then current applicable laws, rules and regulations. The reports shall be
prepared on the accounting or reporting basis required by the regulatory bodies.
Any Partner shall be provided with a copy of any of the foregoing reports (if
not previously provided), upon written request to the General Partners, at the
Partnership's expense.
(c) The General Partner shall deliver to each Partner and assignee
within 75 days after the end of each fiscal year the information necessary to
prepare his or her federal income tax return, and a state tax return to the
extent required in each state
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wherein the Partnership then owns a Hotel, for the calendar year during which
such fiscal year was ended.
(d) The General Partner shall prepare and deliver to each Partner, at
least semi-annually, a report on the operation of the Hotels.
SECTION 7.03 BANK ACCOUNTS. The General Partner or its designee shall
open and maintain in the name of the Partnership accounts with one or more
financial institutions in which shall be deposited all funds of the Partnership.
Amounts on deposit in such Partnership accounts shall be used solely for the
business of the Partnership. Withdrawals from such accounts may be made only
upon the signature of any Person authorized by the General Partner to make
withdrawals.
ARTICLE VIII
GENERAL
SECTION 8.01 OTHER BUSINESS INTERESTS. Each Partner may have other
business interests and may engage in any other business, trade, profession, or
employment whatsoever, on his or her own account or in partnership, or as an
employee, officer, director, or stockholder of any other Person. Nothing in this
Agreement shall be deemed to prohibit any Affiliated Person from dealing, or
otherwise engaging in business with Persons transacting business with the
Partnership or from providing services relating to the purchase, sale,
financing, management, development or operation of hotels, motels or other
lodging facilities and receiving compensation therefor, even if competitive with
the business of the Partnership.
SECTION 8.02 NOTICES. Unless otherwise specified in a writing sent to
the Partnership, the address of each Partner for all purposes shall be as set
forth on Schedule A to this Agreement. Any notices and demands required to be
given hereunder shall be in writing and delivered in person, sent by certified
or registered mail or by recognized overnight delivery service to such address
or addresses. Any notice shall be deemed to be given as of the date so
delivered, if delivered personally, or as of the date on which it was sent.
SECTION 8.03 CAPTIONS. The Article and Section titles and captions
contained in this Agreement are for convenience only and shall not be deemed
part of the context of this Agreement.
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SECTION 8.04 PRONOUNS AND PLURALS. Whenever the context may require,
any pronoun used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
SECTION 8.05 ENTIRE AGREEMENT. This Agreement and the subscription
agreements signed by all Limited Partners contain the entire understanding among
the Partners and supersede any prior understandings or written or oral
agreements between or among any of them respecting the within subject matter.
There are no representations, agreements, arrangements or understandings, oral
or written, between or among any of the Partners relating to the subject matter
of this Agreement which are not fully expressed herein.
SECTION 8.06 FURTHER ACTION. The Partners shall execute and deliver all
documents, provide all information and take or forebear from all such action as
may be necessary or appropriate to achieve the purpose of this Agreement.
SECTION 8.07 BINDING EFFECT. This Agreement shall be binding on and
inure to the benefit of the Partners and their heirs, executors, administrators,
successors, legal representatives and assigns.
SECTION 8.08 CREDITORS. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any creditor of the Partnership.
SECTION 8.09 VALIDITY. In the event that any provision of this
Agreement shall be held to be invalid, the same shall not affect in any respect
whatsoever the validity of the remainder of this Agreement.
SECTION 8.10 GOVERNING LAW. This Agreement shall be governed by the
laws of the State of New York.
SECTION 8.11 ACCOUNTING METHOD. The Partnership shall use the accrual
method of accounting.
SECTION 8.12 AMENDMENT. Except as provided in paragraphs 4.01(b) and
5.01(a), this Agreement may be amended or modified only by the affirmative
written consent of the General Partners and the Majority Vote of the Limited
Partners.
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SECTION 8.13 POWER OF ATTORNEY.
(a) Each of the Limited Partners hereby irrevocably constitutes and
appoints the General Partner as his true and lawful attorney-in-fact, in his
name, place and stead, to make, execute, acknowledge any amendments to this
Agreement (including without limitation those authorized by Sections 2.07, 4.01,
5.01, 5.07 and 8.12) and any other certificate or document which may be required
to be filed by the Partnership under the laws of any state or by any
governmental agency, or which the General Partner deems advisable to file or to
execute, to reflect actions properly taken by the Partners and any continuation,
dissolution or termination of the Partnership.
(b) The power of attorney is coupled with an interest and shall survive
an assignment by any Limited Partner of all or any part of his Units until such
time as the General Partner has taken the action necessary or appropriate to
effect the substitution of the assignee as a Limited Partner.
(c) The power of attorney shall, to the extent permitted by law,
survive any death, disability, incompetence, merger, bankruptcy, receivership or
dissolution of a Limited Partner.
(d) Each Limited partner shall execute such instruments as the General
Partner may request in order to give evidence of, and to effectuate, the
granting of this power of attorney, whether by executing a separate counterpart
thereof or otherwise.
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IN WITNESS WHEREOF, this Agreement is signed this _____ day of
___________ 1995.
GENERAL PARTNER
PRINCIPAL PLACE OF BUSINESS OR RESIDENCE
Essex Partners Inc.
100 Corporate Woods
Rochester, New York 14623
By: _______________________________
John E. Mooney,
President
WITHDRAWING ORIGINAL LIMITED PARTNER
RESIDENCE
66 Castlebar Road
Barbara J. Purvis
Rochester, New York 14610
__________________________
Barbara J. Purvis
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SCHEDULE A
LIST OF LIMITED PARTNERS
NUMBER OF NAME
UNITS
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SCHEDULE B
FORM OF NOTE
53
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EXHIBIT B-1
FORM OF SUBORDINATED NOTE
54
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[FORM OF SUBORDINATED NOTE]
NO INTEREST IN THIS NOTE MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THE PARTNERSHIP RECEIVES AN
OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THIS NOTE STATING THAT SUCH
TRANSACTION IS EXEMPT FROM APPLICABLE STATE SECURITIES LAWS
REQUIREMENTS AND SUCH OPINION IS IN FORM AND SUBSTANCE SATISFACTORY TO
THE PARTNERSHIP AND FROM COUNSEL SATISFACTORY TO THE PARTNERSHIP OR (B)
THE PARTNERSHIP OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS
EXEMPT FROM SUCH REQUIREMENTS.
ESSEX HOSPITALITY ASSOCIATES IV L.P.
10.5% SUBORDINATED NOTES DUE DECEMBER 31, 2001
UNLESS EXTENDED TO DECEMBER 31, 2002
(UPON PAYMENT OF AN EXTENSION FEE EQUAL TO .5%
OF THE OUTSTANDING PRINCIPAL AMOUNT)
$_____________ Rochester, New York
___________, 19__
Essex Hospitality Associates IV L.P., a New York limited partnership
(hereinafter called the "Partnership"), for value received hereby promises to
pay to _________________________________ residing or maintaining an address at
or registered assigns, the principal amount set forth above, on December 31,
2001, unless extended by the Partnership for up to one-year period as provided
in Section 1.5 hereof, or unless this Note shall have been called for redemption
and the redemption price, if any, shall have been duly paid or provided for, in
lawful money of the United States, at the office of the Paying Agent
(hereinafter called the "Paying Agent's Office"). Interest at a rate of ten and
one half percent (10.5%) per annum (computed on the basis of a 360-day year and
twelve 30-day months) on said principal amount shall accrue from the date hereof
and be paid in like currency monthly in arrears beginning on the first day of
the second complete calendar month after the date hereof and ending with the
last payment on the date of payment of principal. Interest and any late charges
thereon shall be payable at the Paying Agent's Office and the Paying Agent shall
promptly send such payment to the Holder of Record at the close of business on
the Record Date for such payment by first-class mail to the address set forth
above or such other place in the United States as the Holder of Record may from
<PAGE> 353
time to time in writing designate by notice to the Trustee at least ten (10)
days before such interest payment is due. The Record Date with respect to the
payment of any installment of interest shall be the first day of the calendar
month next preceding the date upon which such installment of interest is due and
payable hereunder. Payment of interest and late charges thereon shall be made
without surrender or presentation of this Note. This Note must be surrendered to
the Paying Agent to collect payments of principal and premium, if any, on this
Note. The Paying Agent may treat the Holder of Record as contained in the
records maintained by the Trustee as the owner hereof for the purposes of
receiving and distributing payments as herein provided and for all other
purposes, and the Paying Agent shall not be affected by any notice to the
contrary.
This Note is issued in connection with the Partnership's Prospectus
dated ________________, 1995 (the "Prospectus").
1. The Notes Exchanges and Redemptions.
1.1 Notes. This Note is one of an authorized issue of 10.5%
Subordinated Notes (herein called the "Notes") made or to be made by the
Partnership and limited to an aggregate principal amount not to exceed Six
Million Dollars ($6,000,000.00). This Note is an unsecured general obligation of
the Partnership and this Note is non-recourse. This Note is held subject to the
terms of an Indenture dated as of _______________, 1995 between the Partnership
and Manufacturers and Traders Trust Company, Buffalo, New York, as Trustee,
Paying Agent, and Registrar ("the Indenture"). A copy of the Indenture is on
file in the principal office of the Partnership. Reference is hereby made to the
Indenture, the terms of which are incorporated by reference herein, for a
statement of the terms and conditions upon which the Notes are or are to be
issued and protected, the nature of the security for the Notes, the rights and
remedies of the Holders of Record of the Notes under the Indenture, and the
rights and obligations of the Partnership and the Trustee under the Indenture.
1.2 Subordination This Note is a general unsecured obligation
of the Partnership and is subordinated in payment of principal and interest to
all Senior Indebtedness. The term "Senior Indebtedness" is defined in the
Indenture to mean all indebtedness of the Partnership, whether outstanding on
the date of the Indenture or thereafter created, which is evidenced by the
Mortgage Notes or arises as a result of External Financing. There is no
limitation or restriction herein or in the Indenture on the creation of Senior
Indebtedness by the Partnership or on the amount of such Senior Indebtedness to
which this Note may be subordinated. There is also no limitation on the creation
or amount of indebtedness which is pari passu with (i.e. having no priority
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of payment over and not subordinated in right of payment to this Note)("Pari
Passu Indebtedness").
Upon any distribution of assets of the Partnership in connection with
any dissolution, winding up, liquidation or reorganization of the Partnership,
the holders of all Senior Indebtedness will first be entitled to receive payment
in full of the principal and premium, if any, thereof and any interest due
thereon, before the Holder of this Note is entitled to receive any payment upon
the principal of or interest on this Note, and thereafter payments to the Holder
of this Note will be pro rata with payments to holders of Pari Passu
Indebtedness. In the absence of any such events, the Partnership is obligated to
pay principal of and interest on this Note in accordance with its terms.
1.3 Loss Theft Destruction of Notes. Upon receipt of evidence
satisfactory to the Partnership of the loss, theft, destruction or mutilation of
this Note and an indemnity and/or bond satisfactory to the Partnership and the
Trustee or, in the case of mutilation, upon surrender and cancellation of this
Note, the Partnership shall issue and the Registrar shall authenticate and
deliver a replacement Note in lieu of such lost, stolen, destroyed or mutilated
Note, which shall be of like tenor and unpaid principal amount and dated as of
the date from which unpaid interest has then accrued thereon.
1.4 Redemptions.
(a) The Partnership shall have the right to call all
or any portion of this Note for redemption in accordance with the Indenture (i)
if it is required to return non-utilized capital pursuant to Section 2.08 of the
Partnership Agreement, or (ii) at any time, without payment of any premium or
penalty, together with accrued interest to the redemption date.
(b) At least thirty (30) days but not more than 90
days prior to the date fixed for redemption, the Partnership shall give the
Holder of Record written notice of such date and the principal amount of this
Note to be redeemed. Such notice shall be given by certified mail at the address
set forth above or at such other address as the Holder of Record shall have
designated in writing by notice to the Trustee. If such notice of redemption is
given, the Holder of Record shall, on the date fixed for redemption specified in
the notice, deliver this Note to the Paying Agent's Office. The Paying Agent
shall deliver to the Holder of Record the principal amount of this Note to be
redeemed and interest accrued on such principal amount to the date fixed for
redemption (provided that payments of interest and any late charges thereon
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will be payable to the person who is the Holder of Record as of the close of
business on the Record Date for such interest payment as provided herein).
1.5 Interest After Date Fixed for Redemption. Provided notice
of redemption has been given as herein provided, this Note shall cease to bear
interest on and after the date fixed for redemption unless, upon presentation
for redemption, the Paying Agent shall fail to make payment in accordance with
Section 1.3, in which event this Note shall continue to bear interest thereafter
and until paid.
1.6 Extension of Maturity Date. Subject to the right of the
Partnership to extend the maturity date of the Notes for up to one-year period
as provided herein, the principal amount of the Notes shall be payable on
December 31, 2001 unless the date for payment of the principal amount of the
Notes is accelerated pursuant to the Mortgage or the Notes are redeemed as
provided herein. The Partnership shall have the right to extend the maturity
date of the Notes to December 31, 2002, by giving written notice on or before
December l, 2001 to each Holder of Record and the Trustee and paying to the
Paying Agent (on or before the date of such notice) on behalf of each Holder of
Record an extension fee in an amount equal to one half of one percent (.5%) of
the principal amount of the Notes outstanding as of the date of such notice.
1.7 Late Charges. If any payment of principal, premium, if
any, or interest required to be made under this Note shall be overdue in excess
of 15 days, a late charge of $.04 for each $1.00 so overdue will be paid by the
Partnership to the Paying Agent on behalf of the Holder of Record hereof as
provided herein. Payments shall be deemed made when received by the Paying Agent
in collected funds. If the Partnership is acting as Paying Agent, payments shall
be deemed made when the Partnership segregates the amounts payable and holds
them as a separate trust fund for the Holders of Record of the Notes.
1.8 Non-Recourse Obligation. The principal amount of this
Note, premium, if any, interest and all other sums due hereon are unsecured
obligations of the Partnership. Notwithstanding any other provision of this
Note, the General Partner of the Partnership shall not be liable to the Trustee,
the Holders of Record of the Notes or any other person for repayment of the
indebtedness secured thereby or performance of any other obligations set forth
therein or in this Note, and upon a default in the payment or performance
thereof, the Trustee and the Holders of Record shall have the right to seek
recovery solely from assets of the Partnership; provided however, that if, for
any reason, the Partnership does not purchase, lease or sub-lease land
sufficient for the construction of at least one hotel and subject such land to
the lien of a Mortgage within 24 months after the initial effective date of the
Registration
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Statement filed by the Partnership with the Securities and Exchange Commission
on Form S-I, the Partnership shall offer to refund to each Holder of Record of a
Note, the face amount of such Note without interest thereon (except that any
interest payments previously received may be retained by such Holder) and shall
make such refund to each Holder of Record who accepts such offer, and if the
Partnership does not fulfill such obligation, the General Partner shall offer to
refund such amounts and shall make such refund to each Holder of Record who
accepts such offer.
2. Representations. The Partnership represents and warrants to the
purchaser hereof:
2.1 Organization. The Partnership is a limited partnership
duly organized, existing and in good standing under the laws of the State of New
York and qualified to transact business in the State of New York.
2.2 Authority; Validity. The Partnership has full power and
authority to execute and deliver this Note and to incur the obligations provided
for herein, which actions have been duly authorized by all necessary partnership
action and do not contravene the Partnership's partnership agreement or any law,
regulation or contractual provision binding on the Partnership, and this Note
constitutes the legal, valid and binding obligation of the Partnership
enforceable in accordance with its terms.
2.3 Pending Litigation. There are no actions, suits or
proceedings pending, or to the knowledge of the Partnership, threatened against
or affecting the Partnership or any property or rights of the Partnership in any
court or by or before any governmental authority or arbitration board, tribunal
or governmental instrumentality or agency which could, if decided adversely,
have a materially adverse effect on the Partnership.
2.4 No Defaults. No event has occurred and no condition exists
which, upon execution and delivery of this Note, would constitute an Event of
Default.
3. Covenants. The Partnership covenants and agrees that so long as this
Note shall be outstanding:
3.1 Payment of Principal and Interest. The Partnership shall
punctually pay or cause to be paid the principal and interest to become due in
respect of this Note according to the terms hereof.
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3.2 Maintenance of Office. The Partnership shall maintain its
principal office in the County of Monroe, New York at which notices,
presentations and demands to or upon the Partnership in respect of this Note may
be given or made. The Partnership shall promptly give written notice to the
Trustee and any Holder of Record of this Note of any change in the address of
said office.
3.3 Financial Statements and Information. Within one hundred
fifty (150) days after the end of each fiscal year of the Partnership, the
Partnership shall furnish to the Holder of Record of this Note an audited
balance sheet of the Partnership as of the close of such fiscal year, an audited
statement of income and statement of partners' equity for such fiscal year and
an audited statement of cash flow for such fiscal year, all in reasonable
detail, prepared in accordance with generally accepted accounting principles and
certified by an independent certified public accountant. Concurrently with the
delivery of such audited financial statements, the Partnership shall also
deliver to the Holder of Record of this Note and the Trustee a statement of the
general partner of the Partnership advising whether any Event of Default exists,
or whether any event has occurred which would constitute an Event of Default
with giving of notice or lapse of time, or both, and, if so, the nature thereof,
its period of existence and the action being taken by the Partnership for the
correction thereof.
3.4 Distributions and Redemptions. The Partnership shall not
make any distributions to its partners (a) at a time when an Event of Default
has occurred and is continuing, or (b) unless it has established an adequate
reserve to pay any amounts payable under the Notes during the month in which any
such proposed distribution is to occur. The Partnership shall not redeem or
acquire for value or contract to acquire any outstanding limited partnership
interests of the Partnership.
4. Defaults and Remedies.
4.1 Events of Default; Right to Cure; Acceleration.
(a) If an Event of Default occurs and is continuing,
then, subject to the right of the Partnership to cure the default, the Holders
of Record of not less than a majority in aggregate principal amount of the Notes
at the time outstanding may by notice in writing to the Trustee direct the
Trustee to declare the entire unpaid balance of and accrued interest on all of
the Notes to be immediately due and payable as provided herein.
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(b) An "Event of Default" occurs if:
(1) the Partnership defaults in the payment of the principal
of any Note when and as the same shall become due and payable, whether at its
stated maturity or otherwise; or
(2) the Partnership defaults in the payment of any installment
of interest or payment of premium, if any, on any Note when and as the same
shall become due and payable; or
(3) the making of an assignment for the benefit of creditors
by the Partnership, the filing of a petition in bankruptcy by the Partnership,
the filing of a petition in bankruptcy against the Partnership if such case or
proceeding is consented to by the Partnership or remains undismissed for a
period of forty (40) days or results in the entry of an order for relief against
the Partnership, or the application for the appointment of a receiver of the
property of the Partnership; or
(4) notice to the Partnership by the Trustee that the
Partnership has breached or failed to keep, observe and perform any of its
representations, warranties, covenants, conditions or agreements contained in
the Indenture or this Note; or
(5) the occurrence of an Event of Default under the Mortgage
Notes.
The Partnership shall have not less than thirty (30) days after the
occurrence of any Event of Default in which to cure or remedy the same to the
reasonable satisfaction of the Trustee or the Holders of Record of at least a
majority in principal amount of the Notes and, in addition, if any Event of
Default (other than one curable by the payment of money) may be cured but not
within such 30-day period, and so long as any delay in curing does not, in the
judgment of the Trustee, (1) result in the inability of the Partnership to meet
its monetary obligations under the Notes or (2) adversely affect the
availability of any remedies available hereunder or under the Indenture, the
Trustee and the Holders of Record of the Notes shall not accelerate payment of
the indebtedness secured hereby if the Partnership commences to cure promptly
during such 30-day period and thereafter diligently prosecutes such efforts to
cure to completion.
4.2 Enforcement of Remedies. In case any one or more Events of
Default shall have occurred and the principal amount of the Notes shall have
been accelerated as provided herein, the Holders of Record of not less than a
majority in
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aggregate principal amount of the Notes may proceed to protect and enforce their
rights under the Notes, subject to compliance with Article 5, Section 5.06 of
the Indenture; provided, however, that, in order to be entitled to so proceed
each said Holder of Record shall be a holder of, or shall be joined in such
proceeding by other Holders of Record who together with him hold, a majority in
aggregate principal amount of all Notes at the time outstanding.
4.3 Remedies Cumulative. No remedy herein conferred upon the
Holder of Record of this Note is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
4.4 Remedies Not Waived. No course of dealing between the
Partnership and the Holder of Record hereof or any delay on the part of such
holder hereof in exercising any rights hereunder shall operate as a waiver of
any rights of any Holder of Record of this Note.
4.5 Cost and Expense of Collection. The Partnership covenants
and agrees that if default be made in any payment or prepayment of principal of,
premium, if any, or interest on, this Note, it will, to the extent permitted
under applicable law, pay to the Holders of Record of the Notes such additional
amount as shall be sufficient to cover the cost and expense of collection,
including reasonable compensation to the attorneys of the Holder of Record.
5. Consents Waivers and Modifications. Notwithstanding any provision to
the contrary contained in the Notes, any of the provisions in the Notes or the
Indenture may be amended or deleted and additions may be made to the Notes or
the Indenture and compliance by the Partnership with any covenant, agreement or
condition set forth in the Notes or the Indenture may be waived, if the
Partnership shall obtain the written consent thereto of the Holder of Record or
Holders of Record, or their agents, who are holders of not less than a majority
in principal amount of all of the Notes at the time outstanding; provided,
however, that without the consent of the Holders of Record of all the Notes at
the time outstanding no such amendment, deletion, supplement or waiver shall
reduce the rate of or extend the time for payment of interest hereunder, or
reduce the principal of or extend the stated time of payment of the principal
amount hereof, or impose any condition with respect to such payments, or reduce
the redemption price hereof, or reduce the principal amount of Notes whose
Holders of Record must consent to an amendment, deletion, supplement or waiver.
In the event of any such amendment, deletion, supplement or waiver, the Holder
of Record or Holders of Record of the Notes, upon the request of the
Partnership, shall
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surrender them to the Partnership, which shall thereupon issue and deliver,
without charge to such holder, new Notes for the unpaid principal balance of the
Notes, dated as of the date to which interest shall last have been paid,
reflecting such amendment, deletion, supplement or waiver, or shall present the
Notes to the Trustee for a notation hereon of such amendment, deletion,
supplement or waiver, and the Notes shall thereupon be returned to the Holder of
Record or Holders of Record thereof.
6. Definitions. The following words and terms as used in this Note
shall have the following meanings unless the context or use indicates another or
different meaning or intent:
6.1 "External Financing" shall have the meaning set forth in
the Prospectus.
6.2 "First Closing" shall have the meaning set forth in the
Prospectus.
6.3 "General Partner" means Essex Partners Inc., a New York
corporation and the sole general partner of the Partnership.
6.4 "Holder of Record" means, in connection with any Note, the
payee thereof registered on the Trustee's books unless the requirements of
Section 2.08 of the Indenture have been satisfied and a subsequent holder shall
have presented to the Trustee such Note, duly assigned to him, for inspection
and delivered to the Trustee a written notice of his acquisition of the Note and
designated in writing an address to which payments and notices in respect of the
Note shall be mailed, in which case the term shall mean such subsequent holder.
6.5 "Mortgaged Notes" means the Mortgage Notes (up to
$10,000,000) being offered by the Partnership pursuant to the Partnership's
Prospectus.
6.6 "Paying Agent" shall have the meaning set forth in Section
2.03 of the Indenture.
6.7 "Partnership Agreement" means the Amended and Restated
Limited Partnership Agreement of the Partnership dated as of __________________,
1995.
6.8 "Registrar" shall have the meaning set forth in Section
2.03 of the Indenture.
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6.9 "Trustee" means Manufacturers and Traders Trust Company,
Buffalo, New York, and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee at the time serving as such under the Indenture.
7. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Partnership shall bind its successors and assigns, whether so expressed or
not.
8. Governing Law and Forum. This Note shall be construed and
interpreted in accordance with the laws of the State of New York without regard
to its conflicts of laws rules, and any suit hereon may be brought only in such
state and in the County of Monroe.
IN WITNESS WHEREOF, ESSEX HOSPITALITY ASSOCIATES IV L.P. has caused
this Note to be signed, the corporate seal of its managing general partner to be
affixed by its officers thereunto duly authorized, and to be dated as of the day
and year first above written.
ESSEX HOSPITALITY ASSOCIATES IV L.P.
By: Essex Partners Inc.,
General Partner
By:_______________________________
John E. Mooney, President
Attest:
____________________________
Barbara J. Purvis, Secretary
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EXHIBIT B-2
FORM OF MORTGAGE NOTE
<PAGE> 363
[FORM OF MORTGAGE NOTE]
NO INTEREST IN THIS NOTE MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THE PARTNERSHIP RECEIVES AN
OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THIS NOTE STATING THAT SUCH
TRANSACTION IS EXEMPT FROM APPLICABLE STATE SECURITIES LAWS
REQUIREMENTS AND SUCH OPINION IS IN FORM AND SUBSTANCE SATISFACTORY TO
THE PARTNERSHIP AND FROM COUNSEL SATISFACTORY TO THE PARTNERSHIP OR (B)
THE PARTNERSHIP OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS
EXEMPT FROM SUCH REQUIREMENTS.
ESSEX HOSPITALITY ASSOCIATES IV L.P.
MORTGAGE NOTES DUE DECEMBER 31, 2001
UNLESS EXTENDED TO DECEMBER 31, 2002
(UPON PAYMENT OF AN EXTENSION FEE EQUAL TO .5%
OF THE OUTSTANDING PRINCIPAL AMOUNT)
$_____________ Rochester, New York
___________, 19__
Essex Hospitality Associates IV L.P., a New York limited partnership
(hereinafter called the "Partnership"), for value received hereby promises to
pay to _________________________________ residing or maintaining an address at
or registered assigns, the principal amount set forth above, on December 31,
2001, unless extended by the Partnership for up to one-year period as provided
in Section 1.5 hereof, or unless this Note shall have been called for redemption
and the redemption price, if any, shall have been duly paid or provided for, in
lawful money of the United States, at the office of the Paying Agent
(hereinafter called the "Paying Agent's Office"). Interest at a rate of
____percent (___%) per annum (computed on the basis of a 360-day year and twelve
30-day months) on said principal amount shall accrue from the date hereof and be
paid in like currency monthly in arrears beginning on the first day of the
second complete calendar month after the date hereof and ending with the last
payment on the date of payment of principal. Interest and any late charges
thereon shall be payable at the Paying Agent's Office and the Paying Agent shall
promptly send such payment to the Holder of Record at the close of business on
the
<PAGE> 364
Record Date for such payment by first-class mail to the address set forth above
or such other place in the United States as the Holder of Record may from time
to time in writing designate by notice to the Trustee at least ten (10) days
before such interest payment is due. The Record Date with respect to the payment
of any installment of interest shall be the first day of the calendar month next
preceding the date upon which such installment of interest is due and payable
hereunder. Payment of interest and late charges thereon shall be made without
surrender or presentation of this Note. This Note must be surrendered to the
Paying Agent to collect payments of principal and premium, if any, on this Note.
The Paying Agent may treat the Holder of Record as contained in the records
maintained by the Trustee as the owner hereof for the purposes of receiving and
distributing payments as herein provided and for all other purposes, and the
Paying Agent shall not be affected by any notice to the contrary.
This Note is issued in connection with the Partnership's Prospectus
dated _______________, 1995 (the "Prospectus").
1. The Notes Exchanges and Redemptions.
1.1 Notes. This Note is one of an authorized issue of Mortgage
Notes (herein called the "Notes") made or to be made by the Partnership and
limited to an aggregate principal amount not to exceed Ten Million Dollars
($10,000,000.00). This Note is held subject to the terms of an Indenture dated
as of _______________________, 1995 between the Partnership and Manufacturers
and Traders Trust Company, Buffalo, New York, as Trustee, Paying Agent and
Registrar ("the Indenture") and certain fee and/or leasehold mortgages and
security agreements, as more fully described in the Indenture, to be entered
into by and between the Partnership and the Trustee, as amended from time to
time (collectively, the "Mortgage"), copies of which Indenture and Mortgage are
on file in the principal office of the Partnership. Reference is hereby made to
the Indenture and Mortgage, the terms of which are incorporated by reference
herein, for a statement of the terms and conditions upon which the Notes are or
are to be issued and protected, the nature of the security for the Notes, the
rights and remedies of the Holders of Record of the Notes under the Indenture
and the Mortgage, and the rights and obligations of the Partnership and the
Trustee under the Indenture and the Mortgage.
1.2 Loss Theft Destruction of Notes. Upon receipt of evidence
satisfactory to the Partnership of the loss, theft, destruction or mutilation of
this Note and an indemnity and/or bond satisfactory to the Partnership and the
Trustee or, in the case of mutilation, upon surrender and cancellation of this
Note, the Partnership shall issue and the Registrar shall authenticate and
deliver a replacement Note in lieu of such
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<PAGE> 365
lost, stolen, destroyed or mutilated Note, which shall be of like tenor and
unpaid principal amount and dated as of the date from which unpaid interest has
then accrued thereon.
1.3 Redemptions.
(a) The Partnership shall have the right to call all
or any portion of this Note for redemption in accordance with the Indenture (I)
if it is required to return non-utilized capital pursuant to Section 2.08 of the
Partnership Agreement, or (ii) at any time, without payment of any premium or
penalty, together with accrued interest to the redemption date.
(b) At least thirty (30) days but not more than 90
days prior to the date fixed for redemption, the Partnership shall give the
Holder of Record written notice of such date and the principal amount of this
Note to be redeemed. Such notice shall be given by certified mail at the address
set forth above or at such other address as the Holder of Record shall have
designated in writing by notice to the Trustee. If such notice of redemption is
given, the Holder of Record shall, on the date fixed for redemption specified in
the notice, deliver this Note to the Paying Agent's Office. The Paying Agent
shall deliver to the Holder of Record the principal amount of this Note to be
redeemed and interest accrued on such principal amount to the date fixed for
redemption (provided that payments of interest and any late charges thereon will
be payable to the person who is the Holder of Record as of the close of business
on the Record Date for such interest payment as provided herein).
1.4 Interest After Date Fixed for Redemption. Provided notice
of redemption has been given as herein provided, this Note shall cease to bear
interest on and after the date fixed for redemption unless, upon presentation
for redemption, the Paying Agent shall fail to make payment in accordance with
Section 1.3, in which event this Note shall continue to bear interest thereafter
and until paid.
1.5 Extension of Maturity Date and Right to Sell and Refinance
Properties.
(a) Subject to the right of the Partnership to extend
the maturity date of the Notes for up to one-year period as provided herein, the
principal amount of the Notes shall be payable on December 31, 2001 unless the
date for payment of the principal amount of the Notes is accelerated pursuant to
the Mortgage or the Notes are redeemed as provided herein. The Partnership shall
have the right to extend the maturity date of the Notes to December 31, 2002, by
giving written notice on or before December l, 2001 to each Holder of Record and
the Trustee and paying
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<PAGE> 366
to the Paying Agent (on or before the date of such notice) on behalf of each
Holder of Record an extension fee in an amount equal to one half of one percent
(.5%) of the principal amount of the Notes outstanding as of the date of such
notice.
(b) Contrary provisions contained in this Note or the
Mortgage notwithstanding, in the event that the Partnership sells or refinances
any of the Partnership Hotels securing the Notes, the Hotel sold or refinanced
may be released from the lien of the Mortgage without acceleration of principal
or interest as provided below, and the Partnership shall have the right, prior
to the maturity date of the Notes, to reinvest the net proceeds received from
any such sale or refinancing of any one or more of the Partnership's Hotels,
other than those Hotels constructed or developed with funds from External
Financing, in additional hotel properties, including the real property and
improvements thereon, whether owned by the Partnership or third parties (the
"Substitute Collateral"). In the event of such sale or refinancing, the Hotel
sold or refinanced will be released from the lien of the Mortgage and the
Substitute Collateral will become subject to the lien of the Mortgage, to the
extent the Hotel property released secured such Mortgage. The Partnership's
right to "recycle" the Notes is available only once per each Hotel; provided,
the Partnership identifies the Substitute Collateral within six months of the
closing of the sale or refinancing transaction and reinvests the net proceeds
from such sale or refinancing within twelve months from the date the Substitute
Collateral has been identified by the Partnership. In the event that the
Partnership subsequently sells or refinances the Substitute Collateral, the
Partnership will pay to the Holders of Notes, as a reduction in the principal
balance of the Notes, on a pro rata basis, proceeds received from such sale or
refinance equal to the percentage of the proceeds of the Mortgage Notes
allocable to the Substitute Collateral. Therefore, in the event the Partnership
determines that a Hotel represents 30% of the proceeds of the Notes, the Hotel
is sold and Substitute Collateral is purchased with the proceeds of such sale,
and the Substitute Collateral is sold, the Partnership will pay to each Holder
of a Note $300 (30% of $1,000) per Note.
1.6 Late Charges. If any payment of principal, premium, if
any, or interest required to be made under this Note shall be overdue in excess
of 15 days, a late charge of $.04 for each $1.00 so overdue will be paid by the
Partnership to the Paying Agent on behalf of the Holder of Record hereof as
provided herein. Payments shall be deemed made when received by the Paying Agent
in collected funds. If the Partnership is acting as Paying Agent, payments shall
be deemed made when the Partnership segregates the amounts payable and holds
them as a separate trust fund for the Holders of Record of the Notes.
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1.7 Non-Recourse Obligation. The principal amount of this
Note, premium, if any, interest and all other sums due hereon will be secured by
the lien of the Mortgage for the equal and ratable benefit of the Holders of
Record of the Notes. After an Event of Default has occurred, the Trustee shall
have right to commence an action to foreclose upon the Mortgaged Premises as
provided in the Mortgage. Notwithstanding any other provision of this Note or
the Mortgage, the General Partner of the Partnership shall not be liable to the
Trustee, the Holders of Record of the Notes or any other person for repayment of
the indebtedness secured thereby or performance of any other obligations set
forth therein or in this Note, and upon a default in the payment or performance
thereof, the Trustee and the Holders of Record shall have the right to seek
recovery solely from assets of the Partnership and the Mortgaged Premises;
provided however, that if, for any reason, the Partnership does not purchase,
lease or sub-lease land sufficient for the construction of at least one hotel
and subject such land to the lien of the Mortgage within 24 months after the
initial effective date of the Registration Statement filed by the Partnership
with the Securities and Exchange Commission on Form S-I, the Partnership shall
offer to refund to each Holder of Record of a Note, the face amount of such Note
without interest thereon (except that any interest payments previously received
may be retained by such Holder) and shall make such refund to each Holder of
Record who accepts such offer, and if the Partnership does not fulfill such
obligation, the General Partner of the Partnership shall offer to refund such
amounts and shall make such refund to each Holder of Record who accepts such
offer. The General Partner of the Partnership shall not be liable for any
deficiency between the total amount of the judgment entered in any foreclosure
action and the net proceeds of the sale of the Mortgaged Premises, and no
deficiency judgment will be asked for or taken against the Partnership or the
General Partners of the Partnership in any foreclosure action.
2. Representations. The Partnership represents and warrants to the
purchaser hereof:
2.1 Organization. The Partnership is a limited partnership
duly organized, existing and in good standing under the laws of the State of New
York and qualified to transact business in the State of New York.
2.2 Authority; Validity. The Partnership has full power and
authority to execute and deliver this Note and to incur the obligations provided
for herein, which actions have been duly authorized by all necessary partnership
action and do not contravene the Partnership's partnership agreement or any law,
regulation or contractual provision binding on the Partnership, and this Note
constitutes the legal, valid and binding obligation of the Partnership
enforceable in accordance with its terms.
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<PAGE> 368
2.3 Pending Litigation. There are no actions, suits or
proceedings pending, or to the knowledge of the Partnership, threatened against
or affecting the Partnership or any property or rights of the Partnership in any
court or by or before any governmental authority or arbitration board, tribunal
or governmental instrumentality or agency which could, if decided adversely,
have a materially adverse effect on the Partnership.
2.4 No Defaults. No event has occurred and no condition exists
which, upon execution and delivery of this Note, would constitute an Event of
Default.
3. Covenants. The Partnership covenants and agrees that so long as this
Note shall be outstanding:
3.1 Payment of Principal and Interest. The Partnership shall
punctually pay or cause to be paid the principal and interest to become due in
respect of this Note according to the terms hereof.
3.2 Obligations Under Mortgage. The Partnership shall keep,
observe and perform all of the covenants, conditions or agreements contained in
the Mortgage, the terms of which are incorporated by reference herein
(including, without limitation, its obligations with respect to insurance,
maintenance and repair of the Mortgaged Premises, taxes and compliance with
laws).
3.3 Maintenance of Office. The Partnership shall maintain its
principal office in the County of Monroe, New York at which notices,
presentations and demands to or upon the Partnership in respect of this Note may
be given or made. The Partnership shall promptly give written notice to the
Trustee and any Holder of Record of this Note of any change in the address of
said office.
3.4 Financial Statements and Information. Within one hundred
fifty (150) days after the end of each fiscal year of the Partnership, the
Partnership shall furnish to the Holder of Record of this Note an audited
balance sheet of the Partnership as of the close of such fiscal year, an audited
statement of income and statement of partners' equity for such fiscal year and
an audited statement of cash flow for such fiscal year, all in reasonable
detail, prepared in accordance with generally accepted accounting principles and
certified by an independent certified public accountant. Concurrently with the
delivery of such audited financial statements, the Partnership shall also
deliver to the Holder of Record of this Note and the Trustee a statement of the
General Partner of the Partnership advising whether any Event of Default exists,
or whether any event has occurred which would constitute an Event of Default
with
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<PAGE> 369
giving of notice or lapse of time, or both, and, if so, the nature thereof, its
period of existence and the action being taken by the Partnership for the
correction thereof.
3.5 Distributions and Redemptions. The Partnership shall not
make any distributions to its partners (a) at a time when an Event of Default
has occurred and is continuing, or (b) unless it has established an adequate
reserve to pay any amounts payable under the Notes during the month in which any
such proposed distribution is to occur. The Partnership shall not redeem or
acquire for value or contract to acquire any outstanding limited partnership
interests of the Partnership.
4. Defaults and Remedies.
4.1 Events of Default. If an Event of Default occurs and is
continuing, then, subject to the right of the Partnership to cure the default as
provided in the Mortgage, the Holders of Record of not less than a majority in
aggregate principal amount of the Notes at the time outstanding may by notice in
writing to the Trustee direct the Trustee to declare the unpaid balance of and
accrued interest on all of the Notes to be forthwith due and payable as provided
in the Mortgage.
4.2 Enforcement of Remedies. In case any one or more Events of
Default shall have occurred and the principal amount of the Notes shall have
been accelerated as provided in the Mortgage, the Holders of Record of not less
than a majority in aggregate principal amount of the Notes may proceed to
protect and enforce their rights under the Mortgage, subject to compliance with
Article 6, Section 6.06 of the Indenture; provided, however, that, in order to
be entitled to so proceed each said Holder of Record shall be a holder of, or
shall be joined in such proceeding by other Holders of Record who together with
him hold, a majority in aggregate principal amount of all Notes at the time
outstanding.
4.3 Remedies Cumulative. No remedy herein conferred upon the
Holder of Record of this Note is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
4.4 Remedies Not Waived. No course of dealing between the
Partnership and the Holder of Record hereof or any delay on the part of such
holder hereof in exercising any rights hereunder shall operate as a waiver of
any rights of any Holder of Record of this Note.
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<PAGE> 370
4.5 Cost and Expense of Collection. The Partnership covenants
and agrees that if default be made in any payment or prepayment of principal of,
premium, if any, or interest on, this Note, it will, to the extent permitted
under applicable law, pay to the Holders of Record of the Notes such additional
amount as shall be sufficient to cover the cost and expense of collection,
including reasonable compensation to the attorneys of the Holder of Record.
5. Consents Waivers and Modifications. Notwithstanding any provision to
the contrary contained in the Notes, any of the provisions in the Notes, the
Indenture or the Mortgage may be amended or deleted and additions may be made to
the Notes, the Indenture or the Mortgage, and compliance by the Partnership with
any covenant, agreement or condition set forth in the Notes, the Indenture or
the Mortgage may be waived, if the Partnership shall obtain the written consent
thereto of the Holder of Record or Holders of Record, or their agents, who are
holders of not less than a majority in principal amount of all of the Notes at
the time outstanding; provided, however, that without the consent of the Holders
of Record of all the Notes at the time outstanding no such amendment, deletion,
supplement or waiver shall reduce the rate of or extend the time for payment of
interest hereunder, or reduce the principal of or extend the stated time of
payment of the principal amount hereof, or impose any condition with respect to
such payments, or reduce the redemption price hereof, or materially modify the
security provided by the Mortgage, or permit the creation of any lien ranking
prior to or on a parity with the lien of the Mortgage except as expressly
permitted therein, or reduce the principal amount of Notes whose Holders of
Record must consent to an amendment, deletion, supplement or waiver. In the
event of any such amendment, deletion, supplement or waiver, the Holder of
Record or Holders of Record of the Notes, upon the request of the Partnership,
shall surrender them to the Partnership, which shall thereupon issue and
deliver, without charge to such holder, new Notes for the unpaid principal
balance of the Notes, dated as of the date to which interest shall last have
been paid, reflecting such amendment, deletion, supplement or waiver, or shall
present the Notes to the Trustee for a notation hereon of such amendment,
deletion, supplement or waiver, and the Notes shall thereupon be returned to the
Holder of Record or Holders of Record thereof.
6. Definitions. The following words and terms as used in this Note
shall have the following meanings unless the context or use indicates another or
different meaning or intent:
6.1 "Event of Default" shall have the meaning set forth in
Section 13 of the Mortgage and shall include the occurrence of an Event of
Default under the Subordinated Notes.
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<PAGE> 371
6.2 "External Financing" shall have the meaning set forth in
the Partnership's Prospectus.
6.3 "General Partner" means Essex Partners Inc., a New York
corporation and the sole general partner of the Partnership.
6.4 "Holder of Record" means, in connection with any Note, the
payee thereof registered on the Trustee's books unless the requirements of
Sections 2.04 and 4.01 of the Indenture have been satisfied and a subsequent
holder shall have presented to the Trustee such Note, duly assigned to him, for
inspection and delivered to the Trustee a written notice of his acquisition of
the Note and designated in writing an address to which payments and notices in
respect of the Note shall be mailed, in which case the term shall mean such
subsequent holder.
6.5 "Mortgaged Premises" means the land, buildings and
improvements subject to the lien of the Mortgage as described in the Mortgage
and the personal property and other assets subject to the lien of the Mortgage
as described therein.
6.6 "Paying Agent" shall have the meaning set forth in Section
2.03 of the Indenture.
6.7 "Partnership Agreement" means the Amended and Restated
Limited Partnership Agreement of the Partnership dated as of __________________,
1995.
6.8 "Registrar" shall have the meaning set forth in Section
2.03 of the Indenture.
6.9 "Subordinated Notes" means the Subordinated Notes (up to
$6,000,000) being offered by the Partnership pursuant to the Partnership's
Prospectus.
6.10 "Trustee" means Manufacturers and Traders Trust Company,
Buffalo, New York, and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee at the time serving as such under the Indenture.
7. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Partnership shall bind its successors and assigns, whether so expressed or
not. The
9
<PAGE> 372
Partnership shall have the right to assign this Note and obtain a discharge of
its obligations hereunder, without obtaining the consent of the Trustee or the
Holder of Record hereof, in connection with a sale of the Premises in accordance
with Section 12 of the Mortgage.
8. Governing Law and Forum. This Note shall be construed and
interpreted in accordance with the laws of the State of New York without regard
to its conflicts of laws rules, and any suit hereon may be brought only in such
state and in the County of Monroe.
IN WITNESS WHEREOF, ESSEX HOSPITALITY ASSOCIATES IV L.P. has caused
this Note to be signed, the corporate seal of its managing General Partner to be
affixed by its officers thereunto duly authorized, and to be dated as of the day
and year first above written.
ESSEX HOSPITALITY ASSOCIATES IV L.P.
By: Essex Partners Inc., General Partner
By:_________________________________
John E. Mooney, President
Attest:
______________________________
Barbara J. Purvis, Secretary
10
<PAGE> 373
EXHIBIT C
SUBSCRIPTION AGREEMENT AND PARTNER NOTE
<PAGE> 374
SUBSCRIPTION AGREEMENT FOR ESSEX
HOSPITALITY ASSOCIATES IV L.P.
SECTION 1. REPRESENTATIONS, AGREEMENTS AND ACKNOWLEDGEMENTS OF SUBSCRIBERS
By executing this Subscription Agreement and submitting the payment enclosed
herewith, the undersigned hereby subscribes for the number of Limited
Partnership Units of Essex Hospitality Associates IV L.P. (the "Partnership") as
set forth in Section 3 below (the "Units"), at a purchase price of $ 1,000 per
Unit, subject to the timing and volume discounts and in accordance with the
instructions set forth in the current prospectus (the "Prospectus") under the
captions "Investor Suitability Standards" and "The Offering," and/or subscribes
for a Mortgage Note of the Partnership in the principal amount set forth in
Section 3 below (the "Mortgage Note"), and/or subscribes for a Subordinated Note
of the Partnership in the principal amount set forth in Section 3 below (the
"Subordinated Notes") and further:
(a) acknowledges receipt of a copy of the Prospectus, and understands
that the Units and/or Mortgage Note and/or Subordinated Note being acquired will
be governed by the terms of such Prospectus and the Partnership Agreement set
forth as Exhibit A to the Prospectus, or the Subordinated Note or Mortgage Note,
Indenture and, with respect to the Mortgage Note, Mortgage, all as described in
the Prospectus;
(b) accepts and agrees to be bound by the Partnership Agreement if
subscribing for Units and accepts and agrees to be bound by the terms of the
Subordinated Note or Mortgage Note, Indenture if subscribing for a Note, and,
with respect to the Mortgage Note, Mortgage if subscribing for a Mortgage Note;
(c) acknowledges that there is not expected to be any public market for
the Units, Subordinated Note, or Mortgage Note, that the General Partners may
attempt to prevent any such market from developing and that there are certain
other risks involved in investing in the Partnership as described in the
Prospectus under "Risk Factors," "Conflicts of Interest," and "Tax
Considerations"
(d) represents that the undersigned is a United States person, as that
term is defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended (the "Code");
(e) represents, if the undersigned is a tax exempt investor, that in
making the proposed investment the undersigned is aware of and has taken into
consideration that income from the Partnership resulting from the ownership of
Units will be considered unrelated business taxable income under Section 512 of
the Code and may
<PAGE> 375
be subject to federal income taxation or other adverse tax consequences as
described in the Prospectus under "Special Considerations For Tax Exempt
Investors";
(f) represents, if the undersigned is subject to the Employee
Retirement Income Security Act of 1974 ("Act"), that in making the proposed
investment the undersigned is aware of and has taken into consideration the
diversification requirements of Section 404(a)(I)(C) of the Act and that the
undersigned has concluded that the proposed investment in the Partnership is a
prudent one;
(g) represents that the undersigned has due authority to execute this
Subscription Agreement and to thereby legally bind the undersigned or the trust,
partnership, corporation or other entity of which the undersigned is the
trustee, general partner, officer, or other authorized agent;
(h) agrees to fully indemnify' and hold the Partnership, the General
Partners and their affiliates and employees, harmless from any and all claims,
actions and causes of action whatsoever which may result from a breach or an
alleged breach of the representation contained in (g) above;
(I) represents that the undersigned has (a) a net worth (exclusive of
home, home furnishings and automobiles) of $100,000 or more, or (b) a net worth
(exclusive of home, home furnishings and automobiles) of at least $35,000 and
had during the last tax year, and expects to have during the current tax year,
gross annual income of at least $35,000, and further represents that if a higher
suitability standard has been established for residents of the state in which
the undersigned resides, then the undersigned has the higher net worth and/or
the higher income required for residents of such state as set forth in the
Prospectus; or represents, in the case of a partnership investor, that each of
the partners, in the case of a corporate investor, that each of the
shareholders, and in the case of a trust investor, that each of the
beneficiaries, satisfy the suitability standards set forth in (a) or (b) above
and any higher standard required by the state of residence of such entity
(j) acknowledges and agrees that the undersigned is not entitled to
cancel, terminate, or revoke this subscription or any agreements of the
undersigned hereunder until twenty-four months from the date of the Prospectus,
or such earlier date as may be determined by Essex Partners Inc. (the "General
Partner"), and that such subscription and agreements shall survive the death or
disability of the undersigned; and
(k) acknowledges and agrees that all subscription proceeds shall be
deposited in an escrow account as described in the Prospectus until such time as
(I) the
2
<PAGE> 376
subscriber is either admitted as a limited partner of the Partnership, (ii) the
Subordinated Note and/or Mortgage Note is issued to the subscriber or (iii) this
subscription is rejected by the General Partner; that a subscriber shall have no
right to withdraw an investment during the period in which subscription proceeds
are held in such escrow account; that if for any reason whatsoever the General
Partner has not received and accepted subscriptions to purchase Units, Unsecured
Notes, and Mortgage and Notes with an aggregate purchase price of at least
$1,980,000 within eighteen months from the date of the Prospectus, all monies
theretofore deposited in such escrow account shall be promptly refunded to the
subscribers together with interest, if any, earned thereon (after reduction of
certain fees and expenses of the escrow agent from the interest earned); and
that if subscriptions for Units, Subordinated Notes, and Mortgage Notes in such
amount are received and accepted by the General Partner within such time period,
a subscriber's investment may be held in such escrow account until up to
twenty-four months from the date of the Prospectus.
Subscribers should be aware that the General Partner has the right to accept or
reject this subscription in whole or in part in its sole and absolute discretion
and that, to the extent permitted by applicable law, the Partnership intends to
assert the foregoing representations, acknowledgements and agreements as a
defense to any claim based on factual assertions contrary to those set forth
above. Subscribers should also be aware that no federal or state agency has made
any finding or determination as to the fairness for public investment, nor any
recommendation or endorsement, of the Units, Subordinated Notes, or Mortgage
Notes and that investors must have adequate means of providing for their current
needs and possible personal contingencies and have no need for liquidity in this
investment.
SECTION 2. POWER OF ATTORNEY (Applicable only if subscribing for Units) If
subscribing for Units, the undersigned, by executing this Subscription
Agreement, hereby grants to the General Partner a special power of attorney (the
"Power of Attorney") irrevocably making, constituting and appointing the General
Partner as the undersigned's true and lawful attorney-in-fact with power and
authority to act in the undersigned's name and on the undersigned's behalf to
make, execute, acknowledge and file the following documents: (a) the Partnership
Agreement, any separate certificates of limited partnership, any document
required to be filed in any public office or with any public official in any
jurisdiction to protect the limited liability of the Limited Partners and any
amendments to any of the foregoing, which, under the laws of the State of New
York or the laws of any other jurisdiction, are required to be filed or which
the General Partner deems it advisable to file; (b) any other instrument or
document which may be required to be filed by the Partnership in any public
office or with any public official under the laws of any jurisdiction or by any
governmental
3
<PAGE> 377
agency or which the General Partner deems it is advisable to file; (c) any
instrument or document which may be required to effect the continuation of the
Partnership not in excess of the term set forth in Section 2.05 of the
Partnership Agreement, the assignment of Units, the admission of Limited
Partners and the liquidation and winding up of the Partnership (provided such
continuation, admission or dissolution and winding up are in accordance with the
terms of the Partnership Agreement); and (iv) any instrument or document which
may be necessary or desirable to effect the amendments contemplated by Sections
2.07, 4.01(b), 5.01(b), 5.07 or 8.12 of the Partnership Agreement or any other
actions properly taken by the Partners.
The Power of Attorney granted hereby (a) is a special power of attorney coupled
with an interest, is irrevocable, and, to the extent permitted by law, shall
survive the death, disability, incompetence, merger, bankruptcy, receivership or
dissolution of a Limited Partner and is limited to those matters herein set
forth; (b) may be exercised by the General Partner acting alone for each Limited
Partner by a facsimile signature of the General Partner or by any one of its
officers, acting alone, or by listing all of the Limited Partners executing any
instrument with a single signature of the General Partner or one of its
officers, acting as an attorney-in-fact for all of them; and (c) shall survive
an assignment by a Limited Partner of all or any portion of such Limited
Partner's Units until such time as the General Partner has taken the action
necessary or appropriate to effect the substitution of the assignee as a Limited
Partner.
SECTION 3. INVESTMENT
Checks should be made payable to "M & T Bank as Escrow Agent for Essex
Hospitality Associates IV L.P."
Number of Units: ____________________ x ($1,000) or [($990)($980)-volume
discount] or [($950)($960)($970)($980)($990)-timing discount] = $_____________
(minimum of 5 Units, except that the minimum is 2 Units for IRA, Keogh and
qualified plans); except that if the subscriber is purchasing 20 or more Units,
the subscriber may deliver a check for one-half of the subscription price and a
Partner Note for the balance. Principal Amount of Mortgage Note:
$____________(minimum of $5,000, except (that the minimum is $2,000 for IRA,
Keogh and qualified plans; additional increments of $1,000))
Principal Amount of Subordinated Note: $__________ (minimum of $5,000, except
(that the minimum is $2,000 for IRA, Keogh and qualified plans; additional
increments of $1,000))
4
<PAGE> 378
SECTION 4. INFORMATION REGARDING REGISTERED OWNER
This is the official registration that will be used in the Partnership's
records. Checks and tax information will be issued in the name(s) indicated in
this Section 4.
<TABLE>
<CAPTION>
Type of Ownership (Check One)
<S> <C> <C>
______________________________ ____________________________
Individual, Partnership, Trust Social Security/Taxpayer ID#
or Corporation Name _____ Individual
_____ Tenants in Common*
_____ Joint Tenants with Right
______________________________ ____________________________ Of Survivorship*
Name of Joint/Common Social Security/Taxpayer ID# _____ Trust*
Tenant, if applicable _____ Partnership
_____ Corporation
______________________________ ____________________________
Principal Residence/ Business Phone
business Address
______________________________ ____________________________ * All owners/trustees must sign
City, State, Zip Home Phone
</TABLE>
SECTION 5. BENEFICIAL OWNER MAILING
All correspondence will be directed to the registered owner at the address in
Section 4 above. If the subscriber is a trust and the beneficial owner would
like copies of investor correspondence, please complete this section.
____________________________________
Name
____________________________________
Street Address
____________________________________
City, State, Zip
____________________________________
Business Phone
____________________________________
Home Phone
5
<PAGE> 379
SECTION 6. DISTRIBUTION AND PAYMENT CHECKS
To direct distribution and payment checks to a party other than the registered
owner, please complete this section.
____________________________________
Name of firm (bank, brokerage)
____________________________________
Account Name
____________________________________
Account Number Phone
____________________________________
Street Address
____________________________________
City, State, Zip
SECTION 7. INVESTOR SIGNATURES
The undersigned is (are) the person(s) or entity named as the registered owner
in Section 4 above, or alternatively, the undersigned has the full power and
authority to execute this Subscription Agreement on behalf of such person(s).
Execution of this Subscription Agreement by a registered representative will not
be accepted.
Under the penalties of perjury, the undersigned certifies that (I) the Social
Security/Taxpayer Identification Number(s) indicated in Section 4 above is the
true and correct Social Security/Taxpayer Identification Number of the
registered owners; and (ii) the registered owner is not subject to backup
withholding either because such person has not been notified that he/she/it is
subject to backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified such person that
he/she/it is no longer subject to backup withholding. The
6
<PAGE> 380
undersigned further acknowledges that the undersigned has received a copy of the
Prospectus of the Partnership and meets the suitability standards for the
undersigned's state of residence.
<TABLE>
<S> <C>
X_____________________________________ X ___________________________________________
Signature of owner or trustee Date Signature of joint owner or trustee Date
(Must be signed by all trustees if
the investor is a trust)
__________________________________________ ___________________________________________
Title or capacity if partnership, State of Residence
corporation or other non-individual entity
</TABLE>
BROKER DEALER STATEMENT
To substantiate compliance with the prospectus delivery requirements under the
Securities Act of 1933, as amended, the undersigned hereby certifies that the
above-named subscriber received the Prospectus of the Partnership before any
order was taken. The undersigned further certifies that: I have reasonable
grounds to believe that the above-named subscriber meets the applicable
suitability standards as set forth in the Prospectus and is otherwise suitable
for the investment. I have also informed the investor that the Units and Notes
are subject to transfer restrictions and that no public market for the Units or
Notes is likely to develop. My firm will maintain records regarding suitability
in accordance with the NASD's rules and will execute transactions in
discretionary accounts only in accordance with the NASD's rules.
[ ] Check if the subscriber is an investor in a previous partnership sponsored
by Essex.
_______________________________ _______________________________________
Broker/Dealer Registered Representative
_______________________________ _______________________________________
Street Address of Branch Office Representative's Signature Date
_______________________________ _______________________________________
City, State, Zip Dealer's Authorized Date
Return to: ESSEX CAPITAL MARKETS INC. 100 Corporate Woods, Suite 300 Rochester,
New York 14623 (716) 272-2300
7
<PAGE> 381
PROMISSORY NOTE
(Partner Note)
$_________________________ ___________________, 19____
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Essex Hospitality Associates IV L.P. (the "Partnership") at its offices at 100
Corporate Woods, Rochester, New York 14623, the principal sum of
_______________________ and 00/100 Dollars ($_______________ ) (one-half of the
purchase price if the undersigned is purchasing 20 or more Limited Partnership
Units).
Payment under this Note shall become due and payable upon the demand by
Essex Partners Inc. (the "General Partner") made at least six months after
acceptance of the subscription to which this Note relates; provided, that (a) a
property has been identified for acquisition by the Partnership and a date for
closing of the purchase has been scheduled and (b) within 30 days prior to the
scheduled closing date, the General Partner, in its sole and absolute
discretion, has determined that the Partnership has insufficient cash gross
offering proceeds to consummate the purchase and/or commence construction on the
hotel to be built on such property. The General Partner may, in its discretion,
demand only a portion of the amount payable hereunder. In such an event, the
General Partner shall promptly notate the amount of such payment on Schedule A
hereto and deliver a copy thereof to the undersigned.
All amounts due hereunder, to the extent not previously paid pursuant to the
foregoing paragraph, shall became immediately due and payable in full at the
earlier of:
(1) Two years from the date of the acceptance of the subscription to which
this Note relates; or
(2) Three years from the effective date of the Registration Statement filed in
connection with the Limited Partnership Unit(s) to which this Note relates.
This Note shall be payable in lawful money of the United States of
America. If the date upon which any payment is due is not a business day, such
payment shall be due on the last business day immediately preceding such date.
This Note or any payment described above may be prepaid, without
penalty, in whole or in part (in increments of $1,000) at any time. In the event
of a partial prepayment, the General Partner shall notate the amount of such
payment on Schedule A hereto and furnish a copy thereof to the undersigned.
<PAGE> 382
If legal proceedings are instituted to collect any amount due under
this Note, the undersigned agrees to pay the holder hereof, in addition to the
unpaid principal balance, all costs and expenses of such proceedings, including
attorneys' fees.
Any of the following events shall constitute an Event of Default
hereunder:
(1) The undersigned shall fail to make payment under this Note for thirty days
after such payment has become due; or
(2) The undersigned shall: (a) make an assignment for the benefit of
creditors; (b) admit in writing his/her/its inability to pay his/her/its debts
as they become due; or (c) commence (as the debtor) a case in bankruptcy or any
proceeding under any other insolvency law; or
(3) A case in bankruptcy or any proceeding under any other insolvency law
shall be commenced against the undersigned (as the debtor) and: (a) a court of
competent jurisdiction enters an order for relief against the undersigned (as
the debtor); (b) the case or proceeding remains undismissed for forty days; or
(c) the undersigned admits or consents to the material allegations against it in
any such case or proceeding; or
(4) A trustee, receiver, agent or custodian (however named) is appointed or
authorized to take charge of substantially all of the property of the
undersigned for the purpose of enforcing a lien against such property or for the
purpose of general administration of such property; or
(5) If the undersigned is a corporation, it ceases doing business as a going
concern or takes any action looking to its dissolution or liquidation.
Upon the occurrence of an Event of Default hereunder, all amounts
owing under this Note shall become immediately due and payable without notice,
presentment or demand of any kind, all of which are hereby waived. The
undersigned shall nevertheless remain liable for payment on the Note until it
has been paid in full or cancelled.
Any payment not made when due hereunder shall, from and after the due
date, bear interest at a rate which shall automatically increase or decrease so
that at all times such rate shall be equal to two percent per annum in excess of
the Prime Rate of Manufacturers and Traders Trust Company; provided, however,
that the undersigned shall not be required to pay any amount pursuant to this
Note which is in excess of the maximum amount permitted under applicable law.
2
<PAGE> 383
The provisions of this Note shall inure to the benefit of and be
binding on any successor to the undersigned, or any assignee thereof, and shall
extend to any holder hereof. This Note shall in all respects be governed by, and
construed in accordance with, the laws of the State of New York, including all
matters of construction, performance and validity. The undersigned waives
presentment and demand for payment, notice of dishonor, protest and notice of
protest of this Note. No failure or delay by the Partnership in the exercise of
any power or right in this Note shall operate as a waiver thereof, and no
exercise or waiver of any single power or right, or the partial exercise
thereof, shall affect the Partnership's rights with respect to any and all other
rights and powers.
None of the Partnership's right, title and interest in and under this
Note, including but not limited to, its right to all moneys due or to become due
hereunder, may be assigned to another party.
The liability of the undersigned, if more than one person or entity,
shall be joint and several.
The number of Limited Partnership Units of the Partnership being
purchased in connection herewith is ________________.
_____________________________________________
Print or Type Name of Maker
_____________________________________________
Signature if Individual
By: _____________________________________________
(Signature of Authorized Officer, Trustee or
General Partner if Promisor is a Corporation
Trust or Partnership)
_____________________________________________
(Name and Title of Signatory if Promisor is a
Corporation, Trust or Partnership)
3
<PAGE> 384
SCHEDULE A
<TABLE>
<CAPTION>
Date of Amount of Signature of Officer of Remaining
Payment Payment General Partner Balance
- ------- --------- ----------------------- ---------
<S> <C> <C> <C>
$ $
- -------- --------- --------------- ---------
$ $
- -------- --------- --------------- ---------
$ $
- -------- --------- --------------- ---------
</TABLE>
4
<PAGE> 385
EXHIBIT D
GUARANTY OF COMPLETION
<PAGE> 386
GUARANTY OF COMPLETION
THIS GUARANTY, dated as of _________, 1995, is given by Essex Partners
Inc., a New York corporation having its principal office at 100 Corporate Woods,
Rochester, New York 14623 ("Guarantor") to Essex Hospitality Associates IV L.P.,
a New York limited partnership ("Partnership") in connection with its planned
construction of a hotel ("Hotel") on property located at ____________________
_____________________ .
RECITALS
1. All capitalized terms used herein and not otherwise defined shall
have the same meanings assigned thereto in the [Fee/Leasehold] Mortgage and
Security Agreement (the "Mortgage"), dated the date hereof, between the
Partnership, as mortgagor, and Manufacturers and Traders Trust Company, as
trustee, on behalf of the owners of the Partnership's 10% First Mortgage Notes
(the "Mortgage Notes").
2. Guarantor guarantees to Partnership the "Lien Free Completion of the
Hotel" (as hereafter defined). The term "Lien Free Completion of the Hotel"
means completion of the Hotel substantially in accordance with the construction
contract, free and clear of all mechanics' liens and any other liens, security
interests, encumbrances or exceptions to title, except for Permitted Liens.
3. In the event that Partnership fails to pay when due any sums due the
general contractor, the subcontractors or any other person, firm or corporation
for work, labor or services performed or materials, supplies or equipment
furnished in connection with the construction or equipping of the Hotel,
Guarantor agrees to pay the same.
4. In the event that Partnership fails to fully pay or to bond and
discharge of record any mechanic's lien within 30 days after the recording or
filing thereof, Guarantor agrees to do so.
5. In the event that Guarantor shall advance or become obligated to pay
any sums toward the construction or equipping of the Hotel, the amount of such
advance, payment or indebtedness shall at all times be subject and subordinate
in lien to all amounts due and owing under the Mortgage Notes.
6. The liability of Guarantor hereunder shall continue until the later
of (a) the expiration of the statutory period within which any mechanic's lien
can be timely filed against the Hotel under the provisions of the applicable
state lien law and (b) the expiration of the statutory period within which any
claim may be effectively asserted against the Trustee by any claimant for
recovery of any amounts previously
<PAGE> 387
paid to the Trustee as a diversion of trust funds under the provisions of the
applicable state lien law; at which time this Guaranty shall become null and
void and of no further force and effect.
7. This Guaranty may not be changed or terminated orally, but only by a
written instrument signed by the Partnership and approved by limited partners of
the Partnership who contributed more than 50% of the aggregate capital
contributions of the Partnership which were not contributed by "Affiliated
Persons" (as defined in the Partnership's Amended and Restated Limited
Partnership Agreement) and all of the registered holders of the Mortgage Notes.
8. This Guaranty shall be binding upon Guarantor and its successors and
assigns and shall inure to the benefit of and may be enforced by the
Partnership, its successors and assigns. If the Partnership fails to enforce its
rights hereunder against Guarantor for a period of 30 days after notice and
demand from the Trustee, this Guaranty may be enforced by the Trustee (or any
successor) on behalf of the owners and future owners of the Mortgage Notes.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly
executed as of the day and year first above written.
ESSEX PARTNERS INC.
By: _________________________
Title: ______________________
2
<PAGE> 388
EXHIBIT E
Prior Performance Tables
<PAGE> 389
PRIOR PERFORMANCE TABLES
ESSEX PARTNERS INC. AND AFFILIATES
INTRODUCTION
Essex Partners Inc. has been a general partner in eleven real estate
syndications with investment objectives similar to the Partnership. The prior
partnerships were all hotel-related offerings of debt or equities securities.
They were each organized to provide capital appreciation and cash distributions
from investments in hotels. These syndications are:
Essex Microtel 1989 L.P.
Essex Microtel Associates L.P.
Essex Microtel Lehigh L.P.
Essex Microtel LeRay L.P.
Hagel-Essex Microtel L.P.
Essex Microtel Carrier Circle L.P.
Essex Charleston Associates L.P.
Essex Microtel Associates II L.P.
Essex Knoxville Associates L.P.
Essex Hospitality Associates III L.P.
Essex Glenmaura L.P.
Nine of the above partnerships involved construction of new facilities. Essex
Microtel Lehigh L.P. purchased a hotel that had been in operation for fifteen
months. Essex Microtel LeRay L.P. purchased a hotel after construction had been
completed but before operations began.
This offering is the fourth publicly registered program sponsored by Essex
Partners Inc. or its affiliates.
Further information concerning the prior performance of Essex Partners Inc. and
its affiliates is set out in the Prospectus at pages 47-53. Additional
information may be obtained from Essex Partners Inc. at the address and
telephone number set out on page 5 of the Prospectus.
<PAGE> 390
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING AUGUST 31, 1995)
Table I sets forth information with respect to the offerings of real estate
limited partnership interests with similar investment objectives as the
Partnership in which Essex Partners or affiliates acted as general partners and
which closed in the three year period ending August 31, 1995.
<PAGE> 391
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING AUGUST 31, 1995)
<TABLE>
<CAPTION>
Essex Hospitality Essex
Associates III L.P. (5) Glenmaura L.P. (6)
----------------------- ---------------------
<S> <C> <C> <C> <C>
Dollar amount offered 13,986,320 2,500,000
Dollar amount raised 13,986,320 100.0% 800,000 32.0%
Less offering expenses:
Selling commissions paid
to affiliates 856,000 6.1% 11,000 1.4%
Organizational and syndication
expenses (1) 767,000 5.5% 14,400 1.8%
---------- ----- --------- -----
Available for investment 12,363,320 88.4% 774,600 96.8%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- -- -- --
Cash downpayment (2) 1,366,000 9.8% -- --
Acquisition and Developer fees:
Paid to affiliates 870,000 6.2% -- --
Paid to non-affiliates -- -- -- --
Other acquisition & development
expenses (2) 9,442,000 -- 766,600 95.8%
---------- ----- --------- -----
Total acquisition cost 11,678,000 83.5% 766,600 95.8%
Non-recurring management and
organization fees to affiliates -- -- 5,000 0.6%
Other requirements (3) 685,000 4.9% 3,000 0.4%
---------- ----- --------- -----
Total 13,986,320 100.0% 800,000 100.0%
Purchase price (including
brokerage fees) 11,679,000 6,849,000
Percent leverage (4) 85.6% 80.3%
Date offering began 11/17/93 05/25/95
Length of offering (months) 22 N/A
</TABLE>
<TABLE>
<CAPTION>
Essex
Glenmaura L.P. (6)
---------------------
<S> <C> <C>
Dollar amount offered 1,500,000
Dollar amount raised 1,500,000 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 60,000 4.0%
Organizational and syndication
expenses (1) 33,900 2.3%
--------- -----
Available for investment 1,406,100 93.7%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- --
Cash downpayment (2) 1,033,600 68.9%
Acquisition and Developer fees:
Paid to affiliates 225,000 15.0%
Paid to non-affiliates -- --
Other acquisition & development
expenses (2) 147,500 9.8%
--------- -----
Total acquisition cost 1,406,100 93.7%
Non-recurring management and
organization fees to affiliates -- --
Other requirements (3) -- --
--------- -----
Total 1,500,000 100.0%
Purchase price (including
brokerage fees) 6,849,000
Percent leverage (4) 80.3%
Date offering began 05/10/95
Length of offering (months) 2
</TABLE>
<PAGE> 392
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING AUGUST 31, 1995)
<TABLE>
<CAPTION>
Essex Knoxville Essex Knoxville
Associates L.P. (7) Associates L.P. (7)
--------------------- ----------------------
<S> <C> <C> <C> <C>
Dollar amount offered 1,000,000 2,000,000
Dollar amount raised 1,000,000 100.0% 2,000,000 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 20,000 2.0% 100,000 5.0%
Organizational and syndication
expenses (1) 15,900 1.6% 39,800 2.0%
--------- ----- --------- -----
Available for investment 964,100 96.4% 1,860,200 93.0%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- -- -- --
Cash downpayment (2) 430,000 43.0% -- --
Acquisition and Developer fees:
Paid to affiliates 200,000 20.0% -- --
Paid to non-affiliates -- -- -- --
Other acquisition & development
expenses (2) 304,100 30.4% 1,820,700 91.0%
--------- ----- --------- -----
Total acquisition cost 934,100 93.4% 1,820,700 91.0%
Non-recurring management and
organization fees to affiliates 30,000 3.0% 25,000 1.3%
Other requirements (3) -- -- 14,500 0.7%
--------- ----- --------- -----
Total 1,000,000 100.0% 2,000,000 100.0%
Purchase price (including
brokerage fees) 3,118,000 3,118,000
Percent leverage (4) 80.2% 80.2%
Date offering began 12/03/92 06/22/93
Length of offering (months) 13 6
</TABLE>
<TABLE>
<CAPTION>
Essex Knoxville
Associates L.P. (7)
--------------------
<S> <C> <C>
Dollar amount offered 500,000
Dollar amount raised 500,000 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 27,500 5.5%
Organizational and syndication
expenses (1) 13,000 2.6%
--------- -----
Available for investment 459,500 91.9%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- --
Cash downpayment (2) -- --
Acquisition and Developer fees:
Paid to affiliates -- --
Paid to non-affiliates -- --
Other acquisition & development
expenses (2) 396,600 79.3%
--------- -----
Total acquisition cost 396,600 79.3%
Non-recurring management and
organization fees to affiliates 25,000 5.0%
Other requirements (3) 37,900 7.6%
--------- -----
Total 500,000 100.0%
Purchase price (including
brokerage fees) 3,118,000
Percent leverage (4) 80.2%
Date offering began 05/24/94
Length of offering (months) 2
</TABLE>
<PAGE> 393
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING AUGUST 31, 1995)
<TABLE>
<CAPTION>
Essex Microtel Essex Charleston
Associates II L.P. (5) Associates L.P. (5)
----------------------- -------------------
<S> <C> <C> <C> <C>
Dollar amount offered 10,487,000 3,390,000
Dollar amount raised 10,487,000 100.0% 3,390,000 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 578,200 5.5% 201,000 5.9%
Organizational and syndication
expenses (1) 564,000 5.4% 150,000 4.4%
---------- ----- --------- -----
Available for investment 9,344,800 89.1% 3,039,000 89.6%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- -- -- --
Cash downpayment (2) 1,493,000 14.2% 654,000 19.3%
Acquisition and Developer fees:
Paid to affiliates 630,000 6.0% 161,000 4.7%
Paid to non-affiliates -- -- -- --
Other acquisition & development
expenses (2) 6,476,000 61.8% 2,224,000 65.6%
---------- ----- --------- -----
Total acquisition cost 8,599,000 82.0% 3,039,000 89.6%
Non-recurring management and
organization fees to affiliates 90,000 0.9% -- 0.0%
Other requirements (3) 655,800 6.3% -- 0.0%
---------- ----- --------- -----
Total 10,487,000 100.0% 3,390,000 100.0%
Purchase price (including
brokerage fees) 8,688,000 3,046,000
Percent leverage (4) 90.4% 57.5%
Date offering began 11/18/92 08/27/92
Length of offering (months) 13 3
</TABLE>
<PAGE> 394
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING AUGUST 31, 1995)
<TABLE>
<CAPTION>
Essex Microtel Essex Real Estate
Carrier Circle L.P. Partnership Notes (8)
------------------------ ----------------------
<S> <C> <C> <C> <C>
Dollar amount offered $1,200,000 $976,000
Dollar amount raised $1,200,000 100.0% $976,000 100.0%
Less offering expenses:
Selling commissions paid
to affiliates 0 0.0% 48,800 5.0%
Organizational and syndication
expenses (1) 53,000 4.4% 27,200 2.8%
---------- ----- -------- -----
Available for investment $1,147,000 95.6% $900,000 92.2%
Acquisition and Development costs:
Pre-paid items and fees related
to purchase of property -- -- -- --
Cash downpayment (2) 605,000 50.4% -- --
Acquisition and Developer fees:
Paid to affiliates 192,000 16.0% -- --
Paid to non-affiliates -- -- -- --
Other acquisition & development
expenses (2) 295,000 24.6% 95,000 9.7%
---------- ----- -------- -----
Total acquisition cost $1,092,000 91.0% $95,000 9.7%
Non-recurring management and
organization fees to affiliates 25,000 2.1% -- --
Other requirements (3) 30,000 2.5% 805,000 82.5%
---------- ----- -------- -----
Total $1,200,000 100.0% $976,000 100.0%
Purchase price (including
brokerage fees) 3,135,000 --
Percent leverage (4) 70.2% --
Date offering began 10/09/91 03/01/95
Length of offering (months) 12 2
</TABLE>
2
<PAGE> 395
TABLE I
ESSEX AND AFFILIATES
EXPERIENCE IN RAISING AND INVESTING FUNDS
(THREE YEARS ENDING AUGUST 31, 1995)
NOTES
(1) Includes any legal, accounting, blue sky and publication costs as well as
other fees incurred with the offering.
(2) The cash downpayment represents the land cost. Proceeds used in property
construction are included in other acquisition and development expenses.
(3) Includes amounts of working capital reserves and other carrying costs.
(4) For each partnership, percent leverage equals: (i) the total amount of
mortgages and other financing outstanding on the property owned by the
partnership, divided by (ii) the purchase price.
(5) Both limited partnership interests and debt were included in the
offerings by Essex Charleston Associates L.P., Essex Microtel Associates
II L.P. and Essex Hospitality Associates III L.P..
(6) The Essex Glenmaura L.P. program is being financed through two offerings,
an equity offering of $2,500,000 and a note offering of $1,500,000. The
Essex Glenmaura L.P. equity offering is still in process. Essex Glenmaura
L.P. is expected to begin construction of one hotel in the fall. The
purchase price represents the estimated total costs to acquire the land
and construct the hotel. The percent leverage is the estimated total debt
divided by the purchase price. The actual purchase price and percent
leverage will not be known until the project is completed.
(7) The Essex Knoxville Associates program was financed through three
offerings, an equity offering of $1,000,000, a mortgage note offering of
$2,000,000 and a note offering of $500,000. Each offering is presented
separately in Table I.
(8) The Essex Real Estate Partnership Notes offering raised debt financing
for three real estate partnerships, Essex Microtel Associates L.P. and
Essex Microtel LeRay L.P., which are included in these prior performance
tables and Essex Geneseo Associates, which owns non-hotel property. Of
the total amount raised, $434,000 was used for Essex Microtel Associates
L.P. to replace existing debt, $217,000 was used for Essex Microtel LeRay
to replace existing debt and provide working capital and $325,000 was for
Essex Geneseo Associates to replace existing debt and complete
construction of two buildings.
<PAGE> 396
TABLE II
ESSEX AND AFFILIATES
COMPENSATION TO SPONSOR
(Three Years Ending December 31, 1994)
Table II provides information as to the cumulative compensation paid to
sponsors for a three year period ending December 31, 1994 (or from partnership
inception, if later) from both offering proceeds and property operations.
None of the programs for which information is presented in Table II has been
liquidated and there have been no sales or maturities of any of the program's
investments.
<PAGE> 397
TABLE II
ESSEX AND AFFILIATES
COMPENSATION TO SPONSOR
(Cumulative Through December 31, 1994)
<TABLE>
<CAPTION>
Essex Hospitality Essex Knoxville Essex Microtel
Associates III Associates L.P. Associates II
L.P. (1) (2) L.P.
----------------- --------------- --------------
<S> <C> <C> <C>
Date offering commenced 11/17/93 var 11/18/92
Dollar amount raised 9,874,070 3,500,000 10,487,000
Amount paid to sponsor from offering proceeds:
Underwriting fees 591,000 172,500 578,200
Acquisition and development fees
- real estate commissions -- -- --
- advisory fees 694,000 200,000 720,000
- other -- -- --
Organization fees 336,000 30,000 356,600
Other -- 50,000 --
Dollar amount of cash generated from operations
before deducting payments to sponsor: (295,000) (7,700) (118,700)
Amount paid to sponsor from operations:
Property management fees 3,600 15,000 153,100
Partnership management fees 1,000 5,000 45,200
Reimbursements -- -- --
Leasing commissions -- -- --
Other -- -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- -- --
- cash -- -- --
- notes -- -- --
Amount paid to sponsor from property sales
and refinancing: -- -- --
- Real estate commissions -- -- --
- Incentive fees -- -- --
- Other -- -- --
</TABLE>
<PAGE> 398
TABLE II
ESSEX AND AFFILIATES
COMPENSATION TO SPONSOR
(Cumulative Through December 31, 1994)
<TABLE>
<CAPTION>
Essex Microtel
Essex Charleston Carrier Circle Essex Microtel
Associates L.P. L.P. (3) Associates L.P.
---------------- -------------- ---------------
<S> <C> <C> <C>
Date offering commenced 8/27/92 var 06/19/90
Dollar amount raised 3,390,000 3,400,000 3,083,000
Amount paid to sponsor from offering proceeds:
Underwriting fees 200,700 132,000 246,640
Acquisition and development fees
- real estate commissions -- -- --
- advisory fees 160,000 66,300 200,000
- other -- -- --
Organization fees 21,600 33,000 --
Other 41,400 50,780 --
Dollar amount of cash generated from operations
before deducting payments to sponsor: 170,200 222,800 665,400
Amount paid to sponsor from operations:
Property management fees 72,000 60,200 48,000
Partnership management fees 19,500 42,800 12,000
Reimbursements -- -- --
Leasing commissions -- -- --
Other -- -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- -- --
- cash -- -- --
- notes -- -- --
Amount paid to sponsor from property sales
and refinancing: -- -- --
- Real estate commissions -- -- --
- Incentive fees -- -- --
- Other -- -- --
</TABLE>
<PAGE> 399
TABLE II
ESSEX AND AFFILIATES
COMPENSATION TO SPONSOR
(Cumulative Through December 31, 1994)
<TABLE>
<CAPTION>
Essex Microtel Hagel-Essex Essex Microtel
LeRay L.P. L.P. Lehigh L.P. (4)
-------------- ----------- ----------------
<S> <C> <C> <C>
Date offering commenced 10/19/90 03/29/91 var
Dollar amount raised 1,531,254 1,012,750 $3,161,480
Amount paid to sponsor from offering proceeds:
Underwriting fees 91,769 -- 77,400
Acquisition and development fees
- real estate commissions -- -- --
- advisory fees 69,000 100,000 --
- other -- -- --
Organization fees 40,000 -- --
Other 22,759 -- 45,300
Dollar amount of cash generated from operations
before deducting payments to sponsor: 119,405 351,000 523,200
Amount paid to sponsor from operations:
Property management fees -- -- 11,000
Partnership management fees 32,605 33,100 34,800
Reimbursements -- -- --
Leasing commissions -- -- --
Other -- -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- -- --
- cash -- -- 531,500
- notes -- -- --
Amount paid to sponsor from property sales
and refinancing: -- -- --
- Real estate commissions -- -- --
- Incentive fees -- -- 32,400
- Other -- -- 12,900
</TABLE>
<PAGE> 400
TABLE II
ESSEX AND AFFILIATES
COMPENSATION TO SPONSOR
(Cumulative Through December 31, 1994)
<TABLE>
<CAPTION>
Essex Microtel Other
1989 L.P. (5) Programs (6)
-------------- ------------
<S> <C> <C>
Date offering commenced var
Dollar amount raised $2,687,000 4,588,000
Amount paid to sponsor from offering proceeds:
Underwriting fees 60,000 376,000
Acquisition and development fees
- real estate commissions -- --
- advisory fees -- 239,300
- other -- --
Organization fees -- 61,500
Other 38,200 21,200
Dollar amount of cash generated from operations
before deducting payments to sponsor: 439,200 35,600
Amount paid to sponsor from operations:
Property management fees -- 12,700
Partnership management fees 33,100 2,500
Reimbursements -- --
Leasing commissions -- --
Other -- --
Dollar amount of property sales and refinancing
before deducting payments to sponsor: -- --
- cash 592,800 --
- notes -- --
Amount paid to sponsor from property sales
and refinancing: -- --
- Real estate commissions -- --
- Incentive fees 28,200 --
- Other 10,000 --
</TABLE>
<PAGE> 401
TABLE II
ESSEX AND AFFILIATES
COMPENSATION TO SPONSOR
(CUMULATIVE THROUGH DECEMBER 31, 1994)
(1) Essex Hospitality Associates III opened one of its three properties in
September, 1994. The remaining properties opened in 1995.
(2) Essex Knoxville Associates had three offerings. The first commenced in
December, 1992 and raised $1,000,000 in equity financing. The second
commenced in June, 1993 and raised $2,000,000 in first mortgage financing.
The final offering commenced May, 1994 and raised $500,000 in unsecured
notes.
(3) Essex Microtel Carrier Circle was financed through two offerings, one which
raised $1,200,000 in equity financing and one which raised $2,200,000 in
first mortgage financing. The equity offering commenced in October, 1991,
and was completed in September, 1992. The offering of first mortgage notes
commenced in February, 1992 and was completed in April, 1992.
(4) Essex Microtel Lehigh raised $1,871,480 in equity financing through an
offering which commenced in June, 1990, and was completed in December,
1990. In addition, second mortgage financing totalling $1,290,000 was
raised through an offering which commenced in July, 1992 and was completed
in August, 1992.
(5) Essex Microtel 1989 raised $1,487,000 in equity financing through an
offering which commenced in December, 1989, and was completed in January,
1990. In addition, second mortgage financing of $1,200,000 was raised
through an offering which commenced in June, 1992 and was completed the
same month.
(6) This category includes all other programs syndicated by Essex Partners from
1992 through 1994.
<PAGE> 402
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(THROUGH DECEMBER 31, 1994)
Table III presents operating information from the opening of the property
through December 31, 1994 for the programs in which Essex Partners or affiliates
acted as general partners and which closed in the five year period ending June
30, 1995.
<PAGE> 403
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
<TABLE>
<CAPTION>
---------------------------------------------------
ESSEX MICROTEL 1989 L.P.
---------------------------------------------------
1990
(6 MOS) 1991 1992 1993 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues 470.1 1,111.3 1,148.2 1,105.3 1,036.0
Profit on sale of properties -- -- -- -- --
Less: operating expenses 288.7 630.8 644.6 660.3 634.5
------- ------ ------ ------ ------
Operating income (loss) 181.4 480.5 503.6 445.0 401.5
Less: interest expense 96.9 231.0 271.0 292.1 290.4
depreciation 78.6 156.2 172.5 190.7 192.2
------- ------ ------ ------ ------
Net income (loss) 5.8 93.3 60.1 (37.8) (81.1)
Cash generated from operations 76.3 289.5 218.1 156.0 97.0
Cash generated from sales -- -- -- -- --
Cash generated from financing activities 2,557.4 (244.0) (253.9) (134.6) (112.7)
Plus:cash distributions 163.7 227.6 795.5 121.2 97.8
---------------------------------------------------
Cash generated from operations, sales & financing 2,797.3 273.1 759.7 142.6 82.1
Less: cash distributions to investors
----from operating cash flow 76.3 227.6 253.9 121.2 97.8
----from sales and financing activities 87.4 -- 541.6 -- --
----from other -- -- -- -- --
---------------------------------------------------
Cash generated (deficiency) after cash distributions 2,633.7 45.5 (35.8) 21.3 (15.7)
Less: special items -- capital improvements (2,627.4) 10.0 (13.8) (8.6) (14.2)
---------------------------------------------------
Cash generated (deficiency) after cash 6.2 55.5 (49.6) 12.7 (29.8)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) ---- from operations 3.9 62.2 40.1 (25.2) (54.1)
---- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (GAAP basis) ---- investment income -- -- -- -- --
---- return of capital 109.1 151.8 530.3 80.8 65.2
Source: (cash basis) ---- sales -- -- -- -- --
---- financing activities 58.3 -- 361.1 -- --
---- operations 50.8 151.8 169.3 80.8 65.2
---- other -- -- -- -- --
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100%
</TABLE>
<PAGE> 404
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
<TABLE>
<CAPTION>
-------------------------------------------------------
ESSEX MICROTEL LEHIGH L.P.
-------------------------------------------------------
1990
(3 MOS) 1991 1992 1993 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues 198.2 1,106.1 1,144.7 1,164.8 1,121.6
Profit on sale of properties -- -- -- -- --
Less: operating expenses 167.5 667.8 690.4 716.6 707.3
-------- ------ ------ ------ ------
Operating income (loss) 30.7 438.2 454.3 448.1 414.3
Less: interest expense 49.6 185.3 185.0 223.3 234.2
depreciation 27.4 158.0 162.1 176.0 166.2
-------- ------ ------ ------ ------
Net income (loss) (46.3) 94.9 107.2 48.9 13.9
Cash generated from operations 26.1 259.0 258.1 225.2 170.8
Cash generated from sales -- -- -- -- --
Cash generated from financing activities 1,618.8 (232.7) (233.8) (192.1) (189.9)
Plus:cash distributions 52.7 189.8 662.2 139.7 143.1
-------------------------------------------------------
Cash generated from operations, sales & financing 1,697.6 216.1 686.5 172.9 124.1
Less: cash distributions to investors
----from operating cash flow 52.7 189.8 233.8 139.7 143.1
----from sales and financing activities -- -- 428.4 -- --
----from other -- -- -- -- --
-------------------------------------------------------
Cash generated (deficiency) after cash distributions 1,644.9 26.4 24.3 33.1 (19.0)
Less: special items -- capital improvements (1,592.0) (12.4) (21.0) (23.4) (15.8)
-------------------------------------------------------
Cash generated (deficiency) after cash 52.9 13.9 3.3 9.7 (34.8)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) ---- from operations (24.7) 50.6 57.2 26.1 7.4
---- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (GAAP basis) ---- investment income -- -- -- -- --
---- return of capital 28.1 101.2 353.2 74.5 76.3
Source: (cash basis) ---- sales -- -- -- -- --
---- financing activities -- -- 228.5 -- --
---- operations 28.1 101.2 124.7 74.5 76.3
---- other -- -- -- -- --
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100%
</TABLE>
<PAGE> 405
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
<TABLE>
<CAPTION>
---------------------------------------------------
ESSEX MICROTEL LeRAY L.P.
---------------------------------------------------
1990
(4 MOS) 1991 1992 1993 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues 212.7 864.7 869.6 704.4 689.3
Profit on sale of properties -- -- -- -- --
Less: operating expenses 155.4 567.6 556.4 538.5 543.9
------ ------ ------ ------ ------
Operating income (loss) 57.3 297.1 313.2 165.9 145.4
Less: interest expense 100.9 221.3 179.9 180.0 175.0
depreciation 81.8 202.5 124.7 118.3 114.6
------ ------ ------ ------ ------
Net income (loss) (125.3) (126.7) 8.6 (132.4) (144.2)
Cash generated from operations 73.4 14.0 133.2 (21.3) (24.7)
Cash generated from sales -- -- -- -- --
Cash generated from financing activities 74.6 39.9 (108.9) 8.0 45.9
Plus:cash distributions -- 87.3 103.6 -- --
---------------------------------------------------
Cash generated from operations, sales & financing 148.0 141.3 127.9 (13.2) 21.2
Less: cash distributions to investors
----from operating cash flow -- 55.2 103.6 -- --
----from sales and financing activities -- 32.1 -- -- --
----from other -- -- -- -- --
---------------------------------------------------
Cash generated (deficiency) after cash distributions 148.0 54.0 24.3 (13.2) 21.2
Less: special items -- capital improvements (120.6) (49.0) (9.5) (15.2) (18.4)
---------------------------------------------------
Cash generated (deficiency) after cash 27.3 4.9 14.8 (28.5) 2.8
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) ---- from operations (131.3) (82.7) 5.6 (86.4) (94.2)
---- from recapture -- -- -- -- --
Capital gain -- -- -- -- --
Cash distributions to investors
Source: (GAAP basis) ---- investment income -- -- -- -- --
---- return of capital -- 57.0 67.7 0.0 0.0
Source: (cash basis) ---- sales -- -- -- -- --
---- financing activities -- 21.0 -- -- --
---- operations -- 36.0 67.7 0.0 0.0
---- other -- -- -- -- --
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100%
</TABLE>
<PAGE> 406
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
<TABLE>
<CAPTION>
-----------------------------------------
ESSEX MICROTEL ASSOCIATES L.P.
-----------------------------------------
1991
(1) 1992 1993 1994
----- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Revenues 84.6 745.4 832.5 892.0
Profit on sale of properties -- -- -- --
Less: operating expenses -- 564.1 599.9 603.6
-------- ------ ------ ------
Operating income (loss) 84.6 181.4 232.6 288.4
Less: interest expense 51.1 41.6 46.5 47.2
depreciation 5.0 155.4 145.4 125.4
======== ======= ====== =====
Net income (loss) 28.5 (15.7) 40.8 115.9
Cash generated from operations 21.7 195.2 167.1 261.3
Cash generated from sales -- -- -- --
Cash generated from financing activities 2,546.4 125.0 (226.3) (240.0)
Plus: cash distributions -- 406.4 227.1 240.0
-------- ------- ------- -------
Cash generated from operations, sales & financing 2,568.0 726.6 167.9 261.2
Less: cash distributions to investors
----from operating cash flow -- 144.2 179.7 240.0
----from sales and financing activities -- 262.2 47.4 --
----from other -- -- -- --
--------- ----- ------ ------
Cash generated (deficiency) after cash distributions 2,568.0 320.2 (59.2) 21.2
Less: special items -- capital improvements (2,304.8) (463.4) (12.9) (5.3)
--------- -------- ------ -------
Cash generated (deficiency) after cash 263.2 (143.1) (72.2) 15.9
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) ---- from operations 9.8 (5.1) 13.2 37.6
---- from recapture -- -- -- --
Capital gain -- -- -- --
Cash distributions to investors
Source: (GAAP basis) ---- investment income -- -- -- --
---- return of capital -- 131.8 73.7 77.9
Source: (cash basis) ---- sales -- -- -- --
---- financing activities -- 85.0 15.4 0.0
---- operations -- 46.8 58.3 77.9
---- other -- -- -- --
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100%
</TABLE>
<PAGE> 407
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
<TABLE>
<CAPTION>
---------------------------------------------
HAGEL-ESSEX L.P.
---------------------------------------------
1991 1992
(1) (7 MOS) 1993 1994
---------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues 2.9 545.5 982.6 919.8
Profit on sale of properties -- -- -- --
Less: operating expenses -- 363.7 698.0 646.9
------ -------- ------ ------
Operating income (loss) 2.9 181.8 284.6 272.9
Less: interest expense -- 84.9 154.0 152.9
depreciation -- 125.6 214.4 182.4
------ -------- ------ ------
Net income (loss) 2.9 (28.8) (83.9) (62.4)
Cash generated from operations (3.4) 70.5 152.7 115.5
Cash generated from sales -- -- -- --
Cash generated from financing activities 915.6 2,054.4 (123.6) (134.2)
Plus:cash distributions -- 292.8 108.9 109.8
---------------------------------------------
Cash generated from operations, sales & financing 912.2 2,417.6 138.0 91.1
Less: cash distributions to investors
----from operating cash flow -- 67.0 108.9 109.8
----from sales and financing activities -- 224.9 -- --
----from other -- -- -- --
---------------------------------------------
Cash generated (deficiency) after cash distributions 912.2 2,125.7 29.1 (18.7)
Less: special items -- capital improvements (800.7) (2,148.7) (9.3) (11.5)
---------------------------------------------
Cash generated (deficiency) after cash 111.5 (23.0) 19.9 (30.2)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) ---- from operations 2.9 (28.4) (82.8) (61.6)
---- from recapture -- -- -- --
Capital gain -- -- -- --
Cash distributions to investors
Source: (GAAP basis) ---- investment income -- -- -- --
---- return of capital -- 288.3 107.5 108.4
Source: (cash basis) ---- sales -- -- -- --
---- financing activities -- -- -- --
---- operations -- 66.2 107.5 108.4
---- other
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100%
</TABLE>
<PAGE> 408
<TABLE>
<CAPTION>
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
ESSEX
MICROTEL CARRIER CIRCLE L.P.
1991 1992
(1) (2 MOS) 1993 1994
------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues 0.6 101.7 846.1 967.9
Profit on sale of properties - - (36.4) -
Less: operating expenses 3.0 88.2 560.3 615.5
----- ------ ------ ------
Operating income (loss) (2.4) 13.5 249.5 352.4
Less: interest expense - 37.0 225.5 225.5
depreciation 1.5 77.2 247.6 218.2
----- ------ ------ ------
Net income (loss) (3.9) (100.6) (223.7) (91.3)
Cash generated from operations (2.4) (13.9) 40.1 125.7
Cash generated from sales - - 66.0 -
Cash generated from financing activities 68.8 3,153.5 (66.3) (105.0)
Plus:cash distributions - - 66.3 105.0
------------------------------------------------------
Cash generated from operations, sales & financing 66.4 3,139.5 106.1 125.8
Less: cash distributions to investors
--from operating cash flow - - 40.1 67.0
--from sales and financing activities - - 26.2 38.0
--from other - - - -
----- ------ ------ ------
Cash generated (deficiency) after cash distributions 66.4 3,139.5 39.8 20.8
Less: special items - capital improvements (56.6) (3,116.6) (2.2) (30.1)
------------------------------------------------------
Cash generated (deficiency) after cash 9.8 22.9 37.6 (9.3)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (5.0) (75.8) (168.5) (68.8)
-- from recapture - - - -
Capital gain - - - -
Cash distributions to investors
Source: (GAAP basis) -- investment income - - - -
-- return of capital - - 50.0 79.1
Source: (cash basis) -- sales - - 19.7 28.6
-- financing activities - - - -
-- operations - - 30.2 50.5
-- other - - - -
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 98%
------------------------------------------------------
</TABLE>
<PAGE> 409
<TABLE>
<CAPTION>
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
ESSEX CHARLESTON ASSOCIATES
---------------------------
1992 1993
(1) (8 MOS) 1994
---------------------------------------------
<S> <C> <C> <C>
Gross Revenues 13.3 483.2 829.1
Profit on sale of properties - - -
Less: operating expenses 2.2 339.3 577.1
-------- -------- ------
Operating income (loss) 11.1 143.9 252.0
Less: interest expense - 116.7 175.0
depreciation 12.8 167.1 239.1
-------- -------- ------
Net income (loss) (1.7) (139.9) (162.1)
Cash generated from operations 10.4 (5.4) 84.0
Cash generated from sales - - -
Cash generated from financing activities 2,539.0 456.2 (68.0)
Plus:cash distributions - 35.0 68.0
---------------------------------------------
Cash generated from operations, sales & financing 2,549.4 475.8 84.0
Less: cash distributions to investors
--from operating cash flow - - 68.0
--from sales and financing activities - 25.0 -
--from other - - -
---------------------------------------------
Cash generated (deficiency) after cash distributions 2,549.4 450.8 16.0
Less: special items - capital improvements (901.0) (2,065.2) (16.3)
---------------------------------------------
Cash generated (deficiency) after cash 1,648.4 (1,614.4) (0.3)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (1.1) (84.9) (98.3)
-- from recapture - - -
Capital gain - - -
Cash distributions to investors
Source: (GAAP basis) -- investment income - - -
-- return of capital - 15.2 41.3
Source: (cash basis) -- sales - - -
-- financing activities - 15.2 -
-- operations - - 41.3
-- other - - -
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100%
---------------------------------------------
</TABLE>
<PAGE> 410
<TABLE>
<CAPTION>
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
ESSEX MICROTEL ASSOCIATES II L.P.
1992 1993
(1) (3 MOS) 1994
--------------------------------------------
<S> <C> <C> <C>
Gross Revenues - 272.7 2,569.6
Profit on sale of properties - - -
Less: operating expenses 2.5 308.9 1,693.2
-------- -------- -------
Operating income (loss) (2.5) (36.2) 876.4
Less: interest expense - 372.7 785.8
depreciation - 255.1 676.1
-------- -------- -------
Net income (loss) (2.5) (664.0) (585.5)
Cash generated from operations (0.4) (452.2) 135.2
Cash generated from sales - - -
Cash generated from financing activities 3,707.6 5,304.0 (78.0)
Plus:cash distributions - 100.2 273.5
------------------------------------------------
Cash generated from operations, sales & financing 3,707.2 4,952.0 330.7
Less: cash distributions to investors
--from operating cash flow - - 135.2
--from sales and financing activities - 100.2 138.3
--from other - - -
------------------------------------------------
Cash generated (deficiency) after cash distributions 3,707.2 4,851.8 57.2
Less: special items - capital improvements (1,051.5) (6,830.8) (422.4)
------------------------------------------------
Cash generated (deficiency) after cash 2,655.7 (1,979.0) (365.3)
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (l -- from operations (0.9) (252.6) (222.7)
-- from recapture - - -
Capital gain - - -
Cash distributions to investors
Source: (GAAP basis) -- investment income - - -
-- return of capital - 38.1 104.0
Source: (cash basis) -- sales - - -
-- financing activities - 38.1 52.6
-- operations - - 51.4
-- other - - -
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100%
------------------------------------------------
</TABLE>
<PAGE> 411
<TABLE>
<CAPTION>
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR
PROGRAMS (000)
(Through December 31, 1994)
ESSEX
ESSEX HOSPITALITY
KNOXVILLE ASSC ASSC III L.P.
1993 1994 1993 1994
(1) (5 MOS) (1) (3 MOS)
--------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues 8.8 350.7 - 128.7
Profit on sale of properties - - - -
Less: operating expenses 0.5 237.1 - 167.1
------- -------- ------- --------
Operating income (loss) 8.3 113.6 - (38.4)
Less: interest expense - 137.5 - 242.4
depreciation 8.9 145.7 - 151.3
------- -------- ------- --------
Net income (loss) (0.6) (169.5) - (432.0)
Cash generated from operations 7.8 (27.7) - (299.6)
Cash generated from sales - - -
Cash generated from financing activities 2,757.4 397.7 1,593.0 7,026.1
Plus:cash distributions - 30.0 - 62.3
---------------------------------------------------
Cash generated from operations, sales & financing 2,765.2 400.0 1,593.0 6,788.8
Less: cash distributions to investors
--from operating cash flow - - - -
--from sales and financing activities - 30.0 - 62.3
--from other - - - -
---------------------------------------------------
Cash generated (deficiency) after cash distributions 2,765.2 370.0 1,593.0 6,726.5
Less: special items - capital improvements (763.2) (2,323.7) (575.4) (5,195.2)
---------------------------------------------------
Cash generated (deficiency) after cash 2,002.0 (1,953.6) 1,017.6 1,531.3
distributions and special items
Tax and distribution data per $1,000 invested
Federal income tax results:
Ordinary income (loss) -- from operations (0.1) (17.0) - (0.2)
-- from recapture - - - -
Capital gain - - - -
Cash distributions to investors
Source: (GAAP basis) -- investment income - - - -
-- return of capital - 3.0 - 0.03
Source: (cash basis) -- sales - - - -
-- financing activities - 3.0 - 0.03
-- operations - - - -
-- other - - - -
Amounts (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the table (original
total acquisition cost of properties retained
divided by original total acquisition cost of
all properties in program). 100% 100%
---------------------------------------------------
</TABLE>
<PAGE> 412
TABLE III
ESSEX AND AFFILIATES
OPERATING RESULTS OF PRIOR PROGRAMS (000)
(Through December 31, 1994)
NOTES
(1) These partnerships participated in fundraising and construction activities
in the year indicated. The properties owned by the partnerships opened in
the following year. If the property operated for less than twelve months
in its first year of operations, the number of months the property was
open is noted.
<PAGE> 413
TABLE IV
ESSEX AND AFFILIATES
RESULTS OF COMPLETED PROGRAMS
Table IV presents a summary of operating and disposition results of the prior
partnerships sponsored by either Essex Partners or affiliates which have sold
all their properties as of August 31, 1995. Table IV presents tax, cash
distributions and holding period information with respect to the disposition of
such properties.
As of August 31, 1995, no hotel properties have been sold.
<PAGE> 414
TABLE V
ESSEX AND AFFILIATES
SALES AND DISPOSALS OF PROPERTIES
Table V presents information on the sales or dispositions of property for the
three years ending August 31, 1995 by programs in which Essex Partners or
affiliates acted as general partners and that have similar investment
objectives to the Partnership.
As of August 31, 1995, no hotel properties have been sold or disposed of.
<PAGE> 415
TABLE VI
ESSEX AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY PROGRAMS
Table VI presents information with respect to the acquisition and development
of properties during the three year period ending August 31, 1995 by programs in
which Essex Partners or affiliates acted as general partners.
<PAGE> 416
ESSEX AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Three Years Ending August 31, 1995)
<TABLE>
<CAPTION>
Essex Hospitality Associates III L.P.
-------------------------------------
<S> <C> <C> <C>
Name Microtel Hampton Inn Microtel (1)
Location Birmingham, Rochester, Chattanooga,
AL NY TN
Type of property hotel hotel hotel
Number of units 102 118 100
Date of purchase 12/30/93 6/28/94 12/30/94
Debt financing 2,800,000 4,100,000 3,100,000
Cash downpayment 145,000 1,103,000 208,000
Contract purchase price plus
acquisition fee (2) 2,812,000 4,950,000 3,168,000
Other cash expenditures
expensed (3) 54,000 113,000 56,000
Other cash expenditures
capitalized (4) 133,000 253,000 140,000
Total acquisition cost 2,999,000 5,316,000 3,364,000
</TABLE>
<PAGE> 417
<TABLE>
<CAPTION>
ESSEX AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Three Years Ending August 31, 1995)
Essex Microtel Associates II L.P.
---------------------------------
<S> <C> <C> <C>
Name Microtel Microtel Microtel
Location Youngstown Erie, PA Kingsport,
OH TN
Type of property hotel hotel hotel
Number of units 92 101 87
Date of purchase 6/7/93 12/31/92 12/31/92
Debt financing 2,750,000 2,878,000 2,230,000
Cash downpayment 259,000 248,000 200,000
Contract purchase price plus
acquisition fee (2) 2,871,000 2,973,000 2,268,000
Other cash expenditures
expensed (3) 35,000 50,000 38,000
Other cash expenditures
capitalized (4) 138,000 153,000 162,000
Total acquisition cost 3,044,000 3,176,000 2,468,000
</TABLE>
<PAGE> 418
<TABLE>
<CAPTION>
ESSEX AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY
(Three Years Ending August 31, 1995)
Essex Glenmaura Essex Knoxville Essex Charleston Essex Microtel
Asscs L.P. (1) Asscs L.P. Associates L.P. Carrier Circle L.P.
-------------- ---------- --------------- -------------------
<S> <C> <C> <C> <C>
Name Courtyard Microtel Microtel Microtel
Location Scranton, PA Knoxville, TN S. Charleston, WV Syracuse, N.Y.
Type of property hotel hotel hotel hotel
Number of units 105 102 100
Date of purchase 7/07/95 3/1/93 10/8/92 - 12/10/92 04/10/72
Debt financing 5,400,000 2,500,000 1,750,000 2,200,000
Cash downpayment 1,541,000 517,000 1,259,000 708,000
Contract purchase price plus
acquisition fee (2) 6,508,000 2,793,000 2,861,000 2,908,000
Other cash expenditures
expensed (3) 77,000 101,000 37,000 45,000
Other cash expenditures
capitalized (4) 356,000 224,000 148,000 182,000
Total acquisition cost 6,941,000 3,118,000 3,046,000 3,135,000
</TABLE>
<PAGE> 419
TABLE VI
ESSEX AND AFFILIATES
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(1) These properties are in the process of development. The date of
purchase represents the purchase date of the land. The amount of
mortgage financing is the amount required to complete the project. The
contract purchase price, cash expenditures expensed and cash
expenditures capitalized include the estimated costs to complete the
project.
(2) For projects involving construction of new facilities, the contract
purchase price includes the cost of the land, the building construction
cost, cost for furniture and fixtures, architectural and engineering
costs and the costs of any permits.
(3) For projects involving construction of new facilities, the other cash
expenditures expensed includes any operating supplies, utilities costs
and payroll costs incurred prior to the opening of the property.
(4) For projects involving construction of new facilities, the other cash
expenditures capitalized includes taxes, insurance and interest costs
during construction, opening linen inventory, any travel costs and the
initial franchise fee.
<PAGE> 420
PART II
Information Not Required in Prospectus
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Furnish exhibits as required by Item 601 of Regulation S-K.
23. Consents of experts.
(a) Consents of KPMG Peat Marwick LLP.
<PAGE> 421
Pursuant to the Securities Act of 1933, the Registrant has duly caused this
Post-Effective Amendment No. 4 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Rochester,
State of New York on May 9, 1997.
ESSEX HOSPITALITY ASSOCIATES IV L.P.
By: Essex Partners Inc.
Its: General Partner
By: /s/ John E. Mooney
---------------------------------
John E. Mooney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 4 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Principal Executive Officer of General Partner:
Dated: May 9, 1997 /s/ John E. Mooney
------------------
John E. Mooney
President and Chief Executive Officer
Principal Financial and Accounting Officer of General
Partner:
Dated: May 9, 1997 /s/ Richard C. Brienzi
----------------------
Richard C. Brienzi
Vice President and Treasurer
Executive Vice President of General Partner:
Dated: May 9, 1997 /s/ Jerald P. Eichelberger
--------------------------
Jerald P. Eichelberger
Executive Vice President
<PAGE> 422
The Board of Directors of the General Partner:
Dated: May 9, 1997 /s/ John E. Mooney
------------------
John E. Mooney, Director
Dated: May 9, 1997 /s/ Jerald P. Eichelberger
--------------------------
Jerald P. Eichelberger, Director
Dated: May 9, 1997 /s/ David J. Whitaker
---------------------
David J. Whitaker, Director
Dated: May 9, 1997 /s/ Barbara J. Purvis
---------------------
Barbara J. Purvis, Director
Dated: May 9, 1997 /s/ Thomas W. Blank
-------------------
Thomas W. Blank, Director
Dated: May 9, 1997 /s/ Richard C. Brienzi
----------------------
Richard C. Brienzi, Director
<PAGE> 423
EXHIBIT NUMBER EXHIBIT
23. CONSENTS OF EXPERTS.
(a) CONSENTS OF KPMG PEAT MARWICK LLP.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF KPMG PEAT MARWICK LLP
ACCOUNTANTS' CONSENT
The Partners
Essex Hospitality Associates IV L.P.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the registration statement (No. #33-96716).
/s/ KPMG Peat Marwick LLP
Rochester, New York
April 24, 1997
<PAGE> 2
EXHIBIT 23(a)
CONSENT OF KPMG PEAT MARWICK LLP
ACCOUNTANTS' CONSENT
The Board of Directors of
Essex Partners Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the registration statement (No. #33-96716).
/s/ KPMG Peat Marwick LLP
Rochester, New York
April 24, 1997
